TIDMPFD
RNS Number : 4535B
Premier Foods plc
04 March 2014
4 March 2014
Premier Foods plc
Full Year results for the year ended 31 December 2013
Major Capital Restructuring Announced
-- 2013 Underlying Trading profit in line with market expectations
-- Adjusted PBT, adjusted eps and Net debt all ahead of expectations
-- Transformational new capital structure - GBP353m equity
issue, GBP475m high yield bond, GBP300m Revolving Credit
Facility
-- Landmark new pensions framework agreement
Premier Foods today announces its Full Year results for 2013,
and a major capital restructuring.
Gavin Darby, Chief Executive Officer of Premier Foods, said:
"I am very pleased to report a strong 18% growth in Trading
profit and significant underlying earnings progression in 2013.
Through our category based strategy, we have delivered Grocery
Power Brands sales growth of 2.0%, some good market share
performances and progressively stronger customer partnerships. We
continue to reduce business complexity through our disciplined
approach to our cost base and have successfully reduced our Net
debt by GBP120 million during the year."
"I'm delighted we have concluded our capital structure review
and are announcing a transformational new deal which includes an
underwritten equity issue of approximately GBP353m, a landmark
pension schemes agreement, a high yield bond of GBP475m and a new
lending agreement with a smaller banking group. This new capital
structure will liberate Premier Foods from its past and provides a
great platform on which to execute our category based strategy.
"Following the announcement to simplify the Group through the
Hovis joint venture, we are now focused on growing a high quality
branded Grocery business, with its strong underlying cash flows.
While consumer spending trends are currently subdued, we are
confident in our expectations for 2014."
2013 2012 Change
-------- -------- --------
Continuing operations
Revenue (GBPm) 856.2 1,070.9 (20.1%)
Trading profit (GBPm)(2) 139.5 159.1 (12.3%)
Operating profit before profit
on disposals (GBPm) 55.0 50.6 8.7%
Adjusted earnings per share (pence) 25.9 28.2 (8.2%)
Underlying business
Sales (excl Milling) (GBPm) 1,282.5 1,297.4 (1.1%)
Grocery Power Brand sales (GBPm) 543.5 533.1 2.0%
Trading profit (GBPm)(2) 145.2 123.4 17.7%
Adjusted profit before tax (GBPm)(4) 86.8 53.9 61.0%
Adjusted earnings per share (pence) 27.7 17.0 63.7%
Measures above are defined on page 3 and reconciled to statutory
measures in the appendices, where necessary
A presentation to investors and analysts will take place today,
4 March 2014, at 9.30am at The Brewery, Chiswell Street, London,
EC1Y 4SD. The presentation will be webcast at
www.premierfoods.co.uk. A recording of the webcast will be
available on the Company's website later in the day.
A factsheet of the Full Year results and Capital Restructuring
is available at
www.premierfoods.co.uk/investor-relations/results-centre
For further information, please contact:
Institutional investors and analysts:
Alastair Murray, Chief Financial Officer +44 (0) 1727 815 850
Richard Godden, Head of Investor Relations +44 (0) 1727 815 850
Media enquiries:
Richard Johnson, Group Corporate Affairs
Director +44 (0) 1727 815 850
Maitland +44 (0) 20 7379 5151
Liz Morley
Tom Eckersley
Click on, or paste the following link into your web browser, to
view the associated PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/4535B_1-2014-3-4.pdf
- Ends -
Underlying business
The Company's results for the year ended 31 December 2013 are
presented on an 'Underlying business' basis, unless otherwise
stated. 'Underlying business' excludes the results of previously
completed business disposals, Milling (sales only), and non-core,
discrete contract losses. The tables below illustrate these items
for 2013 and 2012 results.
The purpose of using the 'Underlying business' basis for
measuring performance is to reflect the performance of the core
business of the Company. With the Company having undergone a year
of restructuring in 2012, this basis better reflects underlying
business performance.
On 27 January 2014, the Group announced a joint venture of its
Bread Business with The Gores Group. Given its status as an asset
held for sale at 31 December 2013, it is treated as a discontinued
operation in the financial statements.
'Continuing operations' includes the results of disposed
businesses for the respective periods until disposal was completed.
For example, the Vinegar and Sour Pickles business disposal
completed on 28 July 2012; therefore the results of the continuing
operations for 2012 include seven months results of the Vinegar and
Sour Pickles business.
GBPm Continuing Add: Less: Less: Sub-Total Less: Underlying
operations(9) Bread Disposals(5) Milling Contract business
Business sales(6) Withdrawals(7)
------------ --------------- ---------- -------------- ---------- ---------- ---------------- -----------
2013
Sales 856.2 654.6 (6.4) (221.9) 1,282.5 - 1,282.5
Trading
profit(2) 139.5 6.3 (0.6) N/A 145.2 - 145.2
EBITDA(3) 156.8 21.9 (0.6) N/A 178.1 - 178.1
2012
Sales 1,070.9 685.3 (211.0) (191.4) 1,353.8 (56.4) 1,297.4
Trading
profit(2) 159.1 (4.4) (31.3) N/A 123.4 0.0 123.4
EBITDA(3) 182.5 11.8 (35.7) N/A 158.6 0.0 158.6
------------ --------------- ---------- -------------- ---------- ---------- ---------------- -----------
Further disclosure on disposals can be found in the
appendices.
Notes to editors:
1. The accounting period is from 1 January 2013 to 31 December 2013.
2. Trading profit is defined as operating profit before
refinancing costs, restructuring costs, profits and losses
associated with divestment activity, amortisation and impairment of
intangible assets, the revaluation of foreign exchange and other
derivative contracts under IAS 39 and pension credits or charges in
relation to the difference between expected return on pension
assets, administration costs and interest costs on pension
liabilities.
3. EBITDA is Trading profit excluding depreciation.
4. Adjusted profit before tax is defined as Trading profit less
net regular interest. Adjusted earnings per share is defined as
Adjusted profit before tax less a notional tax charge of 23.25%
(2012: 24.5%) divided by the weighted average of the number of
shares of 239.8 million. Net regular interest is defined as total
net interest excluding write-off of financing costs, fair value
adjustments on interest rate swaps and other financial liabilities
at fair value through profit or loss and the unwind of the discount
on provisions.
5. Disposals are defined as Canned grocery, Vinegar and Sour
Pickles, Elephant Atta Ethnic Flour, Sweet Spreads and Jellies and
Sweet Pickles and Table Sauces.
6. Due to the cost plus pricing nature of the Milling business,
fluctuations in the cost of wheat have a direct impact on reported
sales, but not necessarily on Trading profit. As a result, the
Milling business is excluded from the definition of 'Underlying
business' for sales only.
7. In 2013, the Company withdrew from a high cost to serve Bread
contract and in 2012, one other non-core discrete contract. This
contract finished at the end of April 2013, and therefore 8 months
results of this contract are excluded from underlying business in
2012.
8. Trading profit estimate uses reasonable, consistent, but
unaudited allocations of Group SG&A costs.
9. Continuing operations for 2012 is restated
10. The cash interest range assumes (i) completion of the
Capital Refinancing Plan; (ii) in relation to Q1 2014, the interest
rate in respect of the Current facilities; (iii) in relation to the
remainder of 2014, the interest rate in respect of the New Bonds
and the interest rate in respect of the New Revolving Facility (as
applicable on a proportionate basis); (iv) no close-out of any
interest rate swap arrangements and (v) securitisation funding
under the new facility agreed in December 2013.
11. Recurring cash flow is stated after deducting depreciation,
other non-cash items (typically including share-based payments),
net interest paid, taxation paid, pension deficit contributions,
administration costs associated with the pension schemes and
government pension scheme levies, cash capital expenditure in the
year and working capital flows from Underlying business Trading
profit. Free cash flow is stated after deducting cash flows from
disposed businesses, cash restructuring activity, disposal proceeds
net of costs received from property, plant and equipment and sale
of businesses and financing fees and finance lease cash costs from
recurring cash flows.
A Premier Foods image gallery is available using the following
link:
www.premierfoods.co.uk/media/image-gallery/
THIS ANNOUNCEMENT IS FOR INFORMATIONAL PURPOSES ONLY AND DOES
NOT CONSTITUTE A PROSPECTUS OR ANY OFFER OF SECURITIES FOR SALE OR
A SOLICITATION OF AN OFFER TO PURCHASE ANY SECURITIES IN THE UNITED
STATES (AS DEFINED IN THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(the "SECURITIES ACT")), OR IN ANY OTHER JURISDICTION.
Any securities referred to in this announcement have not been
and will not be registered under the US Securities Act of 1933 (the
"Securities Act"), or with any securities regulatory authority of
any state or other jurisdiction of the United States, and may not
be offered, sold, resold, pledged, taken up, delivered, distributed
or transferred, directly or indirectly, into or within the United
States except pursuant to an exemption from, or in a transaction
not subject to, the registration requirements of the Securities Act
and in compliance with any applicable securities laws of any state
or other jurisdiction of the United States. No public offering of
any securities is being made in the United States.
This announcement contains "forward-looking statements" that are
based on estimates and assumptions and are subject to risks and
uncertainties. Forward-looking statements are all statements other
than statements of historical fact or statements in the present
tense, and can be identified by words such as "targets", "aims",
"aspires", "assumes" "believes", "estimates", "anticipates",
"expects", "intends", "hopes", "may", "would", "should", "could",
"will", "plans", "predicts" and "potential", as well as the
negatives of these terms and other words of similar meaning. The
forward-looking statements in this announcement are made based upon
the Company's estimates, expectations and beliefs concerning future
events affecting the Group and subject to a number of known and
unknown risks and uncertainties. Such forward-looking statements
are based on numerous assumptions regarding the Group's present and
future business strategies and the environment in which it will
operate, which may prove not to be accurate. The Company cautions
that these forward-looking statements are not guarantees and that
actual results could differ materially from those expressed or
implied in these forward-looking statements. Undue reliance should,
therefore, not be placed on such forward-looking statements. Any
forward-looking statements contained in this announcement apply
only as at the date of this announcement and are not intended to
give any assurance as to future results. The Company will update
this announcement as required by applicable law, including the
Prospectus Rules, the Listing Rules, the Disclosure and
Transparency Rules, London Stock Exchange and any other applicable
law or regulations, but otherwise expressly disclaims any
obligation or undertaking to update or revise any forward-looking
statement, whether as a result of new information, future
developments or otherwise.
The medium-term guidance set out in this announcement (the
"Guidance") is based upon the historical audited consolidated
results of the Group for the years ended 31 December 2013, 2012 and
2011. In order to prepare the Guidance, management has reviewed the
historical volumes, prices, input costs and gross margin per brand
to assess the basis of future growth.
If the joint venture for the Bread Business is not completed,
the annual reported results of the Group for its next full
financial year will include the trading of the Bread Business,
which will be treated as a discontinued operation. The Guidance
does not include any costs related to the Bread Business joint
venture.
The Guidance has been prepared based on a number of assumptions
and estimates that, while presented with numerical specificity and
considered reasonable by the Company when taken as a whole,
inherently are subject to significant business, economic,
competitive, regulatory and operational uncertainties,
contingencies and risks, all of which are difficult to predict and
many of which are beyond the control of Premier. The Guidance is
necessarily speculative in nature because unanticipated events and
circumstances are likely to occur and, as a result, it can be
expected that one or more of the assumptions underlying the
Guidance may prove not to be valid. Actual results may vary from
the financial forecasts and those variations may be material.
Assumptions within the control or influence of the Directors
The main assumptions within the control or influence of the
Directors are:
-- there will be no material acquisitions or disposals during
the financial year ending 31 December 2014 other than those already
reported, including in relation to the Bread Business joint
venture;
-- investments in existing and new product lines will drive Group revenue growth; and
-- the Group will be able to reduce costs in line with expectations.
Assumptions outside the control or influence of the
Directors
The main assumptions outside the control or influence of the
Directors include, among others:
-- there will be no material changes to the general trading and
economic conditions in each of the markets or jurisdictions in
which the relevant businesses of the Group operate from that which
is currently prevailing and/or anticipated by the Directors which
would cause a material change in levels of demand;
-- there will be no material litigation or customer dispute that
may arise in the period other than those that are currently
prevailing and/or anticipated by the Company;
-- there will be no change to legislation or regulatory
environments in which the relevant businesses of the Group operate
that would materially impact on the operations or accounting
policies of the relevant business;
-- there will be no major disruption to the relevant businesses
of the Group, their suppliers or customers due to natural
disasters, terrorism, extreme weather conditions, industrial
disruption, civil disturbance or government action;
-- there will be no material changes in interest, inflation or exchange rates;
-- there will be no material change in the present management or
control of the businesses of the Group or their existing
operational strategy, other than as already reported; and
-- each of the businesses of the Group will continue to enjoy
the goodwill and confidence of present and potential customers, and
of its strategic partners.
Chief Executive Officer Statement
Premier Foods Investment Proposition
When I joined the Company in February 2013, I had four goals in
mind. Firstly it was important to focus on our operational
performance and deliver results in line with market expectations.
I'm delighted we've been able to do that despite a challenging
consumer environment. Looking further ahead, I was keen we find a
sustainable solution for the Hovis business and additionally
address our capital structure and pension deficit in a way that
would create greater certainty and confidence in the future.
Finally, I believed it was important to map out a clear strategy to
continue to grow Premier Foods in the coming years through evolving
our brand-centric strategy to one based on driving category growth.
I'm proud that we've been able to announce a proposal to deliver on
all these goals.
I believe there are strong reasons to invest in the Company.
Premier Foods is a high-quality, branded Grocery business with
strong EBITDA margins, operating cash flows and growth prospects.
Our investment proposition, set out below, highlights the strengths
and opportunities of the new Premier Foods.
1. Focus on Growth Categories
The Group is focused on the largest and fastest growing part of
the total food market, ambient food. Ambient food grew 2.3% in
value last year compared to 1.7% growth in the total market. Within
ambient food, Premier Foods operates in two broad and growing
segments, being savoury meal making and sweet foods, which have
average growth rates over the past two years of 4.4% and 3.2%
respectively. Our leading position in the five specific categories
in which we operate of Flavourings & Seasonings, Ambient
Desserts, Ambient Cake, Easy Eating and Cooking Sauces &
Accompaniments, gives us a significant advantage and opportunity to
drive overall growth in these categories as well as our share. This
is the essence of our category growth strategy. For example,
through stepping up our investment in marketing and innovation,
we've been able to drive growth in the Ambient Desserts and
Flavourings & Seasoning categories for the two years ended 28
December 2013 by 3.1% and 4.6% respectively, and outperform this
growth with our own brands with growth rates of 7.1% and 5.8%.
2. Broad stable of leading brands driving category growth
through marketing and innovation
The Group has a broad stable of well-known brands with over 95%
of households purchasing one or more of our brands per annum.
Innovation and marketing are key to the future growth of our brands
and central to our category strategy. In addition to developing new
products, we look for new ways to improve our existing products,
encourage new uses and create innovative ways to communicate about
our brands. The launch of Ambrosia Devon Dream is a good example of
how we have stretched the Ambrosia brand into the summer months
with a lighter dessert topping. Oxo Shake & Flavour is another
innovation that helps take the Oxo brand from traditional stock
cubes to a versatile range of seasonings. Over the past two years,
we've stepped up our marketing to support this innovation and
remind consumers about how great our products taste. Ambrosia
custard was back on TV for the first time in a decade in 2013 and
Batchelors was advertised on TV for the first time in five years.
We have also been investing in other ways to advertise and promote
our brands through digital channels and creative partnerships.
3. Diverse manufacturing processes provide wide scope to innovate
We have considerable scale in our manufacturing facilities
enabling us to operate efficiently and also leverage our diverse
processes and technologies to offer different products and
packaging formats to meet evolving customer and consumer needs. For
example, we currently offer products in a variety of formats and
sizes, including cans, pots, tetra pak, snack-pack, flow wrap,
pouches, drums, packets and jars. This flexibility gives us scope
to develop new products and different formats in support of our
category growth strategy and we continue to invest in our
manufacturing infrastructure in support of these opportunities. For
example, we recently announced a major investment of approximately
GBP20m in a new line at our Carlton factory in Barnsley to more
than double the capacity of the successful Mr. Kipling snack-pack
product.
4. Strong capabilities to serve today's multi-format retail environment
The strength and breadth of our brand portfolio, together with
our manufacturing and supply chain capabilities gives us an
advantage in serving today's multi format retail environment. Most
of our sales remain with the major supermarkets and we work hard to
strengthen our partnership with these customers through developing
joint business plans. But we also have opportunities and plans to
grow in other channels, which although a smaller part of the
market, are becoming increasingly popular. These include
convenience & smaller store formats, on-line shopping, food
service and branded discounters. Our flexibility to produce
different pack and case sizes and offer tailored product formats
under the banner of our Support brands, such as Paxo gravy or
Bird's rice pudding, gives us broad scope to meet the different
requirements of these customers.
5. Continued cost reduction supports brand investment
Continuing to improve our efficiency and effectiveness is
important to be able to fund the investment needed in our
innovation and marketing activities. Over the past few years we've
been very good at reducing our overhead costs and maintaining a
tight rein over manufacturing and logistic costs. Between 2011 and
2013, the Group reduced its SG&A cost base by 44% from
GBP147.0m to GBP82.9m and has reduced its manufacturing
controllable cost base by approximately 5% per annum. In 2013 we
initiated a further focus on reducing complexity throughout the
business as a way to step-change our thinking. As a result, we
committed to cutting our supplier base in half by the end of 2014
through developing fewer, longer-term strategic partnerships. We
also looked at the profitability and strategic fit of every one of
our products resulting in the expected elimination of 700
low-margin products from the portfolio by the end of 2014. There
are many other opportunities to go after that will help support our
medium term commitment increase our marketing investment by double
digit % year on year.
6. Strong operational cash flows
Our core Grocery business is strongly cash generative with total
cash flow conversion of 73% in 2013. The Group's lean overhead cost
base, disciplined capital expenditure and relatively flat
management structure, provide a strong platform from which we can
drive category growth and to maintain strong margins in the
future.
7. Committed and experienced management team
Our senior management team has considerable knowledge and
experience of the food and drink industry, and brings extensive
marketing, manufacturing and general management experience to the
business, particularly with respect to the UK food market.
Together, we are committed to deliver results.
These strengths, together with the new capital structure,
pension deficit contribution arrangements and agreement on the
Hovis joint venture, provide a positive foundation to drive future
growth to the benefit of all stakeholders.
Gavin Darby
Chief Executive Officer
Capital Restructuring
The Board has now completed its review of the Group's capital
structure and is proposing to diversify its sources of finance to
provide a solid foundation on which it can drive future growth
through its category based strategy and leverage its strengths as
outlined in the Chief Executive's statement. This transformational
capital restructure includes a fully underwritten equity raise of
approximately GBP353m (gross of fees) through a placing and rights
issue, the issue of GBP475m senior secured loan notes and a new
GBP300m revolving credit facility with a smaller bank syndicate.
Significantly, the Group has also reached a new pensions framework
agreement with the Pension Scheme trustees following the triennial
actuarial valuation which provides the platform for this new
capital structure to be put in place.
Equity Issue
The Group announces it is raising approximately GBP353m gross
proceeds by way of a fully underwritten placing of approximately 77
million shares at 130 pence per share to raise GBP100m, and a fully
underwritten 8 for 5 rights issue of approximately 507 million
shares at 50 pence per share to raise approximately GBP253m. This
issuance will reduce the indebtedness of the Group and
substantially strengthens the balance sheet.
Pensions Agreement
The Group has agreed what it considers to be a comprehensive and
significant agreement with the Pension Scheme trustees. The pension
deficit contribution schedule will, on completion of the capital
restructuring, be revised, with the impact of reducing cash
payments when compared to the previous schedule by GBP161m over the
next six years. Committed deficit contributions are fixed until
December 2019 and set out in the table titled 'Capital Refinancing
Terms'. Under the new arrangements, the Pension Schemes will be
granted security up to GBP450m (in aggregate) and will have certain
dividend matching rights for any dividends paid by the Group up to
2019.
Revolving Credit Facility and Securitisation Facility
The Group's existing term loan and revolving credit facilities
will be repaid to the respective lenders on completion of the
recapitalisation. These facilities will be replaced by Senior
Secured Notes and a revolving credit facility of GBP300m which is
due to mature in March 2019 and attracts an initial bank margin of
3.50% above LIBOR. The Group has agreed with the lenders of the new
revolving credit facility that dividends are permitted to be
distributed to shareholders when the Group's Net debt/EBITDA ratio
falls below a ratio of 3.0x. This facility has been arranged with a
significantly smaller group of lenders than was the case previously
and includes an appropriate covenant package, the details of which
are set out in the table titled 'Capital Refinancing Terms'.
Following completion of the joint venture transaction, the
Group's ability to draw on its existing securitisation facility of
GBP120m is expected to reduce to around GBP60m and attracts a
margin of 2.75% above the cost of commercial paper.
Senior Secured Notes
To achieve its objective of diversifying its sources of finance,
the Group is also today announcing its intention to raise GBP475m
of senior secured notes. This programme will extend the maturity of
this tranche of the Group's debt by up to seven years and will
bring in a new and diversified investor base. The notes are likely
to be issued as a combination of fixed and floating rates, although
in the case of floating rate notes the Group intends to use plain
vanilla interest rate swaps to eliminate the net interest rate
exposure. The Group has also entered into a backstop arrangement on
standard market terms under which issuance of these notes is
effectively underwritten.
General Meeting
The capital restructuring plan is subject to among other
conditions, approval of shareholders in a general meeting to be
held at Doubletree by Hilton London West End, 92 Southampton Row,
London WC1B 4BH on 20 March 2014. A circular convening the general
meeting and a prospectus in relation to the equity issue are
expected to be published on the same date as this announcement.
Capital Refinancing Terms
Key terms and details
-----------------------------------------------------------------------------------------
Equity Firm placing: GBP100m
----------------------------- ------------------------------------
Rights issue: c.GBP253m
----------------------------- ------------------------------------
Gross issue proceeds: c.GBP353m
----------------------------- ------------------------------------
Net issue proceeds: c.GBP344m
-------------------- ----------------------------- ------------------------------------
Pension Contributions fixed until 2019, revised deficit
contribution schedule as follows:
-------------------------------------------------------------------
New schedule Old schedule Reduction/(Increase)
------------- -------------- ------------- ---------------------
2014 GBP35m GBP83m GBP48m
------------- -------------- ------------- ---------------------
2015 GBP9m GBP80m GBP71m
------------- -------------- ------------- ---------------------
2016 GBP42m GBP79m GBP37m
------------- -------------- ------------- ---------------------
2017 GBP50m GBP47m (GBP3m)
------------- -------------- ------------- ---------------------
2018 GBP44m GBP47m GBP3m
------------- -------------- ------------- ---------------------
2019 GBP42m GBP47m GBP5m
------------- -------------- ------------- ---------------------
Total GBP222m GBP383m GBP161m
------------- -------------- ------------- ---------------------
Recovery period extended to 2032
-------------------- -------------------------------------------------------------------
Lending facilities Revolving credit facility GBP300m
(RCF)
----------------------------- ------------------------------------
RCF maturity March 2019
----------------------------- ------------------------------------
RCF margin 3.50% + LIBOR
----------------------------- ------------------------------------
Commitment fee on undrawn 40% of applicable margin
facilities
----------------------------- ------------------------------------
Securitisation facility GBP120m at 2.75% + cost
& margin of commercial paper
-------------------- ----------------------------- ------------------------------------
Covenants Net debt / EBITDA EBITDA / Interest
----------------------------- ------------------------------------
June 2014 5.50x June 2014 2.25x
---------------------------------- -------------- ------------- ---------------------
Dec 2014 5.50x Dec 2014 2.25x
---------------------------------- -------------- ------------- ---------------------
June 2015 5.25x June 2015 2.45x
---------------------------------- -------------- ------------- ---------------------
Dec 2015 5.00x Dec 2015 2.50x
---------------------------------- -------------- ------------- ---------------------
June 2016 4.90x June 2016 2.55x
---------------------------------- -------------- ------------- ---------------------
Dec 2016 4.60x Dec 2016 2.65x
---------------------------------- -------------- ------------- ---------------------
June 2017 4.30x June 2017 2.70x
---------------------------------- -------------- ------------- ---------------------
Dec 2017 4.20x Dec 2017 2.75x
---------------------------------- -------------- ------------- ---------------------
June 2018 3.85x June 2018 2.80x
---------------------------------- -------------- ------------- ---------------------
Dec 2018 3.65x Dec 2018 3.00x
---------------------------------- -------------- ------------- ---------------------
Senior Secured Amount GBP475m
Notes
----------------------------- ------------------------------------
Tenor 6 year floating / 7 year
fixed
-------------------------------------------------- ------------------------------------
Coupon/margin To be confirmed on pricing
-------------------------------------------------- ------------------------------------
Operating review
Underlying business
Underlying business excludes all disposals announced in 2012,
strategic contract withdrawals and Milling sales. The following
commentary is based on Underlying business unless otherwise stated.
The 2013 performance of the Bread business is included in the
following review, as the proposed joint venture with The Gores
Group LLC, announced on 27 January 2014 has not yet completed.
GBPm 2013 2012 Change
Sales
Grocery 837.4 854.1 (2.0%)
Bread 445.1 443.3 0.4%
-------
Total 1,282.5 1,297.4 (1.1%)
Grocery divisional
contribution 196.7 195.5 0.6%
Bread divisional contribution 31.4 26.9 16.7%
SG&A (82.9) (99.0) 16.3%
-------- -------- -------
Total Trading profit 145.2 123.4 17.7%
-------- -------- -------
Introduction
Underlying business sales decreased by 1.1% to GBP1,282.5m in
the year, a decrease of GBP14.9m compared to the prior year.
Underlying business Trading profit increased by GBP21.8m, or 17.7%
to GBP145.2m in the year.
Grocery division
GBPm 2013 2012 Change
Power Brands 543.5 533.1 2.0%
Support brands 196.2 206.3 (4.9%)
------ --------- ---------
Total Branded 739.7 739.4 0.1%
Non-branded 97.7 114.7 (14.9%)
------ --------- ---------
Sales 837.4 854.1 (2.0%)
------ --------- ---------
Divisional Contribution 196.7 195.5 0.6%
Total sales in Grocery were GBP837.4m, down 2.0%, while
Divisional Contribution increased GBP1.2m to GBP196.7m. This
relatively low growth at Divisional Contribution was impacted by
the hot summer of 2013 and was offset by significant reductions in
SG&A at the Group level. The Group estimates that for the
ongoing underlying Grocery business, Trading profit(8) increased
from GBP131m to GBP139m between 2012 and 2013. Grocery Power Brands
sales increased by 2.0% in the year to GBP543.5m, while Branded
sales were up marginally to GBP739.7m, reflecting slower Support
brands sales in the second and third quarters. The Grocery
proportion of branded sales increased by 1.8ppts to 88.3% in the
year, as the Group maintained a disciplined approached to
Non-branded business, which declined by 14.9%.
In the five main categories the business participates in,
particularly strong performances were seen in Ambient Desserts and
Flavourings & Seasonings, with the Group outperforming the
market in both categories. In Ambient Desserts, Ambrosia benefitted
from a successful television advertising campaign 'This is Pudding'
and also the launch of 'Devon Dream'. Bisto and Oxo also delivered
good performances in the year, with Oxo sales supported by the
Shake & Flavour product while Bisto benefitted from sales of
Stock Melts and continues to consolidate its strong category
position.
The Group's market share of the Cake category was over 25% for
the 52 weeks ended 28 December 2013, and while overall Mr. Kipling
sales were down in the year, the snack pack slices format continues
to perform well, with manufacturing utilisation very high. In
recognition of this, the Group is investing approximately GBP20m in
a new snack pack line to significantly increase current capacity.
This new line is expected to deliver additional and different
packaging sizes and provide the platform to extend into the wider
'Sweet Treats' category.
In the support brand portfolio, sales declined by 4.9% during
the year reflecting a strongly competitive promotional environment
in the cooking sauces category which affected sales of Homepride,
while McDougall's was also impacted by intense competition. In the
fourth quarter of 2013, Grocery support brands grew by 1.1%
supported by revenue growth of Angel Delight, Bird's and
McDougall's and reflecting early benefits of the Group's category
based strategy. Non-branded sales were impacted in the year by
contract withdrawals in desserts and powdered beverages.
While consumer marketing investment was slightly lower than the
prior year, the Group had some successful advertising campaigns
with improved buying efficiency. Over the medium term, the Group is
committed to increasing both the quantum and efficiency of its
consumer marketing expenditure, to support growth of its branded
portfolio.
During the year manufacturing controllable costs were lower and
savings were delivered through reducing business complexity. Over
the medium term, savings in manufacturing controllable costs are
expected to continue, with these savings partly re-invested in
growing the Group's brands.
Bread division
GBPm 2013 2012 Change
Branded bread sales 346.6 340.1 1.9%
Non branded bread
sales 98.5 103.2 (4.6%)
------ ------
Total bread sales 445.1 443.3 0.4%
Milling sales 221.9 191.4 15.9%
------ ------
Total sales 667.0 634.7 5.1%
------ ------
Divisional contribution 31.4 26.9 16.7%
Sales for the Bread division excluding Milling increased 0.4% to
GBP445.1m in the year while total sales for the division increased
by 5.1% to GBP667.0m. Divisional contribution rose by 16.7%, or
GBP4.5m, to GBP31.4m in the year.
Power Brands sales for 2013 increased by 2.1% to GBP326.7m,
reflecting a good finish to the year through progressively stronger
customer partnerships following a slower third quarter due to the
hot weather. Hovis continues to deliver strong market share
performances in most major retailers, reflecting strengthening
customer partnerships, product quality and brand heritage.
The Divisional contribution increase of 16.7% was due to
improved manufacturing efficiencies in the supply chain while the
business also benefitted from an improved second half performance,
particularly reflecting stronger customer partnerships.
This year, the Bread business has focused on a major
restructuring programme, involving the closure of three bakeries,
two mills and a significantly reconfigured logistics network. The
Greenford bakery closed
in the third quarter and production at the Barry Mill finished
in October. Restructuring costs associated with this programme were
GBP29.1m in the year. Cash proceeds from the disposal of these
closed sites were received earlier than expected and realised
GBP14.8m in the fourth quarter of the year.
Milling sales of GBP221.9m were up 15.9% compared to the prior
year, reflecting higher pricing for the first three quarters of the
year.
On 27 January 2014, the Group announced a proposed stand-alone
joint venture for the Bread business with The Gores Group. This
arrangement, once the transaction has completed, will facilitate a
significant increase in investment in the Bread business both to
improve the efficiency of its infrastructure and to reinvigorate
the Hovis brand, building on its strong heritage. Premier Foods and
The Gores Group will invest up to GBP45.0m cash to unlock a GBP200m
five year investment programme for Hovis.
The Group will retain a 49% interest in the joint venture and
expects to receive GBP30.0m consideration, GBP15.0m of which is due
on completion of the transaction and GBP15.0m is deferred and
contingent on future business performance. A working capital
benefit of GBP28.7m will be retained by the Group following the
completion of the transaction and of the GBP45.0m combined cash
investment Premier Foods will contribute an initial GBP15.7m.
Consequently, the net short-term cash benefit to the Group is
GBP28.0m.
Cost Savings Programme and SG&A costs
GBPm 2013 2012 Change
Total SG&A 82.9 99.0 16.3%
The major restructuring of the SG&A cost base has delivered
savings of over GBP64m since 2011 and this new level now better
reflects the size of the Group following the disposal of non-core
businesses. Within the GBP16.1m savings delivered in 2013,
people-related costs reduced by over GBP20m, partly offset by other
non-people related charges in the SG&A cost base. These
SG&A savings has been a significant contributor to the Trading
profit performance in 2013, with SG&A at the end of 2013
reducing to 5.5% of underlying sales including Milling.
Cash restructuring costs associated with the reduction in the
SG&A cost base in 2013 were GBP10.9m. Over the medium term, and
subject to changes arising from the Bread business joint venture
transaction, the SG&A cost base is expected to remain broadly
in line with current levels, although management incentives schemes
to drive improved performance are to be re-set at more realistic
levels.
Net regular interest
GBPm 2013 2012 Change
Bank debt & securitisation
interest 28.5 39.1 27.1%
Swap contract interest 7.2 17.3 58.4%
35.7 56.4 36.7%
Amortisation and deferred
fees 22.7 13.1 (73.3%)
----- -----
Net regular interest 58.4 69.5 16.0%
----- -----
Net regular interest charge was GBP58.4m in the year, an
GBP11.1m reduction from the previous year and ahead of management
guidance of GBP60-GBP65m. This lower charge versus prior year
reflects both lower average Net debt in 2013 following the pay down
of debt due to business disposals and the introduction of lower
coupon interest rate swaps in the second quarter of 2012.
Amortisation and deferred fees of GBP22.7m were non-cash items
in 2013 and in line with management expectations.
Cash flow
GBPm 2013 2012
Underlying business Trading profit 145.2 123.4
Depreciation 32.9 37.5
Other non-cash items 5.0 8.8
Interest (35.9) (52.5)
Taxation - 0.3
Pension contributions (11.4) (17.7)
Capital expenditure (33.9) (56.4)
Working capital (15.1) 6.6
------- -------
Recurring cash inflow 86.8 50.0
------- -------
Group recurring cash inflow before non-recurring items such as
restructuring activity, financing fees and the impact of disposals
was GBP86.8m in the year.
Underlying business Trading profit increased by GBP21.8m to
GBP145.2m in 2013 for the reasons described above, while
depreciation was GBP4.6m lower reflecting a lower fixed cost base
following business disposals in 2012. Other non-cash items of
GBP5.0m in 2013 principally include the add-back of share based
payments.
Cash interest was significantly lower in the year owing to the
close out of the higher rate interest rate swaps due to the
re-financing agreement of March 2012 and lower average Net debt
following non-core business disposals. Cash interest for 2014 is
expected to be in the range of GBP45-GBP50m(10) , but is dependent
upon the pricing of the senior secured notes. The Group did not pay
any corporation tax in the year as a result of utilising a
proportion of the brought forward losses available to it and does
not expect to pay corporation tax in the medium-term.
Pension cash outflows in the year of GBP11.4m largely reflect
payments associated with the administration of the schemes and
standard government levies. Monthly pension deficit contributions
resumed in January 2014 with payments being made under the schedule
previously agreed until the new revised schedule is effective, as
outlined above.
Capital expenditure reduced to GBP33.9m in the year, a little
lower than management guidance of approximately 2.5% of sales.
Capital expenditure for 2014 is expected to be in the range of
GBP35-40m, approximately half of which is major investment in a new
cake slices snack-pack line at the Group's cake factory in Carlton,
Barnsley. Over the medium-term, ongoing capital expenditure is
expected to be broadly in line with depreciation. The Group expects
working capital to be a cash outflow of approximately GBP30m in
2014.
GBPm 2013 2012
Recurring cash inflow 86.8 50.0
Cash flows from disposed businesses 0.0 5.8
Restructuring activity (40.0) (21.6)
------- ----------
Operating cash flow from total Company 46.8 34.2
Disposal proceeds 105.6 312.2
Financing fees & finance leases (27.5) (24.0)
------- ----------
Free cash flow 124.9 322.4
------- ----------
Free cash flow, before repayment of borrowings, was GBP124.9m in
the year, compared to GBP322.4m in 2012. Restructuring activity was
an outflow of GBP40.0m, comprising GBP29.1m of costs relating to
the major Bread restructuring programme and GBP10.9m from access
costs associated with the SG&A savings delivered in the
year.
Disposal proceeds of GBP105.6m in the year include GBP90.8m of
net proceeds (GBP92.5m of gross proceeds) from the sale of the
Sweet Pickles and Table Sauces business and GBP14.8m from the sale
of five closed Bread sites associated with the Bread restructuring.
Financing fees in 2013 were GBP27.5m, slightly lower than
management guidance and refer to deferred fees associated with the
bank facility agreement prior to March 2012.
Net debt
GBPm
Reported Net debt at 31 December
2012 950.7
Movement in cash 2013 (124.9)
Other non-cash items 5.0
--------
Reported Net debt at 31 December
2013 830.8
Equity issue (353.0)
Underwriting, bank, bond and
advisory fees 41.3
Deferred bank fees 22.0
Bread disposal proceeds (28.0)
--------
Adjusted Net debt at 31 December
2013 513.1
--------
Group Net debt at 31 December 2013 was GBP830.8m. The Group
today announces a proposed gross equity issue of GBP353.0m. After
total fees of GBP63.3m including; equity fees of approximately
GBP9m, deferred bank fees arising from the 2012 re-financing of
approximately GBP22m and other bank, bond and advisory fees of
approximately GBP32m and Bread disposal proceeds of GBP28.0m,
adjusted Net debt at 31 December 2013 was GBP513.1m.
Pensions
At 31 December 2013 the Company's pension schemes under the IAS
19 accounting valuation showed a gross deficit of GBP603.3m,
compared to GBP466.8m at 31 December 2012. The valuation at 31
December 2013 comprised a GBP217.8m deficit in respect of the RHM
schemes and a deficit of GBP385.5m in relation to the Premier Foods
schemes.
The deficit increase reflects an increase in the scheme
liabilities of GBP145.6m to GBP3,821.7m, slightly offset by an
increase in the valuation of assets of GBP9.1m to GBP3,218.4m. The
adverse movement in liabilities is partly due a reduction in the
discount rate from 4.45% at 31 December 2012 to 4.40% at 31
December 2013 but also reflects an increase in the inflation rate
assumption from 2.95% to 3.35%. The slight increase in the
valuation of the scheme assets is due to underlying asset
performance offset by benefits paid in the year.
Cash paid relating to pension schemes in the year was GBP22.9m.
The schemes were closed to future accrual on 30 September 2013. The
triennial actuarial valuation of the Group's pension schemes has
now concluded and as at 5 April 2013, the deficit on this basis was
GBP1,062m. It is important to note that at the valuation date,
discount rates were at a particular low point and have since
increased which, other assumptions remaining constant, would have
the effect of materially reducing this headline valuation.
Pensions (GBPm) 31 Dec 2013 31 Dec 2012
Assets
Equities 299.7 411.3
Government bonds 515.7 588.4
Corporate bonds 384.1 608.8
Property 181.7 105.3
Absolute return products 1,268.2 712.1
Cash 192.3 503.0
Infrastructure funds 193.5 153.2
Swaps (116.6) (194.6)
Private equity 190.2 185.9
Other 109.6 135.9
------------ ------------
Total Assets 3,218.4 3,209.3
Liabilities
Discount rate 4.40% 4.45%
Inflation rate (RPI/CPI) 3.35%/2.35% 2.95%/2.15%
Total Liabilities (3,821.7) (3,676.1)
Gross deficit (IAS 19) (603.3) (466.8)
Deferred tax (23.25%/24.5%) 140.3 114.4
------------ ------------
Net deficit (IAS 19) (463.0) (352.4)
------------ ------------
Following the 2012 refinancing agreement, the Group and the
Pension Schemes trustees agreed that pension deficit contribution
payments would be suspended from March 2012 to December 2013. These
deficit contribution payments resumed in January 2014. A new
pension deficit contribution schedule has been agreed with the
Pension Schemes trustees which provides improved affordability for
the Group and certainty of cash flows for the next six years.
The Group acknowledges the significance of the pension valuation
in determining a fair reflection of the Group's Enterprise value.
While there are a number of different methodologies to value a
pension scheme deficit, the Group notes that one approach is to
discount the post tax future cash flows of the revised pension
deficit contribution schedule. On this basis, the valuation of the
pension schemes deficit is GBP405m. This is based on the assumption
that the Group has a tax shield available to it in the early years
of an agreed 19 year recovery period. Details of the revised
pension deficit contribution schedule are outlined in the section
titled 'Capital Restructuring'.
Outlook
The simplification of the Group through the Hovis joint-venture
and the capital structure represent significant steps forward for
Premier Foods. Completion of these projects will allow Management
to focus its full attention on the Grocery business, which the
Board believes is well positioned to deal with the challenges of
2014.
The Group expects Grocery Power Brand sales to be slightly
negative in the first Quarter reflecting the colder weather in the
comparative period, the move of Easter from Q1 to Q2 and subdued
consumer spending in the grocery market. Grocery Power Brand sales
are expected to improve in Q2 and into the second half reflecting
planned new product introductions, increased half-on-half consumer
marketing, and assuming a return to more typical average summer
temperatures. For the full year, the Board is targeting Grocery
Power Brand growth in the range of 2-3%. Support brands are
expected to grow modestly in 2014 as a result of targeted marketing
activity while non-branded sales will decline reflecting the
Group's focus on higher margin branded sales. The Group continues
to manage costs tightly and remains confident in its expectations
for the Full Year.
Over the medium term, the Group is targeting Grocery Power Brand
revenue growth of between 2% and 3% per annum and total branded
revenue growth of 1-2%. The Group continues to work on reducing
complexity in the business through SKU reductions and rationalising
its supplier base and this, together with mix benefits, means it is
targeting gross margins to grow faster than revenues. It will
continue to target manufacturing controllable cost reductions in
manufacturing of between 2% and 3% per annum and to hold SG&A
at broadly current levels. It expects to increase consumer
marketing spend by double-digit % increments over the medium
term.
Financial review
The Company presents its financial results for the year ended 31
December 2013 with comparative information for the year ended 31
December 2012. The Bread business is treated as a discontinued
operation in the 2013 financial statements, reflecting its status
as an asset held for sale at the balance sheet date and is
therefore excluded from continuing operations. Comparatives have
been restated to reflect the reclassification of the Bread business
as a discontinued operation.
Company structure
In 2012, the Company completed the disposals of the following
businesses: Irish brands, Vinegar and Sour Pickles, Elephant Atta
Ethnic Flour and Sweet Spreads and Jellies. On 2 February 2013, the
Company completed the disposal of its Sweet Pickles and Table
Sauces business.
All commentary on the performance of the Company included below
refers to continuing operations unless otherwise stated and
therefore reflects the respective periods that the Company
maintained ownership of the businesses disposed in 2012 and 2013.
For example, the Vinegar and Sour Pickles business disposal
completed on 28 July 2013; therefore the results of the continuing
operations include seven months results of the Vinegar and Sour
Pickles business in 2012.
Income statement
Revenue from continuing operations was GBP856.2m, a decrease of
GBP214.7m compared to the prior year. The major driver of the
decline is attributed to the disposals of Vinegar and Sour Pickles
and Sweet Spreads and Jellies businesses, partly offset by growth
of the Group's Power Brands. Gross profit was GBP300.1m, a
reduction of GBP49.2m, which principally reflects the effect of the
business disposals made in 2012, partly offset by Power Brands
growth and manufacturing efficiencies. Gross margin % grew from
32.6% in 2012 to 35.1% in 2013 due to increased sales of higher
margin Power Brands sales while sales of lower margin Non-branded
products declined in the year.
Operating profit
Operating profit for continuing operations was GBP52.6m, a
reduction of GBP31.1m compared to 2012. This was mainly due to the
profit on disposal of the Sweet Spreads and Jellies business
completed in 2012. Before impairment and profit on disposal of
operations, Operating profit was GBP55.0m, an increase of GBP4.4m
on the prior year.
Trading profit was GBP139.5m in the year, a decline of GBP19.6m,
principally reflecting the impact of the businesses disposed during
2012, partly offset by significant savings in the SG&A overhead
cost base in the underlying business. The Group considers
underlying profit, as set out in the Operating review, to be a more
useful measure of assessing business performance. Trading profit %
of revenue increased from 14.9% in 2012 to 16.3% in 2013 largely as
a result of SG&A cost savings in the year.
Restructuring costs and losses associated with disposal activity
were GBP7.3m in the year, significantly down on the GBP31.3m
reported in the prior year, and reflecting the completion of the
disposal activity programme. The charges in the year principally
relate to redundancy costs associated with the Group's cost savings
programme.
Amortisation of intangible assets was GBP43.8m in the year, a
reduction of GBP6.6m from the prior year. This reflects the impact
of disposals made during 2012. The financial statements reflect the
updated IAS19 accounting standard on pensions accounting, which
includes a restatement for 2012. In Operating profit for 2013 the
Group reports a charge for net interest on pensions and
administrative expenses of GBP31.3m and GBP27.7m for the prior
year. The net interest charge in 2013 was GBP19.6m, is non-cash in
nature and are not reported in Trading profit.
In discontinued operations an impairment of GBP234.4m is
recognised in the year to 31 December 2013 and reflects the write
down of the Bread business to its fair value following the
announcement of the Bread business joint venture on 27 January
2014.
Finance expense
Net finance cost in the year to 31 December 2013 was GBP48.2m,
compared to GBP91.7m in the prior year. Net regular interest
reduced from GBP69.5m to GBP58.4m, partly due to the conversion of
higher rate interest rate swaps into additional term loan at a
significantly lower interest rate in addition to lower levels of
Net debt following the disposal of businesses during the prior
year. In the year, there was a positive movement in the fair
valuation of interest rate derivatives of GBP11.6m compared to an
adverse movement of GBP9.7m in the prior year. Additionally, there
was a charge of GBP10.8m recognised in 2012 relating to the
write-off of debt issuance costs associated with the previous
financing agreement.
Profit before taxation
The Company made a profit before tax of GBP4.4m, compared to a
prior year loss of GBP8.0m. Operating profit in the year was
GBP52.6m due to the reasons outline above and net finance expense
was GBP48.2m. The prior year loss of GBP8.0m was principally due to
higher interest charges, partly offset by profit on disposal of
operations.
Taxation
The taxation charge for the year was GBP51.1m (31 December 2012:
GBP18.0m credit). The applicable rate of corporation tax for the
year was 23.25% (31 December 2012: 24.5%). At 31 December 2013, the
Bread Business was treated as an asset held for sale, while the IAS
19 valuation of the pension deficit was higher than the prior year.
Both these items would otherwise have increased the deferred tax
assets of the Group by GBP52.2m. The Group has recognised a closing
deferred tax asset value of GBP72.7m at 31 December 2013 and as a
result, a non-cash charge of GBP51.1m was recognised in the
continuing operations for the year. It is expected that the
recognised deferred tax assets will be utilised against the future
profits of the Group.
The corporation tax rate for 2014 is expected to be 21.5%. The
deferred tax rate is expected to be 20.0% for the tax year ended 5
April 2014.
Earnings per share
Basic loss per share of 19.5 pence for the year on continuing
operations is calculated by dividing the loss attributed to
ordinary shareholders of GBP46.7m (31 December 2012: GBP10.0m
profit) by the weighted number of shares in issue during the year.
This compares to earnings per share of 4.2p for the prior year.
Adjusted earnings per share for continuing operations was 25.9
pence (31 December 2012: 28.2 pence). Adjusted earnings per share
on continuing operations has been calculated by dividing the
adjusted earnings (defined as Trading profit less net regular
interest payable and notional taxation) attributed to ordinary
shareholders of GBP62.2m (31 December 2012: GBP67.6m) by the
weighted number of ordinary shares in issue during each period.
These earnings have been calculated by reflecting tax at a notional
rate of 23.25% (31 December 2012: 24.5%).
At the Annual General Meeting held on 3 May 2012, a resolution
was passed for a 10:1 share consolidation of the issued share
capital of the Company. Accordingly, the weighted number of shares
in issue for the period reduced from 2,398.0 million to 239.8
million; the latter being used for earnings per share
calculations.
Cash flow and borrowings
Company net borrowings as at 31 December 2013 were GBP830.8m, a
decrease of GBP119.9m since 31 December 2012. The cash inflow from
operating activities to 31 December 2013 was GBP123.4m (31 December
2012: GBP56.4m). This included cash inflow from continuing
operations of GBP108.7m (31 December 2012: GBP44.6m) and cash
inflow from discontinued operations of GBP14.7m (31 December 2012:
GBP11.8m). Additionally, net cash interest paid was GBP35.9m (31
December 2012: GBP52.5m) due to lower bank margins following the
re-financing agreement concluded in March 2012 and lower average
Net debt levels in the year. There was no taxation paid in the year
(31 December 2012: GBP0.3m received).
Sale of subsidiaries and property, plant and equipment in the
year amounted to GBP105.6m (31 December 2012: GBP312.4m) following
the completion of the Sweet Pickles and Table Sauces disposal and
sale of Bread business sites disposed in the year. Net capital
expenditure on tangible and intangible assets in the year was
GBP40.4m (31 December 2011: GBP66.6m), of which GBP33.9m relates to
Underlying business.
Financing fees and other costs of finance were GBP27.5m (31
December 2012: GBP24.0m) reflect deferred financing fees associated
with the previous banking facilities.
Retirement benefit schemes
At 31 December 2013 the Company's pension schemes under the IAS
19 accounting valuation showed a gross deficit of GBP603.3m,
compared to GBP466.8m at 31 December 2012. The valuation at 31
December 2013 comprised a GBP217.8m deficit in respect of the RHM
schemes and a deficit of GBP385.5m in relation to the Premier Foods
schemes. Further detail on the pension schemes is provided in the
Operating review.
Financial year end date
The Group intends to change its financial year end from 31
December to 31 March and therefore expects to prepare its next
annual financial statements for the 15 months ended 31 March 2015.
It plans to report on the Group's trading performance by way of an
Interim Management Statement for the 12 months ended 31 December
2014 in early 2015.
Alastair Murray
Chief Financial Officer
APPENDICES
'Continuing operations' includes the results of disposed
businesses for the respective periods until disposal was
completed.
'Underlying business' excludes the results of previously
announced business disposals, Milling (sales only) and non-core,
discrete, contract losses.
Continuing operations earnings per share is calculated as set
out below:
2013 2012
GBPm GBPm
Continuing Trading profit 139.5 159.1
Amortisation of intangible assets (43.8) (50.4)
Foreign exchange valuation items (1.9) 2.0
Net interest on pension and administrative
expenses (31.3) (27.7)
Restructuring costs relating to divestment
activity (7.3) (31.3)
Re-financing costs (0.2) (1.1)
Profit/(Loss) on disposal (2.4) 33.1
Impairment of intangible and tangible - -
assets
-------- -------
Operating profit 52.6 83.7
Net finance expense (48.2) (91.7)
Profit/(Loss) before tax 4.4 (8.0)
Taxation (charge)/credit (51.1) 18.0
-------- -------
Profit/(loss) after tax (46.7) 10.0
Divided by:
Average shares in issue (millions) 239.8 239.8
Basic earnings/(loss) per share (19.5p) 4.2p
Adjusted earnings per share is calculated as set out below:
2013 2012
GBPm GBPm
Continuing Trading profit 145.2 123.4
Less net regular interest (58.4) (69.5)
Adjusted profit before tax 86.8 53.9
Less notional tax at 23.25%/24.5% (20.2) (13.2)
------- --------
Adjusted profit after tax 66.6 40.7
Divided by:
Average shares in issue (millions) 239.8 239.8
Adjusted earnings per share 27.7p 17.0p
Retained Grocery business summary P&L
GBPm 2011 2012 2013 H1 2013
-------------------- ------ ------ -------- ------
Power Brands sales 512.6 533.1 253.2 543.5
Support brands
sales 214.6 206.3 91.8 196.2
Total branded
sales 727.2 739.4 345.0 739.7
Non-branded sales 100.3 126.6 42.9 110.1
Total sales 827.5 866.0 387.9 849.8
Trading profit 118.7 131.1 47.1 138.9
EBITDA 137.3 150.1 55.8 156.2
-------------------- ------ ------ -------- ------
1. Basis of preparation
The financial information in this announcement does not
constitute the Group's statutory accounts for the years ended 31
December 2013 or 2012. The preliminary results for the year ended
31 December 2013 and 2012 have been extracted from audited
consolidated financial statements.
The consolidated financial statements of Premier Foods plc have
been prepared in accordance with International Financial Reporting
Standards ("IFRS") as endorsed by the European Union, International
Financial Reporting Interpretation Committee ("IFRIC")
interpretations, and the Companies Act 2006 applicable to Companies
reporting under IFRS and on the historical cost basis.
Basis for preparation of financial statements on a going concern
basis
On 4 March 2014, the Group announced its proposal to diversify
its sources of finance as part of a capital restructuring. This
transformational capital restructuring includes a fully
underwritten equity offering of approximately GBP350m (gross of
fees) through a placing and rights issue, the issue of GBP475m
senior secured loan notes and a new GBP300m revolving credit
facility with a smaller bank syndicate. Significantly, the Group
has also reached a pensions framework agreement with the Pension
Scheme trustees following the triennial actuarial valuation, which
provides the platform for this new capital structure to be put in
place. In order for the capital restructuring to proceed, and for
the funds to be available, Shareholders will be required to vote at
the General Meeting in order to (amongst other things) authorise
the Board to allot shares in the Company under the Placing and
Rights Issue.
Although the Board has concluded it is likely that the relevant
Shareholder resolutions will be passed, nevertheless there is some
theoretical uncertainty as to whether sufficient shareholders will
vote in favour of such resolutions to enable the capital
restructuring to proceed. Under accounting standards, this
constitutes a material uncertainty which may cast significant doubt
about the Group's ability to continue as a going concern. The
directors believe that adopting the going concern basis in
preparing the financial statements is appropriate and the financial
statements do not include the adjustments that would result if the
Group were unable to continue as a going concern.
The auditor's report on the financial statements contains an
unmodified audit opinion. However, it includes an emphasis of
matter in respect of going concern.
2. Critical accounting policies, estimates and judgements
The following are areas of particular significance to the
Group's financial statements and include the use of estimates and
the application of judgement.
Employee benefits
The present value of the Group's defined benefit pension
obligations depends on a number of actuarial assumptions. The
primary assumptions used include the discount rate applicable to
scheme liabilities, the long-term rate of inflation and estimates
of the mortality applicable to scheme members.
At each reporting date, and on a continuous basis, the Group
reviews the macro-economic, Company and scheme specific factors
influencing each of these assumptions, using professional advice,
in order to record the Group's ongoing commitment and obligation to
defined benefit schemes in accordance with IAS 19 (Revised). Key
assumptions used are mortality rates, discount rates and inflation
set with reference to bond yields. Each of the underlying
assumptions is set out in more detail in note 11.
Goodwill and other intangible assets
Impairment reviews in respect of goodwill are performed annually
unless an event indicates that an impairment review is necessary.
Impairment reviews in respect of intangible assets are performed
when an event indicates that an impairment review is necessary.
Examples of such triggering events include a significant planned
restructuring, a major change in market conditions or technology,
expectations of future operating losses, or a significant reduction
in cash flows. The recoverable amounts of CGU's are determined
based on the higher of net realisable value and value in use
calculations. These calculations require the use of estimates.
The Group has considered the impact of the assumptions used on
the calculations and has conducted sensitivity analysis on the
impairment tests of the CGU's carrying values.
Acquired trademarks, brands and customer relationships are
considered to have finite lives that range from 7 to 40 years. The
determination of the useful lives takes into account certain
quantitative factors such as sales expectations and growth
prospects, and also many qualitative factors such as history and
heritage, and market positioning, hence the determination of useful
lives are subject to estimates and judgement.
Advertising and promotion costs
Trade spend and promotional activity is dependent on market
conditions and negotiations with customers. Trade spend is charged
to the statement of profit or loss according to the substance of
the agreements with customers and the terms of any contractual
relationship. Promotional support is generally charged to the
statement of profit or loss at the time of the relevant promotion.
These costs are accrued on best estimates. The actual costs may not
be known until subsequent years when negotiations with customers
are concluded. Such adjustments are recognised in the year when the
liability becomes probable.
Expenditure on advertising is charged to the statement of profit
or loss when incurred, except in the case of airtime costs when a
particular campaign is used more than once. In this case they are
charged in line with the airtime profile.
3. Segmental analysis
IFRS 8 requires operating segments to be determined based on the
Group's internal reporting to the CODM. The CODM has been
determined to be the Chief Executive Officer and Chief Financial
Officer as they are primarily responsible for the allocation of
resources to segments and the assessment of performance of the
segments.
The CODM uses divisional contribution as the key measure of the
segments' results; it is defined as gross profit after marketing
and distribution costs and is a consistent measure within the Group
and reflects the segments' underlying trading performance for the
period under evaluation. The reporting of this measure at the
monthly business review meetings, which are organised according to
product types, has been used to identify and determine the Group's
operating segments.
The Group uses trading profit to review overall group
profitability. Trading profit is defined as operating profit before
re-financing costs, restructuring costs, profits and losses
associated with divestment activity, amortisation and impairment of
intangible assets, the revaluation of foreign exchange and other
derivative contracts under IAS 39 and pension administration costs
and net interest on the net defined benefit liability.
The Group's operating segments are 'Grocery' and 'Discontinued
operations'. The Grocery segment, which has been redefined to
include all continuing operations, sells both sweet and savoury
ambient food products. The Discontinued operations segment
primarily sells bread, morning goods and flour products. During the
year the Group realigned how it reported divisional results to the
CODM in line with updated internal reporting lines; 2012
comparatives have been restated to reflect this change. In 2013 the
Group's operating segments have been monitored below divisional
contribution for strategic purposes, however, going forward it is
expected that operating segments will be monitored to divisional
contribution.
During 2012 the Group completed the disposal of the four Irish
Brands (Chivers, Gateaux, McDonnells and the Erin licence), the
Elephant Atta Ethnic Flour business, the Vinegar and Sour Pickles
business and the Sweet Spreads and Jellies business and during
2013, the Group completed the disposal of the Sweet Pickles and
Table Sauces business; the results of these businesses have not
been reported separately as they were fully integrated within the
Grocery and Bread segments in 2012.
On 27 January 2014 the Group announced the conditional sale of
its majority share in the Bread business. The assets and associated
liabilities to be sold with the transaction are held for sale in
the financial statements. As a result of the transaction, the Bread
business has been classified as a discontinued operation as it was
a separate major component of the Group; 2012 comparatives have
been restated to reflect this change.
The segment results for the year ended 31 December 2013 and for
the year ended 31 December 2012 and the reconciliation of the
segment measures to the respective statutory items included in the
consolidated financial statements are as follows:
Revenues, on a continuing basis, of GBP173.7m and GBP143.7m
(2012: GBP226.9m and GBP174.6m) are derived from two external
customers.
Inter-segment transfers or transactions are entered into under
the same terms and conditions that would be available to unrelated
third parties.
The Group primarily supplies the UK market, although it also
supplies certain products to other European countries and a number
of other countries. The following table provides an analysis of the
Group's revenue, which is allocated on the basis of geographical
market destination and an analysis of the Group's non-current
assets by geographical location.
4. Finance income and costs
The net movement on fair valuation of interest rate financial
instruments relates to a GBP11.6m favourable movement on interest
rate swaps held (2012: GBP19.2m adverse). In 2012 there was an
additional GBP9.5m favourable movement in swaps held before
re-financing in March 2012.
5. Taxation
Current tax
Analysis of the credit for the year is:
Income tax charge for the year
As a result of the 2012 Finance Act provision to reduce the UK
corporation tax rate from 24% to 23% from 1 April 2013 the
applicable rate of corporation tax for the year is 23.25%. As a
result of the 2013 Finance Act provision to reduce the UK
corporation tax rate to 20% from 1 April 2015 deferred tax balances
have been restated at 20%, the rate at which they are expected to
reverse.
Tax relating to items recorded in OCI for continuing operations
was:
The tax charge for the year differs from the standard rate of
corporation tax in the United Kingdom of 23.25% (2012: 24.5%).The
reasons for this are explained below:
6. Earnings/(loss) per share
Basic loss per share has been calculated by dividing the loss
attributable to owners of the parent of GBP245.9m (2012: GBP17.9m
loss) by the weighted average number of ordinary shares of the
Company.
Dilutive effect of share options
The dilutive effect of share options is calculated by adjusting
the weighted average number of ordinary shares outstanding to
assume conversion of all dilutive potential ordinary shares. The
only dilutive potential ordinary shares of the Company are share
options. A calculation is performed to determine the number of
shares that could have been acquired at fair value (determined as
the average annual market share price of the Company's shares)
based on the monetary value of the subscription rights attached to
the outstanding share options.
No adjustment is made to the profit or loss in calculating basic
and diluted earnings per share.
Given that the Group made a loss in the year there is no
dilutive effect of share options.
Adjusted earnings per share ("Adjusted EPS")
Adjusted earnings per share is defined as trading profit less
net regular interest payable, less a notional tax charge at 23.25%
(2012: 24.5%) divided by the weighted average number of ordinary
shares of the Company.
Net regular interest payable is defined as net interest after
excluding non-cash items, including write-off of financing costs,
fair value adjustments on interest rate financial instruments and
other interest.
Trading profit and Adjusted EPS have been reported as the
directors believe these provide an alternative measure by which the
shareholders can better assess the Group's underlying trading
performance.
7. Discontinued operations
Income and expenditure incurred on discontinued operations
during the year predominantly comprises the Bread business, in
light of the announcement of the conditional sale of the Group's
majority share in this business on 27 January 2014, in addition to
other operations that were disposed of in prior years.
During the year, discontinued operations contributed to a net
inflow of GBP14.7m (2012: GBP11.8m inflow) to the Group's operating
cash flows, a net inflow of GBP3.8m (2012: GBP14.6m inflow) to
investing activities and GBPnil (2012: GBP34.0m outflow) to
financing activities.
8. Disposal of businesses
On 2 February 2013, the Group completed its sale of the Sweet
Pickles and Table Sauces business to Mizkan for GBP92.5m before
disposal costs. This is not a discontinued operation as it was
previously integrated and reported as part of the Grocery
business.
9. Assets and liabilities held for sale
As at 31 December 2013, the assets and associated liabilities
relating to the Bread business were held for sale in light of the
announcement of the conditional sale of the Group's majority share
in this business on 27 January 2014. The disposal is expected to be
completed in the second quarter of 2014. On recognition of the
assets and liabilities as held for sale, an impairment loss of
GBP234.4m was recognised in order to write down the disposal group
to fair value less costs to sell. Management has assessed fair
value less costs to sell based on the initial cash consideration of
GBP15.0m being received for 51% of the business, less estimated
costs to sell.
The Bread business is presented in the "Discontinued operations"
reportable segment in accordance with "IFRS8 Operating
Segments".
As at 31 December 2012, the assets and associated liabilities
relating to the Sweet Pickles and Table Sauces business were held
for sale in light of the announcement of the conditional sale of
this business on 30 October 2012. The disposal completed on 2
February 2013 for consideration of GBP92.5m.
10. Bank and other borrowings
The borrowings are secured by a floating charge over all assets
of the Group.
Cash and bank deposits and short-term borrowings have been
offset to the extent possible in accordance with the Group's
banking agreements.
The total facility as at 31 December 2013 was GBP1,036.3m (2012:
GBP1,142.4m).
(a) Senior Term Credit Facility and Revolving Credit Facility
Arrangement
The term loan and revolving credit facility mature on 30 June
2016. The current applicable bank margin is 3.25%. Additionally,
amortisations will occur semi-annually from 30 June 2014. Banking
covenants of net debt / EBITDA and EBITDA / interest are in place
and are tested biannually.
A floating to fixed amortising swap with an initial nominal
value of GBP745m is in place, attracting a swap rate of 1.59%.
All term loan and securitised debt attract interest charges
based on LIBOR.
(b) Securitisation facility
The debtors securitisation facility is secured against the
Group's trade receivables. It is a three year programme maturing in
December 2016, with a GBP120m facility priced at 2.75% above the
cost of commercial paper.See note 14 for details of the Group's
capital restructuring.
11. Retirement benefit schemes
Defined benefit schemes
The Group operates a number of defined benefit schemes under
current and former employees have built up an entitlement to
retirement benefits on their retirement. These are as follows:
(a) The Premier schemes, which comprise:
Premier Foods Pension Scheme ("PFPS")
Premier Ambient Products Pension Scheme ("PAPPS")
Premier Grocery Products Pension Scheme ("PGPPS")
Premier Grocery Products Ireland Pension Scheme ("PGPIPS")
Chivers 1987 Pension Scheme
Chivers 1987 Supplementary Pension Scheme.
(b) The RHM schemes, which comprise:
RHM Pension Scheme
Premier Foods Ireland Pension Scheme
The most recent full actuarial valuation of both the PFPS and
RHM pension schemes was carried out on 31 March 2010 / 5 April
2010. Valuations as at 31 March 2013 / 5 April 2013 are currently
being carried out and are due to be completed in 2014.
The exchange rates used to translate the overseas Euro based
schemes are GBP1.00 = 1.1796 Euros for the average rate during the
year, and GBP1.00 = 1.2006 Euros for the closing position at 31
December 2013.
In July 2010, the UK government announced changes to the
inflation index used for statutory pension increases (both for
pensions in payment and pensions in deferment) to apply to private
sector pension schemes. In 2012 a credit to past service costs of
GBP46.4m in respect of the RHM pension scheme was recognised.
In March 2012, as part of the Group's re-financing package,
trustees of the Group's UK pension schemes agreed to defer deficit
contribution payments until 1 January 2014.
On 30 September 2013 the Group's UK defined benefit pension
schemes closed to future accrual. The future pension provision for
these members is now made through the Group's defined contribution
pension scheme. In accordance with IAS 19 (Revised), the scheme
obligations were re-valued by the scheme actuaries immediately
prior to the change and assumptions reviewed at that date. The
resulting change of GBP18.2m has been credited to the income
statement within past service costs.
All defined benefit plans are held separately from the Company
under Trusts. Trustees are appointed to operate the schemes in
accordance with their respective governing documents and pensions
law. The schemes meet the legal requirement for member nominated
trustees representation on the trustee boards and the UK schemes
have appointed a professional independent Trustee as Chair of the
boards. The members of the trustee boards undertake regular
training and development to ensure that they are equipped
appropriately to fulfil their function as trustees. In addition
each trustee board has appointed professional advisers to give them
the specialist expertise they need to support them in the areas of
investment, funding, legal, covenant and administration.
The trustee boards of the UK schemes generally meet at least 4
times a year to conduct their business. To support these meetings
the Trustees have delegated certain aspects of the schemes'
operation to give specialist focus (e.g. investment, administration
and compliance) to committees for which further meetings are held
as appropriate throughout the year. These committees regularly
report to the full trustee boards.
The schemes invest through investment managers appointed by the
trustees in a broad range of assets including UK and Global
equities and Corporate and Government bonds. The plan assets do not
include any of the Group's own financial instruments, nor any
property occupied by, or other assets used by, the Group. The
pension schemes hold a security over the assets of the Group which
rank pari passu with the banks in the event of insolvency.
The main risks to which the Group is exposed in relation to the
funded pension schemes are as follows:
-- Liquidity risk - all schemes have significant technical
funding deficits which could have an adverse impact on the
financial condition of the Group. The Company does not pay
dividends and is restricted from paying dividends under the terms
of its financing arrangements. The Group is also restricted from
raising additional forms of debt finance (other than a basket of
c.GBP20m) and is not able to use free cash flow for acquisitions.
Funding agreements were in place with the trustees of the pension
schemes which mitigated our exposure in 2013. The current Schedule
of Contributions in place following the 2010 actuarial valuations
provide for the deficit contributions to resume from January 2014
and continue until 2022. The Group continues to monitor the pension
risks closely working with the trustees to ensure a collaborative
approach. See note 14 for details of the revised Schedule of
Contributions, agreed as part of the capital restructuring.
-- Mortality risk - the assumptions adopted make allowance for
future improvements in life expectancy. However, if life expectancy
improves at a faster rate than assumed, this would result in
greater payments from the schemes and consequently increases in the
schemes liabilities. The trustees review the mortality assumption
on a regular basis to minimise the risk of using an inappropriate
assumption.
-- Yield risk - a fall in government bond yields will increase
both the scheme's assets and liabilities. However, the liabilities
may grow by more in monetary terms, thus increasing the deficit in
the scheme.
-- Inflation risk - the majority of the scheme's liabilities
increase in line with inflation and so if inflation is greater than
expected, the liabilities will increase.
The schemes can limit or hedge their exposure to the yield and
inflation risks described above by investing in assets that move in
the same direction as the liabilities in the event of a fall in
yields, or a rise in inflation. The RHM pension scheme has fully
hedged interest rate and inflation exposure to the extent of its
funding level. The PFPS is in the process of implementing a 30%
hedging of its liabilities and has put in place a plan to increase
the hedging level when market conditions are considered to be
attractive.
The liabilities of the schemes are approximately 49% in respect
of former active members who have yet to retire and approximately
51% in respect of pensioner members already in receipt of benefits.
The mean duration of the liabilities is approximately 17 years.
IAS 19 (Revised) has been applied retrospectively from 1 January
2012. The principal change is that, expected returns on plan assets
of defined benefit plans are not recognised in profit or loss.
Instead, interest on the net defined benefit obligation is
recognised in profit or loss, calculated using the discount rate
used to measure the defined benefit obligation. In addition certain
administration expenses are recognised in profit or loss rather
than being deducted from the return on plan assets under the
previous standard. Comparatives have been restated for the impact
of the adoption of IAS 19 (Revised). IAS 19 (Revised) does not
impact the balance sheet.
Impact of transition to IAS 19 (Revised) on consolidated statement
of profit or loss
As at As at
31 Dec 31 Dec
2013 2012
GBPm GBPm
--------------------------------------------------- -------- -----------
Increase in pensions expense (37.9) (40.2)
Decrease in current tax expense 8.4 9.5
----------------------------------------------------
Net decrease in profit or loss for the year (29.5) (30.7)
---------------------------------------------------- -------- -----------
Attributable to equity holders of the parent (29.5) (30.7)
Non-controlling interest - -
---------------------------------------------------- -------- -----------
Increase in remeasurements in other comprehensive
income 37.9 40.2
Increase in tax effect of remeasurements in other
comprehensive income (8.4) (9.5)
Net increase in other comprehensive income 29.5 30.7
---------------------------------------------------- -------- -----------
Net increase in total comprehensive income - -
---------------------------------------------------- -------- -----------
Attributable to equity holders of the parent - -
Non-controlling interest - -
---------------------------------------------------- -------- -----------
There was no material impact on the Group's consolidated
statement of cash flows and consolidated balance sheet.
At the balance sheet date, the combined principal actuarial
assumptions used for all the schemes were as follows:
Premier RHM schemes
schemes
2013
Discount rate 4.40% 4.40%
Inflation - RPI 3.35% 3.35%
Inflation - CPI 2.35% 2.35%
Expected salary increases n/a n/a
Future pension increases 2.15% 2.15%
--------------------------- --------- ------------
2012
Discount rate 4.45% 4.45%
Inflation - RPI 2.95% 2.95%
Inflation - CPI 2.15% 2.15%
Expected salary increases 3.95% 3.95%
Future pension increases 2.05% 2.05%
--------------------------- --------- ------------
For the smaller overseas schemes the discount rate used was
3.50% (2012: 3.40%), expected salary increases are not applicable
as closed to accrual (2012: 3.00%), and future pension increases of
1.75% (2012: 1.75%).
The mortality assumptions are based on standard mortality tables
which allow for future mortality improvements. The assumptions are
as follows:
Premier RHM schemes Total
schemes
--------------------------------------- --------- ------------ ------
2013 Life expectancy
Male pensioner, currently aged 65 87.8 86.3 86.7
Female pensioner, currently aged 65 90.0 88.5 88.8
Male non-pensioner, currently aged 45 89.2 87.6 88.0
Female non-pensioner, currently aged
45 91.5 90.0 90.3
--------------------------------------- --------- ------------ ------
2012 Life expectancy
Male pensioner, currently aged 65 88.1 86.1 86.6
Female pensioner, currently aged 65 90.2 88.5 88.9
Male non-pensioner, currently aged 45 89.4 87.4 87.9
Female non-pensioner, currently aged
45 91.8 90.0 90.5
--------------------------------------- --------- ------------ ------
A sensitivity analysis on the principal assumptions used to
measure the scheme liabilities at the year end is as follows:
Change in assumption Impact on scheme liabilities
------------------------------- ---------------------- ------------------------------
Discount rate Increase/decrease Decrease/increase by
by 0.1% GBP63m/GBP65m
Inflation - RPI Increase/decrease Increase/decrease by
by 0.1% GBP27m/GBP26m
Inflation - CPI Increase/decrease Increase/decrease by
by 0.1% GBP27m/GBP26m
Assumed life expectancy Increase by 1 year Increase by GBP121m
at age 60 (rate of mortality)
------------------------------- ---------------------- ------------------------------
The sensitivity information has been derived using projected
cash flows for the Schemes valued using the relevant assumptions
and membership profile as at 31 December 2013. Extrapolation of
these results beyond the sensitivity figures shown may not be
appropriate.
The fair values of plan assets split by type of asset are as
follows:
Premier % of RHM schemes % of Total % of
Pension scheme assets schemes total total total
GBPm % GBPm % GBPm
-------------------------- --------- ------- ------------ ------- -------- -------
Assets with a quoted price in an active market
at 31 December 2013:
UK equities 0.9 0.2 46.6 1.7 47.5 1.5
Global equities 19.3 3.6 232.9 8.8 252.2 7.8
Government bonds 12.1 2.3 503.6 18.7 515.7 16.0
Corporate bonds 60.3 11.3 323.8 12.1 384.1 11.9
Property 0.9 0.2 180.8 6.7 181.7 5.6
Absolute return products 370.2 69.7 898.0 33.4 1,268.2 39.4
Cash 9.1 1.7 183.2 6.8 192.3 6.0
Other 58.6 11.0 0.1 0.0 58.7 1.8
Assets without a quoted price in an active market at 31 December
2013:
Infrastructure funds - - 193.5 7.2 193.5 6.0
Swaps - - (116.6) (4.3) (116.6) (3.6)
Private equity - - 190.2 7.1 190.2 5.9
Other - - 50.9 1.8 50.9 1.7
Fair value of scheme
assets
as at 31 Dec 2013 531.4 100 2,687.0 100 3,218.4 100
-------------------------- --------- ------- ------------ ------- -------- -------
Assets with a quoted price in an active market at 31 December 2012:
UK equities 0.7 0.1 95.3 3.6 96.0 3.0
Global equities 16.0 3.0 299.3 11.2 315.3 9.8
Government bonds 15.5 2.9 572.9 21.4 588.4 18.3
Corporate bonds 86.5 16.1 522.3 19.5 608.8 19.0
Property 1.0 0.2 104.3 3.9 105.3 3.3
Absolute return products 271.7 50.7 440.4 16.5 712.1 22.2
Cash 9.5 1.8 493.5 18.5 503.0 15.7
Other 135.0 25.2 - - 135.0 4.2
Assets without a quoted price in an active market at 31 December
2012:
Infrastructure funds - - 153.2 5.7 153.2 4.8
Swaps - - (194.6) (7.3) (194.6) (6.1)
Private equity - - 185.9 7.0 185.9 5.8
Other - - 0.9 0.0 0.9 0.0
-------------------------- --------- ------- ------------ ------- -------- -------
Fair value of scheme
assets
as at 31 Dec 2012 535.9 100 2,673.4 100 3,209.3 100
-------------------------- --------- ------- ------------ ------- -------- -------
The schemes invest in interest rate and inflation swaps to
protect from fluctuations in interest and inflation.
The amounts recognised in the balance sheet arising from the
Group's obligations in respect of its defined benefit schemes are
as follows:
Premier RHM schemes Total
schemes
GBPm GBPm GBPm
------------------------------------- --------- ------------ ----------
2013
Present value of funded obligations (916.9) (2,904.8) (3,821.7)
Fair value of plan assets 531.4 2,687.0 3,218.4
------------------------------------- --------- ------------ ----------
Deficit in scheme (385.5) (217.8) (603.3)
------------------------------------- --------- ------------ ----------
2012
Present value of funded obligations (871.1) (2,805.0) (3,676.1)
Fair value of plan assets 535.9 2,673.4 3,209.3
------------------------------------- --------- ------------ ----------
Deficit in scheme (335.2) (131.6) (466.8)
------------------------------------- --------- ------------ ----------
The aggregate deficit has increased by GBP137m during the year
(2012: GBP184m) primarily due to the increase in actuarial
inflation assumptions used.
Changes in the present value of the defined benefit obligation
were as follows:
Premier RHM schemes Total
schemes
GBPm GBPm GBPm
------------------------------------ --------- ------------ ----------
2013
Opening defined benefit obligation (871.1) (2,805.0) (3,676.1)
Current service cost (3.4) (7.6) (11.0)
Past service credit 17.7 18.3 36.0
Interest cost (37.3) (121.3) (158.6)
Remeasurement losses (56.6) (118.4) (175.0)
Exchange differences (1.3) (0.4) (1.7)
Contributions by plan participants (2.2) (4.0) (6.2)
Benefits paid 37.3 133.6 170.9
------------------------------------ --------- ------------ ----------
Closing defined benefit obligation
as at 31 Dec 2013 (916.9) (2,904.8) (3,821.7)
------------------------------------ --------- ------------ ----------
2012 (Restated)(1)
Opening defined benefit obligation (781.9) (2,656.5) (3,438.4)
Current service cost (6.3) (11.5) (17.8)
Past service (cost)/credit (18.6) 31.6 13.0
Interest cost (37.3) (124.0) (161.3)
Remeasurement losses (58.1) (160.2) (218.3)
Exchange differences 1.0 0.4 1.4
Contributions by plan participants (3.8) (6.8) (10.6)
Benefits paid 33.9 122.0 155.9
------------------------------------ --------- ------------ ----------
Closing defined benefit obligation
as at 31 Dec 2013 (871.1) (2,805.0) (3,676.1)
------------------------------------ --------- ------------ ----------
(1) Comparatives have been restated to reflect the adoption of
IAS 19 (Revised)
Changes in the fair value of plan assets were as follows:
Premier RHM schemes Total
schemes
GBPm GBPm GBPm
-------------------------------------- ---------- ------------ --------
2013
Opening fair value of plan assets 535.9 2,673.4 3,209.3
Interest income on plan assets 22.9 116.1 139.0
Remeasurement gains 2.1 20.2 22.3
Administrative costs (5.9) (5.7) (11.6)
Contributions by employer 10.8 12.1 22.9
Contributions by plan participants 2.2 4.0 6.2
Exchange differences 0.7 0.5 1.2
Benefits paid (37.3) (133.6) (170.9)
-------------------------------------- ---------- ------------ --------
Closing fair value of plan assets
as at 31 Dec 2013 531.4 2,687.0 3,218.4
-------------------------------------- ---------- ------------ --------
2012 (Restated)(1)
Opening fair value of plan assets 514.2 2,641.8 3,156.0
Interest income on plan assets 24.4 124.4 148.8
Remeasurement gains 14.1 12.8 26.9
Administrative costs (1.8) (12.9) (14.7)
Contributions by employer 16.1 23.0 39.1
Contributions by plan participants 3.8 6.8 10.6
Exchange differences (1.0) (0.5) (1.5)
Benefits paid (33.9) (122.0) (155.9)
-------------------------------------- ---------- ------------ --------
Closing fair value of plan assets
as at 31 Dec 2012 535.9 2,673.4 3,209.3
-------------------------------------- ---------- ------------ --------
(1) Comparatives have been restated to reflect the adoption of IAS
19 (Revised)
The reconciliation of the net defined benefit liability over the
period is as follows:
Premier RHM schemes Total
schemes
GBPm GBPm GBPm
------------------------------------- --------- ------------ --------
2013
Deficit in schemes at beginning of
period (335.2) (131.6) (466.8)
Amount recognised in profit or loss (6.0) (0.2) (6.2)
Remeasurements recognised in other
comprehensive income (54.5) (98.2) (152.7)
Contributions by employer 10.8 12.1 22.9
Currency (losses)/gains (0.6) 0.1 (0.5)
Deficit in schemes at end of period (385.5) (217.8) (603.3)
------------------------------------- --------- ------------ --------
2012 (Restated)(1)
Deficit in schemes at beginning of
period (267.7) (14.7) (282.4)
Amount recognised in profit or loss (39.6) 7.6 (32.0)
Remeasurements recognised in other
comprehensive income (44.0) (147.4) (191.4)
Contributions by employer 16.1 23.0 39.1
Currency losses - (0.1) (0.1)
Deficit in schemes at end of period (335.2) (131.6) (466.8)
------------------------------------- --------- ------------ --------
(1) Comparatives have been restated to reflect the adoption of
IAS 19 (Revised).
Remeasurements recognised in the consolidated statement of
comprehensive income are as follows:
Premier RHM Total
Schemes Schemes
GBPm GBPm GBPm
---------------------------------------- -------- -------- --------
2013
Remeasurement loss on plan liabilities (56.6) (118.4) (175.0)
Remeasurement gain on plan assets 2.1 20.2 22.3
---------------------------------------- -------- -------- --------
Net remeasurement loss for the year (54.5) (98.2) (152.7)
---------------------------------------- -------- -------- --------
2012
Remeasurement loss on plan liabilities (58.1) (160.2) (218.3)
Remeasurement gain on plan assets 14.1 12.8 26.9
---------------------------------------- -------- -------- --------
Net remeasurement loss for the year (44.0) (147.4) (191.4)
---------------------------------------- -------- -------- --------
The actual return on plan assets was a GBP161.3m gain (2012:
GBP175.7m gain), which is GBP22.3m more (2012: GBP26.9m more) than
the interest income on plan assets of GBP139.0m (2012: GBP148.8m)
at the start of the relevant periods.
The remeasurement loss on liabilities of GBP175.0m (2012:
GBP218.3m loss) comprises a loss on member experience of GBP45.0m
(2012: GBP33.6m loss), and a loss due to changes in actuarial
assumptions of GBP130.0m (2012: GBP184.7 loss).
The net remeasurement loss taken to the consolidated statement
of comprehensive income was GBP152.7m (2012: GBP191.4m loss). These
were GBP124.4m (2012: GBP148.9m) net of taxation (with tax at
23.25% for UK schemes, and 12.5% for Irish schemes).
The Group expects to contribute approximately GBP8.8m to its
defined benefit plans in 2014 in relation to expenses and
government levies (2013: GBP25.6m, including regular contributions)
and GBP83m (2013:GBP2.0m) of additional contributions to fund the
scheme deficits under the 2012 Schedule of Contributions. The
increase in future deficit funding is a result of the revised
re-financing package whereby the Trustees of the Group's UK pension
schemes have agreed to the suspension of deficit contribution
payments until 1 January 2014. See note 14 for details of the
revised Schedule of Contributions, agreed as part of the capital
restructuring.
The total amounts recognised in the consolidated statement of
profit or loss are as follows:
Premier RHM schemes Total
schemes
GBPm GBPm GBPm
---------------------------------- ----------- --------------- --------
2013
Operating profit
Current service cost (3.4) (7.6) (11.0)
Past service credit 17.7 18.3 36.0
Administrative costs (5.9) (5.7) (11.6)
Net interest cost (14.4) (5.2) (19.6)
Total (6.0) (0.2) (6.2)
---------------------------------- ----------- --------------- --------
2012 (Restated)(1)
Operating profit
Current service cost (6.3) (11.5) (17.8)
Past service (cost)/credit (18.6) 31.6 13.0
Administrative costs (1.8) (12.9) (14.7)
Net interest (cost)/income (12.9) 0.4 (12.5)
Total (39.6) 7.6 (32.0)
---------------------------------- ----------- --------------- --------
(1) Comparatives have been restated to reflect the adoption of IAS
19 (Revised)
Defined contribution schemes
A number of companies in the Group operate defined contribution
schemes, predominantly stakeholder arrangements. In addition a
number of schemes providing life assurance benefits only are
operated. The total expense recognised in the statement of profit
or loss of GBP3.4m (2012: GBP0.8m) represents contributions payable
to the plans by the Group at rates specified in the rules of the
plans.
12. Notes to the cash flow statement
The Group has the following cash pooling arrangements in
Sterling, Euros and US dollars, where both the Group and the bank
have a legal right of offset.
13. Contingencies
There were no material contingent liabilities at 31 December
2013.
14. Subsequent events
Disposal of Bread business
On 27 January 2014 the Group announced that it had agreed to
sell a majority share in the Bread business to The Gores Group LLC.
The disposal is expected to be completed in the second quarter of
2014.
The disposal is subject to and conditional upon: (i) the passing
of the resolutions by shareholders at the General Meeting; (ii)
Premier Foods plc obtaining certain consents and/or waivers from
the lenders under the Group's finance facilities; (iii) Premier
Foods plc obtaining certain consents and/or waivers from the
trustees of each of the pension schemes; and (iv) obtaining
competition approval from the European Commission. Conditions (ii)
and (iii) will be satisfied upon completion of the capital
refinancing plan.
Premier Foods plc has agreed to pay The Gores Group LLC
reasonable out-of-pocket costs if the disposal does not complete
due to a failure to satisfy the conditions (except that, where the
disposal does not complete due to a failure to satisfy the
competition condition, Premier Foods plc will only be liable for
The Gores Group LLC's costs if it is responsible for such failure).
The costs indemnity is capped at the lower of The Gores Group LLC's
costs and 1% of Premier Foods plc's market capitalisation at the
time of signing the disposal agreement.
Capital Restructuring
On 4 March 2014 the Group announced its proposal to diversify
its sources of finance to provide a solid foundation on which it
can drive future growth through its category based strategy and
leveraging its strengths. This transformational capital restructure
includes a fully underwritten equity raise of approximately GBP350m
(gross of fees) through a placing and rights issue, the issue of
GBP475m senior secured loan notes and a new GBP300m revolving
credit facility with a smaller bank syndicate. Significantly, the
Group has also reached a pensions framework agreement with the
Pension Scheme trustees following the triennial actuarial valuation
which provides the platform for this new capital structure to be
put in place.
Equity Issue
The Group announced it is proposing to raise new equity of
approximately GBP350m gross of fees. The issue will be fully
underwritten by a group of lending banks. This issuance will reduce
the indebtedness of the Group and substantially strengthens the
balance sheet.
Pensions Agreement
The Group has agreed what it considers to be a comprehensive and
significant agreement with the Pension Scheme trustees. The pension
deficit contribution schedule will, on completion of the capital
restructuring, be revised, with the impact of reducing cash
payments when compared to the previous schedule by GBP161m over the
next six years. Committed deficit contributions are fixed until
December 2019 and set out in the "Capital Refinancing Terms" table
below. Under the new arrangements, the Pension Schemes will be
granted security up to GBP450m (in aggregate) and will have certain
dividend matching rights for any dividends paid by the Group up to
2019.
Revolving Credit Facility and Securitisation Facility
The Group's existing term loan and revolving credit facilities
will be repaid to the respective lenders on completion of the
recapitalisation. These facilities will be replaced by senior
secured notes and a revolving credit facility of GBP300m which is
due to mature in March 2019 and attracts an initial bank margin of
3.50% above LIBOR. The Group has agreed with the lenders of the new
revolving credit facility that dividends are permitted to be
distributed to shareholders when the Group's Net debt/EBITDA ratio
falls below a ratio of 3.0x. This facility has been arranged with a
significantly smaller group of lenders than was the case previously
and includes an appropriate covenant package, the details of which
are set out in the "Capital Refinancing Terms" table below.
Following completion of the joint venture transaction, the
Group's ability to draw on its existing securitisation facility of
GBP120m is expected to reduce to around GBP60m and attracts a
margin of 2.75% above the cost of commercial paper.
Senior Secured Notes
To achieve its objective of diversifying its sources of finance,
the Group also announced its intention to raise approximately
GBP475m of senior secured notes. This programme will extend the
maturity of this tranche of the Group's debt by up to seven years
and will bring in a new and diversified investor base. The notes
are likely to be issued as a combination of fixed and floating
rates, although in the case of floating rate notes the Group
intends to use plain vanilla swaps to eliminate the net interest
rate exposure. The Group has also entered into a backstop
arrangement on standard market terms under which issuance of these
notes is effectively underwritten.
Capital Refinancing Terms
Key terms and details
--------------------------------------------------------------------------
Equity Approximate firm placing: GBP100m
-------------------------- -------------------------
Approximate rights issue: GBP250m
-------------------------- -------------------------
Approximate gross issue GBP350m
proceeds:
-------------------------- -------------------------
Pension Contributions fixed until 2019, revised deficit
contribution schedule as follows:
-----------------------------------------------------
2014 GBP35m
-------------------------- -------------------------
2015 GBP9m
-------------------------- -------------------------
2016 GBP42m
-------------------------- -------------------------
2017 GBP50m
-------------------------- -------------------------
2018 GBP44m
-------------------------- -------------------------
2019 GBP42m
-------------------------- -------------------------
Total GBP222m
-------------------------- -------------------------
Recovery period extended to 2032
------------------- -----------------------------------------------------
Lending facilities Revolving credit facility GBP300m
(RCF)
-------------------------- -------------------------
RCF maturity March 2019
-------------------------- -------------------------
RCF margin 3.50% + LIBOR
-------------------------- -------------------------
Commitment fee on undrawn 40% of applicable margin
facilities
-------------------------- -------------------------
Securitisation facility GBP120m at 2.75% + cost
& margin of commercial paper
------------------- -------------------------- -------------------------
Senior Secured Amount GBP475m
Notes
-------------------------- -------------------------
Tenor 6 year floating / 7 year
fixed
------------------- -------------------------- -------------------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
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