Interim Results
Premier Foods plc
06 September 2005
6 September 2005
Premier Foods plc Interim Results 2005
Strong performance from grocery business
Interim results for the six months to 2 July 2005
Unaudited Unaudited
six months to six months to Change
2 July 2005 3 July 2004
£m £m
Turnover* 409.2 425.8 -3.9%
Trading profit*,** 45.6 38.4 18.8%
Operating profit* 42.8 39.0 9.7%
Profit/(loss) before tax 18.3 0.2 na
Operating cash flow 61.1 58.9 3.7%
* Continuing operations
**Trading profit is defined as operating profit before exceptional items,
amortisation of intangibles and the effective income statement impact of changes
in pension assumptions.
• Trading profit up 18.8%
• Like for -for-like operating profit up 5.4%
• Continued focus on growth of brands: Branded sales now 56% of grocery
sales
• Bird's and Quorn acquisitions performing to expectation
• Cost savings programme delivering
• Interim dividend of 4.75 pence per ordinary share
Premier is also announcing the acquisition of 100% of the ordinary share capital
of Monument (GB) Limited and certain assets (trading as FW Gedney) for £5.5m
cash on a cash-free, debt free basis. Gedney's is a potato and fresh produce
supply business and will be integrated into Premier's existing potato supply
business.
Robert Schofield, Chief Executive of Premier Foods plc, said,
'This is a solid set of results with like-for-like operating profit up 5.4%. It
demonstrates the strength of our branded grocery business, which saw good
performances from our principal brands, and continued progress on reducing
costs.
'The outlook for the remainder of the year is for our core business to remain on
track with our grocery business compensating for our disappointing potatoes
business. With regard to our recently acquired Quorn business we intend to
invest £2 million more in the second half on marketing and innovation to support
our growth plans.
'Our brands, scale and efficiency mean we are well positioned to deliver
profitable growth and strong cash flow generation to support progressive
dividends and further acquisitions in the future.'
For further information:
Premier Foods plc +44 (0) 1727 815 850
Paul Thomas, Finance Director
Gwyn Tyley, Investor Relations Manager
Citigate Dewe Rogerson +44 (0) 20 7638 9571
Michael Berkeley
Sara Batchelor
Anthony Kennaway
A presentation to analysts will take place on Tuesday 6th September 2005 at 9am
at ABN AMRO, 250 Bishopsgate, London, EC2M 5AA.
Operating review - continuing operations
£m 2005 2004
H1 H1
Sales
Grocery 350.9 336.9
Potatoes 58.3 88.9
Total sales 409.2 425.8
Trading profit 45.6 38.4
Amortisation of intangibles (2.6) (1.7)
Effective change in pension assumptions
- 3.8
Operating profit before exceptional items 43.0 40.5
Exceptional items (0.2) (1.5)
Operating profit 42.8 39.0
Trading profit increased by 18.8% to £45.6m. The uplift was due to an increase
in trading profit for the grocery business of £6.4m and a contribution of £2.5m
from Bird's and Marlow Foods ('Quorn') which were acquired in the period,
partially offset by a decrease in the trading profit for the Potatoes business
of £1.7m. Operating profit overall increased by 9.7% to £42.8m, with
like-for-like operating profit increasing by 5.4% to £41.1m.
Group sales from continuing operations decreased by 3.9% to £409.2m largely due
to lower market prices for potatoes while grocery sales increased by 4.2% to
£350.9m. The comparative figures for 2004 exclude Materne, which was sold as
part of the IPO. Like-for-like grocery sales (excluding the Bird's and Quorn
acquisitions) fell by 0.8%.
Branded sales now represent 56% of our grocery product sales, up from 54% in
2004. This increase is primarily due to the inclusion of the new Bird's and
Quorn businesses. Our principal brands performed well with Loyd Grossman,
Branston and Ambrosia all growing strongly. Quorn, which was acquired in June
2005, also showed strong growth over the same period in 2004.
The results for the first half of 2005 have been shaped by a number of
particular events. Although January saw sales sharply down on the same period
in 2004 as a result of a stock overhang with the retailers following Christmas,
sales have since shown good year-on-year progress, virtually eliminating the
January deficit. We have also made two acquisitions: Bird's and Angel Delight
desserts in February 2005 and Quorn in June 2005. Both are performing at levels
consistent with our expectations.
We are pleased to declare dividend for the first half of 4.75p per share,
consistent with our stated dividend policy, having achieved our targets for the
first half of the year, to be paid to on 25th November.
Grocery
£m 2005 2004
H1 H1
Sales 350.9 336.9
Trading profit 44.5 35.6
The sales and trading results of the product groups included within the grocery
segment are analysed below.
Convenience Foods, Pickles & Sauces
£m 2005 2004
H1 H1
Sales 181.1 181.1
Trading profit 13.5 9.7
Sales of Convenience Foods, Pickles & Sauces were flat on 2004 at £181.1m.
There were strong performances from Loyd Grossman and Branston, with the launch
of new ranges of Loyd Grossman 'creamy' sauces and Branston relishes in the
first half.
Trading profit for Convenience Foods, Pickles & Sauces was £13.5m, an increase
of £3.8m (39%) on 2004. This increase is primarily due to improved operating
efficiencies and cost savings and although we experienced increases in raw
material prices, such as tin plate, these have largely been recovered through
pricing developments agreed with our customers at the start of 2005.
Tea & Beverages
£m 2005 2004
H1 H1
Sales 66.0 70.2
Trading profit 15.0 13.2
Sales of Tea & Beverages decreased by 6% to £66.0m compared to the same period
in 2004 with the decline principally caused by a reduction in tea sales, which
declined by 9% over the same period in 2004. This reflects a market decline for
mainstream tea which is also down by 9% in the six months to June 2005, compared
to same period in 2004, through a combination of both reduced volumes and price
deflation. In light of the impact of the declining market for tea in the UK on
Typhoo, we have decided to reclassify Typhoo as a 'core' rather than 'drive'
brand.
As we announced in May of this year, we have signed a five-year agreement with
Cadbury Trebor Bassett ('Cadbury') under which we will manufacture instant hot
cocoa-based beverages for Cadbury from May 2006. The performance of beverages
during the first half of 2005 was in line with the same period last year.
Trading profit for Tea & Beverages increased by 13.6% to £15.0m. The effect of
the lower tea sales was offset by reductions in raw tea prices, reduced
manufacturing costs following the closure of our Edinburgh factory in December
2004 and the shift in marketing expenditure on Typhoo into the second half for
2005 after a first half emphasis in 2004. The programme for the second half of
the year includes the launch of Typhoo in a new unique 'softpack' format, which
will be supported by significant in-store marketing activity.
Spreads & Desserts
£m 2005 2004
H1 H1
Sales 98.5 85.6
Trading profit 15.5 12.7
Sales of Spreads & Desserts increased by 15.1% over the same period in 2004 to
£98.5m. This increase is primarily due to the inclusion of Bird's, following
its acquisition in February 2005. Like-for-like sales, excluding Bird's
increased by 1.8% with Ambrosia performing strongly and new own label dessert
contracts offsetting by lower jelly sales.
Trading profit for Spreads and Desserts increased from £12.7m in the first half
of 2004 to £15.5m in 2005, an increase of 22.0%. This was mainly due to the
inclusion of Bird's, which contributed £2.0m at the trading profit level.
Like-for-like trading profit increased by £0.8m with the contribution from the
higher sales and logistics synergies from the Ambrosia acquisition offset by
increased marketing costs.
Quorn
£m 2005 2004
H1* H1*
Sales 5.3 5.2
Trading profit 0.5 0.3
*includes three weeks of trading only.
Sales of Quorn products were £5.3m, representing three weeks of sales since
acquisition. The brand grew strongly in the first half of the year over the same
period in 2004 and we intend to continue driving this growth through increased
advertising support and innovation. The comparative amounts were not included
in the prior half results of the Group.
Potatoes
£m 2005 2004
H1 H1
Sales 58.3 88.9
Trading profit 1.1 2.8
Sales by our potatoes business decreased by 34.4% to £58.3m, due to the lower
market price of potatoes compared to last year and the loss of contract volume.
We have announced today the acquisition of Monument (GB) Limited and certain
assets ('Gedney's') for £5.5m on a cash-free, debt-free basis. Gedney's is a
potatoes and fresh produce supply business.
Sudan 1 Product Recall
On 18 February 2005, the Food Standards Agency initiated a recall of a number of
products, which had been identified as possibly being contaminated with a dye, '
Sudan 1', not authorised for use in food products. The dye was traced to a
batch of chilli powder supplied to the Group that was used by the Group in the
manufacture of Worcester sauce. The Group used the Worcester sauce in the
manufacture of three other products and supplied Worcester sauce to a number of
retail and food ingredient customers.
We have made significant progress in respect of the Sudan 1 product recall in
recent months. Our insurers have appointed loss adjusters who are handling all
claims, some of which have now been determined and paid. To date all
settlements have been in line with or below our initial estimates. We have also
conducted a comprehensive ingredient risk review as a result of which we have
introduced an enhanced testing regime and have changed the sourcing of some of
our key raw materials. Our trading and customer relationships have not been
affected and we continue to believe that the financial exposure to the Group is
not material.
Outlook
Our strategy remains focused on the development of our 'drive' brands, those
brands we consider to have the greatest growth potential, whilst continuing to
drive down our per unit manufacturing costs.
The outlook for the remainder of the year is for our core business to remain on
track with our grocery business compensating for our disappointing potatoes
business. We have a strong programme of new product development through 2005
with new products being launched under our Ambrosia, Branston, Loyd Grossman,
and Hartley's brands which, combined with further manufacturing efficiency
improvements, should contribute to a strong commercial performance in the second
half. However, recent increases in oil and energy prices will provide
significant challenges.
Quorn and Bird's are both trading in line with our expectations on acquisition.
With regard to our recently acquired Quorn business we intend to invest £2m more
in the second half on marketing and innovation to support our growth plans. As
previously indicated, we are now replacing all of the production lines acquired
with Bird's, which will take until the end of the year. This will enhance
future manufacturing efficiency although we will incur additional costs in 2005
as we continue to use the Kraft production facility in Banbury.
For our potatoes business, the outlook for the second half of 2005 remains
difficult and recovery is not now anticipated before the end of the year.
However, we have adjusted our cost base to reflect the changed profile of our
customers and the acquisition of the Gedney's business will broaden the reach
and offering of the business. These changes provide the platform for the future
development of the business with the benefits starting to flow in 2006.
Robert Schofield
Chief Executive
Financial review
Basis of Preparation
For the first time, the results of Premier Foods plc are prepared in accordance
with International Financial Reporting Standards ('IFRS') as they are currently
expected to apply to the Group - see note 1. The interim results for the current
and prior periods, as reconciled to that previously reported under UK GAAP, are
available on our website for comparison. The impact of conversion to IFRS has
had no cash impact.
The results of Materne, our French spreads business sold in July 2004, have been
disclosed within discontinued operations.
Sales
Sales for the Group's continuing operations decreased by 3.9% to £409.2m. The
most significant component of this movement was a reduction in sales at MBM, our
potatoes business, as a result of weaker market pricing and the loss of contract
volume. Total grocery sales increased by 4.2% to £350.9m with like-for-like
sales, i.e. before sales made by the recently acquired businesses of Bird's and
Quorn, falling by 0.8% to £334.2m. This was the result of the soft trading in
January as experienced by many food manufacturers and offset by strong trading
since February.
Gross Profit
Gross profit for the first half of 2005 was £97.8m, an increase of 5.0% over
2004 with gross profit margins up by 2.0% at 23.9%. This improvement primarily
reflects the benefit of significant investments in production efficiency,
supplemented by a strong performance from our drive brands. This was coupled
with the effect of improvements in gross margin at our potatoes business that
have resulted from the loss of a number of low margin retail contracts. The
inclusion of Bird's and Quorn also had a minor positive impact.
Selling and Distribution Expenses
Selling and distribution expenses were £35.7m for the first half of 2005, a
decrease of £3.9m, or 9.8%, compared to the same period in 2004. The decrease
is the result of cost savings achieved and the phasing of marketing initiatives.
Like-for-like consumer marketing costs reduced over the first half, reflecting
the phasing of our spending towards the second half of the year. Total marketing
spend, including promotional activity, was flat year on year.
Administrative Expenses
During the period, administrative expenses increased to £21.2m. After adding
back the impact of exceptional items and effective changes in pension accounting
assumptions, the increase in administrative expenses was £2.0m or 10.5%.
Included within this is an amortisation charge arising on intangible assets
acquired on the acquisition of Bird's (£0.8m) and a share-based payment charge
(£0.4m) related to the Group's management incentive programme. The residual
amount relates to inflation and the cost of additional personnel to support our
ongoing strategic activities. Results for the second half will include a full
amortisation charge for intangibles acquired with the Quorn brand.
Other Operating Income
Other operating income of £1.9m comprises £1.4m of fair value movements on
ongoing forward foreign exchange contracts and £0.5m of business interruption
income arising as a consequence of the fire at Bury St Edmunds. Under IAS 39,
changes in the fair value of unsettled forward foreign exchange contracts that
are not designated as hedges are now recorded outside of cost of sales. These
economic hedges are recorded as other operating income or expense with
variations in commodity prices due to foreign exchange shown as part of cost of
sales. The net economic impact remains the same.
Operating Profit
Operating profit before exceptional items for the continuing business was £43.0m
for the first half of 2005, an increase of £2.5m, or 6.2%, compared to the same
period in 2004. Operating profit after exceptional items increased by 9.7% to
£42.8m.
Exceptional Items
Exceptional items for the period reflect the aggregate effect of a number of
non-recurring events, resulting in a net expense of £0.2m compared to £1.5m in
the prior year. The principal elements of the charge for the current period
relate to the costs associated with the rationalisation of our operations at
MBM, the Sudan 1 product recall and the impact of the insurance claim for the
Bury St Edmunds fire.
Interest
The net interest charge for the business over the first half of £24.5m was made
up of net interest payable of £15.8m, a write-off of debt issuance costs of
£6.3m and the impact of movements in the fair value of interest rate swaps of
£2.4m.
The net interest cost of £15.8m represents a significant saving on the prior
year cost of £38.8m as a result of the new financing structure put in place at
the IPO in July 2004. At the time of the acquisition of Quorn in June 2005, the
Group carried out a further re-financing exercise to fund the acquisition, its
future investment programmes and its ongoing working capital requirements. This
resulted in the write-off of £6.3m of un-amortised facility costs relating to
the previous structure. Facility costs relating to the new credit facilities
totalled £5.4m and these will be amortised over the term of the new facilities.
Taxation
The tax charge and effective rate of tax for continuing operations were £5.2m
and 28.4% respectively, broadly in line with our anticipated rate for the full
year.
Earnings Per Share
Basic earnings per share from continuing operations were 5.4p (3 July 2004: loss
per share of 0.1p).
Dividend
Consistent with our stated dividend policy, on 6th September we declared an
interim dividend of 4.75p per ordinary share (3 July 2004: Nil) resulting in a
total dividend of £11.6m, payable on 25th November 2005. Under IFRS dividends
are recorded in the financial statements in the period in which they are
declared.
Cashflow and Borrowings
Over the first half of the year, the Group's net borrowings increased by £255.5m
to £625.8m. The main items making up this movement were cash from operations of
£30.5m, acquisition cash flow of £240.8m and the payment made in respect of the
final dividend for 2004 of £22.0m. The balance comprised a number of items
including capital expenditure and other minor cash and non-cash movements.
Net cash generated by operating activities was £30.5m in the first half of 2005,
compared to £21.2m in the same period in 2004. The details behind this movement
are set out in full in note 9.
The acquisition cash flow of £240.8m, referred to above, consists of the
consideration and associated transaction costs of £71.5m and £169.3m for the
purchase of Bird's and Quorn respectively. The total consideration for Marlow
Foods was £175.9m, inclusive of £3.0m of acquisition related costs, and
comprised the payment of a cash sum of £116.5m (net of cash acquired), assumed
borrowings of £52.8m and loan notes and other working capital movements of
£6.6m.
Impact of IFRS
As indicated in note 1, the consolidated financial statements of the Group are
presented in accordance with IFRS. The Group has made excellent progress in
achieving its conversion to IFRS. The impact on earnings has been limited to
the accounting for the Group's foreign exchange and interest rate swaps, the
amortisation of intangibles, pension accounting, accruals for employee incentive
awards and deferred tax. There have also been a number of presentational changes
to the income statement and balance sheet, but there has been no cash impact
arising from any of these adjustments. We have embedded IFRS within the
business and IFRS will form the basis for all of our financial communications in
the future.
Paul Thomas
Finance Director
Consolidated income statement (unaudited)
Half year Half year Full year
ended ended ended
2 July 2005 3 July 31 December
*2004 2004*
Note £m £m £m
Continuing operations
Turnover 2 409.2 425.8 842.2
Cost of sales (311.4) (332.7) (637.7)
Gross profit 97.8 93.1 204.5
Selling and distribution costs (35.7) (39.6) (76.2)
Administrative costs (21.2) (14.5) (43.3)
Other operating income 4 1.9 - 3.0
Operating profit 42.8 39.0 88.0
Before exceptional items 3 43.0 40.5 108.6
Exceptional items 3 (0.2) (1.5) (20.6)
Interest payable and other financial charges 4 (28.7) (40.0) (83.6)
Interest receivable 4 4.2 1.2 5.3
Profit before taxation for continuing operations 18.3 0.2 9.7
Taxation 5 (5.2) (0.3) (5.9)
Profit/(loss) after taxation for continuing 13.1 (0.1) 3.8
operations
Discontinued operations 2 - 1.9 12.0
Profit for the period 13.1 1.8 15.8
Earnings/(loss) per share (pence)
Basic 6 5.4 2.0 9.9
Diluted 5.3 2.0 9.7
Basic - continuing 6 5.4 (0.1) 2.4
Diluted 5.3 (0.1) 2.3
Basic - discontinued 6 - 2.1 7.5
Diluted - 2.1 7.4
Dividends**
Dividend declared (£m) - - 22.0
Declared interim dividend (£m) 11.63 - -
Declared interim dividend per share (pence) 4.75 - -
* Results are re-stated for the impact of transition to International
Financial Reporting Standards ('IFRS'). See Note 1.
** Under IFRS dividends are recorded in the financial statements in the period
in which they are declared.
Consolidated balance sheet (unaudited)
As at As at As at
2 July 3 July 1 January
2005 2004* 2005*
Note £m £m £m
ASSETS:
Non-current assets
Property, plant and equipment 186.7 155.3 141.3
Intangible assets 7 380.8 188.0 182.0
Retirement benefit assets & other receivables 0.8 0.8 0.6
Deferred tax assets 1.5 4.8 11.7
Current assets
Inventories 99.8 99.3 91.8
Trade and other receivables 129.6 124.0 110.9
Financial assets
- derivative financial instruments 0.7 - -
Cash and bank deposits 4 93.3 16.2 35.5
Total assets 893.2 588.4 573.8
LIABILITIES:
Current liabilities
Trade and other payables (149.2) (168.8) (136.5)
Financial liabilities
- short term borrowings 4 (119.4) (54.9) (50.9)
- derivative financial instruments 4 (2.4) - (1.8)
Interest payable (2.9) (9.2) (2.2)
Provisions (3.3) - -
Current tax liabilities (15.2) (13.9) (12.7)
Non-current liabilities
Financial liabilities
- long term borrowings 4 (594.6) (666.9) (354.9)
- loan notes 7 (5.1) - -
Retirement benefit obligations (58.7) (26.4) (65.6)
Provisions - (5.2) (2.9)
Other liabilities - (0.2) -
Total liabilities (950.8) (945.5) (627.5)
Net liabilities (57.6) (357.1) (53.7)
EQUITY
Capital and reserves
Share capital 2.4 - 2.4
Share premium 320.9 10.0 320.9
Merger reserve (136.8) (136.8) (136.8)
Other reserves (1.8) (2.3) (1.8)
Profit and loss reserve (242.3) (228.0) (238.4)
Total shareholders' deficit (57.6) (357.1) (53.7)
* Results are re-stated for the impact of transition to International Financial
Reporting Standards ('IFRS'). See Note 1.
Consolidated cash flow statement (unaudited)
Half year ended Full year
ended
Note 2 July 3 July 31
2005 2004 December 2004
£m £m £m
Cash inflow from operating activities 9 30.5 21.2 28.5
Acquisition of Bird's 7 (71.5) - -
Acquisition of Marlow 7 (116.5) - -
Sale of subsidiaries - - 34.2
Other investing cash flows (10.9) (19.1) (26.9)
Cash (outflow)/inflow from investing activities (198.9) (19.1) 7.3
Repayment of borrowings 4 (380.0) (19.7) (151.4)
Proceeds from new borrowings 4 685.8 - -
Proceeds from share issue - - 119.1
Share issue costs - - (10.1)
Financing costs 4 (5.4) - (8.1)
Repayment of debt acquired with Marlow (52.8) - -
Dividends paid (22.0) - -
Cash inflow/(outflow) from financing activities 225.6 (19.7) (50.5)
Net inflow/(outflow) of cash and cash equivalents 57.2 (17.6) (14.7)
Cash and cash equivalents at beginning of period 2.6 17.3 17.3
Cash and cash equivalents at end of period 59.8 (0.3) 2.6
Reconciliation of cash and cash equivalents to net
borrowings
Net inflow/(outflow) of cash and cash equivalents 9 57.2 (17.6) (14.7)
Debt acquired with Marlow 7 (53.4) - -
(Increase)/decrease in borrowings (247.0) 19.7 355.7
Exchange movement on gross debt net of cash - (0.8) -
Other non-cash changes 9 (12.3) (13.1) (17.4)
(Increase)/decrease in borrowings net of cash (255.5) (11.8) 323.6
Total borrowings net of cash at beginning of period 9 (370.3) (693.9) (693.9)
Total borrowings net of cash at end of period 9 (625.8) (705.7) (370.3)
Statement of recognised income and expense (unaudited)
Half year ending Full year
ended
2 July 3 July 31
2005 2004 December
2004
£m £m £m
Profit for the period 13.1 1.8 15.8
Foreign exchange losses on foreign currency net (0.9) (2.3) (1.9)
investments (net of tax)
Actuarial gains and losses (net of tax) 3.3 (8.3) (39.2)
Deferred tax on share options 1.2 - -
Total recognised income/(expense) for the period 16.7 (8.8) (25.3)
Notes to the financial information
1. Basis of preparation
Interim financial information
Premier Foods plc is required to present its financial statements in accordance
with International Financial Reporting Standards ('IFRS') for the year ending 31
December 2005. For the first time, the interim financial information presented
is also based on the accounting policies expected to form the basis of the
financial statements for the year ending 31 December 2005, which can be accessed
from the companies website at www.premierfoods.co.uk/about/investor. The
interim financial information does not comprise a complete set of financial
statements as defined under IFRS.
To allow comparability of financial information, the Group published financial
information on its web-site on 11 July 2005 explaining the re-statement of its
financial results for the year ended 31 December 2004 from those previously
prepared in accordance with accounting principles generally accepted in the
United Kingdom ('UK GAAP'). The 'comparative financial information' can be
accessed at: www.premierfoods.co.uk/about/investor.
The comparative financial information is unaudited and will form part of the
financial statements for the current financial year, from which the comparative
interim financial information for the half-year ended 3 July 2004 has been
extracted. It includes an explanation of the principal changes in accounting
policies. For clarity, in note 11 the re-stated financial information for the
half-year ended 3 July 2004 is reconciled to that previously presented under UK
GAAP.
The revised accounting policies of the Group reflect the impact of compliance
with the International Financial Reporting Standards ('IFRS') and the
requirements of the International Financial Reporting Interpretations Committee
('IFRIC') as issued currently by the International Accounting Standards Board ('
IASB'). Although we have applied the accounting policies that are expected to
form the basis of preparation in the financial statements for the year ending 31
December 2005, IFRS remain subject to change, new interpretations may be issued
and therefore applicable IFRS cannot be determined with certainty.
Based on these IFRS, the Group has made assumptions about the accounting
policies expected to be adopted when the first IFRS annual financial statements
are prepared for the year ending 31 December 2005, in particular the adoption by
the EU of the amendment to IAS 19, Employee Benefits, regarding the option to
recognise all actuarial gains and losses in retained earnings and to present
them in the statement of recognised income and expense.
The comparative financial information for the year ended 31 December 2004 has
been extracted from the annual financial statements of Premier Foods plc and is
re-stated in accordance with the adopted IFRS. The consolidated interim
financial information does not constitute statutory accounts within the meaning
of Section 240 of the Companies Act 1985. These interim results are unaudited
but have been reviewed by our auditors. The statutory accounts for the year
ended 31 December 2004 , which are prepared under UK GAAP, have been reported on
by the Group's auditors and delivered to the registrar of companies. The report
of the auditors was unqualified and did not contain the statements under section
237(2) or (3) of the Companies Act 1985.
Use of estimates
The financial information necessarily includes amounts based on judgements and
estimates made by management. Actual results could materially differ from these
estimates. Estimates are used when accounting for potential bad debts,
inventory obsolescence and spoilage, trade and promotion allowances, coupon
redemptions, depreciation and amortisation, deferred income taxes and tax
valuation allowances, pension and post-retirement benefits, restructuring
charges and contingencies among other items.
2. Segmental analysis - Primary
Turnover Half year Half year Full year
ended Ended ended
2 July 3 July 31 December
2005 2004* 2004*
£m £m £m
Grocery products 350.9 336.9 691.9
Potatoes 58.3 88.9 150.3
Continuing operations 409.2 425.8 842.2
Discontinued operations - 49.7 54.6
Total 409.2 475.5 896.8
Segmental analysis of Trading profit** and Operating profit
Half year ended 2 July 2005
Trading Changes Amortisation Exceptionals Operating
profit** In pension profit
assumptions
£m £m £m £m £m
Grocery products 44.5 - (2.6) 1.1 43.0
Potatoes 1.1 - - (1.3) (0.2)
Total continuing 45.6 - (2.6) (0.2) 42.8
operations
Half year ended 3 July 2004*
Trading Changes in Amortisation Exceptionals Operating
profit** pension profit
assumptions
£m £m £m £m £m
Grocery products 35.6 3.8 (1.7) (0.9) 36.8
Potatoes 2.8 - - (0.6) 2.2
Continuing operations 38.4 3.8 (1.7) (1.5) 39.0
Discontinued 2.1 - (0.2) - 1.9
operations
Total 40.5 3.8 (1.9) (1.5) 40.9
Full year ended 31 December 2004*
Trading Changes in Amortisation Exceptionals Operating
profit** pensions profit
assumptions
£m £m £m £m £m
Grocery products 99.5 6.1 (2.7) (14.1) 88.8
Potatoes 5.7 - - (6.5) (0.8)
Continuing operations 105.2 6.1 (2.7) (20.6) 88.0
Discontinued 12.3 - (0.3) - 12.0
operations
Total 117.5 6.1 (3.0) (20.6) 100.0
* Results are re-stated for the impact of transition to International
Financial Reporting Standards ('IFRS'). See Note 1.
** Trading profit is defined as operating profit before exceptional items,
amortisation of intangibles and the effective income
statement impact of changes in pension assumptions.
2. Segmental analysis - Secondary
Geographical analysis of Turnover
By origin By destination
Half year Half year Full year Half year Half year Full year
ended ended ended 31 ended ended ended 31
2 July 3 July December 2 July 3 July December
2005 2004* 2004* 2005 2004* 2004*
£m £m £m £m £m £m
Continuing operations
United Kingdom 395.3 412.3 814.9 382.1 399.4 792.0
Mainland Europe 13.8 13.5 27.3 22.9 22.0 41.7
Other countries 0.1 - - 4.2 4.4 8.5
Total 409.2 425.8 842.2 409.2 425.8 842.2
Discontinued operations
Mainland Europe - 49.7 54.6 - 49.7 54.6
Total 409.2 475.5 896.8 409.2 475.5 896.8
* Results are re-stated for the impact of transition to International
Financial Reporting Standards ('IFRS'). See Note 1.
3. Exceptional items
Exceptional items are defined by the Group as those items of financial
significance that are disclosed separately in order to assist in understanding
the financial performance achieved and in making projections of future results.
In the current period, exceptional items comprised, primarily, the
rationalisation of the operations at MBM, the Sudan I product recall and the
impact of the insurance claim for the Bury St Edmunds fire.
4. Interest Payable and Financial Instruments
On 1 January 2005, the Group adopted the provisions of IAS 32 and IAS 39,
Financial Instruments. The primary effect of this change in accounting policy
relates to the accounting, presentation and disclosure of the Groups' interests
in forward exchange contracts and interest rate swaps and the effect of these
changes was to increase the Group's net liabilities at 31 December 2004 by £1.8m
to £53.7m as at 1 January 2005.
In future, the operating profit impact of commodity contracts and foreign
currency transactions will be included in gross profit and the related movements
in economic hedges will be recorded as other operating income or expense. As
noted below the net economic impact of the interest rate swaps will form a
component of net interest payable.
Total interest payable includes interest arising on bank loans, senior notes and
overdrafts related to facilities in place at 31 December 2003 and that were
replaced by a new borrowing facilities on 20 July 2004. On 2 July 2005, the
Group further renewed its borrowings with term facilities of £325.0m repayable
over the period to 2010 and credit facilities of £455.0m, of which £360.8m was
drawn down. As a result of these changes, debt issuance costs of £6.3m relating
to the old facilities were written off to interest payable.
Cash and bank deposits and short-term borrowings included in the balance sheet
reflect the anticipated level at which the Group will offset cash and overdrafts
in accordance with IAS 32.
4. Interest Payable and Financial Instruments
Interest payable Note Half year Half year Full year 31
ended 2 ended 3 December 2004
July 2005 July 2004
£m £m £m
Interest payable on bank loans, senior notes and overdrafts 47.0
16.3 28.0
Interest payable on unsecured unguaranteed loan notes 11.1
- 10.1
Interest payable on new term 8 -
facility 1.3 -
Interest payable on new revolver 8 -
facility 1.4 -
Amortisation of debt issuance costs 3.9
1.0 1.9
Fair valuation of interest rate -
swaps 2.4 -
62.0
22.4 40.0
Senior notes early redemption 11.1
penalty - -
Exceptional amortisation of debt issuance 8 10.5
costs 6.3 -
21.6
6.3 -
Total interest payable 83.6
28.7 40.0
Interest (4.2) (1.2) (5.3)
receivable
Net interest payable 78.3
24.5 38.8
5. Taxation
The tax charge for the first half of 2005 of £5.2m (2004: £0.3m) represents an
effective tax rate for the year of 28% applied to profits before tax. This
effective tax rate is determined after taking account of available overseas tax
losses and disallowable items and arises primarily in the UK. We anticipate the
tax charge recognised in the first half will be broadly consistent with the rate
of tax applicable for the whole of 2005 and will relate solely to the UK
operations.
6. Earnings/(loss) per share
Period ended 2 July 2005 Period ended 3 July 2004 Year ended 31 Dec
Basic EPS Effect of Diluted Basic Effect of Diluted Basic Effect of Diluted
dilutive EPS EPS dilutive EPS EPS dilutive EPS
securities securities securities
Continuing Business
Earnings/(loss) (£m) (0.1) (0.1) 3.8 3.8
13.1 -
- 13.1 -
Weighted number of 89.3 - 89.3 159.2 162.2
shares (million) 244.5 3.5 248.0 3.0
Per share amount (0.1) (0.1) (0.1) 2.4 (0.1) 2.3
(pence) 5.4
5.3 -
Discontinued
Business
- 12.0
Earnings (£m) - - - 1.9 - 1.9 12.0
Weighted number of
shares (million) 89.3 89.3 3.0
- - - - 159.2 162.2
Per share amount (0.1)
(pence)
- - - 2.1 - 2.1 7.5 7.4
Total business
Earnings (£m)
13.1 - 15.8
- 13.1 1.8 - 1.8 15.8
Weighted number of
shares (million) 244.5 3.5 248.0 89.3 89.3 159.2 3.0 162.2
-
Per share amount (0.1) (0.2)
(pence) 5.4 2.0
5.3 - 2.0 9.9 9.7
7. Acquisitions of Bird's and Marlow Foods Holdings Limited
On 14 February 2005, the Group completed the acquisition of the Bird's Custard,
Angel Delight and associated brands from Kraft Foods Inc. (collectively '
Bird's') for £71.5m. On 6 June 2005, the Group completed the acquisition of
Marlow Foods Holdings Limited, a business involved in the manufacture and
distribution of chilled and frozen food products and owner of the Quorn brand
for £172.9m, including repayment of assumed debt.
Marlow Foods Bird's Total
Net assets of businesses acquired at fair value: £m £m £m
Goodwill and intangibles 133.4 68.0 201.4
Tangible fixed assets 38.9 - 38.9
Other net (liabilities)/ assets (41.5) 3.5 (38.0)
Satisfied by:
Issue of loan notes (5.1) - (5.1)
Cash consideration (125.7) (71.5) (197.2)
Total consideration for acquisitions (130.8) (71.5) (202.3)
Analysis of cash outflow in
respect of acquisitions:
Cash consideration (125.7) (71.5) (197.2)
Accrued acquisition costs 0.9 - 0.9
Cash acquired 8.3 - 8.3
Total cash outflow (116.5) (71.5) (188.0)
7. Acquisitions of Bird's and Marlow Foods Holdings Limited (continued)
Provisional fair values have been allocated to the acquired net assets of
Bird's. An initial allocation of fair value to the acquired assets and
liabilities of Marlow Foods has also been performed, although adjustments of a
classification nature, including those related to deferred taxes, are
outstanding. A provisional analysis of the consideration and the assets and
liabilities acquired is as noted in the table above. In the period immediately
subsequent to acquisition, Bird's contributed to turnover and operating profits
by £11.4m and £1.2m respectively and these amounts are included in the income
statement. Marlow Foods contributed turnover and operating profits of £5.3m and
£0.5m respectively. As part of the Marlow Foods acquisition the Group issued
£5.1m of loan notes that are repayable in 2008 and attract interest at LIBOR.
8. Other balance sheet information
During the period the Group made investments of £16.6m in capital renewal and
expansion programmes, of which £5.7m related to the re-build of the Bury St
Edmunds factory which were financed from the Group's insurance arrangements.
9. Notes to the consolidated statement of cash flow
Reconciliation of operating profit to cash flows from operating activities
Half year ending Full year
2 July 3 July 31 December
2005 2004* 2004
£m £m £m
Operating Profit - continuing operations 42.8 39.0 88.0
Depreciation of property plant and equipment 7.8 9.4 18.6
Amortisation of intangible assets 2.6 1.7 2.7
(Gain)/Loss on disposal of fixed assets (3.7) 0.7 (0.6)
Revaluation gains/losses on financial instruments (1.4) - -
Share based payments 0.4 - 6.5
Net cash inflow from operating activities before 48.5 50.8 115.2
interest and tax (paid)/received and movements in
working capital
Decrease in inventories 4.0 15.4 8.4
Increase in trade and other receivables (4.0) (0.8) (13.1)
Increase/(decrease) in trade and other payables & 0.4 (11.0) (4.3)
provisions
Movement in net retirement benefit obligations (2.3) (8.8) (20.3)
Exchange movement in working capital (0.6) (0.6) -
Cash generated from continuing operations 46.0 45.0 85.9
Discontinued operations - 1.6 2.2
Cash generated from operations 46.0 46.6 88.1
Interest paid (18.5) (26.6) (64.7)
Interest received 4.0 1.2 5.3
Taxation paid (1.0) - (0.2)
Cash inflow from operations 30.5 21.2 28.5
Exceptional items cash flow (1.3) (14.5) (18.6)
Net cash flow before exceptional items 31.8 35.7 47.1
9. Notes to the consolidated statement of cash flow (continued)
Analysis of movement in net borrowings
At 31 Effect of Re-stated Cashflow Other At 2 July
December 2004 at 1 non-cash 2005
IAS 32* January changes
2005
£m £m £m £m £m £m
Short term overdrafts (9.9) (23.0) (32.9) (0.6) - (33.5)
Cash and bank deposits 12.5 23.0 35.5 57.8 - 93.3
Cash and cash 2.6 - 2.6 57.2 - 59.8
equivalents net of
overdrafts
Borrowings - term (380.0) - (380.0) 55.0 - (325.0)
Borrowings -revolver - - - (360.8) (360.8)
Loan notes - - - (5.1) (5.1)
Finance leases (0.1) - (0.1) - - (0.1)
Gross borrowings net of (377.5) - (377.5) (248.6) - (631.2)
cash
Debt issuance costs 7.2 - 7.2 5.4 (7.2) 5.4
Total net borrowings (370.3) - (370.3) (243.2) (12.3) (625.8)
* This adjustment reflects a presentation requirement of IAS 32, Financial
Instruments.
10. Subsequent Event
On 6th September 2005, the Group completed its acquisition of Monument (GB)
Limited and certain other assets (trading as 'Gedney's') for £5.5m on a
cash-free, debt-free basis.
11. Re-stated comparative financial information
The interim financial statements form part of the financial information included
within the first annual financial statements to be prepared in accordance with
IFRS. In preparing its opening IFRS balance sheet as at 1 January 2004 and
comparative financial information for the interim period ended 3 July 2004,
adjustments have been made to re-state balances reported previously in
accordance with UK GAAP. The major components of the transition from UK GAAP to
IFRS is set out below. This comparative financial information has been compiled
in accordance with the Group's accounting policies that are expected to form the
basis for the financial statements for the year ending 31 December 2005 and can
be accessed from the Company website at www.premierfoods.co.uk/about/investor.
An explanation of each of the primary accounting differences noted below is also
included within this information.
Reconciliation of results for the half year ended 3 July 2004 and statement of
shareholders deficit as at 3 July 2004
Operating Net (loss)/ Shareholders
profit for profit after deficit at 3
continuing tax July 2004
operations
£m £m £m
Amounts previously reported under UK GAAP in IFRS 30.4 (4.7) (323.8)
format
Pension adjustment 7.5 5.3 (22.6)
Goodwill amortisation adjustment 3.7 2.7 2.7
Other adjustments, net (2.6) (1.5) (13.4)
Reported under IFRS 39.0 1.8 (357.1)
Independent review report to Premier Foods plc
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 2 July 2005 which comprises the consolidated interim
balance sheet as at 2 July 2005 and the related consolidated interim statements
of income, cash flows and total recognised income and expense for the six months
then ended. We have read the other information contained in the interim report
and considered whether it contains any apparent misstatements or material
inconsistencies with the financial information. The IFRS financial information
previously published on 11 July 2005, as referred to in note 1, and the IFRS
financial information set out in note 11 do not form part of our review.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority.
As disclosed in note 1 the next annual financial statements of the Group will be
prepared in accordance with accounting standards adopted for use in the European
Union. This interim report has been prepared in accordance with the basis set
out in note 1.
The accounting policies are consistent with those that the directors intend to
use in the next annual financial statements. As explained in note 1, there is,
however a possibility that the directors may determine that some changes are
necessary when preparing the full financial statements for the first time in
accordance with accounting standards adopted for use in the European Union. The
IFRS standards and IFRIC interpretations that will be applicable and adopted for
use in the European Union at 31 December 2005, are not known with certainty at
the time of preparing this interim financial information.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of Group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the disclosed accounting policies have
been applied. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit and therefore provides a lower level of assurance.
Accordingly we do not express an audit opinion on the financial information.
This report, including the conclusion, has been prepared for and only for the
Company for the purpose of the Listing Rules of the Financial Services Authority
and for no other purpose. We do not, in producing this report, accept or assume
responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 2 July 2005.
PricewaterhouseCoopers LLP
Chartered Accountants
London
6 September 2005
Note:
The maintenance and integrity of the Premier Foods plc website is the
responsibility of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the interim report
since it was initially presented on the website. Legislation in the United
Kingdom governing the preparation and dissemination of financial information may
differ from legislation in other jurisdictions.
Company Directory
Directors David Kappler Non-executive Chairman
Robert Schofield Chief Executive
Paul Thomas Finance Director
David Felwick CBE Non-executive Director(1,2)
Sharon Hintze Non-executive Director(1)
Ian McHoul Non-executive Director(1)
Ian Ramsay Non-executive Director(1)
(1) Independent Director
(2) Senior Independent Director
Company Secretary Andrew Astin
Registered Office Premier House
Centrium Business Park
Griffiths Way
St Albans
Hertfordshire
AL1 2RE
Corporate Brokers Merrill Lynch International
Merrill Lynch Financial Centre
2 King Edward Street
London
EC1A 1HQ
Hoare Govett Limited
250 Bishopsgate
London EC2M 4AA
Principal Bankers BNP Paribas
J. P. Morgan PLC
Lloyds TSB Bank PLC
The Royal Bank of Scotland PLC
Registrars and Lloyds TSB Registrars
transfer office The Causeway
Worthing
West Sussex
BN99 6DA
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