Premier Foods plc Q3 Trading Update

Another exceptional quarter of trading, now expecting Trading profit to be in the range of £145-£150m this year after increasing Q4 marketing investment

· Q3 Group sales up +9.0% and up +12.5% year to date

· Q3 Branded sales up +12.1% and +16.0% year to date

· Continuing to outperform the market, gaining volume and value share³

· Online continues to grow strongly, up +90% in Q3

· Five major brands received advertising investment over Christmas period; more to come in Q4

· International sales grew +43%⁴; continuing strong trajectory so far this year

· Further £40m part redemption of Floating Rate Notes due July 2022, saving further £2m p.a. interest costs

· Net debt/EBITDA⁵ now expected to be below 2.0x by year end

 

Alex Whitehouse, Chief Executive Officer

 

“Quarter 3 proved to be another period of exceptional growth, with Group sales up 9.0% and branded sales up 12.1%, as people turned to our product ranges in the face of heightened restrictions on out of home eating. Our colleagues have carried out a magnificent job supplying this elevated level of demand, keeping the business fully operational while at the same time retaining strict measures to keep each other safe. We continue to deploy our branded growth model strategy, launching a series of new products in the quarter such as Sharwood's low sugar stir fry sauces and supporting five of our major brands with TV advertising. Together with excellent execution both instore and online, we continue to take market share in volume and value terms. Online sales were up 90% in the quarter, ahead of the broader channel and we saw higher household penetration for brands such as Bisto, Oxo and Paxo, as more meals were eaten at home this Christmas.”

 

“Looking to the remainder of the year, out of home eating is likely to remain heavily restricted and we therefore expect to see continued high levels of consumer demand for our products. With more brand investment to come, we now expect Trading profit to be in the range of £145-£150m this year and Net debt/EBITDA⁵ to fall below 2.0x by the year end.”

 

Sales % change	Q3			Q3 Year to date
	Grocery	Sweet Treats	Group	Grocery	Sweet Treats	Group
Branded	14.6%	5.0%	12.1%	20.8%	3.7%	16.0%
Non-branded	2.4%	(7.5%)	(2.7%)	(2.0%)	(7.2%)	(3.9%)
Total	12.7%	0.6%	9.0%	17.1%	1.3%	12.5%

 

Trading update

 

The Group delivered another exceptional quarter of trading in Q3 with sales growth of 9.0% compared to the prior year, and 12.5% ahead on a year to date basis. Grocery Brands were the significant contributor to this performance, as sales increased 14.6% in the quarter and 20.8% year to date. Sales of Non-branded products were (2.7%) lower in the period. The Group continues to outperform its markets, gaining both volume and value market share³ across the quarter.

 

The vast majority of the Group's Grocery brands continued to see substantial growth with more meals eaten at home by consumers, reflecting further pandemic lockdown restrictions in the UK. Sales of Sharwood's cooking sauces grew by 40% in Q3 due to strong commercial plans and new product launches while Bisto and Batchelors both reported healthy double digit sales growth, supported by increased investment in television advertising. Ambrosia also delivered increased sales in the quarter, benefitting from a new TV advertisement campaign.

 

The Group continued to realise household penetration gains in the quarter, especially in its Grocery categories as consumers looked for variety in their meals prepared at home. Online saw sales growth of +90%, slightly ahead of the market, with notable share gains in Flavourings and Seasonings.

 

In Sweet Treats, Mr. Kipling is on track for another record year, with UK sales up 7% in the quarter, alongside further market share gains. Mr. Kipling has continued to benefit from the launch of new product ranges and an extended period of marketing investment. The Group has also just launched Mr Kipling 30% less sugar Viennese Whirls. Cadbury cake also grew market share³ and saw sales increase both in the UK and overseas.

 

Non-branded Grocery sales increased by 2.4% in the quarter as increased demand for own label retailer brand products were partly offset by a decline in sales at Charnwood Foods due to lockdown restrictions. Sweet Treats non-branded sales were (7.5%) lower following the exit of a low margin seasonal contract.

 

The International business grew strongly in the quarter, up +43%⁴, partly helped by buy in of products ahead of the 31 December EU exit date. Execution of the new strategy has continued at pace, as the Group rolls out its proven branded growth model strategy to other markets. In Ireland, Nissin Soba noodle blocks were launched in Q3, while in Q4 both Mr Kipling and Bisto will be supported by TV advertising investment. In Australia, all the Group's major listed brands, Sharwood's, Mr Kipling and Cadbury cake delivered very healthy sales growth in the quarter. Sharwood's also enjoyed growth across a number of other geographies, with sales nearly doubling, and was particularly strong in the US due to vastly improved in market execution, achieving 3,000 new distribution points. In Canada, the in market test on Mr Kipling cake has also performed well, with encouraging rate of sale metrics.

 

In advance of the end of the EU exit transition period, the Group developed a comprehensive set of mitigation plans and preparations to ensure continuity of supply of its products. With a free trade agreement with the EU now in place, the Group is not expecting any material impact from tariff changes. To date, these new arrangements have not resulted in any major disruption to the Group's supply chain.

 

US distribution arrangement

 

The Group's International strategy is to deliver sustainable profitable growth with a major emphasis on in-market execution and ensuring the most optimal route to market for its brands. In line with this strategy, the Group has recently signed an agreement with Weston Foods⁶ to sell and market Mr Kipling cakes in the US. The first shipments of cake are expected to commence in the first quarter of FY21/22.

 

Floating rate bond part redemption

 

The Group today announces that following strong cash generation in the third quarter, it will be redeeming a further £40m part redemption of its Floating Rate Notes due July 2022⁷. This follows previous part redemptions earlier this year which amounted to £120m. This redemption is due to take place on 16 February 2021, will reduce the amount outstanding on the Notes⁷ to £50m and save the Group a further £2m per annum in interest costs. Following this redemption, an aggregate of £160m of the Notes will have been repaid during FY20/21, generating total pro forma interest savings of £8m per annum.

 

A certificate has been provided to HSBC Corporate Trustee Company (UK) Limited, as Trustee, and HSBC Bank plc, as paying agent, for the Group's Senior Secured Floating Rate Notes due July 2022⁷, notifying of its intention to redeem £40 million of the £90 million outstanding. This is in line with requirements of the Indenture of the Notes⁷. Further to the certificate, the Group hereby confirms that, pursuant to the terms of the Indenture⁸, £40 million of the Notes will be redeemed at par, plus accrued and unpaid interest up to, but excluding, the redemption date⁹. The redemption date is 16 February 2021 and the record date is 15 February 2021.

 

Capital reduction

 

At an EGM held on 11 January 2021, a resolution for a capital reduction was approved by shareholders. Following this approval, confirmation by the Court is required and this is expected to be granted in February 2021. The Board believes that this capital reduction will provide greater flexibility in how the Company manages its capital resources going forward, such as the ability to pay dividends, should the Board determine it is appropriate to do so. However, it should be noted that the Company has not made any decision as to the use of any such realised profits.

 

53 week financial year

 

This year the Group will be presenting its Full year results for the 53 weeks ending 3 April 2021 with the comparative period of the 52 weeks ended 28 March 2020. The Group plans to provide proforma Revenue and Trading profit on a 52 week ending basis in respect of this financial year's results to aid comparison against the prior year.

 

Outlook

 

In a year when many peoples' lives have been altered by the impacts of the global pandemic, the Board is hugely appreciative of all colleagues who have helped play their part in keeping everyone safe and the nation fed. Following the delivery of another strong period of trading, the Group will continue to increase its investment in brand advertising and has further new product development planned for quarter four. The Group now expects FY20/21 Trading profit to be in the range of £145-£150m and for Net debt/EBITDA⁵ to be below 2.0x by the year end.