Premier Foods plc (PFD) Earnings Call Transcript & Summary

Ladies and gentlemen, I'd like to welcome you all to the Premier Foods Preliminary Results Full Year 2022 to 2023 Bond Investor Conference Call. My name is Brika, and I'll be your event specialist in today's call. [Operator Instructions] Thank you. I would now like to hand the conference over to Alex Whitehouse, CEO, to begin. So Alex, please go ahead when you're ready.

Thank you very much, and good afternoon, everybody. Thanks for joining the call. I'm just going to go through a couple of slides by way of introduction that were in the analyst presentation this morning. That's something you can find on the website, if you haven't already got that open. But we'll go through that quite quickly, and then I think we'll just open it up to questions. So backing off the first slide, which is number to Slide 3 in the analyst deck. I think the key message for us is that it was another really strong year. We came in slightly better than we expected and, therefore, slightly better than the already operated guidance we've given during our quarter 4. Revenue was up -- was up 11.8% and surpassed GBP 1 billion of turnover for the first time for the company in its current [ guise ]. Then we continue to take market share in our Grocery brands, so 64 basis points of market share gain. And that accelerated as we went through the year. So half 2 was stronger than half 1 and quarter 4 was actually over 90 basis points of share gain. Trading profit of GBP 158 million was up 11.5%. And so trading profit margin of 15.7% was in line with prior year. And what does that mean? It means we managed to offset all that significant inflation, input cost pressure, and we did that through a series of efficiency and cost-saving initiatives, plus obviously some pricing. Adjusted PBT was up 13% at GBP 137 million. And the net debt fell to 1.5x EBITDA. So that's now in line with our medium-term target. That, of course, is even after paying for The Spice Tailor, which we bought through the year and then obviously funded back from within 1 year's cash generation and still with some leftover that brought that net debt number down. Recommended dividend from the Board is a 20% increase versus prior year to ahead of earnings growth. And then I think the really big news for me is on pensions. So this was the tri-annual valuation, which we just got through. As you remember, we put a new pension arrangement in place a couple of years or so ago, and this is sort of the first big sort of evidence of that structure, really working and delivering what we expected it to. In fact, actually, I think it's fair to say better than we expected it to. So what we're seeing there is now a 50% reduction in the NPV of the deficit contributions that the company is liable for. And actually then we've negotiated, in total, we end up with a reduction in payments immediately of GBP 6 million a year. And so much so, as I say, that's better than we expected to be. And though we've now changed what we're targeting, so what we were originally targeting with this pensions arrangement was that we would significantly reduce the ongoing contributions that the company would have to pay at the RHM scheme [ helped ] fund, the deficit in the Premier Foods scheme. But in actual fact, what we're now doing is we're now targeting a total reduction of those contributions. So when you finish up with two fully funded schemes, and so consequently, there would be no deficit payments due by the company, and we're thinking that's probably about 3 years away. And so that's targeting a much better outcome than we had originally expected. So I turn over to the page, if you go to made is Page 4, so strategic progress. We've made good strategic progress against all five pillars of our growth strategy, so growing the U.K. core. Obviously, that's the majority of the business right now, having a strong growing U.K. core, which consequently really important and actually the foundation for everything else. So a 3-year average growth rate there now 5.3%. And the second pillar is investing in infrastructure, and we do that for two reasons: one, to be able to manufacture the new products that we bring to market because our growth model is quite heavy on new products, but also to improve efficiency, and those efficiencies flow through to margins. And we invest that back or some of it at least back into driving the brand growth through brand investment. And the third pillar, category expansion. So we've got about four tests in market of where we've extended our brands into new categories. So we're the leader in our five core categories. And this is about extending those brand franchises into additional categories where historically we haven't played, and so generating white space new incremental revenue. And pleased to say those experiments are working really well. A 33% increase in the size of those tests last year with stand-out performance being Ambrosia Porridge. The International business continues to perform well, double-digit growth again and good performance across the board, but also a lot of strategic progress as well. If you sort of look underneath that growth number, there's a lot of really good foundational strategic work going on still that business much bigger over time. And then finally, inorganic opportunities. So this is a looking to buy brands where we believe that the application of our branded growth model to those brands would give a significant value generation. So a great example of that was buying The Spice Tailor during the year. It was a brand that was already growing at 20%. But already, the application of our growth model has notched that up so that it delivered 25% growth during the year. So really good strategic progress across the board and coupled with that strong financial position and financial [ POS ] , I think, [ POS ] us in a really good position for this year. We take a lot of momentum into the year. We already actually were about 6 weeks into the year, and we've already made a pretty good start. We've got lots of plans in place across all of those five strategic pillars. And so I think, overall, we're feeling good, we're in good shape and well set for another year of good performance this year. So that's something that concludes my summary. I think quite happy for questions now.

[Operator Instructions] We have a question on the line from Neill Keaney at JPMorgan.

Congrats on the results, Alex, ahead of my estimates as well. Just a question on capital allocation going forward now that you're at your leverage target, further acquisitions will be considered. I assume as per in the statements in the presentation, should we expect those to be bolt-on in nature again? Or is there anything larger we should be aware of? And secondly, in terms of the dividend policy, should we expect that to continue as progressively as we've seen it so far?

Yes. Thanks, Neill, and good questions. I think I'll take the first one and Duncan can pick up on the second one. So yes, so we continue to look for additional brands that we might buy as saying where we can apply the model, just like Spice Tailor and, therefore, generate more value. Yes, I would think of the Spice Tailor has been a bit of a blueprint. So like that sort of magnitude of bolt-ons as we call them, that seems to be the right thing for us to do at the moment. It's probably a good way to think about it.

And then just on -- yes, just on second part of the dividend, I mean we -- this is only our third year of paying dividends. And we started from a [indiscernible] base of a [indiscernible] So Yes, So we talked about progressing here, and we've been doing that so this is a second year of 20% Increase as you suggest. Now I think in terms of relative speed of progression, I guess the reason it's -- we've are growing higher than earnings over the last couple of years is recognizing that's more base from the customer. So we're not still not particularly huge part of where our capital goes, I think we'll continue to be in review. We're necessary expect it's going to be GBP 20 million, [indiscernible] opportunity but obviously, from a small base, [indiscernible] to step it up to more in the first few years, and then we'll continue to keep it under view.

Great. Appreciate both of those. And just the leverage target remains as an underpinning of the capital allocation policy in general, right?

Yes. So clearly, it might fluctuate a bit, it might go up -- be to make that position. Period of time when its down it will continue to decrease where it was at year-end and in turn of medium-term target and where we'd want to get it back to even after 1.5x still comes about right.