Premier Foods plc (PFD) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Premier Foods Quarter 1 Analyst Conference Call. My name is Kiki, and I will be coordinating the call today. During the presentation, your line will be muted. [Operator Instructions] I will now hand you over to your host, CEO, Alex Whitehouse to begin. Alex, please go ahead. Thank you.

Thank you very much, and good morning, everyone. Thanks for joining this our quarter 1 trading update call, and it covers the 13 weeks up to the 29th of June this year. I'm joined on the call this morning as usual by Duncan Leggett, our CFO. And I'll start by giving a few headlines of our trading in the quarter and then dive into a few key areas to provide a bit more detail before, as usual, passing to you for questions. And also, just as a reminder, we are today holding our AGM that's at 11:00 this morning, and we'll be hosting that at our offices here in St. Albans and also with an option of attending virtually just like we've done last year. So if there are any shareholders who would like to attend and don't yet have the details, then please do contact Richard Godden in Investor Relations for details of how to attend. So I'll then to the quarter 1 results, and I'm pleased to report that once again, we've had a very good start to the year. As you know, our business model is all about building the grain brands. And the shape of the numbers we reported this morning certainly reflect that. So sales growth for the quarter was 5.3%, with branded sales growing 7.3%. And this was, of course, against some very strong year-ago comps of plus 21% and plus 17.5%, respectively. So overall, as I say, a very good start to the year. Now as we said back in May that when we exited last year, we were back in branded volume growth, and that we expect this to continue into this year, and that's exactly what was played out in this first quarter. And I'm pleased to say that we've delivered some very healthy volume growth in both our Grocery and Sweet Treats businesses. And this is a testament to both the end of our brands and with our leading category positions and the effectiveness of our well-proven branded growth model. We've also continued with a slightly sharper promotional pricing that we introduced towards the end of last year, which has been very successful in bringing more consumers into our brands. And we've also increased market shares across the board on both a volume and value basis. And you may also recall that back in May, we said that we've grown grocery market share by 200 basis points over the previous 3 years. So we're very pleased to have delivered further share growth on top of these already tough comparatives. As we said before, not only is this due to the strength of our brands, but also very importantly down towards continuing to drive our branded growth model and delivering against our 5 pillar growth strategy, but I'll come back to that shortly. In terms of strategic progress against the 5-pillar growth strategy, you will remember that one of those pillars is expanding our brands into new categories in the U.K. And I'm pleased to say that we've continued the strong momentum in those new categories with sales up 68%. Similarly, if we look at the strategic pillar of expanding overseas, we've also delivered a strong quarter with sales in our overseas markets up 24% at constant currency. So good progress on those strategic pillars as well, of course, driving the core U.K. business. So with this very positive start and with strong plans for the rest of the year, I'd say that we're on track at this early stage in the year, and so our expectations for the full year are unchanged. So let's take a look at some of the progress in this first quarter. But before I do, I'd just like to remind us of our branded growth model, which is at the core of what we do and is the reason why we've been able to deliver such consistent strong performance over the last 5 years or so. So we start with a portfolio of brands, which are leaders in their categories and have got very high household penetration. And then we listen very carefully to consumers to bring to market insightful new products which are based on current consumer needs and trends. We then support many of our brands with mostly engaged in advertising and impactful marketing campaigns. And then finally and importantly, we work closely with our key retail partners delivering excellent in-store execution for our brands. So turning to our grocery business then. And as I highlighted at the start the growth we've delivered this quarter was driven by our brands and very much volume led. So we're a really good quality shape to the trading. And as I mentioned, we also grew both volume and value market share within this. And it was a very broad base and strong performance all around and a similar pattern to that which we reported in quarter 4. Total grocery sales grew by 7.1% with branded up 8.6% in the quarter. Lots of very good performances across the brands, but I'd particularly call out Nissin and The Spice Tailor are doing particularly well. The Spice Tailor, in fact, continued to deliver some very strong growth, well into double-digit percentages. And towards the end of the quarter, we expanded the core Indian range with new Indian kits in Balti, Jalfrezi, Madras and Mango curry vegan. This is a significant expansion of that core Spice Tailor Indian range. But in addition, after some significant work by our chefs behind the scenes. Since we acquired the brand, we're now starting to expand the brand into different cuisines and with the first step being into Chinese with a new range of Chinese kits, which started to hit the shelves at the back of the quarter. Over the previous 5 years, sales of the Nissin brand have grown especially strongly, in fact, by 54% on average every year. And the brand is now as big as our [ grocery ] and sources business in revenue terms. And this performance extended into quarter 1 with Nissin Soba noodle pots continuing to grow very well with the larger performance, a strong contributor to the quarter sales. As we look to quarter 2, we'll also start distributing the Nissin Demae Ramen noodle range, which now gives us some presence in the world food aisle of the store. Elsewhere in Grocery, we launched Loyd Grossman Tomato & Mascarpone sauce, which has started very well. And we're also about to launch Lloyd Grossman Pesto in quarter 2. Fuel10K delivered very strong increased sales in its flagship chocolate granola in the quarter due to continued good performance across the multiple retailers. And as we look for the rest of the year, we've recently launched products, including a new 25-gram protein breakfast shake range and also a range of nutritionally complete meal solutions, the latter coming in both rice and shake formats. Non-branded Grocery sales were 5.1% lower in the quarter and this is due to a couple of things. Firstly, we saw a decline in own label desserts partially due to some switching from own label into our Ambrosia brand as we sharpen those promotional prices on our core custard and rice pudding. Secondly, we made a conscious decision to exit a non-branded noodles contract with the customer. So these are the main drivers of the movements in the quarter. Moving then on to Sweet Treats. The growth was also in volume and brand driven. So branded sales grew by 3.5% with overall sales up 0.4%. Mr. Kipling Indulgent Signature Brownie Bites, which we originally launched just over a year ago, more than doubled sales compared to the same time last year. In the quarter, we also partnered with the Despicable Me 4 movie to deliver impactful install activity together with on-pace promotions for Mr. Kipling Snack Pack slices. And this is across all the Mr. Kipling Snack pack Slice flavor variants, and also included the launch of Banana slices. And this contributed to growth against a strong year ago comparative when we benefited from products and promotional activity associated with the King's Coronation. And then Cadbury sales were, in fact, in line with last year, which is a good performance given the slightly earlier timing of Easter in 2024, meaning that some sales fell into our previous financial year this time around. Our non-branded sales in Sweet Treats declined by 16%, and this was down some switching from own label into our brands helped by the more competitive promotional price points that we introduced last year on Mr. Kipling and Cadbury. There are also some conscious contract exits that we've made in battenberg and fancies in some customers. So moving into our other strategic growth pillars. I'm sure you recall that one of these pillars is to deliver growth in our overseas markets. And as I've said before, our focus markets are Australasia, North America and EMEA. And within these target markets, we're currently focused on Mr. Kipling, Sharwood's and the Spice Tailor brands. As I mentioned earlier, our overseas sales at constant currency grew by 24% in quarter 1. In North America, sales grew by 21% as we rolled out Mr. Kipling cake slices to another 800 stores in Canada and while in the U.S., we launched the first Spice Tailor products, which were into Food Lion stores. And sales of Mr. Kipling in Canada are now building in Walmart and in 7-Eleven. Additionally, we're continuing to work on driving the rate of sale of Mr. Kipling products in the U.S. We made further good progress in EMEA as we continue to gain distribution of Sharwood's and the Spice Tailor. We've now achieved listings of the Spice Tailor in 11 countries having out of Germany to the list in the quarter. So in Europe, the Spice Tailor therefore, now listed in retailers in France, Belgium, Switzerland and Germany. In Australia, sales grow up quite substantially with strong sales in both cake and cooking sources. Sharwood sales increased following the introduction of new family-sized Sharwood's Indian cooking sources as we cement our leading position in the Indian cooking sauces category. Cake continued to perform really well in market, helped by recent new product launches and a broader advertising campaign. And also as a reminder, as we've mentioned before, a year ago comps on cake are actually very soft as this time last year, retailers were reducing stock levels of cake due to reduced shipping lead times. And given we've now got leadership positions in Australia in both cake and in Indian sauces, we're starting to expand our footprint into further categories. So in the quarter, we launched our Bisto Best Gravy Jars from the U.K. although as we don't own the Bisto name down, they're branded as Paxo's. So It is Paxo's Best Gravy. It's early days, but we've been pleasantly surprised by how well its selling, and we're already looking to expand the range of flavors available. Now I mentioned that our sales in new categories increased by 68%. And you may recall this is very similar to the trend we delivered last year when revenues grew by 72%, although, of course, this is now of a larger brands. In the quarter, we actually tripled sales of Angel Delight and Mr Kipling ice cream as we further expanded the distribution and the ice cream tubs have performed really well. And if you were to rank all the brands of ice cream tubs in the category by how fast they sell than we are generally in the top half. So still early days, but really encouraging. We also saw the benefit of the recently launched Angel Delight handheld format and this is in Classic Angel Delight flavors, including Butterscotch and Banana and then coated in chocolate. So also in our new categories, we've talked a lot about Ambrosia porridge pots, which have become an established presence in the breakfast category, and they continue to grow very strongly, up 66% so far this year, again, with a higher market share than the same quarter last year, which is around the 10% share mark. Additionally, both Oxo rubs and Capers and spice grew double digits in the period as well. And then just as a reminder, our final strategic growth pillar is to look for inorganic opportunities, which we can bring into Premier Foods and deliver further growth by leveraging the strength of our branded growth model. And that was a key principle we applied when we assess the fit of both the Spice Tailor and Fuel10K. As we've said before, we'll continue to explore further inorganic opportunities where we believe we can add value by applying our branded growth model. And of course, we've now got greater flexibility in terms of size of opportunities that we can consider given the strength of our balance sheet. However, and also, as we've said before, we are quite picky in this area, and we'll update you when we've got anything more we can share. So with that summary of some of the main elements of trading in the quarter, I'm now going to hand over to Duncan, who's going to talk briefly about a change to our international reporting and also a favorable update to our financing arrangements.

Many thanks, Alex, and good morning, everyone. So with that extent, just a couple of things for me. You may have seen from the RNS this morning that we've amended how we talk about our international business. So previously, Ireland was managed by the international team. But during Q1, we changed this. So Ireland now reports to our U.K. business. So the international team is now focused on growing in our current target markets of Australasia, North America and EMEA, as Alex outlined a few moments ago, and we'll talk about this space, we talk about performance on this basis going forward. And as a lot of the change, really good news. Ireland will benefit from the roll through of some of our marketing programs from the U.K. as well as the faster rolling out of new products. Now just to be clear, just a reminder, this doesn't change our reported segments of Grocery and Sweet Treats. International [indiscernible] that will be reported as part of the grocery business. It just impacts and when we talk about asset related [indiscernible] performance the measure that we use. So secondly, I'm really pleased to announce we've agreed a new revolving credit facility with our banking group that's actually a more favorable term than the previous facility. You may have seen this morning, but this new agreement is a 5-year agreement to give us a nice platform of certainty and attracts an initial margin of 2% above. It was 2.25% previously and it's larger. So the facility increases from GBP 175 million to GBP 227.5 million. So we really appreciate the support of our banking group in coming to this agreement. I think this really got back to the strong progress we've made in the business over the last few years and of course, gives us more committed funds over a longer period as we continue to execute our strategy. We also know we got our fixed rate bonds, they mature in October 2026. And you'll have seen this morning our cash guidance for the year is unchanged. So that's it for me, and I'll now hand back to Alex to sum up.

Thank you, Duncan for that. Really good news on the RCF. So look, in summary, we've had a really good start to the year with a strong quarter 1. That sets us up nicely for the rest of the year. It's particularly pleasing to see the strong growth of our brands and that turnover growth is being driven by some very strong volume growth, which is just as we expected. As we look forward to the rest of the year, we expect to see further volume-led growth. And of course, we'll be continuing to support our brands, bringing a number of new products to market as well as building further distribution of our brands over cities. And some of the strong first quarter behind us, particularly for our branded portfolio, we're on track and our expectations for the year are unchanged. So thank you very much for your time. I will now pass back to the operator, and we will be very happy to take your questions.

[Operator Instructions] First question is from James Edward Jones from RBC.

I've got three questions actually. All around the promotional spending. What's happened to your price gap particularly private label as a result of the promotional spending increases that you put through? Secondly, how many categories or brands shown particular price elasticity or responsiveness to this promotion activity? And third, have you noticed any response from competitors either on label or branded, any increased promotional activity from others in response to your actions?

James, thank you for that. So price gap with private label. So yes, I mean, obviously, that has decreased, and that was very much the intent. So we've got a pretty good understanding and this will probably actually dovetail into your second question. And one of the things that we see as a key strength is that we're quite analytical about all this stuff. It's very mass based. We're not making judgment calls on commercial activity. We're making very sort of matter-based decisions. And we've got a really good understanding of where our price elasticities are across our brands. I suppose what changed over the last couple of years is the extents of inflation in total over that 2-year period. Meant that a lot of our models, our models were broken, and we have to rebuild them in the new environment? But what we're seeing really is that as we shop on those promotional price points, we've done it where we know we're going to see the greatest price elasticity and so therefore, get the greatest gains and also consequently, the greatest volume leverage back through our factories. So yes, that does manifest itself in a tightening of pricing gap versus private label and we are seeing exactly what we saw when we increased our prices. Is that take is a more price elastic category. And that's one of the reasons why we're seeing, I think, quite a significant swing of volume back from private label into the brands since we sharpen those promotional price points. In terms of competitive response, not a great deal to note, I think, at this point. You've got to bear in mind, we don't necessarily have direct competitors in most of the categories we operate in. Our private label obviously always be as competitive as it possibly can be. There aren't that many categories where we've got a head-to-head branded competitor. But what we also know, and I've talked about this before, is that a number of the areas where we have got competitors were still trying to recover pricing that may can rebuild our margins sort of behind us, they were sort of lagging behind. So we are still seeing some slight increases coming through in a number of categories. Hopefully, that answers that, James.

The next question is from Andrew Ford from Peel Hunt.

Alex and Duncan. Well done on a great first quarter. A couple for me, if I can. The exceptional branded growth number. You said it was broad-based across the brands. But I wondered just on the customer side, is there any particular ones that you're outperforming in -- and can you give us a quick update on Fuel10K? Still early days there, but I just wondered if there was any early things you can tell us about what you're seeing. And lastly, in international, some impressive distribution gains in North America. I think you're up to 4,000 stores now from 1,400. How should we think about that over the next 12 months? Is the focus now on throughput in those stores? And maybe at what point does the supply -- your ability to supply become an issue there and maybe limit your growth. Yes, those two for me.

Thank you very much for that. So yes, so broad-based growth across the brands are absolutely right. We don't specifically comment on individual customer performance. But probably the way to think about it is, I would say, broadly in line with what you're seeing in terms of customers' performance in the market if that helps. And then Fuel10K what we are seeing. Well, actually, a lot of excitement in the commercial team. It's probably the main thing I'm seeing. So obviously, we've got a great ambition when we bought the brand. But I think what's playing out in real life is actually that there's more opportunity here than we even originally thought. So a lot of opportunity that's currently being pursued in terms of closing distribution gaps. So products are performing really well, but haven't got the distribution they deserve for that level of performance. And so the sales team are all over that at the moment. There are some new products that are actually coming to market now are going to come to market later in the year. And that -- those are things which the Fuel10K team were already working on and we will continue to pursue. And then a little bit further down the line, there's a lot more new product development going on, but that will not make it to market this year. Of course, that will be more the year after and probably the year after that. So plenty, plenty to go at. In addition, we're now starting to evaluate the possibility that Fuel10K could be launched into some of our overseas markets. That was not something that we assumed in our acquisition model because we didn't update it to validate it. So anything that we can do with the brand overseas will obviously therefore be incremental to admittedly internal assumptions for when we bought the brand. So yes, lots of exciting stuff happening. International, yes, 4000 stores in the U.S. now. I think this year, will we see more stores probably. But actually, there's more focus now on making sure that we're getting all the nuts and bolts right on a daily basis. So have we got the right products in the right stores at the right price with the right promotional frequency and following that up making sure that all the execution is spot on because we know that in FMCG in-store execution is incredibly important, even if you've got a great product. So what I'd like to do is have the team focused on that now and making it work. And then more stores will come after if that makes sense.

Great. And just on the ability of your limit on the supply side, is there -- yes, I assume there's no sort of concerns around that if you're maintaining the 4,000 stores. But yes...

Yes. Sorry, I forgot to answer that part. Yes. So there's something we did quite a bit of work on before we decided to take the brand into the states. And we've got sufficient capacity that we can turn on in the U.K. should we need it. And that would last us quite a long time. I think in some of our absolute best case scenarios, and I really mean best case scenario is. We could theoretically get to a point where we would need to put some extra capacity in somewhere. And then we'd have to have an interesting discussion about whether that's in the U.K. or whether it's somewhere in North America, but we are I would say, best case scenarios and several years down the line anyway. So not something we need to think about right now.

The next question is from Damian McNeela from Deutsche Bank.

Just a few for me, please. Firstly, on the Q1 performance, I was wondering whether you could indicate to what extent the poor weather trends aided the performance or whether you believe it is or just down to the sort of the branded growth model and the promotional campaign that you've been conducting and then allied to that, whether you could sort of give us a sense of the shape of price and volumes for the remainder of the year, should we expect the sustained level of promotional activity for the remainder of the year? And then finally, on the International business. Clearly, we've got some very good growth boosted by distribution, but I was wondering whether you could give us a sense of underlying rate of sales for the U.S. business, please?

Damian yes, thanks for that. So quarter 1 performance was it affected by weather, probably a bit. We know that we've got some weather sensitivity in our portfolio. We've always been very clear on that. When it's called it ounces and when it's warm it to have the opposite effect. The quarter was interesting, though, because May, for example, was the hottest May on record. So in that sense, that didn't help us talk. But then June was obviously pretty wet, although warm and wet. So it's kind of interesting. When you take it all into account, did it help us probably a bit, but I wouldn't call it out as being a major driver of performance in the quarter, if that was what was around the question. The shape of price and volume for the rest of the year. So yes, we expect that the strong volume growth will continue as we continue with those shop operational price points because they've worked very well for us. What you've got to bear in mind that as we go into the half of the year, that's when we started to implement some of those shopper price points on cake first and then following on from that in quarter 4 on Grocery. So I'd expect to see some tapering off of the volume growth in the second half of the year. But at the same time, that reduction in price per unit will also fall away as well. So we've probably got first half driven by volume and then that's starting to take off in half 2, if that makes sense.

Yes. That's clear.

And sorry, the final question on the international business. Underlying rate of sale in the state, I cannot give you an easy answer on that because it's very much a function of the individual stores, the individual store types, the U.S. retail markets. You probably realize is incredibly fragmented and complicated. It's actually quite difficult even to get data out of a number of that will have a lot of the stores to be honest with you. But what we do have is some data in some stores where we are able to track rate of sale compared to other cake products, and that's what the local team are using as a benchmark to measure themselves against. But other than that, there's not a lot more I can give you, I'm afraid.

Thank you. We've got next question from Darren Shirley from Shore Capital.

Yes. First question is on acquisitions. I mean, obviously, a key part of your growth strategy going forward. I mean how would you guys sort of categorize the marketplace you're operating in that respect? I mean, in terms of -- is there plenty of opportunities out there, how would you look at sort of end demands and requirements are they being sort of realistic? And then how was sort of the flow into you evolved since Spice Tailor and 10K? Are you now a significant protocol for a lot of potential vendors. Any sort of thoughts on that would be good.

Yes, I mean you're absolutely right, it's a core part of our pillar growth strategy. I think it's an interesting question. Other plenty of opportunities. But there's certainly plenty of things out there. But as we've said many times, we are pretty fussy and we chose very, very carefully with both of the two acquisitions that we've made so far, and we will continue to be just as fussy. So whilst there's a lot of stuff out there, there's only a few things that are going to frankly pass muster and make it on to the short list. So we continue to sit through enormous number of possibilities to get down to the few gems. So that continues to be -- continues to be divest the game plan. Are we becoming a go-to place for vendors and advisers, I think so, yes, because we've been very clear what we're trying to do and very clear on what we're looking for. And so as things come up, we definitely hear about them. But also bear in mind that both on the Spice Tailor and Fuel10K, neither of those were openly for sale. They were brands we liked and lend and approach the owners and managed to convince them we would be a good home. And so we continue to take that approach as well. We're not just waiting to see what comes up, if you see what I mean.

Yes, yes. Because I mean, our model and I think sort of consensus suggests that, I mean that the leverage is going to fall quite nicely and cash starts to build actually over the medium term. I mean it would you be comfortable to see that sort of dynamic play out if the right opportunity comes along. I mean, did you feel under pressure to do deals in any respect?

I don't think we feel under pressure to do deals, but at the end of the day, it is a core pillar of the strategy. So we continue to work very hard on it. But what we won't do is we won't do the wrong deal just for the sake of it. And the strengthening balance sheet position down on it just means that the things we look at, we can consider things are a bit bigger than we've been able to so far.

Makes sense. And then just within international, I mean, obviously, sort of mid-20s growth across the board is great. But I looked at the EMEA number at 6%, and you were talking about sort of extra distributions and that in there. Is there anything we should be aware of within that 6% that looks a little bit subdued, can I say?

Yes. You probably noticed we used to talk about Europe didn't we, and we've now started to talk about EMEA. And the reason for that is but we see some opportunity in the Middle East. We've got a bit of recovery business down there. We're starting to take the Spice Tailor into EMEA as well. But it's really early days. And if you actually took that out and just looked at Europe under the measure we would have used historically that it was not, in fact, double-digit growth again.

Okay. That's clear.

Thank you. [Operator Instructions] We currently have no further questions. So I shall hand back to CEO, Alex Whitehouse for the closing remarks.

Well, thanks, everybody, for dialing in this morning, and thanks for the helpful questions. So as I said, look, in summary, we're off to a nice start. It's always good to be in a good position at the end of quarter 1. But it is only quarter 1, we still got the rest of the year to go. But as I said, it does set us up quite nicely for the rest of the year. And so as I said before, on track, and therefore, no change to outlook. But thanks again for everybody for dialing in.

This concludes today's call. Thank you for joining. You may now disconnect your lines.