Premier Foods plc ($PFD)

Welcome to Premier Foods Full year results. That's for the 52 weeks that ended on the 28th of March this year. As always, I'm here with Duncan, our CFO, and what we'll do is usual double act. I'll take us through some highlights. Duncan can then run us through all the financials, and I'll come back and show you the progress we've made against our 5-pillar growth strategy this year. At least I was hoping that's what I was going to do. So you might remember that we had a really strong quarter 3 and a really strong Christmas, really important period of time for us, of course, with some really strong second half branded growth. Well, that carried on through quarter 4. And actually, quarter 4 branded growth in the U.K. was up 5.1%, and that brought the second half to 5% overall. There's a bit of phasing there from Easter. We had a really strong Easter as well. Easter falls into our quarter 1, but actually, the shipments go out largely in quarter 4. But remember that an early cold Easter is generally good for us because that means more people are eating roast dinners and less people are getting the barbecue out. So an early cold Easter was good, and that helped us as well, and we took quite a lot of market share there as well. And that led us to more profit delivery than we expected. So we raised our guidance after that strong Christmas at the end of Q3, but that strong Q4 came in better than we thought. And so therefore, profit came in overall better than those raised expectations. And the other bit of interesting news we've got today, it was given the continued strong performance of the business, our strong cash generation and the strength of the balance sheet, the Board is currently planning to introduce an interim dividend starting with the current financial year. So that will be off the back of our half year results this year when we talk about those next November. So if we run through the headline numbers, then revenue came in at GBP 1.175 billion, that's up 2.5% versus a year ago. But that second half being stronger, up plus 3.8%. But then, of course, importantly for us, because we focus on building the brand, branded revenue was GBP 1.042 billion, that was up 3.4% with that second half coming in more strongly at 4.7% growth. That included taking more market share. So we increased our market share both in Grocery and in Sweet Treats during the year. And not just in the U.K., actually, we also did that in Australia, which is our biggest market outside of the U.K. And actually, it's the only other market that we've got reliable data for. So in the 2 markets where we've got good data, we increased market share, both Grocery and Sweet Treats. That got us to that trading profit, which crossed GBP 200 million, up 6.7% versus a year ago, and as I say, ahead of the previously raised guidance. Adjusted EPS 15.8p was 8.7% ahead of a year ago, and that runs faster, if you like, in terms of growth and trading profit because obviously, we've got lower interest costs year-on-year. Free cash flow, GBP 153 million was up 9.1% and that helped bring net debt to EBITDA down to 0.4x, that was a GBP 48 million reduction. And bear in mind, of course, that's after investing that capital back into our manufacturing infrastructure, which is obviously a core pillar of our strategy. But it's also after the acquisition of Merchant Gourmet, which we completed during the year. So dividend for the last financial year then is a 20% increase on prior year, so well ahead of earnings. And as I say, the Board is currently also planning to introduce that interim dividend from this year onwards. So a nice set of financial numbers overall that we're really pleased with. But at the same time, we also made good progress against our branded growth strategy. So we've seen the left-hand side numbers. Remember, that's growing the core U.K. So brands in the U.K. grew by 3.7%, 5% in half 2. Infrastructure investment, we invested GBP 52 million. That was up 25% versus the prior year as we continue to invest into more projects in our manufacturing sites, which at the end of the day makes us more efficient and helps fund the brand expansion. And the third pillar of expanding into new categories. Growth there was 37% as we continue to expand the business outside its traditional core categories into new areas. I'll come back to these in more detail later. And the international business, made some really strong in-market performances and some really good progress, but it was offset by that reduction in stock of cake that's held in Australia, which I mentioned at the half year, and I'll come back and talk about that in a bit more detail. And then inorganic opportunities like the brands we bought. We bought 3 brands now in recent years, all performed fantastically well. Actually, they all grew by double digit and Merchant Gourmet is already running ahead of the acquisition model on which we based our acquisition. So really, really good, I think, progress against the 5 pillars. We thought it might be interesting to look at the numbers in a bit of context actually and look at this over a 5-year run because what you see is you see this consistent strong performance year after year after year. So it doesn't really matter which KPI we look at. If you look at branded revenue at the top left, it's just consistent strong growth, 7.7% on average. Trading profit in the middle top here, that's running actually ahead of the growth rate of revenue and actually moving from 2021, GBP 141 million to the GBP 200 million that we've announced today. Similar position for EPS up to that 15.8p. And indeed, free cash flow down at the bottom left there, moving from GBP 65 million in '21, '22 up to the GBP 153 million today, so more than doubling over that period of time. And that obviously helps drive net debt to EBITDA down from the 1.7x to the 0.4x today. And then finally, on dividend per share, we introduced that actually in the previous period in FY 2021 at GBP 0.01 a share, and we've moved that up ahead of earnings every year with that big step-up last year. Remember, that was the repurposing of the dividend match to the pensions. And then obviously, we've built on that by 20% this year. So when I stand back and look at that, it's a good strong consistent performance over multiple years. And I think that just points to the robustness of the strategy and also the brand building model that sits behind it. And so with that, I'll hand over to Duncan, and he can walk us through the numbers.

Thanks, Alex, and good morning, everyone. So I'll start off with a few sort of financial headlines. Firstly, trading profit we've just heard is ahead of the expectations we raised back in January. So that's up 6.7% versus prior year. Alex has mentioned free cash flow, but generating cash has always been one of Premier Foods strengths. It's actually previously, it's obviously gone to servicing the pension scheme and our debt. The good news is now we can invest it back behind the business. And obviously, that's helped reduce leverage down to 0.4x. And as Alex has just mentioned, really pleased to announce we're currently planning to introduce the interim dividend from this financial year. So that will be over and above the final dividend that will come on top. And obviously, we'll share more details of that following the half year results in November. So moving on to financials. I think good progress across our key financial metrics. So looking at branded revenue, that's up 3.4%. I'll talk about it in a minute, but really good Sweet Treats performance, again, some great innovation. Alex will give some examples of that later and a stronger second half for the grocery business. From a non-branded perspective, we've seen that as we rightsize that business, we have seen that declining year-on-year, particularly in grocery, which I'll come to. So that leaves total revenue up 2.5%, up at GBP 1,175 million. Trading profit, I've touched on. Adjusted PBT is growing further ahead of earnings and trading profit. So that's up 8.5% to GBP 184 million. And again, as we've been building cash throughout the year, that's been earning a return. So our interest cost has been reducing. So back to free cash flow, over GBP 150 million. So that's over 9% up year-on-year and more than double where it was 5 years ago, and that's even after our pretty significant step-up in capital investment. And obviously, that then allows net debt to be below GBP 100 million, I think, for the first time, and that is GBP 48 million lower despite having bought Merchant Gourmet. And as you said, really delighted to be announcing a decent step-up in dividend. We've always said, haven't we? We want to grow ahead of earnings and very much been the case so far, so proposing a 20% increase to the final dividend, and that will be more than triple where it was when we started. So looking at the performance per business unit. So Grocery, so as a reminder, that includes our international business. So we have branded revenue up 2.3%. We've got good growth across many of our brands, I think particularly call out our acquired brands and all 3 of those are growing in strong double digits. Alex will talk a bit more about Merchant Gourmet later, but that is performing ahead of plan already. And obviously, FUEL10K and TST are continuing their strong trajectory. A much stronger second half with the branded business up 4.3%. Non-branded, as I mentioned, so that does continue to go down. We are rightsizing our non-branded business. And actually, if you look at it over the last 5 years, it's about 25% smaller from a revenue perspective, but it's twice as profitable. So that probably gives you a bit of a feel for what we've been trying to do. This is the tail end of it. We haven't quite rightsized the grocery bit. Some of that will fall into -- continue into FY '27, but much closer for Sweet Treats. So where does that leave total revenue? So that's up 1.4% to GBP 860 million. And you can see divisional contribution growing ahead of revenue. So that's all about the benefits from the branded mix, from the capital investment and the efficiencies we're doing across the sites as well as some good strong control of our overhead cost base. Sweet Treats has had another fantastic year. So branded revenue is up more than 7%. That's for the second year in a row. And again, really good innovation. We'll talk about some examples. It's not just a record year for Mr Kipling, but Cadbury has had a great performance within this as well. And then non-branded, we said this would rightsize, I guess, a bit sooner than the grocery business, and that's very much as it's played out. So non-branded is down 1% for the full year. And actually, it was in growth for both Q3 and Q4. That leaves total revenue up 5.5% to GBP 315 million. And again, a great combination. This is the sort of P&L that clearly I love. A combination of the branded mix coming through, a load of volume going through the factories, increased factory recovery and efficiencies, you can see divisional contribution growing 18% to GBP 42 million and importantly, the divisional contribution margin eking up to 13%. So components of cash. So picking out the key ones. So CapEx, GBP 52 million is pretty much where we guided. Looking forward, we're looking at probably GBP 55 million to GBP 60 million for the coming year, and that's very much a continuation of the big investments that we've announced in our Worksop, Carlton and Lifton site as well as a continuation of our cost-out and efficiency projects. Interest down at GBP 16 million, as I said, that is all around getting a return on the cash we've been holding on our balance sheet. You might have seen that post year-end, we've announced an amendment and upsizing of our revolving credit facility. So that's now GBP 367.5 million, and we've extended the maturity from 2029 to 2031 as well. We have got a bond that matures in October this year. I think it makes sense. We'll update interest guidance once we've refinanced the bond. Tax is GBP 14 million. So we continue to benefit from the brought forward corporation tax losses, and we're guiding to a similar amount of cash tax for the coming year. And then acquisitions, you can see the GBP 46 million net of cash for Merchant Gourmet coming out. Looking forward into this year, we do have the payment of the deferred consideration on both the FUEL10K and the Spice Tailor acquisitions. So that will be paid, and that's very much as we expected and according to plan for the coming year. And then all that takes us to net debt of GBP 95 million, so below GBP 100 million, which is great to see. And then looking forward, I suppose, another couple of bits about FY '27. So first of all, it's a 53-week year. So there's a few quirks in terms of timing of working capital payments. So we're guiding to a working capital outflow there. And obviously, with everything going on in the world at the moment, as you'd expect, we are monitoring political economic events really closely, as you'd expect and as we've talked about before, we do have cover and hedging in place, which buys us time. So that gives us an opportunity just to see how things are playing out. And of course, we'll then take a view and we'll act accordingly. Pensions. So a couple of new bits of news for pensions today. But first of all, a bit of a recap as to where we've got to. So we set in place the segregated merger about 6 years ago, which was the structure that we thought would benefit the pension situation. Thereafter, it's actually performed better than we expected, and we've got bigger benefits sooner. So the main one of that was switching off deficit contribution payments 2 years ago. So that would have been GBP 38 million we would have paid this year had we not done that. And then as a reminder, last year, the 3 sort of sections within the trust were still separate. We legally crushed them together. So now we have one scheme that's all net, and that enabled us to remove the dividend match and that was reinvested back to the dividend, as Alex has just said. And then we've now finalized the triennial valuation. And we've agreed with the trustees that the company no longer needs to fund the administration cost of running the scheme. So that's GBP 5 million in cash that we paid last year that we will not be paying this year or going forward. So if you combine all of those, that's the best part of GBP 50 million annually that we would be paying into the schemes that we are no longer. And then the other bit of new news with the valuation is we're seeing a small surplus on a buy-in basis. So that is a bit better and a bit sooner than we expected, which is great positive news. Clearly, it's early days, but there's a good chance at the end of all this, there will be some sort of surplus to share between the company and the trustee. So our capital allocation principles remain unchanged. I think it's a great example of how we -- how these have played out and how we've deployed the principles this year. So a decent step-up in CapEx, and Alex will talk about some of the projects that we've been investing behind shortly. So that's up 25% to GBP 52 million. M&A, obviously, Merchant Gourmet, I think that epitomizes the sort of brand we're after. It's future-facing, fast growing and performing really well, and it's actually doing a bit better than expectations so far this year, albeit early days, so very encouraged and pleased with how that's performing as well as the other 2 as well, which we've talked a lot about. And then dividends, we've always said that we were going to start small. We acknowledge that, but it was important for us to progress the dividend faster than earnings. I think we've done that consistently over many years, and that culminates with another 20% step-up in the final dividend this year plus the introduction of the interim dividend. And I guess you can think of the interim dividend being part funded by the administration fee saving on the pension scheme. In terms of leverage, I mean, we talked a long time, didn't we, for the 1.5x target when we were way above that. Clearly, that's a bit in the rearview mirror. So I think the reality is we'll probably be operating between a leverage of 1x to 2x over the medium term. Obviously, timing of M&A will dictate where we are within that range going forward. So where does that leave us? Look, I think we're well positioned for growth. We are a pretty profitable business, and I think we're proud of that. And we compare, I guess, our branded growth model that we use is very comparable to the multinationals, and we see ourselves as a mini version of those. And our trading profit margins would be commensurate with those as well. So we very much see ourselves nettled albeit a much smaller version of that peer set. And then going back to free cash flow, I think it's a real strength, isn't it that over GBP 150 million of free cash after having stepped up our capital expenditure so much. And the good news is that with cash these days, as I mentioned earlier, we can deploy it in line with capital allocation principles. And hopefully, what I've just been through and how we've done that this year is a great example of the model working through and generating value. So that's it for me, and I'll pass back to Alex.

Thanks, Duncan. So as well as I said that strong financial performance that Duncan has just shared, we're really pleased with the progress we've made against the 5-pillar growth strategy. So I just want to walk us through that progress pillar by pillar. But before I do, just a bit of a reminder of what the 5-pillar growth strategies and what sits behind it. So what sits behind this is the concept that we believe that our core skill set is about building brands and growing brands in a profitable way over the long term. And so what we originally sat down and said to ourselves is, well, that's great. We can do that with our existing brands and their existing categories in the U.K., but only gets us so far. So what else can we do with that skill set to actually generate more value and ultimately build a bigger Premier Foods over time. And this is where this comes from. So actually, we do start here over on the left-hand side, focusing on building a strong growth out of our core U.K. brands because at the moment, that's where the center of gravity is. So it's really important we continue to do that clearly. The second pillar is investing into our supply chain. So as Duncan talked about, this is investing into our operational infrastructure, either to create the ability to manufacture some of the new products that we bring to market or in order to make ourselves more efficient, more efficient means lower cost production, it means enhanced margins, and we use that P&L space to invest back in the brands to drive growth. So in many ways, we see Pillar 2 as a facilitation pillar, a facilitation of growth. Pillar 3 is expanding within the U.K. into different parts of the store. So a great example of that would be when we took Ambrosia, which we all know as being a desserts brand, like rice pudding and custard. And we took that into breakfast with Ambrosia Porridge. So it's taking the creaminess from Devon concept through into a creamy porridge from Devon, which has proved to be very popular, but it's all incremental revenue clearly because it's a totally different time of day to any revenue that we're generating in desserts. So the purpose of this pillar is incremental revenue generation through participating in categories that historically we've not played in. The fourth pillar is about overseas expansion. So that's building businesses with what we call critical mass, so building them to scale in our focus markets overseas, which are Australia, New Zealand, North America and Europe. And then the fifth pillar is buying brands, which we can then apply our growth principles to generate significantly more growth than they've exhibited so far and that we will get from our core as well. And obviously, the new acquisition this year was Merchant Gourmet. So those are the 5 pillars. And what sits behind them is what we call our branded growth model. So if we think that our core skill is building and growing brands in a profitable way, this is how we do it. So at the top left, we are really fortunate that in the U.K., we've got really brilliantly well-known brands with leadership positions in their categories, very high household penetration. If we were to randomly knock on some doors this afternoon and ask to see what was in people's cupboards, we would find that most households would have several Premier Foods products in the cupboards statistically speaking. The other thing we've learned about the brand portfolio over the last few years is that despite the relative vagaries of the external environment, the portfolio is really resilient. And that's because at the end of the day, we're selling relatively low-cost products. The cheapest way to feed yourself is to actually cook for yourself at home. And if you do that, then you're tending to use some of our products. So we've proven to be pretty resilient in the ups and downs of the global environment. But obviously, great brands, but on their own, they don't grow unless you do something with them. So the 3 kind of key levers we've got for growth our new product development. This is a really important part of our model. So we constantly have a stream of new products that we bring to market that are based on our in-depth understanding of consumers. So we spend a lot of time and a lot of energy talking to consumers, understanding how they're shopping, how they're cooking, how they're eating and how that's changing over time because change gives us the opportunity to bring new products to the consumers that fit into those changing habits. And then we continue to invest behind the brands as well. So it's great that we've got really well-known and well-loved brands, but they won't stay like that if we don't keep investing behind them. So we invest in marketing and advertising to build the brands, maintain the awareness, keep them contemporary and relevant and more and more in digital channels to target younger audiences. And then finally, but really importantly, bottom right are our partnerships with our key retailers. So we work on the principle that if we can work in partnership and strategic relationships with our key retailers, then we disproportionately benefit because we've got leading positions in those categories. So we're essentially working together to create category expansion, and we're getting most of the benefit from that because we've got the leading brands. So that's the branded growth model. So the next question obviously is, well, how have we done in implementing that over the year in the U.K. And you can see on the left-hand side how the growth built during the year. Remember, at the beginning of the year, our grocery business was held back a little bit by the really hot spring, but then we grew quite strongly as we went through into the second half with that really strong Christmas and then a strong quarter 4 as well. And we continue to take market share, as I said at the beginning. And if you look at the graph on the right there, what that shows is actually how our market share has built over the last 4 years. So the market share we've increased this year is based on an increase the year before is based on an increase the year before. So I think what this is telling us is that our brand building model, when we execute it well, really works and is able to deliver consistently strong performance that's ahead of market. And we also introduced a series of new products, of course, during the year. And as I said earlier in the year, we had a particularly strong lineup of new products this year, and we've been really, really pleased with their performance. And I've just put a snapshot of them on here. I won't go through them all in the interest of time, but there's 1 or 2 things I'll pick out. So bone broth is a really good example. OXO bone broth, we spotted bone broth as a trend a few years ago in the United States, and we thought this is going to work really well under OXO. So we brought that to market earlier this year and so has proven to be the case. And this is a really great example for me because we've got a really well-known mature brand in OXO. And we've now got a really on-trend new product format, which is completely transforming the growth rate of the OXO brand. The other things I'd point out is really these 3 new product ranges for Mr Kipling. As Duncan said, we had a really strong branded performance from our cake business this year, 7.3% branded growth. And it's really been strongly driven by the innovations, 3 of which are on here. So you've got Mr Kipling breakfast Bakes, which we introduced about a year ago and have continued to grow really strongly. And that was an intentional effort to get Mr. Kipling into the morning because we realized that most of our consumption was taking place from lunchtime onwards. There was a whole part of the day where the brand really wasn't present. And then you also might remember, we talked a year ago about birthday cake Tarts. So Mr. Kipling birthday cake Tarts, this is taking again from the states, a trend we've seen for birthday cake as a flavor rather than necessarily a birthday cake. And those have performed really well. We've actually expanded several flavors into that range now. It's actually lapping itself, but still delivering really great growth. And then the new thing this year was a range of these tubs of small bites of cake. And this taps into a trend for people still wanting an indulgent treat but actually only wanting something small and often wanting to share that with other people. So it's really those 3 have been the backbone of that really strong branded growth from our cake business. And then I must just mention Bubble Jelly. So again, this is another example of a brand, Angel Delight, that's been around for a long time, very well known, a very mature brand, which is now demonstrating lots of growth because we've got a very on-trend product with Bubble Jelly. If you're not familiar with Bubble Jelly, it's based on Bubble Tea. And if you're not familiar with Bubble Tea it's because you don't have kids of the right age. That's probably what I'd say there. And of course, we're always basing, as I say, on consumer trends. There are 4 key trends that we talk about a lot, health and nutrition, which is a key driver for us and has been for many years, convenience and on the go, premium and indulgence, which actually premiumization has proven to be a really big thing and packaging sustainability. That's not an exhaustive list, but those are probably the big 4 that we focus on. And I said that we continue to support the brands, and we use a variety of tools for that. We continue to use TV advertising because we're bought by millions of people a day. And so it's important that we're able to talk to millions of people a day and TV is still the only medium that can really do that. But we augment that with other tools like out-of-home, where we're particularly targeting your routes to the store, so it's bus stops and it's poster sites around stores. And we often use that actually to remind people of new products. And then more and more social and digital media, where we're targeting a younger demographic and trying to recruit those younger consumers into the brands from the start of their cooking journey, if you like. The other interesting thing I find with this as well is that the getting costs for the brands are a lot lower. So it actually allows us to support some of the smaller brands like Angel Delight with social media in a way that obviously it would never make sense to put a TV campaign behind it. So continue to support the brands really strongly and also getting great execution in store, which is obviously related to those strong retail partnerships. On the left there, you've got the increase in distribution points that we achieved this year. Now this is a measure of how many products we've got in how many stores compared to the prior year. And we're able to increase that by 4.7%, which I think is a really, really strong statistic. Grocery was really strong at 3.5%. So that's 3.5% more products in more stores. I think that's a really great number. But even that is dwarfed by quite staggering 12% increase in distribution on our Sweet Treats business. And that is driven by the fact that we've had this great lineup of new products that have performed really well and therefore have deserved the shelf space in store, and it's coming on top of what we've got on the core range. And then you've got some gratuitous pictures of massive in-store displays. We've relaunched the Batchelors brand in quarter 4, new packaging, new advertising, new products. And we've got some really staggeringly big displays in some of the bigger stores as part of our in-store theater program. And then here, we've got just a really nice picture of some of the displays we got up over Christmas. So that's actually across our different brands. So you've got OXO, you've got Bisto, you've got Paxo and you also got Ambrosia all on the same display on the runup to Christmas. So all the things you need to help make your Christmas dinner from Premier Foods all in the same place. So continued great execution in store. Now we get asked a lot about what we think the impact of GLP-1 will be on the business. So I thought, okay, well, let's do a slide on it then, and I'll talk you through where our heads are because for us, we are seeing this as a net opportunity rather than a net risk. And the logic behind it is as follows. So when this first started to emerge, we sat down and thought about our portfolio, and we thought, well, if you look at our grocery business, what we're essentially doing is we're making products that people use as part of putting a family meal together. That's bought as part of the family shop and it's part of the family meal creation. So in all probability, that's still going to happen even if one person in the family is not going to eat as much of it. But now there's enough people out there who are on these medications that we can find them and talk to them in our market research. We've spoken to people and they're telling us that's exactly what they're doing. So that family meal is still getting made. If you're using the jar of Loyd Grossman pasta sauce to make your pasta, that's still happening. It's just one person that's maybe not having as much as they would have had in the past. But the bit we didn't expect is the bit I've got down the bottom left there is talking to these people, and this is now statistical rather than qualitative research, is there a significant decrease in the amount of out-of-home eating that people on GLP-1 do. And if you look here, we've got 50%, 60% decreases in the amount of eating in pubs, restaurants and takeaways. And they're telling us that that's because they've got much more control over the food when they prepare it themselves at home. So if we've got a whole bunch of families, therefore, much more likely to eat at home, I've got to believe that, that is actually going to play into our hands because, obviously, that's what we do. And then the other thing that's quite interesting is that we know that people on GLP-1 medications are much more likely to be seeking increased levels of fiber and increased levels of protein. And of course, we've bought brands that are absolutely bang on in those areas with FUEL10K, which is a protein-based brand; and Merchant Gourmet, which is fiber and protein. So I think actually, there's a really interesting opportunity for those 2 brands with people who are on GLP-1 meds. Now the one area we thought this might need thinking about is Sweet Treats because logically, you might think people are going to eat less cake. But if you look across the last 10 quarters, we've got an average growth rate of 8.1% from our Sweet Treats brands. So I have to say at this point, we can't see anything, quite the opposite, actually. But when we look into the usage habit, in reality, it's not actually that surprising. And that's because if you look at how our cakes are consumed and purchased, they're not on-the-go snacking. There are a box of cakes that's bought as part of the weekly shop that's brought home and generally speaking, left out on the countertop and different members of the family will eat them as they go past, make a cup of tea, whatever. So we think what's happening is that purchase is still happening, that box of cakes is getting taken home and put on the kitchen counter and maybe one person is not getting their fair share, which actually is what I feel like at home often. If I'm not pretty quick off the mark, that tends to happen to me as well. And then the other thing that was also quite interesting is we have got a product that plays into this area with that new range of the Cake Bite tubs because we do know that people on GLP-1 are telling us they do want the occasional treat, but they just want it to be small. And so we think that, that range will basically play into that. So overall, as I say, it's still early days, but we're seeing net opportunity here rather than net risk. So if I move on to the second pillar then, this is that, as Duncan said, investing back into our manufacturing infrastructure. And on the left-hand side, you can see how we've increased our capital investment over the last 4 years. And if I look on the right-hand side, then I've got some really nice examples of some of the big initiatives that we're currently working on and we're working on last year. So the top one is a new manufacturing line in our Carlton cake factory, and that's going to make Mr Kipling, apple pies and cherry pies and things and fruit pies. And what this is, is a completely brand-new line, much more up-to-date technology than we've had in the past. It runs much, much faster and therefore, makes the cakes at a lower cost. But what's also interesting about it with that more modern precision technology and the engineering, we can actually control the process of making the pies much more tightly. So we can ultimately get a better quality product as well. And so armed with the knowledge of what this machine can do, what our marketing team have done is they've worked with consumers to try and optimize what the perfect apple pie looks like. So what does that mean in terms of the pastry, its thickness, how well it's baked, how crumbly it is, how big should the apple pieces be inside, how many of them should there be and what should the source be like? And putting all that together to come up with what we think is the best apple pie we can possibly produce because the machinery has got the ability to make it with that level of precision in a consistent way. So the win-win here is consumer gets a much better product, and it costs us less to make it. Boilers are quite an interesting topic. So we've big steam generation in our Lifton plant and also in Worksop where we use the steam for the cooking processes. And what we've done is we've replaced our old boilers or in the process of replacing, I should say, our old boilers with some much smaller, much more modern, much more efficient boilers. So we use less energy. We create less CO2. But also from a capacity point of view, we, therefore, are now below the threshold, so we don't have to pay the energy levy tax. So it's sort of like a second saving on top of the saving we're getting from using less gas. And then finally, down the bottom, we've just highlighted as part of our solar rollout, the solar farm that we've installed at the Carlton Cake site. So we've got 3,500 solar panels in a field that we own that's next to the site. And this can supply up to 70% of the site's energy requirements when you get a sunny day in Barnsley. Moving on to new categories. So sales up 37%, still a relatively modest base, but actually, it won't be if it carries on growing double digit like this every year. And Ambrosia porridge, we talked about before, that was the first big success we had in this area, 19% growth last year. It's in all the major retailers. We've got 5 different flavors now. And this is actually becoming quite a decent sized business in its own right now. Cape Herbs & Spice continued to grow, 23% up, achieved more distribution, but also increased its market share. But then the new product this year was FUEL10K going into yogurt. So we've got a protein-enriched yogurt with the leading FUEL10K granola on top. And that's obviously in a completely different part of the store. It's in the chiller with all the rest of the yogurts, of course. And it's a completely different new part of the store for us. So incremental revenue again, because that doesn't cannibalize any of our existing revenue streams. So really good progress there and 3 things that we'll continue to drive quite hard this year. I'll move on then to the fourth pillar, that's building our businesses overseas. And as I said, we made really good progress across a number of the markets, but this was offset by that reduction in stock holding in Australia. So actually, revenues were 1.8% lower than a year ago. That's clearly not what we planned. If you look beyond that at the rest of the businesses, on aggregate, they were up 10% year-on-year, which broadly is what we would have expected. If I look at each region in turn, Australia and New Zealand, the actual performance of Mr Kipling in market remains really strong. We had 10% growth on a retail till scan point of view as measured by Circana. We continue to increase our market share, and we actually had record household penetration getting up to 21.3%. So there is no business health issue here. It really is just about the amount of stock held in market, which is held by the retailers. And we also grew double digit in our Indian and Asian sources business in Australia, and we continue to take market share with those as well. At the same time, we made some really interesting progress, I think, in the U.S., where sales were up 17% and that's as we took the Mr. Kipling apple pie and cherry pies into a region of Kroger, where they performed really very well. And so on the back of that, Kroger is also now taking the slice range, which has gone into store literally last week. I'm afraid it's so new. I don't have any performance data to share with you on that, but we're certainly very pleased with the Apple pies. And hopefully, then the slices are add on top. And what we'll do then is look to roll out into more regions over time. The pack of 8 lemon slices here is a new pack format for us. We normally don't -- so we're normally selling 6 of those in the U.K. This is a larger pack size we've done for Walmart in the States. So we've got a test running in Walmart in the States in 560 stores with the lemon slices and also chocolate slices. And I've seen the data on that, and it's actually off to a pretty good start. So we're quite encouraged by everything that's happening with the cake business in the U.S. at the moment. And then moving on to Europe. So Europe grew by 9%, and it was particularly strong in the second half of the year as we started to take FUEL10K granola into a couple of European countries. So we started with the Netherlands. We took that into market in Q4, and we went into 1,000 stores of Albert Heijn in the Netherlands and actually also into the Delhaize stores in Belgium as well. And then now we're in about 6 other countries in Europe as well. So that's kind of the next big thing for FUEL10K is expansion overseas. And at the same time during the year, we actually also made some good progress on Sharwood's in France, where we've now gone into a total of 6 retailers, and we've got 5,500 distribution points. And then finally, the fifth pillar, which, of course, is M&A, and we continue to look for more acquisitions in this area. What we're looking for are future-focused brands, brands which we think will scale up to be big brands of the future through the application of our branded growth model. And I think the Spice Tailor, FUEL10K and Merchant Gourmet are all really great examples of that. And I can't stress enough how fussy we are here and the amount of energy and analysis that we put behind these things before we go forward on them because what we're doing is we're validating that they fit the criteria such that when we apply the growth model, we will get that expansion and that scale up over time. And at the same time, of course, we put strong financial filters over that strong disciplines and particularly on return on invested capital. And if I look at the acquired brands that we've made so far, so Merchant Gourmet, as Duncan mentioned, did better than we anticipated in the year. On a pro forma basis, it delivered GBP 30 million of turnover. You might recall that when we bought it, we said we thought it was going to do about GBP 28 million, so it's done about 7% better than we planned, which is a great start. And where we see the opportunities here initially are in expanding distribution. So just like with the Spice Tailor and FUEL10K, its performance in market deserves more shelf space and more ranging than it's got. So one of the things what we'll be doing is looking to work with retailers to expand the amount of shelf space we've got. We've also got a strong innovation pipeline coming up, some of which is in existing categories and some of which is expanding into new categories. And as the brand grows, as we've done with FUEL10K and the Spice Tailor, we'll increase the brand investment. So it's following our overall branded growth model. And then very briefly on both FUEL10K and the Spice Tailor, they both performed double digit in the year, and they both continue to increase market share, and they both benefited from a series of new products that we brought to market as part of our innovation program. I will just call out though, the FUEL10K core granola product. This is the #2 granola in the U.K. The chocolate SKU is the fastest selling and the top SKU in the granola category in the U.K. and this thing just keeps on growing. We actually -- we've actually introduced a large size of the chocolate product given how well it sells. So it's a real star within that brand. So if we change gear then and just have a look at the plans for this year. As you would expect from us, there's lots happening across the pillars. We've got a lot of new products coming to market, most of which are going to take place later in the year. So commercially, I'm going to keep quiet about those. But the ones that I can talk about are the ones that are a little bit closer in. So on the top left there, you've got Merchant Gourmet going into baked beans with a range of 3 flavors of gourmet beans. We've got Ambrosia on the go custard. So it's a little squeezy pouch, and you've probably seen them in other products of custard and chocolate custard. And then one that I also think is quite interesting down the bottom there is Mr Kipling birthday cake slices. So again, that's building on the success we've had with the birthday cake tarts, taking into slices, whereas, in fact, slices are our biggest format within Mr Kipling. So that could be really interesting, but it's not quite in market yet. In terms of infrastructure investment, 2 of the biggest projects we've got at the moment are expansion of capacity down in our Lifton sites with a new process plant. And I mentioned that once before. It's really expanding our capacity to be able to make more porridge and also free up space for some of the new products that are coming down the line, which we're going to need the capacity for. And then in Worksop, we've got a significant expansion of our sources manufacturing capabilities, and that will allow us to manufacture the Lloyd Grossman sauces ourselves that were previously made externally. And as you can imagine, there's quite a significant margin improvement when we make that ourselves rather than paying someone externally to manufacture it. On the new categories, we'll continue to push all 3 of the successes that we've got. Ambrosia Porridge, interestingly, we're going to introduce a 6 pack. And the purpose for this is that actually the usage habit is once people start to enjoy these, they'll tend to buy several a week. And what they tend to do in a lot of cases is put one in their bag on the way to work and they eat it when they get to work. Well, that obviously only works if you've got some spare ones in the cupboard. So if we can sell you a 6-pack, there's much more chance that you've got some spare ones in the cupboard so that you can put one in your bag and take it to work with you. And then, of course, we'll continue to build on that initial success we've got with the FUEL10K yogurts with the granola on top. And in particular, we'll be looking to build more distribution and get that out into more stores during the year. And then from an overseas perspective, key focus area is obviously going to be the continued rollout in North America of those pies and slices, building on that success we've had in Kroger. And then Europe, a lot of focus on the recent launch of FUEL10K and making sure we've got the right support models behind that as well as building on that Sharwood's distribution increase. And then one of the new things in Australasia is the rollout of Mr Kipling's Apple Pies because believe it or not, we actually don't have Apple pies yet in Australia. So that's a new thing that will go into market this year. And in parallel to that, of course, we're always looking for what that fourth acquisition brand is going to be. But that's all I can really say on that one at the moment, of course, but lots of activity across all the pillars. So where does that leave us then? Look, I think we've had another really good year, good branded revenue growth, particularly in the second half, strong earnings progression with that trading profit crossing GBP 200 million and ahead of the already raised guidance, strong free cash flow, getting our leverage down to 0.4x. And then, of course, we've got that 20% increase in the dividend that we've announced. And as you've seen, good progress against the 5-pillar strategy as well. In terms of outlook, look, we'll continue to deliver further profitable branded revenue growth, and that's through leveraging that branded growth model. We've got a strong pipeline of new products and brand support plan for this year, of which I've shown you a little bit at the front end of. And we'll continue to leverage the benefits that exist for Merchant Gourmet since we made the acquisition as well as looking for further acquisitions. And then in terms of outlook, look, I'm always aware of the fact that I'm having this conversation with you halfway through our first quarter. So I know what that looks like and you don't. But what can I say at the moment? I mean we're exactly where we expected to be. So we're on track and our expectations, therefore, for this year remain unchanged at this point. So thank you very much again for your time, and Duncan and I are very happy to take any questions. Thank you.

Charles, let's start here.

Charles Hall from Peel Hunt. Alex, can you just talk a little bit about the U.K. market, how you see consumer demand, how retailers are responding and also cost inflation and what you might need to do on pricing?

Yes, sure. So -- and this is a very obvious question to ask us. But actually, we've got a very unexciting answer in that I'm not seeing any dramatic change in consumer habits, certainly not that's affecting us. I think part of that might be because of that portfolio resilience we've talked about. So what we've seen in the past is maybe we do lose some consumers to private label down at the bottom end, but then we gain some consumers who eat out less. And so if things get really difficult, that's what we'd expect to happen. But at the moment, I'm not really seeing anything. And from a cost inflation point of view, at the moment, we've got, as you would expect, longer-term contracts and hedges and things in place, which requires a bit of time. But at the moment, we're just watching and waiting to see what happens with the Iran conflict, and we'll take action if we need to.

And then on the international side, you're building out distribution points across quite a lot of countries now. Are you able to now put more resource into those countries to hopefully get to some tipping point in terms of the rate of growth?

Yes, I don't necessarily think it's a function of resource though at this point. It's a function of perseverance and making sure we're getting the distribution and then putting the support behind that distribution once we've got it. I think in terms of people, we're pretty comfortable with where we are. We've got a team on the ground in Australia. We've got a team on the ground in North America. And then we're gradually putting regional heads into different parts of Europe, and I think that model is working pretty well.

First question, just in reference to the grocery distribution points and the Sweet Treat distribution point data that you provided. Just wondering if you can provide a bit of color with respect to the phasing of how that distribution point expansion has played out through the year? And also, if you can just provide some color as to whether it's primarily those new products, new categories that are filling those additional distribution points or if it's the broader portfolio? I guess what I'm interested in is whether or not the phasing of the expansion in the distribution points has played a role in accelerating growth throughout the year.

Yes, it's a good question. I mean the expansion of the distribution points is largely led by the new products, but that distribution coming on top of the core range rather than necessarily substituting large portions of it. So therefore, whilst I don't have the numbers in my head in terms of exactly when it happened, but it's reasonable to assume that will have happened with the rollout of the NPD, which tends to be a function of when the retailers change their shelf layout, which actually for most of our categories tends to happen around the middle of the calendar year. That might help play into that.

It does help. Next question is just in reference to the trading profit outperformance you've delivered today. You've delivered efficiency projects, which has clearly assisted in that outperformance, but there's also been these rollout of these new products that we've just touched on. Can you provide a bit of color as to how much of that outperformance relates to the projects you're undertaking relative to potentially a better mix effect of the products that you're selling?

I mean, certainly, we know that the new products that we bring to market are key drivers of our growth because they provide a largely incremental revenue stream. So that plays into a lot of the top line delivery as does the higher growth levels from the brands that we've acquired. And then I think particularly if you look into Sweet Treats, the strong performance in our Sweet Treats business has dragged incremental volumes through the factories, which, of course, makes the factories more efficient, and we get the factory recoveries associated with that. So that plays in quite strongly to profit delivery.

I think if you, yeah, and then play over the things you said, Matthew. So benefits the CapEx investment, which has stepped up further this year and the sort of well-established supply chain sort of cost and efficiency program even outside of CapEx. And as you'd expect, we've got a pretty tight control over the overhead cost base. So I think all those things come together gives you the profit delivery you're seeing.

Matthew Webb from Investec. First question, just going back to cost pressures and price increases. You say that you've got a sort of period of grace while your contracts run through. I just wonder how -- roughly how long that is? And to be specific, does it give you the whole of the rest of this calendar year, i.e., taking you through to the next sort of scheduled round of annual price increases? Or might you have to move a bit earlier than that?

I don't -- commercially, I don't want to get into the exact length of different hedges and things we've got. What I can say is that we've got some time in order to watch and see what happens. And then if we do have to increase prices, then reluctantly, we would do. And we've got a reasonably strong track record of being able to do that when we need to. But we'll have to see whether it's necessary or not.

Got it. And then one for Duncan, I guess. Just on the pension, you said you've got a surplus on a buy-in basis. Would you be willing to disclose roughly what that sort of surplus is at the moment?

I mean I think it's pretty early days, so I'd probably not want to speculate in terms of sizing and what might happen. But I think it's directionally positive. The schemes trustees are doing a great job of running the scheme and the scheme a bit ahead of where we expected it to be. So I think all positive news there. The surplus is small, but there is a surplus, I suppose, and all the work that everyone has been going into derisking. I mean 2 things. One is less likely to unwind. But two, the rate of growth will be slower than we've seen previously. So I think those things all equal. But certainly directionally positive, but it is early days. And if there's any more clarity we get further through the year or beyond, we'll obviously share it.

Excellent. And then just on that point again, you said that you would share the benefits of any surplus with the trustees. Would how that is divided up be subject to negotiation? Or is it 50-50 or already set in some?

I think that would be very much wait and see. But you'd expect it to be shared in some way, shape or form.

Clive Black from Shore Capital. Another one for Duncan I'm afraid, it's always boring questions, sorry, mate. How does your pension scheme situation dovetail with regulatory change? I mean respect the fact that you can't speak about numbers, but how does that regulatory change potentially enable the process here?

Good question. I suppose just as a recap. So currently, for any sponsor with any surplus, accessing it is pretty difficult. And technically, the way legislation works at the moment is until the scheme is wound up, so that's post buy-in, post buyout, then you wind it up, you can't get hold of any of that surplus. So again, going back to Matthew's point, is a bit theoretical and the theory at the moment, although albeit positive. We are hoping to start expecting 1 of the 2, the government to clarify rules around sponsors accessing surpluses at some point during this calendar year. So it may well be that under circumstances, and that will be one around level of scheme funding and how much buffer there is. Second is what the sponsor might use it for. So it will be probably investment related rather than taking it out, but there will be probably some guidelines around what it can be used for. But to the extent that does get clarified, that may mean people like us or others could put the surplus to work before the end of the scheme, but very much wait and see.

And then just 2 other quick ones. Firstly, you've made immense progress on Sweet Treat margin. How should we sort of take that going forward? Is that a new base? Is it a one-off? Can it go further?

I think we indicated a while ago that we expected that we would somewhat be able to close the gap between Sweet Treats and grocery. And a large driver of that would be the automation process, the investment we're making into the manufacturing sites. And so you're seeing some of that benefit. But what we're also seeing is actually just sheer efficiency growth through volume. And I think we just had so much success with the new product ranges that it's actually inherently making us more efficient through volume. So it's a bit of both.

From what you said from, for example, Carlton the automation, that could be a further driver for Sweet Treat margin?

Yes. Definitely. I mean that there's no benefit from the new apple pie line in these numbers, and that will clearly come. Yes.

And then lastly for me, I respect again the fact, Alex, is commercially sensitive. But in terms of marketing advertising, how did last year progress on the previous year? And kind of what's the trend there, maybe not with numbers?

Yes. So I think what we've said before is that we know we're on a journey in terms of the amount of marketing investment we put behind the brands. Aspirationally, we want that to be a lot more. But we've made really some really great progress since we started this sort of 6, 7 years ago now. So we're investing quite a lot more than we were, but there's still some left to go. We don't necessarily do it on a linear basis for the same amount every year. It tends to move in waves. But yes, we're a good way down the journey.

Andy Wade from Jefferies. A couple from me. First one on Australia. Obviously, the destocking process has gone on for a bit longer than we thought. I guess my 2 questions would be on it. One, I mean, just to flesh out a little bit, I mean, how much less stock are they carrying of yours now than they were previously? How confident are we sort of getting towards the bottom? And is there any risk that although they're still selling through the tills at the moment, their intention is to sell a bit less in the future? Just sort of wanting to get as much as we can -- as much color as we can on that.

Yes, that's really helpful question actually because, look, I don't see that there's a risk around them wanting to sell less. It's really just a question of how much stock do they want to sit on in market in order to be able to provide against that. Bearing in mind, they can't just call us up and a pop around with a truck the next day like Tesco can. You're talking about several weeks on the water. So getting the level right is clearly tricky. And it's a bit opaque to us, if I'm honest with you. We can't see their system, so we can't see exactly how much stock they're sitting on. I suspect they've still got a bit too much. And I suspect there's still a little bit to come out of the system over the forthcoming months. But we have -- we've actually now put a logistics person into our Australian team to partner up with the logistics people at the 2 big customers so that we can get a little bit more transparency and try and work with them and help them because it is -- when you're shipping over those distances, I think there's an inherent lumpiness to it because you're not shipping every day. It tends to go in little waves, but this is probably more volatile than we would like. So we're going to work with them and see if we can kind of smooth it out a bit.

And obviously, important that they don't end up with not enough that you have availability issues can't run with promotions and so on.

Exactly. Because then reaction time is you haven't got the reaction time because you've got a ship that's got to get all the way from the U.K. So yes, keeping the right amount is important. The question is what is the right amount?

Okay. All right. And then second one, just sort of following a bit on from what Clive was asking around the margin side of things. Obviously, more going into capital investment and cost-out projects being a big part of that as well. And you talked about just as one example there, Carlton still to come through and feed into the numbers. But -- so I'm just sort of wondering how we marry that up with what you've always talked about previously is that we're going to run at a broadly flat-ish sort of margin. Is that sort of moving -- is that evolving a little bit such that we can see upside to that? Or is it still the same? It's all going to -- and it ties back into the marketing point you were making earlier. So just how those all play out.

High level investors.

Yes. So I think at a principal level, and then I'll let Duncan comment, we've always said, haven't we, that we'll take gross margin expansion, and we focus really hard on that actually, not just from a factory investment point of view, but across a number of things. And we will deploy that expansion into investment behind the brands and sort of close that gap to our aspiration on marketing investment. But as you've seen over the last few years, actually, some of it ended up dropping through, and we finished up with trading profit growing a bit faster than top line.

No, I think that's right. I think if you're taking probably a high-level look forward view, I'd probably still go down the -- you'd expect pretty strong margins to be -- remain broadly flat, and we'd use the expansion to invest back behind the brand. Clearly, to Clive's point on Sweet Treats, there are pockets of the business where we do think there's further to go. And Sweet Treats, if we do continue with the volume and the NPD and everything else going through, that probably just -- it might help Sweet Treats margin, but we'd probably use that to just reinvest back behind grocery.

I just ask a follow-up to Andy's question then. So then is that -- to interpret that comment then, is that to say that there was a limit to the marketing investment you could deploy this year, and that's why it fell to the bottom line and that you weren't able to take those efficiencies and put them back into the market through marketing? Or to Alex's comment, will the benefit from that outperformance on profitability flow through to marketing in FY '27 and there should be a commensurate benefit to sales growth as a result?

Yes. And I wouldn't say -- I mean there's no real limit in terms of what we've been able to deploy between marketing. I think a lot of it comes down to when the benefits come through, when we have visibility of them as well as we will only deploy marketing or any investment if we're going to -- if it's the right time, we're going to get the best return and we can plan for it. So just it may be that we get some extra money coming through, but doesn't necessarily we spend it because if we're not spending it in the right way of getting the right return, then we wouldn't. So I know there's a bit of timing around. But generally, the game plan is to invest that behind the brand for sure. I guess with anyone, any time when you close the year off, there's always bits, but there's been no hindrance or lack of ability or desire to invest that behind the brand this year for sure.

I think as I said at the beginning, we had a really strong quarter 4, and that's what took us to the position where trading profit ended up being above our already updated guidance. And when you get that strong performance right at the end of the year, it's actually quite difficult to redeploy it into brand investment and do it to Duncan's point, in an efficient and sensible way. That happens at the beginning of the year, we've got a lot more time to plan and make sure it's well invested. Any more? No? Well, good. look, thanks, everybody, for coming this morning. Good to see everybody. As you can see, it's been another good year for the business. And we're pretty optimistic and looking forward to another good year this year as well. Thank you.

Thanks all.