2nd Mar 2005 07:02
Premier Foods plc02 March 2005 2 March 2005 Premier Foods plc Preliminary Results 2004 Premier delivers maiden preliminary results in line with expectations at time of IPO "Business on-track and on strategy" Year ended 31 December 2004 2003 £m £m Change Turnover* 842.2 773.8 +8.8% EBITA*,** 107.4 85.6 +25.5% EBITA margin*,** 12.8% 11.1% +170bps Operating profit before exceptional items* 97.3 76.4 +27.4% Operating profit margin* 11.6% 9.9% +170bps Operating profit after operating exceptional items* 71.9 65.9 +9.1% Profit on ordinary activities before tax 8.7 (0.3) na Recommended dividend per share 9p - - * Continuing operations ** EBITA represents operating profit before amortisation and exceptional items • Total sales of £842.2m up 8.8% • Like-for-like sales for continuing operations up 1.9% • Like-for-like grocery sales, adjusted for sales lost because of the fire up 1.3% • Like-for-like grocery branded sales, adjusted for sales lost because of the fire up 2.5% • EBITA of £107.4m up 25.5% • Like-for-like operating profit up 14.8% • EBITA margin up 170bps • Improved branded mix of business: 55% of grocery sales (2003: 50%) • Cost saving programme delivering • Ambrosia fully integrated with sales up 7% on 2003 • Net debt at 31 December 2004 of £377.5m Robert Schofield, Chief Executive of Premier Foods plc, said, "2004 has been a tremendously exciting year for Premier and we are pleased todeliver a robust set of full year results in line with our expectations at thetime of the IPO. We have grown our profits despite challenging marketconditions and the serious fire at our Bury St Edmunds factory, which held backsales of two of our drive brands - Branston and Loyd Grossman. Ambrosia hasmade an excellent contribution to the business in its first full year ofownership, on top of a strong performance from the existing business.Accordingly, the Directors are pleased to recommend a final dividend of 9p pershare in respect of 2004, payable in May 2005. "We were also delighted to announce the acquisition of Bird's custard and AngelDelight this year which will provide further growth opportunities for the group. Our business is underpinned by strong brands, scale, efficiency and cashgeneration which will enable us to deliver continuing healthy growth. "The Sudan 1 issue has been an upheaval for the business in terms of time andeffort. However, in financial terms, based upon our assessment of claims and ourinsurance position, we believe the company does not have a material financialexposure. "We will continue to review the situation on a daily basis and should thesituation change materially we will update the markets accordingly". For further information: Premier Foods plcRobert Schofield, Chief ExecutivePaul Thomas, Finance DirectorGwyn Tyley, Investor Relations Manager +44 (0) 20 7638 9571 Citigate Dewe RogersonMichael BerkeleySara BatchelorAnthony Kennaway +44 (0) 20 7638 9571 A presentation to analysts will take place on Wednesday 2 March at 9am at ABNAMRO, 250 Bishopsgate, London, EC2M 5AA Group results - continuing operations £m 2004 2003 Sales 842.2 773.8 +8.8% Operating profit before amortisation and exceptional items 107.4 85.6 +25.5%Amortisation (10.1) (9.2) Operating exceptional items (25.4) (10.5) Operating profit 71.9 65.9 +9.1% This is a strong set of results for 2004, in line with our expectations at thetime of the IPO in July last year, despite the serious fire at our Bury StEdmunds factory in October and the challenging market conditions which led toslower sales over the Christmas period. We have achieved this by continuing to implement a well-defined strategy basedon the use of our scale to drive organic branded growth, to develop customerrelationships and to deliver cost savings, whilst managing our retailer brandsproactively and seeking further branded acquisitions. The performance during the year has demonstrated the strength of the company'sstrategy: • Branded sales increased from 50% to 55% of grocery sales; • Drive brands have shown strong growth; • The Masterbrand strategy is progressing well with Hartley's and Crosse & Blackwell benefiting from significantly greater scale; • Product innovation and brand extension are enhancing our brands with Loyd Grossman soups and Branston sour pickles showing strong growth; • The integration of Ambrosia during 2004 proceeded smoothly, with increased management focus on this brand delivering like-for-like growth of 7% over 2003, returning the brand and the category to growth after a number of years of decline; • Our customer relationship strategy has enabled us to secure longer-term contracts and pursue category development plans; • Brand development, leveraging our scale and improved manufacturing efficiency have enabled us to increase our EBITA margin from 11.1% in 2003 to 12.8% in 2004; and • The acquisition of the Bird's and Angel Delight brands, which completed in February 2005, further strengthens our portfolio of great British food brands. Group sales from continuing operations increased by 8.8% to £842.2m, whichincluded a full year's contribution from Ambrosia. Like-for-like sales fromcontinuing operations were 1.9% ahead of 2003. Continued focus on cost controland improving manufacturing efficiency drove margin improvement delivering anincrease in operating profit before exceptional items from continuing operationsincreased of 27.4% to £97.3m. These figures exclude Materne, a French spreads business, which was sold as partof the IPO. Like-for-like grocery sales, excluding Ambrosia and the MBM potatobusiness were level with 2003 and like-for-like grocery operating profit beforeexceptional items increased by 14.8%. We have estimated that the fire at theBury St Edmunds factory resulted in lost sales of £8.2m. If we had achievedthese sales, like-for-like grocery turnover would have increased by 1.3%. £3.0mhas been recognised in operating profit in respect of the insurance claim forloss of profits associated with the fire. We increased our marketing expenditure by 5% to £30.4m in 2004, reflecting ourfocus on drive brands, which showed sales of Loyd Grossman up 18%, Branston up2% and Typhoo up 3%. The gains made on Loyd Grossman and Branston are despitethe fire and we estimate that these brands would otherwise have shown growth of31% and 12% respectively. Sales of Ambrosia were 7% higher than in 2003,rewarding the additional focus placed on the brand since its acquisition.Hartley's also performed exceptionally well, with an organic sales increase of19% over 2003. Branded sales now represent 55% of our grocery product turnover,up from 50% in 2003. We completed the closure of the Hadfield factory in the first quarter of theyear and the transfer of tea production from Edinburgh to Moreton in December2004. The Edinburgh rationalisation programme cost £2.4m, and is expected togenerate annual savings of £1.1m. As previously stated, the 2003 comparatives benefited from the reversal of £3.3mof accruals made at the end of 2002, which subsequently proved to beover-provided. Convenience Foods, Pickles & Sauces £m 2004 2003 Sales 374.8 374.6 +0.1%Operating profit before exceptional items 33.2 32.7 +1.5% Sales by the Convenience Foods, Pickles & Sauces business increased by 0.1% to£374.8m. We estimate that we would have shown growth of approximately 2.2%, butfor the fire at our Bury St Edmunds factory. The consolidation of ourconvenience foods products, particularly our foodservice offering, under Crosse& Blackwell has created a £25m brand and this greater scale will help us todevelop our foodservice business during 2005. Branded sales in 2004 amounted to 38% of sales for the segment, the same as2003. Operating profit before exceptional items for the division was £33.2m in 2004,an increase of £0.5m on 2003, though an increase of £2.7m after taking accountof the accrual reversal referred to above. This increase is primarily due toimproved manufacturing efficiency, particularly savings from the closure of theHadfield factory. In addition, this segment is seeing increases in raw materialprices, principally tin plate, however we have achieved price rises on theaffected products, which largely recovers the anticipated cost inflation. Tea & Beverages £m 2004 2003 Sales 140.3 143.0 -1.9%Operating profit before exceptional items 31.9 26.9 +18.6% Sales by the Tea & Beverages business declined by 2% to £140.3m. The decline wasprincipally due to the exit from certain low-margin retailer brand teacontracts. Sales of Typhoo increased by 3% in 2004, with UK sales of LondonFruit & Herb successfully transferred to the Typhoo brand. Branded sales in 2004 amounted to 81% of sales for the segment up from 79% in2003. Operating profit before exceptional items for the tea and beverages segmentincreased by £5.0m to £31.9m. This improvement comes from lower raw materialcosts, savings starting to flow from the consolidation of tea production intothe Moreton factory and the reallocation of marketing expenditure from Tea andBeverages to other divisions. Spreads & Desserts £m 2004 2003 Sales 176.8 120.4 +46.8%Like for like sales 117.8 115.2 +2.3%Operating profit before exceptional items 26.7 11.2 +138.4%Like for like operating profit before exceptional items 16.3 10.5 +55.2% Sales by the Spreads and Desserts business have increased to £176.8m. Thisincrease is primarily due to the inclusion of Ambrosia, following itsacquisition in December 2003. Like-for-like sales increased by 2.3% withHartley's, Rose's, and Gale's all performing strongly; like-for-like brandedsales grew by 6%, offset by a decline in retailer brand sales of 1%. Thedevelopment of the Hartley's fruit masterbrand is progressing well with Chiver'smarmalades successfully transferred during the second half of 2004 and thetransfer of Rowntree's jellies currently underway. On completion of the brandconsolidation, the Hartley's brand will have sales of £33m (based on 2004turnover), enabling advertising scale economies. Our initiatives to improve thedisplay of the spreads fixture has helped Hartley's to achieve organic growthover 2003 of 19% becoming the UK's leading jam brand. The integration of Ambrosia went smoothly, with the acquired business fullyintegrated by the end of the first quarter of 2004. We launched abrandy-flavoured custard and new yoghurt-pot style 4 packs of custard and ricepuddings in the fourth quarter of the year. These product developments and theenhanced focus that we have been able to apply to the brand resulted in anincrease in like-for-like sales for Ambrosia of 7% in 2004. In February 2005,Ambrosia launched its first TV advertising campaign for 6 years. Branded sales in 2004 amounted to 69% of sales for the segment up from 54% in2003. Operating profit before exceptional items increased from £11.2m in 2003 to£26.7m in 2004. This was mainly due to the inclusion of Ambrosia, whichcontributed £10.4m at the operating profit level, compared to £0.7m in 2003.Like-for-like operating profit before exceptional items increased by £5.8m,principally as a result of the improved branded sales and reduced manufacturingcosts following the closure of the Hadfield factory. Potatoes £m 2004 2003 Sales 150.3 135.8 +10.7%Operating profit before exceptional items 5.5 5.6 -1.8% Sales by our Potatoes business increased by 11% to £150.3m, primarily due to thehigher market price of potatoes compared to last year during the first half ofthe year, though a good harvest in the second half of 2004 softened marketprices and improved margins. The potato supply industry became more competitive through 2004 with increasedsupplier rationalisation. We have responded by strengthening the managementteam to provide the business with a more appropriate skills mix to underpin itsfuture development. We also took action to address the business's cost base andclosed two out of its six packing houses. At the end of 2004, we received notice from Sainsbury's that they would cease tosource potatoes from Premier from July 2005. However, we have recently confirmeda number of new supply contracts with other customers, which will replace asignificant part of this volume. The industry remains very competitive and weare therefore continuing to review the future shape and strategy of thebusiness. Bird's Acquisition On 13 February 2005 we completed the acquisition of the ambient dessertsbusiness of Kraft Foods UK Limited. This business principally comprises theBird's custard and Angel Delight instant desserts brands. The acquisition is anexcellent strategic fit, bringing to the group further iconic category-leadingbrands with significant consumer awareness, which will be integrated into ourSpreads and Desserts business. The acquisition will further enhance the brandedmix of the group, lifting branded sales as a percentage of grocery sales byapproximately two percentage points. The products are primarily powders and we are integrating their production intothe Knighton factory. This should be completed by December 2005. Sudan 1 Product recall On 18 February 2005, the Food Standards Agency initiated a recall of a number ofproducts, which had been identified as possibly being contaminated with a dye "Sudan 1" not authorised for use in food products. The dye was traced to a batchof chilli powder supplied to Premier, which was used by Premier in themanufacture of Worcester sauce. Premier used the Worcester sauce in themanufacture of 3 other products and supplied Worcester sauce to a number ofretail and food ingredient customers. A number of Premier's customers have indicated that they intend to claim fortheir costs associated with the product recall. These claims may compriseclaims for damage to their own products, the costs of recalling and destroyingrecovered product and claims for consequential loss among others. Given the nature of the recall, the limited number of claims that have beenreceived at this stage and intrinsic uncertainty involved in such situations, ithas not been possible to fully quantify the claim and consequently, ourauditors, PricewaterhouseCoopers may refer to the uncertainty in their auditreport. However, the company has made a preliminary assessment of the quantumand nature of the claims based on a set of assumptions reflecting management'scurrent view of the situation and after having taken appropriate legal advice. At this time, based on this assessment, its own insurance position and itspotential claims against its suppliers and their own insurers, Premier does notbelieve that it has any material financial exposure. We will continue to review the situation on a daily basis and should thesituation change materially we will update the markets accordingly Outlook As a result of improving conditions through January, we remain confident that wewill achieve sales growth for the full year in line with our strategic targets.This will be underpinned by our strong pipeline of new product and categorydevelopment which will help to drive branded sales growth. We continue to focus on manufacturing efficiency through capital and otherprojects. We do not anticipate any significant net raw material price movementsbeyond the rise in tin plate costs, referred to above. Following completion of the Bird's acquisition, we have commenced theintegration process and our initial impressions are very encouraging. Thisacquisition will lift sales by our Spreads and Desserts business to over £200mand increase its branded sales mix to approximately 72%. Financial review Basis of preparation Premier Foods plc acquired the Premier Foods Investments No. 3 group through agroup reconstruction as part of the IPO process. The results have been preparedusing merger accounting. Please see note 1 to this announcement. Premier Consolidated Profit and Loss Account for continuing businesses Gross Profit Gross profit before exceptional items was £210.4m for 2004, an increase of 15.2%over 2003. This is principally due to the inclusion of the Ambrosia business,but is also a reflection of the improved operating efficiency of the business.Gross margin was 25.0% for 2004, an increase of 140 basis points compared to thesame period in 2003. This increase was largely due to the inclusion ofAmbrosia, which contributed 90 basis points. The balance of the improvement inmargin was due to the increase in sales of branded products, improvements inmanufacturing efficiency and a lower depreciation charge offset by a higherpension cost and the effect of higher market prices on margins in the Potatoesbusiness. Selling and Distribution Expenses Selling and distribution expenses before exceptional items were £75.6m in 2004,an increase of £2.3m, or 3.1%, over the same period in 2003. The increase isprincipally due to the inclusion of a full year's costs for Ambrosia and a 5%increase in our marketing spend. Like-for-like selling and distributionexpenses decreased by £2.1m or 2.9%. Administrative Expenses Administrative expenses before exceptional items have increased from £23.8m in2003 to £30.4m in 2004. After adjusting for the impact of the accrual reversalsof £3.3m referred to earlier, administrative expenses increased by £3.3m. Thisincrease is principally due to the inclusion of a full year's costs for Ambrosiaand increased pension costs. Operating Profit Before Exceptional Items Operating profit before exceptional items was £97.3m for 2004, an increase of£20.9m, or 27.4%, compared to 2003. Like-for-like operating profit increased by£11.2m or 14.8% and for the grocery businesses by £11.3m or 16.1%. Exceptional Items Operating exceptional items charged during the year were £25.4m, of which £16.7mwas associated with the IPO in July. Non-IPO operating exceptional items were£8.7m in 2004. Included in this was costs related to the closure of theEdinburgh site and the integration of its operations into Moreton, together withrestructuring costs and provisions for the impairment of assets in the Potatoesbusiness. Also included in the £8.7m was a charge of £1.0m incurred on the merger of threeof our principal pension schemes. The merger required a one-off cashcontribution of £10.0m to equalise the level of funding in the schemes, £9.0m ofwhich had been previously provided against. Prior year operating exceptional items primarily related to the provision forthe closure of the Hadfield site and the integration of its operations into theHiston and Bury St Edmunds plants. The non-operating exceptional credit of £12.9m in 2004 is made up of the profitof £11.7m made on the sale of our Materne business as part of the IPO, the gainmade on the replacement of fixed assets at the Bury St Edmunds site followingthe fire, offset by the write-down of fixed assets at the closed Edinburghfactory and potato packing sites. IPO Exceptional Items and associated costs As referred to above we charged £16.7m of IPO costs as exceptional items duringthe year. This was made up of share option related costs of £14.5m and sundrylegal, accountancy and ancillary items totalling £2.2m. We incurred costs of £10.2m on the primary share offer, which have been treatedas a deduction from the primary proceeds thus reducing the share premium arisingon the issue of the shares. Costs of £8.1m were incurred on the arrangement of the new senior creditfacility. These have been capitalised and will be amortised over the term ofthe facility. The un-amortised issuance costs of £10.5m associated with theprevious senior credit facility have been written off and charged as anexceptional interest charge. We repaid our Senior Notes in September 2004,which resulted in an early redemption penalty of £11.1m. This has been treatedas an exceptional interest charge. These are summarised as: Item £m Treatment Options - Cash cancellation 8.2 Operating exceptional cost - Rollover options 6.3 Operating exceptional costSundry IPO expenses 2.2 Operating exceptional cost 16.7 Equity: - Underwriting, legal and accounting 10.2 Share premium account Debt: - Issuance costs - new facility 8.1 FRS 4 asset - Issuance costs - old facilities 10.5 Exceptional Interest cost Senior Notes early redemption penalty 11.1 Exceptional interest cost Bury St Edmunds Fire On 27 October 2004 we suffered a serious fire at our Bury St Edmunds plant,which is the main manufacturing site for our Pickles and Sauces business. Withthe exception of Branston sweet pickles, where we were able to recommencemanufacture within 3 weeks, we either transferred production to our Jonker Frissubsidiary in the Netherlands or outsourced production to third parties. Thisminimised disruption to our customers, which was especially important during thepeak Christmas season. All the lines are now operational at the site anddistribution is close to pre fire levels. We have recognised the loss of profits recoverable through our insurance policyas other operating income. The assets destroyed by the fire have been writtendown as a non-operating exceptional loss and the insurance proceeds received toreplace the assets, from which the £1.0m insurance excess has been deducted,have been recorded as non-operating exceptional income of £3.5m. Cash Flow and Debt Net cash flow from operating activities before exceptional items for thecontinuing businesses was £115.2m in 2004, compared to £110.9m in 2003.Exceptional cash flow items in 2004 included the payment of a one offcontribution to the pension scheme of £10.0m to facilitate the merger of thethree predecessor schemes and the cash costs of the closure of the Hadfieldsite. The net proceeds of the shares issued in the IPO and the effectivecapitalisation of the PFI No. 3 Loan Notes reduced debt by £303.0m. Gross debtnet of cash and before debt issuance costs was £377.5m at 31 December 2004. Capital expenditure Gross capital expenditure during 2004 was £36.8m, of which £6.9m was for assetspurchased to replace the assets damaged in the fire at Bury St Edmunds. Afterthe deduction of the £1.0m excess, we received £5.9m from our insurers to fundthis replacement programme. We also received proceeds of £4.0m from the sale ofthe Hadfield factory. Interest Interest charged in 2004 was £78.3m. This comprises a net £41.7m payable ofcash interest, £11.1m of interest payable on the PFI No. 3 Loan Notes, prior totheir effective capitalisation, a total of £14.4m of debt issuance costsamortisation and a charge of £11.1m on the early redemption of the Senior Notes. Interest charges will fall significantly in 2005 following the changes to ourcapital structure in the IPO. Net interest paid in 2004 was £59.4m, comprising£48.3m of interest on term debt and the Senior Notes and the £11.1m earlyredemption penalty on the Senior Notes. We anticipate that our ongoing cashinterest costs will total approximately 7% of net debt, comprising 6% on theterm debt and an additional 1% to cover other associated financing charges. Taxation The tax charge for 2004 was £2.5m on profit before tax of £8.7m. Tax paid inthe year was £0.2m. Pensions We provide retirement benefits for UK employees under our main defined benefit(final salary) scheme, the Premier Foods Pension Scheme (the "PF Scheme"), whichwas formed by the merger of three pension schemes in May 2004. A second smallerdefined benefit (final salary) scheme, the Premier Ambient Products PensionScheme (the "PAPP Scheme") provides benefits solely for former employees ofUnilever Bestfoods employed in the Ambrosia business. We regularly review our actuarial assumptions and in light of increasedinflationary pressures in the economy have changed our FRS 17 assumptions. Thenet effect of this adjustment is to increase the reported net deficit afterdeferred tax in the scheme, as calculated under FRS 17 assumptions, by £25.2m to£45.2m. The revision to the FRS17 assumptions does not affect the actuarialdeficit on which the cash contributions that the company is making to the schemeare based and contributions remain at the same rate as during 2004. CONSOLIDATED PROFIT AND LOSS ACCOUNT - unaudited Year ended Year ended 31 December 2004 31 December 2003 Continuing Discontinued Total Continuing Discontinued Total operations operations operations operations £m £m £m £m £m £m Turnover 842.2 54.6 896.8 773.8 96.8 870.6 Operating profitBefore amortisation and exceptional items 107.4 2.1 109.5 85.6 3.0 88.6Amortisation of intangible assets (10.1) (0.1) (10.2) (6.8) (0.3) (7.1)Amortisation of pension prepayment - - - (2.4) - (2.4) Operating profit before exceptional items 97.3 2.0 99.3 76.4 2.7 79.1 Operating exceptional items (25.4) - (25.4) (10.5) (0.5) (11.0) Operating profit 71.9 2.0 73.9 65.9 2.2 68.1 Non-operating exceptional items 12.9 0.2 13.1 2.0 - 2.0 Profit on ordinary activities before interest 87.0 70.1 Net interest payable (78.3) (70.4) Profit / (loss) on ordinary activities before 8.7 (0.3)taxation Taxation (charge) / credit on profit / (loss)on ordinary activities (2.5) 8.9 Profit on ordinary activities after taxation 6.2 8.6 Dividends (22.0) - Retained (loss)/profit for the year (15.8) 8.6 Earnings per share (pence) Basic 3.9 9.6 Diluted 3.8 9.3 The accompanying notes are an integral part of this consolidated financial information. CONSOLIDATED BALANCE SHEET - unaudited 31 December 31 December 2004 2003 £m £mFixed assets Intangible assets 174.6 190.4 Tangible assets 147.3 153.1 Investments 0.1 0.3 322.0 343.8Current assets Stocks 98.2 120.6 Debtors due: Within one year 110.6 120.7 After more than one year 9.4 6.5 Cash at bank and in hand 12.5 28.1 230.7 275.9 Creditors: amounts falling due within one year Borrowings (27.9) (40.4) Other creditors (173.2) (195.2) (201.1) (235.6) Net current assets 29.6 40.3 Total assets less current liabilities 351.6 384.1 Creditors: amounts falling due after more than one year Borrowings (354.9) (681.6) Other creditors - (0.2) (354.9) (681.8) Provisions for liabilities and charges (11.6) (19.1) Net liabilities (14.9) (316.8) Capital and reserves Share capital 2.4 - Share premium account 320.9 10.0 Reserves (338.2) (326.8) Total shareholders' deficit (14.9) (316.8) The accompanying notes are an integral part of this consolidated financial information. CONSOLIDATED CASH FLOW STATEMENT - unaudited Year ended 31 December Note 2004 2003 £m £m Net cash inflow from operating activities (a) 98.4 109.9Return on investments and servicing of finance (b) (67.5) (47.1)Taxation (0.2) 1.7Capital expenditure and financial investment (b) (26.9) (21.0)Acquisitions and disposals (b) 34.2 (106.3)Cash inflow/(outflow) before financing 38.0 (62.8) Financing Issue of ordinary share capital 98.7 - (Decrease)/increase in borrowings (355.7) 34.8 Effective capitalisation of PFI No.3 loan notes by issue of shares 204.3 - Decrease in net cash in the year (14.7) (28.0) Reconciliation of net cash flow to movement in net debtDecrease in net cash in the year (14.7) (28.0)Decrease/(increase) in borrowings 355.7 (34.8)Exchange adjustments - (3.8)Other non-cash movements (17.4) (19.8)Decrease/(increase) in net debt in the year 323.6 (86.4) Net debt at beginning of year (693.9) (607.5) Net debt at end of year (370.3) (693.9) Analysis of movements in net debt At 1 Cash Issue of Effective Other At 31 January flow share capitalisation non-cash December 2004 capital of PFI No.3 loan movement 2004 notes £m £m £m £m £m £m Cash at bank and in hand 28.1 (15.6) - - - 12.5Less: Bank overdrafts (10.8) 0.9 - - - (9.9)Net cash 17.3 (14.7) - - - 2.6 Debt due within one year (34.2) 14.2 - - - (20.0)Debt due after one year (690.4) 38.5 98.7 204.3 (11.1) (360.0)Other non-bank debt (0.1) - - - - (0.1)Gross debt (724.7) 52.7 98.7 204.3 (11.1) (380.1) Gross debt net of cash (707.4) 38.0 98.7 204.3 (11.1) (377.5)Debt issuance costs 13.5 - - - (6.3) 7.2 Total net debt (693.9) 38.0 98.7 204.3 (17.4) (370.3) The accompanying notes are an integral part of this consolidated financial information. NOTE TO THE CONSOLIDATED CASH FLOW STATEMENT - unaudited (a) Reconciliation of operating profit to operating cash flows Year ended 31 December 2004 2003 £m £mContinuing operationsOperating profit before exceptional items 97.3 76.4Depreciation 18.6 21.2Amortisation of intangible assets 10.1 6.8Amortisation of pension prepayment - 2.4Decrease/(increase) in stocks 7.0 (4.4)(Increase)/decrease in debtors (16.4) 14.9Decrease in creditors (1.4) (7.7)Exchange movement in working capital - 1.3Net cash inflow from operating activities before exceptional items 115.2 110.9Cash flows relating to merger of pension schemes (10.0) -Cash flows relating to exceptional items (8.6) (10.3) 96.6 100.6Discontinued operationsOperating profit before exceptional items 2.0 2.7Depreciation 1.1 2.2Amortisation of intangible assets 0.1 0.3Decrease/(increase) in stocks 2.8 (0.8)Increase in debtors (0.8) (1.8)(Decrease)/increase in creditors (3.0) 8.2Exchange movement in working capital (0.4) (0.7)Net cash inflow from operating activities before exceptional items 1.8 10.1Cash flows relating to exceptional items - (0.8) 1.8 9.3 Net cash inflow from operating activities 98.4 109.9 Year ended 31 December(b) Additional analysis of cash flows 2004 2003 £m £mReturn on investments and servicing of financeInterest received 5.3 5.1Interest paid (64.7) (47.9)Issue costs of new bank loan (8.1) (4.3) Return on investments and servicing of finance (67.5) (47.1) Capital expenditure and financial investmentPurchase of tangible fixed assets (36.8) (27.3)Receipts from insurers 5.9 -Purchase of intangible assets - (0.2)Sale of tangible fixed assets 4.0 6.5 Capital expenditure and financial investment (26.9) (21.0) Acquisitions and disposalsSale/(purchase) of subsidiary undertakings 34.8 (106.3)Cash disposed of upon sale of subsidiary undertakings (0.6) - Acquisitions and disposals 34.2 (106.3) STATEMENT OF TOTAL RECOGNISED GAINS & LOSSES - unaudited Year ended 31 December 2004 2003 £m £m Profit on ordinary activities after taxation 6.2 8.6Dividends (22.0) -Exchange adjustments offset in reserves (1.9) 3.3 Total recognised gains and losses for the year (17.7) 11.9 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' DEFICIT - unaudited Year ended 31 December 2004 2003 £m £m Profit on ordinary activities after taxation 6.2 8.6Dividends (22.0) -Other recognised gains and losses relating to the year (1.9) 3.3Issue of share capital 109.0 -Issue of share options 6.3 -Effective capitalisation of PFI No.3 loan notes by issue of shares 204.3 - Net change in shareholders' deficit 301.9 11.9Opening shareholders' deficit (316.8) (328.7) Closing shareholders' deficit (14.9) (316.8) The accompanying notes are an integral part of this consolidated financial information. NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION - unaudited Year ended 31 December 2004 1. Basis of Preparation The Consolidated Financial Information includes the financial information ofPremier Foods plc. The profits and losses of the subsidiary undertakings areincluded from the effective date of acquisition until the effective date ofdisposal. On 22 June 2004, Premier Foods plc was incorporated with an issued share capitalof 5,000,000 1p ordinary shares. Premier Foods plc became the ultimate holdingcompany of the Group on 15 July 2004. On this date, HMTF Premier Limited(HMTFPL) contributed its shares in Premier Foods Investment No.3 Limited (PFINo.3) to Premier Foods plc in exchange for 1,000 1p ordinary shares in PremierFoods plc. The scheme of arrangement has been accounted for as a groupreconstruction in accordance with the principles of merger accounting. FRS 6 requires acquisition accounting to be adopted where all of the conditionslaid down by merger accounting are not satisfied. One of the requirements ofmerger accounting under Schedule 4A 10(1) of the Companies Act 1985 is that atleast 90% of the consideration (calculated by reference to the nominal value ofshares issued) should be in the form of equity shares. On 23 January 2004, PFINo.3 acquired, through its wholly owned subsidiary undertakings Premier FoodsInvestments No.2 Limited (PFI No.2) and Premier Foods Investments No.1 Limited(PFI No.1), the entire share capital of Premier Foods Investments Limited andits subsidiaries by the issue of one ordinary £1 share to HMTFPL and theassumption of £194.4m of loan notes due 2017 to Premier Investments HoldingsL.P. The obligations under the loan notes constituted more than 10% of the totalconsideration. As a result of the transactions executed on 23 January 2004, the shareholders inPFI No.3 were the same as the former shareholders of Premier Foods InvestmentsLimited, the ultimate parent company at 31 December 2003 and the rights of eachshareholder, relative to the others, were unchanged. Consequently, the Directorshave considered that to record the group reconstruction as an acquisition by PFINo.3, to attribute fair values to the assets and liabilities of PFI No.2, PFINo.1 and Premier Foods Investments Limited, and to reflect in each case only thepost group reconstruction consolidated results of the Group within theConsolidated Financial Information would fail to give a true and fair view ofthe Group's consolidated results and financial position. Accordingly, having regard to the overriding requirement under Section 227(6) ofthe Companies Act 1985 for the Consolidated Financial Information to give a trueand fair view of the Group's results and financial position, the Directors haveadopted merger accounting principles in respect of the group reconstruction indrawing up the financial statements underlying the Consolidated FinancialInformation. As a result, all equity shares which were outstanding at the dateof the group reconstruction have, together with all disclosures, been restatedand presented throughout the period of the Consolidated Financial Information togive the effect of the group reconstruction as if it had occurred immediatelyprior to the beginning of the period. The Directors have considered it is notpracticable to quantify the effect of this departure from FRS 6. The preliminary results for the year ended 31 December 2004 are unaudited. Theunaudited financial statements for 2004 are prepared using consistent accountingpolicies. The financial information set out in the announcement does notconstitute the Company's statutory accounts for the year ended 31 December 2004. The statutory accounts for the year ended 31 December 2004 will be finalisedon the basis of the financial information presented by the Directors in thispreliminary announcement and will be delivered to the Registrar of Companiesfollowing the Company's Annual General Meeting. As described on page 6, giventhe nature of the recall, the limited number of claims that have been receivedat this stage and intrinsic uncertainty involved in such situations, it has notbeen possible to fully quantify the claim and consequently, our auditors,PricewaterhouseCoopers, may refer to the uncertainty in their audit report.However, the Company has made a preliminary assessment of the quantum and natureof the claims based on a set of assumptions reflecting management's current viewof the situation and, after having taken appropriate legal advice, does notbelieve the Company has a material financial exposure. 2. Profit and loss account Year ended 31 December 2004 Continuing operations Discontinued Total operations Before Operating Including Including exceptional exceptional operating operating items items exceptional exceptional items items £m £m £m £m Turnover 842.2 - 54.6 896.8Cost of sales (631.8) (4.5) (40.7) (677.0)Gross profit 210.4 (4.5) 13.9 219.8 Selling and distribution expenses (75.6) (0.6) (9.5) (85.7)Administrative expenses (30.4) (20.3) (2.3) (53.0)Insurance recovery 3.0 - 3.0Operating profit before amortisation 107.4 (25.4) 2.1 84.1Amortisation of intangible assets (10.1) - (0.1) (10.2) Operating profit 97.3 (25.4) 2.0 73.9 Year ended 31 December 2003 Continuing operations Discontinued Total operations Before Operating Including Including exceptional exceptional operating operating items items exceptional exceptional items items £m £m £m £m Turnover 773.8 - 96.8 870.6Cost of sales (591.1) (8.9) (77.2) (677.2)Gross profit 182.7 (8.9) 19.6 193.4 Selling and distribution expenses (73.3) (1.4) (13.2) (87.9)Administrative expenses (23.8) (0.2) (3.9) (27.9)Operating profit before amortisation 85.6 (10.5) 2.5 77.6Amortisation of intangible assets (6.8) - (0.3) (7.1)Amortisation of pension prepayment (2.4) - - (2.4) Operating profit 76.4 (10.5) 2.2 68.1 3. Summary Segmental Analysis 2004 2003Turnover £m £m Convenience Foods, Pickles & Sauces 374.8 374.6Tea & Beverages 140.3 143.0Spreads & Desserts 176.8 120.4Grocery products 691.9 638.0Potatoes 150.3 135.8Continuing operations 842.2 773.8Discontinued operations - Grocery products 54.6 96.8 Total 896.8 870.6 Segmental analysis of EBITA1 and operating profit before exceptional items Year ended 31 December 2004 EBITA1 Goodwill Amortisation of Operating amortisation pension profit(3) prepayment(2) £m £m £m £m Convenience Foods, Pickles & Sauces 36.2 (3.0) - 33.2Tea & Beverages 32.4 (0.5) - 31.9Spreads & Desserts 33.0 (6.3) - 26.7Grocery products 101.6 (9.8) - 91.8Potatoes 5.8 (0.3) - 5.5Continuing operations 107.4 (10.1) - 97.3Discontinued operations - Grocery products 2.1 (0.1) - 2.0 Total 109.5 (10.2) - 99.3 Year ended 31 December 2003 EBITA1 Goodwill Amortisation of Operating amortisation pension profit(3) prepayment(2) £m £m £m £m Convenience Foods, Pickles & Sauces 37.3 (3.2) (1.4) 32.7Tea & Beverages 27.9 (0.5) (0.5) 26.9Spreads & Desserts 14.4 (2.7) (0.5) 11.2Grocery products 79.6 (6.4) (2.4) 70.8Potatoes 6.0 (0.4) - 5.6Continuing operations 85.6 (6.8) (2.4) 76.4Discontinued operations - Grocery products 3.0 (0.3) - 2.7 Total 88.6 (7.1) (2.4) 79.1 1. EBITA is defined as operating profit before amortisation and exceptional items. 2. No amortisation of pension prepayment in 2004 as employer pension contributions recommenced in July 2003. 3. Operating profit is stated here before exceptional items. Segmental analysis of operating assets 2004 2003 £m £mGrocery products Net operating assets 166.5 139.5 Intangible assets 174.6 185.2 341.1 324.7Potatoes Net operating assets 14.3 18.1 Intangible assets - 0.2 14.3 18.3Continuing operations 355.4 343.0 Grocery productsRelated Shares:
Premier Foods