4th Sep 2007 07:02
Premier Foods plc04 September 2007 Premier Foods plc Interim Results 2007 Premier's year of transformation Interim results for the six months to 30 June 2007 Unaudited Unaudited six months to six months to Change 30 June 2007 1 July 2006 £m £m Turnover* 899.1 366.5 145.3% Trading profit** 96.8 45.6 112.3% Operating profit* 52.2 42.4 23.1% Profit before tax* 13.9 27.6 (49.6%) Profit after tax* 21.9 20.5 6.8% Cash inflow from operating activities 99.4 52.3 90.1% Basic earnings per share* 3.1p 6.6p (53.0%) Adjusted earnings per share*** 5.3p 5.6p (5.4%) Dividend per share 4.3p 3.95p 8.9% • Campbell's integration completed: £28m of annual cost synergies confirmed • RHM integration proceeding at pace: £85m of annual cost synergies confirmed • Core Premier trading profit** up 4.4% • Good start to H2 sales, we expect to hit underlying sales growth targets for the full year • Exciting new products coming to market • Bread prices increased reflecting increased wheat costs • Profit targets for the year remain unchanged • Interim dividend up 8.9% to 4.3 pence per ordinary share Robert Schofield, Chief Executive of Premier Foods plc, said, "We are delighted by the way that the integration of Campbell's has beensuccessfully completed within 8 months of acquisition and the excitinginnovation we have for the brands in the second half. The integration of RHMcontinues at pace and to plan and we remain confident that we will deliver thetotal of £113m of cost synergies targeted from these two acquisitions. We have had a good start to trading for the second half where a combination of astrong programme of new product launches, improved promotional strategies acrossthe enlarged Group and cooler weather has helped to drive sales growth. Weremain confident that we will deliver underlying sales growth for the year inline with our 1.5-2% target. Wheat prices have seen an unprecedented level ofincrease over the last few weeks and we are pleased to have been able toimplement price rises across our bread and flour products from the start ofSeptember. However, if current wheat prices persist additional bread and flourprice increases will be required. Other raw material cost inflation is alsosignificant, making price increases across many of our products necessary.Whilst mindful of the turbulence that we have seen in the bread market over thelast few months, we anticipate that we will be able to meet our sales andtrading profit growth targets for the year." * Continuing operations *\* Trading profit is defined as operating profit from continuing operationsbefore exceptional items, amortisation of intangible assets, the movement in theIAS39 valuation of forward foreign exchange contracts, which cannot be predictedand the pension credits or charges in relation to the difference between theexpected return on pension assets and interest costs on pension liabilities.Core Premier trading profit has been calculated as the sum of trading profit forthe Convenience, Pickles, Sauces & Meat-free and Spreads, Desserts & Beveragesproduct groups and excludes Campbell's and Chivers Ireland. The year on yeargrowth for the Core Premier trading profit has been calculated after reducingthe trading profit for 2006 by £5.0m being the impact of the end of the Cadburyhot beverages licence. ***Adjusted earnings per share is calculated as set out below: 2007 2006 H1 H1 £m £m Trading profit 96.8 45.6Less net cash interest (42.1) (19.7)Less regular amortisation of debt issuance costs (1.6) (0.6)Adjusted profit before tax 53.1 25.3Less tax at 30% (15.9) (7.6)Adjusted profit after tax 37.2 17.7Divided by:Average shares in issue (millions) 699.7 314.1 Adjusted earnings per share 5.3p 5.6p As a consequence of the changes in commercial structure as a result ofacquisitions and disposals, there are fundamental differences between theprimary financial statements of the current and comparative periods. For thisreason the Group has chosen to comment on trading performance on a pro formabasis alongside statutory financial information. The pro forma presentationtreats acquired businesses as if they had been owned for the whole of thecurrent and prior year reporting periods. For further information: Premier Foods plc +44 (0) 1727 815 850Paul Thomas, Finance DirectorGwyn Tyley, Investor Relations Manager Citigate Dewe Rogerson +44 (0) 20 7638 9571Michael BerkeleyJustin GriffithsAngharad CouchNicola Smith A presentation to analysts will take place on 4th September 2007 at 9.00am atHaberdashers' Hall, 18 West Smithfield, London, EC1A 9HQ. In addition, thepresentation will be available via webcast at www.premierfoods.co.uk Operating review - continuing operations £m 2007 2006 H1 H1 SalesGrocery 462.7 366.5 26.2%Bread Bakeries 235.5 - -Culinary Brands 67.2 - -Cakes 73.5 - -Customer Partnerships 60.2 - -Total sales 899.1 366.5 145.3% Trading profit* 96.8 45.6 112.3%Trading profit margin 10.8% 12.4% Amortisation of intangibles (12.5) (4.2) 197.6%Foreign exchange valuation items credit/(charge) 0.9 (1.9) -Pension financing credit 7.5 1.6 -Operating profit before exceptional items 92.7 41.1 125.5%Exceptional items (40.5) 1.3 -Operating profit 52.2 42.4 23.1% \* Trading profit is defined as operating profit before exceptional items,amortisation of intangible assets, the revaluation of foreign exchange contractsunder IAS39 and pension credits or charges in relation to the difference betweenthe expected return on pension assets and interest costs on pension liabilities The first half of 2007 has seen a transformation in the scale and breadth ofPremier's operations following the acquisition of RHM plc in March 2007. Thisfollowed the acquisition of Campbell's in August 2006 and the pro forma sales ofthe combined Group has more than trebled the previously reported sales ofPremier in H1 2006. We are delighted by the progress we have made integrating these businesses. TheCampbell's business has been integrated into our Grocery business within theConvenience Foods, Pickles, Sauces & Meat-free product group. The integrationproceeded very smoothly and was completed in April 2007. We are on track todeliver the £28.0m of annual cost synergies that we identified at the time ofthe acquisition, of which £2.0m have been recorded in the first half of 2007. Afurther £5.0m of cost synergies are forecast to be delivered in the second halfof 2007. Similarly, the integration of RHM into Premier's operations has been proceedingto plan. We have made significant steps on the integration in the 5 monthssince acquisition: we have closed the RHM head office; combined the seniormanagement teams into a single operating board; commenced the integration of theCulinary Brands division; completed a review of the combined manufacturingfacilities and announced the proposal to close 6 factories; commenced theintegration of all our operations in the Republic of Ireland into a singlebusiness unit; and integrated the management teams of our RF Brookes, Avana andCharnwood businesses. We have confirmed the total level of annual costsynergies at £85.0m, of which £10.0m are forecast to be delivered in the secondhalf of 2007. We expect to complete the integration of RHM on schedule by theend of 2009. In addition, we are encouraged by the untapped organic growth andcost saving opportunities in the RHM business. We have completed the external benchmarking of RHM's senior management group, aprocess we go through on all our major acquisitions, and we are pleased that theresults confirm the high quality of the RHM team. Over 40% of the seniormanagement positions in the enlarged Group have been filled by RHM managers. Inaddition, the RHM team has responded positively to the change from a divisionalto a functional structure which has enabled synergies to be realised andprovides additional growth opportunities. Total sales from continuing operations increased by 145.3% to £899.1m, operatingprofit from continuing operations increased by 23.1% to £52.2m and tradingprofit increased by £51.2m or 112.3% to £96.8m. The comparative figures for 2006exclude the Fresh Produce business, which was sold on 30 March 2007 and has beenrecorded within discontinued operations within these financial statements. Theincrease in both sales and operating profit is primarily due to the acquisitionsof Campbell's on 14 August 2006 and RHM on 16 March 2007. Branded sales, on a pro forma basis, now represent 57% of sales, down from areported 61% in the first half of 2006. This decrease is due to the inclusionof RHM, which, at acquisition, was approximately 50% branded, partly offset byinclusion of Campbell's, which, at acquisition was approximately 94% branded. A traditional like-for-like analysis of the results for the period is of limitedvalue given the scale of the transformation of Premier. Therefore, we havepresented a pro forma analysis of the movements in sales and trading profit foreach segment and product group to give a more detailed understanding of thetrading of each. It must be noted, however, that the pro forma 2006 comparativesfor Campbell's and RHM are for a period when the businesses were not under thecontrol of Premier's management. Grocery "Grocery" comprises Premier Convenience Foods, Pickles, Sauces & Meat-free andSpreads Desserts & Beverages and includes the Campbell's and Chivers Irelandbusinesses. Sales of products by Premier to Chivers Ireland in 2006 have beenreclassified to Chivers Ireland. Pro forma results include 6 months trading ofCampbell's and Chivers Ireland in H1 2006 and a full 6 months of trading ofChivers Ireland in H1 2007. £m 2007 2006 H1 H1ReportedSalesConvenience Foods, Pickles, Sauces & 216.5 224.4 (3.5%)Meat-freeSpreads, Desserts & Beverages 117.0 137.8 (15.1%)Campbell's 120.1 - -Chivers Ireland 9.1 4.3 - Total Grocery 462.7 366.5 26.2% Trading profitConvenience Foods, Pickles, Sauces & 16.7 16.2 3.1%Meat-freeSpreads, Desserts & Beverages 25.7 29.4 (12.6%)Campbell's 21.2 - -Chivers Ireland (0.1) - - Total Grocery 63.5 45.6 39.3% £m 2007 2006 2006 2006 H1 H1 Adjustments* AdjustedPro formaSalesConvenience Foods, Pickles, Sauces & 216.5 224.4 - 224.4 (3.5%)Meat-freeSpreads, Desserts & Beverages 117.0 137.8 (14.2) 123.6 (5.3%)Campbell's 120.1 119.8 - 119.8 0.3%Chivers Ireland 10.2 9.5 - 9.5 7.4% Total Grocery 463.8 491.5 (14.2) 477.3 (2.8%) Trading profitConvenience Foods, Pickles, Sauces & 16.7 16.2 - 16.2 3.1%Meat-freeSpreads, Desserts & Beverages 25.7 29.4 (5.0) 24.4 5.3%Campbell's 21.2 26.5 (6.1) 20.4 3.9%Chivers Ireland (0.1) 0.5 - 0.5 - Total Grocery 63.5 72.6 (11.1) 61.5 3.3% * The adjustments to 2006 represent our estimate of the additional sales andprofit contribution from the Cadbury hot beverages licence which ended in May2006 and non-recurring trading distortions from the pre-acquisition period inCampbell's. Convenience Foods, Pickles, Sauces & Meat-free Sales of Convenience Foods, Pickles, Sauces & Meat-free decreased by £7.9mcompared to the first half of 2006 due to reduced sales of branded baked beans,which were heavily promoted during the launch of Branston beans in 2006 andlower sales of own label convenience foods, partly offset by increased sales ofour market-leading Meat-free brand, Quorn, Branston relishes and Loyd Grossmancooking sauces. Our Meat-free business has continued to grow albeit at a temporarily slower rateduring the first half of this year. This was the consequence of reducedpromotional activity behind the Quorn and Cauldron brands during thecommissioning of our new chilled manufacturing facility at Methwold in Norfolk.The plant is now fully operational and we have seen the rate of sales growthsince the start of the second half return to its previous higher levels. Wehave also announced an investment of £35.0m in a new fermentation plant at ourBelasis factory, which will significantly increase its capacity to support thecontinued rapid growth of Quorn. We expect the second half of 2007 to show good year-on-year improvementfollowing the successful launches of "Branstein Beans" with Omega 3 oils and "Bloomin Big Beans", whilst Loyd Grossman stir in sauces and foodservice saucesare set to be launched in the latter half of 2007. Spreads, Desserts & Beverages Sales in our Spreads, Desserts & Beverages product group decreased by 15.1% to£117.0m, primarily as a result of the end of the Cadbury hot beverages licencein May 2006 and the exit from a number of low margin own label spreadscontracts. We estimate that the Cadbury hot beverages licence contributed salesof £14.2m and trading profit of £5.0m to results for the first half of 2006.Adjusting for this, like-for-like sales declined by 5.3%, primarily because ofthe reduced own label sales, whilst like-for-like trading profit increased by5.3%, primarily because of an improved cost performance. During the second half of 2007, we will continue to focus on driving increasedsales of individual desserts. The acquisition of RHM has added some fantasticbrands to our spreads brand portfolio. Following the integration of the CulinaryBrands marketing team into Premier in H1, the focus for the second half of 2007will be on optimising the brand strategies across the enlarged brandedportfolio. Campbell's We are pleased by the performance of the Campbell's business in the first halfof 2007, having arrested the 4.0% rate of sales decline at the time ofacquisition whilst also completing the integration of the business into Premierin only 8 months. Pro forma results include 6 months trading of Campbell's in H12006. We have seen strong growth of Oxo and Fray Bentos, have stabilised salesof Batchelor's and reduced the rate of decline of Homepride. The 2006 pro formatrading profit for Campbell's business includes the effect of tradingdistortions as the business was being prepared for sale by its previous owners.We estimate that these trading distortions increased trading profit in H1 2006by £6.1m and that the comparable trading profit figure would have been £20.4m. We have been working hard at rejuvenating the Campbell's brands and are excitedby the prospects for the second half of 2007, particularly the launch ofBatchelor's Soupfulls ready-to-eat soups and Oxo liquid stock. Chivers Ireland We acquired Chivers Ireland, a leading supplier of preserves to Ireland's retailgrocery and foodservice markets and the distributor of Premier's brands in theRepublic of Ireland, in January 2007. For 2006, we have classified underChivers Ireland the sales Premier made to Chivers Ireland prior to itsacquisition. The increase in reported sales from 2006 to 2007 primarilyreflects the addition of sales of Chivers Ireland's own products to the sales ofPremier products that they distribute. Bread Bakeries £m 2007 2006 H1 H1ReportedSales 235.5 -Trading profit 9.6 -Pro formaSales 398.4 402.8 (1.1%)Trading profit 19.0 37.9 (49.9%) Pro forma results include 6 months trading of RHM in H1 2006 and 2007. Pro forma sales in our Bread Bakeries segment decreased by £4.4m to £398.4m,which reflects lower bread volumes, partly offset by higher prices. Pro formatrading profit for the Bread Bakeries segment decreased by £18.9m to £19.0m.This was a result of significantly higher wheat prices in the first half of 2007compared to the same period in 2006, increased distribution costs and overheadsand reduced contribution from the lower bread volumes, partly offset byincreased prices. The decreased volumes were a result of a general decline inthe consumption of bread in the UK and increased competitor activity. We recently announced proposals to close our bakery in Bradford and distributiondepot in Telford. We are mindful of the impact that such plant closures havebut it is essential that we take action to remain competitive in the marketplace. In the second half, we have already seen a successful advertising campaignbehind our market leading Hovis Best of Both bread which is a white loaf thathas the nutritional benefits of wheatgerm. Hovis Seed Sensations wassuccessfully launched in July and we look to continue to build on the strongtrack record of innovative new product development of the brand. Over the summer the price of wheat has seen an unprecedented level of increase,rising in a matter of weeks to a level approximately double that of 2006. Thisis a significant issue for the whole of the food industry, not just Breadbaking. We are pleased to have achieved price increases from the start ofSeptember which should recover a significant part of the cost increase. If wheatprices remain at or above the current levels, then further increases in ourbread and flour prices may be required. Culinary Brands £m 2007 2006 H1 H1ReportedSales 67.2 -Trading profit 11.2 -Pro formaSales 119.5 123.3 (3.1%)Trading profit 18.5 24.2 (23.6%) Pro forma results include 6 months trading of RHM in H1 2006 and 2007. Pro forma sales in our Culinary Brands segment decreased by £3.8m to £119.5m.The decrease was principally due to reduced promotional activity in the firsthalf of 2007 compared to 2006 and trade loading. Pro forma trading profit forthe Culinary Brands segment decreased by £5.7m to £18.5m as a result of thelower sales and increased raw material costs. We are delighted by the strong start that Culinary Brands has made to the secondhalf of 2007. We have launched a new Sharwood's Thai range, which shouldconsolidate Sharwood's position as the number one brand in Asian Meal Solutions,which comprises a variety of cooking sauces, stir fry sauces, noodles anddressings and we will be looking for good growth from Bisto, which is scheduledto be back on TV in H2 with a new advertising campaign. Culinary Brands' head office is scheduled for closure at the end of the year andplans are progressing for the integration of the administrative centre. We arepleased to have completed the integration of all commercial teams into Premier'sGrocery operations and as a consequence the Culinary Brands portfolio is nowrepresented by the Premier Grocery sales force and we expect to see both costand commercial benefits from this during the second half of the year. The strong portfolio of brands in this division, such as Sharwood's, Bisto,Robertson's, Frank Cooper and Paxo perfectly complement those already in thePremier stable - Loyd Grossman, Oxo, Hartley's and Rose's. During the secondhalf, we will be focussing on how to optimise the positioning of these brands intheir categories to ensure we maximise the growth opportunities. Cakes £m 2007 2006 H1 H1ReportedSales 73.5 -Trading profit 6.1 -Pro formaSales 121.6 112.6 8.0%Trading profit 7.8 7.6 2.6% Pro forma results include 6 months trading of RHM in H1 2006 and 2007. Pro forma sales for the Cakes segment increased by £9.0m to £121.6m. Thisincrease was due to increased market share with improved sales of branded andown label cakes. Pro forma trading profit for the Cakes segment increased by£0.2m to £7.8m, reflecting the increased sales, largely offset by highermarketing expenditure. We are anticipating that the current performance will continue into theseasonally stronger second half of the year. We are pleased by the innovativebrand development processes that we have found in the Cakes division, asexemplified by the relaunched Cadbury branded range of cakes. We have alsoannounced the exit from the Manor Bakeries van sales operation given theuneconomic cost to serve this route to market. We anticipate that this may slowsales growth in the second half but we do not expect any trading profit impact.Integration of the Cakes business into the Premier business will commence in thelatter part of 2007. Customer Partnerships £m 2007 2006 H1 H1ReportedSales 60.2 -Trading profit 6.4 -Pro formaSales 103.4 96.3 7.4%Trading profit 11.5 11.4 0.9% Pro forma results include 6 months trading of RHM in H1 2006 and 2007 andexclude the trading of RHM Frozen Foods, which has been classified withindiscontinued operations. Pro forma sales in our Customer Partnerships segment increased by £7.1m to£103.4m, primarily reflecting the successful launch of new product lines. Proforma trading profit for the Customer Partnerships segment increased by £0.1m to£11.5m reflecting the increased sales, partly offset by higher raw materialcosts. As part of our ongoing review of the Group's activities, we decided in June todispose of the RHM frozen foods business due to its poor competitive position.This business manufactures primarily retailer label products in the frozen pies,ready meals and desserts categories. We are pleased to have already concludedthe sale of certain assets of the ready meals division and hope to reach a rapidconclusion on the disposal of the remaining parts of the business. The RF Brookes, Charnwood and Avana cake businesses have been organised into asingle management structure. Avana cakes' results have been reported within theCakes division, in line with previous reporting. Outlook We have had a good start to trading for the second half where a combination of astrong programme of new product launches, improved promotional strategies acrossthe enlarged Group and cooler weather has helped to drive sales growth. Weremain confident that we will deliver underlying sales growth for the year inline with our 1.5-2% target. Wheat prices have seen an unprecedented level ofincrease over the last few weeks and we are pleased to have been able toimplement price rises across our bread and flour products from the start ofSeptember. However, if current wheat prices persist additional bread and flourprice increases will be required. Other raw material cost inflation is alsosignificant making price increases across many of our products necessary.Whilst mindful of the turbulence that we have seen in the bread market over thelast few months, we anticipate that we will be able to meet our sales andtrading profit growth targets for the year. The integration of RHM continues at pace and we are confident that we willdeliver the targeted cost synergies on schedule. During the second half, we willcomplete the integration of the Culinary Brands business into Premier andcommence the integration of the Cakes business. We have started preparing ourmanufacturing sites for the transfer of production from those sites, which arescheduled to close during 2008 and 2009. We will issue our first Interim Management Statement by mid November, which willcover trading for the third quarter of 2007. This will provide us with anopportunity to comment on trading from July to September, the impact of anyfurther changes to wheat prices and further progress on the integration of RHM. Robert SchofieldChief Executive Financial review The Group is presenting its interim results for the six months to 30 June 2007with comparative information for the six months ended 1 July 2006. In thecurrent period, the presentation of these interim financial statements issignificantly different to that of the prior period, a reflection of the changesin the commercial structure of the Group, the primary elements of which are setout below. Accounting policies have been consistently applied in the interimfinancial statements on the basis set out in Group's financial statements forthe year ended 31 December 2006 on pages 68 to 72. Following the announcement on 4 December 2006, the Group acquired RHM plc ("RHM") on 16 March 2007 for a consideration of £1,336.5m. The acquisition wasachieved under a scheme of arrangement resulting in the exchange of one newordinary Premier share and 83.2p in cash for each RHM share in issue. Inaddition, on 19 January 2007, Premier acquired Chivers Ireland Limited ("Chivers"), a leading supplier of preserves to Ireland's retail grocery and foodservicemarkets and the distributor of Premier's brands in the Republic of Ireland,under license, for £22.0m. On 30 March 2007, the Group disposed of MBM Limited ("MBMG"), a supplier offresh produce, to Abbanoy Produce Holdings Limited and on 28 May 2007, the Groupdisposed of Erin Foods Limited ("Erin"), a supplier of grocery products based inIreland, for a total consideration of £25.2m. The Group has also announced itsintention to dispose of its interest in RHM Frozen Foods, a supplier of frozenpies, ready meals and desserts to the UK grocery business. On 21 August 2007,certain assets of the Ready Meals division of RHM Frozen Foods were sold for£1.1m. In accordance with the requirements of IFRS 5, Non-current Assets Held for Saleand Discontinued Operations, the results of MBMG and Erin are presented asdiscontinued operations in both the current and the prior periods. The resultsof RHM Frozen Foods are presented within discontinued operations for the currentperiod only, being the relevant period of ownership by the Group. The acquisition of RHM has led to the addition of four new segments to theGroup's operations: Bread Bakeries, Culinary Brands, Cakes and CustomerPartnerships. The final segmental presentation of the enlarged Group is in theprocess of being defined. However, at least until the end of the currentfinancial year, the former RHM divisions will continue to be reported assegments. As a consequence of the disposal of MBMG, the Group no longer has aFresh Produce segment. Income Statement - continuing operations Sales and operating expenses In the first half of 2007, sales from continuing operations increased by 145.3%to £899.1m. The most significant components of this movement are the tradingresults of the RHM divisions, which contributed £436.4m in the 15-week periodfrom 16 March 2007. Of this, 54.0% related to Bread Bakeries, 16.8% to Cakes,15.4% to Culinary Brands and 13.8% to Customer Partnerships. In addition, theCampbell's businesses contributed sales of £120.1m in the first half, of which94.5% related to its UK operations.Gross profit increased by 184.0% to £270.4m, largely as a result ofacquisitions. The Group's gross profit margin improved by 4.1% to 30.1% (2006:26.0%). This improvement in margin is primarily a result of the inclusion ofthe RHM and Campbell's businesses. Within RHM, the cost structure of BreadBakeries, in particular, results in a higher gross margin contribution which isrequired to offset the additional distribution costs arising from dailynationwide deliveries of bread and morning goods. Within Premier andCampbell's, the movement away from certain own label contracts has also improvedoverall gross margins. Similarly, selling, marketing and distribution costs increased due to theinclusion of the acquired businesses. These costs were £131.7m for the firsthalf of 2007, a fourfold increase compared with 2006. As a proportion of sales,selling, marketing and distribution costs have increased to 14.6% from 8.7% in2006, reflecting the higher distribution costs attributable to Bread Bakerieswithin RHM, which are recovered by the related higher gross margins referred topreviously. Administrative expenses increased from £20.4m to £86.2m. This increase reflectsthe inclusion of the administrative costs for the acquired businesses but alsoincludes restructuring, redundancy and other costs associated with theintegration of Campbell's and RHM. Stripping out the impact of £31.1m ofexceptional administrative costs in the current period and a £1.3m credit in theprevious period, underlying administrative expenses have increased from £21.7mto £55.1m, reflecting the impact of the two acquisitions. While significantprogress has been made in the integration of the administrative back office ofCampbell's, with approximately £2.0m of savings delivered in the first half, thebenefits from the RHM integration will only begin to flow in the second half. Other operating expenditure of £0.3m includes a gain in the fair values ofunsettled forward foreign exchange contracts of £0.9m (2006: £1.9m loss), offsetby a loss on settled forward exchange contracts for the period of £1.2m (2006:£0.6m gain). Operating profit Operating profit before exceptional items for the continuing business was £92.7mfor the first half of 2007, an increase of £51.6m, or 125.5%, compared to thesame period in 2006. The principal elements of this increase is the addition ofthe RHM divisions, which contributed £32.1m since their acquisition. Of this,28.4% related to Bread Bakeries, 19.3% to Cake, 30.8% to Culinary Brands and21.5% to Customer Partnerships. The Campbell's business contributed to anoperating profit before exceptional items of £18.3m. Statutory operating profitincreased by 23.1% to £52.2m. Exceptional items While IFRS does not explicitly address exceptional items, the Group presentsseparately certain items of sufficient financial significance in order to assistin understanding of the financial performance achieved and in making projectionsof future results. These items relate to events or circumstances that arenon-recurring in nature. Each of these items are set out in more detail in note6. Exceptional items for the period reflect the aggregate effect of a number ofsuch items, resulting in a net cost of £40.5m (2006: £1.3m credit). Theprincipal components of this exceptional cost include £24.4m of costs relatingto the integration of RHM and £7.7m of costs relating to the integration ofCampbell's. A further £7.3m was incurred in relation to restructuring andcommissioning costs of our new Meat-free production facility in Methwold. Finance costs On 16 March 2007, the Group re-financed its borrowing arrangements to fund theacquisition of RHM. As a consequence, the Group's borrowings are provided by afive-year term and revolving credit facility of £2.1bn, comprising fixed termloans of £1.6bn and a revolving facility of £0.5bn. In addition, the Group has a£100.0m acquisition facility. The term loans are repayable over a five-yearperiod, with the first payment due on 31 December 2007 and annually thereafter.As a consequence of these new borrowing arrangements, in the first half, theGroup incurred higher cash interest charges and debt issuance amortisationcosts. In aggregate, net finance costs for the period were £38.3m, compared with £14.8min 2006, an increase of £23.5m. Within this, net cash interest increased by£22.4m, from £19.7m to £42.1m, due primarily to the acquisition funding cost.The balance of the movement on finance costs reflects fair value of interestrate swaps, the amortisation of debt issuance costs and the write-off ofun-amortised debt issuance costs of £3.6m in relation to pre-existing creditfacilities of Premier and £4.8m related to the RHM debt at acquisition, whichwas repaid by Premier. The term and revolving credit facilities mature in March 2012 and are subject toa variable interest rate based on LIBOR plus a margin based on the leverage ofthe business tested at six monthly intervals. This is currently set at 110 basispoints. In order to manage the Group's exposure to interest rate volatility, asat 4 September 2007, the Group has fixed or capped a total of £1,617.4m of itsexposure to interest rate movements. Of this, £917.4m is swapped into fixed rateinstruments at an average interest rate of 4.6% plus the applicable margin, with£717.4m of this total maturing between May 2008 and May 2010. The Group hasalso put in place a collar structure on a further £700.0m of its borrowings.This instrument, which matures in March 2012, caps our exposure on this £700.0mat 6.2% plus the applicable margin. As a result, the Group had only £122.0m(7.0%) of its aggregate net debt at fully floating rates. As stated at the time of the adoption of IFRS, the Group has decided not toadopt hedge accounting and so reflects the difference between the market valueof such instruments at the start and end of an accounting period in the incomestatement. Taxation The taxation credit for the first half of 2007 is £8.0m (2006 £7.1m charge) andconsists of a tax charge on profit before tax of £3.5m offset by the release ofprovisions of £7.3m for prior year liabilities following the resolution ofissues with HMRC and a credit of £4.2m resulting from the restatement of openingand acquired net deferred tax liabilities arising from the reduction of the taxrate to 28%. The tax charge of £3.5m on profit before tax is made up of a chargeof £15.4m on operating profit before exceptional items, resulting in aneffective tax rate of 28.4% on operating profit before exceptional items, and atax credit on allowable exceptional costs of £11.9m. The effective rate isdetermined after taking account of items which are disallowable for tax purposesbut is lower than the standard rate of 30% due to movements in deferred taxbeing calculated at 28% to reflect the reduction in the UK corporation tax rateand the lower rate of tax applied to overseas profits. Dividend In line with our stated dividend policy, on 3 September 2007 we declared aninterim dividend of 4.30p per share, an increase of 8.9% on the equivalentrestated interim dividend for 2006, resulting in a total interim dividend of£36.3m payable on 4 January 2008 to shareholders on the register of members at23 November 2007. The shares will be marked ex-dividend on 21 November 2007.Under IFRS, interim dividends are recorded in the period in which they are paidand final dividends are recorded in the period in which they are approved. Cash flow and borrowings During the period, the net debt of the Group increased from £641.4m at 1 January2007 to £1,739.4m at 30 June 2007, an increase of approximately £1.1bn. The bulkof this movement relates to the cash acquisition cost of RHM and is made up ofthe cost of the cash element paid for RHM shares of £289.8m and the debtacquired of £793.5m. Net cash generated from operations was £128.8m (2006: £75.9m), an increaseprimarily attributable to the acquisition of RHM and improvements in, and thetiming of working capital flows. Aggregate cash interest paid of £41.6m (2006:£18.6m) and tax receipts of £12.2m (2006: £5.0m paid), arising as a result ofthe high level of prior year integration costs, resulted in the Group generatingan overall cash inflow from operating activities of £99.4m. Net capital expenditure in the period was £45.8m (2006: £13.9m), againreflecting the capital cash flows of RHM and Campbell's businesses postacquisition. In the period, the Group paid dividends of £39.7m (2006: £nil),including the first interim dividend for 2006 and a second interim dividend atthe announcement of the acquisition of RHM. Pension schemes Consistent with all public companies, the Group reviews actuarial assumptionsused in calculating its pension obligations on a regular basis. It is ourobjective to ensure that the balance between the cash flow risk to the businessand our responsibilities to our current and former employees is fully andregularly understood and that the impact of changes to the composition of thebusiness on our pension obligation is known in advance. In this context, the Group monitors on a regular and ongoing basis thescheme-specific demographic characteristics of members, along with theassumptions relating to discount rates, returns on equity, inflation andassumptions about the rate of future salary increases. As a result we haverevised the assumptions used in determining the IAS19 liabilities at 30 June2007 to reflect changes in the circumstances. These assumptions are show indetail in note 16 of the interim financial statements. As a consequence, at 30 June 2007, and on an IAS19 basis, the Group's pensionschemes showed a net deficit of £89.1m (2006: £46.4m). This comprised £30.2m inrelation to the existing Premier schemes, £12.1m in relation to the schemesassociated with Campbell's and £46.8m in relation to the schemes associated withRHM. The increase, which is due to the acquisition of schemes in the Campbell'sand RHM businesses, has been offset by an underlying reduction in the deficit onthese schemes due to the movement in market rates for bond yields at therelevant dates. Paul ThomasFinance Director Consolidated income statement (unaudited) Half year Half year ended ended Year ended 30 June 1 July 31 December 2007 2006 2006 Note £m £m £m Continuing operationsTurnover 4 899.1 366.5 840.7Cost of sales (628.7) (271.3) (596.7) Gross profit 270.4 95.2 244.0 Selling, marketing and distribution costs (131.7) (32.0) (65.2) Administrative costs (86.2) (20.4) (75.1) Other operating expenditure 5 (0.3) (0.4) (3.2) Operating profit 52.2 42.4 100.5 Before exceptional items 92.7 41.1 119.9Exceptional items 6 (40.5) 1.3 (19.4) Interest payable and other financial 7 (62.9) (23.2) (56.3)chargesInterest receivable and financial income 7 24.6 8.4 14.8 Profit before taxation from continuing 13.9 27.6 59.0operations Taxation credit/(charge) 8 8.0 (7.1) (11.1) Profit after taxation from continuing 21.9 20.5 47.9operations (Loss)/profit from discontinued operations 13 (19.4) 0.1 (0.8) Profit for the period 2.5 20.6 47.1 Earnings per share (pence) 9 Basic 0.4 6.6 12.7 Diluted 0.4 6.6 12.7 Basic - continuing 3.1 6.6 12.9 Diluted 3.1 6.6 12.9 Basic - discontinued (2.7) 0.0 (0.2) Diluted (2.7) 0.0 (0.2) Dividends 10 Final dividend (£m) - - 12.6Declared interim dividend (£m) 36.3 12.4 39.7Final dividend (pence) - - 2.55Declared interim dividend (pence) 4.30 3.95 9.45 Comparatives have been restated to reflect the disposal of the Fresh producebusiness on 30 March 2007 and Erin Foods Limited on 28 May 2007. Earnings per share and dividend comparatives have been restated to reflect theimpact of the rights issue in August 2006. Consolidated balance sheet (unaudited) As at 30 As at 1 As at 31 June July December 2007 2006 2006 Note £m £m £mASSETS: Non-current assets Property, plant and equipment 657.4 198.3 254.7 Goodwill 12 1,994.0 259.2 477.0 Other intangible assets 12 712.5 166.1 389.6 Investments - 0.1 - Retirement benefit assets and other receivables 5.6 0.3 - Current assets Inventories 201.8 83.1 120.6 Trade and other receivables 348.9 102.5 170.6 Financial assets - derivatives 26.8 5.8 6.9 Cash and cash equivalents 53.9 28.8 7.8 Assets classified as held for sale 11 16.9 - - Total assets 4,017.8 844.2 1,427.2 LIABILITIES: Current liabilities Trade and other payables (399.9) (147.5) (177.9) Dividends payable (21.5) (23.5) - Financial liabilities - short term borrowings (83.7) (24.3) (131.5) - loan notes - (3.3) - - derivatives (2.8) (2.5) (3.5) Interest payable (3.8) (2.1) (3.7) Provisions (28.8) (1.6) (7.7) Current tax liabilities (3.1) (19.6) (6.9) Liabilities classified as held for sale 11 (4.8) - - Non-current liabilities Financial liabilities - long-term borrowings (1,709.6) (536.1) (517.7) Retirement benefit obligations 16 (90.7) (46.4) (84.7) Provisions (12.5) (0.4) (0.5) Other liabilities (3.4) (0.1) - Deferred tax liabilities (113.5) (31.7) (32.1) Total liabilities (2,478.1) (839.1) (966.2) Net assets 1,539.7 5.1 461.0 EQUITY: Capital and reserves Share capital 8.4 2.5 5.0 Share premium 1,785.9 321.5 760.6 Merger reserve (136.8) (136.8) (136.8) Profit and loss reserve (117.9) (182.1) (167.8)Capital and reserves attributable to the Company's 1,539.6 5.1 461.0equity Shareholders Minority interest 0.1 - - Total equity 1,539.7 5.1 461.0 Consolidated cash flow statement (unaudited) Half year Half year ended ended Year ended 30 June 1 July 31 December 2007 2006 2006 Note £m £m £m Net cash generated from operating activities 14 128.8 75.9 91.9 Interest paid (52.8) (22.5) (49.2)Interest received 11.2 3.9 9.7Taxation received/(paid) 12.2 (5.0) (12.3)Cash inflow from operating activities 99.4 52.3 40.1Acquisition of RHM 12 (303.2) - -Acquisition of Chivers Ireland 12 (21.2) - -Acquisition of Campbell's 12 (0.3) - (380.3)Sale of subsidiaries/businesses 15 17.0 - -Purchase of property, plant and equipment (37.9) (12.8) (44.7)Purchase of intangible assets (8.0) (5.3) (12.3)Sale of property, plant and equipment 0.1 4.2 4.5Cash outflow from investing activities (353.5) (13.9) (432.8) Repayment of borrowings 14 (751.3) (22.8) (29.1)Proceeds from new borrowings 14 1,901.5 - 86.0Proceeds from share issue - - 458.6Share issue costs (2.1) - (17.0)Debt issuance costs (18.1) - (4.4)Repayment of debt and interest acquired with (793.5) - -RHMRepayment of debt acquired with Campbell's - - (88.6)Dividends paid (39.7) - (23.5)Cash inflow/(outflow) from financing 296.8 (22.8) 382.0activities Net inflow/(outflow) of cash and cash 42.7 15.6 (10.7)equivalentsCash and cash equivalents at beginning of 2.5 13.2 13.2periodCash and cash equivalents at end of period 14 45.2 28.8 2.5 Note: Acquisition cash flows are stated net of cash acquired. Consolidated statement of recognised income and expense (unaudited) Half year Half year ended ended Year ended 30 June 1 July 31 December 2007 2006 2006 Note £m £m £m Profit for the period 2.5 20.6 47.1 Actuarial gains and losses 148.3 35.9 16.1Deferred tax on actuarial gains and losses (42.2) (11.0) (5.1)Deferred tax on share options 1.2 - 1.5Net gain not recognised in income statement 107.3 24.9 12.5Total recognised income in the period 109.8 45.5 59.6 Notes to the Financial Information (unaudited) 1. General information Premier Foods plc (the Company) is a public limited company incorporated in theUnited Kingdom under the Companies Act 1985. The address of the registeredoffice and principal place of business is Premier House, Centrium Business Park,Griffiths Way, St Albans, Hertfordshire AL1 2RE. The principal activity of theCompany and its subsidiaries (the Group) is the supply of branded and own labelfood and beverage products as described in note 16 of the Group's annual reportand accounts for the year ended 31 December 2006. 2. Accounting policy Basis of preparation This financial information comprises the consolidated balance sheet as at 30June 2007 and related consolidated income statement, consolidated condensedstatement of cash flows, statement of recognised income and expense andsupporting notes for the period then ended of Premier Foods plc (hereinafterreferred to as "financial information"). This financial information has been prepared in accordance with the ListingRules of the Financial Services Authority and on the basis of the accountingpolicies set out in the Group's 2006 annual report which were prepared inaccordance with IFRS as adopted by European Union. The results of operationsfor the half year periods are not necessarily indicative of the results to beexpected for the full year. The consolidated interim financial information does not constitute statutoryaccounts within the meaning of Section 240 of the Companies Act 1985. Theseinterim results are unaudited but have been reviewed by our auditors. Thestatutory accounts for the year ended 31 December 2006, which are prepared underIFRS, have been reported on by the Group's auditors and delivered to theregistrar of companies. The report of the auditors was unqualified and did notcontain statements under section 237(2) or (3) of the Companies Act 1985. Thesesections address whether proper accounting records have been kept, whether theCompany's statutory accounts are in agreement with those records and whether theauditors have obtained all the information and explanations necessary for thepurposes of their audit. Basis of consolidation The consolidated interim financial statements include the financial statementsof Premier Foods plc and entities controlled by the Company (its subsidiaries)up to 30 June 2007. Control is achieved where the Company has the power togovern the financial and operating policies of an investee entity so as toobtain benefits from its activities. On acquisition, the assets, liabilities and contingent assets and liabilities ofa subsidiary are measured at their fair values at the date of acquisition. Anyexcess of the cost of acquisition over the fair values of the identifiable netassets acquired is recorded as goodwill. The results of subsidiaries acquired or disposed of during the period areincluded in the consolidated income statement from the effective date ofacquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used bythe Group. All inter-group transactions, balances, income and expenses areeliminated on consolidation. 3. Critical accounting estimates and judgements The following are areas of particular significance to the Group's interimfinancial statements and include the application of judgement, which isfundamental to the completion of a set of financial statements. Pensions The present value of the Group's pension obligations depends on a number ofactuarial assumptions. The primary assumptions used include the expectedlong-term rate of return on invested funds, the discount rate applicable toscheme liabilities, the long-term rate of inflation and estimates of themortality applicable to scheme members. At each reporting date, and on a continuous basis, the Group reviews themacro-economic and company specific factors influencing each of theseassumptions, using professional advice, in order to record the Group's ongoingcommitment and obligation to defined benefit schemes in accordance with IFRS.Based upon the assumptions regarded as appropriate as at 30 June 2007, theaggregate net deficit on the Group's pension schemes was £89.1m (1 July 2006:£46.4m). The increase, which is due to the acquisition of schemes in theCampbell's and RHM businesses, has been offset by an underlying reduction in thedeficit on these schemes due to the movement in market rates for bond yields atthe relevant dates. The Group is aware of, and alert to, the need to inform the Pensions Regulatorto the extent that the Group is involved in any corporate activity that affectsthe rights of pension scheme members and the carrying value of the pensionschemes. Goodwill and other intangible assets Impairment reviews in respect of goodwill are performed annually unless an eventindicates that an impairment review is necessary immediately. Impairment reviewsin respect of intangible assets are performed when an event indicates that animpairment review is necessary. Examples of such triggering events include asignificant planned restructuring, a major change in market conditions ortechnology, expectations of future operating losses, or a significant reductionin cash flows. The recoverable amounts of cash-generating units are determinedbased on the higher of realisable value and value-in-use calculations. Thesecalculations require the use of estimates. Acquired trademarks, brands, recipes and similar assets are considered to havefinite lives that range from 20 to 40 years. The determination of these usefullives takes into account certain quantitative factors such as sales expectationsand growth prospects, and also many qualitative factors such as history andheritage, and market positioning, hence the determination of useful lives issubject to estimates and judgement. Advertising and promotion costs Trade spend and promotional activity is dependent on market conditions andnegotiations with customers. Trade spend is charged to the income statementaccording to the substance of the agreements with customers and the terms of anycontractual relationship. Promotional support is generally charged to theincome statement at the time of the relevant promotion. These costs may beaccrued based on best estimates. The actual costs may not be known untilsubsequent years when negotiations with customers are concluded. Suchadjustments are recognised in the year when final agreement is reached. Expenditure on advertising is charged to the income statement when incurred,except where a particular campaign is used more than once. In this case it ischarged in line with the airtime profile. Exceptional items Exceptional items are not explicitly addressed under IFRS. Accordingly, theGroup has defined exceptional items as those items of sufficient financialsignificance to be disclosed separately in order to assist in understanding thefinancial performance achieved and in making projections of future results. Eachof these items relate to events or circumstances that are non-recurring innature, such as a major restructuring or integration of an acquisition. 4. Segmental analysis The results below for all periods are divided into continuing and discontinuedoperations. Following the acquisition of RHM, and the disposal of the FreshProduce business, the Group, for at least the remainder of the current year,will continue to report upon five continuing segments within the business:Grocery, and the segments which RHM used to report under, which comprise BreadBakeries, Cakes, Customer Partnerships and Culinary Brands. These segments are the basis on which the Group reports its primary segmentinformation. Inter-segment transfers or transactions are entered into under thesame terms and conditions that would be available to unrelated third parties.Comparative period results for the Fresh Produce segment, which was disposed ofon 30 March 2007, are presented as discontinued operations. The segment results for the half years ended 30 June 2007 and 1 July 2006, andfor the year ended 31 December 2006 are as follows: Segmental analysis - primary Half year ended 30 June 2007 Grocery Bread Culinary Cakes Customer Unallocated Total for Bakeries Brands Partnerships Group £m £m £m £m £m £m £mTurnoverTotal turnover from 462.7 235.5 67.2 73.5 60.2 - 899.1continuing operations ResultOperating profit before 60.6 9.1 9.9 6.2 6.9 - 92.7exceptional itemsExceptional items (16.6) (5.2) (14.4) (2.2) (2.1) - (40.5)Interest payable and - - - - - (62.9) (62.9)other financial chargesInterest receivable - - - - - 24.6 24.6Profit/(loss) before 44.0 3.9 (4.5) 4.0 4.8 (38.3) 13.9taxation for continuingoperationsTaxation - - - - - 8.0 8.0Profit/(loss) after 44.0 3.9 (4.5) 4.0 4.8 (30.3) 21.9taxation for continuingoperationsDiscontinued operations - - - - - (19.4) (19.4)Profit/(loss) for the 44.0 3.9 (4.5) 4.0 4.8 (49.7) 2.5period Half year ended 1 July 2006 Grocery Bread Culinary Cakes Customer Unallocated Total for Bakeries Brands Partnerships Group £m £m £m £m £m £m £mTurnoverTotal turnover from 366.5 - - - - - 366.5continuing operations ResultOperating profit before 41.1 - - - - - 41.1exceptional itemsExceptional items 1.3 - - - - - 1.3Interest payable and (23.2) (23.2)other financial charges - - - - -Interest receivable - - - - - 8.4 8.4Profit/(loss) before 42.4 - - - - (14.8) 27.6taxation for continuingoperationsTaxation - - - - - (7.1) (7.1)Profit/(loss) aftertaxation for continuingoperations 42.4 - - - - (21.9) 20.5Discontinued operations - - - - - 0.1 0.1 Profit/(loss) for the 42.4 - - - - (21.8) 20.6period Year ended 31 December 2006 Grocery Bread Culinary Cakes Customer Unallocated Total for Bakeries Brands Partnerships Group £m £m £m £m £m £m £mTurnoverTotal turnover from 840.7 - - - - - 840.7continuing operations ResultOperating profit before 119.9 - - - - - 119.9exceptional itemsExceptional items (19.4) - - - - - (19.4)Interest payable and - - - - - (56.3) (56.3)other financial chargesInterest receivable - - - - - 14.8 14.8Profit/(loss) before 100.5 - - - - (41.5) 59.0taxation for continuingoperationsTaxation - - - - - (11.1) (11.1)Profit/(loss) aftertaxation for continuingoperations 100.5 - - - - (52.6) 47.9Discontinued operations - - - - - (0.8) (0.8)Profit/(loss) for the 100.5 - - - - (53.4) 47.1year Segmental analysis - secondary The Group primarily supplies the United Kingdom market, although we also supplycertain products to mainland Europe and a number of other countries includingthe United States. These segments are the basis on which the Group reports itssecondary segment information. The following table provides an analysis of theGroup's turnover, which is allocated on the basis of geographical marketdestination. Continuing operations - turnover Half year ended Year ended 30 June 1 July 31 December 2007 2006 2006 £m £m £m United Kingdom 855.2 343.1 786.3Mainland Europe 34.5 17.2 45.3Other countries 9.4 6.2 9.1Total turnover 899.1 366.5 840.7 5. Other operating expenditure Half year ended Year ended 30 June 1 July 31 December 2007 2006 2006 £m £m £m (Gain)/loss on mark-to-market valuation of foreign exchange (0.9) 1.9 3.3contractsLoss/(gain) on settled foreign exchange contracts 1.2 (0.6) 0.8Business interruption income relating to Bury Fire - (0.9) (0.9)Net expenditure 0.3 0.4 3.2 6. Exceptional items The Group defines exceptional items as those items of sufficient financialsignificance to be disclosed separately in order to assist in understanding thefinancial performance achieved and in making projections of future results. Inthe current period, the Group incurred the following: Half year ended Year ended 30 June 1 July 31 December 2007 2006 2006 £m £m £m Integration of RHM (a) 24.4 - -Integration of Campbell's (b) 7.7 - 8.0Restructure of Meat-free production (c) 7.3 - 7.2Costs of aborted acquisition of United Biscuits (d) 0.1 - 4.5Restructuring and other costs (e) 1.0 0.9 1.9Property disposal (f) - (3.1) (3.1)Bird's transitional manufacturing and integration costs (g) - 0.9 0.9Total exceptional costs/(income) 40.5 (1.3) 19.4 (a) Integration of RHM On 16 March 2007 the Group acquired RHM plc. The administrative functions atRHM's head office and Culinary Brands sites at Addlestone and Middlewich arebeing integrated into the existing Grocery operations of the Group, resulting inthe impairment of certain assets, redundancy and restructuring costs. (b) Integration of Campbell's On 14 August 2006 the Group acquired Campbell's Grocery Products Limited andCampbell's Ireland Grocery Products Limited. The administrative functions atCambourne and Kings Lynn, as well as the manufacturing operations of Kings Lynn,are being integrated into the existing Grocery operations of the Group,resulting in the impairment of certain assets, redundancy and restructuringcosts. (c) Restructure of Meat-free production During 2005 the Group acquired Marlow Foods Holdings Limited and Cauldron FoodsLimited. During 2006 the Group announced plans for the closure of the Cauldronfactory at Portishead and the purchase and development of a new chilled facilityat Methwold, enabling the integration of chilled production for Quorn andCauldron products. Start up and commissioning of the new plant has continuedover the first half and as a result £7.3m of one-off restructuring costs havebeen incurred in the period. (d) Costs of aborted acquisition of United Biscuits In the previous year the Group entered into negotiations to acquire UnitedBiscuits. In doing so significant costs were incurred including, inter alia,consultancy, banking, due diligence, and legal fees, before discussions with theGroup were terminated. (e) Restructuring and other costs There are a variety of other exceptional costs including redundancy costsrelating to business re-organisations, training costs associated with theimplementation of a new ERP software suite, costs associated with therestructuring of our warehousing network, and costs relating to the government's"clean labelling" regime. Prior year exceptional charges relate to costs associated with the restructuringof our warehousing network, costs relating to the "clean labelling" regime, andraw material write-offs resulting from their contamination in a third partywarehouse. (f) Property disposal Disposal gains of £3.1m in 2006 relate to the disposal of our North Walshamfactory which had previously been used for seasonal stock holding, and also anadditional receipt relating to the sale of Langley Mill resulting fromprovisions in the disposal contract whereby the Group was entitled to a share ofany profit made by the buyer on the subsequent sale of the property. (g) Bird's transitional manufacturing and integration costs Following the acquisition of the Bird's business from Kraft Foods Inc. theproduct range continued to be produced by Kraft's at their factory in Banburyunder a series of transitional arrangements. In the previous year thesearrangements were extended to ensure the continuity of supply and we havepresented the additional cost of sourcing production from Kraft as exceptionalcosts. 7. Interest payable Half year ended Year ended 30 June 1 July 31 December 2007 2006 2006 £m £m £m Interest payable on bank loans, senior notes and overdrafts 7.6 4.6 10.9Interest payable on bridging loan facility - - 1.6Interest payable on term facility 30.4 9.3 19.4Interest payable on revolver facility 14.9 8.7 19.0Amortisation of debt issuance costs 1.6 0.6 1.4 54.5 23.2 52.3 Accelerated amortisation of debt issuance costs 8.4 - 4.0Total interest payable and other financial charges 62.9 23.2 56.3 Fair valuation of interest rate swaps (13.8) (5.5) (7.1)Interest receivable - bank deposits (10.8) (2.9) (7.7)Total interest receivable and other financial income (24.6) (8.4) (14.8) Net interest payable 38.3 14.8 41.5 8. Tax on profit on ordinary activities A number of changes to the UK Corporation tax system were announced in the March2007 Budget Statement. Some of them have been substantively enacted in the 2007Finance Act, including the reduction from April 2008 of the corporate tax rateto 28%, whilst others will be enacted in the 2008 Finance Act. The changes inthe 2008 Finance Act have not been substantively enacted at the balance sheetdate and, therefore, are not included in these financial statements. The effect of the changes to be enacted in the Finance Act 2008 would be toincrease the deferred tax liability provided at 30 June 2007 by £29.4m in 2008and decrease the after tax profit for the year by the same amount. This increasein deferred tax is due to the phasing out of industrial buildings allowancesfrom 2008 onwards. The taxation credit for the first half of 2007 is £8.0m (2006 £7.1m charge) andconsists of a tax charge on profit before tax of £3.5m offset by the release ofprovisions of £7.3m for prior year liabilities following the resolution ofissues with HMRC and a credit of £4.2m resulting from the restatement of openingand acquired net deferred tax liabilities arising from the reduction of the taxrate to 28%. The tax charge of £3.5m on profit before tax is made up of a chargeof £15.4m on operating profit before exceptional items, resulting in aneffective tax rate of 28.4% on operating profit before exceptional items, and atax credit on allowable exceptional costs of £11.9m. The effective rate isdetermined after taking account of items which are disallowable for tax purposesbut is lower than the standard rate of 30% due to movements in deferred taxbeing calculated at 28% to reflect the reduction in the UK corporation tax rateand the lower rate of tax applied to overseas profits. 9. Earnings per share Basic earnings per share have been calculated by dividing earnings fromcontinuing operations attributable to ordinary shareholders of £21.9m (2006:£20.5m) by the weighted average number of ordinary shares of the Company inissue during that period. Half year ended Half year ended Year ended 30 June 2007 1 July 2006 31 December 2006 (restated) (restated) Dilutive Dilutive Dilutive effect effect effect of of share of share share Basic options Diluted Basic options Diluted Basic options Diluted EPS EPS EPS EPS EPS EPS Continuing operationsProfit after tax (£m) 21.9 - 21.9 20.5 - 20.5 47.9 - 47.9Weighted average number ofshares (million) 699.7 1.6 701.3 314.1 0.2 314.3 370.8 0.6 371.4Earnings per share (pence) 3.1 - 3.1 6.6 - 6.6 12.9 - 12.9 Discontinued operationsProfit after tax (£m) (19.4) - (19.4) 0.1 - 0.1 (0.8) - (0.8)Weighted average number ofshares (million) 699.7 1.6 701.3 314.1 0.2 314.3 370.8 0.6 371.4Earnings per share (pence) (2.7) - (2.7) 0.0 - 0.0 (0.2) - (0.2) TotalProfit after tax (£m) 2.5 - 2.5 20.6 - 20.6 47.1 - 47.1Weighted average number ofshares (million) 699.7 1.6 701.3 314.1 0.2 314.3 370.8 0.6 371.4Earnings per share (pence) 0.4 - 0.4 6.6 - 6.6 12.7 - 12.7 Comparatives have been restated to reflect the disposal of the Fresh producebusiness on 30 March 2007 and Erin Foods Limited on 28 May 2007. The 2006 half year comparatives have been restated to reflect the impact of therights issue in the previous year. 10. Dividends The Board proposes an interim dividend of 4.30 pence per ordinary share payableon 4 January 2008 to shareholders on the Register of Members as at 23 November2007. Final dividends are recognised in the period in which they are approvedand an interim dividend is recognised in the period in which it is paid. Thefinal dividend for 2006 of 2.55 pence per ordinary share was approved in theperiod and was paid on 6 July 2007. 11. Assets held for sale The Group has announced that the RHM Frozen Foods business is to be sold. Assetsand liabilities relating to RHM Frozen Foods have been reclassified as held forsale in the balance sheet. RHM Frozen Food's assets and liabilities wereremeasured according to IFRS principles at the date of held for saleclassification and as a result the carrying amounts of non-current assets werewritten down to their fair values. Accordingly, the results of RHM Frozen Foodshave been classified as discontinued operations (refer note 13). Subsequent to 30 June 2007 the Group sold the Ready Meals division of RHM FrozenFoods (refer note 17). 12. Acquisition of RHM, Chivers Ireland and Campbell's RHM plc On 16 March 2007 the Group completed the acquisition of 100% of RHM plc ("RHM")for a total net consideration of £1,336.5m. The consideration for theacquisition was one new ordinary Premier share and 83.2p in cash for each RHMshare held. RHM contributed sales of £436.4m to the Group and an operatingprofit before exceptionals from continuing operations of £32.1m for the periodfrom acquisition to 30 June 2007. If the acquisition had occurred on 1 January2007, then RHM would have contributed a further £306.5m to the Group's sales anda further £22.6m to the Group's operating profit before exceptionals fromcontinuing operations. In accordance with International Financial Reporting Standard 3, BusinessCombinations, the initial accounting for the business combination has beendetermined provisionally. A full review is being undertaken to determine fairvalues. The only fair value adjustment is the initial recognition of deferredtax on the brands acquired. The goodwill arising on acquisition is stated on aprovisional basis and will change on the completion of our fair value review. The provisional fair values and book values of assets and liabilities acquiredare as follows: RHM plc RHM Provisional Book value fair value £m £m Property, plant and equipment 422.0 422.0Intangible assets 328.8 328.8Inventories 88.9 88.9Trade and other receivables 275.1 275.1Other investments 0.6 0.6Deferred tax (liability)/asset (28.2) 70.4Bank overdraft (0.7) (0.7)Trade and other payables (298.5) (298.5)Financial liabilities - borrowings and other loans (780.5) (780.5)Retirement benefit obligations (177.5) (177.5)Current tax liabilities (1.9) (1.9)Net liabilities acquired (171.9) (73.3) Purchase price RHM £m One new Premier share for each RHM share 1,031.9Cash consideration for each RHM share 289.8Debt and interest acquired 793.5Purchase price 2,115.2- Less debt acquired (793.5)- Direct costs relating to the acquisition 14.8Purchase consideration 1,336.5Bank overdraft in subsidiaries acquired 0.7Total purchase consideration 1,337.2Provisional fair value of net liabilities acquired 171.9Goodwill 1,509.1 Chivers Ireland On 19 January 2007 the Group completed the acquisition of 100% of ChiversIreland and associated brands (collectively "Chivers Ireland") for a totalconsideration of £22.0m, inclusive of deferred consideration and £0.2m ofacquisition related costs. The provisional fair value of the net assets acquiredwas £15.0m, resulting in goodwill of £7.0m. Chivers contributed sales of £9.1mto the Group and an operating profit before exceptionals from continuingoperations of £nil for the period from acquisition to 30 June 2007. If theacquisition had occurred on 1 January 2007, then Chivers would have contributeda further £1.1m to the Group's sales and a further £0.1m to the Group'soperating profit before exceptionals from continuing operations. Campbell's Subsequent to the year ended 31 December 2006, the Group has completed theexercise of attributing fair values to the assets and liabilities acquired withthe Campbell's business. As a result, fair value adjustments have been made inrelation to property, plant and equipment and trade and other payables. Inaddition a further £0.3m of acquisition related costs have been incurred,resulting in an increase of goodwill of £3.2m. The final fair value and provisional fair value of assets and liabilitiesacquired are as follows: Campbell's Provisional Final fair fair value value £m £m Property, plant and equipment 39.5 39.4Intangible assets 223.4 223.4Inventories 28.6 28.6Trade and other receivables 30.1 30.1Cash and bank deposits 2.5 2.5Deferred tax asset 2.5 2.5Trade and other payables (40.1) (42.9)Financial liabilities - long term borrowings (88.6) (88.6)Retirement benefit obligations (25.5) (25.5)Current tax liabilities (0.5) (0.5)Net assets acquired 171.9 169.0 Purchase price Campbell's £m Purchase price 460.0- Less debt acquired (88.6)- Direct costs relating to the acquisition 9.2Purchase consideration settled in cash 380.6Cash and cash equivalents in subsidiaries acquired 2.5Deferred consideration 7.0Total purchase consideration 390.1Fair value of net assets acquired (169.0)Goodwill 221.1 13. Discontinued operations On 30 March 2007 the Group disposed of its Fresh Produce businesses and on 28May 2007 the Erin Foods Limited business in Ireland. Additionally, the Groupannounced that the RHM Frozen Foods business was to be sold. The results of thediscontinued operations for the period to the dates of disposal were as follows: 30 June 1 July 31 December 2007 2006 2006 £m £m £mTurnover 45.8 64.0 118.7Expenses (52.6) (63.7) (119.6)(Loss)/profit before tax (6.8) 0.3 (0.9)Taxation credit/(charge) 2.0 (0.2) 0.1(Loss)/profit after tax on discontinued operations for (4.8) 0.1 (0.8)the periodLoss on disposal before tax (14.6) - -Tax on loss on disposal - - -Loss on disposal after taxation (14.6) - - Total (loss)/profit arising from discontinued (19.4) 0.1 (0.8)operations A net cash inflow of £17.0m (2006: £nil) arose on the disposal of discontinuedbusinesses and during the period discontinued businesses contributed a netoutflow of £1.2m (2006: £2.7m net inflow) to the Group's net operating cashflows, paid £nil (2006: £1.0m) in respect of investing activities and paid £nil(2006: £nil) in respect of financing activities. The carrying amounts of the assets and liabilities at the dates of disposals aredisclosed in note 15. 14. Reconciliation of operating profit to cash generated from operatingactivities Half year ended Year ended 30 June 1 July 31 December 2006 2007 2006 £m £m £mContinuing operations Operating profit 52.2 42.4 100.5 Depreciation of property, plant and equipment 25.5 8.6 18.0Amortisation of intangible assets 12.5 4.2 10.9Amortisation of debenture stock - - 0.1Impairment/(gain on disposal) of property, plant and equipment 4.8 (2.7) 1.3Impairment of intangible assets - - 0.1Revaluation (gains)/losses on financial instruments (0.9) 2.2 3.8Share based payments 2.1 0.3 1.6Net cash inflow from operating activities before interest, tax 96.2 55.0 136.3(paid)/received and movements in working capital Decrease/(increase) in inventories 0.3 4.0 (1.0)Decrease in receivables 73.8 40.1 2.4Decrease in other payables and provisions (13.1) (22.5) (27.3)Movement in net retirement benefit obligations (26.8) (2.4) (9.1)Cash generated from continuing operations 130.4 74.2 101.3Discontinued operations (1.6) 1.7 (9.4)Cash generated from operations 128.8 75.9 91.9 Exceptional items cash flow (33.7) 1.6 (9.2)Cash generated from operations before exceptional items 162.5 74.3 101.1 Additional analysis of cash flows Half year ended Year ended 30 June 1 July 31 December 2007 2006 2006 £m £m £m Interest received 11.2 3.9 9.7Interest paid (52.8) (22.5) (49.2)Issue costs of new bank loan (18.1) - (4.4)Return on financing (59.7) (18.6) (43.9) Sale of subsidiaries/businesses 17.0 - -Sale of subsidiaries/businesses 17.0 - - Reconciliation of cash and cash equivalents to net borrowings Half year ended Year ended 30 June 1 July 31 December 2007 2006 2006 £m £m £m Net inflow/(outflow) of cash and cash equivalents 42.7 15.6 (10.7)Debt acquired with RHM (0.5) - -Unamortised debt issuance acquired with RHM 4.8 - -Debt acquired with Campbells - - (88.6)(Increase)/decrease in borrowings (1,135.0) 22.8 36.1Other non-cash changes (10.0) (1.2) (6.1)(Increase)/decrease in borrowings net of cash (1,098.0) 37.2 (69.3) Total borrowings net of cash at beginning of period (641.4) (572.1) (572.1)Total borrowings net of cash at end of period (1,739.4) (534.9) (641.4) Analysis of movement in borrowings As at Other non As at 1 January cash 30 June 2007 Cashflow changes 2007 £m £m £m £m Short term borrowings (5.3) (3.4) - (8.7)Cash and bank deposits 7.8 46.1 - 53.9Cash and cash equivalents net of borrowings 2.5 42.7 - 45.2 Borrowings - term (300.0) (1,199.8) - (1,499.8)Borrowings - revolver (346.0) 49.6 - (296.4)Finance leases (1.6) - (2.9) (4.5)Other (0.1) (0.5) - (0.6)Borrowings (645.2) (1,108.0) (2.9) (1,756.1)Debt issuance costs 3.8 22.9 (10.0) 16.7Total net borrowings (641.4) (1,085.1) (12.9) (1,739.4) 15. Disposal of subsidiaries/businesses As referred to in note 13, the Group disposed of both its Fresh Producebusinesses and the Erin Foods business during the period. The impact on theresults of the Group is disclosed in note 13. On the dates of disposal, the netassets of the businesses were as follows: £mProperty, plant and equipment 16.5Intangible assets and goodwill 3.9Inventories 6.2Trade and other receivables 20.6Cash and bank deposits 1.5Trade and other payables (12.4)Deferred tax liabilities (1.1)Net assets disposed of 35.2Net consideration (20.6)Loss on disposal (14.6) Net cash inflow arising ondisposal:Initial consideration 25.2Deferred loan notes consideration (5.1)Disposal costs (1.6) 18.5 Cash and cash equivalents in business disposed of (1.5)Net cash inflow for the period 17.0 The determination of the Erin Foods Limited consideration includes a provisionfor contract manufacturing losses of £0.4m. 16. Retirement benefit schemes Most Group companies participate in the Premier Foods Pension Scheme, theprincipal funded defined benefit scheme operated by the Group. The Group alsooperates a smaller funded defined benefit scheme, the Premier Ambient ProductsPension Scheme for employees in the Ambrosia business. Under the schemes,employees are entitled to retirement benefits which vary as a percentage offinal salary on retirement. No unfunded post-retirement benefits exist. On 14 August 2006 the Group inherited two further funded defined benefit pensionschemes as a result of the acquisition of Campbell's, the Premier GroceryProducts Pension Scheme for the UK business, and the Premier Grocery ProductsIreland Pension Scheme for the Irish business. On 16 March 2007 the Group inherited four further funded defined benefit pensionschemes as a result of the acquisition of RHM. The assets of all schemes are held by the trustees of the respective schemes andare independent of the Group's finances. The schemes invest through investmentmanagers appointed by the trustees in UK and European equities and in investmentproducts comprising a broader range of assets. The plan assets do not include any of the Group's own financial instruments, norany property occupied by, or other assets used by, the Group. At the balance sheet date, the combined principal actuarial assumptions used forall the schemes as follows: 30 June 1 July 31 December 2007 2006 2006 % % % Discount rate 5.80 5.50 5.20Inflation 3.20 2.75 3.00Expected salary increases 3.40 3.75 4.00Future pension increases 2.60 2.75 3.00 The mortality assumptions used in the Group's actuarial valuations at 30 June2007 were consistent with those used as at 31 December 2006 as described in theGroup's 2006 Annual Report. The amounts recognised in the balance sheet arising from the Group's obligationsin respect of its defined benefit schemes is as follows: 30 June 1 July 2006 31 December 2007 2006 £m £m £m Present value of funded obligations (2,576.0) (384.6) (550.4)Fair value of plans' assets 2,486.9 338.2 465.7Net deficit in schemes (89.1) (46.4) (84.7) Included in the net deficit in schemes above is a net surplus of 2 schemes of£1.6m. 30 June 2007 £m Opening defined benefit obligation at 1 January 2007 (550.4)Acquisition of subsidiary undertakings (2,186.7)Current service cost (7.8)Past service cost (0.8)Interest cost (47.3)Actuarial gain 177.8Curtailments 0.2Contributions by plan participants (6.1)Benefits paid 45.1Closing defined benefit obligation (2,576.0) Changes in the fair value of plan assets were as follows: 30 June 2007 £m Opening fair value of plan assets at 1 January 2007 465.7Acquisition of subsidiary undertakings 2,007.2Expected return 54.8Administrative and life insurance costs (0.9)Actuarial losses (29.5)Contributions by employer 28.6Contributions by plan participants 6.1Benefits paid (45.1)Closing fair value of plan assets 2,486.9 The amounts recognised in the income statement are as follows: Half year ended Year ended 30 June 1 July 31 December 2007 2006 2006 £m £m £m Current service cost 7.8 3.0 7.2Past service cost 0.8 - 0.1Administrative and life insurance costs 0.9 - 1.4Interest costs 47.3 10.4 23.3Expected return on plan assets (54.8) (12.0) (28.0)Gains on curtailment (0.2) - (0.9)Total expense 1.8 1.4 3.1 Defined contribution schemes A number of companies in the Group operate defined contribution schemes,predominantly Stakeholder arrangements. In addition a number of schemesproviding life assurance benefits only are operated. The total expenserecognised in the income statement of £0.6m (2006: £0.6m) representscontributions payable to the plans by the Group at rates specified in the rulesof the plans. Other post retirement benefits The Group does not provide any other post retirement benefits. 17. Post balance sheet events On 2 July 2007 the Group announced that, following the acquisition of RHM, areview had been undertaken of its combined manufacturing facilities. The resultwill be a restructuring programme, which will involve the closure of six sitesand the potential loss of up to 900 jobs. Provision for any impairment is beingassessed and will be made in the second half. Redundancy provisions will beprovided when appropriate. On 21 August 2007 the Group sold the Ready Meals division of RHM Frozen Foods.Inventory, plant and machinery and certain intellectual property were sold for£1.1m to Rye Valley Foods Limited. Plant and machinery had already been subjectto an impairment charge as at 30 June 2007 which reduced their carrying value toa realisable value of £0.8m. Assets and liabilities of RHM Frozen Foods as at30 June 2007 have been classified as assets and liabilities held for sale (refernote 11). On 22 August 2007 the Group announced the proposed closures of a bakery inBradford and a depot in Telford, Shropshire with the potential loss of up to 430jobs. Independent review report to Premier Foods plc Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2007 which comprises the consolidated interimbalance sheet as at 30 June 2007 and the related consolidated interim statementsof income, cash flows and recognised income and expense for the six months thenended and related notes. We have read the other information contained in theinterim report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The Listing Rulesof the London Stock Exchange require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. This interim report has been prepared in accordance with the basis set out inNote 2. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for thecompany for the purpose of the Listing Rules of the Financial Services Authorityand for no other purpose. We do not, in producing this report, accept or assumeresponsibility for any other purpose or to any other person to whom this reportis shown or into whose hands it may come save where expressly agreed by ourprior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2007. PricewaterhouseCoopers LLP 4 September 2007Chartered AccountantsLondon Notes: a) The maintenance and integrity of the Premier Foods plc web site is theresponsibility of the directors; the work carried out by the auditors does notinvolve consideration of these matters and, accordingly, the auditors accept noresponsibility for any changes that may have occurred to the interim reportsince it was initially presented on the web site. b) Legislation in the United Kingdom governing the preparation and disseminationof financial information may differ from legislation in other jurisdictions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Premier Foods