7th Aug 2006 07:01
Premier Foods plc07 August 2006 Premier Foods plc Interim Results 2006 Healthy core trading performance enhanced by acquisition of Quorn and Cauldron Interim results for the six months to 1 July 2006 Unaudited Unaudited six months to six months to Change 1 July 2006 2 July 2005 £m £mContinuing operations Turnover 430.5 363.6 18.4% Trading profit* 47.6 37.6 26.6% Operating profit 41.7 37.0 12.7% Profit before tax 27.9 12.5 123.2% Cash inflow from operating activities 52.3 30.5 71.5% Earnings per share Continuing operations - basic 8.3p 3.7p 124.3% Continuing operations - adjusted** 8.5p 7.5p 13.3%Total 8.3p 5.4p 53.7% \* Trading profit is defined as operating profit before exceptional items,amortisation of intangible assets and the movement in the IAS39 valuation offorward foreign exchange contracts. **Adjusted earnings per share is defined as profit for the period beforeexceptional items, amortisation of intangible assets and the movement in theIAS39 valuation of forward foreign exchange contracts and interest rate swapsdivided by the weighted average number of ordinary shares of the Company. • Like-for-like grocery sales up 3.1% • Like-for-like trading profit up 4.6%, grocery up 6.7% • Fresh produce operation stabilised • Quorn and Cauldron acquisitions on track • Interim dividend of 5.0 pence per ordinary share • Cash from operating activities includes £18.3m of insurance proceeds in relation to the final settlement of the Bury fire claim Robert Schofield, Chief Executive of Premier Foods plc, said, "We are pleased to report another set of healthy results in line with our salesand earnings growth targets. We are delighted with the performance of Quornwhere the additional marketing investment we have put behind the brand hasresulted in double-digit sales growth. "The outlook for the remainder of the year remains in line with ourexpectations, with our branded sales performance helping to offset the utilityand energy-related cost pressures we are seeing in the supply chain. "We are very excited by the proposed acquisition of Campbell's UK and itsportfolio of iconic British brands and look forward to taking full control ofthe business and beginning its integration into Premier over the second half." 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 BerkeleySara BatchelorJustin Griffiths A presentation to analysts will take place on Monday 7th August 2006 at 9:30amat ABN AMRO, 250 Bishopsgate, London, EC2M 5AA. Operating review - continuing operations £m 2006 2005 H1 H1 SalesGrocery 366.5 305.3 20.0%Fresh produce 64.0 58.3 9.8%Total sales 430.5 363.6 18.4% Trading profit 47.6 37.6 26.6%Trading profit margin 11.1% 10.3% Amortisation of intangibles (4.2) (2.3) 82.6%Foreign exchange valuation items (2.2) 1.7Operating profit before exceptional items 41.2 37.0 11.4%Exceptional items 0.5 -Operating profit 41.7 37.0 12.7% Total sales from continuing operations increased by 18.4% to £430.5m andoperating profit from continuing operations increased by 12.7% to £41.7m. Thecomparative figures for 2005 exclude our tea business and Jonker Fris, whichwere sold in the second half of 2005 and which have been reflected asdiscontinued operations within these financial statements. The increase in bothsales and operating profit is primarily due to healthy trading in our coreGrocery business and a full six months contribution from our Quorn and Cauldronbusinesses, which were acquired in June and October of 2005 respectively. Grocery sales, which exclude Fresh Produce, increased by 20.0% and like-for-likegrocery sales, which also exclude the effect of the Quorn and Cauldronacquisitions, increased by 3.1%. This growth rate, which is underpinned by thestrong performance of our brands, is above our target range of 2.0 to 2.5% as aresult of price increases across the majority of our product portfolio. Thesehave helped to offset the significant increases we have seen in utility andenergy-related costs. Branded sales now represent 61% of our grocery product sales, up from 54% in thefirst half of 2005. The majority of this increase is due to the inclusion ofthe new Quorn and Cauldron businesses, although the organic development of theportfolio contributed approximately 1% towards this movement. However, this wasoffset by the effect of the termination of the Cadbury license and thetransition to the new Cadbury co-manufacturing agreement at the end of May.Future sales under the new arrangement will be categorised as own label. All ofour principal brands continued to show strong growth with Quorn, Branston, LoydGrossman and Ambrosia all performing well. Trading profit, which we have defined as operating profit before exceptionalitems, amortisation of intangible assets and the revaluation of foreign exchangecontracts under IAS39, increased by £10.0m or 26.6% to £47.6m. The increase wasdue to the inclusion of a full six months' contribution from the Quorn andCauldron businesses of £8.8m (2005: £0.5m) and an increase in trading profit forthe core grocery business of £2.4m, offset by the reduction in trading profit atour Fresh Produce business of £0.7m. Within this, overall marketing expenditureincreased by 17% to £17.7m, with part of this movement arising from theincreased level of spend behind the recently acquired Quorn brand. Grocery £m 2006 2005 H1 H1 Sales 366.5 305.3 20.0%Like-for-like sales* 309.3 300.0 3.1%Trading profit 47.2 36.5 29.3%Like-for-like trading profit* 38.4 36.0 6.7% *Like-for-like represents results from continuing operations excluding resultsfrom acquired and discontinued operations Convenience Foods, Pickles, Sauces & Meat-Free £m 2006 2005 H1 H1 Sales 225.5 173.4 30.0%Like-for-like sales* 168.3 168.1 0.1%Trading profit 16.5 12.5 32.0%Like-for-like trading profit* 7.7 12.0 (35.8%) *Like-for-like represents results from continuing operations excluding resultsfrom acquired and discontinued operations Sales of Convenience Foods, Pickles, Sauces & Meat-Free increased by 30.0% to£225.5m due to a full six months contribution from the Meat-Free part of theproduct group. The like-for-like business was broadly flat with strongperformances from Loyd Grossman and Branston offset by declines in our smallerbrands and retailer branded business. We are particularly pleased by theperformance of Branston beans, which has maintained a 10% market share followingits launch in the last quarter of 2005. We are delighted by the performance of Meat-Free which has seen double-digitsales growth in the first six months of 2006 compared to the same period in2005. The additional investment in advertising and new product launches which wehave put behind Quorn over the last twelve months has helped to further increasehousehold penetration with the number of households regularly buying Quorn up to19.3% against 17.7% for the same period in 2005. As we indicated at the time of the announcement of the Campbell's UKacquisition, we have acquired a dedicated "chilled" manufacturing facility atMethwold in Norfolk at a cost of approximately £4m. We intend to consolidateproduction of our Cauldron branded products into this new site along with asignificant proportion of the "finishing" of some of the Quorn product rangewhich is currently outsourced. This should enhance margins on these products andremove capacity constraints on our Cauldron range. We anticipate the total costof the facility will be in the region of £11m and it should commence productionin the first half of 2007. Trading profit for the product group was £16.5m, an increase of £4.0m on 2005.This was due to the inclusion of a full six months contribution from theMeat-Free part of the product group, solid performances from the Pickles andSauces categories, with the Loyd Grossman brand continuing to perform well,offset by a fall in the trading profit of the Convenience Foods part of theproduct group. This decline was principally due to the increased marketing spendbehind Branston beans, building on the successful launch of this new range inthe Autumn of 2005, the poor performance of a number of own label contracts andthe effect of increases in utility and energy-related costs. Spreads, Desserts & Beverages £m 2006 2005 H1 H1 Sales 141.0 131.9 6.9%Trading profit 30.7 24.0 27.9% Sales in our Spreads, Desserts & Beverages product group increased by 6.9% to£141.0m with strong sales performances from Ambrosia, the Hartley's spreadsbusiness and the own label side of the product group. The 2006 sales alsoinclude an additional 6 weeks contribution from the Bird's business, which wasacquired in February 2005 but this was broadly offset by the reduction in salesof Cadbury branded beverages following the transition to the newco-manufacturing arrangement in May. Trading profit for the Spreads, Desserts & Beverages product group increased by27.9% to £30.7m. The increase was due to a combination of the strong salesgrowth, the realisation of synergies on the transfer of Bird's production intoour Knighton factory and a reduction in consumer-focused promotional spend inthis product group as expenditure was re-allocated to marketing priorities inother areas of the group, principally, Quorn and Branston. Fresh Produce £m 2006 2005 H1 H1 Sales 64.0 58.3 9.8%Trading profit 0.4 1.1 (63.6%) Sales by our Fresh Produce business increased by 9.8% to £64.0m, due to theinclusion of sales from Gedney's, which was acquired in September 2005. This wasoffset by lower sales of potatoes in comparison to the prior period as a resultof a number of contracts which came to an end during the first half of 2005. The loss of these contracts was also responsible for significant overcapacity inthe business as a result of which Fresh Produce reported a loss in the secondhalf of the year. This situation has been addressed, and with the closure of theChatteris site, the footprint of the business is more closely matched to itscurrent trading base. The business is now stable, has won a number of newcontracts and has returned to profitability in the first half of 2006, with atrading profit of £0.4m. Outlook The outlook for the remainder of the year remains promising with our drivebrands continuing to perform well. Quorn has delivered a performance ahead ofour expectations for the brand at the time of its acquisition aided by theadditional investment we have made in the brand. Loyd Grossman continues to showexcellent growth and we look forward to the next stage in the development ofBranston beans with further TV advertising scheduled in the second half of theyear. We are very excited by the prospect of acquiring the Campbell's UK business withits portfolio of iconic British brands, including Oxo, Batchelors and Homepride.We look forward to taking full control of the business and beginning itsintegration into the Premier Foods group. We have some exciting ideas and plansfor these brands and look forward to beginning their implementation over thesecond half of the year. We expect the environment in which we operate will continue to remain tough as aresult of ongoing cost pressures, particularly in utility and energy-relatedareas, and the abnormally hot weather we experienced in July. Despite this, webelieve the strength of our brands and the resilience of our business model willenable us to offset these issues and, as a result, our expectations for the restof the year remain unchanged. Robert Schofield Chief Executive Financial review The Group is presenting its interim results for the six months to 1 July 2006with comparative information for the six months to 2 July 2005. The comparativeinterim and full year financial information has been restated to reflect thedisposal of the tea and Jonker Fris businesses on 30 October 2005 and 7 December2005 respectively. The interim results of Premier Foods plc are prepared inaccordance with International Financial Reporting Standards ("IFRS") as adoptedby the EU. Income Statement - continuing operations Sales Turnover for the first half of 2006 from continuing operations increased by18.4% to £430.5m. The majority of this increase is the result of the inclusionof a full six months result from businesses acquired during 2005. Grocerylike-for-like sales, stated before the impact of acquisitions, increased by 3.1%to £309.3m. While this was slightly ahead of the group's medium term target range of 2.0% to2.5%, this performance did incorporate a level of price increase geared torecover the unusual level of cost pressure experienced due to the effect of highutility prices and energy related costs. Operating profit Operating profit before exceptional items for the continuing business was £41.2mfor the first half of 2006, an increase of £4.2m, or 11.4%, compared to the sameperiod in 2005. Operating profit after exceptional items increased by 12.7% to£41.7m. Gross profit increased by 20.8% to £103.2m largely as a result of the salesgrowth referred to above and an improvement in the group's gross profit marginof 0.5% to 24.0% (2005: 23.5%). While gross profit margins fell in FreshProduce due to the loss of contracts in the first half of 2005, Grocery marginsimproved as a consequence of the inclusion of the acquired Quorn and Cauldronbusinesses. Selling and distribution expenses and administrative costs both saw increasesarising primarily from the inclusion of the newly acquired businesses. Sellingand distribution expenses were £37.0m for the first half of 2006, an increase of17.8%, on 2005. This included a substantial uplift in the spend behind Quorn,which has driven an improvement in the household penetration of the brand andthe continuation of the investment in Branston beans. As a proportion of sales,selling and distribution expenses remained flat at 8.6%. Similarly, administrative expenses increased by 25.9% to £23.8m. In addition tothe costs of the acquired businesses, this increase also includes the additionalamortisation arising on the intangible assets acquired. Excluding thisamortisation of intangible assets, administrative expenses have also remained ata similar proportion of sales year on year. Other operating expenditure of £0.7m includes the movement in the fair value ofopen forward foreign exchange contracts. Changes in the fair values ofunsettled forward foreign exchange contracts that are not designated as hedgesare recorded as other operating income or expenditure rather than as cost ofsales. The amount charged for the period was £2.2m (2005: £1.7m credit). Thishas been offset by the final element of business interruption income recoveredunder the Bury St Edmunds fire insurance claim of £0.9m (2005: £0.5m) and thegain on settled foreign exchange transactions of £0.6m (charge £0.3m). Exceptional Items While IFRS does not explicitly address exceptional items, the Group presentsseparately certain items of financial significance in order to provide a betterunderstanding of the financial performance achieved and in making projections offuture results. These items relate to events or circumstances that arenon-recurring in nature. Exceptional items for the period reflect the aggregate effect of a number ofsuch items, resulting in a net income of £0.5m (2005: £nil). In this period,the principal components of this exceptional credit include the profit on thedisposal of surplus property at North Walsham of £3.1m, which has been offset byredundancy and restructuring costs of £1.7m relating to the acquisition ofMarlow Foods and Cauldron and the closure of the MBM site at Chatteris andincremental Bird's costs of £0.9m. Finance costs Finance costs for the period of £13.8m compare to an equivalent charge of £24.5mfor 2005, a reduction of £10.7m. Within this net cash interest increased by£3.9m, from £14.8m to £18.7m, principally due to the additional funding cost ofadditional debt raised to finance the acquisition of Marlow Foods, Cauldron andGedney's, offset by the disposal proceeds from the sale of the tea business andJonker Fris during the latter half of 2005. The balance of the movement on finance costs reflects a reduction in theamortisation of debt issuance costs against the first half of 2005, whichincluded an accelerated amortisation charge of £6.3m on the refinancing of thegroup's credit facilities at the time of the acquisition of Marlow Foods and a£7.9m favourable movement on the valuation of unsettled interest rate swapsunder IAS39. As stated at the time of the adoption of IFRS, the group hasdecided not to adopt hedge accounting and so reflects the difference between themarket value of such instruments at the start and end of an accounting period inthe profit and loss account. Taxation The tax charge and effective rate of tax for continuing operations were £7.3mand 26.2% respectively. This was slightly lower than our anticipated rate due tothe utilisation of unrecognised brought forward capital losses against profitson the disposal of the North Walsham site. The charge for the second half shouldremain in line with our anticipated rate. Dividend In line with our stated dividend policy, on 7 August we declared an interimdividend of 5.00p per share, an increase of 5.3% on the interim dividend for2005, resulting in a total interim dividend of £12.4m payable on 5 January 2007to shareholders on the register of members at 18 August 2006. The shares willbe marked ex-dividend on 16 August 2006. Under IFRS, interim dividends arerecorded in the period in which they are paid and final dividends are recordedin the period in which they are approved. Cash Flow and Borrowings The net cash inflow for the current period of £15.6m is made up of the net cashinflow from operating activities of £52.3m offset by net capital expenditure of£13.9m and a repayment of borrowings £22.8m. The improvement in cashflow from operating activities of £21.8m to £52.3m isprincipally due to a favourable movement on working capital of £20.8m. The majorelement of this movement is the £18.3m final payment in settlement of the Buryfire insurance claim. Acquisition of Campbell's UK Following the announcement of our proposed acquisition of the UK and Irelandbusinesses of the Campbell Soup Company ("Campbell's UK") subject to theapproval of shareholders at our Extraordinary General Meeting on 14 August 2006,the financing structure of the Group will change to reflect the rights issue andchanges to our existing borrowing arrangements. We anticipate ownership willtake effect on 15 August 2006. As a result of the proposed acquisition of Campbell's UK, the Group has arrangedan Amended and Restated Facilities agreement, comprising a £325m A TermFacility, a £200m B Term Facility and a £560m multi-currency revolving facility.This new facility will become unconditional on the completion of theacquisition of Campbell's UK. Paul Thomas Finance Director Consolidated income statement (unaudited) Half year ended Year ended 1 2 31 July July December 2006 2005 2005 Note £m £m £mContinuing operationsTurnover 4 430.5 363.6 789.7Cost of sales (327.3) (278.2) (583.3) Gross profit 103.2 85.4 206.4 Selling and distribution costs (37.0) (31.4) (73.7) Administrative costs (23.8) (18.9) (39.8) Other operating (expenditure)/income 5 (0.7) 1.9 2.4 Operating profit 41.7 37.0 95.3 Before exceptional items 41.2 37.0 102.1Exceptional items 6 0.5 - (6.8) Interest payable and other financial charges 7 (23.2) (28.7) (51.5)Interest receivable and similar income 7 9.4 4.2 8.0 Profit before taxation for continuing operations 27.9 12.5 51.8 Taxation 8 (7.3) (3.4) (14.9) Profit after taxation for continuing operations 20.6 9.1 36.9 Discontinued operations - 4.0 46.7 Profit for the period 20.6 13.1 83.6 Earnings per share (pence) Basic 9 8.3 5.4 34.0 Diluted 8.3 5.3 33.7 Basic - continuing 9 8.3 3.7 15.0 Diluted 8.3 3.6 14.9 Basic - discontinued 9 - 1.7 19.0 Diluted - 1.7 18.8 Dividends Dividend (£m) 10 12.4 11.6 35.3Declared dividend per share (pence) 5.00 4.75 14.25 Consolidated balance sheet (unaudited) As at As at As at 1 2 31 July July December 2006 2005 2005 Note £m £m £mASSETS: Non-current assets Property, plant and equipment 198.3 186.7 197.3 Goodwill 11 259.2 218.9 267.7 Intangible assets 11 166.1 161.9 151.5 Investments 0.1 - 0.1 Retirement benefit assets and other receivables 0.3 0.8 0.4 Deferred tax assets - 1.5 - Current assets Inventories 83.1 99.8 89.8 Trade and other receivables 102.5 129.6 136.3 Financial assets - derivatives 5.8 0.7 1.3 Cash and cash equivalents 28.8 93.3 14.0 Total assets 844.2 893.2 858.4 LIABILITIES: Current liabilities Trade and other payables (147.5) (149.2) (166.8) Dividends payable (23.5) - - Financial liabilities - short term borrowings (24.3) (119.4) (35.9) - loan notes (3.3) - - - derivatives (2.5) (2.4) (1.5) Interest payable (2.1) (2.9) (2.0) Provisions (1.6) (3.3) (0.3) Current tax liabilities (19.6) (15.2) (19.4) Non-current liabilities Financial liabilities - long-term borrowings (536.1) (594.6) (546.1) - loan notes - (5.1) (4.1) Retirement benefit obligations (46.4) (58.7) (84.5) Provisions (0.4) - (0.4) Other liabilities (0.1) - (0.1) Deferred tax liabilities (31.7) - (15.3) Total liabilities (839.1) (950.8) (876.4) Net assets/ (liabilities) 5.1 (57.6) (18.0) EQUITY Capital and reserves Share capital 2.5 2.4 2.5 Share premium 321.5 320.9 321.5 Merger reserve (136.8) (136.8) (136.8) Other reserves - (1.8) (0.2) Profit and loss reserve (182.1) (242.3) (205.0)Total shareholders' funds/(deficit) 5.1 (57.6) (18.0) Consolidated cash flow statement (unaudited) Half year ended Year ended 1 2 31 July July December 2006 2005 2005 Note £m £m £m Net cash generated by operations 12 75.9 46.0 117.7 Interest paid (22.5) (18.5) (42.6)Interest received 3.9 4.0 6.3Taxation paid (5.0) (1.0) (7.5)Cash inflow from operating activities 52.3 30.5 73.9Acquisition of Birds - (71.5) (72.1)Acquisition of Marlow - (116.5) (118.6)Acquisition of Gedney's - - (4.6)Acquisition of Cauldron - - (27.1)Sale of subsidiaries/businesses - - 81.6Purchase of property, plant and equipment (12.8) (16.6) (49.8)Receipts from insurers for capital items - 5.7 12.0Purchase of intangible assets (5.3) - (1.1)Sale of property, plant and equipment 4.2 - 2.7Cash outflow from investing activities (13.9) (198.9) (177.0) Repayment of borrowings 12 (22.8) (380.0) (380.0)Proceeds from new borrowings - 685.8 585.9Share issue refund - - 0.6Debt issuance costs - (5.4) (5.6)Repayment of debt acquired with Marlow - (52.8) (53.4)Dividends paid - (22.0) (33.8)Cash (outflow)/inflow from financing activities (22.8) 225.6 113.7 Net inflow of cash and cash equivalents 15.6 57.2 10.6Cash and cash equivalents at beginning of period 13.2 2.6 2.6Cash and cash equivalents at end of period 12 28.8 59.8 13.2 Note: Acquisition cash flows are stated net of cash acquired. Consolidated statement of recognised income and expense (unaudited) Half year ended Year ended 1 2 31 July July December 2006 2005 2005 Note £m £m £mProfit for the period 20.6 13.1 83.6 Foreign currency retranslation - (0.9) -Actuarial gains and losses 35.9 4.8 (26.0)Deferred tax on actuarial gains and losses (11.0) (1.5) 7.8Deferred tax on share options - 1.2 0.7Net gain/(loss) not recognised in income statement 24.9 3.6 (17.5)Total recognised income in the period 45.5 16.7 66.1Effect of adopting IAS 39 at 1 January 2005 - (1.8) (1.8) 45.5 14.9 64.3 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 2005. 2. Accounting Policy Basis of preparation This financial information comprises the consolidated balance sheets as at 1July 2006, 2 July 2005 and 31 December 2005 and related consolidated incomestatement, consolidated condensed statement of cash flows and statements ofrecognised income and expenditure for the periods then ended of Premier Foodsplc (hereinafter referred 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 2005 annual report. The results of operationsfor the half year periods are not necessarily indicative of the results to beexpected for the full year. The accompanying consolidated financial informationshould be read in conjunction with the consolidated financial statements andnotes thereto, included in the Group's 2005 annual report. The Group has chosen not to adopt IAS 34, 'Interim financial statements', inpreparing its 2006 interim statements and, therefore, this interim financialinformation is not in full compliance with IFRS. 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 2005, 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 the statements under section 237(2) or (3) of the Companies Act 1985. Basis of consolidation The consolidated financial statements include the financial statements ofPremier Foods plc and entities controlled by the Company (its subsidiaries) madeup to 1 July 2006. 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 year are includedin the consolidated income statement from the effective date of acquisition orup 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 are eliminated onconsolidation. 3. Critical accounting estimates and judgements. The application of judgment is fundamental to the compilation of a set offinancial statements, some of which relates to transactions or balances that areof greater significance than others. The primary area in which this affects theGroup is noted below: 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 1 July 2006, theaggregate net deficit on the Group's pension schemes was £46.4m (2 July 2005:£58.7m). While broadly in line year on year, this represents a significantreduction against the net deficit as at 31 December 2005 and is mainly areflection of the difference in the market rates for bond yields at the relevantdates. 4. Segmental analysis The results below for all periods are divided into continuing and discontinuedoperations, with the two continuing segments being Grocery and Fresh Produce.Following the disposal of our tea business, within Grocery we now refer to twoproduct groupings, namely Convenience Foods, Pickles, Sauces and Meat-Free(which now incorporates Quorn and Cauldron) and Spreads, Desserts and Beverages.Comparative period results for the tea business and Jonker Fris are presentedas discontinued operations. Each of these segments primarily supplies the United Kingdom market, although wealso supply certain products to mainland Europe and the United States.Inter-segment transfers or transactions are entered into under the same termsand conditions that would be available to unrelated third parties. Thesesegments are the basis on which the Group reports its primary segmentinformation. The segment results for the half year ended 1 July 2006, 2 July2005 and for the year ended 31 December 2005 are as follows: Half year ended 1 July 2006 Grocery Fresh Unallocated Total for Group ProduceTurnover £m £m £m £m Total turnover from continuing operations 366.5 64.0 - 430.5 ResultOperating profit before exceptional items 41.1 0.1 - 41.2Exceptional items 1.3 (0.8) - 0.5Interest payable and other financial - - (23.2) (23.2)chargesInterest receivable - - 9.4 9.4Profit/(loss) before taxation forcontinuing operations 42.4 (0.7) (13.8) 27.9Taxation (7.3) (7.3)Profit/(loss) after taxation forcontinuing operations 42.4 (0.7) (21.1) 20.6Discontinued operations - - - -Profit/(loss) for the period 42.4 (0.7) (21.1) 20.6 Half year ended 2 July 2005 Grocery Fresh Unallocated Total for Group ProduceTurnover £m £m £m £m Total turnover from continuing operations 305.3 58.3 - 363.6 ResultOperating profit before exceptional items 35.9 1.1 - 37.0Exceptional items 1.3 (1.3) - -Interest payable and other financialcharges - - (28.7) (28.7)Interest receivable - - 4.2 4.2Profit/(loss) before taxation forcontinuing operations 37.2 (0.2) (24.5) 12.5Taxation - - (3.4) (3.4)Profit/(loss) after taxation forcontinuing operations 37.2 (0.2) (27.9) 9.1Discontinued operations 4.0 - - 4.0Profit/(loss) for the period 41.2 (0.2) (27.9) 13.1 Year ended 31 December 2005 Grocery Fresh Unallocated Total for Group ProduceTurnover £m £m £m £m Total turnover from continuing operations 683.4 106.3 - 789.7 ResultOperating profit before exceptional items 101.6 0.5 - 102.1Exceptional items (3.1) (3.7) - (6.8)Interest payable and other financial - - (51.5) (51.5)chargesInterest receivable - - 8.0 8.0Profit/(loss) before taxation forcontinuing operations 98.5 (3.2) (43.5) 51.8Taxation - - (14.9) (14.9)Profit/(loss) after taxation forcontinuing operations 98.5 (3.2) (58.4) 36.9Discontinued operations 46.7 - - 46.7Profit/(loss) for the year 145.2 (3.2) (58.4) 83.6 Segmental analysis - secondary The following table provides an analysis of the Group's turnover, which isallocated on the basis of geographical market destination. Continuing operations Turnover Half year ended Year ended 1 2 31 July July December 2006 2005 2005 £m £m £m United Kingdom 406.7 350.1 757.4Mainland Europe 17.6 9.4 25.4Other countries 6.2 4.1 6.9Total 430.5 363.6 789.7 5. Other operating expenditure/(income) Half year ended Year ended 1 2 31 July July December 2006 2005 2005 £m £m £m Mark-to-market valuation of foreign exchange contracts 2.2 (1.7) (1.1)(Gain)/loss on settled foreign exchange contracts (0.6) 0.3 0.2Business interruption income relating to Bury Fire (0.9) (0.5) (1.5)Net expenditure/(income) 0.7 (1.9) (2.4) 6. Exceptional items The Group defines exceptional items as those items of financial significancethat are disclosed separately in order to assist in understanding the financialperformance achieved and in making projections of future results. In thecurrent period, exceptional items comprised, income on property disposals(£3.1m) offset by restructuring costs (£1.7m) and additional transitionalmanufacturing costs in relation to the Bird's business (£0.9m). 7. Interest payable Half year ended Year ended 1 July 2 July 31 December 2006 2005 2005 £m £m £m Interest payable on bank loans, senior notes and overdrafts 4.6 3.8 8.6Interest payable on term facility 9.3 11.4 20.4Interest payable on revolver facility 8.7 3.8 13.4Amortisation of debt issuance costs 0.6 1.0 1.7Fair valuation of interest rate swaps - 2.4 1.1 23.2 22.4 45.2 Accelerated amortisation of debt issuance costs - 6.3 6.3Total interest payable and other financial charges 23.2 28.7 51.5 Fair valuation of interest rate swaps (5.5) - -Interest receivable - bank deposits (3.9) (4.2) (8.0)Total interest receivable and other financial income (9.4) (4.2) (8.0) Net interest payable 13.8 24.5 43.5 8. Tax on profit on ordinary activities The tax charge for the first half of 2006 of £7.3m (2 July 2005: £3.4m)represents an effective tax rate for the year of 26% applied to profit beforetax. The effective tax rate is determined after taking into account itemsdisallowable for tax purposes and an adjustment for prior year tax. The ratehas been reduced by the effect of certain exceptional profits not being taxeddue to the availability of capital losses. We anticipate the tax charge recognised for the first half will be broadlyconsistent with the rate of tax applicable for the whole of 2006, ignoring theimpact of any acquisitions to be made. 9. Earnings per share Basic earnings per share have been calculated by dividing earnings fromcontinuing operations attributable to ordinary shareholders of £20.6m (2005:£9.1m) by the weighted average number of ordinary shares of the Company in issueduring that period. Half year ended 1 July Half year ended 2 July Year ended 31 December 2005 2006 2005 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) 20.6 - 20.6 9.1 - 9.1 36.9 - 36.9Weighted average number ofshares (million) 247.8 0.2 248.0 244.5 3.5 248.0 245.5 2.4 247.9Earnings per share (pence) 8.3 - 8.3 3.7 (0.1) 3.7 15.0 (0.1) 14.9 Discontinued operationsProfit after tax (£m) - - - 4.0 - 4.0 46.7 - 46.7Weighted average number ofshares (million) - - - 244.5 3.5 248.0 245.5 2.4 247.9Earnings per share (pence) - - - 1.7 - 1.6 19.0 (0.2) 18.8 TotalProfit after tax (£m) 20.6 - 20.6 13.1 - 13.1 83.6 - 83.6Weighted average number ofshares (million) 247.8 0.2 248.0 244.5 3.5 248.0 245.5 2.4 247.9Earnings per share (pence) 8.3 - 8.3 5.4 (0.1) 5.3 34.0 (0.3) 33.7 10. Dividends The Board proposes an interim dividend of 5.00 pence per ordinary share payableon 5 January 2007 to shareholders on the Register of Members as at 18 August2006. 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 2005 of £23.5m was approved in the period and was paid on 7July 2006. 11. Acquisition of Bird's, Marlow Foods Holdings Limited and Cauldron FoodsLimited On 14 February 2005 the Group completed the acquisition of the Bird's Custard,Angel Delight and associated brands from Kraft Foods Inc. (collectively "Bird's") for a total consideration of £72.1m. On 6 June 2005, the Groupcompleted the acquisition of Marlow Foods Holdings Limited for a totalconsideration of £176.1m. On 31 October 2005, the Group completed theacquisition of Cauldron Foods Limited for a total consideration of £27.1m. Subsequent to the year ended 31 December 2005, the Group has completed theexercise of attributing fair values to the assets and liabilities acquired withBird's and Marlow Foods Holdings Limited. As a result, fair value adjustmentshave been made in relation to Property, Plant and Equipment of Marlow FoodsHoldings Limited resulting in an increase in Goodwill of £0.8m. Furthermore, afair valuation of intangible assets has been performed in respect of CauldronFoods Limited, resulting in £13.5m of intangible assets being identified. In accordance with International Financial Reporting Standard 3 BusinessCombinations ("IFRS 3"), the fair values of assets and liabilities acquired witheach business are as follows: Cauldron Foods Bird's Marlow Foods Holdings Limited Limited Fair Book value Fair Book Fair value Book value value* value value £m £m £m £m £m £m Property, plant and equipment 5.3 5.3 - 2.0 38.1 38.9Intangible assets 13.7 0.2 30.2 - 80.0 -Inventories 0.3 0.3 3.5 3.5 9.9 9.9Trade and other receivables 2.4 2.4 - - 14.5 14.5Cash and cash equivalents 0.2 0.2 - - 8.3 8.3Trade and other payables (2.2) (2.2) - - (11.1) (11.1)Financial liabilities - long term borrowings - - - - (53.4) (49.6)Current tax liabilities - - - - (1.2) (2.4)Deferred tax liabilities (4.2) (0.2) - - (31.6) (7.8)Net assets acquired 15.5 6.0 33.7 5.5 53.5 0.7 *Cauldron Foods Limited are provisional fair values only. 12. Reconciliation of operating profit to cash generated from operatingactivities Half year ended Year ended 1 2 31 July July December 2006 2005 2005 £m £m £mContinuing operations Operating Profit 41.7 37.0 95.3 Depreciation of property, plant and equipment 9.5 6.5 15.9Amortisation of intangible assets 4.2 2.3 6.3Gain on disposal/impairment of property, plant and equipment (2.7) (3.7) (4.7)Revaluation losses/(gains) on financial instruments 2.2 (1.4) (1.1)Share based payments 0.3 0.4 1.1Net cash inflow from operating activities before interest, tax 55.2 41.1 112.8(paid)/received and movements in working capital Decrease/(increase) in inventories 6.7 6.3 (0.7)Decrease/(increase) in receivables 34.1 (4.9) (12.4)(Decrease)/increase in other payables and provisions (17.7) 0.9 16.9Movement in net retirement benefit obligations (2.4) (2.3) (5.4)Cash generated from continuing operations 75.9 41.1 111.2Discontinued operations - 4.9 6.5Cash generated from operations 75.9 46.0 117.7 Exceptional items cash flow 1.6 - (8.9)Cash generated from operations before exceptional items 74.3 46.0 126.6 Additional analysis of cash flows 1 2 31 July July December 2006 2005 2005 £m £m £m Interest received 3.9 4.0 6.3Interest paid (22.5) (18.5) (42.6)Issue costs of new bank loan - - (5.6) Return on investments and servicing of finance (18.6) (14.5) (41.9) Sale of subsidiaries/businesses - - 81.6 Sale of subsidiaries/businesses - - 81.6 Reconciliation of cash and cash equivalents to net borrowings 1 2 31 July July December 2006 2005 2005 £m £m £m Net inflow of cash and cash equivalents 15.6 57.2 10.6Debt acquired with Marlow - (53.4) (53.4)Decrease/(increase) in borrowings 22.8 (247.0) (146.0)Other non-cash changes (1.2) (12.3) (13.0)Decrease/(increase) in borrowings net of cash 37.2 (255.5) (201.8) Total borrowings net of cash at beginning of year (572.1) (370.3) (370.3) Total borrowings net of cash at end of year (534.9) (625.8) (572.1) Analysis of movement in borrowings As at Other non As at 1 January cash 1 July 2006 Cashflow changes 2006 £m £m £m £m Short term borrowings (0.8) 0.8 - -Cash and bank deposits 14.0 14.8 - 28.8Cash and cash 13.2 15.6 - 28.8equivalents net ofborrowings Borrowings - term (325.0) - - (325.0)Borrowings - revolver (260.0) 22.0 - (238.0)Loan notes (4.1) 0.8 - (3.3)Finance leases (0.9) - (0.6) (1.5)Other (0.1) - - (0.1) Borrowings (576.9) 38.4 (0.6) (539.1) Debt issuance costs 4.8 - (0.6) 4.2 Total net debt (572.1) 38.4 (1.2) (534.9) 13. Post balance sheet events Acquisition of the UK and Ireland businesses of Campbell Soup Company ("Campbell's UK") On 12 July 2006, Premier Foods announced it had reached agreement to acquire theUK and Irish businesses of Campbell Soup Company ("Campbell's UK") for aconsideration of £460m. Campbell's UK is a major supplier of ambient groceryproducts, manufacturing, marketing and distributing soups, sauces, canned anddehydrated foods. The proposed acquisition is subject to the approval of shareholders at anExtraordinary General Meeting to be held on 14 August 2006. On approval PremierFoods plc will enter a rights period prior to the issue of 247,847,545 newshares of the Company on 8 September 2006 at a price of £1.85 per new ordinaryshare. On 15 August 2006, Premier Foods will draw down £460m from a bridging loan inorder to finance the acquisition of Campbell's UK. The bridging loan will be inplace until the proceeds from the rights issue are received which will be usedto repay the bridging loan. As a result of the proposed acquisition of Campbell's UK, the Group has arrangedan Amended and Restated Facilities agreement, comprising a £325m A TermFacility, a £200m B Term Facility and a £560m multi-currency revolving facility.This new facility will become unconditional on the completion of theacquisition of Campbell's UK. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Premier Foods