6th Sep 2005 07:03
Premier Foods plc06 September 2005 6 September 2005 Premier Foods plc Interim Results 2005 Strong performance from grocery business Interim results for the six months to 2 July 2005 Unaudited Unaudited six months to six months to Change 2 July 2005 3 July 2004 £m £m Turnover* 409.2 425.8 -3.9% Trading profit*,** 45.6 38.4 18.8% Operating profit* 42.8 39.0 9.7% Profit/(loss) before tax 18.3 0.2 na Operating cash flow 61.1 58.9 3.7% * Continuing operations *\* Trading profit is defined as operating profit before exceptional items,amortisation of intangibles and the effective income statement impact of changesin pension assumptions. • Trading profit up 18.8% • Like for -for-like operating profit up 5.4% • Continued focus on growth of brands: Branded sales now 56% of grocery sales • Bird's and Quorn acquisitions performing to expectation • Cost savings programme delivering • Interim dividend of 4.75 pence per ordinary share Premier is also announcing the acquisition of 100% of the ordinary share capitalof Monument (GB) Limited and certain assets (trading as FW Gedney) for £5.5mcash on a cash-free, debt free basis. Gedney's is a potato and fresh producesupply business and will be integrated into Premier's existing potato supplybusiness. Robert Schofield, Chief Executive of Premier Foods plc, said, "This is a solid set of results with like-for-like operating profit up 5.4%. Itdemonstrates the strength of our branded grocery business, which saw goodperformances from our principal brands, and continued progress on reducingcosts. "The outlook for the remainder of the year is for our core business to remain ontrack with our grocery business compensating for our disappointing potatoesbusiness. With regard to our recently acquired Quorn business we intend toinvest £2 million more in the second half on marketing and innovation to supportour growth plans. "Our brands, scale and efficiency mean we are well positioned to deliverprofitable growth and strong cash flow generation to support progressivedividends and further acquisitions in the future." 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 BatchelorAnthony Kennaway A presentation to analysts will take place on Tuesday 6th September 2005 at 9amat ABN AMRO, 250 Bishopsgate, London, EC2M 5AA. Operating review - continuing operations £m 2005 2004 H1 H1SalesGrocery 350.9 336.9Potatoes 58.3 88.9Total sales 409.2 425.8 Trading profit 45.6 38.4Amortisation of intangibles (2.6) (1.7)Effective change in pension assumptions - 3.8Operating profit before exceptional items 43.0 40.5Exceptional items (0.2) (1.5)Operating profit 42.8 39.0 Trading profit increased by 18.8% to £45.6m. The uplift was due to an increasein trading profit for the grocery business of £6.4m and a contribution of £2.5mfrom Bird's and Marlow Foods ('Quorn') which were acquired in the period,partially offset by a decrease in the trading profit for the Potatoes businessof £1.7m. Operating profit overall increased by 9.7% to £42.8m, withlike-for-like operating profit increasing by 5.4% to £41.1m. Group sales from continuing operations decreased by 3.9% to £409.2m largely dueto lower market prices for potatoes while grocery sales increased by 4.2% to£350.9m. The comparative figures for 2004 exclude Materne, which was sold aspart of the IPO. Like-for-like grocery sales (excluding the Bird's and Quornacquisitions) fell by 0.8%. Branded sales now represent 56% of our grocery product sales, up from 54% in2004. This increase is primarily due to the inclusion of the new Bird's andQuorn businesses. Our principal brands performed well with Loyd Grossman,Branston and Ambrosia all growing strongly. Quorn, which was acquired in June2005, also showed strong growth over the same period in 2004. The results for the first half of 2005 have been shaped by a number ofparticular events. Although January saw sales sharply down on the same periodin 2004 as a result of a stock overhang with the retailers following Christmas,sales have since shown good year-on-year progress, virtually eliminating theJanuary deficit. We have also made two acquisitions: Bird's and Angel Delightdesserts in February 2005 and Quorn in June 2005. Both are performing at levelsconsistent with our expectations. We are pleased to declare dividend for the first half of 4.75p per share,consistent with our stated dividend policy, having achieved our targets for thefirst half of the year, to be paid to on 25th November. Grocery£m 2005 2004 H1 H1 Sales 350.9 336.9Trading profit 44.5 35.6 The sales and trading results of the product groups included within the grocerysegment are analysed below. Convenience Foods, Pickles & Sauces£m 2005 2004 H1 H1 Sales 181.1 181.1Trading profit 13.5 9.7 Sales of Convenience Foods, Pickles & Sauces were flat on 2004 at £181.1m.There were strong performances from Loyd Grossman and Branston, with the launchof new ranges of Loyd Grossman "creamy" sauces and Branston relishes in thefirst half. Trading profit for Convenience Foods, Pickles & Sauces was £13.5m, an increaseof £3.8m (39%) on 2004. This increase is primarily due to improved operatingefficiencies and cost savings and although we experienced increases in rawmaterial prices, such as tin plate, these have largely been recovered throughpricing developments agreed with our customers at the start of 2005. Tea & Beverages£m 2005 2004 H1 H1 Sales 66.0 70.2Trading profit 15.0 13.2 Sales of Tea & Beverages decreased by 6% to £66.0m compared to the same periodin 2004 with the decline principally caused by a reduction in tea sales, whichdeclined by 9% over the same period in 2004. This reflects a market decline formainstream tea which is also down by 9% in the six months to June 2005, comparedto same period in 2004, through a combination of both reduced volumes and pricedeflation. In light of the impact of the declining market for tea in the UK onTyphoo, we have decided to reclassify Typhoo as a "core" rather than "drive"brand. As we announced in May of this year, we have signed a five-year agreement withCadbury Trebor Bassett ("Cadbury") under which we will manufacture instant hotcocoa-based beverages for Cadbury from May 2006. The performance of beveragesduring the first half of 2005 was in line with the same period last year. Trading profit for Tea & Beverages increased by 13.6% to £15.0m. The effect ofthe lower tea sales was offset by reductions in raw tea prices, reducedmanufacturing costs following the closure of our Edinburgh factory in December2004 and the shift in marketing expenditure on Typhoo into the second half for2005 after a first half emphasis in 2004. The programme for the second half ofthe year includes the launch of Typhoo in a new unique "softpack" format, whichwill be supported by significant in-store marketing activity. Spreads & Desserts£m 2005 2004 H1 H1 Sales 98.5 85.6Trading profit 15.5 12.7 Sales of Spreads & Desserts increased by 15.1% over the same period in 2004 to£98.5m. This increase is primarily due to the inclusion of Bird's, followingits acquisition in February 2005. Like-for-like sales, excluding Bird'sincreased by 1.8% with Ambrosia performing strongly and new own label dessertcontracts offsetting by lower jelly sales. Trading profit for Spreads and Desserts increased from £12.7m in the first halfof 2004 to £15.5m in 2005, an increase of 22.0%. This was mainly due to theinclusion of Bird's, which contributed £2.0m at the trading profit level.Like-for-like trading profit increased by £0.8m with the contribution from thehigher sales and logistics synergies from the Ambrosia acquisition offset byincreased marketing costs. Quorn£m 2005 2004 H1* H1* Sales 5.3 5.2Trading profit 0.5 0.3 *includes three weeks of trading only. Sales of Quorn products were £5.3m, representing three weeks of sales sinceacquisition. The brand grew strongly in the first half of the year over the sameperiod in 2004 and we intend to continue driving this growth through increasedadvertising support and innovation. The comparative amounts were not includedin the prior half results of the Group. Potatoes £m 2005 2004 H1 H1 Sales 58.3 88.9Trading profit 1.1 2.8 Sales by our potatoes business decreased by 34.4% to £58.3m, due to the lowermarket price of potatoes compared to last year and the loss of contract volume.We have announced today the acquisition of Monument (GB) Limited and certainassets ("Gedney's") for £5.5m on a cash-free, debt-free basis. Gedney's is apotatoes and fresh produce supply business. Sudan 1 Product Recall On 18 February 2005, the Food Standards Agency initiated a recall of a number ofproducts, which had been identified as possibly being contaminated with a dye, "Sudan 1", not authorised for use in food products. The dye was traced to abatch of chilli powder supplied to the Group that was used by the Group in themanufacture of Worcester sauce. The Group used the Worcester sauce in themanufacture of three other products and supplied Worcester sauce to a number ofretail and food ingredient customers. We have made significant progress in respect of the Sudan 1 product recall inrecent months. Our insurers have appointed loss adjusters who are handling allclaims, some of which have now been determined and paid. To date allsettlements have been in line with or below our initial estimates. We have alsoconducted a comprehensive ingredient risk review as a result of which we haveintroduced an enhanced testing regime and have changed the sourcing of some ofour key raw materials. Our trading and customer relationships have not beenaffected and we continue to believe that the financial exposure to the Group isnot material. Outlook Our strategy remains focused on the development of our "drive" brands, thosebrands we consider to have the greatest growth potential, whilst continuing todrive down our per unit manufacturing costs. The outlook for the remainder of the year is for our core business to remain ontrack with our grocery business compensating for our disappointing potatoesbusiness. We have a strong programme of new product development through 2005with new products being launched under our Ambrosia, Branston, Loyd Grossman,and Hartley's brands which, combined with further manufacturing efficiencyimprovements, should contribute to a strong commercial performance in the secondhalf. However, recent increases in oil and energy prices will providesignificant challenges. Quorn and Bird's are both trading in line with our expectations on acquisition.With regard to our recently acquired Quorn business we intend to invest £2m morein the second half on marketing and innovation to support our growth plans. Aspreviously indicated, we are now replacing all of the production lines acquiredwith Bird's, which will take until the end of the year. This will enhancefuture manufacturing efficiency although we will incur additional costs in 2005as we continue to use the Kraft production facility in Banbury. For our potatoes business, the outlook for the second half of 2005 remainsdifficult and recovery is not now anticipated before the end of the year.However, we have adjusted our cost base to reflect the changed profile of ourcustomers and the acquisition of the Gedney's business will broaden the reachand offering of the business. These changes provide the platform for the futuredevelopment of the business with the benefits starting to flow in 2006. Robert SchofieldChief Executive Financial review Basis of Preparation For the first time, the results of Premier Foods plc are prepared in accordancewith International Financial Reporting Standards ('IFRS') as they are currentlyexpected to apply to the Group - see note 1. The interim results for the currentand prior periods, as reconciled to that previously reported under UK GAAP, areavailable on our website for comparison. The impact of conversion to IFRS hashad no cash impact. The results of Materne, our French spreads business sold in July 2004, have beendisclosed within discontinued operations. Sales Sales for the Group's continuing operations decreased by 3.9% to £409.2m. Themost significant component of this movement was a reduction in sales at MBM, ourpotatoes business, as a result of weaker market pricing and the loss of contractvolume. Total grocery sales increased by 4.2% to £350.9m with like-for-likesales, i.e. before sales made by the recently acquired businesses of Bird's andQuorn, falling by 0.8% to £334.2m. This was the result of the soft trading inJanuary as experienced by many food manufacturers and offset by strong tradingsince February. Gross Profit Gross profit for the first half of 2005 was £97.8m, an increase of 5.0% over2004 with gross profit margins up by 2.0% at 23.9%. This improvement primarilyreflects the benefit of significant investments in production efficiency,supplemented by a strong performance from our drive brands. This was coupledwith the effect of improvements in gross margin at our potatoes business thathave resulted from the loss of a number of low margin retail contracts. Theinclusion of Bird's and Quorn also had a minor positive impact. Selling and Distribution Expenses Selling and distribution expenses were £35.7m for the first half of 2005, adecrease of £3.9m, or 9.8%, compared to the same period in 2004. The decreaseis the result of cost savings achieved and the phasing of marketing initiatives. Like-for-like consumer marketing costs reduced over the first half, reflectingthe phasing of our spending towards the second half of the year. Total marketingspend, including promotional activity, was flat year on year. Administrative Expenses During the period, administrative expenses increased to £21.2m. After addingback the impact of exceptional items and effective changes in pension accountingassumptions, the increase in administrative expenses was £2.0m or 10.5%.Included within this is an amortisation charge arising on intangible assetsacquired on the acquisition of Bird's (£0.8m) and a share-based payment charge(£0.4m) related to the Group's management incentive programme. The residualamount relates to inflation and the cost of additional personnel to support ourongoing strategic activities. Results for the second half will include a fullamortisation charge for intangibles acquired with the Quorn brand. Other Operating Income Other operating income of £1.9m comprises £1.4m of fair value movements onongoing forward foreign exchange contracts and £0.5m of business interruptionincome arising as a consequence of the fire at Bury St Edmunds. Under IAS 39,changes in the fair value of unsettled forward foreign exchange contracts thatare not designated as hedges are now recorded outside of cost of sales. Theseeconomic hedges are recorded as other operating income or expense withvariations in commodity prices due to foreign exchange shown as part of cost ofsales. The net economic impact remains the same. Operating Profit Operating profit before exceptional items for the continuing business was £43.0mfor the first half of 2005, an increase of £2.5m, or 6.2%, compared to the sameperiod in 2004. Operating profit after exceptional items increased by 9.7% to£42.8m. Exceptional Items Exceptional items for the period reflect the aggregate effect of a number ofnon-recurring events, resulting in a net expense of £0.2m compared to £1.5m inthe prior year. The principal elements of the charge for the current periodrelate to the costs associated with the rationalisation of our operations atMBM, the Sudan 1 product recall and the impact of the insurance claim for theBury St Edmunds fire. Interest The net interest charge for the business over the first half of £24.5m was madeup of net interest payable of £15.8m, a write-off of debt issuance costs of£6.3m and the impact of movements in the fair value of interest rate swaps of£2.4m. The net interest cost of £15.8m represents a significant saving on the prioryear cost of £38.8m as a result of the new financing structure put in place atthe IPO in July 2004. At the time of the acquisition of Quorn in June 2005, theGroup carried out a further re-financing exercise to fund the acquisition, itsfuture investment programmes and its ongoing working capital requirements. Thisresulted in the write-off of £6.3m of un-amortised facility costs relating tothe previous structure. Facility costs relating to the new credit facilitiestotalled £5.4m and these will be amortised over the term of the new facilities. Taxation The tax charge and effective rate of tax for continuing operations were £5.2mand 28.4% respectively, broadly in line with our anticipated rate for the fullyear. Earnings Per Share Basic earnings per share from continuing operations were 5.4p (3 July 2004: lossper share of 0.1p). Dividend Consistent with our stated dividend policy, on 6th September we declared aninterim dividend of 4.75p per ordinary share (3 July 2004: Nil) resulting in atotal dividend of £11.6m, payable on 25th November 2005. Under IFRS dividendsare recorded in the financial statements in the period in which they aredeclared. Cashflow and Borrowings Over the first half of the year, the Group's net borrowings increased by £255.5mto £625.8m. The main items making up this movement were cash from operations of£30.5m, acquisition cash flow of £240.8m and the payment made in respect of thefinal dividend for 2004 of £22.0m. The balance comprised a number of itemsincluding capital expenditure and other minor cash and non-cash movements. Net cash generated by operating activities was £30.5m in the first half of 2005,compared to £21.2m in the same period in 2004. The details behind this movementare set out in full in note 9. The acquisition cash flow of £240.8m, referred to above, consists of theconsideration and associated transaction costs of £71.5m and £169.3m for thepurchase of Bird's and Quorn respectively. The total consideration for MarlowFoods was £175.9m, inclusive of £3.0m of acquisition related costs, andcomprised the payment of a cash sum of £116.5m (net of cash acquired), assumedborrowings of £52.8m and loan notes and other working capital movements of£6.6m. Impact of IFRS As indicated in note 1, the consolidated financial statements of the Group arepresented in accordance with IFRS. The Group has made excellent progress inachieving its conversion to IFRS. The impact on earnings has been limited tothe accounting for the Group's foreign exchange and interest rate swaps, theamortisation of intangibles, pension accounting, accruals for employee incentiveawards and deferred tax. There have also been a number of presentational changesto the income statement and balance sheet, but there has been no cash impactarising from any of these adjustments. We have embedded IFRS within thebusiness and IFRS will form the basis for all of our financial communications inthe future. Paul ThomasFinance Director Consolidated income statement (unaudited) Half year Half year Full year ended ended ended 2 July 2005 3 July 31 December *2004 2004* Note £m £m £mContinuing operationsTurnover 2 409.2 425.8 842.2Cost of sales (311.4) (332.7) (637.7) Gross profit 97.8 93.1 204.5 Selling and distribution costs (35.7) (39.6) (76.2)Administrative costs (21.2) (14.5) (43.3) Other operating income 4 1.9 - 3.0 Operating profit 42.8 39.0 88.0 Before exceptional items 3 43.0 40.5 108.6Exceptional items 3 (0.2) (1.5) (20.6) Interest payable and other financial charges 4 (28.7) (40.0) (83.6)Interest receivable 4 4.2 1.2 5.3 Profit before taxation for continuing operations 18.3 0.2 9.7Taxation 5 (5.2) (0.3) (5.9) Profit/(loss) after taxation for continuing 13.1 (0.1) 3.8operationsDiscontinued operations 2 - 1.9 12.0 Profit for the period 13.1 1.8 15.8 Earnings/(loss) per share (pence) Basic 6 5.4 2.0 9.9 Diluted 5.3 2.0 9.7 Basic - continuing 6 5.4 (0.1) 2.4 Diluted 5.3 (0.1) 2.3 Basic - discontinued 6 - 2.1 7.5 Diluted - 2.1 7.4 Dividends**Dividend declared (£m) - - 22.0Declared interim dividend (£m) 11.63 - -Declared interim dividend per share (pence) 4.75 - - * Results are re-stated for the impact of transition to InternationalFinancial Reporting Standards ('IFRS'). See Note 1. ** Under IFRS dividends are recorded in the financial statements in the periodin which they are declared. Consolidated balance sheet (unaudited) As at As at As at 2 July 3 July 1 January 2005 2004* 2005* Note £m £m £mASSETS: Non-current assets Property, plant and equipment 186.7 155.3 141.3 Intangible assets 7 380.8 188.0 182.0 Retirement benefit assets & other receivables 0.8 0.8 0.6 Deferred tax assets 1.5 4.8 11.7 Current assets Inventories 99.8 99.3 91.8 Trade and other receivables 129.6 124.0 110.9 Financial assets - derivative financial instruments 0.7 - - Cash and bank deposits 4 93.3 16.2 35.5 Total assets 893.2 588.4 573.8 LIABILITIES: Current liabilities Trade and other payables (149.2) (168.8) (136.5) Financial liabilities - short term borrowings 4 (119.4) (54.9) (50.9) - derivative financial instruments 4 (2.4) - (1.8) Interest payable (2.9) (9.2) (2.2) Provisions (3.3) - - Current tax liabilities (15.2) (13.9) (12.7) Non-current liabilities Financial liabilities - long term borrowings 4 (594.6) (666.9) (354.9) - loan notes 7 (5.1) - - Retirement benefit obligations (58.7) (26.4) (65.6) Provisions - (5.2) (2.9) Other liabilities - (0.2) - Total liabilities (950.8) (945.5) (627.5) Net liabilities (57.6) (357.1) (53.7) EQUITY Capital and reserves Share capital 2.4 - 2.4 Share premium 320.9 10.0 320.9 Merger reserve (136.8) (136.8) (136.8) Other reserves (1.8) (2.3) (1.8) Profit and loss reserve (242.3) (228.0) (238.4) Total shareholders' deficit (57.6) (357.1) (53.7) * Results are re-stated for the impact of transition to International FinancialReporting Standards ('IFRS'). See Note 1. Consolidated cash flow statement (unaudited) Half year ended Full year ended Note 2 July 3 July 31 2005 2004 December 2004 £m £m £m Cash inflow from operating activities 9 30.5 21.2 28.5 Acquisition of Bird's 7 (71.5) - -Acquisition of Marlow 7 (116.5) - -Sale of subsidiaries - - 34.2Other investing cash flows (10.9) (19.1) (26.9)Cash (outflow)/inflow from investing activities (198.9) (19.1) 7.3 Repayment of borrowings 4 (380.0) (19.7) (151.4)Proceeds from new borrowings 4 685.8 - -Proceeds from share issue - - 119.1Share issue costs - - (10.1)Financing costs 4 (5.4) - (8.1)Repayment of debt acquired with Marlow (52.8) - -Dividends paid (22.0) - -Cash inflow/(outflow) from financing activities 225.6 (19.7) (50.5)Net inflow/(outflow) of cash and cash equivalents 57.2 (17.6) (14.7) Cash and cash equivalents at beginning of period 2.6 17.3 17.3Cash and cash equivalents at end of period 59.8 (0.3) 2.6 Reconciliation of cash and cash equivalents to netborrowings Net inflow/(outflow) of cash and cash equivalents 9 57.2 (17.6) (14.7)Debt acquired with Marlow 7 (53.4) - -(Increase)/decrease in borrowings (247.0) 19.7 355.7Exchange movement on gross debt net of cash - (0.8) -Other non-cash changes 9 (12.3) (13.1) (17.4)(Increase)/decrease in borrowings net of cash (255.5) (11.8) 323.6 Total borrowings net of cash at beginning of period 9 (370.3) (693.9) (693.9)Total borrowings net of cash at end of period 9 (625.8) (705.7) (370.3) Statement of recognised income and expense (unaudited) Half year ending Full year ended 2 July 3 July 31 2005 2004 December 2004 £m £m £m Profit for the period 13.1 1.8 15.8 Foreign exchange losses on foreign currency net (0.9) (2.3) (1.9)investments (net of tax)Actuarial gains and losses (net of tax) 3.3 (8.3) (39.2)Deferred tax on share options 1.2 - -Total recognised income/(expense) for the period 16.7 (8.8) (25.3) Notes to the financial information 1. Basis of preparation Interim financial information Premier Foods plc is required to present its financial statements in accordancewith International Financial Reporting Standards ('IFRS') for the year ending 31December 2005. For the first time, the interim financial information presentedis also based on the accounting policies expected to form the basis of thefinancial statements for the year ending 31 December 2005, which can be accessedfrom the companies website at www.premierfoods.co.uk/about/investor. Theinterim financial information does not comprise a complete set of financialstatements as defined under IFRS. To allow comparability of financial information, the Group published financialinformation on its web-site on 11 July 2005 explaining the re-statement of itsfinancial results for the year ended 31 December 2004 from those previouslyprepared in accordance with accounting principles generally accepted in theUnited Kingdom ('UK GAAP'). The 'comparative financial information' can beaccessed at: www.premierfoods.co.uk/about/investor. The comparative financial information is unaudited and will form part of thefinancial statements for the current financial year, from which the comparativeinterim financial information for the half-year ended 3 July 2004 has beenextracted. It includes an explanation of the principal changes in accountingpolicies. For clarity, in note 11 the re-stated financial information for thehalf-year ended 3 July 2004 is reconciled to that previously presented under UKGAAP. The revised accounting policies of the Group reflect the impact of compliancewith the International Financial Reporting Standards ('IFRS') and therequirements of the International Financial Reporting Interpretations Committee('IFRIC') as issued currently by the International Accounting Standards Board ('IASB'). Although we have applied the accounting policies that are expected toform the basis of preparation in the financial statements for the year ending 31December 2005, IFRS remain subject to change, new interpretations may be issuedand therefore applicable IFRS cannot be determined with certainty. Based on these IFRS, the Group has made assumptions about the accountingpolicies expected to be adopted when the first IFRS annual financial statementsare prepared for the year ending 31 December 2005, in particular the adoption bythe EU of the amendment to IAS 19, Employee Benefits, regarding the option torecognise all actuarial gains and losses in retained earnings and to presentthem in the statement of recognised income and expense. The comparative financial information for the year ended 31 December 2004 hasbeen extracted from the annual financial statements of Premier Foods plc and isre-stated in accordance with the adopted IFRS. The consolidated interimfinancial information does not constitute statutory accounts within the meaningof Section 240 of the Companies Act 1985. These interim results are unauditedbut have been reviewed by our auditors. The statutory accounts for the yearended 31 December 2004 , which are prepared under UK GAAP, have been reported onby the Group's auditors and delivered to the registrar of companies. The reportof the auditors was unqualified and did not contain the statements under section237(2) or (3) of the Companies Act 1985. Use of estimates The financial information necessarily includes amounts based on judgements andestimates made by management. Actual results could materially differ from theseestimates. Estimates are used when accounting for potential bad debts,inventory obsolescence and spoilage, trade and promotion allowances, couponredemptions, depreciation and amortisation, deferred income taxes and taxvaluation allowances, pension and post-retirement benefits, restructuringcharges and contingencies among other items. 2. Segmental analysis - Primary Turnover Half year Half year Full year ended Ended ended 2 July 3 July 31 December 2005 2004* 2004* £m £m £m Grocery products 350.9 336.9 691.9Potatoes 58.3 88.9 150.3Continuing operations 409.2 425.8 842.2Discontinued operations - 49.7 54.6Total 409.2 475.5 896.8 Segmental analysis of Trading profit** and Operating profit Half year ended 2 July 2005 Trading Changes Amortisation Exceptionals Operating profit** In pension profit assumptions £m £m £m £m £m Grocery products 44.5 - (2.6) 1.1 43.0Potatoes 1.1 - - (1.3) (0.2)Total continuing 45.6 - (2.6) (0.2) 42.8operations Half year ended 3 July 2004* Trading Changes in Amortisation Exceptionals Operating profit** pension profit assumptions £m £m £m £m £m Grocery products 35.6 3.8 (1.7) (0.9) 36.8Potatoes 2.8 - - (0.6) 2.2Continuing operations 38.4 3.8 (1.7) (1.5) 39.0 Discontinued 2.1 - (0.2) - 1.9operationsTotal 40.5 3.8 (1.9) (1.5) 40.9 Full year ended 31 December 2004* Trading Changes in Amortisation Exceptionals Operating profit** pensions profit assumptions £m £m £m £m £m Grocery products 99.5 6.1 (2.7) (14.1) 88.8Potatoes 5.7 - - (6.5) (0.8)Continuing operations 105.2 6.1 (2.7) (20.6) 88.0 Discontinued 12.3 - (0.3) - 12.0operationsTotal 117.5 6.1 (3.0) (20.6) 100.0 * Results are re-stated for the impact of transition to International Financial Reporting Standards ('IFRS'). See Note 1. ** Trading profit is defined as operating profit before exceptional items, amortisation of intangibles and the effective income statement impact of changes in pension assumptions. 2. Segmental analysis - Secondary Geographical analysis of Turnover By origin By destination Half year Half year Full year Half year Half year Full year ended ended ended 31 ended ended ended 31 2 July 3 July December 2 July 3 July December 2005 2004* 2004* 2005 2004* 2004* £m £m £m £m £m £m Continuing operations United Kingdom 395.3 412.3 814.9 382.1 399.4 792.0 Mainland Europe 13.8 13.5 27.3 22.9 22.0 41.7 Other countries 0.1 - - 4.2 4.4 8.5 Total 409.2 425.8 842.2 409.2 425.8 842.2Discontinued operationsMainland Europe - 49.7 54.6 - 49.7 54.6 Total 409.2 475.5 896.8 409.2 475.5 896.8 * Results are re-stated for the impact of transition to InternationalFinancial Reporting Standards ('IFRS'). See Note 1. 3. Exceptional items Exceptional items are defined by the Group as those items of financialsignificance that are disclosed separately in order to assist in understandingthe financial performance achieved and in making projections of future results.In the current period, exceptional items comprised, primarily, therationalisation of the operations at MBM, the Sudan I product recall and theimpact of the insurance claim for the Bury St Edmunds fire. 4. Interest Payable and Financial Instruments On 1 January 2005, the Group adopted the provisions of IAS 32 and IAS 39,Financial Instruments. The primary effect of this change in accounting policyrelates to the accounting, presentation and disclosure of the Groups' interestsin forward exchange contracts and interest rate swaps and the effect of thesechanges was to increase the Group's net liabilities at 31 December 2004 by £1.8mto £53.7m as at 1 January 2005. In future, the operating profit impact of commodity contracts and foreigncurrency transactions will be included in gross profit and the related movementsin economic hedges will be recorded as other operating income or expense. Asnoted below the net economic impact of the interest rate swaps will form acomponent of net interest payable. Total interest payable includes interest arising on bank loans, senior notes andoverdrafts related to facilities in place at 31 December 2003 and that werereplaced by a new borrowing facilities on 20 July 2004. On 2 July 2005, theGroup further renewed its borrowings with term facilities of £325.0m repayableover the period to 2010 and credit facilities of £455.0m, of which £360.8m wasdrawn down. As a result of these changes, debt issuance costs of £6.3m relatingto the old facilities were written off to interest payable. Cash and bank deposits and short-term borrowings included in the balance sheetreflect the anticipated level at which the Group will offset cash and overdraftsin accordance with IAS 32. 4. Interest Payable and Financial Instruments Interest payable Note Half year Half year Full year 31 ended 2 ended 3 December 2004 July 2005 July 2004 £m £m £m Interest payable on bank loans, senior notes and overdrafts 47.0 16.3 28.0Interest payable on unsecured unguaranteed loan notes 11.1 - 10.1Interest payable on new term 8 -facility 1.3 -Interest payable on new revolver 8 -facility 1.4 -Amortisation of debt issuance costs 3.9 1.0 1.9Fair valuation of interest rate -swaps 2.4 - 62.0 22.4 40.0 Senior notes early redemption 11.1penalty - -Exceptional amortisation of debt issuance 8 10.5costs 6.3 - 21.6 6.3 - Total interest payable 83.6 28.7 40.0 Interest (4.2) (1.2) (5.3)receivable Net interest payable 78.3 24.5 38.8 5. Taxation The tax charge for the first half of 2005 of £5.2m (2004: £0.3m) represents aneffective tax rate for the year of 28% applied to profits before tax. Thiseffective tax rate is determined after taking account of available overseas taxlosses and disallowable items and arises primarily in the UK. We anticipate thetax charge recognised in the first half will be broadly consistent with the rateof tax applicable for the whole of 2005 and will relate solely to the UKoperations. 6. Earnings/(loss) per share Period ended 2 July 2005 Period ended 3 July 2004 Year ended 31 Dec Basic EPS Effect of Diluted Basic Effect of Diluted Basic Effect of Diluted dilutive EPS EPS dilutive EPS EPS dilutive EPS securities securities securitiesContinuing BusinessEarnings/(loss) (£m) (0.1) (0.1) 3.8 3.8 13.1 - - 13.1 -Weighted number of 89.3 - 89.3 159.2 162.2shares (million) 244.5 3.5 248.0 3.0Per share amount (0.1) (0.1) (0.1) 2.4 (0.1) 2.3(pence) 5.4 5.3 - DiscontinuedBusiness - 12.0Earnings (£m) - - - 1.9 - 1.9 12.0Weighted number ofshares (million) 89.3 89.3 3.0 - - - - 159.2 162.2Per share amount (0.1)(pence) - - - 2.1 - 2.1 7.5 7.4 Total businessEarnings (£m) 13.1 - 15.8 - 13.1 1.8 - 1.8 15.8Weighted number ofshares (million) 244.5 3.5 248.0 89.3 89.3 159.2 3.0 162.2 -Per share amount (0.1) (0.2)(pence) 5.4 2.0 5.3 - 2.0 9.9 9.7 7. Acquisitions of Bird's and Marlow Foods Holdings Limited 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 £71.5m. On 6 June 2005, the Group completed the acquisition ofMarlow Foods Holdings Limited, a business involved in the manufacture anddistribution of chilled and frozen food products and owner of the Quorn brandfor £172.9m, including repayment of assumed debt. Marlow Foods Bird's TotalNet assets of businesses acquired at fair value: £m £m £m Goodwill and intangibles 133.4 68.0 201.4Tangible fixed assets 38.9 - 38.9Other net (liabilities)/ assets (41.5) 3.5 (38.0)Satisfied by:Issue of loan notes (5.1) - (5.1)Cash consideration (125.7) (71.5) (197.2)Total consideration for acquisitions (130.8) (71.5) (202.3) Analysis of cash outflow inrespect of acquisitions:Cash consideration (125.7) (71.5) (197.2)Accrued acquisition costs 0.9 - 0.9Cash acquired 8.3 - 8.3Total cash outflow (116.5) (71.5) (188.0) 7. Acquisitions of Bird's and Marlow Foods Holdings Limited (continued) Provisional fair values have been allocated to the acquired net assets ofBird's. An initial allocation of fair value to the acquired assets andliabilities of Marlow Foods has also been performed, although adjustments of aclassification nature, including those related to deferred taxes, areoutstanding. A provisional analysis of the consideration and the assets andliabilities acquired is as noted in the table above. In the period immediatelysubsequent to acquisition, Bird's contributed to turnover and operating profitsby £11.4m and £1.2m respectively and these amounts are included in the incomestatement. Marlow Foods contributed turnover and operating profits of £5.3m and£0.5m respectively. As part of the Marlow Foods acquisition the Group issued£5.1m of loan notes that are repayable in 2008 and attract interest at LIBOR. 8. Other balance sheet information During the period the Group made investments of £16.6m in capital renewal andexpansion programmes, of which £5.7m related to the re-build of the Bury StEdmunds factory which were financed from the Group's insurance arrangements. 9. Notes to the consolidated statement of cash flow Reconciliation of operating profit to cash flows from operating activities Half year ending Full year 2 July 3 July 31 December 2005 2004* 2004 £m £m £m Operating Profit - continuing operations 42.8 39.0 88.0 Depreciation of property plant and equipment 7.8 9.4 18.6Amortisation of intangible assets 2.6 1.7 2.7(Gain)/Loss on disposal of fixed assets (3.7) 0.7 (0.6)Revaluation gains/losses on financial instruments (1.4) - -Share based payments 0.4 - 6.5Net cash inflow from operating activities before 48.5 50.8 115.2interest and tax (paid)/received and movements inworking capital Decrease in inventories 4.0 15.4 8.4Increase in trade and other receivables (4.0) (0.8) (13.1)Increase/(decrease) in trade and other payables & 0.4 (11.0) (4.3)provisionsMovement in net retirement benefit obligations (2.3) (8.8) (20.3)Exchange movement in working capital (0.6) (0.6) -Cash generated from continuing operations 46.0 45.0 85.9Discontinued operations - 1.6 2.2Cash generated from operations 46.0 46.6 88.1 Interest paid (18.5) (26.6) (64.7)Interest received 4.0 1.2 5.3Taxation paid (1.0) - (0.2)Cash inflow from operations 30.5 21.2 28.5 Exceptional items cash flow (1.3) (14.5) (18.6)Net cash flow before exceptional items 31.8 35.7 47.1 9. Notes to the consolidated statement of cash flow (continued) Analysis of movement in net borrowings At 31 Effect of Re-stated Cashflow Other At 2 July December 2004 at 1 non-cash 2005 IAS 32* January changes 2005 £m £m £m £m £m £mShort term overdrafts (9.9) (23.0) (32.9) (0.6) - (33.5)Cash and bank deposits 12.5 23.0 35.5 57.8 - 93.3Cash and cash 2.6 - 2.6 57.2 - 59.8equivalents net ofoverdraftsBorrowings - term (380.0) - (380.0) 55.0 - (325.0)Borrowings -revolver - - - (360.8) (360.8)Loan notes - - - (5.1) (5.1)Finance leases (0.1) - (0.1) - - (0.1)Gross borrowings net of (377.5) - (377.5) (248.6) - (631.2)cashDebt issuance costs 7.2 - 7.2 5.4 (7.2) 5.4Total net borrowings (370.3) - (370.3) (243.2) (12.3) (625.8) * This adjustment reflects a presentation requirement of IAS 32, FinancialInstruments. 10. Subsequent Event On 6th September 2005, the Group completed its acquisition of Monument (GB)Limited and certain other assets (trading as "Gedney's") for £5.5m on acash-free, debt-free basis. 11. Re-stated comparative financial information The interim financial statements form part of the financial information includedwithin the first annual financial statements to be prepared in accordance withIFRS. In preparing its opening IFRS balance sheet as at 1 January 2004 andcomparative financial information for the interim period ended 3 July 2004,adjustments have been made to re-state balances reported previously inaccordance with UK GAAP. The major components of the transition from UK GAAP toIFRS is set out below. This comparative financial information has been compiledin accordance with the Group's accounting policies that are expected to form thebasis for the financial statements for the year ending 31 December 2005 and canbe accessed from the Company website at www.premierfoods.co.uk/about/investor.An explanation of each of the primary accounting differences noted below is alsoincluded within this information. Reconciliation of results for the half year ended 3 July 2004 and statement ofshareholders deficit as at 3 July 2004 Operating Net (loss)/ Shareholders profit for profit after deficit at 3 continuing tax July 2004 operations £m £m £m Amounts previously reported under UK GAAP in IFRS 30.4 (4.7) (323.8)format Pension adjustment 7.5 5.3 (22.6)Goodwill amortisation adjustment 3.7 2.7 2.7Other adjustments, net (2.6) (1.5) (13.4)Related Shares:
Premier Foods