24th Apr 2006 07:01
RHM plc24 April 2006 24 April 2006 RHM plc Pre-Close Period Trading Update RHM plc, one of the largest food companies in the UK and Ireland and the home ofHovis, Bisto, Mr Kipling and Sharwood's, issues the following update prior toentering the close period ahead of its preliminary results for the year ending29 April 2006, which are scheduled to be announced on 29 June 2006. Trading Results for the full year are anticipated to be in line with the Board'sexpectations at the time of our interim statement in December, with an improvedperformance being achieved in the second half of the year. Turnover from continuing operations for the year ending 29 April 2006 ("FY06")is expected to be around two per cent. ahead of that achieved in the year ended30 April 2005 ("FY05"). The Board is confident that operating profit fromcontinuing operations before restructuring costs ("EBITA") for the full yearwill be in excess of £170m (FY05: £158.2m). Bread Bakeries has performed well during the second half. Good top line growthhas been driven by the strength of the Hovis brand, further market share gainsfollowing the "Healthiest Ever Hovis" relaunch, price increases, distributionwins and successful new product introductions, including Hovis Invisible Crustand, most recently, an upgraded Hovis Granary bread range. As anticipated at thetime of our interim statement, these benefits have in part been offset byincreased distribution costs. Culinary Brands delivered an improved level of sales growth in the second half,with Bisto performing strongly following an excellent response to our "aahnight!" advertising campaign. A Sharwood's "Go East" themed advertising andpromotional campaign was launched in the final quarter of the financial year toreinvigorate our Asian food business. Culinary Brands' EBITA for the second halfwill reflect the phasing of FY06 advertising, which will be over £4m higher thanin the first half, and, as indicated at the time of our interim results, theimpact of an industry-wide increase in in-store promotional activity levels. Customer Partnerships has sustained the momentum established in the first half.The business continues to benefit from increased sales levels, particularly inchilled ready meals, and further efficiency gains. The planned actions taken to improve profitability in Manor Bakeries haveresulted in a much improved Cakes financial performance in the second half ofthe year. The closure of the Eastleigh bakery and transfer of production to ourCarlton site was completed on time in December and the anticipated level ofconsequent cost savings has been achieved. All Mr Kipling cakes are now free ofartificial colours and flavours, many recipes have been upgraded and newpackaging has been introduced across the range. The Mr Kipling "Delightful"range of lower fat, lower calorie cakes was introduced as planned in January andhas received a positive initial consumer response. A new Mr Kipling promotionalstrategy has been implemented and a nationwide sampling campaign is currentlyunder way. It is too early to conclude whether the issues affecting Mr Kipling have beensuccessfully addressed. We are, however, encouraged by the success of our costsaving initiatives, satisfactory Christmas and Easter trading periods and a slowdown in the rate of decline of branded cake sales. Over £3m of marketing spend previously expected to be deployed on Cakestelevision advertising during the second half has been tactically reallocated toin-store and other promotional activity on a short term basis. Consequently,total Group expenditure on advertising and marketing in FY06 remains at asimilar level to that in FY05. The Board remains committed to increasing longterm investment behind the Group's brands in FY07. Cost Reduction Initiatives Our procurement and logistics cost reduction initiatives will deliver combinedfull year savings of approximately £28m, before utility cost increases, in linewith the Board's expectations at the time of the interim statement. Restructuring and rationalisation benefits are now anticipated to total around£19m, £5m more than previously anticipated, with new cost reduction programmesdelivering incremental benefits. Associated restructuring costs are expected tototal just over £30m, in line with previous guidance. RHM's utility costs have increased in the year by approximately £11m, of whicharound £9m related to the second half of the year. This increase has beenbroadly offset by price increases and by private label volume growth in CustomerPartnerships. Pensions Pension service costs have reduced by £8m in the year with a reduction of £5m inthe second half, as previously anticipated. Recent movements in bond yields and stock markets have positively impacted ourUK pension fund deficit, which has reduced from £309m, or £216m net of deferredtax, at 29 October 2005 to approximately £215m, or £150m net of deferred tax, asat 31 March 2006. Financing Net interest costs for the full year are expected to be approximately £57m. Thisequates to approximately £43m on a pro forma basis, i.e. assuming that thecurrent capital structure, which was implemented post IPO, had been in place forall of FY06. Dividends The Board reiterates its commitment made at the time of the IPO to recommend thepayment of not less than £55m in dividends to shareholders for the year ending29 April 2006. Ian McMahon, Chief Executive Officer of RHM plc, said: "We will deliver a satisfactory overall outcome for the year. Bread Bakeries'excellent performance is being driven by its market-leading success in buildingthe Hovis brand. Bisto has been the outstanding contributor to Culinary Brands'growth. The continued progress of Customer Partnerships highlights the strengthof our customer relationships and focus on cost reduction. Much progress remainsto be made at Manor Bakeries but at this early stage we are encouraged by theresponse to the actions we have taken to improve Cakes' performance." ENQUIRIES RHM 44 (0) 1628 478 484Andrew Allner, Group Finance DirectorJohn McIvor, Director of Investor Relations and Industry Strategy Financial Dynamics 44 (0)20 7269 7121Andrew LorenzRichard MountainSally Lewis This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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