9th Jul 2007 07:01
Premier Foods plc09 July 2007 9 July 2007 Premier Foods plc ("Premier") Trading update for the six months to 30 June 2007 Integration of Campbell's completed and integration of RHM proceeding to plan.Confident that we will meet our expectations for the full year. Premier, the UK's leading food producer, is providing the following update forthe 6 months ended 30 June 2007. • Integration of Campbell's completed • Integration of RHM on track • Combined annual cost synergies of £113m confirmed • Strong trading in May and June offsetting the effects of the hot April weather • Campbell's sales returned to growth • RHM post acquisition trading in line with expectations • Bread Bakeries impacted by higher wheat prices and competitor activity • Strong plans for the second half across the Group Robert Schofield, Premier's Chief Executive, said: "The first half of 2007 will be seen as a step-change for Premier Foods. Wecompleted the integration of Campbell's, a business one third of our size, inApril, just 8 months after the acquisition and we have already made significantstrides on the integration of RHM. We have confirmed the total annual synergiesfrom both these acquisitions at £113m and remain on track to deliver thecombined £17m of synergies targeted for 2007. Through this, underlying businessperformance has remained steady and whilst cost pressures, particularly wheat,are an issue, we expect to see branded growth across our business in the secondhalf of the year and we remain confident that performance for the full year willmeet our expectations for the Group as a whole." Group summary In the first half of 2007, we have continued to transform our business at pace.We have completed the integration of Campbell's into our infrastructure, closingthe Cambourne office in April. Since the completion of the acquisition of RHMin March, we have already closed the RHM head office, completed ourmanufacturing review and commenced the integration of the Culinary Brandsdivision. We have also confirmed the annual level of cost synergies at £85m, inaddition to the £28m we are on track to deliver from the Campbell's acquisition. Reported sales for the Group for the first half of 2007 will be significantlyhigher than the same period in 2006 due to the acquisitions of Campbell's andRHM. We anticipate that like-for-like sales (ie excluding acquisitions anddisposals made in 2006 and 2007) will be slightly behind last year as a resultof the exit from a number of low margin own label contracts and a high level ofpromotional activity behind our branded beans in the first half of 2006. Thebusiness was particularly impacted by the hot weather in April but the return toa more "normal" British summer has improved performance and we expect to seebranded growth across all our ambient business in the second half as our plansfor Campbell's and RHM take effect. We are delighted by the performance of the Campbell's business where we havearrested the 4% decline in sales seen at the time of acquisition and have movedthe business into growth. As previously indicated, the profitability of theCampbell's business in the year prior to its acquisition was inflated through asignificant reduction in marketing spend. We have returned investment in thebusiness to more normal levels and, as a consequence, trading profit for thefirst 6 months of 2007 will be below that for the comparable period in 2006. As previously indicated, trading profit for RHM for the period from Januarythrough to acquisition was particularly impacted by higher wheat costs andsofter trading in the Culinary Brands division. Trading for RHM following itsacquisition has been in line with our expectations and although the BreadBakeries division continues to be impacted by further increases in wheat pricesand promotional activity by competitors, the Culinary Brands, Cakes and CustomerPartnerships divisions have all traded well since the warm weather in April. Weanticipate that we will need to recover the further increases in wheat prices wehave seen since February through pricing in the coming weeks. As part of our ongoing review of the Group's activities, we have decided todispose of the RHM frozen foods business. This business manufactures primarilyretailer label products in the frozen pies, ready meals and desserts categoriesand is part of the Customer Partnerships division. The major part of our branded launch activity for 2007 falls in the second halfof the year with the launch of Batchelor's into wet soup, the launch of Oxo intoliquid stocks, new seeded varieties of Hovis and further Loyd Grossman rangeextensions. Although growth of our Meat-free business was limited in the firsthalf of 2007 as we put promotional activity on hold whilst we commissioned ournew factory in Methwold, we are now back on promotion and anticipate that salesgrowth will return to former levels. Convenience Foods, Pickles, Sauces and Meat-free Sales for this product group are anticipated to be significantly ahead of thesame period in 2006 due to the acquisition of Campbell's. Like-for-like sales (excluding Campbell's) are anticipated to be slightly behindsales in the first half of 2006 of £225m. The reduction is due to a combinationof lower sales of branded beans compared to the heavily promoted launch periodlast year and lower sales of own label convenience foods. The underlying marketshare performance of Branston beans remains stable and we are pleased by thecontinued strong growth of Branston pickles and relishes and Loyd Grossmancooking sauces. In addition, we have recently won a number of own labelconvenience foods contracts, which will have a positive impact on sales in thesecond half of 2007. We significantly reduced promotional activity behind Quorn and Cauldron whilstwe transferred production to our new facility at Methwold, which temporarilylimited the growth of our Meat-free business during the period. We have incurredadditional costs on this transfer but we anticipate that the investment willprovide us with additional opportunities when the new capacity is fullycommissioned. To facilitate further growth we have also commenced theconstruction of an additional fermentation unit at our Belasis factory at a costof approximately £35m over the next 2 years to support the further significantgrowth that we anticipate from Quorn. We are delighted by the performance of the Campbell's business where we havearrested the 4% decline in sales seen at the time of acquisition and have movedthe business into growth. Spreads, Desserts & Beverages Reported sales for this product group are anticipated to be lower than sales of£141m for the first half of 2006 primarily due to the end of the Cadburychocolate beverages licence in May 2006 and the exit from a number of low marginown label spreads contracts. We are pleased by the continued progress ofHartley's jellies, and our branded spreads and desserts businesses remain ontrack. Bread Bakeries In line with our expectations at the time of acquisition, sales and tradingprofit for the period since acquisition are anticipated to be lower than thecomparable period in 2006 due to the competitor promotional activity being onlypartly offset by price increases. On a pro forma basis, sales for the 6 monthsto 30 June 2007 are anticipated to be in line with the comparable period in 2006as the price increases over this period are expected to offset substantially thecompetitor promotional activity. Pro forma trading profit for the 6 months toJune 2007 will be lower than the same period in 2006 due to further increases inwheat prices through the spring and the impact of the competitor promotionalactivity. We anticipate that we will need to recover the increased wheat coststhrough pricing in the coming weeks. We have planned significant activitybehind Hovis during the second half of the year with TV advertising behind ourmarket-leading "Best of Both" bread and the launch of a new seeded Hovis loaf. Cakes Sales for the Cakes division since acquisition and for the 6 months to 30 June2007 are expected to be ahead of the comparable periods in 2006 with aparticularly strong performance by Mr Kipling. Following a review of the vansales operation in the Cakes division, we have concluded to exit this channeldue to the high costs in servicing customers through this route to market. Thiswill be completed during the second half of the year and will consequentlyreduce sales growth. The resultant cost savings are expected to more thanoffset the lost contribution from these sales. Customer Partnerships Sales for the Customer Partnerships division since acquisition and for the 6months to 30 June 2007 are expected to be broadly in line with the comparableperiods in 2006 due to strong growth by our chilled business being offset by apoor performance by the frozen foods division, which, as indicated above, wehave decided to sell. Culinary Brands Sales for the Culinary Brands division since acquisition and for the 6 months to30 June 2007 are expected to be behind the comparable periods in 2006 as aresult of softer trading in the first 4 months of the year. We are pleased bythe recovery of the Culinary Brands division following the return to coolerweather in May and June. Finance costs The recent interest rate rises have increased our anticipated interest chargefor the year. We have derivative instruments in place which effectively fix theinterest rate on £700m of our debt and cap the interest rate on a further £700mat a LIBOR rate of approximately 6.2%. As a result our exposure to furtherinterest rate rises is limited on this capped element of our debt. RHM integration The integration of RHM is continuing to plan with the closure of the RHM headoffice located in Marlow at the end of June and we remain confident on achieving£85m of annual cost synergies from the combination of Premier and RHM. Weannounced last week the start of consultations with staff on proposals to close6 manufacturing sites, consolidating production into 5 sites to support ourgrowth plans whilst maintaining our continuing drive for enhanced manufacturingefficiency. In addition, we have announced the closure of the Culinary Brands head office inAddlestone and have announced proposals to close the Middlewich administrationcentre. We have completed our review of the Cakes business and have announcedproposals to close the Cakes head office in Windsor in the first half of 2008and integrate the Manor Bakeries business into Premier's operations in StAlbans. We have decided to integrate the Avana Cakes business into the RFBrookes business due to their common supply chain and customer base. We havealso announced new Group-wide structures for the procurement and technicalfunctions. Interim results for the six months ended 30 June 2007 will be announced on 4September 2007. Comparative segmental analysis for the first and second halves of 2006, restatedto reflect the acquisitions of Campbell's and RHM have been placed on ourwebsite at: http://www.premierfoods.co.uk/premierfoodsmain/investor-relations/financial-information-resource-centre/presentations/presentations_home.cfm Enquiries: Premier Foods plc Tel: 01727 815 850 Paul Thomas, Finance Director Gwyn Tyley, Director of Investor Relations Citigate Dewe Rogerson Tel: 020 7638 9571 Michael Berkeley Justin Griffiths Nicola Smith This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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