Premier Foods: Quarter 3 2018-2019 Trading Statement

London / UK. (pf) British Premier Foods PLC released its trading update for the 13 weeks ended 29 December 2018. Gavin Darby, Chief Executive Officer: «Our third quarter of the year saw resilient trading through the key Christmas period in UK Grocery and Branded Sweet Treats with our top 5 brands all growing market share. Our Batchelors brand has now delivered eight consecutive quarters of sales growth and we saw another good performance from Mr Kipling. We faced into two sets of challenges in the quarter – lower International sales and our logistics programme, which as expected, affected cake sales volumes early in the quarter. As we look to the fourth quarter, we expect to see a good performance from Branded Sweet Treats, we have a good innovation plan lined up and our expectations for Trading profit and adjusted eps for the full year are unchanged».

Trading update

Group sales were GBP 255.6 million in the third quarter of the year, GBP 5.8 million lower than the same period a year ago, primarily due to decreased sales of lower margin Non-branded Sweet Treats. Branded sales were +0.2 percent higher in the quarter, while Non-branded sales were (10.3 percent) lower. In the first three quarters of the financial year, Group sales were marginally lower as Branded sales growth of +0.4 percent was offset by lower Non-branded sales.

The Group has grown market share3 in aggregate across its categories during the quarter, with its largest three brands, Mr Kipling, Bisto and Batchelors all notably delivering both volume and value share gains in the period.

In the Grocery business, Batchelors sales were ahead of the same period last year and have now recorded eight consecutive quarters of growth while Nissin Soba noodles grew by over 40 percent in the quarter. Ambrosia returned to revenue growth and grew market share reflecting improved instore execution while Angel Delight sales increased 8 percent as the convenient pots range was expanded to incorporate further new products. Loyd Grossman cooking sauces also returned to growth and as we enter the final quarter of the year, a new range of convenient Pasta Pots and sachets in a variety of flavour variants is about to be launched. Bisto and Oxo both delivered resilient performances through the Christmas period with both benefiting from media advertising.

Mr. Kipling sales continued their strong momentum from previous quarters following the brand relaunch earlier in the year, reporting sales growth of +5 percent in the quarter and +10 percent on a year to date basis. Cadbury cake sales in the UK were also up in the period due to an improved seasonal range and better instore execution. Looking ahead to the next couple of quarters, the Group will launch a range of 30 percent less sugar Mr Kipling Angel and Chocolate slices, new Cadbury Caramel Mini Rolls and a platter of Cadbury Crème Egg cupcakes for Easter.

As previously announced, we expected Sweet Treats sales to be lower in the third quarter and accordingly, Non-branded Sweet Treats sales were (20.7 percent) lower compared to the same period last year. This was due to the business experiencing lower sales volumes as a result of implementation challenges associated with its logistics programme, however customer service levels improved steadily during the quarter. Additionally, the Sweet Treats business exited a number of lower margin seasonal and non-seasonal cake contracts. In the Grocery business, Non-branded sales increased +2.5 percent as contract wins in Stuffing and Cooking sauces were partly offset by lower sales at Knighton Foods.

International sales4 decreased by (27 percent) in the quarter, as the business continued to work through the effects of high stocks of Cadbury cake in the Australian supply chain. Additionally, the Group has implemented price rises to export wholesalers to ensure competitive product pricing across all markets but which resulted in significantly lower volumes in this customer group in the quarter. Excluding these two factors, International sales would have risen 5 percent in the year to date.

Cash exceptional costs are expected to be GBP 6 to 7 million higher in the full year than previously anticipated due to higher than planned implementation costs associated with the logistics transformation programme as described above.

Management update

As previously announced, Gavin Darby, Chief Executive Officer, will leave the Group on 31st January 2019 and the Board’s search process for Gavin’s successor is underway. From 1st February 2019, Alastair Murray, Chief Financial Officer, will assume the role of Acting Chief Executive Officer on a temporary basis, in addition to his existing responsibilities, until a permanent successor is appointed.

Potential disposal update

The Group continues to hold discussions with third parties regarding the potential disposal of its Ambrosia brand and the Board will provide further updates in due course.

Outlook

The Group’s Trading profit and adjusted earnings per share expectations for FY18/19 remain unchanged and Net debt at the year end is expected to be lower than the prior year. The rate of Net debt reduction is likely to be lower than the prior year, as the Company builds raw material and finished goods stock levels to protect against the risk of delays at ports in the absence of certainty over the UK’s departure from the EU. The Company’s target of reducing Net debt/Ebitda to below 3.0x by March 2020 remains unchanged.