TIDMPFD TIDMIRSH
RNS Number : 8942Y
Premier Foods plc
14 May 2019
14 May 2019
Premier Foods plc
Preliminary results for the 52 weeks ended 30 March 2019
Trading profit and Net debt ahead of market expectations
Headline results FY18/19 FY17/18 Change (%)
Revenue (GBPm) 824.3 819.2 +0.6%
Trading profit(1) (GBPm) 128.5 123.0 +4.5%
Adjusted profit before tax(4)
(GBPm) 88.0 78.6 +12.1%
Adjusted earnings per share(7)
(pence) 8.5 7.6 +11.5%
Net debt(9) (GBPm) (469.9) (496.4)
Other measures FY18/19 FY17/18 Change
Operating profit (GBPm) 4.5 69.3 (64.8)
(Loss)/Profit before taxation
(GBPm) (42.7) 20.9 (63.6)
Basic (loss)/earnings per share
(pence) (4.0) 0.9 (4.9)
Financial headlines
====================
-- Full year revenue up +0.6%; Q4 revenue up +3.1%
-- Trading profit growth of +4.5% to GBP128.5m
-- Adjusted profit before tax up +12.1% to GBP88.0m
-- Statutory loss before tax (GBP42.7m); due to GMP pensions
recognition and impairment of intangible assets
-- Statutory loss after tax (GBP33.8m)
-- Net debt GBP469.9m; a GBP26.5m reduction on prior year
-- Net debt/EBITDA(3) reduced to 3.2x
-- Combined pensions surplus GBP373.1m (31 March 2018: GBP317.0m)
Strategic & operational headlines
==================================
-- Mr Kipling revenue growth of +12% following brand relaunch in the UK
-- Strong performances from Ambrosia, Batchelors, Sharwood's and Soba
-- New product innovation remains core to delivery of growth
agenda - launch of new health brand 'Plantastic'
-- International business down (12.5%) impacted by Cadbury cake
overstocks and lower export distributor volumes
-- Logistics transformation programme now complete and performance returned to normal
-- Second successive year of Trading profit & Adjusted
earnings growth and Net debt reduction
-- Strategic review remains ongoing; update to follow in due course
Alastair Murray, Acting Chief Executive Officer
"Premier Foods has delivered consistent progress over the last
two years, growing Revenue, Trading profit, Adjusted earnings and
reducing Net debt. In the last year, Mr Kipling, our largest brand,
grew +12% following its successful brand relaunch in the UK and in
addition Ambrosia, Batchelors, Sharwood's and Soba also displayed
healthy growth. While we saw a decline in International revenue and
experienced significant operational challenges with the final phase
of our logistics transformation programme, our improved structural
resilience still resulted in us growing Trading profit by
4.5%."
"This year we plan to increase investment in both capital
projects and consumer marketing, with up to five of our biggest
brands expected to benefit from TV advertising. We have plans to
launch an exciting new brand, 'Plantastic', using plant- based
ingredients, in response to current consumer trends and we expect
our International business to return to double digit growth in the
coming year. While the first half of FY19/20 is expected to be
slower than last year, reflecting the timing of marketing
investment, we expect to make further progress over the next twelve
months thanks to our continuing pipeline of new product innovation
and strong customer relationships. We remain focused on reducing
our levels of Net debt and expect to deliver a similar level of
debt paydown in the coming year."
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014.
Non-GAAP measures above are defined in the appendices and
reconciled to statutory measures throughout
Net debt/EBITDA is EBITDA on an adjusted basis as defined in the
appendices
Further information
====================
A presentation to investors and analysts will take place today,
14 May 2019, at 9:00am BST. The presentation will be webcast at
www.premierfoods.co.uk/investors/investor-centre. A recording of
the webcast will be available on the Company's website later in the
day.
A conference call for bond investors and analysts will take
place today, 14 May 2019, at 1:30pm BST. Dial in details are
outlined below:
Telephone: 0800 376 7922 (UK toll free)
+44 20 7192 8000 (standard international
Conference ID: access)
6296864
A factsheet of the Preliminary results is available at:
www.premierfoods.co.uk/investors/results-centre
A Premier Foods image gallery is available using the following
link:
www.premierfoods.co.uk/media/image-gallery/
Contacts:
Institutional investors and analysts:
Alastair Murray, Acting Chief Executive Officer +44 (0) 1727 815
and CFO 850
Richard Godden, Director of Investor Relations +44 (0) 1727 815
& Treasury 850
Media enquiries:
+44 (0) 1727 815
Hannah Collyer, Corporate Affairs Director 850
Maitland
Clinton Manning +44 (0) 20 7379
Joanna Davidson 5151
- Ends -
This announcement may contain "forward-looking statements" that
are based on estimates and assumptions and are subject to risks and
uncertainties. Forward-looking statements are all statements other
than statements of historical fact or statements in the present
tense, and can be identified by words such as "targets", "aims",
"aspires", "assumes", "believes", "estimates", "anticipates",
"expects", "intends", "hopes", "may", "would", "should", "could",
"will", "plans", "predicts" and "potential", as well as the
negatives of these terms and other words of similar meaning. Any
forward-looking statements in this announcement are made based upon
Premier Foods' estimates, expectations and beliefs concerning
future events affecting the Group and subject to a number of known
and unknown risks and uncertainties. Such forward-looking
statements are based on numerous assumptions regarding the Premier
Foods Group's present and future business strategies and the
environment in which it will operate, which may prove not to be
accurate. Premier Foods cautions that these forward-looking
statements are not guarantees and that actual results could differ
materially from those expressed or implied in these forward-looking
statements. Undue reliance should, therefore, not be placed on such
forward-looking statements. Any forward-looking statements
contained in this announcement apply only as at the date of this
announcement and are not intended to give any assurance as to
future results. Premier Foods will update this announcement as
required by applicable law, including the Prospectus Rules, the
Listing Rules, the Disclosure and Transparency Rules, London Stock
Exchange and any other applicable law or regulations, but otherwise
expressly disclaims any obligation or undertaking to update or
revise any forward-looking statement, whether as a result of new
information, future developments or otherwise.
Financial results
==================
Revenue
Group revenue (GBPm) Grocery Sweet Treats Group
Branded 498.3 180.9 679.2
Non-branded 98.7 46.4 145.1
-------- ------------- -------
Total 597.0 227.3 824.3
% change
Branded 0.0% +5.3% +1.4%
Non-branded +8.6% (20.3%) (2.7%)
-------- ------------- -------
Total +1.3% (1.2%) +0.6%
Group revenue for the 52 weeks ended 30 March 2019 was
GBP824.3m, up +0.6% compared to the prior year. Branded revenue
grew by +1.4% to GBP679.2m while Non-branded revenue was (2.7%)
lower at GBP145.1m. In the second half of the year, Group revenue
was 0.1% higher than the comparative period. A stronger fourth
quarter saw revenue grow +3.1%, benefitting slightly from Brexit
related stock build by customers and followed a weaker third
quarter when revenue was (2.2%) lower.
Grocery business unit revenues increased by +1.3% in the year to
GBP597.0m; within this branded revenue was flat as strong momentum
in the UK was offset by a softer International performance.
Non-branded revenue increased +8.6% to GBP98.7m. In the Sweet
Treats business, full year revenues were GBP227.3m, a (1.2%)
decrease on the prior year as Branded revenue growth of +5.3% was
offset by Non-branded revenue which was (20.3%) lower.
Sweet Treats
A major contributor to the branded revenue result was due to the
growth of the Group's largest brand, Mr Kipling. At a Group level,
Mr Kipling saw revenue increase by 12%, with UK revenue up 10% and
International markets ahead +48%. In the UK, Mr Kipling benefitted
from a major brand relaunch, including an updated pack design and
brand logo, television advertising, and supported by new product
development such as Unicorn and Flamingo slices. Internationally,
the brand enjoyed particular success in Australia and the USA.
While Cadbury cake sales in the UK were lower due to the timing
effects of Easter and the impact of discontinuing some low margin
product lines, the core portfolio enjoyed good growth.
Looking to FY19/20, the Group is set to launch a premium range
of Mr Kipling 'Signature' cakes with variants such as After Dinner
Mint Fancies and Chocolate, Caramel & Pecan slices. The Group
is also planning to introduce some exciting new lines under Cadbury
cakes in FY19/20. Ranges include new Cadbury cake slices, Oreo
cupcakes and Freddo cupcakes.
Grocery
Batchelors entered the year with strong momentum having
delivered revenue growth of +11% in FY17/18 compared to the prior
year. In FY18/19, Batchelors continued to build on this momentum as
it gained further traction with consumers with its range of
convenient pot products: Super Noodles; Pasta n Sauce, Soup to Go
and Super Rice & Sauce. This pots range continued to deliver
strong growth in the year, increasing both volume and revenue by
over 40%. Nissin Soba Noodles and Cup Noodle products also grew
strongly in the year, up nearly +60% compared to the prior
year.
Angel Delight was another brand in the portfolio which continued
its momentum from the prior year into FY18/19, delivering growth of
15%; building on the popularity of ready to eat pots with
consumers. Elsewhere in the Desserts category, Ambrosia staged a
year of recovery, with growth of 7% in the second half the year,
benefitting from stronger instore activity and execution in major
retail customers.
Sharwood's also saw revenue increase in the year, with growth of
over 7% and as with Mr Kipling, this good progress was replicated
in both UK and International markets. Key to the success in the UK
was excellent instore execution at major retailers during the
second half of the year and especially for the Chinese New Year
event in the fourth quarter of the year. Sharwood's plans for the
coming year include the launch of Sharwood's Rice pots, Curry
pastes and extension of premium cooking sauces in pouches. Loyd
Grossman cooking sauces saw lower sales in the year as it cut back
on low margin promotional activity.
During the Group's second financial quarter of the year, the UK
experienced a prolonged period of hot weather, with average
temperatures in July and August significantly higher than the
equivalent months last year. Consequently, the majority of the
Group's categories - some of which are biased to perform more
strongly in colder weather - saw value declines in both July and
August. Bisto gravy and Ambrosia custard were the branded products
most affected by this temperature pattern during the second
quarter.
The Group is committed to developing 'better for you' choices
across its portfolio. This means providing a meaningful (typically
30%) reduction in sugar, salt, fat or calories; or no added sugar
or salt; or a free from option such as gluten free. Alongside this,
the Group is aiming to increase the proportion of its new product
development which delivers 'better for you' options or which help
consumers improve their diet. One of the Group's key targets in
this area is to remove 1,000 Tonnes of sugar from its portfolio by
the end of 2019.
In FY19/20, the Group plans to launch a fresh new brand
'Plantastic'. Under this exciting new brand, the Group will launch
a cross category range of products using plant-based ingredients,
targeting the growing trend of consumers looking for plant-based
and vegan products. The products are planned for launch during the
course of this financial year in the Desserts, Cake and Soup
categories. In terms of the supply chain, these products will be
sourced from a combination of in-house manufacturing and co
manufacturer partners.
International
The Group's International business did not enjoy the same
universal success during the year as it had in the previous three
years as revenue fell (12.5%). Cadbury cake sales were adversely
affected in the year by elevated stock levels in Australian
customers' supply chains; a situation which has now normalised.
Retail sales of Cadbury cake in Australia, as measured by market
share data, continue to show progress compared to the prior year,
with sales up +8.9%. Including Mr Kipling cake, the Group's share
of branded cake in Australia increased from 6.8% to 7.5% in the
year.
Additionally, price increases implemented for UK wholesalers who
export some of the Group's products also resulted in significantly
lower sales.
Sharwood's and Mr Kipling saw good performances, with increased
revenue outside the UK of +14% and 48% respectively. Much of this
benefit was seen in Australia; Sharwood's enjoyed increased
distribution in customers of the core product range and Mr Kipling
continued to perform well, also growing market share.
Looking ahead to FY19/20, the International business has just
entered two new markets with the launch of both Mr Kipling and
Cadbury cakes in Jamaica and Trinidad & Tobago. The Group also
plans to extend its distribution of Mr Kipling cake in the USA and
Canada and both Mr Kipling and Cadbury cake in South Africa during
FY19/20. Additionally, leveraging the strategic partnership with
Nissin, a range of Sharwood's noodle pots are to be launched in
Australia during the year.
Non-branded
In Non-branded, revenue growth of +8.6% in the Grocery business
was due to contract wins in Cooking sauces, stuffing and noodles
and an improved performance at B2B subsidiary Knighton Foods. In
Sweet Treats, revenue was (20.3%) lower. Following a very strong
set of performances over recent years in Non-branded cake, the
Group exited some lower value Pies and Tarts contracts and saw some
shelf space conceded to branded products which resulted in lower
revenues. Revenue was also heavily impacted by capacity constraints
in the second and third quarters of the year during the final phase
of the Group's logistics transformation programme.
In overall terms, the Group's Non-branded business is one which
plays an important and supportive role and accordingly, there are
some key principles the Group employs. These principles are: to
deploy low levels of capital investment; support the recovery of
manufacturing overheads and apply strict financial hurdles on new
contracts.
Trading profit
GBPm FY18/19 FY17/18 Change
Divisional contribution(2)
Grocery 138.3 130.0 +6.3%
Sweet Treats 23.6 25.8 (8.4%)
-------- -------- -------
Total 161.9 155.8 +3.9%
Group & corporate costs (33.4) (32.8) (1.8%)
-------- -------- -------
Trading profit 128.5 123.0 +4.5%
The Group reported Trading profit of GBP128.5m in the year,
growth of GBP5.5m, up +4.5% compared to FY17/18. Divisional
contribution increased by GBP6.1m to GBP161.9m. The Grocery
business recorded Divisional contribution growth of GBP8.3m to
GBP138.3m while Sweet Treats Divisional contribution was GBP2.2m
lower than the prior year at GBP23.6m. Group & corporate costs
were GBP0.6m higher than the prior year.
In the first half of the year, Grocery Divisional contribution
benefitted from previous changes in the promotional strategy of
Ambrosia. The business reduced the depth of promotional deals it
offered which resulted in lower volumes and revenue in the period
but growth in Divisional contribution. Additionally, Divisional
contribution margins in the Grocery business grew 2.1 percentage
points in the first half compared to the prior year. This is in
line with margins two years ago, whereby margins in the prior year
were impacted by a longer than expected process to recover input
cost inflation seen across the Group's categories.
With recovery of this input cost inflation complete, the second
half of the year saw the benefits of UK Branded revenue growth flow
through to Divisional contribution, partly offset by increased
warehousing and distribution costs.
Consumer marketing investment was slightly lower compared to the
prior year, although the Group expects to significantly increase
its investment in this area in FY19/20 with five of the Group's
major brands to benefit from media advertising in the year.
The results of the International and Knighton business units are
consolidated in the results of the Grocery business unit. Knighton
delivered Divisional contribution improvement in the year and
overall delivered strong progress with its turnaround
programme.
In Sweet Treats, the revenue benefits following the successful
Mr Kipling brand relaunch were offset at the Divisional
contribution level by lower Non-branded sales volumes and
challenges experienced with the Group's logistics transformation
programme. The third and final phase of this programme, the
transfer of Sweet Treats to a new third-party managed warehouse in
Tamworth, completed at the end of the second quarter of the year
but did not initially achieve the required performance. These
issues adversely impacted both sales volume and efficiency in the
second and third quarters, however these issues have now been
resolved and customer service levels returned to normal levels in
the fourth quarter of the year. Further work is now underway to
optimise the cost base in this area.
Operating profit
GBPm FY18/19 FY17/18 Change
Adjusted EBITDA(3) 145.5 139.6 5.9
Depreciation (17.0) (16.6) (0.4)
Trading profit 128.5 123.0 5.5
Amortisation of intangible
assets (34.4) (36.3) 1.9
Fair value movements on
foreign exchange and derivatives (1.3) 0.1 (1.4)
Net interest on pensions
and administrative expenses (1.3) (2.5) 1.2
Non-trading items
GMP equalisation (41.5) - (41.5)
Restructuring costs (16.8) (8.5) (8.3)
Impairment of goodwill
& intangible assets (30.6) (6.5) (24.1)
Other non-trading items 1.9 - 1.9
Operating profit 4.5 69.3 (64.8)
-------- -------- -------
The Group reports an Operating profit of GBP4.5m for FY18/19,
compared to GBP69.3m in the prior year. The growth in Trading
profit of GBP5.5m in the year, as outlined above, was offset by an
impairment of goodwill and intangible assets of GBP30.6m and costs
of GBP41.5m relating to the recognition of Guaranteed Minimum
Payments (GMP) pensions charges.
Amortisation of intangibles was GBP1.9m lower than FY17/18 due
to certain SAP software modules becoming fully amortised in the
year. Fair valuation of foreign exchange and derivatives was a
charge of GBP1.3m in the year.
The Group recognised GBP41.5m of estimated costs in the year
associated with the equalisation of GMP for pension benefits
accrued between 1990 and 1997. This follows a judgment case of
Lloyds Banking Group on 26 October 2018 which referred to the equal
treatment of men and women who contracted out of the State Earnings
Related Pension Scheme between these dates. It should be noted that
the final cost will differ to the estimated cost when the actual
method of equalisation is agreed between the scheme Trustees in due
course. Any future and final adjustment to the cost recognised in
FY18/19 will be reflected in the Consolidated statement of
Comprehensive Income. All UK companies who operated defined benefit
pension schemes during these dates will be affected by this ruling.
Of this GBP41.5m non-cash charge, approximately two thirds relates
to the RHM pension schemes and the balance relates to the Premier
Foods pension schemes.
Restructuring costs were GBP16.8m in the year; an GBP8.3m
increase on the prior year and included c.GBP14m associated with
the consolidation of the Group's logistics operations to one
central location in the year due to higher than anticipated
implementation costs. This programme has now completed and the
Group does not expect to incur any further restructuring costs
associated with this programme. Advisory fees associated with
strategic reviews and corporate activity were also included in
restructuring costs in the year. Other non-trading items of GBP1.9m
refer to a past service pension credit of GBP3.9m due to inflation
increases no longer required in a smaller Irish pension scheme,
partly offset by costs related to the departure of previous CEO
Gavin Darby.
Net interest on pensions and administrative expenses was a
charge of GBP1.3m. Expenses for operating the Group's pension
schemes were GBP10.3m in the year, offset by a net interest credit
of GBP9.0m due to an opening surplus of the Group's combined
pension schemes.
An impairment charge of GBP30.6m was recognised in the year and
related to impairment of Sharwood's and Saxa brand intangible
assets to ensure the carrying value of the brand on the balance
sheet reflects the Group's latest view on brand valuation. The
prior year charge of GBP6.5m was due to write-off of Knighton Foods
goodwill and Lyons' cakes intangible brand asset. Following the
impairment of Sharwood's, amortisation of intangibles is expected
to be lower in FY19/20 at approximately GBP30m.
Finance costs
GBPm FY18/19 FY17/18 Change
Senior secured notes interest 31.7 32.2 0.5
Bank debt interest 5.1 7.2 2.1
36.8 39.4 2.6
Amortisation of debt issuance
costs 3.7 5.0 1.3
-------- -------- -------
Net regular interest(5) 40.5 44.4 3.9
-------- -------- -------
Fair value movements on
interest rate financial
instruments - (0.4) (0.4)
Write-off of financing
costs & early redemption
fees 11.3 4.0 (7.3)
Discount unwind 3.0 (0.4) (3.4)
Other finance income (7.6) - 7.6
Other interest cost - 0.8 0.8
-------- -------- -------
Net finance cost 47.2 48.4 1.2
-------- -------- -------
Net finance cost was GBP47.2m for the year; a decrease of
GBP1.2m on FY17/18. Net regular interest in the year was GBP40.5m,
a decrease of GBP3.9m compared to the prior year. Consistent with
recent years, the largest component of finance costs in the year
was interest due to holders of the Group's senior secured notes,
which was GBP31.7m. The interest on the senior secured notes was
GBP0.5m lower compared to the prior year following the re-financing
of the June 2021 GBP325m fixed rate notes at a coupon of 6.5% to
the October 2023 GBP300m fixed rate notes to the slightly lower
coupon of 6.25%. Bank debt interest of GBP5.1m was GBP2.1m lower in
the year due to lower levels of average debt and a lower margin on
the revolving credit facility following the refinancing completed
in May 2018. Amortisation of debt issuance costs was GBP3.7m,
GBP1.3m lower than the prior year due to lower transaction costs
associated with the issue of the GBP300m 6.25% Fixed rate notes
compared with the retired GBP325m 6.5% Fixed rate notes.
Write-off of financing costs and early redemption fees of
GBP11.3m include a GBP5.7m fee related to the write-off of
transaction costs associated with the senior secured fixed rate
notes due March 2021, which were repaid during the year, and a
GBP5.6m redemption fee associated with the early call of the March
2021 bond. In the prior year, a GBP0.4m discount unwind credit
relating to long term property provisions held by the Group due to
an increase in gilt yields was reflected in reported Net finance
cost. In FY18/19, a discount unwind charge of GBP3.0m was included
in the Net finance cost of GBP47.2m.
Other interest income of GBP7.6m in the year relates to monies
received from the Group's associate Hovis Holdings Limited
("Hovis") and reflects the reversal of a previous impairment.
Taxation
GBPm FY18/19 FY17/18 Change
Overseas current tax
* Current year 1.1 0.8 0.3
Deferred tax
* Current period 6.1 (4.1) 10.2
* Prior periods 1.7 (8.1) 9.8
* Adjustment to restate opening deferred tax at 17.0% - (2.3) 2.3
Income tax credit/(charge) 8.9 (13.7) 22.6
-------- -------- -------
A tax credit of GBP8.9m in the year compared to a GBP13.7m
charge in the prior year. This included a deferred tax credit in
the current year of GBP6.1m largely reflecting the loss before tax
reported of GBP42.7m and a credit of GBP1.7m relating to the
adjustment of prior period losses and capital allowances. A current
year tax credit of GBP1.1m was in respect of overseas tax.
A deferred tax liability at 30 March 2019 of GBP13.5m compared
to a liability of GBP12.1m at 31 March 2018. This movement is
primarily due to a slightly higher pensions surplus reported at 30
March 2019 compared to 31 March 2018 reflecting the allowability
for tax on pensions contribution payments. Recognised and
unrecognised deferred tax assets relating to brought forward losses
were approximately GBP44m at 30 March 2019 and equate to around
GBP250m of future taxable profits.
The corporation tax rate and deferred tax rate applied in
calculations are 19.0% and 17.0% respectively.
Earnings per share
Earnings per share (GBPm) FY18/19 FY17/18 Change
Operating profit 4.5 69.3 (64.8)
Net finance cost (47.2) (48.4) 1.2
Loss before taxation (42.7) 20.9 (63.6)
Taxation 8.9 (13.7) 22.6
-------- -------- -------
(Loss)/Profit after taxation (33.8) 7.2 (41.0)
Average shares in issue 841.5 836.8 (4.7)
-------- -------- -------
Basic (loss)/earnings per
share (pence) (4.0) 0.9 (4.9)
The Group reported a loss before tax of GBP(42.7)m in the year,
compared to a profit before tax of GBP20.9m in FY17/18. A loss
after tax was GBP(33.8)m, compared to a GBP7.2m profit in the prior
year.
Adjusted earnings per share FY18/19 FY17/18 Change
(GBPm)
Trading profit 128.5 123.0 +4.5%
Less: Net regular interest (40.5) (44.4) +8.9%
-------- -------- --------
Adjusted profit before
tax 88.0 78.6 +12.1%
Less: Notional tax (19%) (16.7) (14.9) (12.1%)
-------- -------- --------
Adjusted profit after tax(6) 71.3 63.7 +12.1%
Average shares in issue
(millions) 841.5 836.8 +0.6%
Adjusted earnings per share
(pence) 8.5 7.6 +11.5%
Adjusted profit before tax was GBP88.0m in the year, an increase
of GBP9.4m compared to the prior year due to growth both in Trading
profit and lower interest costs as described above. Adjusted profit
after tax increased GBP7.6m to GBP71.3m in the year after deducting
a notional 19.0% tax charge of GBP16.7m. Based on average shares in
issue of 841.5 million shares, adjusted earnings per share in the
year was 8.5p, growth in the year of +11.5%.
Free cash flow
GBPm FY18/19 FY17/18
Trading profit 128.5 123.0
Depreciation 17.0 16.6
Other non-cash items 2.4 2.8
Interest (30.1) (38.0)
Taxation - 1.0
Pension contributions (41.9) (39.8)
Capital expenditure (17.7) (19.2)
Working capital & other (7.7) (0.6)
Restructuring costs (18.1) (12.5)
Proceeds from share issue 1.4 1.2
Sale of property, plant & equipment - 1.3
Hovis repayment of loan note 7.6 -
Financing fees (12.2) (7.0)
--------
Free cash flow(10) 29.2 28.8
--------
Statutory cash flow statement
Cash generated from operating activities 57.7 52.4
Cash used in investing activities (17.7) (17.9)
Cash (used in)/generated from financing
activities (35.8) 7.2
-------- --------
Net increase in cash & cash equivalents 4.2 41.7
-------- --------
The Group reported an inflow of Free cash in the period of
GBP29.2m. Trading profit of GBP128.5m was GBP5.5m ahead of the
prior year for the reasons outlined above, while depreciation of
GBP17.0m was slightly higher than FY17/18. Other non-cash items of
GBP2.4m was predominantly due to share based payments.
Net interest paid was GBP7.9m lower in the year at GBP30.1m
reflecting the timing of interest payable on the GBP300m fixed rate
notes due October 2023 which were issued in the first half of the
year. This is a one-off benefit to cash interest paid; in FY19/20
cash interest is expected to be in the range of GBP35-39 million.
No taxation was paid in the period due to the availability of
brought forward losses and capital allowances, however a payment of
GBP1.0m was received in the prior period from Irish tax authorities
in respect of tax paid in prior years.
Pension contributions in the year were GBP41.9m, in line with
expectations, and GBP2.1m higher than the prior year. Pension
deficit contributions payments made to the Premier Foods pension
schemes of GBP34.9m were the largest component of cash paid in the
year; the balance being expenses connected to administering both
the RHM and Premier Foods schemes and government levies. Pension
deficit contribution payments in FY19/20 are expected to be GBP37m
and administration and government levy costs approximately
GBP6-8m.
Capital expenditure was GBP17.7m in the year, GBP1.5m lower than
the prior year. In FY19/20, the Group expects to increase its
capital expenditure to c.GBP25m to fund investment in both growth
projects supporting the Group's innovation strategy and cost
release projects to deliver efficiency savings. For example, the
Group is investing in one of its lines at its Stoke cake
manufacturing site which will provide enhanced and varied product
innovation capabilities.
Working capital investment was GBP7.7m in the year compared to
GBP0.6m in FY17/18. Part of this movement reflected higher stock
levels in anticipation of the original planned date to leave the
European Union to protect the Company against the risk of delays at
ports.
Restructuring costs were GBP18.1m compared to GBP12.5m in the
comparative period. These were predominantly associated with
implementation costs of the Group's logistics transformation
programme and also advisory costs connected with the potential
disposal of the Ambrosia brand which has since concluded.
Financing fees of GBP12.2m relate to costs associated with the
extension of the Group's revolving credit facility and the issue of
new GBP300m Senior secured fixed rate notes early in the financial
year. This comprised GBP5.6m due to the early redemption of
previously issued fixed rate notes due March 2021 and GBP6.6m of
other fees associated with the issue of the new fixed rate notes
and extension of the Group's revolving credit facility.
The Group received a partial repayment of its loan note and
associated interest from Hovis of GBP7.6m in the year. There is the
possibility of the Group receiving a second tranche during
FY19/20.
On a statutory basis, cash generated from operations was
GBP80.2m compared to GBP89.4m in FY17/18. Cash generated from
operating activities was GBP57.7m in the year after deducting net
interest paid of GBP22.5m, which includes the partial repayment of
the loan note from Hovis as described above. Cash used in investing
activities was GBP17.7m in FY18/19 compared to GBP17.9m in the
prior year. Cash used in financing activities was GBP35.8m in the
year versus GBP7.2m cash generated in FY17/18. This was due to the
repayment of the GBP325m fixed rate notes due March 2021, partly
offset by proceeds received from the issue of GBP300m floating rate
notes due October 2023 and the payment of financing fees as
described above.
At 30 March 2019, the Group held cash and bank deposits of
GBP27.8m compared to GBP23.6m at 31 March 2018 and the Group's
revolving credit facility was undrawn.
Net debt and sources of finance
GBPm
Net debt at 31 March 2018 496.4
Free cash inflow in period (29.2)
Movement in debt issuance costs 2.7
-------
Net debt at 30 March 2019 469.9
-------
Adjusted EBITDA 145.5
Net debt / EBITDA 3.23x
Net debt at 30 March 2019 was GBP469.9m; a GBP26.5m reduction
compared to the prior year. The Group has now successively reduced
its Net debt every year since 2008 and its Net debt to EBITDA ratio
of 3.23x is the lowest for many years. The movement in debt
issuance costs in the year was GBP2.7m.
During the year, the Group extended the term of its revolving
credit facility with its lending syndicate from December 2020 to
December 2022, subject to a future refinancing of the Group's
GBP210m Floating rate notes. The total facility was reduced from
GBP217.0m to GBP176.6m in June 2018 and was undrawn at 30 March
2019.
The Group also completed the issuance of new five year GBP300m
Senior Secured fixed rate notes due October 2023, at a coupon of
6.25% during the year. These new notes replaced the Group's GBP325m
Senior Secured fixed rate notes, previously due to mature March
2021, and which attracted an interest coupon of 6.5%.
Pensions
The IAS 19 pension schemes valuation reported a surplus for the
combined RHM and Premier Foods' pension schemes at 30 March 2019 of
GBP373.1m, GBP56.1m higher than 31 March 2018 and equivalent to
GBP309.7m net of a deferred tax charge of 17.0%. A deferred tax
rate of 17.0% is deducted from the IAS19 retirement benefit
valuation of the Group's schemes to reflect the fact that pension
deficit contributions made to the Group's pension schemes are
allowable for tax. An increase in the RHM surplus of GBP83.8m to
GBP837.8m was partly offset by an increase in the deficit of the
Premier Foods' schemes deficit of GBP27.7m to GBP464.7m.
IAS 19 Accounting 30 March 2019 31 March 2018
Valuation (GBPm)
RHM Premier Combined RHM Premier Combined
Foods Foods
Assets 4,333.6 707.1 5,040.7 4,184.5 679.1 4,863.6
Liabilities (3,495.8) (1,171.8) (4,667.6) (3,430.5) (1,116.1) (4,546.6)
---------- ---------- ---------- ----------
Surplus/(Deficit) 837.8 (464.7) 373.1 754.0 (437.0) 317.0
Net of deferred
tax (17.0%) 695.4 (385.7) 309.7 625.8 (362.7) 263.1
Assets in the combined schemes increased by GBP177.1m to
GBP5,040.7m in the period. RHM scheme assets increased by GBP149.1m
to GBP4,333.6m while the Premier Foods' schemes assets increased by
GBP28.0m to GBP707.1m. The most significant movement by asset class
is that of Government bonds which increased by GBP444.0m in the
year, predominantly in the RHM scheme.
Liabilities in the combined schemes increased by GBP121.0m in
the year to GBP4,667.6m. The value of liabilities associated with
the RHM scheme were GBP3,495.8m, an increase of GBP65.3m while
liabilities in the Premier Foods schemes were GBP55.7m higher at
GBP1,171.8m. The increase in the value of liabilities in both
schemes is due to a lower discount rate assumption of 2.45% (31
March 2018: 2.70%) and an increase in the RPI inflation rate
assumption; from 3.15% to 3.25%.
The Group's Pension Trustees have just commenced the Triennial
actuarial valuation process of the Group's pension schemes as at 31
March 2019 (RHM schemes) and 5 April 2019 (Premier Foods main
scheme). This exercise typically takes a number of months to
conclude; the output of which will be provided in due course.
Combined pensions schemes 30 March 2019 31 March 2018
(GBPm)
Assets
Equities 179.5 296.5
Government bonds 1,490.4 1,046.4
Corporate bonds 26.9 20.7
Property 436.5 391.0
Absolute return products 1,141.2 1,323.3
Cash 38.1 32.4
Infrastructure funds 256.1 254.6
Swaps 556.4 715.3
Private equity 446.1 344.0
Other 469.5 439.4
-------------- --------------
Total Assets 5,040.7 4,863.6
Liabilities
Discount rate 2.45% 2.70%
Inflation rate (RPI/CPI) 3.25%/2.15% 3.15%/2.05%
The net present value of future deficit payments, to the end of
the respective recovery periods remains at c.GBP300-320m.
IFRS 16 - Leases
=================
A new accounting standard, IFRS 16 - Leases, came into effect
for accounting periods commencing on or after 1 January 2019,
replacing the previous standard, IAS 17. Accordingly, the first
accounting period that the Group will adopt IFRS 16 will be for the
52 weeks ending 28 March 2020, including Interim results for the 26
weeks ending 28 September 2019.
Under IFRS 16, the key test for a lease is to assess the
recognition of right of use of an identified asset. Typically, this
will result in the majority of the Group's operating leases now to
be held on the Balance Sheet, whereas under IAS 17 that was not
universally the case. Provisions for long term non-operational
lease will now be shown as lease liabilities.
It is important to note that while there is no economic or cash
impact to the Group as a result of this accounting standard change,
certain disclosures such as Net debt will be impacted. The Group
has elected to transition to IFRS 16 using the Modified
Retrospective Approach, and as such, comparatives will not be
re-stated at 28 March 2020. However, to assist in understanding the
impact of IFRS 16 on the Group's summary results for FY18/19, Net
debt would have been approximately GBP20m higher than that reported
and outlined above. It should be noted that in future years, there
may be a degree of volatility in the value of assets and
liabilities recognised with respect to leases, reflecting the
timing of lease renewals and any fluctuations to discount
rates.
Outlook
========
The Group's strategy is to improve operating performance through
driving profitable revenue growth and delivering cost efficiencies
to generate cash. The Group has delivered consistent progress over
the last two years, both in increasing its Adjusted earnings and
reducing Net debt. The Board recognises there remains much work
still to do, and the outcome of its strategic review will be
outlined in due course.
In the coming year, the Group plans to increase both capital
investment and consumer marketing, with up to five of its largest
brands expected to benefit from media advertising over the next
twelve months. The Group is now demonstrating more consistent
delivery of its innovation strategy and is becoming ever more
resilient. The International business is expected to return to
double-digit revenue growth in FY19/20. The Group continues to
focus on reducing Net debt and expects to deliver a similar level
of debt paydown in FY19/20 as it did in FY18/19. While the first
half of this year is expected to start slowly, reflecting the
timing of consumer marketing investment, the Group anticipates that
with its encouraging new product innovation programme and strong
customer relationships, it will make further progress in the
year.
Alastair Murray
Acting Chief Executive Officer and Chief Financial Officer
Appendices
===========
The Company's Preliminary results are presented for the 52 weeks
ended 30 March 2019 and the comparative period, 52 weeks ended 31
March 2018. All references to the 'quarter', unless otherwise
stated, are for the 13 weeks ended 30 March 2019 and the
comparative period, 13 weeks ended 31 March 2018.
Quarter 4 Sales
================
Q4 Sales (GBPm) Grocery Sweet Treats Group
Branded 135.0 45.5 180.5
Non-branded 25.5 4.7 30.2
-------- ------------- -------
Total 160.5 50.2 210.7
% change
Branded +4.2% +4.2% +4.2%
Non-branded +6.4% (35.2%) (3.3%)
-------- ------------- -------
Total +4.6% (1.4%) +3.1%
Notes and definitions of non-GAAP measures
===========================================
The Company uses a number of non-GAAP measures to measure and
assess the financial performance of the business. The Directors
believe that these non-GAAP measures assist in providing additional
useful information on the underlying trends, performance and
position of the Group. These non-GAAP measures are used by the
Group for reporting and planning purposes and it considers them to
be helpful indicators for investors to assist them in assessing the
strategic progress of the Group.
1. Trading profit is defined as profit/(loss) before tax before
net finance costs, amortisation of intangible assets, non-trading
items, fair value movements on foreign exchange and other
derivative contracts, and net interest on pensions and
administration expenses.
2. Divisional contribution refers to Gross Profit less selling,
distribution and marketing expenses directly attributable to the
relevant business unit.
3. Adjusted EBITDA is Trading profit as defined in (1) above excluding depreciation.
4. Adjusted profit before tax is Trading profit as defined in
(1) above less net regular interest.
5. Net regular interest is defined as net finance cost after
excluding write-off of financing costs, other finance income, early
redemption fee, fair value movements on interest rate financial
instruments and other interest payable.
6. Adjusted profit after tax is Adjusted profit before tax as
defined in (4) above less a notional tax charge of 19.0% (2017/18:
19.0%).
7. Adjusted earnings per share is Adjusted profit after tax as
defined in (6) above divided by the weighted average of the number
of shares of 841.5 million (52 weeks ended 31 March 2018: 836.8
million).
8. International sales remove the impact of foreign currency
fluctuations and adjusts prior year sales to ensure comparability
in geographic market destinations. The constant currency
calculation is made by adjusting the current year's sales to the
same exchange rate as the prior year.
9. Net debt is defined as total borrowings, less cash and cash
equivalents and less capitalised debt issuance costs.
10. Free cash flow is defined as the change in Net debt as
defined in (9) above before the movement in debt issuance
costs.
Additional notes:
-- The Directors believe that users of the financial statements
are most interested in underlying trading performance and cash
generation of the Group. As such intangible asset amortisation and
impairment are excluded from Trading profit because they are
non-cash items.
-- GMP equalisation charge has been excluded from Trading profit
because it is a one-off material item not related to underlying
trading performance of the Group.
-- Restructuring costs have been excluded from Trading profit
because they are incremental costs incurred as part of specific
initiatives that may distort a user's view of underlying trading
performance.
-- Net regular interest is used to present the interest charge
related to the Group's ongoing financial indebtedness, and
therefore excludes non-cash items and other credits/charges which
are included in the Group's net finance cost.
-- Group & corporate costs refer to group and corporate
expenses which are not directly attributable to a business unit and
are reported at total Group level.
-- In line with accounting standards, the International and
Knighton business units, the results of which are aggregated within
the Grocery business unit, are not required to be separately
disclosed for reporting purposes.
GBPm Future pension cash payments schedule
2019/20 2020/21 2021/22 2022/23
Deficit contributions 37 38 38 38
Administration
costs 6-8 8-10 8-10 8-10
----------- ----------- ----------- -----------
Total 43-45 46-48 46-48 46-48
----------- ----------- ----------- -----------
Consolidated statement of profit or loss
52 weeks 52 weeks
ended ended
30 Mar 31 Mar
2019 2018
Note GBPm GBPm
------------------------------------------------ ----- --------- ---------
Revenue 3 824.3 819.2
Cost of sales (542.6) (547.5)
------------------------------------------------ ----- --------- ---------
Gross profit 281.7 271.7
Selling, marketing and distribution costs (119.8) (115.9)
Administrative costs (157.4) (86.5)
------------------------------------------------ ----- --------- ---------
Operating profit 3 4.5 69.3
Finance cost 4 (56.7) (50.4)
Finance income 4 9.5 2.0
------------------------------------------------ ----- --------- ---------
(Loss)/profit before taxation (42.7) 20.9
Taxation credit/(charge) 5 8.9 (13.7)
(Loss)/profit for the period attributable to owners
of the parent (33.8) 7.2
------------------------------------------------------- --------- ---------
Basic (loss)/earnings per share
From (loss)/profit for the period (pence) 6 (4.0) 0.9
------------------------------------------------ ----- --------- ---------
Diluted (loss)/earnings per share
From (loss)/profit for the period (pence) 6 (4.0) 0.9
------------------------------------------------ ----- --------- ---------
Adjusted earnings per share(1)
From adjusted (loss)/profit for the period
(pence) 6 8.5 7.6
------------------------------------------------ ----- --------- ---------
(1) Adjusted earnings per share is defined as trading profit less
net regular interest, less a notional tax charge at 19.0% (2017/18:
19.0%) divided by the weighted average number of ordinary shares
of the Company.
Consolidated statement of comprehensive
income
52 weeks ended 52 weeks ended
30 Mar 2019 31 Mar
2018
Note GBPm GBPm
------------------------------------------- ----- --------------- ---------------
(Loss)/profit for the period (33.8) 7.2
Other comprehensive income, net of tax
Items that will never be reclassified
to profit or loss
Remeasurements of defined benefit schemes 10 53.2 174.8
Deferred tax charge 5 (9.1) (29.7)
Items that are or may be reclassified
to profit or loss
Exchange differences on translation (0.2) 0.5
---------------
Other comprehensive income, net of tax 43.9 145.6
------------------------------------------- ----- --------------- ---------------
Total comprehensive income attributable
to owners of the parent 10.1 152.8
------------------------------------------- ----- --------------- ---------------
Consolidated balance sheet
As at As at
30 Mar 31 Mar
2019 2018
Note GBPm GBPm
----------------------------------------------- ----- ---------- ----------
ASSETS:
Non-current assets
Property, plant and equipment 186.0 185.2
Goodwill 646.0 646.0
Other intangible assets 7 366.4 428.4
Net retirement benefit assets 10 837.8 754.0
2,036.2 2,013.6
Current assets
Inventories 77.8 76.4
Trade and other receivables 89.2 74.8
Cash and cash equivalents 12 27.8 23.6
Derivative financial instruments - 0.1
194.8 174.9
----------------------------------------------- ----- ---------- ----------
Total assets 2,231.0 2,188.5
----------------------------------------------- ----- ---------- ----------
LIABILITIES:
Current liabilities
Trade and other payables (238.0) (214.4)
Financial liabilities
- derivative financial instruments (1.6) (2.1)
Provisions for liabilities and charges 9 (9.7) (7.9)
(249.3) (224.4)
Non-current liabilities
Financial liabilities - long term borrowings 8 (497.7) (520.0)
Net retirement benefit obligations 10 (464.7) (437.0)
Provisions for liabilities and charges 9 (32.4) (35.7)
Deferred tax liabilities 5 (13.5) (12.1)
Other liabilities 11 (10.6) (10.0)
(1,018.9) (1,014.8)
----------------------------------------------- ----- ---------- ----------
Total liabilities (1,268.2) (1,239.2)
----------------------------------------------- ----- ---------- ----------
Net assets 962.8 949.3
----------------------------------------------- ----- ---------- ----------
EQUITY:
Capital and reserves
Share capital 84.5 84.1
Share premium 1,408.6 1,407.6
Merger reserve 351.7 351.7
Other reserves (9.3) (9.3)
Profit and loss reserve (872.7) (884.8)
----------------------------------------------- ----------
Total equity 962.8 949.3
----------------------------------------------- ----- ---------- ----------
Consolidated statement of cash flows
52 weeks ended 52 weeks ended
30 Mar 2019 31 Mar 2018
Note GBPm GBPm
-------------------------------------------- ----- --------------- ---------------
Cash generated from operations 12 80.2 89.4
Interest paid (32.0) (39.6)
Interest received 1.9 1.6
Other finance income 7.6 -
Taxation received - 1.0
-------------------------------------------- ----- --------------- ---------------
Cash generated from operating activities 57.7 52.4
Purchases of property, plant and equipment (14.3) (15.8)
Purchases of intangible assets (3.4) (3.4)
Sale of property, plant and equipment - 1.3
-------------------------------------------- ----- --------------- ---------------
Cash used in investing activities (17.7) (17.9)
Repayment of borrowings (325.0) (197.0)
Proceeds from borrowings 300.0 210.0
Financing fees (12.2) (7.0)
Proceeds from share issue 1.4 1.2
-------------------------------------------- ----- --------------- ---------------
Cash (used) in/generated from financing
activities (35.8) 7.2
Net increase in cash and cash equivalents 4.2 41.7
Cash, cash equivalents and bank overdrafts
at beginning of period 23.6 (18.1)
-------------------------------------------- ----- --------------- ---------------
Cash, cash equivalents and bank overdrafts
at end of period 12 27.8 23.6
-------------------------------------------- ----- --------------- ---------------
Consolidated statement of changes in equity
Note Share Share Merger Other Profit Total
capital premium reserve reserves and loss equity
reserve
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ----- --------- --------- --------- ---------- ---------- --------
At 2 April 2017 83.3 1,406.7 351.7 (9.3) (1,039.6) 792.8
Profit for the period - - - - 7.2 7.2
Remeasurements of defined
benefit schemes 10 - - - - 174.8 174.8
Deferred tax charge 5 - - - - (29.7) (29.7)
Exchange differences on
translation - - - - 0.5 0.5
Other comprehensive income - - - - 145.6 145.6
---------------------------- ----- --------- --------- --------- ---------- ---------- --------
Total comprehensive income - - - - 152.8 152.8
Shares issued 0.8 0.9 - - - 1.7
Share-based payments - - - - 2.8 2.8
Adjustment for issue of
share options - - - - (0.5) (0.5)
Deferred tax movements
on share-based payments 5 - - - - (0.3) (0.3)
At 31 March 2018 84.1 1,407.6 351.7 (9.3) (884.8) 949.3
---------------------------- ----- --------- --------- --------- ---------- ---------- --------
At 1 April 2018 84.1 1,407.6 351.7 (9.3) (884.8) 949.3
Loss for the period - - - - (33.8) (33.8)
Remeasurements of defined
benefit schemes 10 - - - - 53.2 53.2
Deferred tax charge 5 - - - - (9.1) (9.1)
Exchange differences on
translation - - - - (0.2) (0.2)
Other comprehensive income - - - - 43.9 43.9
---------------------------- ----- --------- --------- --------- ---------- ---------- --------
Total comprehensive income - - - - 10.1 10.1
Shares issued 0.4 1.0 - - - 1.4
Share-based payments - - - - 2.1 2.1
Deferred tax movements
on share-based payments 5 - - - - (0.1) (0.1)
At 30 March 2019 84.5 1,408.6 351.7 (9.3) (872.7) 962.8
---------------------------- ----- --------- --------- --------- ---------- ---------- --------
1. General information
The financial information included in this preliminary
announcement does not constitute the Company's statutory accounts
for the 52 weeks ended 30 March 2019 and 31 March 2018, but is
derived from those accounts. Statutory accounts for the 52 weeks
ended 31 March 2018 have been delivered to the registrar of
companies, and those for 52 weeks ended 30 March 2019 will be
delivered in due course. The auditor has reported on those
accounts; their reports were (i) unqualified, (ii) did not include
a reference to any matters to which the auditor drew attention to
by way of emphasis without qualifying their report, and (iii) did
not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
The consolidated financial statements of the Company have been
prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the European Union (EU) ("adopted
IFRS") in response to IAS regulation (EC1606/2002), related
interpretations and the Companies Act 2006 applicable to companies
reporting under IFRS, and on the historical cost basis, with the
exception of derivative financial instruments which are
incorporated using fair value.
Basis for preparation of financial statements on a going concern
basis
The Group's revolving credit facility includes net debt/EBITDA
and EBITDA/interest covenants. In the event these covenants are not
met then the Group would be in breach of its financing agreement
and, as would be the case in any covenant breach, the banking
syndicate could withdraw funding to the Group. The Group was in
compliance with its covenant tests as at 29 September 2018 and 30
March 2019. The Group's forecasts, taking into account reasonably
possible changes in trading performance, show that the Group
expects to be able to operate within the level of its current
facilities including covenant tests. Notwithstanding the net
current liabilities position of the Group, the directors have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for the next 12 months. The Group
therefore continues to adopt the going concern basis in preparing
its consolidated financial statements
2. Critical accounting policies, estimates and judgements
The following are areas of particular significance to the
Group's financial statements and may include the use of estimates,
which is fundamental to the compilation of a set of financial
statements. Results may differ from actual amounts.
Critical accounting policies
The following are considered to the critical accounting policies
within the financial statements:
2.1 Deferred tax
Deferred tax arises due to certain temporary differences between
the carrying amounts of assets and liabilities for financial
reporting purposes and those for taxation purposes. The Group has a
significant losses related to prior periods. The deferred tax
assets and liabilities on a gross basis are material to the
financial statements.
Deferred tax is measured at the tax rates that are expected to
apply in the periods in which the asset or liability is settled
based on tax rates (and tax laws) that have been enacted or
substantively enacted as at the balance sheet date.
For the purpose of recognising deferred tax on the pension
scheme surplus, withholding tax (at 35%) would apply for any
surplus being refunded to the Group at the end of the life of the
scheme. Corporation tax (at 17%) would apply for any surplus
expected to unwind over the life of the scheme.
The directors have concluded that the corporation tax rate
should apply to the recognition of deferred tax on the pension
scheme surplus, reflecting the directors' intention regarding the
manner of recovery of the asset.
Deferred tax is recognised in the statement of profit or loss
except when it relates to items credited or charged directly to
OCI, in which case the deferred tax is also recognised in
equity.
When calculating the value of the deferred tax asset or
liability, consideration is given to the size of gross deferred tax
liabilities and deferred tax assets available to offset this. To
the extent that deferred tax assets exceed liabilities, estimation
is required around the level of asset that can be supported. The
following factors are taken into consideration.
- Historic business performance
- Projected profits or losses and other relevant information
that allow profits chargeable to corporation tax to be derived
- The total level of recognised and unrecognised losses that can
be used to reduce future forecast taxable profits
- The period over which there is sufficient certainty that
profits can be made that would support the recognition of an
asset
Further disclosures are contained within note 5.
Estimates
The following are considered to be the key estimates within the
financial statements:
2.2 Employee benefits
The present value of the Group's defined benefit pension
obligations depends on a number of actuarial assumptions. The
primary assumptions used include the discount rate applicable to
scheme liabilities, the long-term rate of inflation and estimates
of the mortality applicable to scheme members. Each of the
underlying assumptions is set out in more detail in note 10.
At each reporting date, and on a continuous basis, the Group
reviews the macro-economic, Company and scheme specific factors
influencing each of these assumptions, using professional advice,
in order to record the Group's ongoing commitment and obligation to
defined benefit schemes in accordance with IAS 19 (Revised).
Equalisation of Guaranteed Minimum Pension benefits ("GMP") has
been estimated taking the minimum cost approach permitted by the
Lloyds Judgment. The costs are based on a comparison of the
cumulative value of members' benefits with the benefits of a
notional member of the opposite sex. This is method C2 under the
terminology of the Lloyds Judgment, more detail on GMP is included
in note 10.
Plan assets of the defined benefit schemes include a number of
assets for which quoted prices are not available. At each reporting
date, the Group determines the fair value of these assets with
reference to most recently available asset statements from fund
managers.
Where statements are not available at the reporting date a roll
forward of cash transactions between statement date and balance
sheet date is performed.
2.3 Goodwill and other intangible assets
Impairment reviews in respect of goodwill are performed annually
unless an event indicates that an impairment review is necessary.
Impairment reviews in respect of intangible assets are performed
when an event indicates that an impairment review is necessary.
Examples of such triggering events include a significant planned
restructuring, a major change in market conditions or technology,
expectations of future operating losses, or a significant reduction
in cash flows. In performing its impairment analysis, the Group
takes into consideration these indicators including the difference
between its market capitalisation and net assets.
The Group has considered the impact of the assumptions used on
the calculations and has conducted sensitivity analysis on the
value in use calculations of the CGUs carrying values for the
purposes of testing goodwill.
If the Group concludes that an impairment review is necessary in
respect of intangible brand assets, an analysis of value in use and
fair value less costs to sell is performed. When assessing fair
value less costs to sell, the Group considers the royalty that
would otherwise be payable if the brand were licenced over the life
of the brand and compares this to the carrying value and also an
EBITDA multiple approach. Key assumptions include the level of
royalty and EBITDA multiple.
2.4 Commercial arrangements
Sales rebates and discounts are accrued on each relevant
promotion or customer agreement and are charged to the statement of
profit or loss at the time of the relevant promotional buy-in as a
deduction from revenue. Accruals for each individual promotion or
rebate arrangement are based on the type and length of promotion
and nature of customer agreement. At the time an accrual is made
the nature, funding level and timing of the promotion is typically
known. Areas of estimation are sales volume/activity, phasing and
the amount of product sold on promotion.
For short term promotions, the Group performs a true up of
estimates where necessary on a monthly basis, using real time
customer sales information where possible and finally on receipt of
a customer claim which typically follows 1-2 months after the end
of a promotion. For longer term discounts and rebates the Group
uses actual and forecast sales to estimate the level of rebate.
These accruals are updated monthly based on latest actual and
forecast sales.
2.5 Inventory valuation
Management has used estimation in the valuation of finished
goods taking into account shelf life, inventory turnover and
condition of inventory held at the period end. Consideration is
given to the shelf life of the inventory and any customer
agreements that specify an expected remaining shelf life of each
product.
Judgements
The following are considered to be the key judgements within the
financial statements:
2.6 Non-trading items
Non-trading items have been presented separately throughout the
financial statements. These are items that management believes
require separate disclosure by virtue of their nature in order that
the users of the financial statements obtain a clear and consistent
view of the Group's underlying trading performance. In identifying
non-trading items, management have applied judgement including
whether i) the item is related to underlying trading of the Group;
and/or ii) how often the item is expected to occur.
The Directors believe that users of the financial statements are
most interested in underlying trading performance and cash
generation of the Group. As such intangible asset amortisation and
impairment are excluded from trading profit because they are
non-cash items.
The GMP equalisation charge has been excluded from trading
profit because it is a one-off material item not related to
underlying trading performance of the Group.
Restructuring costs have been excluded from trading profit
because they are incremental costs incurred as part of specific
initiatives that may distort a user's view of underlying trading
performance.
Net regular interest is used to present the interest charge
related to the Group's ongoing financial indebtedness, and
therefore excludes non-cash items and other credits/charges which
are included in the Group's net finance cost.
3. Segmental analysis
IFRS 8 requires operating segments to be determined based on the
Group's internal reporting to the Chief Operating Decision Maker
("CODM"). The CODM has been determined to be the Executive
Leadership Team as it is primarily responsible for the allocation
of resources to segments and the assessment of performance of the
segments.
The Group's operating segments are defined as "Grocery", "Sweet
Treats", "International" and "Knighton". The Grocery segment
primarily sells savoury ambient food products and the Sweet Treats
segment sells sweet ambient food products. The International and
Knighton segments have been aggregated within the Grocery segment
for reporting purposes as revenue is below 10 percent of the
Group's total revenue and the segments are considered to have
similar characteristics to that of Grocery. This is in accordance
with the criteria set out in IFRS 8.
The CODM uses Divisional contribution as the key measure of the
segments' results. Divisional contribution is defined as gross
profit after selling, marketing and distribution costs. Divisional
contribution is a consistent measure within the Group and reflects
the segments' underlying trading performance for the period under
evaluation.
The Group uses trading profit to review overall Group
profitability. Trading profit is defined as profit/loss before tax
before net finance costs, amortisation of intangible assets,
non-trading items, fair value movements on foreign exchange and
other derivative contracts and net interest on pensions and
administrative expenses.
During the period, the Group has additionally excluded pension
past service costs and credits from trading profit in order to
present a clear and consistent view of underlying trading
performance.
The segment results for the period ended 30 March 2019 and for
the period ended 31 March 2018 and the reconciliation of the
segment measures to the respective statutory items included in the
consolidated financial statements are as follows:
52 weeks ended 52 weeks ended
30 March 2019 31 March 2018
--------------------------------- --------------------------- ---------------------------
Grocery Sweet Total Grocery Sweet Total
Treats Treats
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- -------- -------- ------- -------- -------- -------
Revenue 597.0 227.3 824.3 589.2 230.0 819.2
--------------------------------- -------- -------- ------- -------- -------- -------
Divisional contribution 138.3 23.6 161.9 130.0 25.8 155.8
Group and corporate costs (33.4) (32.8)
--------------------------------- -------- -------- ------- -------- -------- -------
Trading profit 128.5 123.0
Amortisation of intangible
assets (34.4) (36.3)
Fair value movements on foreign
exchange and other derivative
contracts (1.3) 0.1
Net interest on pensions and
administrative expenses (1.3) (2.5)
Non-trading items:(1)
GMP equalisation charge (41.5) -
Restructuring costs (16.8) (8.5)
Impairment of intangible assets
and goodwill (30.6) (6.5)
Other 1.9 -
Operating profit 4.5 69.3
Finance cost (56.7) (50.4)
Finance income(2) 9.5 1.6
Net movement on fair valuation
of interest rate financial
instruments - 0.4
-------
(Loss)/profit before taxation (42.7) 20.9
--------------------------------- -------- -------- ------- -------- -------- -------
Depreciation (9.0) (8.0) (17.0) (8.5) (8.1) (16.6)
--------------------------------- -------- -------- ------- -------- -------- -------
(1) Non-trading items include restructuring costs of GBP16.8m
(2017/18: GBP8.5m) relating primarily to implementation costs
incurred during the Group's warehousing and distribution
consolidation, principally labour, rent and inventory costs.
(2) Finance income includes reversal of the impairment of the
Hovis loan note, driven by the receipt of GBP7.6m from Hovis.
Revenues in the period ended 30 March 2019, from the Group's
four principal customers, which individually represent over 10% of
total Group revenue, are GBP184.8m, GBP119.6m, GBP90.2m and
GBP86.2m (2017/18: GBP179.7m, GBP118.1m, GBP87.7m and GBP87.6m).
These revenues relate to both the Grocery and Sweet Treats
reportable segments.
The Group primarily supplies the UK market, although it also
supplies certain products to other countries in Europe and the rest
of the world. The following table provides an analysis of the
Group's revenue, which is allocated on the basis of geographical
market destination, and an analysis of the Group's non-current
assets by geographical location.
Revenue
52 weeks ended 52 weeks ended
30 Mar 2019 31 Mar 2018
GBPm GBPm
----------------- --------------- ---------------
United Kingdom 770.8 758.1
Other Europe 26.1 27.6
Rest of world 27.4 33.5
------------------ --------------- ---------------
Total 824.3 819.2
-------------------- --------------- ---------------
Non-current assets
As at As at
30 Mar 2019 31 Mar 2018
GBPm GBPm
----------------- ------------ ------------
United Kingdom 2,036.2 2,013.6
------------------ ------------ ------------
4. Finance income and costs
52 weeks 52 weeks
ended ended
30 Mar 2019 31 Mar 2018
GBPm GBPm
-------------------------------------------------- ------------ ------------
Interest payable on bank loans and overdrafts (6.2) (7.8)
Interest payable on senior secured notes (31.7) (32.2)
Interest payable on revolving facility (0.8) (1.1)
Interest receivable on interest rate derivatives - 0.1
Other interest payable(1) (3.0) (0.4)
Amortisation of debt issuance costs (3.7) (5.0)
(45.4) (46.4)
Write off of financing costs(2) (5.7) (4.0)
Early redemption fee(3) (5.6) -
Total finance cost (56.7) (50.4)
-------------------------------------------------- ------------ ------------
Interest receivable on bank deposits 1.9 1.6
Movement on fair valuation of interest rate
derivative financial instruments - 0.4
Other finance income(4) 7.6 -
Total finance income 9.5 2.0
-------------------------------------------------- ------------ ------------
Net finance cost (47.2) (48.4)
-------------------------------------------------- ------------ ------------
(1) Included in other interest payable is GBP3.0m charge (2017/18:
GBP0.4m credit) relating to the unwind of the discount on certain
of the Group's long term provisions.
(2) Relates to the refinancing of the senior secured fixed rate notes
due 2021 and revolving credit facility in the current period and senior
secured floating rate notes due 2020 in the previous period.
(3) Relates to a non-recurring payment arising on the early redemption
of the GBP325m senior secured fixed rate notes due 2021 as part of
the refinancing of the Group's debt in the period.
(4) Relates to partial reversal of the impairment of the Hovis loan
note, driven by the receipt of GBP7.6m from Hovis.
The net movement on fair valuation of interest rate financial
instruments in 2017/18 related to a GBP0.4m favourable movement on
close out of the interest rate swaps, which expired in December
2017.
5. Taxation
Current tax
52 weeks ended 52 weeks ended
30 Mar 2019 31 Mar 2018
GBPm GBPm
-------------------------------------------- ------------------------ ---------------------------
Overseas current tax
- Current year 1.1 0.8
Deferred tax
- Current period 6.1 (4.1)
- Prior periods 1.7 (8.1)
- Adjustment to restate opening deferred
tax at 17.0% - (2.3)
Income tax credit/(charge) 8.9 (13.7)
-------------------------------------------- ------------------------ ---------------------------
As a result of the 2015 Finance Act provision to reduce the UK
corporation tax rate from 20% to 19% from 1 April 2017, the
applicable rate of corporation tax for the period is 19%. As a
result of the 2016 Finance Act provision to reduce the UK
corporation tax rate to 17% from 1 April 2020, deferred tax
balances have been stated at 17%, the rate at which they are
expected to reverse.
Tax relating to items recorded in other comprehensive income
included:
52 weeks 52 weeks
ended ended
30 Mar 2019 31 Mar 2018
GBPm GBPm
--------------------------------------------------- ------------ ------------
Deferred tax credit on losses 1.1 4.1
Deferred tax credit/(charge) on pension movements (10.2) (33.8)
(9.1) (29.7)
--------------------------------------------------- ------------ ------------
The tax credit/(charge) for the period differs from the standard
rate of corporation tax in the United Kingdom of 19.0% (2017/18:
19.0%). The reasons for this are explained below:
52 weeks 52 weeks
ended ended
30 Mar 2019 31 Mar 2018
GBPm GBPm
------------------------------------------------ ------------ ------------
(Loss)/profit before taxation (42.7) 20.9
Tax credit/(charge) at the domestic income tax
rate of 19.0% (2017/18: 19.0%) 8.2 (4.0)
Tax effect of:
Non-deductible items (0.9) (0.1)
Other disallowable items - (0.4)
Impairment of goodwill - (0.8)
Adjustment for share-based payments (0.4) (0.6)
Adjustment due to current period deferred tax
being provided at 17.0% (2017/18: 17.0%) (0.8) 0.7
Movements in losses recognised - 1.1
Adjustment to restate opening deferred tax at
17.0% (2017/18: 17.0%) - (2.3)
Adjustments to prior periods 1.7 (8.1)
Current tax relating to overseas business 1.1 0.8
Income tax credit/(charge) 8.9 (13.7)
------------------------------------------------- ------------ ------------
The movements in losses recognised for the period ended 30 March
2019 is GBPnil (2017/18: GBP1.1m). Corporation tax losses are not
recognised where future recoverability is uncertain.
The adjustments to prior periods of GBP1.7m (2017/18: GBP(8.1m))
relates mainly to the adjustment of prior period losses and capital
allowances which have been revised following submission of tax
returns.
Deferred tax
Deferred tax is calculated in full on temporary differences
using the tax rate appropriate to the jurisdiction in which the
asset/(liability) arises and the tax rates that are expected to
apply in the periods in which the asset or liability is settled. In
all cases this is 17.0% (2017/18: 17.0%).
2018/19 2017/18
GBPm GBPm
----------------------------------------------- -------- --------
At 1 April 2018 / 2 April 2017 (12.1) 32.4
Credited/(charged) to the statement of profit
or loss 7.8 (14.5)
Charged to other comprehensive income (9.1) (29.7)
Charged to equity (0.1) (0.3)
At 30 March 2019 / 31 March 2018 (13.5) (12.1)
----------------------------------------------- -------- --------
The Group has not recognised GBP3.0m of deferred tax assets
(2017/18: GBP2.2m not recognised) relating to UK corporation tax
losses. In addition the Group has not recognised a tax asset of
GBP34.8m (2017/18: GBP34.8m) relating to ACT and GBP41.3m (2017/18:
GBP42.1m) relating to capital losses. Under current legislation
these can generally be carried forward indefinitely.
Deferred tax liabilities Retirement
benefit
Intangibles obligation Other Total
GBPm GBPm GBPm GBPm
-------------------------------- ------------ ------------ ------ --------
At 2 April 2017 (56.2) (17.9) (0.2) (74.3)
Current period credit/(charge) 1.9 (2.1) - (0.2)
Charged to other comprehensive
income - (33.8) - (33.8)
Prior period credit
- To statement of profit or
loss 0.1 - - 0.1
At 31 March 2018 (54.2) (53.8) (0.2) (108.2)
-------------------------------- ------------ ------------ ------ --------
At 1 April 2018 (54.2) (53.8) (0.2) (108.2)
Current period credit 6.7 1.5 - 8.2
Charged to other comprehensive
income - (10.2) - (10.2)
Prior period charge
- To statement of profit or
loss (0.1) - (0.8) (0.9)
At 30 March 2019 (47.6) (62.5) (1.0) (111.1)
-------------------------------- ------------ ------------ ------ --------
Deferred tax assets Accelerated Share based Losses Other Total
tax depreciation payments
GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------------------ ------------------- ------------ ------------ ------------
At 2 April 2017 47.4 1.4 56.8 1.1 106.7
Current period credit/(charge) 3.0 (0.1) (3.7) (3.1) (3.9)
Credited to other comprehensive
income - - 4.1 - 4.1
Charged to equity - (0.3) - - (0.3)
Prior period (charge)/credit
- To statement of profit
or loss (2.1) - (14.6) 6.2 (10.5)
At 31 March 2018 48.3 1.0 42.6 4.2 96.1
--------------------------------- ------------------ ------------------- ------------ ------------ ------------
At 1 April 2018 48.3 1.0 42.6 4.2 96.1
Current period credit/(charge) 1.3 - (1.8) (1.6) (2.1)
Credited to other comprehensive
income - - 1.1 - 1.1
Charged to equity - (0.1) - - (0.1)
Prior period (charge)/credit:
- To statement of profit
or loss 3.1 - (0.9) 0.4 2.6
At 30 March 2019 52.7 0.9 41.0 3.0 97.6
--------------------------------- ------------------ ------------------- ------------ ------------ ------------
Net deferred tax liability GBPm
--------------------------------- ------------------ ------------------- ------------ ------------ ------------
As at 30 March 2019 (13.5)
As at 31 March 2018 (12.1)
--------------------------------- ------------------ ------------------- ------------ ------------ ------------
Where there is a legal right of offset and an intention to
settle as such, deferred tax assets and liabilities may be
presented on a net basis. This is the case for most of the Group's
deferred tax balances and therefore they have been offset in the
tables above. Substantial elements of the Group's deferred tax
assets and liabilities, primarily relating to the defined benefit
pension obligation, are greater than one year in nature.
6. (Loss)/earnings per share
Basic (loss)/earnings per share has been calculated by dividing
the loss attributable to owners of the parent of GBP33.8m (2017/18:
GBP7.2m profit) by the weighted average number of ordinary shares
of the Company.
Weighted average shares
2018/19 2017/18
Number Number
(000s) (000s)
------------------------------------------------ --------- --------
Weighted average number of ordinary shares for
the purpose of basic earnings per share 841,454 836,818
Effect of dilutive potential ordinary shares:
- Share options - 4,872
Weighted average number of ordinary shares for
the purpose of diluted earnings per share 841,454 841,690
------------------------------------------------ --------- --------
(Loss)/earnings per share calculation
52 weeks ended 30 52 weeks ended 31
March 2019 March 2018
Dilutive Dilutive
effect effect
of share of share
Basic options Diluted Basic options Diluted
---------------------------- ------- ---------- -------- ------ ---------- --------
(Loss)/profit after tax
(GBPm) (33.8) (33.8) 7.2 7.2
(Loss)/earnings per share
(pence) (4.0) - (4.0) 0.9 0.0 0.9
---------------------------- ------- ---------- -------- ------ ---------- --------
Dilutive effect of share options
The dilutive effect of share options is calculated by adjusting
the weighted average number of ordinary shares outstanding to
assume conversion of all dilutive potential ordinary shares. The
only dilutive potential ordinary shares of the Company are share
options and share awards. A calculation is performed to determine
the number of shares that could have been acquired at fair value
(determined as the average annual market share price of the
Company's shares) based on the monetary value of the share awards
and the subscription rights attached to the outstanding share
options.
No adjustment is made to the profit or loss in calculating basic
and diluted earnings per share.
There is no dilutive effect of share options calculated in the
current period as the Group made a loss.
Adjusted earnings per share ("Adjusted EPS")
Adjusted earnings per share is defined as trading profit less
net regular interest, less a notional tax charge at 19.0% (2017/18:
19.0%) divided by the weighted average number of ordinary shares of
the Company.
Net regular interest is defined as net finance costs after
excluding write-off of financing costs, other finance income, early
redemption fee, the fair value movements on interest rate financial
instruments and other interest payable.
Trading profit and Adjusted EPS have been reported as the
directors believe these assist in providing additional useful
information on the underlying trends, performance and position of
the Group.
52 weeks 52 weeks
ended ended
30 Mar 2019 31 Mar
2018
GBPm GBPm
------------------------------------------ ------------------------ ------------------
Trading profit 128.5 123.0
Less net regular interest (40.5) (44.4)
------------------------ ------------------
Adjusted profit before tax 88.0 78.6
Notional tax at 19.0% (2017/18: 19%) (16.7) (14.9)
Adjusted profit after tax 71.3 63.7
------------------------------------------ ------------------------ ------------------
Average shares in issue (m) 841.5 836.8
Adjusted EPS (pence) 8.5 7.6
------------------------------------------ ------------------------ ------------------
Net regular interest
Net finance cost (47.2) (48.4)
Exclude other finance income (7.6) -
Exclude fair value movements on interest
rate financial instruments - (0.4)
Exclude write-off of financing costs 5.7 4.0
Exclude early redemption fee 5.6 -
Exclude other interest payable 3.0 0.4
Net regular interest (40.5) (44.4)
------------------------------------------ ------------------------ ------------------
7. Other Intangible assets
Software Brands/ Customer Assets under Total
trademarks/ relationships construction
licences
GBPm GBPm GBPm GBPm GBPm
-------------------------- --------- ------------- --------------- -------------- --------
Cost
At 1 April 2017 132.9 693.2 134.8 4.1 965.0
Additions 1.7 - - 1.2 2.9
Transferred into use 4.0 - - (4.0) -
At 31 March 2018 138.6 693.2 134.8 1.3 967.9
Additions 1.7 - - 1.3 3.0
Transferred into use 0.7 - - (0.7) -
At 30 March 2019 141.0 693.2 134.8 1.9 970.9
-------------------------- --------- ------------- --------------- -------------- --------
Accumulated amortisation
and impairment
At 1 April 2017 (95.5) (270.7) (134.8) - (501.0)
Amortisation charge (13.1) (23.2) - - (36.3)
Impairment charge - (2.2) - - (2.2)
At 31 March 2018 (108.6) (296.1) (134.8) - (539.5)
Amortisation charge (11.4) (23.0) - - (34.4)
Impairment charge - (30.6) - - (30.6)
At 30 March 2019 (120.0) (349.7) (134.8) - (604.5)
-------------------------- --------- ------------- --------------- -------------- --------
Net book value
At 31 March 2018 30.0 397.1 - 1.3 428.4
-------------------------- --------- ------------- --------------- -------------- --------
At 30 March 2019 21.0 343.5 - 1.9 366.4
-------------------------- --------- ------------- --------------- -------------- --------
All amortisation is recognised within administrative costs.
Included in the assets under construction additions for the
period are GBP1.1m (2017/18: GBP0.4m) in respect of internal
costs.
The Group's borrowings are secured on the assets of the Group
including other intangible assets.
The material brands held on the balance sheet are as
follows:
Carrying value Estimated useful
at
30 March 2019 life remaining
GBPm Years
------------ --------------- -----------------
Bisto 107.8 18
Oxo 75.2 28
Batchelors 56.0 18
Mr Kipling 41.8 18
Sharwood's 23.4 18
--------------- --------------- -----------------
Intangible assets impairment charge
The intangible asset impairment relates to two brands,
Sharwood's: GBP27.5m, and Saxa: GBP3.1m. The impairments reflect
management's latest assessment of brand value following a strategic
review of the Group's brands and a re-evaluation of the assumptions
which underpin the valuation.
8. Bank and other borrowings
As at As at
30 Mar 2019 31 Mar
2018
GBPm GBPm
-------------------------------------------- ------------ --------
Non-current:
Secured senior credit facility - revolving - -
Transaction costs 5.8 5.6
--------
5.8 5.6
Senior secured notes (510.0) (535.0)
Transaction costs 6.5 9.4
-------------------------------------------- --------
(503.5) (525.6)
Total borrowings due after more than one
year (497.7) (520.0)
-------------------------------------------- ------------ --------
Total bank and other borrowings (497.7) (520.0)
-------------------------------------------- ------------ --------
Secured senior credit facility - revolving
The revolving credit facility of GBP177m is due to mature in
December 2022 and attracts a leverage based margin of between 2.25%
and 3.75% above LIBOR. Banking covenants of net debt / EBITDA and
EBITDA / interest are in place and are tested biannually.
The covenant package attached to the revolving credit facility
is:
Net debt Net debt
/ EBITDA(1) / Interest(1)
------------------ ------------- ----------------------
2019/20 FY 4.50x 2.75x
2020/21 FY 4.25x 2.85x
------------------ ------------- ----------------------
(1) Net debt, EBITDA and Interest are as defined
under the revolving credit facility.
Senior secured notes
The senior secured notes are listed on the Irish GEM Stock
Exchange. The notes totalling GBP510m are split between fixed and
floating tranches. The fixed note of GBP300m matures in October
2023 and attracts an interest rate of 6.25%. The floating note of
GBP210m matures in July 2022 and attracts an interest rate of 5.00%
above LIBOR.
9. Provisions for liabilities and charges
Property provisions primarily relate to provisions for
non-operational leasehold properties, dilapidations against
leasehold properties and environmental liabilities. The costs
relating to certain non-operational leasehold properties and
dilapidation provisions and will be incurred over a number of years
in accordance with the length of the leases. Other provisions
primarily relate to insurance and legal matters and provisions for
restructuring costs. These provisions have been discounted at rates
between 0.69% and 1.55% (2017/18: 0.99% and 1.77%). The unwinding
of the discount is charged or credited to the statement of profit
or loss under finance cost.
Property Other Total
GBPm GBPm GBPm
--------------------------------- --------------- ----------------- -----------------
At 1 April 2017 (34.0) (19.1) (53.1)
Utilised during the period 1.0 5.0 6.0
Additional charge in the period (1.0) (1.2) (2.2)
Unwind of discount 0.4 - 0.4
Released during the period 1.5 3.8 5.3
At 31 March 2018 (32.1) (11.5) (43.6)
Utilised during the period 2.4 1.0 3.4
Additional charge in the period - (2.6) (2.6)
Unwind of discount (3.0) - (3.0)
Released during the period 0.9 2.8 3.7
At 30 March 2019 (31.8) (10.3) (42.1)
--------------------------------- --------------- ----------------- -----------------
Ageing of total provisions: As at As at
30 Mar 2019 31 Mar 2018
GBPm GBPm
----------------------------- ----------------- -----------------
Within one year (9.7) (7.9)
Between 2 and 5 years (5.1) (10.9)
After 5 years (27.3) (24.8)
------------------------------ ----------------- -----------------
Total (42.1) (43.6)
------------------------------ ----------------- -----------------
10. Retirement benefit schemes
Defined benefit schemes
The Group operates a number of defined benefit schemes under
which current and former employees have built up an entitlement to
pension benefits on their retirement. These are as follows:
(a) The Premier schemes, which comprise:
Premier Foods Pension Scheme ("PFPS")
Premier Grocery Products Pension Scheme ("PGPPS")
Premier Grocery Products Ireland Pension Scheme ("PGPIPS")
Chivers 1987 Pension Scheme
Chivers 1987 Supplementary Pension Scheme
(b) The RHM schemes, which comprise:
RHM Pension Scheme
Premier Foods Ireland Pension Scheme
The most recent triennial actuarial valuations of the PFPS, the
PGPPS and the RHM pension scheme were carried out on 31 March 2016
/ 5 April 2016 to establish ongoing funding arrangements. Deficit
recovery plans have been agreed with the Trustees of each of the
PFPS and PGPPS. The RHM Pension Scheme was in surplus and no
deficit contributions are payable. Actuarial valuations for the
schemes based in Ireland took place during the course of 2016 and
2017.
The exchange rates used to translate the overseas euro based
schemes are GBP1.00 = EUR1.1334 for the average rate during the
period, and GBP1.00 = EUR1.1612 for the closing position at 30
March 2019.
All defined benefit plans are held separately from the Company
under Trusts. Trustees are appointed to operate the schemes in
accordance with their respective governing documents and pensions
law. The schemes meet the legal requirement for member nominated
trustees representation on the trustee boards and the UK schemes
have appointed a professional independent Trustee as Chair of the
boards. The members of the trustee boards undertake regular
training and development to ensure that they are equipped
appropriately to fulfil their function as trustees. In addition
each trustee board has appointed professional advisers to give them
the specialist expertise they need to support them in the areas of
investment, funding, legal, covenant and administration.
The trustee boards of the UK schemes generally meet at least
four times a year to conduct their business. To support these
meetings the Trustees have delegated certain aspects of the
schemes' operation to give specialist focus (e.g. investment,
administration and compliance) to committees for which further
meetings are held as appropriate throughout the year. These
committees regularly report to the full trustee boards.
The schemes invest through investment managers appointed by the
trustees in a broad range of assets to support the security and
funding of their pension obligations. Asset classes used include
government bonds, private equity, absolute return products, swaps
and infrastructure.
The plan assets do not include any of the Group's own financial
instruments, nor any property occupied by, or other assets used by,
the Group. The RHM Pension Scheme holds a security over the assets
of the Group which ranks pari passu with the banks and bondholders
in the event of insolvency, up to a cap.
The schemes incorporate a Liability Driven Investment (LDI)
strategy to more closely match the assets with changes in value of
liabilities. The RHM Pension Scheme uses assets including interest
rate and inflation swaps, index linked bonds and infrastructure in
its LDI strategy, The smaller schemes use a pooled fund approach
for LDI.
The main risks to which the Group is exposed in relation to the
funded pension schemes are as follows:
-- Liquidity risk - the PFPS and PGPPS have significant
technical funding deficits which could increase. The RHM Pension
Scheme is currently in surplus, but subsequent valuations could
reveal a deficit. As such this could have an adverse impact on the
financial condition of the Group. The Group continues to monitor
the pension risks closely working with the trustees to ensure a
collaborative approach.
-- Mortality risk - the assumptions adopted make allowance for
future improvements in life expectancy. However, if life expectancy
improves at a faster rate than assumed, this would result in
greater payments from the schemes and consequently increases in the
schemes liabilities. The trustees review the mortality assumption
on a regular basis to minimise the risk of using an inappropriate
assumption.
-- Yield risk - a fall in government bond yields will increase
the schemes liabilities and certain of the assets. However, the
liabilities may grow by more in monetary terms, thus increasing the
deficit in the scheme.
-- Inflation risk - the majority of the schemes liabilities
increase in line with inflation and so if inflation is greater than
expected, the liabilities will increase.
-- Investment risk - the risk that investments do not perform in line with expectations.
The schemes can limit or hedge their exposure to the yield and
inflation risks described above by investing in assets that move in
the same direction as the liabilities in the event of a fall in
yields, or a rise in inflation. The RHM Pension Scheme has largely
hedged its inflation and interest rate exposure to the extent of
its funding level. The PFPS and PGPPS have broadly hedged 50% of
their respective liabilities and have put in place a plan to
further increase hedging over time as its funding level
improves.
The liabilities of the schemes are approximately 47% in respect
of former active members who have yet to retire and approximately
53% in respect of pensioner members already in receipt of
benefits.
All pension schemes are closed to future accrual.
On 26 October 2018 the High Court handed down its judgment in
the Lloyds Banking Group case. The judgment confirmed the
requirement to equalise the Guaranteed Minimum Pension benefits
accrued between 1990 and 1997 from contracting out of the State
Earnings Related Pension Scheme, treating men and women equally
with respect to these benefits. The judgment highlighted an
acceptable range of methods the Trustees are entitled to adopt to
achieve equalisation. The estimated cost of equalisation is
GBP41.5m and has been recognised as a past service cost through the
income statement. The cost represents the Directors' best estimate
of the cost based on actuarial advice and is consistent with the
principles outlined in the judgment.
The final cost will differ from this amount when the actual
method of equalisation is agreed with the scheme Trustees and
subsequently implemented. The cost related to equalisation was
between 0.8% and 1.5% of scheme liabilities. A sensitivity analysis
of the equalisation costs is as follows:
- a 0.1% increase in the percentage of liability impacted by GMP
equalisation would lead to an increase in the defined benefit
obligation of approximately GBP5m
- a 0.1% decrease in the percentage of liability impacted by GMP
equalisation would lead to a decrease in the defined benefit
obligation of approximately GBP5m
At the balance sheet date, the combined principal accounting
valuation assumptions were as follows:
At 30 Mar 2019 At 31 Mar 2018
Premier RHM schemes Premier RHM schemes
schemes schemes
Discount rate 2.45% 2.45% 2.70% 2.70%
Inflation - RPI 3.25% 3.25% 3.15% 3.15%
Inflation - CPI 2.15% 2.15% 2.05% 2.05%
Expected salary increases n/a n/a n/a n/a
Future pension increases 2.10% 2.10% 2.10% 2.10%
---------------------------- --------- ------------ --------- ------------
For the smaller overseas schemes the discount rate used was
1.50% (2017/18: 1.80%) and future pension increases were 1.30%
(2017/18: 1.45%).
At 30 March 2019 and 31 March 2018, the discount rate was
derived based on a bond yield curve expanded to also include bonds
rated AA by one credit agency (and which might for example be rated
A or AAA by other agencies).
The mortality assumptions are based on standard mortality tables
and allow for future mortality improvements. The life expectancy
assumptions are as follows:
At 30 Mar 2019 At 31 Mar 2018
Premier schemes RHM schemes Premier RHM schemes
schemes
--------------------------------- ---------------- ------------ --------- ------------
Male pensioner, currently aged
65 87.4 85.3 87.6 85.8
Female pensioner, currently
aged 65 89.3 87.8 89.5 88.3
Male non-pensioner, currently
aged 45 88.4 86.1 88.6 86.7
Female non-pensioner, currently
aged 45 90.5 88.9 90.7 89.5
---------------------------------- ---------------- ------------ --------- ------------
A sensitivity analysis on the principal assumptions used to
measure the scheme liabilities at the period end is as follows:
Change in assumption Impact on scheme liabilities
------------------------------- --------------------- -----------------------------------------
Discount rate Increase/decrease Decrease/increase by GBP78.1m/GBP79.9m
by 0.1%
Inflation Increase/decrease Increase/decrease by GBP35.2m/GBP30.6m
by 0.1%
Assumed life expectancy Increase/decrease Increase/decrease by GBP208.2m/GBP208.6m
at age 60 (rate of mortality) by 1 year
------------------------------- --------------------- -----------------------------------------
The sensitivity information has been derived using projected
cash flows for the Schemes valued using the relevant assumptions
and membership profile as at 30 March 2019. Extrapolation of these
results beyond the sensitivity figures shown may not be
appropriate.
The fair values of plan assets split by type of asset are as
follows:
Premier schemes % of total RHM schemes % of total Total % of total
GBPm % GBPm % GBPm
----------------------------- ---------------- ----------- ------------ ----------- -------- -----------
Assets with a quoted price in an active market at 30 March 2019:
UK equities 0.4 0.1 0.3 0.0 0.7 0.0
Global equities 7.5 1.1 171.3 4.0 178.8 3.5
Government bonds 29.9 4.2 1,460.5 33.6 1,490.4 29.7
Corporate bonds 26.9 3.8 - - 26.9 0.5
Property 31.3 4.4 405.2 9.4 436.5 8.7
Absolute return products 365.7 51.7 775.5 17.9 1,141.2 22.6
Cash 8.0 1.1 30.1 0.7 38.1 0.8
Other 224.8 31.8 2.8 0.1 227.6 4.5
Assets without a quoted price in an active market at 30 March 2019:
Infrastructure funds - - 256.1 5.9 256.1 5.1
Swaps - - 556.4 12.8 556.4 11.0
Private equity - - 446.1 10.3 446.1 8.8
Other 12.6 1.8 229.3 5.3 241.9 4.8
Fair value of scheme assets
as at 30 March 2019 707.1 100 4,333.6 100 5,040.7 100
----------------------------- ---------------- ----------- ------------ ----------- -------- -----------
Assets with a quoted price in an active market at 31 March 2018:
UK equities 0.2 0.0 0.3 0.0 0.5 0.0
Global equities 7.6 1.1 288.4 6.9 296.0 6.1
Government bonds 25.0 3.7 1,021.4 24.3 1,046.4 21.5
Corporate bonds 20.7 3.0 - - 20.7 0.4
Property 7.5 1.1 383.5 9.2 391.0 8.0
Absolute return products 391.0 57.7 932.3 22.3 1,323.3 27.2
Cash 12.8 1.9 19.6 0.5 32.4 0.7
Other 214.1 31.5 3.0 0.1 217.1 4.5
Assets without a quoted price in an active market at 31 March 2018:
Infrastructure funds - - 254.6 6.1 254.6 5.2
Swaps - - 715.3 17.1 715.3 14.7
Private equity - - 344.0 8.2 344.0 7.1
Other 0.2 0.0 222.1 5.3 222.3 4.6
----------------------------- ---------------- ----------- ------------ ----------- -------- -----------
Fair value of scheme assets
as at 31 March 2018 679.1 100 4,184.5 100 4,863.6 100
----------------------------- ---------------- ----------- ------------ ----------- -------- -----------
For assets without a quoted price in an active market fair value
is determined with reference to net asset value statements provided
by third parties.
The RHM scheme invests directly in interest rate and inflation
swaps to protect from fluctuations in interest rates and
inflation.
The amounts recognised in the balance sheet arising from the
Group's obligations in respect of its defined benefit schemes are
as follows:
At 30 March 2019 At 31 March 2018
Premier RHM schemes Total Premier RHM schemes Total
schemes schemes
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ---------
Present value of
funded obligations (1,171.8) (3,495.8) (4,667.6) (1,116.1) (3,430.5) (4,546.6)
Fair value of plan
assets 707.1 4,333.6 5,040.7 679.1 4,184.5 4,863.6
-------------------- ---------
(Deficit)/surplus
in schemes (464.7) 837.8 373.1 (437.0) 754.0 317.0
The aggregate surplus of GBP317.0m has increased to a surplus of
GBP373.1m in the current period. This increase of GBP56.1m
(2017/18: GBP212.2m increase) is primarily due remeasurement gains
on assets and change in demographic (mortality) assumptions.
Changes in the present value of the defined benefit obligation
were as follows:
Premier RHM schemes Total
schemes
GBPm GBPm GBPm
Defined benefit obligation at 1 April
2017 (1,162.8) (3,597.0) (4,759.8)
Interest cost (29.9) (93.0) (122.9)
Remeasurement gains 36.6 87.6 124.2
Exchange differences (1.2) (0.7) (1.9)
Benefits paid 41.2 172.6 213.8
Defined benefit obligation at 31 March
2018 (1,116.1) (3,430.5) (4,546.6)
Interest cost (29.1) (90.3) (119.4)
Past service cost (11.1) (26.5) (37.6)
Remeasurement losses (53.9) (94.6) (148.5)
Exchange differences 0.8 0.5 1.3
Benefits paid 37.6 145.6 183.2
Defined benefit obligation at 30 March
2019 (1,171.8) (3,495.8) (4,667.6)
Changes in the fair value of plan assets were as follows:
Premier RHM schemes Total
schemes
GBPm GBPm GBPm
Fair value of plan assets at 1 April
2017 673.7 4,190.9 4,864.6
Interest income on plan assets 17.3 108.6 125.9
Remeasurement (losses) / gains (7.6) 58.2 50.6
Administrative costs (3.0) (2.5) (5.5)
Contributions by employer 38.6 1.2 39.8
Exchange differences 1.3 0.7 2.0
Benefits paid (41.2) (172.6) (213.8)
Fair value of plan assets at 31 March
2018 679.1 4,184.5 4,863.6
Interest income on plan assets 17.7 110.7 128.4
Remeasurement gains 14.2 187.5 201.7
Administrative costs (6.5) (3.8) (10.3)
Contributions by employer 41.1 0.8 41.9
Exchange differences (0.9) (0.5) (1.4)
Benefits paid (37.6) (145.6) (183.2)
Fair value of plan assets at 30 March
2019 707.1 4,333.6 5,040.7
The reconciliation of the net defined benefit (deficit)/surplus
over the period is as follows:
Premier RHM schemes Total
Schemes
GBPm GBPm GBPm
(Deficit)/surplus in schemes at 1 April
2017 (489.1) 593.9 104.8
Amount recognised in profit or loss (15.6) 13.1 (2.5)
Remeasurements recognised in other comprehensive
income 29.0 145.8 174.8
Contributions by employer 38.6 1.2 39.8
Exchange differences 0.1 - 0.1
(Deficit)/surplus in schemes at 31 March
2018 (437.0) 754.0 317.0
Amount recognised in profit or loss (29.0) (9.9) (38.9)
Remeasurements recognised in other comprehensive
income (39.7) 92.9 53.2
Contributions by employer 41.1 0.8 41.9
Exchange differences recognised in other
comprehensive income (0.1) - (0.1)
(Deficit)/surplus in schemes at 30 March
2019 (464.7) 837.8 373.1
Remeasurements recognised in the consolidated statement of
comprehensive income are as follows:
2018/19 2017/18
Premier RHM Total Premier RHM Total
schemes schemes schemes schemes
GBPm GBPm GBPm GBPm GBPm GBPm
Remeasurement (loss)/gain
on plan liabilities (53.9) (94.6) (148.5) 36.6 87.6 124.2
Remeasurement gain/(loss)
on plan assets 14.2 187.5 201.7 (7.6) 58.2 50.6
Net remeasurement (loss)/gain
for the period (39.7) 92.9 53.2 29.0 145.8 174.8
The actual return on plan assets was a GBP330.1m gain (2017/18:
GBP176.5m gain), which is GBP201.7m more (2017/18: GBP50.6m more)
than the interest income on plan assets of GBP128.4m (2017/18:
GBP125.9m).
The remeasurement loss on liabilities of GBP148.5m (2017/18:
GBP124.2m gain) comprises a loss due to changes in financial
assumptions of GBP226.7m (2017/18: GBP83.9m gain), a loss due to
member experience of GBP9.1m (2017/18: GBP32.8m gain) and a gain
due to demographic assumptions of GBP87.3m (2017/18: GBP7.5m
gain).
The net remeasurement gain taken to the consolidated statement
of comprehensive income was GBP53.2m (2017/18: GBP174.8m gain).
This gain was GBP44.1m (2017/18: GBP145.1m gain) net of taxation
(with tax at 17% for UK schemes, and 12.5% for Irish schemes).
The Group expects to contribute between GBP6m and GBP10m
annually to its defined benefit plans in relation to expenses and
government levies and GBP35-38m of additional annual contributions
to fund the scheme deficits up to 2022/23.
The Group has concluded that it has an unconditional right to a
refund of any surplus in the RHM Pension Scheme once the
liabilities have been discharged and, that the trustees of the RHM
pension scheme do not have the unilateral right to wind up the
scheme, so the asset has not been restricted and no additional
liability has been recognised.
The International Accounting Standards Board under IFRIC 14, are
currently reviewing the recognition of a pensions surplus in the
financial statements of an entity. Dependent upon the final
published standard, there is potential that any future defined
benefit surplus may not be recognised in the financial statements
of the Group and additionally, the deficit valuation methodology
may also change.
The total amounts recognised in the consolidated statement of
profit or loss are as follows:
2018/19 2017/18
Premier schemes RHM schemes Total Premier RHM schemes Total
schemes
GBPm GBPm GBPm GBPm GBPm GBPm
Operating profit
Past service costs
GMP Equalisation (26.5) (15.0) (41.5) - - -
Other - 3.9 3.9 - - -
Administrative costs (6.5) (3.8) (10.3) (3.0) (2.5) (5.5)
Net interest (cost)/credit (11.4) 20.4 9.0 (12.6) 15.6 3.0
Total (cost)/credit (44.4) 5.5 (38.9) (15.6) 13.1 (2.5)
Defined contribution schemes
A number of companies in the Group operate defined contribution
schemes, including provisions to comply with auto enrolment
requirements laid down by law. In addition a number of schemes
providing life assurance benefits only are operated. The total
expense recognised in the statement of profit or loss of GBP6.7m
(2017/18: GBP6.1m) represents contributions payable to the plans by
the Group at rates specified in the rules of the plans.
11. Other liabilities
As at As at
30 Mar 31 Mar
2019 2018
GBPm GBPm
------- -------
Deferred income (8.4) (9.8)
Other accruals (2.2) (0.2)
Other liabilities (10.6) (10.0)
Deferred income relates to amounts received in relation to a
previously disposed business.
12. Notes to the cash flow statement
Reconciliation of (loss)/profit before tax to cash flows from operations
52 weeks 52 weeks
ended ended
30 Mar 2019 31 Mar 2018
GBPm GBPm
(Loss)/profit before taxation (42.7) 20.9
Net finance cost 47.2 48.4
Operating profit 4.5 69.3
Depreciation of property, plant and equipment 17.0 16.6
Amortisation of intangible assets 34.4 36.3
Loss on disposal of non-current assets 0.3 0.1
Impairment of intangible assets 30.6 2.2
Impairment of goodwill - 4.3
Fair value movements on foreign exchange and
other derivative contracts 1.3 (0.1)
Equity settled employee incentive schemes 2.1 2.8
GMP equalisation and past service cost related
to defined benefit pension schemes(1) 37.6 -
Increase in inventories (1.4) (5.1)
Increase in trade and other receivables (14.4) (10.2)
Increase in trade and other payables and provisions 8.8 10.7
Movement in retirement benefit obligations (40.6) (37.5)
Cash generated from operations 80.2 89.4
(1) For further detail of GMP equalisation, please refer to note 10.
Reconciliation of cash and cash equivalents to net borrowings
52 weeks 52 weeks
ended ended
30 Mar 2019 31 Mar 2018
GBPm GBPm
Net inflow of cash and cash equivalents 4.2 41.7
Decrease in finance leases - 0.1
Decrease/(increase) in borrowings 25.0 (13.0)
Other non-cash movements (2.7) (2.0)
Decrease in borrowings net of cash 26.5 26.8
Total net borrowings at beginning of period (496.4) (523.2)
Total net borrowings at end of period (469.9) (496.4)
Analysis of movement in borrowings
As at Cash flows Other As at
31 Mar 2018 non-cash 30 Mar 2019
movements
GBPm GBPm GBPm GBPm
Cash and bank deposits 23.6 4.2 - 27.8
Net cash and cash equivalents 23.6 4.2 - 27.8
Borrowings - senior secured
notes (535.0) 25.0 - (510.0)
Gross borrowings net of cash(1) (511.4) 29.2 - (482.2)
Debt issuance costs(2) 15.0 - (2.7) 12.3
Total net borrowings(1) (496.4) 29.2 (2.7) (469.9)
(1) Borrowings exclude derivative financial instruments.
(2) The non-cash movement in debt issuance costs relates to the amortisation
of capitalised borrowing costs only.
The Group has the following cash pooling arrangements in
sterling, euros and US dollars, where both the Group and the bank
have a legal right of offset.
As at 30 Mar 2019 As at 31 Mar 2018
Offset Offset Net offset Offset Offset Net offset
asset liability asset asset liability asset
Cash, cash equivalents
and bank overdrafts 158.0 (130.2) 27.8 121.1 (97.5) 23.6
13. Contingencies
There were no material contingent liabilities at 30 March 2019
(2017/18: none).
14. Subsequent events
There were no reportable events after the balance sheet
date.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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