Chief Executive's Statement
Operating review - continuing operations
£m 2004 2003
H1 H1
Sales 425.8 372.2
Operating profit before exceptional items 35.6 30.6
Exceptional items (4.4) (6.4)
Operating profit 31.2 24.2
Group sales from continuing operations increased by 14.4% to £425.8m and
operating profit from continuing operations increased by 28.9% to £31.2m. These
figures exclude Materne, which was sold as part of the IPO. Like-for-like
grocery sales, excluding Ambrosia and Potatoes increased by 3% and operating
profit before exceptional items by 7.5%.
Branded sales now represent 54% of our grocery product sales, up from 49% in
2003. This increase is in part due to the inclusion of the new Ambrosia
business and in part due to the improved branded mix of the base business. Our
principal brands all showed strong growth with Loyd Grossman up 28%, Branston up
11% and Typhoo up 13%. Sales of Ambrosia, which was acquired in December 2003,
were 5% higher. Hartley's also performed well.
We have completed the closure of the Hadfield facility in the first half of the
year, with the transfer of production to our Bury St Edmunds and Histon sites.
In addition, we have commenced the transfer of tea production from Edinburgh to
our Moreton site. This transfer is progressing well and is due to be completed
by the end of the year. The Edinburgh rationalisation programme is anticipated
to cost £2.4m, which has been provided for in the first half and generate annual
savings of £1.1m from 2005.
The first half of 2003 benefited from the reversal of £3.3m of accruals made at
the end of 2002, which subsequently proved to be over-provided. These accruals
related to a number of areas of uncertainty on the acquisition of the Nestle UK
ambient foods business and the over-provision of performance related payments to
employees.
The reversal of these accruals has been allocated to administration costs within
each of the segments of the grocery business, with approximately two-thirds of
the total benefiting Convenience Foods, Pickles & Sauces in 2003.
Convenience Foods, Pickles & Sauces
£m 2004 2003
H1 H1
Sales 181.1 177.3
Operating profit before exceptional items 9.0 11.1
Sales by our Convenience Foods, Pickles & Sauces segment increased by 2% to
£181.1m. This however masks a strong performance from Loyd Grossman where sales
rose 28% and a 6% increase in sales of pickles, notably of both sweet and sour
Branston, and retailer brand table sauces. Total Branston sales increased 11%
whilst sales of convenience foods were flat year on year.
Branded sales in the first half of 2004 amounted to 37% of sales for the
segment, flat versus 2003.
Operating profit before exceptional items for the segment was £9.0m, a reduction
of £2.1m on 2003. This decline is primarily due to the accrual reversal
allocated to the segment in 2003 as referred to above. In addition, this
segment has seen an increase in consumer marketing expenditure and raw material
prices, principally tin plate. We expect to recover these raw material cost
increases through pricing developments in the second half of 2004.
Tea & Beverages
£m 2004 2003
H1 H1
Sales 70.2 69.2
Operating profit before exceptional items 13.3 11.5
Sales by our Tea & Beverages segment rose by just over 1% to £70.2m with the
growth evenly split between tea and chocolate beverages. However, 2003 sales of
£69.2m included approximately £1.0m of sales from certain retailer brand tea
contracts, which were exited in the first quarter of that year because of their
poor profitability. These low margin sales have been more than offset by the
improved performance of the Typhoo brand.
Branded sales in the first half of 2004 amounted to 81% of sales for the segment
up from 79% in 2003.
Operating profit before exceptional items for the tea and beverages segment
increased by £1.8m to £13.3m. Part of this improvement comes from improved
trading, but part is also due to the shift in marketing expenditure on Cadbury
into the second half for 2004 after a first half emphasis in 2003. The programme
for the second half includes a new pack design and the T.V. sponsorship of '
Heartbeat' over the Autumn.
Spreads & Desserts
£m 2004 2003
H1 H1
Sales 85.6 54.3
Operating profit before exceptional items 10.6 4.6
Sales by our Spreads and Desserts segment have increased by 58% to £85.6m. This
increase is primarily due to the inclusion of Ambrosia, following its
acquisition in December 2003. Like-for-like sales increased by 6% with
Hartley's, Rose's, Gale's, SunPat and Rowntree's all performing strongly.
Branded sales in the first half of 2004 amounted to 69% of sales for the segment
up from 52% in 2003. Like-for-like branded sales mix increased from 52% in 2003
to 54% in 2004.
Operating profit before exceptional items increased from £4.6m in the first half
of 2003 to £10.6m in 2004. This was again mainly due to the inclusion of
Ambrosia, which contributed £3.7m at an operating profit level. Like-for-like
operating profit before exceptional items increased by £2.3m, principally as a
result of the improved sales and reduced manufacturing overheads following the
closure of the Hadfield facility.
Potatoes
£m 2004 2003
H1 H1
Sales 88.9 71.4
Operating profit before exceptional items 2.7 3.4
Sales by our Potatoes segment increased by 24% to £88.9m, primarily due to the
higher market price of potatoes compared to last year. The 2003 harvest was
severely hit by the hot summer weather last year, which reduced yields and the
quality of the crop. We have been unable to pass on the full extent of the
resulting increase in the cost of potatoes. Consequently, the first half of
2004 saw operating profit before exceptional items for the segment decrease by
£0.7m to £2.7m. The potatoes business has faced a challenging period and a new
management team has been put in place to take the business forward.
Outlook
Our focus will remain around our 'drive' brands, those brands we consider to
have the greatest growth potential, and the development of those other brands
which we believe have drive brand potential. This focus will be supported by an
upweighting of our marketing expenditure in the second half of the year. In
particular we will be seeking to extend the Hartley's and Branston brands
through brand consolidation, product innovation and new product development.
Continued development of snacking and single serve in Ambrosia will provide
further opportunities in the desserts category.
The outlook for the remainder of the year remains promising for our grocery
business with all our grocery segments continuing to trade ahead of last year.
In addition, the benefits of the integration of the Hadfield production into our
Bury St Edmunds and Histon facilities should continue to flow through during the
second half and the consolidation of tea production into our Moreton factory
should be completed by the end of the year. The grocery market remains highly
competitive and the success of this restructuring programme remains key to the
performance of our business. For our potatoes business, we anticipate that
there will be an improved outlook with the new potato crop in the Autumn.
Overall trading remains in line with our expectations, though with our business
being biased to the colder winter months and particularly the Christmas period,
the last few months of the year are important for the full year out-turn.
Our brands, scale and efficiency mean we are well positioned to deliver
profitable growth and strong cash flow generation to support progressive
dividends and complementary acquisitions in the future.
Robert Schofield
Chief Executive
Financial review
Results presented
The consolidated financial information included in this interim report is for
the Premier Foods Investments No. 3 group, the predecessor group to that for
which shares were issued in the IPO. As such the results have been prepared on
the same basis as those included in the Listing Particulars for the IPO.
Premier Consolidated Profit and Loss Account
(see note 2 to the consolidated financial information)
Gross Profit
Gross profit before exceptional items was £96.5m for the continuing business for
the first half of 2004, an increase of 17.7% over 2003. This is principally due
to the inclusion of the Ambrosia business. Gross margin for the continuing
group was 22.7% for the first half of 2004, an increase of 70 basis points
compared to the same period in 2003. This increase was due to improvements in
the core grocery business and the inclusion of Ambrosia, although the increase
was offset by the deterioration of margins in the potatoes segment.
Selling and Distribution Expenses
Selling and distribution expenses before exceptional items were £39.3 million
for the first half of 2004, an increase of £2.3 million, or 6.2%, over the same
period in 2003. The increase is due to the inclusion of Ambrosia. Like-for-like
marketing costs were flat over the first half reflecting the shift in emphasis
of our spending towards the second half for the current year.
Administrative Expenses
After adjusting for the impact of the accrual reversals of £3.3m referred to
above, administrative expenses for the continuing business increased by £2.8m to
£16.7m. Of this, approximately £1.0m is linked to legal fees relating to the
CWS and Tibbett and Britten claims, consultancy costs associated with the
integration of the Ambrosia business and preparation for the IPO. The bulk of
these costs would not be expected to recur.
Operating Profit Before Exceptional Items
Operating profit before exceptional items for the continuing business was £35.6m
for the first half of 2004, an increase of £5.0m, or 16.3%, compared to the same
period in 2003. Like-for-like operating profit for the continuing business
increased by £1.3m or 4.2% and for the continuing grocery businesses by £2.0m or
7.5%.
Exceptional Items
Operating exceptional items of £4.4m in the half year to 3 July 2004, mainly
related to the provision made to cover the closure of the Edinburgh site and
integration of its operations into Moreton, together with costs linked to the
management changes at the Potatoes business. Prior year operating exceptionals
primarily related to the provision for the closure of the Hadfield site and the
integration of its operations into the Histon and Bury St Edmunds plants.
In addition, we incurred a charge of £1.0m on the merger of three of our
principal pension schemes. The merger required a one-off cash contribution of
£10.0m to equalise the level of funding in the schemes, £9.0m of which had been
previously provided against.
The non-operating exceptional charge in the half year to 3 July 2004 reflects
the write-down of fixed assets at our Edinburgh site, prior to its closure.
Cash Flow
Net cash flow from operating activities before exceptional items was £61.1m in
the first half of 2004, compared to £58.9m in the same period in 2003.
Exceptional cash flow items in 2004 includes the payment of a one off
contribution to the pension scheme of £10.0m to facilitate the merger of the
three predecessor schemes and the cash costs of the closure of the Hadfield
site. Net cash flow, prior to financing charges and capital expenditure, was
£46.6m, and £2.1m after these items.
Interest paid in the first half of 2004 increased to £25.4m from £17.2m in the
same period in 2003, partly as a result of the financing cost of the Ambrosia
acquisition but also because of the timing of payments around the half year
close. Our interest expense going forward will be significantly reduced by the
refinancing that took place as part of the IPO and the redemption of our
unsecured subordinated senior notes due 2009 (the 'Notes'), which we completed
on 1 September 2004.
Pro Forma
As stated above, the consolidated financial information presented here is for
the predecessor group and do not reflect the impact of the IPO. We have
included a pro forma statement of net assets in the notes to the financial
statements to demonstrate the estimated impact of the IPO and related
transactions on our balance sheet.
The principal adjustments to the balance sheet reflect the disposal of Materne,
the net proceeds from the IPO, costs relating to the new credit facility and
share options, the capitalisation of the PFI No. 3 loan notes and the redemption
of the Notes.
IPO Exceptional Items
The IPO, refinancing and redemption of the Notes resulted in a number of one-off
charges.
We have estimated the total costs in relation to raising the equity at £12.7m.
These will be treated as a deduction from the primary proceeds thus reducing the
share premium arising on the issue of the shares.
The cash cancellation of existing share options resulted in a charge of £8.2m,
which will be treated as an operating exceptional profit and loss charge. The
cancellation of senior management's share options comprised a cash cancellation
in respect of 30% of their options, included within the £8.2m referred to above,
and the issue of new 1p options exercisable one year after the IPO in respect of
the cancellation of the remaining options. The issue of these options will
incur a non-cash operating exceptional charge of £6.3m.
We also incurred costs estimated at £7.3m on the arrangement of the new senior
credit facility. These costs will be capitalised and amortised over the term of
the facility. The unamortised issuance costs of £10.5m associated with the
previous senior credit facility will be written off and charged as an operating
exceptional item in the second half.
The redemption of the Notes incurred an early redemption penalty of £11.3m.
This will be treated as an operating exceptional cost in the second half.
We will record a profit on the sale of Materne of approximately £15.1m. This
will be treated as a non-operating exceptional item in the second half.
Therefore, in relation to the IPO, refinancing, redemption of the Notes and the
sale of Materne, and after taking account of sundry costs of approximately
£1.0m, we estimate the total operating exceptional costs to be £15.5m,
exceptional interest charges to be £21.8m and non-operating exceptional profits
to be £15.1m.
Paul Thomas
Finance Director
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
Half year Full year
Note ending ending ending
3 July 2004 28 June 2003 31 December
(Unaudited) (Unaudited) 2003
£m £m £m
Turnover: Continuing operations 425.8 372.2 773.8
Discontinued operations 49.7 49.7 96.8
3 475.5 421.9 870.6
Operating profit: Continuing operations 31.2 24.2 65.9
Discontinued operations 2,3 1.8 1.7 2.2
Profit before non-operating exceptional items 33.0 25.9 68.1
Non-operating exceptional items 4 (0.8) 3.7 2.0
Profit on ordinary activities before interest 32.2 29.6 70.1
Net interest payable (38.8) (38.1) (70.4)
Loss on ordinary activities before taxation (6.6) (8.5) (0.3)
Tax credit on loss on ordinary activities 1.9 1.4 8.9
Profit / (loss) on ordinary activities after taxation (4.7) (7.1) 8.6
Dividends - - -
Transferred to/(from) reserves (4.7) (7.1) 8.6
Earnings per share (pence)
Basic (5.3) (7.9) 9.6
Diluted (5.1) (7.7) 9.3
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
3 July 2004 28 June 2003
£m £m
Fixed assets:
Intangible assets 185.3 111.1
Tangible assets 160.8 130.6
Investments 0.3 0.2
346.4 241.9
Current assets:
Stocks 105.2 107.7
Debtors due:
Within one year 124.0 122.6
After more than one year 6.4 7.9
Cash at bank and in hand 16.2 73.2
251.8 311.4
Creditors: amounts falling due within one year
Borrowings (54.9) (21.5)
Other creditors (191.3) (202.1)
(246.2) (223.6)
Net current assets 5.6 87.8
Total assets less current liabilities 352.0 329.7
Creditors: amounts falling due after more than one year
Borrowings (666.9) (641.0)
Other creditors (0.2) (0.2)
(667.1) (641.2)
Provisions for liabilities and charges (8.7) (22.1)
Net liabilities (323.8) (333.6)
Capital and reserves:
Share capital - -
Share premium account 10.0 10.0
Revaluation reserve 4.0 4.0
Merger reserve (136.8) (136.8)
Profit and loss account (201.0) (210.8)
Total shareholders' deficit (323.8) (333.6)
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED CASH FLOW STATEMENTS (UNAUDITED)
Half year ending
Note 3 July 28 June
2004 2003
£m £m
Net cash inflow from operating activities (a) 46.6 55.5
Return on investments and servicing of finance (25.4) (17.2)
Taxation - (0.5)
Capital expenditure and financial investment (19.1) (3.7)
Acquisitions and disposals - -
Cash inflow before financing 2.1 34.1
Financing
Decrease in gross debt (19.7) (6.5)
Increase / (decrease) in net cash in the period (17.6) 27.6
Reconciliation of net cash flow to movement in net debt
Increase / (decrease) in net cash in the period (17.6) 27.6
Cash outflow from decreased gross debt 19.7 6.5
Exchange movement on gross debt net of cash (0.8) (4.3)
Other non-cash changes (13.1) (11.7)
(Increase) / decrease in gross debt net of cash in the period (11.8) 18.1
Total debt net of cash at beginning of period (693.9) (607.5)
Total net debt at end of period (705.7) (589.4)
Analysis of movement in net debt
Movements
Cash flow Other Exchange
At movement on At
1 January 2004 non-cash debt 3 July
changes 2004
£m £m £m £m £m
Bank overdrafts (10.8) (6.5) - - (17.3)
Less: Cash balances 28.1 (11.1) - (0.8) 16.2
Net cash 17.3 (17.6) - (0.8) (1.1)
Debt due after one year (690.4) 2.6 13.6 - (674.2)
Debt due within one year (34.2) 17.1 (23.7) - (40.8)
Finance leases (0.1) - - - (0.1)
Gross debt (724.7) 19.7 (10.1) - (715.1)
Gross debt net of cash (707.4) 2.1 (10.1) (0.8) (716.2)
Debt issuance costs 13.5 - (3.0) - 10.5
Total net debt (693.9) 2.1 (13.1) (0.8) (705.7)
The accompanying notes are an integral part of these consolidated financial
statements.
NOTE TO THE CONSOLIDATED CASH FLOW STATEMENTS (UNAUDITED)
(a) Reconciliation of operating profit to operating cash flows
Half year ending
3 July 28 June
2004 2003
£m £m
Operating profit before exceptional items 37.4 32.4
Depreciation 10.1 9.5
Amortisation of intangible assets 5.2 3.2
Amortisation of pension prepayment - 0.9
Decrease in stocks 17.1 1.8
(Increase) / decrease in debtors (1.5) 18.1
Decrease in creditors (6.5) (7.9)
Exchange movement in working capital (0.7) 0.9
Net cash inflow from operating activities before
exceptional items
61.1 58.9
Cash flows relating to pension scheme equalisation (10.0) -
Cash flows relating to exceptional items (4.5) (3.4)
Net cash inflow from operating activities 46.6 55.5
STATEMENTS OF TOTAL RECOGNISED GAINS & LOSSES (UNAUDITED)
Half year ending
3 July 2004 28 June
2003
£m £m
Loss for the period (4.7) (7.1)
Currency translation differences on foreign currency net investments (2.3) 2.2
Total recognised gains and losses for the period (7.0) (4.9)
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' DEFICIT (UNAUDITED)
Half year ending
3 July 28 June
2004
2003
£m £m
Loss for the financial period (4.7) (7.1)
Other recognised gains and losses (2.3) 2.2
Net decrease in net assets (7.0) (4.9)
Opening net liabilities (316.8) (328.7)
Closing net liabilities (323.8) (333.6)
The accompanying notes are an integral part of these consolidated financial
statements.
1. Accounting Policies
Interim financial statements
The consolidated interim financial information does not constitute statutory
accounts within the meaning of Section 240 of the Companies Act 1985. The
figures for the year ended 31 December 2003 have been extracted from the Listing
Particulars for Premier Foods plc which have been delivered to the Registrar of
Companies. The Listing Particulars contained an unqualified report from an
independent accountant, PricewaterhouseCoopers LLP, as required by section 12.14
of the Listing Rules.
The consolidated interim financial information has been prepared on the basis of
the accounting policies set out in the company's Listing Particulars. The
results of operations for the half year periods are not necessarily indicative
of the results to be expected for the full year. The accompanying consolidated
financial information should be read in conjunction with the consolidated
financial statements and notes thereto, included in the company's Listing
Particulars.
Use of estimates
The financial information has been prepared in accordance with applicable
accounting standards in the United Kingdom, under the historical cost convention
as modified by the revaluation of Premier's freehold and long-leasehold
properties.
The financial information necessarily includes amounts based on judgements and
estimates made by management. Actual results could differ from these estimates.
Estimates are used when accounting for potential bad debts, inventory
obsolescence and spoilage, trade and promotion allowances, coupon redemptions,
depreciation and amortisation, deferred income taxes and tax valuation
allowances, pension and post-retirement benefits, restructuring charges and
contingencies among other items.
2. Profit and loss account
Half year ending 3 July 2004
Continuing business Discontinued Total
business
Before Exceptional After After
exceptional items exceptional exceptional
items items items
£m £m £m £m
Turnover 425.8 - 49.7 475.5
Cost of sales (329.3) (1.9) (38.3) (369.5)
Gross profit 96.5 (1.9) 11.4 106.0
Selling and distribution costs (39.3) (0.3) (7.5) (47.1)
Administration costs (16.7) (2.2) (1.9) (20.8)
Operating profit before amortisation 40.5 (4.4) 2.0 38.1
Amortisation (4.9) - (0.2) (5.1)
Operating profit 35.6 (4.4) 1.8 33.0
Half year ending 28 June 2003
Continuing business Discontinued Total
business
Before Exceptional After After
exceptional items exceptional exceptional
items items items
£m £m £m £m
Turnover 372.2 - 49.7 421.9
Cost of sales (290.2) (5.8) (38.4) (334.4)
Gross profit 82.0 (5.8) 11.3 87.5
Selling and distribution costs (37.0) (0.4) (7.2) (44.6)
Administration costs (10.6) (0.2) (2.1) (12.9)
Operating profit before amortisation 34.4 (6.4) 2.0 30.0
Amortisation (3.8) - (0.3) (4.1)
Operating profit 30.6 (6.4) 1.7 25.9
Full year ending 31 December 2003
Continuing business Discontinued Total
business
Before Exceptional After After
exceptional items exceptional exceptional
items items items
£m £m £m £m
Turnover 773.8 - 96.8 870.6
Cost of sales (591.1) (8.9) (77.2) (677.2)
Gross profit 182.7 (8.9) 19.6 193.4
Selling and distribution costs (73.3) (1.4) (13.2) (87.9)
Administration costs (23.8) (0.2) (3.9) (27.9)
Operating profit before amortisation 85.6 (10.5) 2.5 77.6
Amortisation (9.2) - (0.3) (9.5)
Operating profit 76.4 (10.5) 2.2 68.1
3. Summary Segmental Analysis
Turnover Half year ending Full year
ending
3 July 28 June 2003 31 December
2003
2004
£m £m £m
Convenience Foods, Pickles & Sauces 181.1 177.3 374.6
Tea & Beverages 70.2 69.2 143.0
Spreads & Desserts 85.6 54.3 120.4
Grocery products 336.9 300.8 638.0
Potatoes 88.9 71.4 135.8
Continuing operations 425.8 372.2 773.8
Discontinued operations 49.7 49.7 96.8
Total 475.5 421.9 870.6
Segmental analysis of EBITA1 and Operating profit before exceptional items
Half year ending 3 July 2004
EBITA1 Goodwill Pension Operating
amortisation amortisation profit2
£m £m £m £m
Convenience Foods, Pickles & Sauces 10.5 (1.5) - 9.0
Tea & Beverages 13.5 (0.2) - 13.3
Spreads & Desserts 13.8 (3.2) - 10.6
Grocery products 37.8 (4.9) - 32.9
Potatoes 2.8 (0.1) - 2.7
Continuing operations 40.6 (5.0) - 35.6
Discontinued operations 2.0 (0.2) - 1.8
Total 42.6 (5.2) - 37.4
Half year ending June 28 2003
EBITA1 Goodwill Pension Operating
amortisation amortisation profit2
£m £m £m £m
Convenience Foods, Pickles & Sauces 13.1 (1.5) (0.5) 11.1
Tea & Beverages 11.9 (0.2) (0.2) 11.5
Spreads & Desserts 5.9 (1.1) (0.2) 4.6
Grocery products 30.9 (2.8) (0.9) 27.2
Potatoes 3.5 (0.1) - 3.4
Continuing operations 34.4 (2.9) (0.9) 30.6
Discontinued operations 2.2 (0.3) - 1.9
Total 36.6 (3.2) (0.9) 32.5
Full year ending 31 December 2003
EBITA1 Goodwill Pension Operating
amortisation amortisation profit2
£m £m £m £m
Convenience Foods, Pickles & Sauces 37.3 (3.2) (1.4) 32.7
Tea & Beverages 27.9 (0.5) (0.5) 26.9
Spreads & Desserts 14.4 (2.7) (0.5) 11.2
Grocery products 79.6 (6.4) (2.4) 70.8
Potatoes 6.0 (0.4) - 5.6
Continuing operations 85.6 (6.8) (2.4) 76.4
Discontinued operations 3.0 (0.3) - 2.7
Total 88.6 (7.1) (2.4) 79.1
1. EBITA is defined as Operating profit before amortisation and exceptional
items.
2. Operating profit is stated here before exceptional items.
Geographical analysis of Turnover
By origin By destination
Half year Full year Half year Full year
Ending Ending 28 Ending 31 Ending Ending 28 Ending 31
June 2003 December June 2003 December
3 July 3 July
2004 2003 2004 2003
£m £m £m £m £m £m
United Kingdom 412.3 357.6 745.2 399.4 345.6 726.4
Mainland Europe 13.5 14.6 28.6 22.0 21.8 39.9
Other countries - - - 4.4 4.8 7.5
Continuing operations 425.8 372.2 773.8 425.8 372.2 773.8
Discontinued operations 49.7 49.7 96.8 49.7 49.7 96.8
Total 475.5 421.9 870.6 475.5 421.9 870.6
By origin
Geographical analysis of Operating assets
31 December
3 July 28 June 2003
2004 2003
£m £m £m
United Kingdom
Net operating assets 158.6 107.0 147.7
Intangible assets 180.3 105.8 185.3
338.9 212.8 333.0
Mainland Europe
Net operating assets 8.6 8.4 9.9
Intangible assets 0.1 0.1 0.1
8.7 8.5 10.0
Continuing operations 347.6 221.3 343.0
Discontinued operations
Net operating assets 29.4 29.3 29.1
Intangible assets 4.9 5.2 5.0
34.3 34.5 34.1
Net operating assets 381.9 255.8 377.1
Net debt (705.7) (589.4) (693.9)
Total (323.8) (333.6) (316.8)
4. Exceptional items
Half year Half year Full year
ending ending ending
3 July 28 June 31 December 2003
2004 2003
£m £m £m
Operating exceptional items
Restructuring of production facilities (1.9) (5.8) (8.9)
Restructuring of distribution facilities (0.3) (0.4) (1.4)
Restructuring of administration facilities (1.2) (0.2) (0.2)
Pension scheme equalisation (1.0) - -
Continuing operations (4.4) (6.4) (10.5)
Restructuring of production facilities - (0.2) (0.5)
Restructuring of distribution facilities - - -
Restructuring of administration facilities - - -
Discontinued operations - (0.2) (0.5)
Non-operating exceptional items:
Write down of fixed assets (0.9) - -
Profit on sale of fixed assets - 3.7 2.0
Continuing operations (0.9) 3.7 2.0
Write down of fixed assets - - -
Profit on sale of fixed assets 0.1 - -
Discontinued operations 0.1 - -
Operational exceptional items
Operating exceptional items in the half year to 3 July 2004, relate to the
provision made to cover the closure of the Edinburgh site and integration of its
operations into the Moreton site, together with costs incurred upon the
reorganisation of our Potatoes segment. Operating exceptional items in the half
year to 28 July 2003, relate to the provision made to cover the closure of the
Hadfield site and the integration of its operations into the Histon and Bury St
Edmunds sites. We refer you to the Listing Particulars for details of the
operating exceptional items for the year ended 31 December 2003.
Pension scheme equalisation
With effect from 21 May 2004, the Premier Brands Pension Fund and the Hillsdown
Foods Group Pension Scheme were merged into the HF Pension Scheme (which was
then renamed the Premier Foods Pension Scheme). At the merger date the Group
made a one-off cash contribution of £10.0m to the merged scheme to equalise the
funding levels of the predecessor schemes to facilitate the merger. The Group
had previously provided £9.0m against deficits in the schemes, hence a charge of
£1.0m was required.
Non-operating exceptional items
Non-operating exceptional items in the half year to 3 July 2004 comprises the
write down of fixed assets at our Edinburgh site, prior to its closure.
Non-operating exceptional income in the half year to 28 June 2003 was the profit
on sale of surplus property at our Moreton and Histon sites. We refer you to
the Listing Particulars for details of the non-operating exceptional items for
the year ended 31 December 2003.
5. Taxation
The tax credit for the first half of 2004 represents an adjusted effective tax
rate for the year of 29% applied to the loss before tax. This adjusted
effective tax rate is determined after taking account of available overseas tax
losses and disallowable items, with the exception of those relating to the IPO.
We anticipate the tax credit recognised in the first half will be utilised
against taxable profits arising in the second half. The effective rate on the
result for the year before exceptional items is anticipated to be 32% reflecting
the effect of expenses not allowable for tax and the effect of profits for our
Dutch subsidiary being taxed at 34.5%. Other than tax on the overseas profits,
we anticipate that there will not be any current taxes payable for the year. A
deferred tax charge will arise due to the effect of favourable timing
differences. The Group does not discount its deferred tax liabilities.
6. Earnings per share
2004 2003
Basic EPS Effect of Diluted EPS Basic EPS Effect of Diluted EPS
dilutive dilutive
securities securities
Continuing business
Earnings (£m) (7.0) - (7.0) (8.9) - (8.9)
Weighted average number of shares (million) 89.3 3.0 92.3 89.3 2.6 91.9
Per share amount (pence) (7.8) 0.2 (7.6) (10.0) 0.3 (9.7)
Discontinued business
Earnings (£m) 2.3 - 2.3 1.8 - 1.8
Weighted average number of shares (million) 89.3 3.0 92.3 89.3 2.6 91.9
Per share amount (pence) 2.5 - 2.5 2.1 (0.1) 2.0
Total business
Earnings (£m) (4.7) - (4.7) (7.1) - (7.1)
Weighted average number of shares (million) 89.3 3.0 92.3 89.3 2.6 91.9
Per share amount (pence) (5.3) 0.2 (5.1) (7.9) 0.2 (7.7)
7. Post Balance Sheet Events
IPO
On 23 July 2004 we made a Global Offer of 162,790,698 Ordinary Shares,
comprising 55,114,083 shares in a primary offering and 107,676,615 shares in a
secondary offering by Hicks, Muse, Tate & Furst ('Hicks Muse') raising £118.5mfor the company. In addition we issued 409,958 Ordinary Shares to directors for
£0.6m. The costs of the IPO have been estimated at £12.7m, resulting in net
proceeds of £106.4m, of which £8.2m was used for the cancellation of share
options in Premier Foods Holdings Limited ('PFHL'), £7.3m was used for financingcosts on the New Bank Facility and £90.9m was used to repay part of our the
existing senior secured credit facilities (together with our £75.0m Acquisition
Facility, the 'Existing Senior Credit Facilities').
Refinancing of Bank Facilities
Concurrently with the IPO we entered into a senior facilities agreement ('NewBank Facility') to provide £380.0m of term loan facility and £200.0m of
revolving credit facility. On 23 July 2004, £175.8m of the New Bank Facility
was used with part of the net proceeds from the IPO to repay the Existing Senior
Credit Facilities. On 1 September 2004, the remaining £204.2m of the term loan
facility was drawn to fund the redemption of the Notes. The refinancing
resulted in the write-off of £10.5m of debt issuance costs associated with the
Existing Senior Credit Facilities. The £7.3m paid on arrangement of the New
Bank Facility will be capitalised and amortised over the term of the facilities.
Please refer to the Listing Particulars for the IPO for further details of the
New Bank Facility.
Sale of Materne
On 19 July 2004, we agreed to sell our French spreads subsidiary Materne to
Hicks Muse, conditional on admission, for €55.0m. On 13 August 2004, we
completed the sale for an amount of £36.6m. We anticipate recording a profit on
the disposal of Materne of approximately £15.1m, based on the consideration of
£36.6m. The profit will be recorded as a non-operating exceptional item.
Redemption of Notes
On 1 September, we redeemed our $200.0m and £75.0m Notes. The sterling cost of
redeeming the principal of the Notes was £204.2m, which was funded through an
additional drawing on our £380.0m term loan facility. In addition, an early
redemption penalty of £11.3m was paid, which was funded from the £200.0m
revolving credit facility. This early redemption penalty will be charged
against operating exceptional items in the second half of 2004.
Summary of accounting for transactions associated with the IPO
Item Treatment Amount £m
Equity raised in primary offering in IPO Credited to share capital and share premium 118.5
accounts
Equity raised from directors' subscription for Credited to share capital and share premium 0.6
shares accounts
Costs associated with primary offering Debited to share premium account (12.7)
Cash cancellation of existing share options Operating exceptional charge (8.2)
Issue of roll-over options Operating exceptional charge (6.3)
Write-off of debt issuance costs associated Exceptional interest charge (10.5)
with the Existing Senior Credit Facilities
Fees payable on arrangement of New Bank Capitalised, to be amortised over term of (7.3)
Facility loan
Profit on sale of Materne Non-operating exceptional profit 15.1
Early redemption penalty on redemption of Exceptional interest charge (11.3)
Notes
Sundry IPO expenses Operating exceptional charge (1.0)
Pro forma statement of net liabilities and net debt
Set out below is an unaudited pro forma statement of the Premier's net deficit
and net debt prepared to show the effect of the IPO, the disposal of the Materne
group, the refinancing of the Senior Credit Facility and the Acquisition
Facility and the redemption of the Notes.
PFI No. 3 Disposal IPO and Refinancing Effective Cancellation Redemption Group pro
Group net of use of of the Capitalisation of the share of the forma
assets at Materne proceeds existing of PFI No. 3 options (5) Notes (6)
3 July (1) (2) Credit Loan Notes (4)
2004 Facilities
(3)
£m £m £m £m £m £m £m £m
Pro forma statement of
net liabilities
Fixed assets
Intangible assets 185.3 (4.9) - - - - - 180.4
Tangible assets 160.8 (12.2) - - - - - 148.6
Investments 0.3 (0.3) - - - - - -
346.4 (17.4) - - - - - 329.0
Current assets
Stocks 105.2 (14.6) - - - - - 90.6
Debtors 130.4 (25.2) - - - - - 105.2
Cash at bank and in hand 16.2 (0.9) 0.6 (7.3) - (8.2) - 0.4
Creditors:
Amounts falling due within one(246.2) 34.1 - (3.3) - - (11.3) (226.7)
year
Net current assets 5.6 (6.6) 0.6 (10.6) - (8.2) (11.3) (30.5)
Total assets less current 352.0 (24.0) 0.6 (10.6) - (8.2) (11.3) 298.5
liabilities
Creditors:
Amounts falling due after more(667.1) 37.5 105.8 0.1 203.3 - - (320.4)
than one year
Provisions for liabilities and (8.7) 1.6 - - - - - (7.1)
charges
Net liabilities (323.8) 15.1 106.4 (10.5) 203.3 (8.2) (11.3) (29.0)
Pro forma statement of net debt
Gross debt net of cash (716.2) 36.6 106.4 (7.3) 203.3 (8.2) (11.3) (396.7)
Debt issuance costs 10.5 - - (3.2) - - - 7.3
Net debt (705.7) 36.6 106.4 (10.5) 203.3 (8.2) (11.3) (389.4)
(1) An adjustment has been made to (i) eliminate the net assets of Materne which
was disposed of for a cash consideration of £36.6m. This assumes no receipt of
the contingent consideration comprising the Net Sales Amount and the EBITDA
Amount and the working capital adjustment described in paragraph 11.16 of Part
XI ''Additional Information - Material Contracts - Materne Sale Agreement'' of
the Listing Particulars; and (ii) the application of the sale proceeds to repay
approximately £36.6 million outstanding under the Senior Credit Facility.
(2) An adjustment has been made to reflect (i) the issue of 55,114,083 Primary
Shares in the IPO and the issue of 409,958 Ordinary Shares to directors for a
total consideration of £119.1m, resulting in net proceeds of £106.4m after
payment of estimated issue costs of £12.7million and (ii) the application of
these net proceeds to repay approximately £105.8m principal amount outstanding
under the Senior Credit Facility, prior to the payment of the New Bank Facility
arrangement fees of £7.3m and the cash cancellation of share options in Premier
Foods Holdings of £8.2m described in note 7.
(3) An adjustment has been made to reflect the write-off of £10.5m unamortised
issue costs upon the refinancing of the Senior Credit Facility and the
Acquisition Facility offset by the New Bank Facility arrangement fees of £7.3m.
The arrangement fees will be deferred and amortised over the term of the New
Bank Facility.
(4) On 23 January 2004, Premier Foods Investment No. 3 Limited issued £194.4m of
unsecured, unguaranteed loan notes due 2017 to Premier Investments Holdings
Limited Partnership ('PIHLP') (the ''PFI No. 3 Loan Notes''). On Admission thePFI No. 3 Loan Notes will be transferred from PIHLP to HMTF Premier Limited ('HMTFPL') in exchange for shares in HMTFPL, and from HMTFPL to Premier Brands
Cayman Limited ('PBC') in exchange for shares in the Cayman company. Also onAdmission, HMTFPL will transfer the entire issued share capital of PBC to the
Company in exchange for shares in the Company to be issued to persons nominated
by the Underwriters (and/or the Underwriters themselves to the extent that they
do not procure allottees) pursuant to the Second Share Exchange Agreement. For
more information on the Second Share Exchange Agreement, see paragraph 11.17(f)
''Restructuring Agreements - Second Share Exchange Agreement'' of Part XI ''
Additional Information - Material Contracts'' of the Listing Particulars. An
adjustment has been made to reflect (i) the transfer of the PFI No. 3 Loan Notes
by HMTFPL to PBC (including accrued interest of £3.9m thereon), (ii) the issue
of shares by PBC to HMTFPL; and (iii) the transfer by HMTFPL of shares in PBC to
the Company in exchange for an issue of shares by the Company to persons
nominated by the Underwriters (and/or the Underwriters themselves to the extent
that they do not procure allottees).
(5) An adjustment has been made to reflect (i) the cash payment in relation to
the cancellation of 3,701,100 existing share options in Premier Foods Holdings
assuming that all employees eligible for the cash cancellation of their options
in Premier Foods Holdings shares accept the offer; and (ii) the employer's
national insurance contribution arising on the cancellation of those share
options. The company will incur a non-cash charge of £6.3m, being the difference
between the estimated market value of the Ordinary Shares on the date of grant
and the exercise price of the ''rolled-over options''. The profit and loss
account charge of £6.3m in respect of the grant of the ''rolled-over options''
will result in a corresponding credit to shareholders' deficit such that there
is no adjustment to net liabilities of the company.
(6) On 1 September, we redeemed our $200.0m and £75.0m Notes. The sterling cost
of redeeming the principal of the Notes was £204.2m, which was funded through an
additional drawing on our £380.0m term loan facility. In addition, an early
redemption penalty of £11.3m was paid, which was funded from the £200.0m
revolving credit facility. This early redemption penalty will be charged
against operating exceptional items in the second half of 2004.
(7) Net debt has been defined as bank and other borrowings due within and after
more than one year less cash at bank and in hand.
(8) The Company is expecting to account for the acquisition of Premier Foods
Investments No. 3 Limited and its subsidiary undertakings using the principles
of merger accounting and hence no goodwill will arise on the completion of the
acquisition.