REG - Premier Foods plc Premier Foods Fin - Preliminary Results
18/05/2023 07:00
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RNS Number : 8594Z Premier Foods plc 18 May 2023
18 May 2023
Premier Foods plc (the "Group" or the "Company")
Preliminary results for the 52 weeks ended 1 April 2023
Another strong year; Adjusted PBT up 13.0%, and further pensions progress
Headline results (£m) FY22/23 FY21/22 % change
Revenue 1,006.4 900.5 11.8%
Trading profit(1) 157.5 141.2 11.5%
Adjusted profit before taxation(4) 137.2 121.4 13.0%
Adjusted earnings per share(7) (pence) 12.9 11.5 12.7%
Net debt(11)/Adjusted EBITDA(3) 1.5x 1.7x
Statutory measures (£m) FY22/23 FY21/22 % change
Profit before taxation 112.4 102.6 9.6%
Profit after taxation 91.6 77.5 18.2%
Basic earnings per share (pence) 10.6 9.0 17.8%
Dividend per share (pence) 1.44 1.2 20.0%
Net debt(11) 274.3 285.0 3.8% lower
Alternative performance measures above are defined and reconciled to statutory
measures throughout.
Headline results presented for FY22/23 include ownership of 'The Spice
Tailor'.
Trading profit is stated including software amortisation; FY21/22 comparative
is re-stated accordingly.
Reconciliations for Revenue and Trading profit showing impact of the financial
performance of The Spice Tailor during period of ownership and the Trading
profit definition update are provided in the appendices.
Headlines
· Full year Branded revenue up +9.1%; Q4 branded revenue up +15.9%
· Grocery market share(13) increased +64bps compared to prior year
· Trading profit +11.5%, ahead of upgraded guidance
· Trading profit margins in line with last year as input cost inflation offset
by cost savings and increased pricing
· International revenue growth up +10%(8) with record market share for Mr
Kipling in Australia
· New categories revenue increased +33% led by early success with Ambrosia
porridge pots
· Accelerated revenue growth of The Spice Tailor post acquisition; 12 month
revenue +25%
· Pensions cash contributions NPV reduced by c.50% to c.£125m and cash costs
reduced by £6m from FY23/24
· FY23/24 expectations for another good year unchanged
Alex Whitehouse, Chief Executive Officer
"Once again, the business has delivered a year of strong performance in a
challenging environment with Group Revenue increasing by 11.8%. Our brands
grew strongly, up 9.1%, underpinned by our branded growth model and supported
by higher pricing. Trading profit increased by 11.5%, maintaining margins
versus a year ago, as we successfully offset exceptionally high input cost
inflation through a combination of cost efficiencies and pricing."
"Additionally, we continued to make very good progress against all our
strategic objectives; our brands in the UK grew by 7.5%(14), with the Grocery
brands further increasing market share; revenues from new categories this year
increased by 33% and we achieved a record market share for Mr Kipling in
Australia. We made our first acquisition in 15 years, The Spice Tailor brand,
which is already delivering accelerated sales growth as we apply our proven
branded growth model. Even after this transaction, we reduced Net debt by over
£10m, lowering Net debt/adjusted EBITDA to 1.5x, in line with our medium-term
target. With a much stronger balance sheet, we are pleased to propose an
increase in the dividend of 20% again this year. Additionally, we have today
announced a further 50% reduction in the net present value of our pension
contributions and a reduction in annual cash contributions of £6m."
"We know that consumer budgets remain under pressure in the current
environment and our broad portfolio of brands continue to provide great
options to prepare and eat good value, delicious meals at home. We
are continuing to see consumers looking for convenient, affordable and tasty
meal solutions and Batchelors and Nissin were two of our best branded
performers in the year which benefitted from this trend. Batchelors, well
known for its tasty Super Noodles, has now become our largest Grocery brand,
increasing revenues by over 20% this year."
"We will continue to pursue vigorously our five pillar growth strategy and
with our positive momentum, including a good start to Q1, we are well placed
to make further progress this year, and our expectations remain unchanged."
Environmental, Social and Governance (ESG)
The Group continues to make strong progress against its 'Enriching Life Plan'
which is articulated through the three key strategic pillars of Product,
Planet and People. The Group has set out a series of major sustainability
targets under each pillar which can be found on the Company's website.
Under the product pillar, sales of plant-based products such as Plantastic
cooking sauces, protein pots and Millionaire Flapjacks increased by 34% in the
year. In terms of packaging, the percentage of finished goods which are
recyclable across the Group have now reached 96%. Progress in the planet
workstreams includes receipt of validation of emissions targets from the
SBTi(18) coalition, while the Group has also reduced food waste (as measured
by Champions 12.3(19)) by 11% in the year. In the people pillar, the Company
agreed a new corporate charity partnership with FareShare in the year and
launched a colleague volunteering scheme. Additionally, 47% of management
roles are now held by female colleagues.
Dividend
Subject to shareholder approval, the directors have proposed a final dividend
of 1.44 pence in respect of the 52 weeks ended 1 April 2023 (FY21/22: 1.2p),
payable on 28 July 2023 to shareholders on the register at the close of
business on 30 June 2023. The shares will go ex-dividend on 29 June 2023. This
represents a 20% increase in the dividend paid per share compared to FY21/22,
is ahead of adjusted earnings per share growth and is consistent with Board's
approach of proposing a progressive dividend to shareholders.
Outlook
The Group delivered a strong financial performance in FY22/23, demonstrated by
clear progress across all the elements of its five pillar strategy. Looking
ahead to the coming year, the Group has strong plans in place for product
innovation, further consumer marketing and increased capital investment.
Additionally, it expects to build on the initial success in new categories,
deliver further progress Internationally and continue to explore M&A
opportunities. With continued positive momentum and a good start to Quarter
one, the Group is well placed to make further progress this year, with
expectations unchanged.
Strategy overview
The Group's five pillar strategy drives growth and creates value, as outlined
below.
1. Continue to grow the UK core business
We have a well established and growing UK business which provides the basis
for further expansion. The UK's branded growth model is at the heart of what
we do and is core to our success. Leveraging our leading category positions,
we launch new products to market driven by consumer trends, support our brands
with sustained levels of marketing investment and foster strong customer and
retailer partnerships.
Proof point: Three-year average growth rate for UK branded revenue of
5.3%(14).
2. Supply chain investment
We invest in operational infrastructure to increase efficiency and
productivity across our manufacturing and logistics operations, providing a
virtuous cycle for brand investment. Capital investment in our sites also
facilitates growth through our innovation strategy and enhances the safety and
working conditions of our colleagues.
Proof point: New case packer and auto-palletiser in Stoke and Carlton sites.
3. Expand UK business into new categories
We leverage the strength of our brands, using our proven branded growth model
to launch products in adjacent, new food categories.
Proof point: Revenue growth of products in new categories increased by 33%
compared to the prior year.
4. Build international businesses with critical mass
We are building sustainable business units with critical mass overseas,
applying our brand building capabilities to deliver growth in our target
markets of Republic of Ireland, Australia & New Zealand, North America and
Europe. Our primary brands to drive this expansion are Mr Kipling, Sharwood's
and The Spice Tailor.
Proof point: Revenue growth of 10%(8) in the year.
5. Inorganic opportunities
We will utilise our brand building and commercial expertise to expand across a
wider portfolio, accelerating value creation through targeted acquisition
opportunities and applying our branded growth model.
Proof point: Completed The Spice Tailor acquisition in the year, accelerating
12 month revenue growth to 25%.
Further information
A presentation to investors and analysts will be webcast live today at 9:00am
BST.
To register for the webcast follow the link:
www.premierfoods.co.uk/investors/investor-centre
(http://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, 18
May 2023, at 1:30pm BST. Dial in details are outlined below:
Telephone: 0800 358 1035 (UK toll free)
+44 20 3936 2999 (standard international access)
Access code: 795867
A factsheet providing an overview of the Preliminary results is available at:
www.premierfoods.co.uk/investors/results-centre
(http://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/
(http://www.premierfoods.co.uk/media/image-gallery/)
Further information on the 'Best Restaurant in Town' can be found at:
www.bestrestaurantintown.co.uk/ (https://www.bestrestaurantintown.co.uk/)
As one of Britain's largest food producers, we're passionate about food and
believe each and every day we have the opportunity to enrich life for
everyone. Premier Foods employs over 4,000 people operating from 15 sites
across the country, supplying a range of retail,
wholesale, foodservice and other customers with our iconic brands which
feature in millions of homes every day.
Through some of the nation's best-loved brands, including Ambrosia,
Batchelors, Bisto, Loyd Grossman, Mr Kipling, Oxo and Sharwood's, we're
creating great tasting products that contribute to healthy and balanced diets,
while committing to nurturing our people and our local communities, and going
further in the pursuit of a healthier planet, in line with our Purpose of
'Enriching Life Through Food'.
Contacts:
Institutional investors and analysts:
Duncan Leggett, Chief Financial Officer
Richard Godden, Director of Investor Relations
Investor.relations@premier (mailto:Investor.relations@premier) foods.co.uk
Media enquiries:
Sarah Henderson, Director of Communications
Headland
Ed Young +44 (0) 7884 666830
Jack Gault +44 (0) 7799 089357
- 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
Overview
£m FY22/23 FY21/22 % change
Branded revenue 844.2 774.1 9.1%
Non-branded revenue 162.2 126.4 28.3%
Group revenue 1,006.4 900.5 11.8%
Divisional contribution(2) 216.2 193.6 11.7%
Divisional contribution margin 21.5% 21.5% 0.0ppts
Trading profit(1) 157.5 141.2 11.5%
Trading profit margin 15.7% 15.7% 0.0ppt
Adjusted EBITDA(3) 182.3 160.4 13.7%
Adjusted profit before tax(4) 137.2 121.4 13.0%
Adjusted earnings per share(7) (pence) 12.9 11.5 12.7%
Basic earnings per share (pence) 10.6 9.0 16.7%
The table above is presented including the impact of The Spice Tailor
acquisition. A reconciliation excluding The Spice Tailor is included in the
appendices.
Group revenue increased by 11.8% in the year, with branded revenue up 9.1% and
non-branded revenue 28.3% higher. Revenue growth of 6.6% in the first half of
the year accelerated to 15.8% in H2. Divisional contribution grew by 11.7% to
£216.2m, with margins in line with the prior year and Trading profit
increased by 11.5% to £157.5m. Group and corporate costs rose in the year,
reflecting wage and salary inflation, additional strategic roles and a
provision release in the prior year. The Company also paid one-off cost of
living payments to colleagues and awarded a bonus to all colleagues in the
year. Trading profit also included other income of £3.8m reflecting a receipt
following a temporary interruption at a manufacturing site, in compensation
for equivalent revenue and cost of sales impact presented within Gross profit.
Adjusted profit before tax and adjusted earnings per share increased by 13.0%
and 12.7% respectively. Basic earnings per share for FY22/23 increased by
17.8% to 10.6p. The results above include seven month's ownership of The Spice
Tailor.
Trading performance
Grocery
£m FY22/23 FY21/22 % change
Branded revenue 635.3 560.1 13.4%
Non-branded revenue 111.5 87.6 27.3%
Total revenue 746.8 647.7 15.3%
Divisional contribution(2) 189.2 160.2 18.1%
Divisional contribution margin 25.3% 24.7% +0.6ppts
The table above is presented including the impact of The Spice Tailor
acquisition. A reconciliation excluding The Spice Tailor is included in the
appendices.
Grocery revenue increased by 15.3% in the year to £746.8m and Branded revenue
grew by 13.4% to £635.3m. Non-branded revenue increased by £23.9m to
£111.5m. Divisional contribution was 18.1% higher at £189.2m and
consequently, divisional contribution margins increased by 60 basis points.
In the fourth quarter, Grocery revenue increased by 24.7%, with very strong
growth in both branded and non-branded revenue, reflecting pricing and
benefits of the branded growth model across the portfolio. Market share(13)
grew by 64 basis points across the year, illustrating the strength and
resilience of the Group's portfolio as consumers budgets came under pressure.
Non-branded revenue grew due to pricing benefits in retailer branded product
categories and recovery in out of home sales compared to the prior year.
The Group's branded growth model leverages the strength of its market leading
brands, launching insightful new products, supporting the brands with
emotionally engaging advertising and building strategic retail partnerships.
During the year, the Group expanded investment in its 'Best Restaurant in
Town' campaign, which highlights great value meal ideas across the Grocery
portfolio. This strategy has driven 5.3% compound annual branded revenue
growth for the combined UK Grocery and Sweet Treats businesses over the last
three years (this excludes revenue related to The Spice Tailor).
Revenue growth of Batchelors and Nissin noodles ranges were particularly
strong in the year, as consumers sought convenient, tasty and affordable meal
solutions across the respective product ranges. Consequently, Batchelors is
now the Group's largest Grocery brand by revenue. New product development,
driven by key consumer trends included Sharwood's East Asian cooking sauces,
Batchelors pasta 'n' sauce chef specials, Ambrosia Deluxe custard pots and
Plantastic cooking sauces and protein pots.
Strong, collaborative partnerships with customers is another key element of
the Group's branded growth model. Ambrosia and Angel Delight teamed up with
the Minions to deliver great instore activity in conjunction with on pack
offers to win cinema tickets. Additionally, Batchelors continued to partner
with the DC Warner Brothers Superhero franchise to offer consumers the
opportunity to win prizes. These are both pertinent examples of driving volume
uplifts with retail customers leveraging the strength of the Group's brands
and the respective franchise partners.
Another of the Group's growth strategies is to leverage its strong brand
equities to expand into adjacent categories. Revenues from products launched
in new categories increased by 33% in the year and was led by a particularly
good performance from Ambrosia porridge pots. This product benefits from being
ready to eat with the distinctive creamy texture characteristic of Ambrosia.
The 'on the go' porridge pot market is a high growth category, and Ambrosia
porridge succeeded in gaining over 10% value share in certain major retailers.
The Group acquired The Spice Tailor brand in the year. Complementing the
Sharwood's and Loyd Grossman brands in the cooking sauces and accompaniments
category, The Spice Tailor grew revenue by 25% on a 12 month pro forma basis,
to £17m in FY22/23, in line with expectations and ahead of its historical
growth rate.
New product development for FY23/24 include Loyd Grossman stir in sauces,
Sharwood's lower fat curry pastes and Batchelors cook with noodles.
Sweet Treats
£m FY22/23 FY21/22 % change
Branded revenue 208.9 214.0 (2.4%)
Non-branded revenue 50.7 38.8 30.5%
Total revenue 259.6 252.8 2.7%
Divisional contribution(2) 27.0 33.4 (19.2%)
Divisional contribution margin 10.4% 13.2% (2.8ppt)
Revenue in the Sweet Treats business grew by 2.7% in the year. Branded revenue
was £208.9m, (2.4%) lower than the prior year, while non-branded revenue
increased by 30.5% to £50.7m. The particularly strong growth in non-branded
revenue of 30.5% was due to pricing benefits of existing ranges and contract
wins in pies and tarts and seasonal ranges.
In the fourth quarter, overall revenue growth was similar to the full year,
with revenue growing by 2.9%. Branded revenue showed an improving trend
compared to the third quarter and Non-branded grew by over 60% versus the
prior year.
Divisional contribution was £27.0m in the year, £6.4m lower than FY21/22.
While divisional contribution margins of 10.4% were 2.8 percentage points
lower than the prior year, they were 1.1 percentage points higher than two
years ago. Revenue growth reflected pricing to help recover input cost
inflation, partly offset by lower volumes due to lower promotional activity,
especially in the first half of the year and some price elasticity effects
which we expect to recover over the coming months. In the second half, Sweet
Treats was also affected by some unscheduled maintenance of a Cadbury cake
plant line which impacted Divisional contribution in the year.
The Mr Kipling brand launched a new, non-HFSS (non-high fat, salt & sugar)
cake range called 'Deliciously Good' in the year, which received a good
response from consumers. This new range is a clear demonstration of how the
Group is delivering against the Group's 'Enriching Life Plan' ESG strategy and
offers consumers further options to support healthier lifestyles. The product
range is made with 30% less sugar and lower fat and benefits from a higher
content of fibre and fruit compared with the standard Mr Kipling range. These
cakes are the only full range which can be promoted on end of aisles and at
front of store in large supermarkets, under new legislation. Other new product
development launched in the year included Mr Kipling Signature brownie bites
and Plantastic Millionaire Flapjacks.
Mr Kipling also benefitted from a fresh new TV campaign for Mr Kipling, the
'Piano' advert, continuing the strategy under the brand growth model of
building emotional connections with consumers. Looking ahead to next year,
product innovation to be launched to market includes Mr Kipling Deliciously
Good loaf cakes and Cadbury Mini rolls in mint and orange flavours.
International
Revenue overseas (on a constant currency basis and excluding The Spice Tailor)
increased by 10%(8) compared to the prior year. On a reported basis and
including The Spice Tailor, revenue growth was 19%. This progress was broad
based across the Group's target markets of Australia, Canada, Europe, Ireland
and the USA. The key focus brands which the Group considers possess the
greatest potential for long-term international growth, are Sharwood's, Mr
Kipling and The Spice Tailor. In FY22/23, Sharwood's and Mr Kipling grew by
30% and 11% respectively.
The Group's strategy of building sustainable businesses in its target markets
is progressing well. In Australia, the Mr Kipling and Cadbury cake brands have
collectively delivered the Group's highest ever share of the cake market in
the year and reached 15.6% on a full year basis, extending leadership of the
cake category. Additionally, and following the acquisition of The Spice
Tailor, the reach in the Australian ethnic cooking sauces market is
significantly enhanced, and presents further opportunity for growth.
The Mr Kipling test in the USA concluded successfully with encouraging rate of
sale KPIs; wider rollout to additional retailers has now commenced and is
expected to build during FY23/24. Sharwood's also grew sales strongly in the
US throughout the year. In Canada, revenue more than doubled in the year
following the listing of 30 new product lines of Sharwood's in a leading North
American retailer. This was followed up by listings of The Spice Tailor in the
same retailer shortly after acquisition, while Mr Kipling cake also delivered
good sales growth in the year.
Sales in Ireland were, like the UK, broad based and Nissin noodles sales more
than doubled. Europe continues to deliver distribution gains for Sharwood's,
entering the Netherlands for the first time and expanding presence in Spain
and Germany.
Operating profit
Operating profit grew by £1.1m to £132.2m in the year. Trading profit
increased to £157.5m, as described above. Brand amortisation was £20.7m in
the year and movement in the fair valuation of foreign exchange and derivative
contracts was a charge of £1.8m. Net interest on pensions and administrative
expenses was a credit of £17.7m (FY21/22: £4.2m), reflecting c.£26m due to
an interest credit on the opening combined surplus of the pension scheme,
partly offset by approximately £8m of administrative expenses. Following the
decision to close the Group's Knighton manufacturing site, restructuring costs
of £7.6m were incurred in addition to an impairment charge of £3.6m. Total
restructuring costs taken in the year were £11.1m which included some
additional supply chain restructuring. Other non-trading items were £5.8m,
predominantly reflecting M&A advisory costs and other one-off supply chain
charges. Other non-trading income of £1.5m in the prior period primarily
related to the successful resolution of a legacy legal matter.
Finance costs
Net finance cost was £19.8m in the year, a reduction of £8.7m compared to
the prior year. This was primarily due to the accelerated amortisation of debt
issuance costs (£4.3m) and the early redemption of the Group's now retired
£300m 2023 dated Fixed Rate Notes (£4.7m) in FY21/22. Net regular
interest(5) was £20.3m, £0.5m higher than last year. This increase was due
to a higher SONIA rate applicable to the Group's revolving credit and debtors
securitisation facilities, partly offset by the full year effect of lower
Senior secured notes interest charges following issuance of the Group's 3.5%
2026 Fixed Rate Notes.
Taxation
The taxation charge for the year of £20.8m (2021/22: £25.1m) comprised a
charge on operating activities of £21.4m (2021/22: £19.5m) and adjustments
to remeasure the opening deferred tax balances, the latter due to the change
in UK corporation tax from 19% to 25%, effective 1 April 2023. The Group
currently retains brought forward losses which it can utilise to offset
against future tax liabilities and has now recommenced paying cash tax.
Earnings per share
£m FY22/23 FY21/22 % change
Operating profit 132.2 131.1 0.8%
Net finance cost (19.8) (28.5) 30.5%
Profit before taxation 112.4 102.6 9.6%
Taxation (20.8) (25.1) 17.1%
Profit after taxation 91.6 77.5 18.2%
Average shares in issue (million) 861.2 858.8 0.3%
Basic Earnings per share (pence) 10.6 9.0 17.8%
The Group reported profit before tax of £112.4m in the year, a 9.6% increase
on FY21/22. Profit after tax increased by £14.1m to £91.6m and basic
earnings per share increased by 17.8% to 10.6 pence.
Cash flow
Net debt as at 1 April 2023 was £274.3m, a reduction of £10.7m compared to
the prior year. An inflow of cash and cash equivalents was £9.1m and movement
in lease liabilities of £2.8m was partly offset by a £1.2m movement in debt
issuance costs. The reduction in Net debt was after paying consideration of
£43.8m to acquire The Spice Tailor.
Trading profit was £157.5m, as described above, while depreciation and
software amortisation was £24.8m. A £24.8m outflow of working capital was
due to higher stock reflecting inflation of both raw materials and finished
goods, with an associated impact on debtors. Pension deficit contribution
payments of £37.5m and administration cash were £7.6m, totalling £45.1m
cash outflow to the schemes.
On a statutory basis, cash generated from operating activities was £87.2m
(2021/22: £90.1m) after deducting net interest paid of £19.6m (FY21/22:
£20.8m) reflecting a lower coupon on the Group's Fixed Rate Notes, partly
offset by higher SONIA rates on the Group's unutilised RCF and debtors
securitisation facilities. The Group paid Tax of £1.5m (2021/22: Nil).
Cash used in investing activities was £63.8m (FY21/22: £23.2m) and included
acquisition consideration of The Spice Tailor as described above and capital
expenditure of £20.0m (FY21/22: £23.2m). In FY23/24, the Group expects to
increase its capital investment, as it looks to accelerate investment across
the supply chain and transfer some manufacturing capability from the Knighton
site to Ashford, Kent and Carlton, South Yorkshire. Such investment includes
both growth projects supporting the Group's innovation strategy and cost
release projects to deliver efficiency savings. The strategy of investing in
supply chain infrastructure represents a virtuous cycle to provide the fuel
for the Group's branded growth model. Projects completed in the year include
automation solutions at some of the Group's cake manufacturing sites; at the
Stoke site an end of line auto case packer and triple head depositor were
installed and Carlton invested in an end of line auto case packer.
Cash used in financing activities was £14.3m in the year (FY21/22: £13.7m)
which included a £10.3m dividend payment to shareholders. A dividend match
payment to the Group's pension schemes of £2.7m was also made in the year.
The Group's Net debt/adjusted EBITDA ratio at 1 April 2023 was 1.5x, a
reduction of 0.2x compared to the prior year position and in line with the
medium-term target. As at 1 April 2023, the Group held cash and bank deposits
of £63.4m and its £175m revolving credit facility was undrawn.
Pensions
IAS 19 Accounting Valuation (£m) 1 April 2023 2 April 2022
RHM Premier Foods Combined RHM Premier Foods Combined
Assets 3,240.2 552.6 3,792.8 4,273.7 826.3 5,100.0
Liabilities (2,291.9) (735.4) (3,027.3) (3,134.9) (1,020.2) (4,155.1)
Surplus/(Deficit) 948.3 (182.8) 765.5 1,138.8 (193.9) 944.9
Net of deferred tax (25%) 711.2 (137.1) 574.1 854.1 (145.4) 708.7
The Group's pension scheme had a combined surplus of £765.5m at 1 April 2023,
a reduction of £179.4m compared to the prior year. This is equivalent to a
surplus of £574.1m net of a deferred tax charge of 25.0%. Asset values and
liabilities fell in both sections of the schemes due to the hedging in place.
The movement in liabilities was impacted by the increase in discount rate,
from 2.75% to 4.80%, reflecting recent rises in UK corporate bond yields.
Asset values were lower across a number of asset classes, notably in absolute
return products and credit funds.
A deferred tax rate of 25.0% 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.
Assets in the combined schemes decreased by £1,307.2m, or by 25.6%, to
£3,792.8m in the period. RHM scheme assets reduced by £1,033.5m to
£3,240.2m while the Premier Foods' schemes assets decreased by £273.7m to
£552.6m. In the combined schemes, liabilities decreased by £1,127.8m, or
27.1%, to £3,027.3m. The RPI inflation rate assumption used decreased by
thirty basis points to 3.3%, compared to 3.6% as at 2 April 2022.
The pension Trustee manages impacts from market volatility efficiently and
there were no issues encountered by the scheme as a result of LDI asset
collateral calls due to volatility in financial markets during FY22/23.
Pensions - Triennial actuarial valuation
As at 31 March 2022, the Group's pension scheme was valued at a combined
surplus of £297m on a technical provisions basis. Within this, was an RHM
section surplus of £665m and a Premier Foods section deficit of £368m. This
represents an improvement of approximately £511m compared to the previous
technical provisions basis at 31 March 2019, when the combined valuation was a
deficit of £214m.
Following this valuation, the Company and Trustees of the schemes have agreed
to reduce the annual deficit contribution payments by £5m per annum to £33m
until FY25/26. Additionally, administrative expenses (including the UK
Government PPF levy) have reduced from the Group's guidance of £6-8m per
annum to £6m. Consequently, and in addition to an increase in the Group's
post-tax weighted average cost of capital to 9.1% (FY21/22: 7.4%), the net
present value of future pension contributions to the end of the respective
recovery periods has reduced by approximately 50%, from £240-260m(15) to
approximately £125m(15). This includes the benefit of a c.£100m surplus from
the RHM section on a buyout valuation basis.
Capital allocation
The Group is a highly cash generative business and has substantially reduced
its interest costs in recent years. Today, the allocation of capital is split
across pension contributions, capital investment and dividends. Additionally,
the Group continues to explore M&A opportunities. In the medium term,
pensions contributions are expected to reduce further, freeing up more cash to
spend on capital investment, M&A and dividends.
Principal risks and uncertainties
Strong risk management is key to delivery of the Group's strategic objectives.
It has an established risk management process, the Executive Leadership Team
performing a formal robust assessment of the principal risks bi-annually which
is reviewed by the Board and Audit Committee. Risks are monitored at a segment
and functional level throughout the year considering both internal and
external factors. The Group's principal risks and uncertainties will be
disclosed in the annual report and accounts for the financial period ended 1
April 2023. The major strategic and operational risks are summarised under the
headings of Macroeconomic and geopolitical instability, Impact of Government
legislation, Market and retailer actions, Operational integrity, Legal
compliance, Climate risk, Technology, Product portfolio, HR and employee
risk, Strategy delivery. The Group notes the increase since last year of the
widely reported macro-economic and industry wide supply chain environment
issues which it continues to navigate successfully through. In particular, the
Group acknowledges risks around increased input cost inflation and potential
changes in consumer behaviour.
Alex Whitehouse Duncan Leggett
Chief Executive Officer Chief Financial Officer
Appendices
The Company's Preliminary results are presented for the 52 weeks ended 1 April
2023 and the comparative period, 52 weeks ended 2 April 2022. All references
to the 'quarter', unless otherwise stated, are for the 13 weeks ended 1 April
2023 and the comparative periods, 13 weeks ended 2 April 2022.
Full year and Quarter 4 Sales
FY Sales (£m) FY22/23
Excluding The Spice Tailor The Spice Tailor Including The Spice Tailor
Grocery
Branded 625.3 10.0 635.3
Non-branded 111.5 0.0 111.5
Total 736.8 10.0 746.8
Sweet Treats
Branded 208.9 0.0 208.9
Non-branded 50.7 0.0 50.7
Total 259.6 0.0 259.6
Group
Branded 834.2 10.0 844.2
Non-branded 162.2 0.0 162.2
Total 996.4 10.0 1,006.4
% change vs prior year
Grocery
Branded 11.6% N/A 13.4%
Non-branded 27.3% N/A 27.3%
Total 13.8% N/A 15.3%
Sweet Treats
Branded (2.4%) N/A (2.4%)
Non-branded 30.5% N/A 30.5%
Total 2.7% N/A 2.7%
Group
Branded 7.8% N/A 9.1%
Non-branded 28.3% N/A 28.3%
Total 10.6% N/A 11.8%
Q4 Sales (£m) FY22/23
Excluding The Spice Tailor The Spice Tailor Including The Spice Tailor
Grocery
Branded 171.5 5.0 176.5
Non-branded 30.7 0.0 30.7
Total 202.2 5.0 207.2
Sweet Treats
Branded 54.4 0.0 54.4
Non-branded 7.0 0.0 7.0
Total 61.4 0.0 61.4
Group
Branded 225.9 5.0 230.9
Non-branded 37.7 0.0 37.7
Total 263.6 5.0 268.6
% change vs prior year
Grocery
Branded 19.2% N/A 22.7%
Non-branded 37.6% N/A 37.6%
Total 21.7% N/A 24.7%
Sweet Treats
Branded (1.8%) N/A (1.8%)
Non-branded 63.9% N/A 63.9%
Total 2.9% N/A 2.9%
Group
Branded 13.4% N/A 15.9%
Non-branded 41.8% N/A 41.6%
Total 16.7% N/A 18.9%
Divisional contribution & Trading profit (£m) Excluding The Spice Tailor The Spice Tailor Including The Spice Tailor
FY22/23
Divisional contribution(2)
Grocery 188.7 0.5 189.2
Sweet Treats 27.0 - 27.0
Total 215.7 0.5 216.2
Group & corporate costs (62.5) - (62.5)
Other income 3.8 - 3.8
Trading profit(1) - New definition 157.0 0.5 157.5
FY21/22
Divisional contribution(2)
Grocery 160.2 N/A 160.2
Sweet Treats 33.4 N/A 33.4
Total 193.6 N/A 193.6
Group & corporate costs (45.3) N/A (45.3)
Trading profit(1) - Old definition 148.3 N/A 148.3
Less: software amortisation (7.1) N/A (7.1)
Trading profit(1) - New definition 141.2 N/A 141.2
EBITDA to Operating profit reconciliation (£m) FY22/23 FY21/22
Adjusted EBITDA(3) 182.3 167.5
Depreciation (19.9) (19.2)
Trading profit - Old definition 162.4 148.3
Software amortisation (4.9) (7.1)
Trading profit - New definition 157.5 141.2
Amortisation of brand assets (20.7) (19.9)
Fair value movements on foreign exchange & derivative contracts (1.8) 4.4
Net interest on pensions and administrative expenses 17.7 4.2
Non-trading items - GMP equalisation - (0.3)
Non-trading items - restructuring costs (11.1) -
Non-trading items - other non-trading items (5.8) 1.5
Impairment of fixed assets (3.6) -
Operating profit 132.2 131.1
Finance costs (£m) FY22/23 FY21/22 Change
Senior secured notes interest 11.5 13.4 1.9
Bank debt interest - net 6.9 4.3 (2.6)
18.4 17.7 (0.7)
Amortisation of debt issuance costs 1.9 2.1 0.2
Net regular interest(5) 20.3 19.8 (0.5)
Write-off of financing costs - 4.3 4.3
Early redemption fee - 4.7 4.7
Re-measurement due to discount rate change (1.1) (0.9) 0.2
Other finance cost 0.6 0.8 0.2
Other finance income - (0.2) (0.2)
Net finance cost 19.8 28.5 8.7
Adjusted earnings per share (£m) FY22/23 FY21/22 Change
Trading profit(1) - new definition 157.5 141.2 11.5%
Less: Net regular interest(5) (20.3) (19.8) (2.6%)
Adjusted profit before tax 137.2 121.4 13.0%
Less: Notional tax (19%) (26.1) (23.1) (13.0%)
Adjusted profit after tax(6) 111.1 98.3 13.0%
Average shares in issue (millions) 861.2 858.8 0.3%
Adjusted earnings per share (pence) 12.9 11.5 12.7%
Net debt (£m)
Net debt(11) at 2 April 2022 285.0
Movement in cash (9.1)
Movement in debt issuance costs 1.2
Movement in lease creditor (2.8)
Net debt at 1 April 2023 274.3
Adjusted EBITDA 182.3
Net debt / Adjusted EBITDA 1.5x
Free cash flow (£m) FY22/23 FY21/22
Trading profit(1) - new definition 157.5 141.2
Depreciation & software amortisation 24.8 26.3
Other non-cash items 4.7 4.1
Capital expenditure (20.0) (23.2)
Working capital (24.8) (21.0)
Operating cash flow(17) 141.9 127.4
Interest (19.6) (20.8)
Pension contributions (45.1) (41.4)
Free cash flow(12) 77.5 65.2
Non-trading items (8.3) 0.9
Net (payments)/proceeds from share issue (1.1) 1.3
Re-financing fees (0.7) (13.2)
Taxation (1.5) -
Dividend (including pensions match) (13.0) (11.0)
Acquisition (43.8) -
Movement in cash 9.1 43.2
Repayment of borrowings - (320.0)
Proceeds from borrowings - 330.0
Net increase in cash and cash equivalents 9.1 53.2
The following table outlines the basis on which the Group will report headline
revenue for FY23/24.
This includes The Spice Tailor but excludes sales from Knighton which will be
managed for exit during the course of FY23/24, following the decision to close
the site. In FY22/23, all Knighton revenue was all reported in Grocery -
Non-branded.
Group sales ex Knighton Foods (£m) FY22/23 revenue by quarter
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Group sales (including The Spice Tailor) 197.0 222.9 318.0 268.5 1,006.4
Knighton (6.2) (7.2) (9.8) (7.6) (30.8)
Group sales 190.8 215.7 308.2 260.9 975.6
(including The Spice Tailor, ex Knighton)
Notes and definitions of alternative performance measures
The Company uses a number of alternative performance measures to measure and
assess the financial performance of the business. The directors believe that
these alternative performance measures assist in providing additional useful
information on the underlying trends, performance and position of the Group.
These alternative performance 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. 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 brand assets, non-trading items (items requiring separate
disclosure by virtue of their nature in order that users of the financial
statements obtain a clear and consistent view of the Group's underlying
trading performance), fair value movements on foreign exchange and other
derivative contracts, net interest on pensions and administration expenses and
past service costs. The revised definition of Trading profit includes software
amortisation as the Group considers this should be treated in the same way as
tangible asset depreciation for definitional purposes. FY21/22 has been
re-stated accordingly.
2. Divisional contribution refers to Gross Profit less selling, distribution and
marketing expenses directly attributable to the relevant business segment.
3. Adjusted EBITDA is Trading profit as defined in (1) above excluding
depreciation and software amortisation.
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, early redemption fees, other finance cost and other
finance income.
6. Adjusted profit after tax is Adjusted profit before tax as defined in (4)
above less a notional tax charge of 19.0% (2021/22: 19.0%).
7. References to Adjusted earnings per share are on a non-diluted basis and is
calculated using Adjusted profit after tax as defined in (6) above divided by
the weighted average of the number of shares of 861.2 million (52 weeks ended
2 April 2022: 858.8 million).
8. International sales exclude The Spice Tailor and 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. The constant currency adjustment is calculated by applying a blended
rate.
£m Reported (including The Spice Tailor) Reported (excluding The Spice Tailor) Adjustment Constant currency
FY22/23 63.3 59.4 (0.7) 58.7
FY21/22 53.4 53.4 N/A 53.4
Growth/(decline) % 18.5% 11.3% N/A 10.0%
9. 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.
10. Software amortisation is the annual charge related to the amortisation of the
Group's software assets during the period.
11. Net debt is defined as total borrowings, less cash and cash equivalents and
less capitalised debt issuance costs.
12. Free cash flow is Net increase or decrease in cash and cash equivalents
excluding proceeds and repayment of borrowings, less dividend payments,
disposal proceeds, re-financing fees, net proceeds from share issues, tax,
acquisitions and non-trading items.
13. IRI, 52 weeks ended 1 April 2023.
14. Revenue growth excludes The Spice Tailor
15. The schedule of future contributions are as agreed per the 2022 actuarial
funding valuation for the Premier Foods sections, discounted using the Company
post tax WACC of 9.1%.
16. Acquisition accounting pertaining to The Spice Tailor acquisition can be found
in Note 15.
17. Operating cash flow excludes interest and pension contributions.
18. SBTi refers to the Science Based Targets initiative, a coalition which defines
and promotes best practice emissions reductions and net zero targets in line
with climate science
19. Champions 12.3 refers to a coalition who are dedicated to the pursuit of
reducing food waste and loss
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 brand asset amortisation and impairment are excluded from
Trading profit because they are non-cash items.
· Non-trading items 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 reported segment and are disclosed at total
Group level.
· In line with accounting standards, the International operating segment, the
results of which are aggregated within the Grocery reported segment, are not
required to be separately disclosed for reporting purposes.
Consolidated statement of profit or loss
52 weeks ended 52 weeks ended
1 April 2023 2 April 2022
Note £m £m
Revenue 3 1,006.4 900.5
Cost of sales (648.2) (573.4)
Gross profit 358.2 327.1
Selling, marketing and distribution costs (142.0) (133.4)
Administrative costs (87.8) (62.6)
Other income 3.8 -
Operating profit 3 132.2 131.1
Finance cost 4 (21.7) (29.0)
Finance income 4 1.9 0.5
Profit before taxation 112.4 102.6
Taxation 5 (20.8) (25.1)
Profit for the period attributable to owners of the parent 91.6 77.5
Earnings per share (pence)
Basic 6 10.6 9.0
Diluted 6 10.4 8.8
Consolidated statement of comprehensive income
52 weeks ended 52 weeks ended
1 April 2023 2 April 2022
Note £m £m
Profit for the period 91.6 77.5
Other comprehensive income, net of tax
Items that will never be reclassified to profit or loss
Remeasurements of defined benefit schemes 7 (245.6) 357.3
Deferred tax credit / (charge) 5 52.7 (114.2)
Current tax credit 5 7.2 6.4
Items that are or may be reclassified subsequently to profit or loss
Exchange differences on translation 0.6 (0.4)
Other comprehensive income, net of tax (185.1) 249.1
Total comprehensive income attributable to owners of the parent (93.5) 326.6
( )
Consolidated balance sheet
As at As at
1 April 2023 2 April 2022
Note £m £m
ASSETS:
Non-current assets
Property, plant and equipment 185.9 190.9
Goodwill 680.3 646.0
Other intangible assets 294.4 293.5
Deferred tax assets 5 22.4 23.1
Net retirement benefit assets 7 960.1 1,148.7
2,143.1 2,302.2
Current assets
Inventories 93.7 78.1
Trade and other receivables 103.9 96.5
Cash and cash equivalents 8 64.4 54.3
Derivative financial instruments 10 0.8 2.4
262.8 231.3
Total assets 2,405.9 2,533.5
LIABILITIES:
Current liabilities
Trade and other payables (255.4) (254.0)
Financial liabilities
- short-term borrowings 9 (1.0) -
- derivative financial instruments 10 (0.5) (0.3)
Lease liabilities 9 (2.1) (2.1)
Provisions for liabilities and charges (13.3) (2.3)
(272.3) (258.7)
Non-current liabilities
Long-term borrowings 9 (324.4) (323.2)
Lease liabilities 9 (11.2) (14.0)
Net retirement benefit obligations 7 (194.6) (203.8)
Provisions for liabilities and charges (6.6) (8.3)
Deferred tax liabilities 5 (177.9) (212.9)
Other liabilities (12.9) (5.7)
(727.6) (767.9)
Total liabilities (999.9) (1,026.6)
Net assets 1,406.0 1,506.9
EQUITY:
Capital and reserves
Share capital 86.8 86.3
Share premium 2.5 1.5
Merger reserve 351.7 351.7
Other reserves (9.3) (9.3)
Retained earnings 974.3 1,076.7
Total equity 1,406.0 1,506.9
Consolidated statement of cash flows
52 weeks ended 52 weeks ended
1 April 2023 2 April 2022
Note £m £m
Cash generated from operations 8 108.3 110.9
Interest paid (20.4) (21.2)
Interest received 0.8 0.4
Taxation paid (1.5) -
Cash generated from operating activities 87.2 90.1
Acquisition of subsidiaries, net of cash acquired 15 (43.8) -
Purchases of property, plant and equipment (15.5) (19.5)
Purchases of intangible assets (4.5) (3.7)
Cash used in investing activities (63.8) (23.2)
Repayment of borrowings - (320.0)
Proceeds from borrowings - 330.0
Principal element of lease payments (2.3) (3.3)
Financing fees(1) (0.7) (8.5)
Early redemption fee(1) - (4.7)
Dividends paid 11 (10.3) (8.5)
Purchase of shares to satisfy share awards (2.5) (0.4)
Proceeds from share issue 1.5 1.7
Cash used in financing activities (14.3) (13.7)
Net increase in cash and cash equivalents 9.1 53.2
Cash, cash equivalents and bank overdrafts at beginning of period 54.3 1.1
Cash, cash equivalents and bank overdrafts at end of period(2) 8 63.4 54.3
(1)Financing fees in the prior period relate to payments made as part of the
refinancing of the Group's debt in June 2021. See note 9 for further details.
(2)Cash and cash equivalents of £63.4m (2021/22: £54.3m) includes bank
overdraft of £1.0m (2021/22: £nil) and cash and bank deposits of £64.4m
(2021/22: £54.3m). See notes 8 and 9 for more details.
Consolidated statement of changes in equity
Note Share capital Share premium Merger reserve Other reserves Retained earnings(1) Total equity
£m £m £m £m £m £m
At 4 April 2021 85.5 0.6 351.7 (9.3) 755.1 1,183.6
Profit for the period - - - - 77.5 77.5
Remeasurements of defined benefit schemes 7 - - - - 357.3 357.3
Deferred tax charge 5 - - - - (114.2) (114.2)
Current tax credit 5 - - - - 6.4 6.4
Exchange differences on translation - - - - (0.4) (0.4)
Other comprehensive income - - - - 249.1 249.1
Total comprehensive income - - - - 326.6 326.6
Shares issued 0.8 0.9 - - - 1.7
Share-based payments - - - - 3.4 3.4
Purchase of shares to satisfy share awards - - - - (0.4) (0.4)
Deferred tax movements on share-based payments 5 - - - - 0.5 0.5
Dividends 11 - - - - (8.5) (8.5)
At 2 April 2022 86.3 1.5 351.7 (9.3) 1,076.7 1,506.9
At 3 April 2022 86.3 1.5 351.7 (9.3) 1,076.7 1,506.9
Profit for the period - - - - 91.6 91.6
Remeasurements of defined benefit schemes 7 - - - - (245.6) (245.6)
Deferred tax charge 5 - - - - 52.7 52.7
Current tax credit 5 - - - - 7.2 7.2
Exchange differences on translation - - - - 0.6 0.6
Other comprehensive income - - - - (185.1) (185.1)
Total comprehensive income - - - - (93.5) (93.5)
Shares issued 0.5 1.0 - - - 1.5
Share-based payments - - - - 4.6 4.6
Purchase of shares to satisfy share awards - - - - (2.5) (2.5)
Deferred tax movements on share-based payments 5 - - - - (0.7) (0.7)
Dividends 11 - - - - (10.3) (10.3)
At 1 April 2023 86.8 2.5 351.7 (9.3) 974.3 1,406.0
(1)Included in Retained earnings at 1 April 2023 is £3.4m in relation to
cumulative translation losses (2020/21: £3.3m loss, 2021/22: £3.7m loss).
1. General information
The financial information included in this preliminary announcement does not
constitute the Company's statutory accounts for the 52 weeks ended 1 April
2023 and for the 52 weeks ended 2 April 2022, but is derived from those
accounts. Statutory accounts for the 52 weeks ended 2 April 2022 have been
delivered to the registrar of companies, and those for 52 weeks ended 1 April
2023 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 UK-adopted international accounting standards.
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 as detailed in note 9. 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 compliant with its covenant tests
as at 1 October 2022 and 1 April 2023.
Having undertaken a robust assessment of the Group's forecasts with specific
consideration to the trading performance of the Group, cashflows and covenant
compliance, the Directors have a reasonable expectation that the Group is able
to operate within the level of its current facilities, meet the required
covenant tests and has adequate resources to continue in operational existence
for at least 12 months from the date of approval of these financial
statements. The Group therefore continues to adopt the going concern basis in
preparing its financial information for the reasons set out below:
At 1 April 2023 the Group had total assets less current liabilities of
£2,133.6m, net current liabilities of £9.5m and net assets of £1,406.0m.
Liquidity as at that date was £245.4m, made up of cash and cash equivalents,
and undrawn committed credit facilities of £175m expiring between May 2025
and 2026. The covenants linked to the facilities are shown in note 9. At the
time of the approval of this report, the cash and liquidity position of the
group has not changed significantly.
The directors have rigorously reviewed the current global political and
economic uncertainty driven by the conflict in Ukraine and the inflationary
pressures across the industry, and have modelled a severe but plausible
downside case impacting future financial performance, cash flows and covenant
compliance, that cover a period of at least 12 months from the date of
approval of the financial statements. The downside case represents severe but
plausible assumptions related primarily to the impact of inflation during the
review period. The directors have also considered the impact of the outbreak
of an infectious disease, climate change, cyber-attacks and changes in
consumer preferences in the downside cases modelled and have assumed all
scenarios within the downside cases impact during the periods reviewed.
Whilst the downside scenario is deemed severe but plausible, it is considered
by the directors to be a robust stress test of going concern, having an
adverse impact on revenue, margin, profit and cash flow. Should circumstances
mean there is further downside, whilst not deemed plausible, the directors, in
response have identified mitigating actions within their control, that would
reduce costs, optimising cashflow and liquidity. This includes reducing
capital expenditure, reducing marketing spend and delaying or cancelling
discretionary spend. The directors have assumed no significant structural
changes to the business will be needed in any of the scenarios modelled. None
of the scenarios modelled are sufficiently material to prevent the Group from
continuing as a going concern.
The Directors, after reviewing financial forecasts and financing arrangements,
have a reasonable expectation that the Group has adequate resources to
continue to meet its liabilities as they fall due for at least 12 months from
the date of approval of the financial statements. Accordingly, the Directors
are satisfied that it is appropriate to continue to adopt the going concern
basis (in accordance with the guidance 'Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting' issued by the FRC) in
preparing its consolidated financial statements.
Climate change
The Group has considered the impact of both physical and transitional climate
change risks on the financial statements of the Group. The Group does not
consider there to be a material impact on the valuation of the Group's assets
or liabilities, including useful economic life of property, plant and
equipment, or on any significant accounting estimates or judgements. See note
7 for further details on how the trustee of the Group's pension scheme plans
to integrate climate change considerations into their investment strategy. The
Group will continue to monitor the impact on valuations of assets and
liabilities as government policy evolves.
The impact of climate change has been considered in the projected cash flows
used for impairment testing.
2. Significant estimates and judgements
The following are areas of particular significance to the Group's financial
statements and may include the use of estimates. Results may differ from
actual amounts.
Significant accounting estimates
The following are considered to be the key estimates within the financial
statements:
2.1 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 7.
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).
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 pensions asset valuations were not available at the reporting date, as
is usual practice, valuations at 31 December 2022 are rolled forward for cash
movements to end of March 2023 to estimate the valuations for these assets.
This approach is principally relevant for Infrastructure Funds, Private
Equity, Absolute Return Products, Property Assets, Illiquid Credits and Global
Credits. Management have reviewed the individual investments to establish
where valuations are not expected to be available for inclusion in these
financial statements, movements in the most comparable indexes have then been
applied to these investments at a category level to establish any potential
estimation uncertainty within the results.
2.2 Goodwill
Impairment reviews in respect of goodwill are performed at least annually and
more regularly if there is an indicator of impairment. 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.
2.3 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.
If the Commercial accruals balance moved by 5% in either direction this would
have an impact of £3.4m.
Judgements
The following are considered to be the key judgements within the financial
statements:
2.4 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.
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', and
'International'. The CODM reviews the performance by operating segments. The
Grocery segment primarily sells savoury ambient food products and the Sweet
Treats segment sells primarily sweet ambient food products. The International
segment has been aggregated within the Grocery segment for reporting purposes
as revenue is below 10% of the Group's total revenue and the segment is
considered to have similar characteristics to that of Grocery as identified in
IFRS 8. There has been no change to the segments during the period.
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 pre-tax profit/loss before net finance costs,
amortisation of intangible assets, fair value movements on foreign exchange
and other derivative contracts, net interest on pensions and administrative
expenses, and any material items that require separate disclosure by virtue of
their nature in order that users of the financial statements obtain a clear
and consistent view of the Group's underlying trading performance.
The segment results for the period ended 1 April 2023 and for the period ended
2 April 2022 and the reconciliation of the segment measures to the respective
statutory items included in the consolidated financial statements are as
follows:
52 weeks ended 1 April 2023 52 weeks ended 2 April 2022
Grocery Sweet Total Grocery Sweet Total
Treats Treats
£m £m £m £m £m £m
External revenues 746.8 259.6 1,006.4 647.7 252.8 900.5
Divisional contribution 189.2 27.0 216.2 160.2 33.4 193.6
Group and corporate costs(1) (62.5) (52.4)
Other income 3.8 -
Trading profit 157.5 141.2
Amortisation of brand assets (20.7) (19.9)
Fair value movements on foreign exchange and other derivative contracts(2) (1.8) 4.4
Net interest on pensions and administrative expenses 17.7 4.2
Non-trading items:
- GMP equalisation charge - (0.3)
- Impairment of fixed assets(3) (3.6) -
- Restructuring costs(4) (11.1) -
- Other non-trading items(5) (5.8) 1.5
Operating profit 132.2 131.1
Finance cost (21.7) (29.0)
Finance income 1.9 0.5
Profit before taxation 112.4 102.6
Depreciation(6) (11.9) (8.0) (19.9) (11.2) (8.0) (19.2)
(1)The definition of Trading Profit has been changed from 2022/23,
amortisation of software is included within 'Group and corporate costs' from
the current year. 2021/22 Trading Profit has been re-presented in line with
the revised definition.
(2)The loss of £1.8m (2021/22: gain of £4.4m) reflects changes in fair value
rate during the 52-week period and movement in nominal value of the
instruments held at 1 April 2023 from the 2 April 2022 position.
(3) Impairment of fixed assets relates to the closure of the Knighton site.
(4) Restructuring costs in the current period includes £7.6m which relates to
the closure of the Knighton site with the remainder primarily relating to some
supply chain restructuring.
(5)Other non-trading items relate primarily to M&A transaction costs and
other one-off supply chain charges. Other non-trading items in the prior
period related primarily to the resolution of a legacy legal matter.
(6)Depreciation in the period ended 1 April 2023 includes £1.6m (2021/22:
£2.0m) of depreciation of IFRS 16 right of use assets.
Revenues in the period ended 1 April 2023, from the Group's four principal
customers, which individually represent over 10% of total Group revenue, are
£242.6m, £142.7m, £114.4m and £96.2m (2021/22: £224.8m, £129.0m, £97.6m
and £91.7m). 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
1 April 2023 2 April 2022
£m £m
United Kingdom 943.1 847.1
Other Europe 28.1 26.2
Rest of world 35.2 27.2
Total 1,006.4 900.5
Non-current assets
As at As at
1 April 2023 2 April 2022
£m £m
United Kingdom 1,160.6 1,130.4
Non-current assets exclude deferred tax assets and net retirement benefit
assets.
4. Finance income and costs
52 weeks ended 52 weeks ended
1 April 2023 2 April 2022
£m £m
Interest payable on bank loans and overdrafts (7.4) (4.3)
Interest payable on senior secured notes (11.5) (13.4)
Interest payable on revolving facility (0.3) (0.3)
Other interest (payable) / receivable(1) (0.6) 0.1
Amortisation of debt issuance costs (1.9) (2.1)
(21.7) (20.0)
Write off of financing costs(2) - (4.3)
Early redemption fee(3) - (4.7)
Total finance cost (21.7) (29.0)
Interest receivable on bank deposits 0.8 0.3
Other finance income(4) 1.1 0.2
Total finance income 1.9 0.5
Net finance cost (19.8) (28.5)
(1)Included in other interest (payable) / receivable is £0.6m charge
(2021/22: £0.8m charge) relating to non-cash interest costs on lease
liabilities under IFRS 16.
(2) Relates to the refinancing of the senior secured fixed rate notes due 2023 ( ) ( ) ( )
and revolving credit facility in the previous period.
(3) Relates to a non-recurring payment arising on the early redemption of the
£300m senior secured fixed rate notes due to mature in October 2023 as part
of the refinancing of the Group's debt in June 2021.
(4) Other finance income primarily relates to the unwind of the discount on ( ) ( ) ( )
certain of the Group's long-term provisions.
5. Taxation
52 weeks ended 52 weeks ended
1 April 2023 2 April 2022
£m £m
Current tax
- Current period (8.1) (6.4)
Deferred tax
- Current period (15.8) (16.5)
- Prior periods 0.7 1.9
- Changes in tax rate on the opening balance 2.4 (4.1)
Income tax charge (20.8) (25.1)
Tax relating to items recorded in other comprehensive income included:
52 weeks ended 52 weeks ended
1 April 2023 2 April 2022
£m £m
Corporation tax credit on pension movements 7.2 6.4
Deferred tax charge on increase of corporate tax rate - (17.9)
Deferred tax credit on prior year - 1.6
Deferred tax credit / (charge) on pension movements 52.7 (97.9)
59.9 (107.8)
The applicable rate of corporation tax for the period is 19%. Per the Finance
Act of 2021, the corporation tax rate will increase from the current 19% to
25% starting in April 2023 and the impact of the move to a blended rate on the
deferred tax balances was reflected in the prior year. The current year
deferred tax balances have been remeasured to reflect the year end rate of 25%
resulting in a tax credit of £2.4m which has been recorded in the
consolidated statement of profit or loss.
The tax charge for the period differs from the standard rate of corporation
tax in the United Kingdom of 19.0% (2021/22: 19.0%). The reasons for this are
explained below:
52 weeks ended 52 weeks ended
1 April 2023 2 April 2022
£m £m
Profit before taxation 112.4 102.6
Tax charge at the domestic income tax rate of 19.0% (2021/22: 19.0%) (21.4) (19.5)
Tax effect of:
Non-deductible items (0.1) (0.8)
Recognition of previously unrecognised losses 0.2 -
Adjustment due to change in tax rate on the opening balances 2.3 (4.1)
Difference between current and deferred tax rate (3.5) (3.1)
Tax incentives 1.0 0.5
Adjustments to prior periods 0.7 1.9
Income tax charge (20.8) (25.1)
Corporation tax losses are not recognised where future recoverability is
uncertain.
The difference between current and deferred tax rate of £3.5m relates to the
impact of the current tax rate being 19% and the future year deferred tax
movements being measured at 25%.
The adjustments to prior periods of £0.7m (2021/22: £1.9m) relates primarily
to the changes in prior period intangibles and capital allowances following
verifications in submitted 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.
2022/23 2021/22
£m £m
At 3 April 2022 / 4 April 2021 (189.8) (57.4)
Acquisition of The Spice Tailor (5.0) -
Charged to the statement of profit or loss (12.7) (18.7)
Credited/(charged) to other comprehensive income 52.7 (114.2)
(Charged)/credited to equity (0.7) 0.5
At 1 April 2023 / 2 April 2022 (155.5) (189.8)
The Group has not recognised £2.2m of deferred tax assets (2021/22: £2.2m
not recognised) relating to UK corporation tax losses. In addition, the Group
has not recognised a tax asset of £67.8m (2021/22: £83.9m) relating to
Advanced Corporation Tax (ACT) and £75.8m (2021/22: £76.6m) relating to
capital losses. Under current legislation these can generally be carried
forward indefinitely.
Deferred tax liabilities Intangibles Retirement benefit obligation Leases Other Total
£m £m £m £m £m
At 4 April 2021 (50.1) (101.9) (2.9) (1.0) (155.9)
Charge due to change in corporate tax rate
- To statement of profit or loss (15.4) (9.5) (0.9) (0.3) (26.1)
- To other comprehensive income - (22.7) - - (22.7)
Current period credit/(charge) 1.3 (3.5) - - (2.2)
Charged to other comprehensive income - (97.9) - - (97.9)
Prior period (charge)/credit
- To statement of profit or loss (0.3) - - - (0.3)
- To other comprehensive income - 1.6 - - 1.6
At 2 April 2022 (64.5) (233.9) (3.8) (1.3) (303.5)
At 3 April 2022 (64.5) (233.9) (3.8) (1.3) (303.5)
Acquisition of The Spice Tailor (5.0) - - - (5.0)
Charge due to change in corporate tax rate
- To statement of profit or loss (0.3) - - - (0.3)
Current period credit/(charge) 1.5 (6.7) 3.0 - (2.2)
Credited to other comprehensive income - 52.7 - - 52.7
At 1 April 2023 (68.3) (187.9) (0.8) (1.3) (258.3)
Deferred tax assets Accelerated tax depreciation Share-based payments Losses Other Total
£m £m £m £m £m
At 4 April 2021 49.5 2.7 45.0 1.3 98.5
Credit due to change in corporate tax rate
- To statement of profit or loss 12.7 - 9.1 0.2 22.0
- To other comprehensive income - - 4.8 - 4.8
- To equity - 0.1 - - 0.1
Current period (charge)/credit (13.1) 0.7 (1.2) (0.7) (14.3)
Credited to equity - 0.4 - - 0.4
Prior period credit
- To statement of profit or loss 2.2 - - - 2.2
At 2 April 2022 51.3 3.9 57.7 0.8 113.7
At 3 April 2022 51.3 3.9 57.7 0.8 113.7
Credit due to change in corporate tax rate
- To statement of profit or loss 2.3 - 0.3 0.1 2.7
Current period (charge)/credit (13.9) 0.5 (2.2) 2.0 (13.6)
Charged to equity - (1.2) - - (1.2)
Prior period credit
- To statement of profit or loss 0.5 0.2 - - 0.7
- To equity - 0.5 - - 0.5
At 1 April 2023 40.2 3.9 55.8 2.9 102.8
Deferred tax asset on losses and accelerated tax depreciation £m
As at 1 April 2023 22.4
As at 2 April 2022 23.1
Net deferred tax liability £m
As at 1 April 2023 (177.9)
As at 2 April 2022 (212.9)
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 except non-trading
losses of £22.4m (2021/22: £23.1m). The remainder of deferred tax assets
have therefore 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. Earnings per share
Basic earnings per share has been calculated by dividing the profit
attributable to owners of the parent of £91.6m (2021/22: £77.5m profit) by
the weighted average number of ordinary shares of the Company.
2022/23 2021/22
Number (m) Number (m)
Weighted average number of ordinary shares for the purpose of basic earnings 861.2 858.8
per share
Effect of dilutive potential ordinary shares:
- Share options 19.5 17.0
Weighted average number of ordinary shares for the purpose of diluted earnings 880.7 875.8
per share
52 weeks ended 1 April 2023 52 weeks ended 2 April 2022
Basic Dilutive effect of share options Diluted Basic Dilutive effect of share options Diluted
Profit after tax (£m) 91.6 91.6 77.5 77.5
Weighted average number of shares (m) 861.2 19.5 880.7 858.8 17.0 875.8
Earnings per share (pence) 10.6 (0.2) 10.4 9.0 (0.2) 8.8
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.
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% (2021/22: 19.0%) divided by the
weighted average number of ordinary shares of the Company.
Net regular interest is defined as net finance cost after excluding write-off
of financing costs, early redemption fees, other interest payable and other
interest receivable.
Trading profit and Adjusted EPS have been reported as the directors believe
these assists in providing additional useful information on the underlying
trends, performance and position of the Group.
52 weeks ended 52 weeks ended
1 April 2023 2 April 2022
£m £m
Trading profit (note 3)(1) 157.5 141.2
Less net regular interest (20.3) (19.8)
Adjusted profit before taxation 137.2 121.4
Notional tax at 19.0% (2021/22: 19%) (26.1) (23.1)
Adjusted profit after taxation 111.1 98.3
Average shares in issue (m) 861.2 858.8
Adjusted basic EPS (pence) 12.9 11.5
Dilutive effect of share options (0.3) (0.2)
Adjusted dilutive EPS (pence) 12.6 11.3
Net regular interest
Net finance cost (19.8) (28.5)
Exclude other finance income (1.1) (0.2)
Exclude write-off of financing costs - 4.3
Exclude early redemption fee - 4.7
Exclude other interest (payable) / receivable 0.6 (0.1)
Net regular interest (20.3) (19.8)
(1)2021/22 Trading Profit has been re-presented in line with the revised
definition.
7. 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. Although the Premier Foods Section, Premier Grocery Products
Section and RHM Section identified below are no longer separate schemes
following the merger in 2020, historically, Premier Foods companies' pension
liabilities and ex-RHM companies' liabilities have been shown separately.
These are as follows:
(a) The "Premier" Schemes, which comprise:
Premier Foods Pension Section of RHM Pension Scheme
Premier Grocery Products Pension Section of RHM Pension Scheme
Premier Grocery Products Ireland Pension Scheme ('PGPIPS')
Chivers 1987 Pension Scheme
Hillsdown Holdings Limited Pension Scheme (Scheme wound up 10 February 2023)
(b) The "RHM" Pension Schemes, which comprise:
RHM Section of the RHM Pension Scheme
Premier Foods Ireland Pension Scheme
The Premier Foods Pension Scheme (PFPS) and Premier Grocery Products Pension
Scheme (PGPPS) were wound up following the merger of assets and liabilities on
a segregated basis with the RHM Pension Scheme in June 2020. The RHM Pension
Scheme operates as three sections, the RHM Section, Premier Foods Section and
Premier Grocery Products Section.
The triennial valuation at 31 March 2022 for all three Sections of the RHM
Pension Scheme has been agreed. The results show that the combined actuarial
deficits of the two Premier Sections have fallen by a further £58m since the
interim valuations carried out on 31 March 2021. This has allowed the deficit
contributions to be reduced by £5m per year for the current valuation period.
The exchange rates used to translate the overseas euro based schemes are
£1.00 = €1.1582 (2021/22: £1.00 = €1.1774) for the average rate during
the period, and £1.00 = €1.1377 (2021/22: £1.00 = €1.1881) for the
closing position at period end.
All defined benefit schemes 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. Trustee directors undertake regular training and development to ensure
that they are equipped appropriately to carry out the role. 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 generally meet at least four times a year to conduct their
business. To support these meetings certain aspects of the schemes' operation
are delegated 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, infrastructure, illiquid credits and global
credits.
The scheme 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.
In setting the investment strategy, the primary concern for the trustee of the
RHM Pension Scheme is to act in the best financial interests of all
beneficiaries, seeking the best return that is consistent with a prudent and
appropriate level of risk. This includes the risk that environmental, social
and governance factors, including climate change, negatively impact the value
of investments held if not understood and evaluated properly. The trustee
considers this risk by taking advice from its investment advisors when
choosing asset classes, selecting managers, and monitoring performance.
From 1 October 2022, the trustee is required by regulation to:
· implement climate change governance measures and produce a Taskforce on
Climate-related Financial Disclosures (TCFD) report containing associated
disclosures; and
· publish its TCFD report on a publicly available website, accessible free of
charge.
The trustee is on track to disclose the scheme's first TCFD report as part of
the 2023 year-end reporting cycle.
The main risks to which the Group is exposed in relation to the funded pension
schemes are as follows:
· Liquidity risk - the PF and PGP Sections of the RHM Pension Scheme have
significant technical funding deficits which could increase. The RHM Section
of 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 exposure to the yield and inflation risks described above can be hedged 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 Premier Foods Section is currently hedged to around 60%
for interest rates and inflation and the Premier Grocery Products Sections is
currently hedged to around 75% for interest rates and inflation.
The liabilities of the schemes are approximately 35% in respect of former
active members who have yet to retire and approximately 65% in respect of
pensioner members already in receipt of benefits.
The average duration of the pension liabilities for the three Sections of the
RHM Pension Scheme is 13.0 years (12.8 years for the RHM Section; 13.9 years
for the PF Section and 13.4 years for the PGP Section).
All pension schemes are closed to future accrual.
At the balance sheet date, the combined principal accounting valuation
assumptions were as follows:
At 1 April 2023 At 2 April 2022
Premier Schemes RHM Premier Schemes RHM Schemes
Schemes
Discount rate 4.80% 4.80% 2.75% 2.75%
Inflation - RPI 3.30% 3.30% 3.60% 3.60%
Inflation - CPI 2.85% 2.85% 3.20% 3.20%
Future pension increases
- RPI (min 0% and max 5%) 3.05% 3.05% 3.35% 3.35%
- CPI (min 3% and max 5%) 3.55% 3.55% 3.65% 3.65%
For the smaller overseas schemes, the discount rate used was 3.65% (2021/22:
1.75%) and future pension increases were 2.45% (2021/22: 2.60%).
At 1 April 2023 and 2 April 2022, 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 Group continued to set RPI inflation in line with the market break-even
expectations less an inflation risk premium. The inflation risk premium of
0.3% (2021/22: 0.3%), reflects an allowance for additional market distortions
caused by the RPI reform proposals.
The Group has set the CPI assumption by assuming it is 1.0% p.a. lower than
RPI pre 2030 (reflecting UKSA's stated intention to make no changes before
2030) and 0.1% lower than RPI post 2030 (2021/22: 0.1% lower post 2030), this
being our expectation of the long-term average difference between CPI and
CPI-H. Using this approach, the assumed difference between the RPI and CPI is
an average of 0.45% (2021/22: 0.40%) per annum.
The assumptions take into account the timing of the expected future cashflows
from the pension schemes.
The RHM scheme invests directly in interest rate and inflation swaps to
protect from fluctuations in interest rates and inflation.
The mortality assumptions are based on standard mortality tables. The
directors have considered the impact of the current Covid-19 pandemic on the
mortality assumptions and consider that use of the updated Continuous
Mortality Improvement (CMI) 2021 projections released in March 2022 for the
future improvement assumption a reasonable approach, these are the most
recently published projections at the reporting date. Management considers the
2020 and 2021 mortality experience to be outliers and therefore have applied a
0% weight to the 2020 and 2021 mortality experience data. However, an addition
to the mortality scaling factors of 5% (2021/22: 2%) has been applied, which
reflects the expected long term negative outlook from the impact of Covid-19
on future life expectancy. The increase in scaling factor from the prior year
reflects experience that has emerged over the past 12 months. The estimated
impact of the 3% addition to the mortality scaling factors is approximately
0.8% decrease in defined benefit obligation in respect of the schemes.
An adjustment to the base mortality tables has been made for the RHM scheme to
reflect the latest scheme mortality studies which were commissioned by the
trustee in 2022. The life expectancy assumptions are as follows:
At 1 April 2023 At 2 April 2022
Premier Schemes RHM Schemes Premier Schemes RHM Schemes
Male pensioner, currently aged 65 86.5 84.7 86.6 85.2
Female pensioner, currently aged 65 88.2 87.1 88.3 87.7
Male non-pensioner, currently aged 45 87.4 86.0 87.5 86.5
Female non-pensioner, currently aged 45 89.7 89.0 89.8 89.3
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 by 0.1% Decrease/increase by £39.2m/£39.8m
Inflation Increase/decrease by 0.1% Increase/decrease by £16.6m/£11.9m
Assumed life expectancy at age 60 (rate of mortality) Increase/decrease by 1 year Increase/decrease by £122.0m/£125.0m
The sensitivity information has been derived using projected cash flows for
the Schemes valued using the relevant assumptions and membership profile as at
1 April 2023. Extrapolation of these results beyond the sensitivity figures
shown may not be appropriate.
Premier % of total RHM % of total Total % of total
Schemes Schemes
£m % £m % £m
Assets with a quoted price in an active market at 1 April 2023:
Government bonds 197.8 35.8 815.1 25.2 1,012.9 26.7
Cash 8.2 1.5 59.1 1.8 67.3 1.8
Assets without a quoted price in an active market at 1 April 2023:
UK equities 0.1 0.0 - - 0.1 0.0
Global equities 2.3 0.4 4.6 0.1 6.9 0.2
Government bonds 30.5 5.5 2.1 0.1 32.6 0.9
Corporate bonds 7.4 1.4 4.9 0.2 12.3 0.3
UK property 68.7 12.4 213.8 6.6 282.5 7.4
European property 44.7 8.1 204.8 6.3 249.5 6.6
Absolute return products 6.8 1.2 426.6 13.2 433.4 11.4
Infrastructure funds 27.4 5.0 342.5 10.6 369.9 9.8
Interest rate swaps - - 286.6 8.8 286.6 7.6
Inflation swaps - - 43.4 1.3 43.4 1.1
Private equity 48.8 8.8 310.8 9.6 359.6 9.5
LDI - - 7.1 0.2 7.1 0.2
Global credit 4.3 0.8 205.9 6.4 210.2 5.5
Illiquid credit 101.4 18.3 227.5 7.0 328.9 8.7
Cash 0.5 0.1 0.1 0.0 0.6 0.0
Other(1) 3.7 0.7 85.3 2.6 89.0 2.3
Fair value of scheme assets 552.6 100% 3,240.2 100% 3,792.8 100%
as at 1 April 2023
Assets with a quoted price in an active market at 2 April 2022:
Government bonds 337.1 40.8 842.3 19.7 1,179.4 23.1
Cash 27.9 3.4 76.0 1.8 103.9 2.0
Assets without a quoted price in an active market at 2 April 2022:
UK equities 0.1 0.0 0.3 0.0 0.4 0.0
Global equities 4.3 0.5 5.7 0.1 10.0 0.2
Government bonds 31.8 3.9 2.5 0.1 34.3 0.7
Corporate bonds 0.3 0.0 6.0 0.1 6.3 0.1
UK property 84.9 10.3 285.4 6.7 370.3 7.3
European property 38.3 4.6 168.3 3.9 206.6 4.0
Absolute return products 62.5 7.6 872.2 20.4 934.7 18.3
Infrastructure funds 26.7 3.2 338.0 7.9 364.7 7.2
Interest rate swaps 0.1 0.0 397.4 9.3 397.5 7.8
Inflation swaps - - 93.4 2.2 93.4 1.8
Private equity 39.9 4.8 280.1 6.5 320.0 6.3
LDI - - 7.7 0.2 7.7 0.2
Global credit 74.3 9.0 554.3 13.0 628.6 12.3
Illiquid credit 81.6 9.9 191.6 4.5 273.2 5.4
Cash 9.8 1.2 0.1 0.0 9.9 0.2
Other(1) 6.7 0.8 152.4 3.6 159.1 3.1
Fair value of scheme assets 826.3 100% 4,273.7 100% 5,100.0 100%
as at 2 April 2022
(1) Included in Other in the RHM Schemes is £nil (2021/22: £111.2m) of
assets which have been sold during 2020/21 and were awaiting settlement at the
year-end date.
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.
Pension assets have been reported using 31 March 2023 valuations where
available. As is usual practice for pensions assets where valuations at this
date were not available, the most recent valuations (predominantly at 31
December 2022) have been rolled forward for cash movements to 31 March 2023
and recognised as lagged valuations. This is considered by management the most
appropriate estimate of valuations for these assets using the information
available at the time. At 1 April 2023 the financial statements include £371m
of assets using lagged valuations and were these lagged valuations to move by
1% there would be a £3.7m impact on the fair value of scheme assets. This
approach is principally relevant for Private Equity, Property Assets, Illiquid
Credits and Global Credits asset categories. Pension assets valuations are
subject to estimation uncertainty due to market volatility, which could result
in a material movement in asset values over the next 12 months.
The amounts recognised in the balance sheet arising from the Group's
obligations in respect of its defined benefit schemes are as follows:
At 1 April 2023 At 2 April 2022
Premier Schemes RHM Schemes Total Premier Schemes RHM Schemes Total
£m £m £m £m £m £m
Present value of funded obligations (735.4) (2,291.9) (3,027.3) (1,020.2) (3,134.9) (4,155.1)
Fair value of scheme assets 552.6 3,240.2 3,792.8 826.3 4,273.7 5,100.0
(Deficit)/surplus in schemes (182.8) 948.3 765.5 (193.9) 1,138.8 944.9
The aggregate surplus of £944.9m has decreased to a surplus of £765.5m in
the current period. This decrease of £179.4m (2021/22: £405.0m increase) is
primarily due to a lower return on scheme assets partly offset by changes in
financial assumptions, being higher discount rate offset to a lesser extent by
higher inflation assumptions. Further details are provided later in this note.
The disclosures in note 7 represent those schemes that are associated with
Premier ('Premier schemes') and those that are associated with ex-RHM
companies ('RHM Schemes'). These differ to that disclosed on the balance
sheet, in which the schemes have been split between those in an asset position
and those in a liability position. The disclosures in note 7 reconcile to
those disclosed on the balance sheet as shown below:
At 1 April 2023 At 2 April 2022
Premier Schemes RHM Schemes Total Premier Schemes RHM Schemes Total
£m £m £m £m £m £m
Schemes in net asset position 11.8 948.3 960.1 9.9 1,138.8 1,148.7
Schemes in net liability position (194.6) - (194.6) (203.8) - (203.8)
Net (Deficit)/surplus in schemes (182.8) 948.3 765.5 (193.9) 1,138.8 944.9
Changes in the present value of the defined benefit obligation were as
follows:
Premier Schemes RHM Schemes Total
£m £m £m
Defined benefit obligation at 3 April 2021 (1,175.1) (3,536.9) (4,712.0)
Interest cost (22.7) (68.9) (91.6)
Past service cost (0.1) (0.2) (0.3)
Settlement 0.2 - 0.2
Remeasurement gain 139.7 333.5 473.2
Exchange differences 0.5 0.2 0.7
Benefits paid 37.3 137.4 174.7
Defined benefit obligation at 2 April 2022 (1,020.2) (3,134.9) (4,155.1)
Interest cost (27.0) (83.9) (110.9)
Settlement 0.3 - 0.3
Remeasurement gain 271.9 787.3 1,059.2
Exchange differences (1.6) (1.1) (2.7)
Benefits paid 41.2 140.7 181.9
Defined benefit obligation at 1 April 2023 (735.4) (2,291.9) (3,027.3)
Changes in the fair value of scheme assets were as follows:
Premier RHM Schemes Total
Schemes
£m £m £m
Fair value of scheme assets at 3 April 2021 792.5 4,459.4 5,251.9
Interest income on scheme assets 15.3 87.3 102.6
Remeasurement gains/(losses) 17.5 (133.4) (115.9)
Administrative costs (4.2) (2.5) (6.7)
Settlement (0.3) - (0.3)
Contributions by employer 40.9 0.5 41.4
Additional employer contribution(1) 2.5 - 2.5
Exchange differences (0.6) (0.2) (0.8)
Benefits paid (37.3) (137.4) (174.7)
Fair value of scheme assets at 2 April 2022 826.3 4,273.7 5,100.0
Interest income on scheme assets 22.1 115.1 137.2
Remeasurement losses (295.7) (1,009.1) (1,304.8)
Administrative costs (4.2) (4.4) (8.6)
Settlement (0.3) - (0.3)
Contributions by employer 40.6 4.5 45.1
Additional employer contribution(1) 2.7 - 2.7
Exchange differences 2.3 1.1 3.4
Benefits paid (41.2) (140.7) (181.9)
Fair value of scheme assets at 1 April 2023 552.6 3,240.2 3,792.8
(1)Contribution by the Group to the Premier Schemes due to the payment of
dividends during the year.
The reconciliation of the net defined benefit (deficit)/surplus over the
period is as follows:
Premier RHM Schemes Total
Schemes
£m £m £m
(Deficit)/surplus in schemes at 3 April 2021 (382.6) 922.5 539.9
Amount recognised in profit or loss (11.8) 15.7 3.9
Remeasurements recognised in other comprehensive income 157.2 200.1 357.3
Contributions by employer 40.9 0.5 41.4
Additional employer contribution(1) 2.5 - 2.5
Exchange differences recognised in other comprehensive income (0.1) - (0.1)
(Deficit)/surplus in schemes at 2 April 2022 (193.9) 1,138.8 944.9
Amount recognised in profit or loss (9.1) 26.8 17.7
Remeasurements recognised in other comprehensive income (23.8) (221.8) (245.6)
Contributions by employer 40.6 4.5 45.1
Additional employer contribution(1) 2.7 - 2.7
Exchange differences recognised in other comprehensive income 0.7 - 0.7
(Deficit)/surplus in schemes at 1 April 2023 (182.8) 948.3 765.5
(1)Contribution by the Group to the Premier Schemes due to the payment of
dividends during the year.
Remeasurements recognised in the consolidated statement of comprehensive
income are as follows:
52 weeks ended 1 April 2023 52 weeks ended 2 April 2022
Premier RHM Total Premier RHM Total
Schemes Schemes Schemes Schemes
£m £m £m £m £m £m
Remeasurement gain on scheme liabilities 271.9 787.3 1,059.2 139.7 333.5 473.2
Remeasurement (loss)/gain on scheme assets (295.7) (1,009.1) (1,304.8) 17.5 (133.4) (115.9)
Net remeasurement (loss)/gain for the period (23.8) (221.8) (245.6) 157.2 200.1 357.3
The actual return on scheme assets was a £1,167.6m loss (2021/22: £13.3m
loss), which is £1,304.8m less (2021/22: £115.9m less) than the interest
income on scheme assets of £137.2m (2021/22: £102.6m).
The remeasurement gain on liabilities of £1,059.2m (2021/22: £473.2m gain)
comprises a gain due to changes in financial assumptions of £1,089.8m
(2021/22: £413.3m gain), a loss due to member experience of £69.7m (2021/22:
£3.2m loss) and a gain due to demographic assumptions of £39.1m (2021/22:
£63.1m gain).
The Group expects to contribute £6m annually to its defined benefit schemes
in relation to expenses and government levies and £33m of additional annual
contributions to fund the scheme deficits up to 2 April 2024.
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 total amounts recognised in the consolidated statement of profit or loss
are as follows:
52 weeks ended 1 April 2023 52 weeks ended 2 April 2022
Premier Schemes RHM Schemes Total Premier Schemes RHM Schemes Total
£m £m £m £m £m £m
Operating profit
Past service cost - - - (0.1) (0.2) (0.3)
Settlement costs - - - (0.1) - (0.1)
Administrative costs (4.2) (4.4) (8.6) (4.2) (2.5) (6.7)
Net interest (cost)/credit (4.9) 31.2 26.3 (7.4) 18.4 11.0
Total (cost)/credit (9.1) 26.8 17.7 (11.8) 15.7 3.9
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 £8.2m (2021/22: £8.0m) represents contributions payable to the schemes by
the Group at rates specified in the rules of the schemes.
8. Notes to the cash flow statement
Reconciliation of profit before taxation to cash flows from operations
52 weeks ended 52 weeks ended
1 April 2023 2 April 2022
£m £m
Profit before taxation 112.4 102.6
Net finance cost 19.8 28.5
Operating profit 132.2 131.1
Depreciation of property, plant and equipment 19.9 19.2
Amortisation of intangible assets 25.6 27.0
Loss on disposal of non-current assets 0.3 0.7
Impairment of tangible assets 3.6 -
Fair value movements on foreign exchange and other derivative contracts 1.8 (4.4)
Net interest on pensions and administrative expenses(1) (17.7) (4.2)
Equity settled employee incentive schemes 4.6 3.4
GMP equalisation and past service cost related to defined benefit pension - 0.3
schemes
Increase in inventories (12.4) (9.3)
Increase in trade and other receivables (1.9) (13.1)
Increase in trade and other payables and provisions 0.1 4.1
Additional employer contribution(2) (2.7) (2.5)
Contribution to defined benefit pension schemes (45.1) (41.4)
Cash generated from operations 108.3 110.9
(1)For 2021/22 £4.2m has been re-classified from Contribution to defined
benefit pension schemes to Net interest on pensions and administrative
expenses to aid comparability.
(2)Contribution by the Group to the Premier schemes due to the payment of
dividends during the year.
Reconciliation of cash and cash equivalents to net borrowings
52 weeks ended 52 weeks ended
1 April 2023 2 April 2022
£m £m
Net inflow of cash and cash equivalents 9.1 53.2
Movement in lease liabilities 2.8 2.5
Increase in borrowings - (10.0)
Debt issuance costs in the period 0.7 8.5
Other non-cash movements (1.9) (6.5)
Decrease in borrowings net of cash 10.7 47.7
Total net borrowings at beginning of period (285.0) (332.7)
Total net borrowings at end of period (274.3) (285.0)
Analysis of movement in borrowings
As at Cash flows Non-cash interest expense Other As at
2 April 2022 non-cash movements 1 April 2023
£m £m £m £m £m
Bank overdrafts - (1.0) - - (1.0)
Cash and bank deposits 54.3 10.1 - - 64.4
Net cash and cash equivalents 54.3 9.1 - - 63.4
Borrowings - Senior Secured Fixed Rate Notes maturing October 2026 (330.0) - - - (330.0)
Lease liabilities (16.1) 2.9 (0.6) 0.5 (13.3)
Gross borrowings net of cash(1) (291.8) 12.0 (0.6) 0.5 (279.9)
Debt issuance costs(2) 6.8 0.7 (1.9) - 5.6
Total net borrowings(1) (285.0) 12.7 (2.5) 0.5 (274.3)
Total net borrowings excluding lease liabilities(1) (268.9) 9.8 (1.9) - (261.0)
(1) Borrowings exclude derivative financial instruments.
(2) The non-cash movement in debt issuance costs relates to the amortisation
of capitalised borrowing costs only.
Cash outflows of £2.9m (2021/22: £3.3m) in relation to repayments of lease
liabilities have been included in the consolidated statement of cash flows,
including £0.6m included in interest paid within cash flows from operating
activities.
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 1 April 2023 As at 2 April 2022
Offset asset Offset liability Net offset liability Offset asset Offset liability Net offset asset
Cash, cash equivalents and bank overdrafts 12.6 (13.6) (1.0) 8.1 - 8.1
9. Bank and other borrowings
As at As at
1 April 2023 2 April 2022
£m £m
Current:
Bank overdrafts (1.0) -
Lease liabilities (2.1) (2.1)
Total borrowings due within one year (3.1) (2.1)
Non-current:
Transaction costs(1) 5.6 6.8
Senior secured notes (330.0) (330.0)
(324.4) (323.2)
Lease liabilities (11.2) (14.0)
Total borrowings due after more than one year (335.6) (337.2)
Total bank and other borrowings (338.7) (339.3)
(1)Included in transaction costs is £1.7m (2021/22: £1.9m) relating to the
revolving credit facility.
Secured senior credit facility - revolving
The RCF of £175m attracts a leverage-based margin of between 2.0% and 4.0%
above SONIA. 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 / EBITDA(1) Net debt / Interest(1)
2022/23 FY 3.50x 3.00x
2023/24 FY 3.50x 3.00x
(1)Net debt, EBITDA and Interest are as defined under the revolving credit
facility.
During the period, the Group announced that it had extended the period of its
revolving credit facility (RCF) by one year to May 2025 with the same lending
group.
On 11 May 2023 the Group extended £148.5m of its revolving credit facility
(RCF) by one year to May 2026. The covenant package attached to the RCF and
tested bi-annually is unchanged. See note 16 for further details.
Senior secured notes
The senior secured notes are listed on the Irish GEM Stock Exchange. The notes
totalling £330m mature in October 2026 and attract an interest rate of 3.5%.
10. Financial instruments
The following table shows the carrying amounts (which approximate to fair
value except as noted below) of the Group's financial assets and financial
liabilities. Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Set out below is a summary of methods
and assumptions used to value each category of financial instrument.
As at 1 April 2023 As at 2 April 2022
Carrying amount Fair Carrying amount Fair
value value
£m £m £m £m
Financial assets not measured at fair value:
Cash and cash equivalents 64.4 64.4 54.3 54.3
Financial assets at amortised cost:
Trade and other receivables 63.7 63.7 65.7 65.7
Financial assets at fair value through profit or loss:
Trade and other receivables 4.2 4.2 3.3 3.3
Derivative financial instruments
- Forward foreign currency exchange contracts 0.7 0.7 0.1 0.1
- Commodity and energy derivatives 0.1 0.1 2.3 2.3
Financial liabilities at fair value through profit or loss:
Derivative financial instruments
- Forward foreign currency exchange contracts (0.5) (0.5) (0.3) (0.3)
- Commodity and energy derivatives - - - -
Other financial liabilities at fair value through profit or loss:
- Deferred contingent consideration (note 15) (8.2) (8.2) - -
Financial liabilities at amortised cost:
Trade and other payables 248.3) (248.3) (247.4) (247.4)
Senior secured notes (330.0) (297.8) (330.0) (305.8)
Bank overdrafts (1.0) (1.0) - -
The following table presents the Group's assets and liabilities that are
measured at fair value using the following fair value measurement hierarchy:
· Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1).
· Inputs other than quoted prices included within level 1 that are observable
for the asset or liability, either directly (that is, as prices) or indirectly
(that is, derived from prices) (level 2).
· Inputs for the asset or liability that are not based on observable market data
(that is, unobservable inputs) (level 3).
As at 1 April 2023 As at 2 April 2022
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
£m £m £m £m £m £m
Financial assets at fair value through profit or loss:
Trade and other receivables - 1.8 2.4 - - -
Derivative financial instruments
- Forward foreign currency exchange contracts - 0.7 - - 0.1 -
- Commodity and energy derivatives - 0.1 - - 2.3 -
Financial liabilities at fair value through profit or loss:
Derivative financial instruments
- Forward foreign currency exchange contracts - (0.5) - - (0.3) -
Other financial liabilities at fair value through profit or loss:
- Deferred contingent consideration (note 15) - - (8.2) - - -
Financial liabilities at amortised cost:
Senior secured notes (297.8) - - (305.8) - -
11. Dividends
The following dividends were declared and paid during the period:
52 weeks ended 52 weeks ended
1 April 2023 2 April 2022
£m £m
Ordinary final of 1.2 pence per ordinary share (2021/22: 1.0 pence) 10.3 8.5
After the balance sheet date, a final dividend for 2022/23 of 1.44 pence per
qualifying ordinary share
(2021/22: 1.2 pence) was proposed for approval at the Annual General Meeting
on 20 July 2023 and will be payable on 28 July 2023. Dividend distributions
are recognised as a liability in the period in which the dividends are
approved by Group's shareholders.
12. Capital commitments
The Group has capital expenditure on property, plant and equipment contracted
for at the end of the reporting period but not yet incurred at 1 April 2023 of
£8.9m (2021/22: £5.7m).
13. Contingencies
There were no material contingent liabilities at 1 April 2023 (2021/22: none).
14. Related party transactions
There has been no material change to transactions with related parties during
the period.
15. Acquisition of subsidiary
On 31 August 2022, the Group acquired 100% of the ordinary share capital of
The Spice Tailor Limited ('Spice Tailor') and its wholly owned subsidiaries,
The Spice Tailor (Direct) Limited, The Spice Tailor (Canada) Limited and The
Spice Tailor (Australia) Pty Ltd for initial consideration of £43.8m (this
comprises £44.5m cash consideration less £0.7m cash acquired). Additional
consideration is dependent on future performance with an earn out structure
over a three year period from FY2024, subject to further growth targets with a
maximum cap of total consideration of £72.5m. The acquisition is well aligned
to the Group's growth strategy, being highly complementary to the Group's
Sharwoods and Loyd Grossman brands and having a strong geographical fit, with
a presence in the UK, Australian, Canadian and Irish markets, significantly
expanding the Group's ethnic foods business in Australia.
The following table summarises the Group's provisional assessment of the
consideration for Spice Tailor, and the amounts of the assets acquired and
liabilities assumed.
IFRS book value at acquisition Fair value adjustments Fair value
Recognised amounts of identifiable assets acquired and liabilities assumed £m £m £m
Property, plant & equipment 0.1 - 0.1
Brands and other intangible assets - 20.5 20.5
Inventories 3.0 0.2 3.2
Trade and other receivables(1) 2.4 2.4 4.8
Trade and other payables (3.4) - (3.4)
Provisions (0.1) (2.4) (2.5)
Cash and cash equivalents 0.7 - 0.7
Deferred tax liability - (5.0) (5.0)
Total identifiable net assets 2.7 15.7 18.4
Goodwill on acquisition 34.3
Initial consideration transferred in cash 44.5
Deferred contingent consideration 8.2
Total consideration 52.7
(1) Fair value adjustment relates to the recognition of indemnification assets
in relation to contingent liabilities acquired
Identifiable net assets
The fair values of the identifiable assets and liabilities acquired have been
determined provisionally at the acquisition date. As permitted under IFRS 3
the Group may, within twelve months of the acquisition date, retrospectively
adjust the provisional amounts recognised to reflect new information obtained
about facts and circumstances that existed and, if known, would have affected
the measurement of the amounts recognised as at the acquisition date.
As a result of the business combination, the Group recognised provisions of
£2.5m, including £2.4m in relation to the fair value of contingent
liabilities acquired which relate primarily to future tax liabilities in line
with IAS 37.
The fair value of the trade and other receivables acquired as part of the
business combination was £4.8m. This includes an indemnification asset of
£2.4m in relation to the contingent liabilities assumed, and trade
receivables amounting to £2.4m which approximated to the contractual cash
flows.
Consideration transferred
Consideration included cash of £44.5m transferred on completion of the
acquisition. An additional £8.2m was recognised in relation to the fair value
of deferred contingent consideration which is dependent on future performance
with an earn out structure over a three year period from FY2024, subject to
further growth targets. The deferred contingent consideration is included
within non-current other liabilities.
The fair value of deferred contingent consideration represents the present
value of estimate payments measured at the time of acquisition based on the
Group's estimate of future performance. The fair value is based on
unobservable inputs and is a classified as a level 3 fair value estimate under
the IFRS fair value hierarchy. See note 10 for further details.
Acquisition-related costs amounting to £2.7m are not included as part of
consideration transferred and have been recognised as an expense in the
consolidated statement of profit or loss, as part of administrative expenses.
Goodwill
Goodwill amounting to £34.3m was recognised on acquisition and while The
Spice Tailer brand forms much of the enterprise value of the business, there
is a premium associated to the purchase of a pre-existing, well positioned
business. This goodwill is not expected to be deductible for tax purposes
and is allocated to the Group's Grocery CGU.
Spice Tailor contribution to the Group results
From the date of the acquisition to 1 April 2023, Spice Tailor contributed
£10.0m to the Group's Revenues and a profit before taxation of £0.3m. Had
the acquisition occurred on 3 April 2022, on a pro forma basis, the Group's
Revenue for the period to 1 April 2023 would have been £1,013.4m and profit
before taxation for the same period would have been £111.5m.
16. Subsequent events
On 11 May 2023 the Group extended £148.5m of its revolving credit facility
(RCF) by one year to May 2026. The covenant package attached to the RCF is to
be tested bi-annually and they are unchanged (see note 9 for details).
On 18 May 2023, the directors have proposed a final dividend for the period
ended 1 April 2023 for approval at the Annual General Meeting. See note 11 for
more details.
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