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Northern Foods plc Full year results 2007/08 27 May 2008

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Northern Foods plc Full year results 2007/08 27 May 2008. See appendix for definitions. Northern Foods plc Stefan Barden – Chief Executive Introduction. 2007/08: Steady top and bottom line growth. 2007/10: Performance improvement plan update.

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2007 10 performance improvement plan update
2007/10: Performance improvement plan update
  • First year of our three year Performance Improvement Plan delivered

2007

2010

Key workstreams

Instilling

the basics

  • Continue to instil the basics
    • Recovery of inflation
    • Focus on talent/training
  • Problems being fixed
    • Chilled margin
    • Biscuits brand/cost base
    • Frozen Pastry/Meat Grills

Fixing

the problems

  • Building a better business
    • Margin improvement
    • Sorting unprofitable assets
    • Bolt on acquisitions

Building

a better business

highlights
FINANCIAL

Continuing profit before taxation* +25.3% at £50.1m

Adjusted EPS 20.9% ahead at 7.88p

Strong cash management continues to drive low net debt4 at £200.2m

Robust balance sheet – continuation of share buy-back programme in 2008/09

Proposed dividend up 5.9% at 4.50p

OPERATING

Good progress in first year of 3 year strategic plan

Strong Chilled & Bakery performances; action plan initiated to address Frozen performance

Continued focus on above average market growth & operational simplification, delivering revenue & profit improvements

Bolt on acquisition strategy extending presence in attractive growth markets

Significant commodity cost increases successfully recovered

Highlights
divisional performance continuing businesses
Divisional performanceContinuing businesses
  • Underlying revenue5 +5.6% plus acquisition benefit
  • 51% increase in profit, across both business units
  • Significant further opportunity to drive returns
  • Underlying revenue broadly flat
  • Profit impacted by promotional activity (pizza & pastry) & poor summer for grills – being addressed
  • Strong Euro impacted profit by £1.2m
  • Underlying revenue +3.9%: good price recovery & lower promotional activity
  • Successfully reversed declining revenue & margin trend
  • Focused capital management driving strong returns
other financial items in 2007 08
Other financial items in 2007/08
  • Income statement:
    • Net interest cost reduced by 23%
    • Net pensions financing credit up at £15.7m (2006/07: £12.5m)
    • Continued reduction in restructuring to £4.7m pre-tax
    • Tax rate up at 23.4% (2006/07: 20.3%), due to higher UK profit
  • Cash flow:
    • Using RONA as a KPI, cash management discipline embedded across Group
    • Gross capital expenditure continues at 52% of depreciation – includes expansion investment
    • Working capital6 tightly managed – negative £25.9m at year end
continued good free cash flow generation
Continued good free cash flow generation
  • Funding for 3 bolt-on acquisitions (£22.0m), rationalisation (£9.3m), special pension contribution (£22.0m), share purchases (£9.4m) and dividends (£21.0m)
  • Net debt remains low at £200.2m (2006/07: £174.2m)
managing post retirement benefits
Funding level continues to improve

Plans to reduce future volatility

Significant historic pensions liability and asset

Ongoing funding volatility

Advanced stage in new strategy:

Liability profile

Asset allocation

Liability driven approach:

Minimise future deficit contribution

Affordable ongoing contributions

Managing post-retirement benefits

£m

0

  • IAS19 surplus £61.6m pre-tax
  • Benefit from contributions and bond yield
  • Impact from prudent mortality and lower equity values
key factors impacting 2008 09
Key factors impacting 2008/09
  • Pensions
      • Expected c£6.5m reduction in net pensions financing credit
  • Currency
      • £1.2m adverse impact to 2007/08
      • At €1.26, estimated adverse exposure in 2008/09 of c£4m
  • Phasing
      • First half investments
      • Normal seasonal trading bias
slide15

Northern Foods plcStefan Barden – Chief ExecutivePerformance Review

a simple platform for growth
A simple platform for growth
  • Our simple 3 year objective:

‘To sustain the Group’s steady top and bottom line growth’

  • Our simple strategy:
      • Focus on attractive market segments
      • Partner with customers looking for quality and performance
      • Deliver through a low cost/high performance business model
1 focused on attractive markets
1. Focused on attractive markets
  • 6 markets growing at a weighted average of 5.2%

a TNS Worldpanel 52W/E 23/03/08

b ACN Scantrack MAT 15/03/08

c ACN Scantrack MAT 22/03/08

d Internal estimate

2 customer partnerships delivering above average growth
2. Customer partnerships: Delivering above average growth

Ready meals 52 wk % share

YoY growth

From 19% of share,

Northern Foods drives 47% of market growth

Source: TNS Worldpanel: 52 w/e 20 Apr 08 vs prior year

3 a low cost business model building a performance culture
Why we come to work

“To make great tasting food that consumers want to buy again and again … and again”

How we will do this as a team

“Profiting together through performance”

Consumers

Customers

Employees

Shareholders

3. A low cost business model:Building a performance culture
ready meals21
Ready Meals
  • An attractive market with growth opportunities
      • £1.53bn
      • Market growth slowed (+£33m YoY)
        • Flat/negative in 2008/09, expected to return to growth in 2009/10
      • But still on trend
  • NF continues to grow
      • Driving efficiency
        • Margin improvement
        • Tackling underperforming assets
      • Reaching new customers
        • 6 sites (inc. Grimsby soup site and Ethnic Cuisine)
        • Expand customer base
      • Delivering innovation
        • Product innovation – highest rate of sale
        • Highest levels of loyalty
ready meals delivering customer loyalty
Ready Meals Delivering customer loyalty

Italian ready meals retailer loyalty – March 08

%

Source: TNS Worldpanel 23rd March 08

sandwiches salads24
Sandwiches & Salads
  • An attractive market with good growth opportunities
      • Salads and sandwiches £1.13bn
      • On trend:
        • Family & eating on the move
        • Health & convenience
  • NF well positioned
      • Focus on highest rate of sale products
      • Innovation with a point of difference
      • Corby salad factory completed (£20m extra sales capacity)
      • Continued steady expansion, where profitable
frozen pizza
Frozen: Pizza
  • Attractive market
      • Pizza market overall growing at 6.8% YoY
        • On trend: snacking, convenience, kid friendly, health
        • Frozen pizza growing 5%, chilled pizza growing by 8.4%
  • NF well positioned
      • Goodfella’s is UK’s No 1 pizza brand
        • Best quality frozen pizza in the UK, 30.5% share
      • Leverage our market and technology leadership (‘Friday Fever’)
      • Roll-out successful pilot of chilled brand (‘Signatore’)

Source: ACN Scantrack MAT from 22 March 08

frozen irish brands market share
Green Isle (frozen vegetables)Frozen: Irish brands: € market share
  • Donegal Catch (frozen fish)

Green Isle

Bird’s Eye

Green Isle

Bird’s Eye

Source: March 04 to March 05 - TNS; March 06 to March 08 – ACN Scantrack

biscuits30
Biscuits
  • Competitive market with attractive sectors
      • Sweet biscuit market in growth +6.3%
      • NF manufacturing advantages include:
        • Moulded biscuits
        • Creams
        • Assortments and tins
  • FY 2007/08 and beyond: Leader in carefully rebuilt niche market
      • Lowest cost mind-set
        • Simpler structure (All year round, Seasonal, Retailer own brand)
        • Simpler product offering (28% of branded SKUs exited, new product hierarchy)
      • Refocused brand
        • Simpler shelf layout (new packaging design)
        • Simpler quirky marketing campaign (Vinnie)
christmas puddings
Christmas Puddings
  • Strong leadership in a stable market
      • £45m niche market
      • Experts in puddings since 1899
      • Over 60% share (small increase vs FY2006/07)
  • NF well positioned to grow customer volumes and margins
      • Recognised unique production skills in specialist area
      • Deeply understand different retailers’ Christmas buying criteria
      • Full category solution to customers
        • ‘The Pudding’ – an excellent margining up solution
        • Will help reduce SKU complexity, giving further cost benefit
outlook
Outlook
  • Opportunities for revenue growth and improved performance
    • Mix of innovation and continued simplification
    • Chilled markets particularly attractive
  • Robust action on underperforming assets
  • Cautious economic outlook
    • Continuing commodity cost pressures – committed to recovering
  • Underlying business expected to continue good progress
definitions
Definitions
  • Asterisk (*) – before restructuring items.
  • *   Throughout this statement, an asterisk denotes results for continuing operations (except where otherwise stated) and profit is stated before restructuring items. ‘Continuing’ operations exclude businesses which were sold (‘discontinued’) in 2006/07. ’Restructuring items’ which relate to significant restructuring events and the impact of the Fletchers fire in the 52 weeks ended 31 March 2007 are presented as a separate ‘Restructuring items’ column within their relevant Consolidated income statement category. Presentation of these items in a separate column helps to provide a better indication of the Group’s underlying business performance. ‘Restructuring items’ include costs or income associated with the restructuring of businesses, gains or losses on the disposal of businesses and assets and financial instrument gains and impairments arising from the group’s restructuring activities.
  • 1 Adjusted earnings per share (EPS) is basic EPS for continuing operations before restructuring items and is reconciled to earnings per share in the financial statements
  • 2 ROIC is profit from operations before restructuring items for continuing operations divided by a 13 month average invested capital (net equity adjusted to exclude retirement benefit obligations net of deferred tax, and net debt, together with accumulated goodwill previously written off).
  • 3 Free cash flow is net cash from operating activities, adjusted for special pension contributions, less net capital expenditure, plus net interest received. Net capital expenditure is purchase of property, plant & equipment (PPE) less grants received and proceeds from sale of PPE
  • 4 Net debt is defined as total borrowings (including both short and long term bank loans, bonds, loan notes and finance leases) less cash & cash equivalents and short term investments
  • 5 Underlying revenue excludes the impact of currency translation, product categories no longer manufactured, acquisitions and discontinued operations
  • 6 Working capital is defined as inventories plus trade and other receivables less trade and other payables  
forward looking statements
Forward looking statements
  • Forward looking statements are made throughout this document.  These forward looking statements are based on a number of assumptions concerning future events and information currently available.  The user should not rely unduly on these forward looking statements, which are not a guarantee of performance and which are subject to a number of uncertainties and other facts, many of which are outside of the Company’s control and could cause actual events to differ materially from those in these statements.
  • Although Northern Foods believes that the expectations reflected in those forward looking statements are reasonable, it cannot assure users that those expectations will prove to be fulfilled.  In addition other factors could cause actual results to differ materially from our expectation, including economic and political conditions, changes in laws, regulation and accounting standards, customer relationships and actions, effectiveness of spending and marketing programmes and unusual weather patterns.  No guarantee can be given of future results, levels of activity, performance or achievements.  
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