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Edited Transcript of PFD.L earnings conference call or presentation 12-Nov-19 9:00am GMT

Half Year 2020 Premier Foods PLC Earnings Call

Hertfordshire Nov 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Premier Foods PLC earnings conference call or presentation Tuesday, November 12, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Alexander Whitehouse

Premier Foods plc - CEO & Director

* Duncan Leggett

Premier Foods plc - Group Director of Financial Control and Corporate Development & Acting CFO

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Conference Call Participants

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* Charles Hall

Peel Hunt LLP, Research Division - Head of Research

* Martin John Deboo

Jefferies LLC, Research Division - Equity Analyst

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Presentation

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Alexander Whitehouse, Premier Foods plc - CEO & Director [1]

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All right. Good morning. So welcome to Premier Foods' first half results. I think I know most of you. But for those that don't know me, my name is Alex Whitehouse. I was previously the Managing Director of our U.K. business but more recently, of course, CEO.

I'd like to introduce everybody to Duncan Leggett. Duncan was previously our Group Financial Controller and is now doing a sterling job as acting CFO. So he'll be talking to you in a few minutes. I'm going to dive in, first of all, with the numbers and also a little bit on strategy. And then I will hand over to Duncan, who'll run through the financial schedules.

Okay. So we've had a good start to the year, a good first half, revenue growth of 2.4% for the half, 3.6% in the quarter. And the really pleasing thing is this has been driven by some really healthy branded growth, so 4.3% branded growth in the half and 5.6% in the quarter. Trading profit was actually slightly ahead of our expectations, particularly given that we invested more behind the brands in advertising than we did in the first half a year ago. And I'll talk to you a little bit about that in a few minutes' time. And that left adjusted PBT up 5%, but importantly, an accelerated rate of net debt reduction, so GBP 39 million of reduction in net debt year-on-year half 1 to half 1. So better than expected and gives us increasing confidence in our outlook for the full year.

So let's move on and talk a little bit about strategy, 3 key pillars here. And over on the left and really the key thing that's helped turn the business around and get us into a strong growth position has been this focus on sustainable and profitable revenue growth. We're fortunate enough to have a stable of well-known leading brands. And it's investment behind those brands in insight-driven innovation, marketing investment and then working closely with our key retail partners to deliver great in-store execution that's allowed us to get ourselves into this position of consistent growth.

And if we look at our U.K. business, which I'll come back to in a little while, this was our ninth consecutive quarter of growth for our U.K. business, driven by this brand growth strategy that we've got in place. And then of course, on top of that, we've got the opportunity that international expansion offers on top. From a cost control and efficiency point of view, you'll be aware that we run a pretty tight ship. And in particular, we have a lean cost SG&A base. And then we also invest carefully from a capital point of view in our factories in order to make our operational efficiency as tight as we possibly can. We've also made some changes to the senior team, which I'll come to on the next slide.

And then we're highly cash generative, so tight focus on capital, disciplined working capital management. Ultimately now, this starts to get us in a position where we start to see some options opening up for us in terms of cash deployment in the short and medium term. And then no strategy slide will be complete without me mentioning the strategic review. Nothing specific to announce today, other than to say that this is actually nearing conclusion, and we hope to be in a position relatively soon to update everybody on that.

I'm just going to talk a bit about some changes we've made in our executive leadership team. We've made 3 new senior appointments to the team, a Chief Marketing Officer, a Chief Customer Officer and an Operations Director. And the intent of this is actually to make our senior leadership team sharper both from a commercial and from an operational point of view. It actually delayers the team a little bit and essentially makes us more efficient in terms of our internal processes, improves our speed of decision-making and our agility.

And with that, I'll hand over to Duncan to go through the financial schedules.

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Duncan Leggett, Premier Foods plc - Group Director of Financial Control and Corporate Development & Acting CFO [2]

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Thanks, Alex. Good morning, everyone. I'm delighted to be up here alongside Alex presenting the results. And I'll take you through a few of the key half year schedules.

So starting from group headline results. Group sales for the half were up 2.4% and encouragingly branded sales growing in advance of that, up 4.3% for the half. For the second quarter, growth accelerating with 3.6% growth for the quarter and again branded sales higher than that, up at 5.6%. So the benefits of branded sales flowing down divisional contribution, after increased marketing spend gives divisional contribution of GBP 70 million, which is GBP 2 million or 2% up year-on-year.

Group and corporate costs slightly higher, just under GBP 2 million higher year-on-year. That's largely driven by higher depreciation charges under IFRS 16 and the change in phasing of our management incentive schemes. That then flows down to trading profit, which is broadly in line with prior year, again having spent higher marketing.

So moving on to our Grocery business. So as a reminder in how we report the Grocery business includes International business and our Knighton Foods. Again, a similar story, total sales for the half up at 3.1% and branded sales growing more strongly at 3.8%. For the second quarter, total sales up 4.7% and branded sales strongly ahead at 6.2%. Worth pointing out, there was a small benefit from Brexit buying from our customers within that Q2 number. Again, divisional contribution, we saw the benefits of the strong branded growth half year on half year flowing down. And after higher consumer marketing, divisional contribution of GBP 59 million is GBP 2 million higher year-on-year.

I think in terms of the shape of the sales, I think the branded sales growth are showing benefits from our partnership with Nissin, with Soba Noodles and Cup Noodles both performing strongly. We've also had strong performance from Bisto, which has benefited from consumer marketing in the period. For Knighton Foods, sales has been slightly down half year on half year, but profitability has improved as we've exited some low-margin contracts.

So in terms of Sweet Treats, continues its positive momentum from last year. Total sales up for the half of 0.7% but very, very strong branded growth within that, 5.5% for the half, really seeing benefits of growth, continued growth from Mr Kipling, which is the group's largest brand, again seeing benefits from increased media during the period. And Cadbury is also showing strong growth into the half, helped by Easter and improved seasonal ranges on Easter. Within the second quarter again, same total sales growth of 0.7% and branded sales higher at 4.1%. Moving down to divisional contribution, slightly lower year-on-year. That reflects the higher marketing half year on half year and also some increased SG&A costs as we filled vacancies in the second half of last year.

So just walk you through from trading profit to operating profit, the key movements are amortization of intangible assets, which is GBP 3 million lower half year on half year. That's mainly due with fully amortized SAP software at some of our sites. The other key movement being nontrading items being GBP 4 million lower year-on-year. That's mainly driven with the prior year having costs relating to our terminal transformation in there. Coming down to operating profit of GBP 36 million, which is GBP 8 million higher half year on half year.

So EPS, so adjusted PBT is GBP 2 million higher at GBP 32 million. That's mainly driven by lower interest charges, net regular interest being our proxy for cash interest. The lower interest is driven by lower levels of average debt and also lower interest following our refinancing in H1 last year. So after a notional tax charge, that leaves adjusted earnings of GBP 26 million, which is GBP 2 million higher half year on half year. And adjusted EBIT of just over 3p is 4.3% up half year on half year.

Now IFRS 16 quickly becoming one of my favorite topics. But as this is the first time that we've presented under IFRS 16, I wanted to give you a couple of headlines. We've applied the modified retrospective approach, so we're not required to restate comparatives. And I think the key headlines to take away from this slide on a full year basis, the lease liability is GBP 21 million. So that's an increase to net debt of GBP 21 million. And from a P&L perspective, the impact is broadly neutral.

For the eagle eyes amongst you who spot that our fixed asset number is quite a lot lower than our lease liability, that's because we've got some surplus property for which we've got ongoing commitments. From an asset perspective, that gets impaired when it's recognized, so we don't have the asset relating to those on the balance sheet. As a reminder from a financial covenants point of view, they're tested on a frozen GAAP basis, so it's pre IFRS 16. So this doesn't impact our financial covenants.

Moving on to cash, and as Alex mentioned, our increased rate of net debt reduction for the first half. I think the chart at the top of the page just shows our cash generation this half year of GBP 39 million on a like-for-like basis versus GBP 26 million the year before and GBP 21 million the year before that. I think what we're really pleased seeing is the acceleration of the cash generation and the net paydown this half versus the previous 2 periods. That's generally benefit of higher EBITDA, generally lower interest and fewer one-off items when we're comparing this year versus last year.

And then at the bottom half, I just wanted to highlight our strong cash flow generation. So these are full year numbers to March 19 and shows that EBITDA of GBP 146 million translates into free cash flow before pensions and interest of GBP 111 million. And that's even after GBP 18 million of restructuring costs, which are a lot higher than we're anticipating going forward. So again, it just highlights our strong operating cash conversion. And then the GBP 111 million after pensions and interest takes you down to GBP 27 million that we reported at year-end.

In terms of net debt and how that's tracked versus the year-end. At half year, we're broadly flat to year-end, which is a better position than we've previously been in. In terms of building blocks, we've got net debt of GBP 470 million on the left-hand side. We've then got EBITDA generating the cash and then the key outflows of pensions and interest of GBP 24 million and GBP 18 million respectively. CapEx at GBP 8 million will be second half-weighted this year. And working capital outflow of GBP 9 million reflects the seasonality of our business as we're now moving into our peak trading period. On a like-for-like basis, that takes us to GBP 471 million of net debt, which after the IFRS 16 adjustment of GBP 22 million, takes us to reported net debt of GBP 493 million.

And I just wanted to come back to this chart one more time because I think it just really demonstrates almost a virtuous circle that we're starting to get in around lower debt, lower interest and that generating higher cash, which is something that we're hoping to carry on forward.

In terms of pension schemes, so you'll be aware, we've got 2 very different pension schemes in very different funding positions. The RHM scheme is in surplus on an IAS 19 accounting basis and also a last valuation in 2016. And the Premier scheme is in deficit under both measures. I think the RHM scheme under IAS 19 for the half year, the deficit exceeding GBP 1 billion and the Premier Foods' scheme deficit is GBP 481 million, which has slightly increased versus the year-end. These are presented separately on our balance sheet because they're very separate schemes. We show them combined, which is purely a mathematical add-up of the 2 on here.

In terms of the moving parts, we've had lower interest rates and therefore a lower discount rate, which has increased the liabilities. This has been more than offset by strong asset performance, particularly in the RHM scheme. We've got triennial valuations. The dates are at March and April 2019. These valuations are ongoing as is our open and constructive dialogue with our pension fund trustees. As you might expect with a new management team, a new Chairman, a new CEO and a new CFO, we're having a look at the pension scheme with fresh set of eyes to see if there's anything we can do.

And my final slide before I pass back to Alex is just cash guidance, broadly in line with what we shared in May off the back of our year-end results, slight improvement to our working capital guidance, which is now broadly neutral and a slight increase to our cash restructuring costs, reflecting the senior management changes that we've had in the first half and also some costs relating to the ongoing strategic review. I think you'll find once you flow these into your model, you'll start to see that the group is actually starting to build cash sustainably for the first time, which is really positive. And as Alex mentioned earlier, with that comes certain options that we can take.

So on that note, I'll pass it back to Alex.

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Alexander Whitehouse, Premier Foods plc - CEO & Director [3]

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Thanks, Duncan. So I just want to come back to the strategy model and in particular to focus on this concept of sustainable and profitable revenue growth and this idea of the brand growth model that we've got in place, so innovating, investing in marketing support behind the brands and then executing brilliantly in-store with our collaborative retail partnerships.

And in particular, if we look at that through the eyes of the U.K. business, we can see that we've now reached a point where we've got pretty consistent growth and decent growth across the last 9 quarters. The only exception actually is in this period here in quarter 3 last year. And if you remember well, that's when we went through our logistics transition, which was a little difficult for a time and therefore constricted our ability to ship product. But other than that, the business is performing in a pretty strong and consistent way. And it's really driven by that brand-building model that I've talked about. If you look at the -- both the half and also the latest quarter, the other strong underpinning factor with the blue bars underneath is that actually more of the growth came from volume than it did from price and mix, which I always think is a really healthy sign that the business is growing and in good shape. And we actually outgrew the market. So we took market share both in our Grocery business and Sweet Treats actually taking market share in growing markets.

But it's really underpinned by the innovation strategy. So we focus on 5 key consumer insights, the first one being health and nutrition, which shouldn't come as a big surprise to anybody that that's a key trend, but also convenience remains important. Snacking and eating on the go continues to be a trend. And then we have somewhat counterintuitively indulgence. So we've got this health and wellbeing trend, but we've also got an indulgence trend as well. And we put this down to a couple of things. One is when we've been good all week and tried to be healthy all week, at some point, we feel like we deserve a treat. And secondly, when we do deserve a treat, there's a growing trend that actually it has to be worth it, so people tending to look for more indulgent products for that moment. And then we've got packaging sustainability, where we've already done a lot of work on reducing the amount of plastic we use and actually increasing the amount of recyclability. And I'll come back to that in a little while.

And if we look at what drives that innovation strategy -- and I've spoken before about the success of our innovation plan. So if you look at how many of the new products launched in the market survived to their second birthday, and we use that as a measure. Because if a new product survives in market for 2 years, it's generally because it's actually fulfilling a real role with consumers and it's actually providing a benefit for them. And if we look at the market, the grocery market in the U.K. on a whole, only about 25% of the products launched actually make it to that second birthday whereas if we look at our success rate, we have approximately 70% of our products actually still in market at that second birthday.

And we put that down to the fact that we do an awful lot of work upfront in understanding our consumers and making sure we really get underneath their skin in terms of how they shop, how they're cooking and how they're eating. So that when we then go on to develop new products, they're ones that really resonate and actually fulfill a genuine role in our consumers' lives. And then more and more, as we work on that innovation, we're fine-tuning all the different elements, how the product looks, how it smells, how it tastes, how it's packaged, how it stands out on the shelf. So that we put these 2 things together, we've got a pretty powerful proposition. And then as I've said, we work really closely with our key retail partners so that we actually get great execution in-store that actually works well for them as well as working well for us.

And if I pull out a few examples of what's worked really well for us in that respect in the first half and starting with Mr Kipling, you may remember, well, first of all, Mr Kipling is our biggest brand. And if you remember about 18 months ago, we relaunched the brand. And last year, we managed to make the brand grow by a very healthy 10%, underpinned by strong volume growth of 7%. Well, I'm really pleased to say that we've been able to build on top of that in the first half of this year with a further 8% revenue growth underpinned by 2% volume growth.

And really key drivers have been the launch of the Mr Kipling Signature range. This is a premium, more indulgent range of Kipling cakes. They're absolutely delicious. They are in the room at the side. If you haven't already tried one, I think you should have at least one, if not all 3. They really are quite fantastic. My favorite is this one in the middle here. And we've continued to use the TV advertising that we've launched last year with the relaunch. That worked very well for us, had a really strong return on investment. We did one burst of that this year -- sorry, last year and we will use that 4 times over the course of this year.

And when we look at this overall, if you look at the Kipling brand where it is today and where it was 2 years ago before the relaunch, the Kipling brand is now 22% bigger than it was from a revenue perspective than it was 2 years ago. So we're really pleased with that direction of travel. And we're well on course for our medium- to long-term plan of doubling the size of the brand.

Another standout performance was our range of Nissin pots. So we have 2 ranges of Nissin pots, the Soba Noodle pots and the Cup Noodle pots. Soba Noodles, we launched about 3 years ago, really fantastic, authentic noodle pots. Our friends at Nissin are actually wizards when it comes to making noodles. And that's going -- done extremely well. What we're finding is actually without a lot of promotional activity, it's just such a fantastic-tasting product that's so different from the other noodles that you find in the market. We're just getting a very high repeat purchase and it just continues to build.

And then we've recently rolled out Nissin's global noodle brand, which is called Cup Noodle, just even a step on from Soba Noodle. When you put those 2 things together, we've more than doubled the size of that business over the last year, almost reaching a 3% share of the overall massive quick meals and snacks market. That's a GBP 380 million market and about 5% of the pot snacks market. This is almost a GBP 10 million retail sales value business for us now and as you can see, growing very strongly.

But then of course, we've had innovation across the brand portfolio. Picking out a few more examples, Cadbury over on the left-hand side, we launched a range of Cadbury Dairy Milk cake slices. So these are Cadbury Dairy Milk chocolate slices with big lumps of Cadbury's chocolate on top, so what's not to like there? And not surprisingly, they're selling very well and they're on track to be the second biggest launch in the cake category in the last 5 years.

In the middle here, I've pulled out Sharwood's rice pots. So this is taking our strong Sharwood's brand from cooking sauces and actually taking it into an adjacent category in pot snacks, where that equity it's got, particularly in Indian sauces, transfers across very nicely. And the reason why I think this is interesting is because I think it indicates one of the opportunities we've got going forward is taking these strong brand equities we've got and moving them from their heartland into adjacent categories and therefore generating incremental revenue streams.

Over on the right-hand side, we've got our friend Bisto, obviously one of our key brands, one of our biggest brands. Now Bisto has an almost 80% market share. So getting growth from Bisto is not about getting to 81% market share. It's actually about making the gravy category bigger. And a couple of the things we know about gravy usage is during the middle of the week in particular, we'll find that people tend to actually eat whatever they're eating without any sauce or without any gravy, which not only sounds a little bit dull but is not very good from a Bisto point of view. We also know that actually people are quite often eating different meals in the house. And even then there might be several people in the house, not everybody is always eating the same thing at the same time in an evening.

So we developed this, which is an individual-serve, ready-to-use, microwavable gravy pot. And so all you've got to do is take one of those out, pop it in the microwave for a minute and you've got a piping hot serving of ready-made Bisto gravy. So on a wet Wednesday evening, you can pour that over your sausage and mash and you're good to go. So that's another -- I think that's a really great example of really understanding consumers, understanding how they cook and behave and finding a product that really fits with the consumer need. And obviously, what we expect this to do is just expand the usage of gravy during the middle of the week.

And then as we spoke about at the full year's, we've now got in market our new Plantastic brand, so our plant-based brand. And we're in market with the flapjacks and the cakes and then we will launch grain pots in second half of the year. So these are mixed grain pot with a coconut cream and fruit inside. And this is step 1 and step 2 of the creation of a multi-category plant-based brand.

And then of course, I've said that advertising support is extremely important to the brand-building model. We add Mr Kipling again with increased levels of investment versus a year ago in the first half. And then also this year, we've started to invest behind our Batchelors Super Noodle pots with this rather entertaining donkey. If you're not seeing that, then it's worth googling. That was all new investment behind Batchelors.

And then Bisto with our award-winning togetherness project, we started our investment a little bit earlier this year. Because there's a growing body of evidence that when you've got seasonal brands, if you can start your advertising just a little bit before the season starts, by the time, in our case, the temperature changes and people start to move into winter eating patterns, they've already got your Bisto message in their head when the occasion occurs. And therefore, it gets you off to a good start to the season, which is what we've seen happen.

And all this is, of course, underpinned by great in-store execution, delivered through those strong retailer partnerships. And in an environment where we're seeing retailer ranges actually contract, we're very pleased that what we're seeing is that our weighted distribution levels are actually increasing year-on-year and our share of total SKU count in-store is also increasing. And I put this down fundamentally to 3 things: one, those strong relationships; two, the fact that we've got market-leading brands that we continue to support; and three, that our new product development innovation program is designed in such a way that it doesn't just generate value for Premier Foods, it actually generates value to the category for the retailer. So there's a win-win in that.

Over on the right-hand side, we've got a couple of great examples of promotional execution. This is the Kipling summer campaign. We again used the Roald Dahl theme this summer. It was Matilda's turn this year. Actually, we also had some moving point of sale, which sort of attracted people's attention to it. And then on the right there, we've got Cup Noodles. So this was the launch in-store for the Nissin Cup Noodles that I mentioned earlier. And in particular, this was actually designed to get people to try the product in-store. Because it is such an authentic product that we're pretty convinced that one people -- once people try it, they'll keep coming back again and again.

And then in our International business, it was great to see that the International business returned to growth in quarter 2, up 6%. And one of the key drivers of that was our Australian cake performance. So cake in Australia grew by 9% in the half and 20% in quarter 2. We now have a 10% share of the cake market in Australia and are now clearly the brand leader. And so we will continue to build on that. But what we're now also doing is we're seeing if we can replicate that model in North America. So we have a trial going on in 1,000 stores across the U.S. It will be really interesting to see how that plays out and see if we can replicate what we've managed to achieve in Australia.

So if we move on and look at the second half, obviously there's a lot of innovation because it's core to our model across the brand portfolio. And I'd love to tell you about all of it, but I suspect you've got other things to do for the afternoon. So I've limited myself to sharing 4. Over in the top left-hand side, we have a new range of mini Mr Kipling cakes, sort of 9 little cakes in a box. The first one on the left-hand side is actually a range of mini mince pies. So they're obviously going out to market now in time for Christmas. And we'll follow that up pretty quickly in the New Year with a little box of 9 Bakewell tarts. And these are being facilitated by investment we've made to considerably adapt one of our existing lines in the Stoke bakery. It doesn't just facilitate these actually. What it does is it actually opens up to quite a few of the new products that are in our innovation pipeline over the next couple of years.

Top right-hand side is Plantastic. We've already talked about it, so I won't go through that again. And then down here, we've got our Batchelors, an expansion of our Batchelors pots range. So within the pot snacks category, there's a significant proportion of it that's made up of a larger-sized product. And that's not an area where we've played so far. So having been successful with our Super Noodle pots and our Pasta n' Sauce pots, what we'll do is we'll enter that larger-sized pot format as we go through the second half.

And then down here in the bottom right, we have Ambrosia. So these are Ambrosia Minis. They -- I'll show you these because it's rather difficult to see from the picture. So they're sort of mini pots of either rice or custard. And these exist already in the ambient dessert part of the store. But what we've done is we've developed a chilled version, which goes in the chiller. And actually, these products are really given by parents to young children. And these are 30% less sugar. So what we're doing is we're giving parents an alternative to some of the other products that you find in that chiller that's actually a lower sugar alternative to what they might otherwise given their children. So we're quite excited about that one as well.

So innovation across the range and then increased media investment across the key brands in the second half. So Mr Kipling again have no media investment in the second half last year. It will have 3 bursts in the second half this year. The donkey adverts behind Batchelors, as we call it, the donkey adverts behind Batchelors Super Noodles, that will get a second burst in the second half of the year, having worked really well for us in the first half. The Bisto togetherness project has increased investment versus a year ago as does the OXO new family. And we're currently in the middle of developing some new advertising for Ambrosia. If we have that ready in time, it will get on air this year. If not, then it will be into next year. So I think there's a lot of gas in the tank there, both in terms of innovation and media support to keep that strong branded growth going as we go through the second half of the year.

If I move on cost and efficiency, we're targeting an additional GBP 5 million of cost savings over the next 2 years. And that's so that we can reinvest it back in the brand growth model. Because it's working so well for us, if we can put more energy into that, I'm sure it will deliver us great results. The key focus for that GBP 5 million is in what we call our operational excellence program. And this looks to fine-tune our manufacturing and logistics organizations to a level of excellence to drive more efficiency and cost.

And one of the great examples for that for me is in manufacturing, where we're looking at our bigger plants, putting combined heat and power capability. So as we generate heat for the cooking process of a number of our products that, that excess heat is then converted into electricity, which we then use to power the plants or indeed actually to sell back into the grid. Obviously, that's great from an efficiency and cost saving point of view, but it's also obviously great from an environmental point of view as well.

And then you'll remember that we consolidated our logistics operation into one DC in Tamworth. And that's now working very well. In fact actually, we're back at our historical levels of customer service, if not slightly better actually in some cases. And so now the focus there is on driving some of the cost synergies that we would like to get having consolidated into one site.

And I mentioned earlier that we've changed our executive leadership team. And that really is all about that sharper commercial and operational focus at the top of the organization. It just so happens that what that also does overall is it actually saves us a bit of money, which is sitting behind that GBP 5 million.

So if we move on to social and corporate responsibility, a very important thing for the business and actually something that's very important to me personally. The good news is that we've actually now reduced our overall plastic usage to 11% of our total packaging by weight. And 70% of that is actually recyclable. In fact, 94% of our total packaging is recyclable. And we've made a commitment as part of WRAP to move to a point where by 2025, 100% of all our plastic will be recyclable. And we're moving along that road quite rapidly.

A great example of that is actually if you think about the Mr Kipling plastic trays that the cakes sit in, we've removed all the black packaging from that and we've moved it all to clear. So that's all now recyclable. And in fact actually, it contains around about 50% recycled content in it to start with. So that's a big step forward. We're in the process of doing the same exercise now for Cadbury, and we expect to have that completed by the end of December.

And also, we're a big believer in providing the consumer with appropriate information. And so we have on 100% of our products On-Pack Recycling Labeling so that people know what's recyclable and what's not. And we're also very proud of our partnership with the Woodland Trust actually. So we've got a full year partnership with the Woodland Trust. And we've helped plant 29 acres of new woodland. And we're now working with the Woodland Trust and the Rivers Trust to look at how planting trees can actually help mitigate flooding risk and soil erosion.

If we move on to nutrition, you may remember that we did a lot of work a few years ago taking salt out of the nation's diet, took around 1,000 tonnes of salt out of the nation's diet. And we're well on track to take a similar amount out of -- of sugar out of the nation's diet by the time we get to the end of this year. And we have 2 core strategies for sugar reduction. The first is what we call the stealth strategy. So that's in a number of products we've been gradually reducing the amount of sugar slowly over a number of years to the point where people don't notice and we all get used to ultimately the fact that things aren't tasting quite so sweet. And then the second is actually to give the consumer an alternative offering of, well, of a best-selling product that's actually significantly reduced in sugar.

So a couple of good examples of that. Here, we've got Mr Kipling Angel Slices. That's our biggest-selling slice. And we've created a 30% reduced sugar version of that. It's very clearly labeled as such. And to be clear, it does taste different. It does taste different. But with the clear labeling, the consumers got the choice if they want the original one or if they want the low-sugar version. And then these Ambrosia products, we've just relaunched Ambrosia Light. So this is now a product which is an alternative version for Ambrosia that's 30% less sugar and 30% less fat. So we've got a two-pronged strategy from a sugar point of view.

From a -- if I look at cooking sauces for a moment, we've done a lot of work to take fat out of our Indian sauces range. That's the 30% reduced fat version of korma. They've sold very well. And so off the back of that, we developed a low-fat poppadom, which recently won The Grocer's New Product Award for the best low-fat product. And then over on the right-hand side, obviously plant-based, very important from a nutritional point of view at the moment. And so I won't go through that again, but you're aware of Plantastic.

So in summary, we've had a strong half 1, rather better than we expected actually. And that's really been underpinned by that strong branded growth and the innovation and marketing support strategy and that 9 consecutive quarters of growth in the U.K., so consistent delivery now from that. We're really pleased with the Mr Kipling performance. And obviously, we're also really pleased with the Nissin noodle performance. And it's great to see the International business having returned to growth in quarter 2. So trading profit was ahead of what we expected, particularly given that we've invested more media in the first half than we did in the first half a year ago. Net debt, GBP 39 million lower than at the same time last year. And that's really demonstrating that strong cash flow coming through, particularly as our interest bill starts to decrease.

So batting off that strong half 1, we have increased confidence of delivering our full year performance. And we've got an exciting NPD pipeline and upweighted consumer investment in the second half. And we're targeting that GBP 5 million of incremental savings that we'll use to reinvest back in that brand growth model over the next 2 years. We are on track to meet the 3x net debt-to-EBITDA target by the end of the year. And as we look a little further ahead, of course, that therefore starts to open up those options for cash deployment. And as I said on the strategic review, whilst I haven't got anything concrete that we can announce today, that is now nearing conclusion and we hope to update everybody relatively soon.

So I'd say we feel as though we're in good shape. The model is delivering really nicely. And I think we have good confidence now in the direction of travel, not just for the second half but also beyond that.

And with that, I think we'll get to questions. Yes. There's a microphone, right.

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Questions and Answers

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Charles Hall, Peel Hunt LLP, Research Division - Head of Research [1]

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Charles Hall from Peel Hunt. Could you just talk a little bit more about price/mix because that's been a reasonable driver in the first half and historically? How do you see that moving forward as a proportion of your overall top line growth? And also, how do you see the input cost side moving? Because obviously a number of inputs have moderated in recent times. And secondly, just around your comment about having options on the cash front, are you able to discuss any of those options at this stage?

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Alexander Whitehouse, Premier Foods plc - CEO & Director [2]

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Yes, sure. So I mean the volume growth that we've seen in the first half of the year, we see as quite significant. So obviously, it's great to get growth. But if it's underpinned by volume growth, that obviously means we've got more consumers buying more of our products, which is obviously a very healthy place to be. And that's really a function, I think, of that innovation strategy and advertising really working through.

The price inflation that you do see in there comes from 3 areas really. One is just mix, product mix really helping there. Two is as we've looked at in some area, and particularly I mentioned the Mr Kipling Signature range, those are products that are at a slight premium to the base range. So the more of those we sell, actually that creates a further price/mix benefit.

And then of course, going into your second question, whilst inflation is relatively benign at the moment, we work very hard to mitigate that through factory efficiencies, et cetera. But ultimately, where we have to, we'll pass that on to our retail partners. And that plays into those numbers as well. Okay?

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Charles Hall, Peel Hunt LLP, Research Division - Head of Research [3]

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The options on the cash front?

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Alexander Whitehouse, Premier Foods plc - CEO & Director [4]

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Options on cash. I think, Duncan, chip in -- double dip in here if you feel fit. I think we're getting ourselves into a position now where we have got options. We've clearly got a model that works really well. So investing back in the model and accelerating brand growth is clearly one of the options. Actually paying down some of the first bond is an option for us. And ultimately, as we get down below 3x net debt to EBITDA, it does -- to Duncan's point earlier, we would no longer be prohibited from paying a dividend.

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Duncan Leggett, Premier Foods plc - Group Director of Financial Control and Corporate Development & Acting CFO [5]

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I think just building on that, you've probably seen from my year-end results and in half year that we weren't drawing on the RCF. The FRN is callable now at par. So that could be one option. I mean I guess in terms of illustrating, if we were to take out, say, GBP 50 million, that would be about GBP 3 million of interest saved on an annual basis. And I guess the other point is it also frees up cash that we can invest in the business. That could be consumer marketing. As Alex has talked you through, our model is clearly working. And we continue to have a decent CapEx pipeline. The combined heat and power that we can go faster, faster up, bigger up. So yes, I mean as you say, it certainly brings out options which we're really pleased about.

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Martin John Deboo, Jefferies LLC, Research Division - Equity Analyst [6]

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Martin Deboo, Jefferies. I have 2 questions. One is build on what Charles asked about price/mix. Can I ask this sort of -- extend that into margin? Just -- it would seem to me when you look at the big picture, it's nice to see GBP 5 million cost savings. But cost savings at Premier are not going to grow on trees. So it seems to be that large gross margin mix, the old Reckitt model, Alex, I'm sure you're familiar with is the way forward.

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Alexander Whitehouse, Premier Foods plc - CEO & Director [7]

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I'm very familiar with it.

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Martin John Deboo, Jefferies LLC, Research Division - Equity Analyst [8]

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So can you just give some color on that in terms of do you have an internal criteria that NPD is gross margin accretive? Are the noodles brands, which are obviously growing very fast, high gross margin? I'd just appreciate some color on the gross margin implications of mix. That's the first question. The second question is the other intriguing statement you made, just taking a fresh look at the pension with fresh eyes. So can we have a bit of color on creativity on that?

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Alexander Whitehouse, Premier Foods plc - CEO & Director [9]

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So yes, I am very familiar with the Reckitt model as you know. And we do have some pretty strict criteria around profitability of new product ranges before we bring them to market. We don't share margins on individual brands or products. So I'm not going to go down that route. But rest assured that we do have some pretty strict criteria in place. Do you want to pick up the pension point?

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Duncan Leggett, Premier Foods plc - Group Director of Financial Control and Corporate Development & Acting CFO [10]

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Sure. I mean I think the message that we want to leave you with is we're well aware of the complexity of the pension situation, particularly relative to the group size. There's been lot of work done previously with the trustees on pension options. And I think we are taking a fresh look at it with a fresh pair of eyes with a fresh team. I mean I think that's probably all we can say.

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Martin John Deboo, Jefferies LLC, Research Division - Equity Analyst [11]

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And I just want to be very clear. Any chance of getting off RPI and onto CPI. Is that at all possible?

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Duncan Leggett, Premier Foods plc - Group Director of Financial Control and Corporate Development & Acting CFO [12]

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So we've actually done that for the bits of the scheme that we're able to.

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Martin John Deboo, Jefferies LLC, Research Division - Equity Analyst [13]

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So you've taken that as far as you can.

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Duncan Leggett, Premier Foods plc - Group Director of Financial Control and Corporate Development & Acting CFO [14]

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We've taken that as far as we can, yes.

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Alexander Whitehouse, Premier Foods plc - CEO & Director [15]

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Anyone? Yes, Charles, go again.

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Charles Hall, Peel Hunt LLP, Research Division - Head of Research [16]

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Can you just comment on initial number of listings for Plantastic and where you see that going over the next 6 months to a year? And at what stage you'd put some proper marketing support behind it?

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Alexander Whitehouse, Premier Foods plc - CEO & Director [17]

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Yes, sure. So we actually worked very closely with one of the top 4 retailers in the final stages of development actually of Plantastic. And unsurprisingly, it's gone into that retailer first. But we're now in the process of rolling that out across the rest of the retailers who are all, I think it's fair to say, pretty interested. So it will be a national rollout as we go through that.

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Charles Hall, Peel Hunt LLP, Research Division - Head of Research [18]

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And when would you actually put sort of proper marketing spend behind it?

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Alexander Whitehouse, Premier Foods plc - CEO & Director [19]

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Well, this is a different kind of brand. If you compare this to Bisto, which is a mass market brand bought by millions of people and therefore works very well with traditional heavyweight TV advertising, Plantastic is somewhat different. And so I think we'll probably go down the route of a more digital campaign to support that, which we actually will switch on in the second half of this year.

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Charles Hall, Peel Hunt LLP, Research Division - Head of Research [20]

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And just on the International side, I think you previously talked about delivering double-digit growth this year. Is that still the ambition? Or is that just going to be a sort of the double-digit growth maybe in the second half?

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Alexander Whitehouse, Premier Foods plc - CEO & Director [21]

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Well, I still believe that the International business has got the opportunity to deliver fantastic growth for us. You've seen the performance of the cake business in Australia. It's very much our intent to build on that. And we expect to grow the International business in the second half of the year, but I'm not -- I won't be drawn on the exact number.

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Martin John Deboo, Jefferies LLC, Research Division - Equity Analyst [22]

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Just building on that, Alex. International, just how are you feeling about it? I mean okay, it's good that it's back into growth. But it got a lot of push under Gavin, then it went through a trough because of various issues we're all familiar with. Just now you're in control, how are you feeling about it? Do you still see it highly strategic? Or just sort of is it just a sort of interesting sideline?

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Alexander Whitehouse, Premier Foods plc - CEO & Director [23]

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No, I think we still see it as highly strategic. I think it's got the opportunity to add a significant amount of growth on top of whatever we deliver through the U.K. business. I think what's happening with cake in Australia is quite an interesting and telling success. And I think the question for us now is how we take that success and build Australia bigger, but also how we take it and package it and actually replicate it in other markets. It does definitely seem as though we have something quite unique in our ability to make in a medium shelf life, high-quality cakes that doesn't really exist in the same way in a lot of countries. So that definitely opens up somewhat...

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Martin John Deboo, Jefferies LLC, Research Division - Equity Analyst [24]

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Does that imply you see it primarily as a cake business because the original plan was sort of cake and grocery...

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Alexander Whitehouse, Premier Foods plc - CEO & Director [25]

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Yes, it is cake and grocery. But I think cake is an obvious bridgehead. So if you look at the Australian business, for example, we've built a cake business big and we've now got Sharwood's and other things coming in on top of it.

Good. Anymore? No? Well, thank you very much. And my reminder is that the indulgent Mr Kipling Signature range cakes are next door for everybody to try. Thank you very much.