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Premier Foods plc
Premier House
Centrium Business Park
Griffiths Way
St Albans
Hertfordshire
AL1 2RE
T: 01727 815850
Registered in England and Wales No. 5160050
www.premierfoods.co.uk
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7
ANNUAL REPORT AND
FINANCIAL STATEMENTS
2016/17
INTRODUCTION
Overview and headlines
We have moved quickly
to rebalance our strategy
The UK Grocery industry has gone
through a period of rapid change during
the financial year. Responding quickly
to these challenges, we have reviewed
our strategy to deliver a more balanced
focus on revenue, cost efficiency and
cash generation.
Our target is to reduce our Net
debt/EBITDA1 ratio to below 3x
in the next 3–4 years.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 01
INTRODUCTION
At a glance
Chairman’s statement
STRATEGIC REPORT
Business model
Chief Executive's review
Strategy
Strategy in action
Key performance indicators
Operating and financial review
Our responsibilities
Managing our risks
GOVERNANCE
Chairman’s introduction
Board of directors
Governance
Nomination Committee report
Audit Committee report
Other statutory information
Directors’ Remuneration report
FINANCIAL STATEMENTS
Independent auditor's report
Consolidated financial statements
Notes to the financial statements
Company financial statements
Notes to the Company financial statements
02
03
04
05
06
07
08
10
18
20
24
25
26
29
30
32
35
53
58
62
108
110
Financial headlines
Group underlying sales*
Underlying Trading profit*
£801.3m
£790.4m
£129.1m
£117.0m
2015/16
2016/17
2015/16
2016/17
Profit before tax
£12.0m
(2015/16: loss £(13.0)m)
Net debt*
£523.2m
(2015/16: £534.2m)
Operational headlines
• Group underlying sales £790.4m, down -1.4%
• Market share gains in six of our eight largest brands
• Strong momentum in our International business with revenue up +18%
• Batchelors Super Noodle pot product launched in collaboration with Nissin
• Cost reduction and efficiency programme to deliver £20m over two years
The directors' report is comprised of
pages 2 to 52.
1 Net debt/EBITDA is EBITDA on an adjusted basis
as defined on page 16.
• Extended revolving credit facility and launched offering of new £210m 5 year
Senior Secured floating rate notes
* A definition and reconciliation of non GAAP measures
to reported measure is set out on pages 16 and 17.
Explore our reportSTRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 02
INTRODUCTION
At a glance
We LOVE food at Premier Foods. We love how it brings people together and provides moments
of pleasure in a busy world. And so do our consumers. Many of our brands have been part of UK
life for more than a century, but we don’t let them stand still – we’re constantly innovating in line
with our purpose to create the food our nation loves most for modern life. And today you'll find
our brands in 95% of British households1.
A great British food company
As one of Britain’s biggest listed food companies
we’re committed to the UK, employing over 4,000
dedicated colleagues at 15 manufacturing sites
and offices up and down the country. More than
97% of what we sell is made in the UK from quality
ingredients, wherever we can sourced sustainably
from British suppliers and farmers. We’re also working
hard to expand internationally by finding new markets
for our brands around the world.
Expanding internationally
Our International business is expanding rapidly.
We’re finding increasing consumer interest in our
Mr Kipling and Cadbury cake brands and Sharwood's
cooking sauces in a number of markets including
Australia, the USA and the Middle East. And we
continue to focus on building momentum closer
to home in Ireland.
Strategic partnerships
Since we entered into a co-operation agreement
with Nissin Foods in 2016 we've launched Batchelors
Super Noodles in a new pot format using Nissin’s
noodle technology and manufacturing expertise,
taken on distribution of Nissin’s Soba brand of
noodles in the UK and we’re now working with Nissin
to expand international opportunities for our brands
using Nissin’s global network.
In May 2017, we signed a non-binding Heads of
Terms with Mondelez International for a Strategic
Global Partnership for Cadbury cake. Once finalised,
this agreement will extend the Group's long-standing
partnership for at least another five years and be
expanded to cover a total of 46 countries with the
potential to use additional brands.
Our Business
We operate primarily in the ambient food sector which continues to be the largest sector within the
total £179.1bn2 UK grocery market. Our Grocery business is responsible for developing our portfolio of
brands in four key categories: Flavourings & seasonings; Cooking sauces & accompaniments; Quick
meals & soups and Ambient desserts. Our Sweet Treats business is responsible for growing our brands
in the Ambient cakes category.
Category
Our brands
Flavourings & seasonings
Bisto, OXO, Paxo
Cooking sauces &
accompaniments
Sharwood’s, Loyd Grossman, Homepride
Quick meals & soups
Batchelors, Smash
Ambient desserts
Ambrosia, Bird’s, Angel Delight, Mr Kipling, Cadbury
Our market
position
No. 1
No. 1
No. 1
No. 1
Total3
market
size
£476m
£908m
£383m
£374m
Ambient cakes
Mr Kipling, Cadbury, Lyons
No. 1
£1,007m
We also have a growing presence in the home-baking category with brands including our new
Paul Hollywood range of mixes.
Our key customers are the major UK supermarkets but we also serve a wide
range of other channels including: discounters; convenience stores; online;
wholesale and food service.
UK grocery channel value2
Hypermarkets: £16.5bn
Supermarkets: £86.6bn
Convenience: £37.5bn
Discounters: £17.9bn
Online: £10.5bn
Other retailers: £10.0bn
1. Kantar Worldpanel Total Market Penetration for the 52 weeks to 26 March 2017. 2. Institute of Grocery Distribution, UK Grocery June 2016. 3. Kantar Worldpanel Total Market for the 52 weeks to 26 March 2017,
Total Consumer Spend.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017
03
INTRODUCTION
Chairman's statement
"Management have moved swiftly to adapt to the current market
situation and are targeting to deleverage the business to below 3x
Net debt to EBITDA."
After a period of lower food prices, rising commodity
costs, compounded by the devaluation of Sterling
following the EU referendum last year, led to the
re-emergence of food price inflation in the UK.
Management have worked hard to recover these
cost increases through a combination of internal
efficiencies, adjustments to promotional mechanics
and, where necessary, limited price increases
although it’s true to say this has not been easy and
has taken longer than expected.
To help us adapt to the challenging market,
management announced a cost reduction and
efficiency programme in January 2017, including
both operational efficiencies in the supply chain and
our head office functions. This is targeted to deliver
cost savings of £20m over the next two years. As a
consequence, we’ve streamlined our organisational
structures and this has regrettably resulted in some
colleagues leaving the business. I would like to thank
them for their contribution, as well as thanking all
colleagues for their hard work and commitment
over the year.
I’m pleased to say that despite a changing market
environment our commitment to sustainability has
remained strong. We’ve made good progress in
delivering the health commitments we announced
in 2016, for instance in removing sugar from our
products and launching healthier options. We’ve
also been recognised externally for the progress
we’ve made on animal welfare and sustainable palm
oil and, encouragingly, we exceeded many of our
environmental targets through improving our focus
and efficiency.
Board changes
We welcomed Tsunao Kijima to the Board as
a representative of Nissin Foods, our largest
shareholder. Tsunao, who is Managing Executive
Officer of Nissin, was appointed as a non-executive
director in July 2016.
In March 2017 we also announced the appointment
of Daniel Wosner as a representative director of
Oasis, an international investment firm who are now
our second largest shareholder. Daniel is Managing
Director and Head of Europe at Oasis and oversees
the firm’s UK and Continental European investments.
Both Tsunao's and Daniel’s experience will be
a valuable addition to the Board as we look to
enhance the Company’s long-term value for all
our shareholders.
Finally, you will be aware that in September 2016, I
notified the Board of my intention to step down as
Chairman during 2017, having spent nine years as a
non-executive Director and the last five as Chairman.
The search for a successor is underway led by Ian
Krieger, Senior Independent Director and further
details can be found on page 29.
Outlook
The last year has clearly been difficult for the
business and the market looks to remain challenging
in the year ahead. I believe management have moved
swiftly to adapt to the current situation and put in
place a robust plan which targets to deleverage the
business to below 3x Net debt to EBITDA in the next
three to four years through a more balanced focus on
revenue growth, cost efficiency and cash generation.
I would like to thank shareholders for their significant
support for the Company during my tenure as
Chairman. I remain confident in the effectiveness of
our strategy, the strength of our brands, the quality
of our customer relationships and the experience of
our management team. I look forward to a bright
future for Premier Foods.
David Beever
Chairman
16 May 2017
Dear shareholder,
2016/17 was a challenging year for the food industry
generally and for the categories in which we operate.
As a consequence, we announced in January 2017,
that our financial results would be below expectation.
However, management have moved quickly to adapt
to the changing environment and refine our strategy to
deliver more balanced progress in terms of revenue,
cost efficiency and cash generation in the future.
Performance over the year
Group underlying sales for the financial period
were £790.4m (-1.4%) and underlying Trading profit
was £117.0m (-9.3%). Our performance was impacted
by a change in retailer promotional strategies which
reduced category volumes, a time lag in recovering
input cost inflation and a period of warmer than
usual weather which impacted Grocery in the
second quarter.
We did nevertheless manage to grow market share
for most of our core brands during the year and our
International business continued to deliver excellent
double-digit growth. As a result we have outperformed
the majority of our peer group in the UK ambient
grocery market during the last six months of the period.
I’m also encouraged with the progress we’ve
made with Nissin Foods following the co-operation
agreement we signed in 2016. We’ve already started
to distribute Nissin’s Soba brand of noodles in
the UK and recently launched Batchelors Super
Noodles in a pot format using Nissin’s technology
and manufacturing expertise. Early signs are very
encouraging. I’m also very pleased that we’ve been
able to announce the signing of non-binding Heads
of Terms with Mondelez International to renew our
long-standing licence to produce Cadbury cakes
in the coming years.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 04
STRATEGIC REPORT
Business model
As a business we believe we have certain capabilities which set us apart from our competitors. We have a broad range
of category leading British brands, we have the ability to serve a wide range of customer channels in both the UK and
overseas and the capability to manufacture a diverse range of products in multiple formats.
We have a unique portfolio of British brands
which are well loved by the British consumer.
We put the consumer at the heart of everything
we do and use our insights to create innovative
new products that meet consumers’ needs.
We build strong relationships with our customers
and build joint plans for mutual growth. We are
able to service a full range of customers from the
major retailers, discounters, convenience, food
service, wholesale and international markets.
Our manufacturing capability gives us the scope
to manufacture a diverse range of products from
sauces, powder mixes, desserts and cakes in
a range of formats from tins, jars, pouches and
cartons. We have an experienced management
team who have a deep understanding of today’s
food industry and a workforce with many years
of experience in manufacturing and product
development.
We are committed to being a responsible food
business and have leading standards of safety
both for our food and our colleagues. We have
taken a pro-active role in the health agenda
making a number of key commitments over the
next three years.
Our values define how we work together and
do our jobs. All colleagues in the business
understand the importance of our 5 key values:
• We aim higher;
• We champion fresh ideas;
• W e are agile;
• We are united; and
• We respect and encourage one another.
The strategic report on pages 04 to 23
was approved by the Board of directors
on 16 May 2017 and signed on its behalf by
Gavin Darby, Chief Executive Officer.
Brands
• Unique portfolio of
leading British brands
• Strong insights
into UK consumer
• Creating
innovative new
products to meet
consumers’
needs
We create the
food the nation
loves most for
modern life
Operations
• Excellent operational capability
• Ability to manufacture a diverse
range of products and formats
• Experienced and dedicated
workforce
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 05
STRATEGIC REPORT
Chief Executive's review
"We’ve taken the opportunity to review our strategy and adjust the balance
of priorities between our strategic objectives of delivering revenue growth,
driving cost and efficiency savings and cash generation."
Our rebalanced strategy has three main pillars:
Protect and drive revenues
We plan to continue investing in our brands but
in a more focused way supporting innovation that
is closer to our core brand offering and making
sure that our marketing spend is used in the most
efficient way to get the best return on investment.
We’ll also continue to build on our strong customer
relationships through closer collaboration, category
management expertise and shopper insights helping
us drive growth ahead of category levels.
Our plans in the UK will be enhanced by the strong
momentum we’ve built in our International business.
We’ve made great progress in key markets, notably
Australia, and we aim to continue delivering double-
digit revenue growth in the medium-term through these
markets and others.
Our strategic partnerships will add further to our
growth plans in the UK and internationally. The first
products we’ve been working on together with Nissin
are exceeding expectations with more to come, both
in the UK and through tapping into Nissin’s broad
global network. I’m also delighted that we’ve agreed
Heads of Terms with Mondelez International for a
new strategic global partnership for Cadbury cakes.
This partnership is a significant improvement on our
current licence arrangements and opens up exciting
new growth opportunities in a much wider range of
countries representing a further boost to our fast-
growing International business. It also gives us the
potential to access the full Cadbury brand family in
addition to the Oreo brand.
Cost and efficiency
Closely managing our costs is imperative in the
current environment and will be key to funding future
investment in the business and supporting the profit
needed to be able to accelerate our debt reduction.
In January we announced a major cost reduction
and efficiency programme designed to deliver
savings of £20m over the next two years.
A major part of this will come from combining our
separate Sweet Treats and Grocery warehousing
and logistics operations into one consolidated
warehousing and transport solution helping drive
greater efficiencies, improved customer service
and fewer road miles. And we’re continuing to
drive our continuous improvement programmes in
manufacturing and procurement via both capital
and non-capital cost reduction projects.
We’ve also streamlined our overhead cost base,
reducing duplication and complexity and creating
a leaner and more agile management structure.
Regrettably this has meant over 50 valued
colleagues have had to leave the business and
we wish them well in their future careers.
Cash generation
We plan to keep a tight focus on managing cash.
Our capital expenditure will be held to £20–£25m
over the medium-term. Additionally, in March we
announced an agreement with the trustees of our
pension schemes to reduce our deficit payments to
the schemes by £32m over the next three years. And
we’re continuing to maintain diversified sources of
financing through an extension of the maturity of our
revolving credit facilities and launch of a new 5 year
floating rate note due 2022.
Whilst it’s been a difficult year overall, I believe we’ve
continued to make progress in many important
areas helping us out-perform the marketplace. By
rebalancing our strategy to give equal focus to revenue
growth, cost efficiencies and cash generation I’m
confident we can be successful in this environment,
reduce our leverage and deliver shareholder value.
Gavin Darby
Chief Executive Officer
16 May 2017
It’s difficult to remember a year when there’s been
as much change in the food market as we’ve seen
in the last twelve months. The rapid switch from
food price deflation to inflation, changing retailer
promotional strategies and the surprise result of the
EU referendum have all combined to make this past
year a difficult one, not only for Premier Foods but
right across the UK food and drink industry.
Like others, our results have been adversely affected
although I’m encouraged that we still out-performed
the majority of our peer group, particularly in the
latter half of the year.
Fundamentally we’re doing the right things and our
strategy is delivering in important key areas. We’ve
continued to invest in our brands in line with consumer
trends for snacking, convenience and health and
six out of our eight key brands grew market share in
2016/17. Our International business continues to grow
strongly quarter after quarter and is now 34% larger
in terms of revenue than it was when we started to
invest in this area two years ago. And our strategic
partnership with Nissin Foods is progressing well
with the launch of Batchelors Super Noodles in a pot
format in February together with our distribution of
Nissin’s Soba brand of noodles in the UK.
But in today’s challenging marketplace we can’t stand
still. Together with the Board we’ve therefore taken
the opportunity to review our strategy and agreed to
adjust the balance of priorities between our strategic
objectives of delivering revenue growth, driving
cost and efficiency savings and cash generation.
Previously this balance has been weighted more
towards delivering category and revenue growth but
in future will be more evenly balanced with a specific
focus on reducing our net debt/EBITDA ratio to below
3.0x, helping ensure we generate best value for our
shareholders over the medium-term.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 06
STRATEGIC REPORT
Strategy
Recent developments in the external environment have adversely affected the Group’s performance. As a result, the
Board has reviewed its strategy and decided to adjust the balance of priorities between existing strategic objectives.
Going forward we will pursue a strategy which is more evenly balanced between the three objectives of delivering
revenue growth, achieving cost and efficiency savings and reducing net debt.
Protect & drive
revenues
Cost & efficiency
Cash generation
UK
• Invest in innovation and marketing to drive
Underpinned by 2 year cost reduction
programme
Lower pension costs
• New agreement with £32m reduction in cash
growth ahead of category levels
Logistics restructuring
costs over 3 years
• Further strengthen well established
relationships with major customers
• Combining warehousing and distribution
solutions
International
SG&A re-sizing
• Strong double-digit revenue growth
• Removing complexity and duplication
Strategic partnerships
Manufacturing & Procurement
• Cadbury and Nissin to deliver growth
• Ongoing cost savings
opportunities
Maintain diversified sources of financing
• Extended maturity of capital structure
Tightly focused capital expenditure
• Maintain at approximately 3% of revenue
Targeting below 3.0x Net debt/EBITDA in the next 3–4 years
Generate value for our shareholders
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 STRATEGIC REPORT
Strategy in action
In the UK, growing ahead of our categories continues to be a core objective for us and our plans for International are
for further strong growth. We are excited by our global strategic relationships with Cadbury and Nissin and our recently
announced cost savings programme is expected to deliver £20m over the next two years.
07
UK
Invest in
innovation and
marketing to drive
growth ahead of
category levels
We have a portfolio of great British
brands which are leaders in their
respective categories. We aim to
deliver revenue growth of these
brands ahead of category trends
through advertising and marketing
these brands and by introducing new
branded products to the market.
We use our UK specific consumer
insights to identify the key consumer
trends relevant to our product
categories through consumer usage
and attitude studies and other
consumer research. This helps us
identify key consumer trends such as
convenience, health & wellness and
indulgence which in turn informs our
product innovation strategy. Recent
examples of new branded product
ranges which illustrate this approach
to innovation include OXO Stock Pots,
Cadbury Amaze Bites and Ambrosia
Deluxe custard.
International
Strong double-
digit growth over
the medium-term
Our International business currently
accounts for nearly 6% of total Group
revenue. Over the last two and a half
years the International business unit
has delivered revenue growth for ten
consecutive quarters and this growth
trend is expected to continue in the
medium-term.
The Australian business has
performed particularly strongly over
the last two years. We are now the
leading branded cake supplier in
Australia with Mr Kipling and Cadbury
cakes and Sharwood's sauces has
grown its market share to 12% of the
Indian Foods category.
In the USA we are extending
distribution of Sharwood's to the West
Coast and we have now launched a
range of Cadbury cake in the United
Arab Emirates.
Strategic
partnerships
Our partnership
with Nissin has
the potential to create
significant long-
term value for both
organisations through
strategic co-operation
In February 2017, we launched
Batchelors Super Noodles in a new
pot format. This is a great example
of how we can combine the power of
our leading British brand with Nissin’s
leading noodle technology and
manufacturing expertise. The product
is being distributed across the major
retailers in the UK and initial results
have been very encouraging.
In addition, we have taken on
distribution of Nissin’s Soba brand
of noodles in the UK. And looking
forward we are working with Nissin
to leverage their international scale to
accelerate the distribution of Premier’s
products in key overseas markets.
Cost & efficiency
Combining
warehousing &
distribution solutions
The Group has previously operated
a distinct central warehousing and
distribution operating model for each
of its Grocery and Sweet Treats
business units. Following an in-depth
review of its logistics operations, the
Group has decided to consolidate
its warehousing and distribution
solutions into one location. This
review has identified the optimal
location for a central warehousing
and distribution hub for the whole
business which will help us serve
customers more efficiently.
The Group expects to deliver
significant financial benefits as a result
of this re-organisation. The majority
of these benefits are expected to
be realised in 2018/19, while the
restructuring costs associated with
this re-organisation are predominantly
planned to be incurred during the
2017/18 financial year.
6
18%
£1.15m
15%
out of our 8 largest brands
grew market share in 2016/17
Increase in International
revenue in 2016/17
Retail sales value in first
eight weeks of launch
Reduction in transport miles
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS
08
STRATEGIC REPORT
Key performance indicators
We use a large number of performance indicators to monitor financial, operational and responsibility performance.
These are reviewed on a regular basis by our senior management teams and the Board. Performance indicators are used to encourage focus and measure
performance across a range of areas and to highlight areas for attention and corrective action, as well as recognising good performance and celebrating success.
As set out in the Chief Executive's review (on page 05) we have rebalanced our strategy to focus on the delivery of revenue growth, driving cost and efficiency
savings and cash generation. To support this we have replaced the previous recurring cash flow measure with free cash flow, as this reflects all cash outflows of the
business and provides clarity on targeting absolute net debt reduction.
Group underlying sales
Year-on-year growth in sales.
Underlying Trading profit
Trading profit is defined in the
Operating and Financial review
on page 16.
£801.3m
£790.4m
£129.1m
£117.0m
Net debt/EBITDA ratio
The ratio measures the Group’s
overall level of debt. Net debt and
EBITDA are defined in the Operating
and Financial review on pages
16 and 17.
Free cash flow
Free cash flow is a measure of the
cash generated by the Group to
pay down debt and is defined in the
Operating and Financial review
on page 17.
2016/17
3.9x
(2015/16: 3.6x)
2016/17
£15.1m
(2015/16: £55.7m)
2015/16
2016/17
2015/16
2016/17
Why is this important?
Why is this important?
Why is this important?
Why is this important?
Delivering sales growth is one of our
strategic priorities. This captures
both branded and non-branded
performance across all channels
we operate in.
This measure reflects the revenues
and costs associated with the
operational performance of the
business and is also a good proxy
for the cash generative capacity of
the business.
The ratio is tied with the Group’s
priority to organically deleverage
the business.
Free cash flow is a good indicator of
the underlying quality of earnings and
the overall health of the business. It
also identifies cash available to pay
down debt.
Progress we’ve made
Progress we’ve made
Progress we’ve made
Progress we’ve made
Overall Group underlying sales fell
slightly to £790.4m in the period.
Branded sales were impacted
by changing retailer promotional
activities and a period of unseasonally
warm weather, both of which reduced
category volumes. However, we
grew market share in 6 of our 8
largest brands and there were strong
performances from non-branded
and International.
Underlying Trading profit declined by
9.3% in the period. This was primarily
driven by a time lag in the recovery
of increased input cost inflation
and changing retailer promotional
strategies which reduced gross
profit. In response to the changing
commercial environment we have re-
balanced our strategy, further details
are set out in the Chief Executive’s
review on page 05.
Net debt reduced by £11m from
£534.2m in 2015/16 to £523.2m in
2016/17. The Net debt/ EBITDA ratio
was adversely affected by weaker
Trading profit in the period. Following
the rebalancing of our strategy
over the year we have announced a
strategic target to reduce leverage to
below 3.0x in 3–4 years time.
Free cash flow reduced largely as
a result of the £38.8m increase in
pension contributions paid during
the period. As part of the rebalancing
of our strategy in the year cash
generation has been highlighted
as a strategic priority as we look to
deleverage the business.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017
09
How KPIs link to our strategy and business model
Protect & drive revenues
Cost & efficiency
Cash generation
Brands
Customers
Our responsibilities
Generating shareholder value
In addition, to reflect the importance of cost and efficiency savings we have introduced a new KPI based on SG&A costs (these are selling, general and administrative
expenses) as a % of sales.
Our KPI on product testing has also been updated to align with our target to ensure that at least 75% of new products we launch each year across our Grocery
portfolio provide ‘better-for-you’ choices. This is one of our Commitments to Healthier Choices which we launched in 2016. Environmental and Health & Safety
performance is reported in more detail in the section on our responsibilities on pages 18 and 19 and governance on page 28.
Branded market share
This is our branded retail sales expressed
as a percentage of the retail sales of the
categories in which we operate. (Based on
IRI data 52 weeks ending 1 April 2017 and
2 April 2016).
SG&A as a % of Group
underlying sales*
SG&A represents the selling, general
and administration costs of the central
functions together with that of the
Grocery, Sweet Treats, International
and Knighton operating segments.
% of products testing
superior or at par with
competitors
Consumer panel blind testing of our
major branded products against their
main competitor, whether branded or
non-branded.
% of NPD to be 'better-
for-you' choices
Sales value of new product launches
with a claimable nutrition benefit, e.g.
'Source of fibre' as well as no red
traffic light on front of pack within our
Grocery portfolio.
Grocery
Sweat Treats
25.0%
24.7%
23.6%
23.1%
2015/16
2016/17
2015/16
2016/17
2016/17
8.8%
(2015/16: 8.5%)
2016/17
93%
(2015/16: 95%)
2016/17
78%
(2015/16: 66%)
Why is this important?
Why is this important?
Why is this important?
Why is this important?
Increasing market share indicates
consumer preference for our
products and performance versus
our competitors. It also demonstrates
successful partnerships with our
customers to grow the overall
categories in which we operate.
As part of our cost and efficiency
strategy we intend to maintain a lean
organisational structure; ensuring
complexity and duplication are kept
to a minimum.
This is an important measure of the
quality of our product portfolio.
It drives recipe improvements and
ensures focus on consistent
product quality.
Aligns with our insights which highlight
consumers’ increasing focus on
‘better-for-you’ options. Further
information on health and nutrition
is set out in the section on our
responsibilities on pages 18 and 19.
Progress we’ve made
Progress we’ve made
Progress we’ve made
Progress we’ve made
Overall market share fell during the
year. In Grocery good progress was
made in Quick meals, soups and
Flavourings & seasonings offset by
a weaker performance in Cooking
sauces & accompaniments. Within
Sweet Treats a strong performance
from Cadbury was offset by softer
sales from Mr Kipling.
Over the year SG&A costs rose slightly
reflecting investment in sales, marketing
and product development resource.
In January 2017 we announced a new
cost saving and efficiency programme
which is focused on SG&A costs and
further manufacturing and procurement
efficiency savings. This is targeted to
deliver savings of £20m over the next
two years.
Overall performance was broadly
in line with prior year. The review
covered 73% of our branded portfolio
(by retail sales value) as part of a
two year rolling programme. We will
continue to focus on consumer quality
benchmarking and reformulate any
products testing below par.
Over the course of the period 78%
of new product launches within our
Grocery portfolio delivered a claimable
nutritional benefit and none of these
products were high in fat, saturated
fat, sugar or salt (no red traffic light
on front of pack). As one of our
Commitments to Healthier Choices
we have set a three year target to
ensure that at least 75% of new
product launches each year across
our Grocery portfolio will provide these
kind of ‘better-for-you’ choices.
Note: Grocery has been restated to include the Baking
category and Sweet Treats has been restated to include a
broader definition of the Ambient Packaged Cake category,
both of which provide a closer fit to our product portfolios.
*A reconciliation of underlying numbers to reported
numbers is set out on pages 16 and 17.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS
10
STRATEGIC REPORT
Operating and financial review
This financial year has been a challenging one for the industry, with the return of food inflation and changing retailer
promotional strategies. Despite this, the Group grew market share in six of its eight largest brands, outperformed many of its
peers in the latter part of the year and grew International sales by 18%. The Group has continued to invest in brand innovation
and marketing, customer relationships remain strong and the Group recently agreed a £32m reduction in cash payments to its
pension schemes over the next three years.
Sales
Group underlying sales (£m)
Branded
Non-branded
Total
% change
Branded
Non-branded
Total
Statutory revenue
2016/17
2015/16
Grocery
482.0
81.1
563.1
(4.5%)
10.7%
(2.6%)
563.1
548.6
Sweet
Treats
177.5
49.8
227.3
(0.5%)
11.6%
1.9%
227.3
223.1
Group
659.5
130.9
790.4
(3.5%)
11.1%
(1.4%)
790.4
771.7
Note: 2015/16 statutory revenue excludes Knighton Foods revenue of £29.6m, which is consolidated in the results
for the Grocery business in 2016/17.
Group underlying sales for the 52 weeks ended 1
April 2017 were £790.4m, a decrease of (1.4%) on
the prior year. Branded sales were (3.5%) lower in the
year while Non-branded underlying sales increased
by 11.1% to £130.9m.
On a statutory basis, revenue grew from £771.7m in
the year to £790.4m, an increase of 2.4%, reflecting
the inclusion of results from Knighton Foods in
2016/17.
In the fourth quarter of the year, Group underlying
sales declined by (1.0%) to £191.0m compared to the
equivalent quarter a year ago. While Branded sales
were (2.9%) lower, six of the Group’s eight largest
brands gained value market share in the quarter, with
Batchelors a particularly strong performer.
The Grocery business unit reported full year
underlying sales of £563.1m, which were (2.6%) lower
than a year ago. The year started strongly, with the
first quarter of the year displaying both Branded and
Non-branded sales growth, however a particularly
warm end to the second quarter in the UK resulted
in a sharp slowdown in some of the key Grocery
categories such as gravy, stocks and soups, which
resulted in lower sales.
Additionally, the Grocery business has been
impacted by changing retailer promotional strategies
during the course of the year, and particularly in
the second half. A variety of different promotional
deals for products sold in major retailers have long
been a feature of the grocery landscape in the UK.
In 2016/17, the number of multi-buy promotional
deals, by aggregate sales value, reduced by 24%
across the Group’s categories, according to Kantar
Worldpanel. In categories which are considered to be
expandable, this has resulted in lower sales volumes
compared to the comparative period. The Group
expects this effect to continue into the first half of
2017/18, and then stabilise thereafter. The Group
is introducing multipack formats such as Ambrosia
custard 4 packs to mitigate the adverse effect of this
change in retailer promotional strategies.
The Group’s strategy of bringing new innovative
products to market continued during the course of
the year, with OXO Stock Pots, Ambrosia Deluxe
custard and Batchelors Super Noodles in a pot
format all contributing to market share gains for their
respective brands. In particular, Batchelors delivered
volume growth in the year due to both the Super
Noodles pot product launched in the fourth quarter
and a refreshed range of Pasta ‘n’ Sauce products
with new contemporary flavours such as Smoky
Cheese and Pancetta.
The Batchelors Super Noodles Pot product, which
launched to market earlier than expected, was the
first product which demonstrates the benefits of
working closely with the Group’s strategic partner
and major shareholder, Nissin. Specifically, the
access to Nissin’s research & development teams
and their manufacturing base in Hungary was pivotal
in launching this exciting, convenient new product
which has already delivered over £1m retail sales
value in a short period of time.
Grocery Non-branded underlying sales increased
by £7.8m in the year to £81.1m. Business to
business sales performance at Knighton Foods
was a key contributor to this growth, with volumes
increasing as this business transitioned through its
recovery phase.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 11
Sweet Treats delivered sales growth of 1.9% in the
year to £227.3m, and grew sales in the first three
quarters of the year. Branded sales were £1.0m or
(0.5%) lower at £177.5m and Non-branded sales
grew by 11.6% to £49.8m. Cadbury cake performed
very strongly in the year, with volumes, sales and
market share all ahead of the prior year, while Mr
Kipling experienced lower sales due to lower levels
of promotional activity. Cadbury Amaze Bites, a
convenient tub of bite sized chocolate brownies is
now worth approximately £5m in terms of retail sales
value (Source: IRI, 31 December 2016).
Growth in Sweet Treats Non-branded sales reflected
new contract wins across a broad range of retail
customers and in both seasonal and all year
round ranges. In particular, the business unit was
successful in gaining some premium Mince Pie
contracts for the first time.
The Group’s International business unit continues
to demonstrate excellent progress and has now
delivered ten successive quarters of sales growth.
In the year, sales were 18% ahead and up 11% on
a constant currency basis12. This was largely due
to a very strong performance in Australasia where
sales increased nearly 70% reflecting growth in
Sharwood's cooking sauces and Mr Kipling and
Cadbury cakes. The Group launched a digital
marketing campaign for Sharwood's cooking
sauces in the year which has received over 21 million
impressions and over 1 million video views to date.
Underlying Trading profit
£m
2016/17
2015/16 Change
Underlying Divisional
contribution6
Grocery
129.9
140.2
Sweet Treats
19.8
25.0
Total
149.7
165.2
(10.3)
(5.2)
(15.5)
Group & corporate costs
(32.7)
(36.1)
3.4
Underlying Trading
profit
117.0
129.1
(12.1)
The Group’s underlying Trading profit in 2016/17
was £117.0m compared to £129.1m in the prior year.
Divisional contribution was £149.7m in the year, of
which £129.9m was generated from the Grocery
business and £19.8m from Sweet Treats.
Group & corporate costs were £3.4m lower in the
year. Following a weaker trading performance by
the Group during the year, no provisions were
made for management incentive scheme payments
to colleagues.
The decline in Underlying Trading profit performance
was impacted by a time lag in recovering input cost
inflation; the impact of changing retailer promotional
strategies and category declines in the Grocery
business following a warmer than usual second
quarter. Partly offsetting these impacts were SG&A
savings, manufacturing cost efficiencies and slightly
lower marketing investment in the year.
The Group has experienced material input cost
inflation in the past year, notably in commodities
such as sugar, chocolate, dairy, wheat and palm oil.
Input costs have also been driven up by currency
devaluation. The Group takes a blended approach
to managing these cost increases, managing its
own efficiencies, adjusting promotional mechanics
and formats where appropriate and finally looking
at limited price increases where these cannot be
avoided. The Group has worked collaboratively with
customers to agree these changes and appropriate
settlements were concluded. This collaborative
approach, while the most beneficial approach in the
long-term, took longer than originally foreseen.
During the course of the year, and particularly in
the second half, the Group’s Grocery categories
have been affected by changing retailer promotional
strategies, notably a reduction in multi-buy
promotions which has the effect of reducing
category volumes. In the short-term the Group offset
this adverse volume impact by upweighting other
promotional mechanics such as reduced price deals.
However, these mechanics are more costly than
multi-buys and resulted in reduced sales per unit.
In the second quarter of the year, a number of the
Grocery business’s categories were adversely
impacted by warmer weather compared to the
prior year. In this quarter, categories such as Gravy
and Stocks and Soup declined in volume terms by
(13.0%) and (16.3%) respectively, while Chilled Salads
and Ice Cream, which the Group has no major
presence in, grew by 13.7% and 17.3% respectively
(Source: IRI, 12 weeks ended 24 September 2016).
As a result, and after a strong first quarter when
six Grocery brands grew sales, none of the major
Grocery brands grew in the second quarter.
Manufacturing overhead costs were lower in the year
following the completion of a programme to improve
labour flexibility at some of the Group’s Grocery
manufacturing sites.
During the year, the Group announced a substantial
two year cost reduction and efficiency programme.
One part of this programme is a significant logistics
restructuring which will combine the warehousing
and distribution operations of both the Grocery
and Sweet Treats businesses into one centralised
location. This programme is expected to reduce
transport miles by 15% and reduce pallet transfers
by 43,000 per annum.
Additionally, the Group has concluded a process
which will deliver significant cost savings across
its SG&A cost base and has involved its Group
Executive team reducing from ten to seven and over
50 roles removed from the Group’s head office.
This programme is expected to deliver incremental
cost savings of £10m, of which approximately 60%
relate directly to colleague headcount. The total
restructuring costs associated with the logistics and
SG&A programmes are expected to be £8–£10m in
2017/18.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 12
STRATEGIC REPORT
Operating and financial review continued
Operating profit
£m
2016/17
2015/16 Change
Underlying adjusted
EBITDA8
133.2
146.5
(13.3)
Depreciation
(16.2)
(17.4)
1.2
offset by a net interest credit of £5.6m owing to an
opening combined pension schemes surplus. In the
prior year an impairment charge of £13.6m due to the
write down of associate investments was reported;
there were no impairments in 2016/17.
Finance costs
117.0
129.1
(12.1)
£m
2016/17
2015/16 Change
Underlying Trading
profit
Less: Knighton
Add: Disposals
–
–
1.9
(2.2)
1.9
(2.2)
Trading profit2
117.0
128.8
(11.8)
Amortisation of
intangible assets
Fair value movements
on foreign exchange
and derivatives
Restructuring costs
Net interest on pensions
and administrative
expenses
Impairment
Operating profit
(37.9)
(37.6)
(0.3)
(1.0)
(15.8)
2.6
(11.2)
(3.6)
(4.6)
(0.8)
–
61.5
(14.5)
(13.6)
54.5
13.7
13.6
7.0
Underlying adjusted EBITDA for 2016/17 was
£133.2m and depreciation in the year of £16.2m
was £1.2m lower than the comparative period.
Operating profit was £61.5m in the year, an increase
of £7.0m on the prior year. Amortisation of intangible
assets was broadly in line with the comparative year
at £37.9m. Intangible assets amortisation included
£25.7m relating to brands, trademarks and licences
and £12.2m relating to software. Restructuring costs
in the year were £15.8m, £4.6m higher than 2015/16,
and which relate to corporate activity costs in April
2016 and restructuring charges associated with the
Group’s logistics restructuring and overhead cost
reduction programmes.
Net interest on pensions and administrative
expenses were £0.8m in the year, a £13.7m reduction
compared to the prior year. This was composed of
administrative expenses incurred of £6.3m, partly
Senior secured notes
interest
Bank debt interest
Amortisation and
deferred fees
Net regular interest10
Fair value movements
on interest rate financial
instruments
Write-off of financing
costs
Other interest
30.6
8.1
38.7
4.1
42.8
30.8
9.7
40.5
4.4
44.9
0.2
1.6
1.8
0.3
2.1
(0.6)
(0.7)
(0.1)
0.1
7.2
0.4
0.3
0.3
(6.9)
(4.6)
Net finance cost
49.5
44.9
Net regular interest for 2016/17 was £42.8m, a
little ahead of the Group’s expectations and £2.1m
lower than the prior year. The largest component of
net regular interest was £30.6m of interest due to
holders of the Group’s senior secured notes. Bank
debt interest of £8.1m was £1.6m lower in the year
due to lower levels of average debt and slightly lower
LIBOR levels.
Net finance cost was £49.5m in the year, £4.6m
higher than 2015/16. The main driver of the change
was a decrease in the discount rate used to value
long-term property provisions the Group holds,
which is disclosed in Other interest, and increased
from £0.3m in 2015/16 to £7.2m in the year. This
increase in the discount unwind, which has no cash
effect, is a result of changes in government gilts over
the last twelve months.
Associate investments
The Group holds a 49% interest in Hovis Limited
('Hovis'). In the prior year, the Group wrote down
its investment in Hovis to £nil. On 1 April 2016, the
Group gained control (as defined under IFRS 10)
of Knighton, in which the Group already held 49%
of the ordinary share capital and associated voting
rights, and hence the results of Knighton were
consolidated in the Group’s financial statements for
the period ended 2 April 2016. On 24 May 2016, the
Group acquired the remaining 51% of the ordinary
share capital of Knighton.
Taxation
£m
2016/17
2015/16 Change
Deferred tax
– Current period
– Prior periods
– Adjustment to restate
opening deferred tax
at 17.0%
Income tax (charge)/
credit
(6.4)
1.1
51.9
(4.5)
(58.3)
5.6
(1.2)
(0.4)
(0.8)
(6.5)
47.0
(53.5)
A tax charge of £6.5m in the year compared to a
£47.0m credit in the prior period. The £6.5m charge
included a current period charge of £6.4m, an
adjustment to restate opening deferred tax of £1.2m,
partly offset by a prior period credit of £1.1m. The
current period charge comprised a tax charge at
20.0% on profit before tax of £2.4m, non-deductible
items of £1.0m, an adjustment for share based
payments of £0.9m and a credit due to a current
period deferred tax adjustment of £0.3m.
Deferred tax assets at 1 April 2017 were £32.4m
compared to £25.9m at 2 April 2016.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 Earnings per share
Free cash flow
Continuing
operations (£m)
Operating profit
Net finance cost
Share of loss from
associates
Profit/(loss) before
taxation
Taxation (charge)/credit
Profit after taxation
Basic earnings
per share (pence)
2016/17
2015/16 Change
61.5
(49.5)
54.5
(44.9)
7.0
(4.6)
–
(22.6)
22.6
12.0
(13.0)
25.0
(6.5)
5.5
47.0
34.0
(53.5)
(28.5)
(4.1)
£m
2016/17
2015/16
Underlying Trading profit
117.0
129.1
Depreciation
Other non-cash items
Interest
Pension contributions
Capital expenditure
Working capital & other
Restructuring costs
Purchase of own shares
Knighton
16.2
4.3
(39.8)
(51.7)
(20.9)
4.8
(13.7)
(1.1)
–
17.4
4.1
(41.7)
(12.9)
(25.4)
2.1
(7.5)
(1.8)
(7.7)
0.7
4.1
(3.4)
Free cash flow14
15.1
55.7
Average shares in issue
830.1
826.0
Profit before tax was £12.0m in the year, compared
to a loss before tax in the comparative period of
£13.0m. After a taxation charge of £6.5m in 2016/17,
Profit after taxation was £5.5m, which resulted
in basic earnings per share of 0.7 pence.
Statutory cash flow statement
Cash generated from operating
activities
Cash used in investing activities
Cash used in financing activities
Adjusted earnings
per share (£m)
2016/17
2015/16 Change
Net decrease in cash
& cash equivalents
37.0
(20.9)
(42.0)
95.4
(30.1)
(79.2)
(25.9)
(13.9)
Underlying Trading profit
117.0
129.1
Less: Net regular interest
(42.8)
(44.9)
(12.1)
2.1
Adjusted profit
before tax9
Less: Notional tax
@ 20.0%
74.2
84.2
(10.0)
(14.8)
(16.8)
Adjusted profit after tax
59.4
67.4
Average shares in issue
(millions)
830.1
826.0
Adjusted EPS (pence)11
7.2
8.1
2.0
(8.0)
(4.1)
(0.9)
Adjusted profit before tax was £74.2m in the year,
compared to £84.2m in 2015/16. This reflects the
Underlying Trading profit performance in the year,
partly offset by a lower net regular interest charge
compared to the prior year. Adjusted profit after tax
was £59.4m after deducting a notional 20.0% tax
charge, a decrease of £8.0m compared to the prior
year. Based on average shares in issue of 830.1 million
shares, adjusted earnings per share in the year was
7.2 pence, a 0.9 pence reduction on 2015/16.
Free cash flow in the year was an inflow of £15.1m.
Depreciation, at £16.2m, was £1.2m lower than the
prior year, and non-cash items of £4.3m principally
comprised the addition of share based payments.
Interest paid in the year was £39.8m; £1.9m lower
than the comparative period due to lower average
levels of debt. Capital expenditure was £4.5m lower
at £20.9m and pension contributions (including
pension administration costs) increased from £12.9m
to £51.7m. An inflow of £4.8m from working capital
was reported and restructuring costs increased
from £7.5m to £13.7m. This was due to cash costs
associated with corporate activity in April 2016 and
redundancy costs relating to the cost reduction and
efficiency programmes, the majority of which were
incurred in the first half of the year.
On a statutory basis, cash generated from
operations was £76.8m compared to £137.1m
in the comparative period. This was largely due
to increased pension deficit contributions, as
identified in the table above, and lower Operating
13
profit before (non-cash) impairment charges. Cash
generated from operating activities was £37.0m, after
deducting net interest paid of £39.8m. Repayment
of borrowings was £34.6m in the year, £33.0m of
which related to lower drawings against the Group’s
revolving credit facility.
At 1 April 2017, the Group held cash and bank
deposits of £3.1m and bank overdrafts of £21.2m.
Net debt and sources of finance
Net debt at 2 April 2016
Free cash flow generation in period
Movement in debt issuance costs
Net debt at 1 April 2017
EBITDA
Net debt / EBITDA
£m
534.2
(15.1)
4.1
523.2
133.2
3.9x
Net debt at 1 April 2017 was £523.2m; an £11.0m
reduction in Net debt compared to the prior year.
The movement in debt issuance costs was £4.1m.
The Group has extended the term of its revolving
credit facility with its lending syndicate from March
2019 to December 2020. The £272m facility, which
was £22m drawn at 1 April 2017, is expected to
reduce by £55m to £217m, subject to the issue of new
£210m Senior Secured floating rate notes outlined
below. The facility will further reduce to approximately
£184m in March 2019. The interest margin under the
revolving credit facility is unchanged and covenants
under the facility, which are tested bi-annually, have
been updated to ensure appropriate headroom
against future reporting periods.
The Group has also announced the issue of new five
year £210m Senior Secured floating rate notes due
2022, to replace its £175m Senior Secured floating
rate notes, due to mature March 2020. Pricing of the
new £210m Senior Secured floating rate notes will
be confirmed following completion of the transaction
and the notes are expected to be callable at 101%
after one year. The Group’s £325m Senior Secured
fixed notes which attract a coupon of 6.5%, mature
in March 2021 and there are no immediate plans to
call or refinance these notes.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 14
STRATEGIC REPORT
Operating and financial review continued
Pensions
IAS 19 Accounting
Valuation (£m)
Assets
Liabilities
1 April 2017
RHM
Premier
Foods
Combined
RHM
2 April 2016
Premier
Foods
Combined
4,190.9
673.7
4,864.6
3,758.7
584.2
4,342.9
(3,597.0)
(1,162.8)
(4,759.8)
(3,207.8)
(1,004.2)
(4,212.0)
Surplus/(Deficit)
593.9
(489.1)
104.8
550.9
(420.0)
130.9
Net of deferred tax (17.0%/18.0%)
493.0
(406.0)
87.0
451.7
(344.4)
107.3
The IAS 19 pension schemes valuation reported a surplus for the combined RHM and Premier Foods’
pension schemes at 1 April 2017 of £104.8m, equivalent to £87.0m net of a deferred tax charge of 17.0%.
This compares to a combined RHM and Premier Foods’ schemes surplus at 2 April 2016 of £130.9m and
£107.3m net of deferred tax. A deferred tax rate of 17.0% (18.0%) is deducted from the IAS 19 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.
The valuation at 1 April 2017 comprised a £593.9m surplus in respect of the RHM scheme and a deficit of
£489.1m in relation to the Premier Foods schemes. Assets in the combined schemes increased by £521.7m in
the year from £4,342.9m to £4,864.6m. RHM scheme assets increased by £432.2m mainly due to an increase
in interest rate swaps and equities, while the Premier Foods’ schemes assets increased by £89.5m. The increase
in asset movements in the year have been offset by an increase in the combined schemes liabilities of £547.8m.
This is principally due to a reduction in the discount rate from 3.55% at 2 April 2016 to 2.65% at 1 April 2017.
Combined pensions schemes (£m)
1 April 2017
2 April 2016
Assets
Equities
Government bonds
Corporate bonds
Property
Absolute return products
Cash
Infrastructure funds
Swaps
Private equity
Other
Total Assets
Liabilities
Discount rate
Inflation rate (RPI/CPI)
527.0
519.1
23.0
357.4
405.4
474.8
1.9
292.3
1,284.2
1,227.6
69.1
242.6
1,116.1
321.7
404.4
326.9
228.0
862.5
259.4
264.1
4,864.6
4,342.9
2.65%
3.55%
3.3%/2.2%
3.0%/1.9%
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 15
On 28 March 2017, and following the finalisation
of the triennial actuarial valuation, the Group
announced it had agreed a revised schedule of
pension payments with the Trustees of the pension
schemes. Overall, the total cash payments for the
three financial years from 2017/18 to 2019/20, to
the RHM and Premier Foods Pension Schemes
will be approximately £32m lower than outlined in
our Interim Results on 15 November 2016. A full
schedule of the scheduled payments for the next
six financial years are set out in the table below.
As part of these overall reductions, the Group has
also agreed with the Premier Foods schemes a
mechanism (including limited changes to the existing
dividend matching agreement) to allow the schemes
limited further cash contributions in the event the
Group outperforms certain agreed profit targets.
These targets are materially ahead of current market
expectations for the Group.
The net present value of future deficit payments, to
the end of the respective recovery periods remains
at c.£300–320m.
Outlook
The industry in which the Group operates has
undergone recent and rapid change. Reflecting
these changes, the Board has updated the Group’s
strategy to give an equal focus to revenue growth,
cost efficiencies and cash generation. In the UK,
growing ahead of its categories continues to be
a core objective for the Group and its plans for
International are for further strong double-digit
growth. The global strategic relationships presented
by the Cadbury and Nissin partnerships are
exciting and the recently announced cost savings
programme is expected to deliver £20m over the
next two years. The Group is focused on reducing
its leverage ratio to below 3.0x in the next 3-4 years
through profit improvement and debt reduction.
The 2017/18 financial year has started on a solid
footing. The Group expects the effect of changing
retailer promotional strategies to reduce through
the first half of the year and then stabilise thereafter.
Accordingly, quarter 2 sales are expected to deliver
an improved year on year sales trend relative to
quarter 1. In the full year, the Group plans to deliver
progress which is expected to be weighted more to
the second half.
The Accounting Standards Board under IFRIC 14,
are currently reviewing the recognition of a pensions
surplus in the financial statements of an entity.
Dependent upon the final published standard, there
is potential that any future defined benefit surplus
may not be recognised in the financial statements
of the Group and additionally, the deficit valuation
methodology may also change.
During the year, the Group finalised the 2016
combined pension schemes’ triennial actuarial
valuation, displayed in the table below, which
confirms a combined schemes’ deficit of £421m.
This is a £641m reduction compared to the previous
triennial valuation in 2013.
£m
RHM
Premier Foods
Irish schemes
Actuarial valuation
surplus/(deficit)
2016
2013 Change
135
(551)
(5)
(504)
(538)
(20)
639
(13)
15
641
Total schemes
(421)
(1,062)
£m
New plan
Deficit contributions
Administration costs
Total
Previous plan (November 2016)
Deficit contributions
Administration costs
Total
Future pension cash payments schedule
Alastair Murray
Chief Financial Officer
2017/18
2018/19
2019/20
2020/21
2021/22
2022/23
16 May 2017
35
4–6
35
4–6
37
4–6
38
6–8
38
6–8
38
6–8
39–41
39–41
41–43
44–46
44–46
44–46
49
6–8
44
6–8
40
6–8
33
6–8
33
6–8
35
6–8
55–57
50–52
46–48
39–41
39–41
41–43
Reduction/(Increase)1
16
11
5
(5)
(5)
(3)
1. Assumes mid-point of respective administration cost ranges
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 16
STRATEGIC REPORT
Operating and financial review continued
Appendices
The Group’s results are presented for the 52 weeks
ended 1 April 2017 and the comparative period,
52 weeks ended 2 April 2016. All references to the
‘year’, unless otherwise stated, are for the 52 weeks
ended 1 April 2017 and the comparative period,
52 weeks ended 2 April 2016. All references to the
‘quarter’, unless otherwise stated, are for the 13
weeks ended 1 April 2017 and the comparative
period, 13 weeks ended 2 April 2016.
Quarter 4 Underlying sales
Q4 Underlying
sales (£m)
Grocery
Sweet
Treats
120.1
20.2
140.3
43.8
6.9
50.7
Group
163.9
27.1
191.0
Branded
Non-branded
Total
% change
Branded
(2.9%)
(2.8%)
(2.9%)
Non-branded
11.8%
14.6%
12.3%
Total
(1.0%)
(0.7%)
(1.0%)
Notes and definitions of
non-GAAP measures
The Group uses a number of non-GAAP measures
to measure and assess the financial performance of
the business. The Directors believe that these non-
GAAP measures assist in providing additional useful
information on the underlying trends, performance
and position of the Group. These non-GAAP
measures are used by the Group for reporting
and planning purposes and it considers them to
be helpful indicators for investors to assist them in
assessing the strategic progress of the Group.
1.
2.
3.
4.
Underlying results are defined as continuing
operations excluding the results of previously
disposed businesses and includes results of
acquired businesses in comparative reporting
periods.
Trading profit is defined as profit/(loss) before tax
before net finance costs, profits and losses from
share of associates, amortisation of intangible
assets, impairment, fair value movements on
foreign exchange and other derivative contracts,
restructuring costs, and net interest on pensions
and administration expenses.
Underlying Sales is revenue excluding the
results of previously disposed businesses and
includes results of acquired businesses in
comparative reporting periods.
Underlying Trading profit is Trading profit as
defined in (2) above and excludes the results of
previously disposed businesses and includes
results of acquired businesses in comparative
reporting periods.
5.
6.
7.
8.
Divisional contribution refers to Gross Profit less
selling, distribution and marketing expenses
directly attributable to the relevant business unit.
Underlying Divisional contribution is Divisional
contribution as defined in (5) above and
excludes the results of previously disposed
businesses and includes results of acquired
businesses in comparative reporting periods.
Adjusted EBITDA is Trading profit as defined in
(2) above excluding depreciation.
Underlying adjusted EBITDA is adjusted EBITDA
defined in (7) above and excludes the results of
previously disposed businesses and includes
results of acquired businesses in comparative
reporting periods.
9.
Adjusted profit before tax is Underlying Trading
profit as defined in (4) above less net regular
interest.
10. Net regular interest is defined as net finance
cost after excluding write-off of financing costs,
fair value movements on interest rate financial
instruments and other interest.
11. Adjusted earnings per share is Adjusted profit
before tax as defined in (9) above less a notional
tax charge of 20.0% (2015/16: 20.0%) divided by
the weighted average of the number of shares
of 830.1million (52 weeks ended 2 April 2016:
826.0million).
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 17
12. Constant currency sales are referred to with
reference to the International business unit
and remove the impact of foreign currency
fluctuations when comparing sales between two
reporting periods.
13. Net debt is defined as total borrowings, less
cash and cash equivalents and less capitalised
debt issuance costs.
14. Free cash flow is defined as the change in
Net debt as defined in (13) above before the
movement in debt issuance costs.
Reconciliation of Continuing Operations to Underlying measures
£m
2016/17
Sales
Trading profit
EBITDA
2015/16
Sales
Trading profit
EBITDA
Continuing
operations
Less:
Disposals
Add:
Knighton
’Underlying’
business
790.4
117.0
133.2
771.7
128.8
144.9
–
–
–
0.0
2.2
2.2
–
–
–
29.6
1.9
0.6
790.4
117.0
133.2
801.3
129.1
146.5
Continuing operations Trading profit of £128.8m in
2015/16 above includes £2.2m of non-cash costs
predominantly relating to the write off of legacy fixed
assets in the year and is excluded from ‘Underlying’
Trading profit.
• Group & corporate costs refer to group and
corporate expenses which are not directly
attributable to a business unit and are reported
at total Group level.
• The International business unit is currently too
small for separate disclosure and in line with
accounting standards is aggregated within the
Grocery business unit for reporting purposes.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 18
STRATEGIC REPORT
Our responsibilities
Being responsible and sustainable
underpins our business strategy and
is crucial to how we drive growth,
productivity and reputation in the
longer-term interest of our shareholders,
colleagues and all those who touch
our business.
Over the past year we’ve developed a new theme
for our sustainability agenda – Bringing Britain
Together – to better reflect the values inherent in our
brand portfolio and provide a stronger identity and
focus for our activities. In the same way our brands
bring people together, whether it’s dinner with the
family or cake with friends, we bring our colleagues,
suppliers and stakeholders together to address issues
important to the sustainability of our company, our
communities and our country.
Building on our previous achievements we’ve
developed five core commitments under our new
theme of Bringing Britain Together:
• encourage healthier food choices for our
consumers and our colleagues;
• develop the skills our industry needs for the future;
• collaborate with our suppliers to drive higher
ethical and environmental standards;
• deliver environmental improvements across
our operations; and
• support our communities on a local and
national level.
Encouraging healthier food choices
Health and nutrition continue to be important issues
both for our consumers as they seek to make the
right food choices and for society more broadly
given the obesity challenge facing the UK. In 2016,
we refreshed our nutrition strategy and developed
ten new commitments to encourage healthier food
choices for our consumers and colleagues. These
included a commitment to remove 1,000 tonnes
of sugar from our portfolio in the next three years,
control portion sizes, provide informative labelling,
launch additional healthy options and tighten our
marketing codes.
During the year we removed more than 200 tonnes
of sugar, primarily from our cake, desserts and
cooking sauce brands. For example, we developed
a new recipe for Mr Kipling Viennese Whirls which
not only contains lower sugar, but lower saturated fat
levels and calories too. As a result, we’ve removed
450 million calories, 50 tonnes of saturated fat and
50 tonnes of sugar from the market.
We also launched a number of healthy choices in the
year, including Batchelors high protein and high veg
pots and High Protein Cup a Soup. And we tightened
our existing marketing to children policy to prohibit
all marketing and advertising to children under 16
years of age.
On a broader level, we continue to work with others
in our industry, our suppliers, our customers and
the government on how we can best contribute to
addressing the obesity issue, particularly amongst
children. This includes supporting the government’s
Childhood Obesity Plan launched in 2016.
Developing the skills our
industry needs
The food industry is facing a serious skills shortage
in the UK especially in the engineering, food science
and technical areas. To make sure we have the
skills needed to drive productivity, innovation and
growth in the future we’re continuing to invest in
apprenticeships and supporting higher education
initiatives as well as engaging with schools to
encourage students to think about the world of work
and a career in the food industry.
Over the last year, we continued our regular intake of
new apprentices and additionally developed a plan
to maximise the benefits of the government’s new
Apprenticeship Levy. The plan balances offering
new recruits the opportunity to gain new skills and
providing further development for existing colleagues.
In total we expect to create around 100 new
apprenticeships across the business in the coming
year in a broad range of disciplines, from engineering
to food science to information technology.
During the year we also continued our support
for the Institute of Grocery Distribution’s (IGD)
Feeding Britain’s Future schools campaign. Along
with others in the food manufacturing and retailing
sector, we provided volunteers to support structured
pre-employment skills training sessions for year 9
and year 12 students. In 2016/17 Premier Foods’
volunteers took part in 75 training sessions in a
variety of schools across the country. We also
formed partnerships with local schools to provide
CV writing, confidence building and interview skills,
and importantly, introduce students to the many
career opportunities in the food and drink sector.
Collaborating with our suppliers
to drive higher standards
Whatever we buy, it’s important we understand the
impact the product has on the environment, animal
welfare and the people that produce it. Where it
makes sense, we look for ingredients certified to
meet recognised environmental and ethical standards
whether this be palm oil from producers that meet the
Roundtable for Sustainable Palm Oil (RSPO) criteria,
egg products that are certified from cage-free hens or
cardboard boxes and other paper products that meet
the Forestry Stewardship Council requirements.
Last year we were again recognised by the World
Wide Fund For Nature (WWF) for our positive action
to support sustainable palm oil sourcing, scoring top
marks in WWF’s 2016 Palm Oil Buyers Scorecard.
We were also commended for our approach to
farm animal welfare, moving up to the third tier in
the Business Benchmark on Farm Animal Welfare’s
annual rankings (from tier 5 two years before) in
recognition of our commitments and 2025 goals to
support improved animal welfare.
We also continued to champion high ethical standards
at our own sites and through our supply chain. For the
second year running all of our manufacturing sites have
become Stronger Together 2017 business partners,
meaning they’ve been recognised for addressing
modern day slavery and third party exploitation in
the workplace. We also ask all of our ingredient and
packaging suppliers to become members of Sedex
(the Supplier Ethical Data Exchange) supported by our
own Sedex Member Ethical Data audits covering areas
such as health & safety and labour rights. At year end,
more than 94% of our direct spend was covered by
Sedex registered suppliers (excludes Knighton Foods).
For more information about our approach to sustainability visit our website www.premierfoods.co.uk/responsibility/overview
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 19
Supporting our communities
on a local and national level
Supporting the communities in which we operate
locally and nationally is part of the DNA of our
business and a powerful way to engage our
colleagues. Since 2015, we’ve collectively raised
more than £360,000 to support our corporate charity
partner, Cancer Research UK (CRUK), far exceeding
our original target of £250,000.
This has been achieved through numerous fund
raising activities across the country and with the
generous support of our suppliers. Last year’s
highlights included a company-wide charity
challenge in the Brecon Beacons, which saw
colleagues either trek 24 miles or cycle 100 miles
raising an impressive £50,000 in the process and a
Christmas in-store campaign to raise awareness of
CRUK’s life-saving work to beat cancer.
In addition, we won a significant number of awards
for our Bisto social marketing campaign focused on
bringing people together and combatting loneliness
under the banner of the Bisto Together Project.
This included the Spare Chair Sunday programme
encouraging people to invite an elderly person to
Sunday lunch which was expanded during the
course of the year to the Open Door programme
encouraging people to get to know their neighbours.
Delivering environmental improvements
across our operations
We’re continually looking for ways to improve our
environmental performance. All colleagues are
encouraged to play their part through our ‘Green
Matters’ initiative, an internal environmental campaign
supported by 54 Environmental Champions across
our sites.
During the year we successfully completed the
certification of all our manufacturing sites (excluding
Knighton Foods) to meet globally recognised standards
of environmental management through ISO 14001.
We also reduced our CO2 emissions per tonne in
eight out of our nine manufacturing sites achieving a
10.2% reduction in emissions overall compared to the
previous year as a result of greater efficiency and focus.
Higher production volumes meant our non-ingredient
water usage was higher in the period although overall
usage intensity on a per tonne basis reduced by
3.6% through greater investment in leak prevention
and improved clean down practices, particularly at
our bakeries.
Total energy usage (Gigawatts)
2016/17
2015/16
272
275
Total (non-ingredient) water usage (Megalitres)
We also maintained our zero waste to landfill
achievement and further reduced the amount of
waste sent for incineration by 6.9% as a result of
improved segregation and awareness.
2016/17
2015/16
724
704
The following charts set out our environmental
performance for the financial period on both a per
tonne basis and an absolute basis:
Environmental performance 2016/17
vs 2015/16 (per tonne)
Total CO2 (e) emissions (Metric tonnes)
2016/17
2015/16
75,383
79,611
2016/17 Target1
Reduce waste to incineration by 1.5%
Reduce energy consumption per tonne
by 1.5%
Reduce non-ingredient water usage per
tonne by 1.5%
Reduce carbon equivalent CO2 emissions
per tonne by 1.5%
2016/17
Performance
-6.9%
-6.0%
-3.6%
-10.2%
Looking ahead, we will be moving from reporting
against annual targets to reporting progress against
longer-term goals aligned with the various commitments
we’ve made to industry programmes such as the Food
and Drink Federation’s (FDF) 2025 Ambition and the
Courtauld 2025 commitment on food waste. These
also reflect our formal obligations under the Climate
Change Agreement, Carbon Reduction Commitment
and European Union Emissions Trading Scheme.
The table below outlines the longer term targets under the FDF’s 2025 Ambition and the Courtauld
2025 commitment on food waste against which we will be tracking our own progress.
Area
Target
CO2 emissions
Achieve a 55% absolute reduction in CO2 emissions by 2025 against the 1990 baseline.
Food waste
Packaging
Water
Send zero food waste to landfill from direct operations and beyond and contribute to reducing
food waste across the whole supply chain from farm to fork, including within our operations.
Minimise the impact of used packaging associated with food and drink products and encourage
innovation in packaging technology and design that contributes to overall product sustainability.
Deliver continuous improvement in the use of water across the whole supply chain and take
action to ensure sustainable water management and stewardship.
Contribute to an industry-wide target to reduce water use by 25% by 2020 compared to 2007.
Transport
Reduce the environmental impact of our transport operations, whether from own fleet operations
or third party hauliers, in terms of both carbon intensity and air quality aspects.
Embed a fewer and friendlier food miles approach within food transport practices.
1 The results of Knighton Foods are excluded from the Group's environmental performance results. The business was acquired in the financial year and 2016/17 will form the base year for measuring performance going forward.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 20
STRATEGIC REPORT
Managing our risks
Board accountability
The Board has ultimate responsibility for the effective
risk management of the Group’s strategic objectives.
The Group has a well-established process which
has operated throughout the year that identifies and
monitors the key strategic and operational risks,
ensures appropriate mitigating activities and reports
on their effectiveness.
The Board has considered and approved the risk
management policy, the risk appetite of the Group
(discussed below) and has delegated the review
of the risk management process to the Audit
Committee. The Audit Committee receives regular
reports from management and internal audit detailing
the risks that are relevant to our business activity, the
effectiveness of our internal controls in dealing with
these risks and any required remedial actions along
with an update on their implementation.
The Audit Committee reports to the Board on the
effectiveness of the risk management process.
Day-to-day risk management is the responsibility
of senior management as part of their everyday
business processes and is underpinned by the
Group’s policies and procedures to ensure this is
fully embedded.
There is a structured business review process
that operates across all business areas which
management report to the Board and this, along
with the corporate governance framework, further
underpins the ongoing management of risk.
Corporate Governance Framework
Board/Audit Committee
Executive Leadership Team
Operational Review
Documented policies
Internal Audit Reports
Internal control self
and procedures
Quarterly reporting to
assessment
Risk Registers
Audit Committee
1st Line of defence
2nd Line of defence
3rd Line of defence
Management controls
Risk management
Internal audit
Financial control
Treasury committee
Health & safety
Food safety
E
x
t
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r
n
a
l
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u
d
i
t
R
e
g
u
l
a
t
o
r
y
A
u
t
h
o
r
i
t
i
e
s
Management controls
The internal control system provides senior
management with an ongoing process for the
management of the risks that could impact on
the fulfilment of the Group’s business objectives.
The system is designed to manage rather than
eliminate the risk of failure to achieve our business
objectives and can only provide reasonable, not
absolute, assurance against material misstatement.
Our internal controls cover all areas of operations.
The system also supports senior management’s
decision making processes improving the reliability
of business performance.
Corporate oversight
Risk management – The Group operates a formal
risk management process designed to provide
information to the Board, drive internal audit activities
and support the executive and senior management
in identifying and mitigating the key risks facing the
business on an ongoing basis. Collective top down
executive reviews are conducted, as a minimum
twice per annum.
Financial control – The Group maintains a strong
system of accounting and financial management
controls. Our accounting controls ensure data in the
Group’s financial statements are reconciled to the
underlying financial systems. A review of the data is
undertaken to provide assurance that the position of
the Group is fairly reflected, through compliance with
approved accounting practices.
The Group has a dedicated team of finance
managers aligned to business areas, supported
by systems to provide the best available decision
making information to management on an ongoing
basis. This is reflected in an annual budgeting
process, monthly management reporting and
ongoing investment appraisal.
Treasury risk management committee – This
Committee focuses on the commodities purchased
by the Group, reviewing our policies and operational
delivery with respect to forward trading and foreign
exchange exposures.
Health & Safety – The Group maintains an ongoing
programme of Health & Safety audits and has
established internal Health & Safety compliance
tours at all factory sites.
Food safety – The Group has developed and
implemented corporate technical standards and
established an ongoing food quality and safety
compliance programme which audits all factory
sites and major suppliers. This supplements internal
testing facilities established as part of our internal
control system which confirm food quality, safety
and authenticity.
Internal audit
The Audit Committee annually reviews and approves
the internal audit programme for the year. The
Committee reviews progress against the plan on a
quarterly basis considering the adequacy of audit
resource, the results of audit findings and any
changes in business circumstances which may
require additional audits.
The results of internal audits are reported to the
Executive Leadership Team and senior management
and where required corrective actions are agreed.
The results of all audits are summarised for the
Audit Committee along with progress against
agreed actions.
Risk appetite
The organisation’s approach is to minimise exposure
to reputational, financial and operational risk, whilst
accepting and recognising a risk/reward trade-
off in the pursuit of its strategic and commercial
objectives.
As a food manufacturing company, with many well-
known brands, the integrity of the business is crucial
and cannot be put at risk. Consequently, it has a
zero tolerance for risks relating to Health & Safety
and food safety. The business, however, operates
in a challenging and highly competitive market
place and as a result it recognises that strategic,
commercial and investment risks will be required to
seize opportunities and deliver results at pace.
It is therefore prepared to make certain financial
and operational investments in pursuit of growth
objectives, accepting the risk that the anticipated
benefits from these investments may not always
be fully realised. Its acceptance of risk is subject to
ensuring that potential benefits and risks are fully
understood and sensible measures to mitigate risk
are established.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017
21
Changes since last year
The business has reviewed its strategy during the
year to be more evenly balanced between delivering
revenue growth, driving cost and efficiency savings
and cash generation rather than being weighted to
category and revenue growth. During the financial
period Grocery revenue growth targets were not
met largely due to weather impacts and changes in
major customers' promotional strategies. However,
we are confident that the latter is a short-term trend
which will stabilise over the next 12 months. We
aim to reduce weather impacts in the longer-term
by prioritising product innovations which are less
sensitive to, or benefit from, warmer weather.
The Group has experienced material input cost
inflation in the past year. Input costs have also
been driven up by currency devaluation. The Group
takes a blended approach to managing these
cost increases, managing its own efficiencies,
adjusting promotional mechanics and formats
where appropriate and finally looking at limited price
increases where these cannot be avoided.
The focus on cost efficiency has led to an extensive
cost and efficiency programme, including a
streamlining of our organisational structure.
Unfortunately this has also necessitated a number
of redundancies across commercial and central
functions. The business will need to manage
process changes as well as challenges around staff
engagement and retention in the short-term. A major
logistics consolidation programme is underway
which will provide significant cost savings but carries
some operational risk during the transition.
Since the last report the UK has voted to exit the
EU and seen a sharp devaluation of Sterling and
cyclical cost inflation. This has adversely impacted
commodity prices which makes our products more
expensive to produce.
A number of risks highlighted in our previous report
have reduced in likelihood and/or impact. We have
recently signed a non-binding Heads of Terms to
be a Strategic Global Partner with Mondelez for
Cadbury cake. Trading performance at our Hovis
Joint Venture has improved. Negotiations on the
2016 pension fund revaluations have been positive,
resulting in reduced cash outflows until March
2020. We are also starting to see positive outcomes
from our collaboration with Nissin, including the
successful launch of our Batchelors Super Noodles
product in a pot format.
In addition the Group has extended the term of its
revolving credit facility with its lending syndicate from
March 2019 to December 2020. The Group has also
announced the proposed issue of a new five year
£210m Senior Secured floating rate notes due 2022,
to replace its £175m Senior Secured floating rate
notes, due to mature March 2020.
Summary of major strategic &
operational risks
We have focused on six key strategic risks which
pose the greatest threat to the delivery of our
strategy. We have also highlighted a number of
operational risks which we believe are common
to all food manufacturers under the headings;
Operational continuity and Legal compliance.
These risks are identified on the heat map below and
are described in more detail on pages 22 and 23,
together with a discussion of the mitigating activities
we are taking to reduce the likelihood or potential
impact of these risks. Our website also contains a
more detailed discussion of operational risks seven
and eight below.
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%
0
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–
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2
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%
0
2
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Moderate
High
Very high
3
1
6
Low
5
Moderate
4
2
High
7
Very low
8
Low
Moderate
Low
Medium
High
< £2m
Profit impact
£2m–£7.5m
Profit impact
Impact
> £7.5m
Profit impact
1 Delivery of strategy
2 Corporate risks
3 Commodity prices/FX
4 Weather
5 Commercial arrangements
6 Business restructuring
7 Operational continuity
8 Legal compliance
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS
22
STRATEGIC REPORT
Managing our risks continued
Strategic risks
Mitigating activities
1. Delivery of Strategy
Our revenue growth strategy is taking longer than anticipated to deliver and the
business has reviewed its strategy with a more balanced focus on revenue, cost
efficiency and cash generation. Marketing spend is targeted at certain key brands
and consequently there will be parts of our portfolio that receive only modest
marketing investment and support. We expect that some of the categories in which
we operate will continue their current trend of decline and so the delivery of our
growth strategy is dependent on us growing share in our markets and aligning our
product portfolio with consumer trends. This needs to be delivered through effective
innovation and marketing activity.
We are continuing to invest in our core brands. There are no changes to our
investment strategy for International and the collaboration initiatives with Nissin,
which are both delivering strong results. We have excellent relationships in place with
the major retailers through our strategy of supporting customer growth, providing
new shopper insights and exclusive customer ranges. As a result we have been
able to outperform the market in many of our categories. The results of retailer
range reviews have been positive and a number of de-listed products are now back
in store. We also have strong non-branded offerings in place and are growing our
convenience, online and international businesses which reduces our dependence
on the major retailers.
2. Corporate risks
During 2017 the Group has renegotiated elements of its debt capital structure.
Capital availability may be impacted by market trends which are outside the Group's
control e.g. US interest rate volatility and global political uncertainty. The Group's
pension fund deficit also remains a significant risk due to the materiality of the liability
on the balance sheet.
Deficit payments post 2019 are subject to the outcome of the 2019 actuarial
revaluation and if the pension schemes underperform over this period there is a
risk that requested contributions become unaffordable. In certain circumstances
(such as significant corporate events or the disposal of certain businesses) the
RHM Trustees have the capability to exercise enhanced powers (including in
respect of funding).
We have strong relationships in place with our banking group and have now
extended the maturity of our revolving credit facility and announced the proposed
issue of a new 5 year floating rate note due 2022.
Our executive directors are actively engaged with the pension trustees on scheme
funding and investment matters and we have engaged Mercer to assist in formal
dialogue with the trustees over the risk profile of the RHM scheme. An integrated
risk management review has been initiated with the major UK schemes following the
2016 valuation and the Premier Foods pension scheme has an agreed de-risking
programme in place. We have negotiated reduced pension payment contributions
until March 2020 and as a result total cash payments will be approximately £32m
lower than outlined in our Interim Results on 15 November 2016 (see page 15 for a
breakdown of scheduled payments).
3. Commodity prices / Foreign exchange (FX)
Commodity prices have undergone significant increases driven by Brexit, indirect FX
impacts and cyclical cost inflation. There is a risk of further unbudgeted commodity
inflation or sterling devaluation against the Euro. This could impact margins and/or our
ability to invest in other areas of the business such as marketing or capital expenditure.
Hedging activity and ongoing supplier risk management is in place to mitigate the
impact of commodity price and FX driven inflation. Initiatives to mitigate inflation
through price increases, cost efficiencies and supply chain optimisation are well
advanced. We have also undertaken a restructuring of the business to significantly
reduce our SG&A expenditure, effective from 2017/18.
4. Weather
The business is subject to seasonal fluctuations and lacks a warm weather product
portfolio. This, along with changes to customer promotional strategy, was a
contributory factor to recent trading performance issues. Initiatives to de-seasonalise
our portfolio will only have a material effect over the longer-term. Longer-term climate
change patterns could also undermine our business model if the product portfolio
does not evolve over this period.
We are continuing to preferentially invest in programmes to de-seasonalise our
Grocery product portfolio. The Sweet Treats side of the business is also less
sensitive to weather fluctuations. In the long-term, the growth of our International
business will also help to reduce our dependence on cold weather focused
categories in Grocery.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 23
Strategic risks
Mitigating activities
5. Commercial arrangements
The delivery of our strategic objectives is dependent on strong
relationships with key customers, suppliers and distributors. A
number of our brands are licensed; in respect of our use of the
Cadbury brand our agreement is now operating on a rolling 12 month
notice period and consequently we are in advanced discussions
to secure a longer-term arrangement. In addition our licensing
agreement with Loyd Grossman includes performance targets.
The business is undergoing a major transformation of its logistics
operations which will combine the existing Grocery and Sweet Treats
warehousing and distribution activities under a single supplier. This is
expected to deliver significant long-term cost savings but gives rise
to some operational risks during the transition period and will result in
dependence on a single supplier and site for operations.
6. Business restructuring
The business has recently restructured its commercial and central
functions in order to deliver cost savings. This may result in loss of
experience and capability in certain parts of the business, particularly
at a senior level. There are also some short-term risks around our
ability to maintain staff engagement and retain key talent. There may
also be continuity and succession planning issues for certain roles, as
individual responsibilities are combined and expanded.
The Group has recently signed non-binding Heads of Terms to be a Strategic Global Partner with
Mondelez for Cadbury cake. Once finalised, this agreement will extend the Group’s long standing
partnership for another five years with the option to the Group of extending this for an additional
three years. Additionally, the licence will cover a total of 46 countries with the potential to use other
brands in the Cadbury family. The Loyd Grossman brand is well set for growth with a strong pipeline
of NPD, including a new range of premium pouch sauces, Indian sauces and desserts.
The logistics consolidation programme is being managed through a strong project governance
framework including transition planning and risk management activities. The supplier contract has
been agreed following appropriate due diligence checks and effective contractual protections are
in place.
The restructuring of roles has been completed swiftly to provide clarity to colleagues. Certain areas
of the business such as International and the graduate teams, as well as operational sites, have not
been impacted. The business will continue to invest in staff development and engagement initiatives
on a focused basis. The new structure will also reduce 'silos' in the business and enable more
cross-divisional activities and staff development opportunities.
Operational risks
Mitigating activities
7. Operational continuity
Delivery of our strategy is dependent on the organisation’s ability
to minimise operational disruption from issues with facilities, IT and
factory infrastructure, as well as procurement and logistics functions.
We have crisis management processes in place and business continuity plans are reviewed and
refreshed on an ongoing basis. The financial impact of material site issues is mitigated by insurance cover.
Operational control over sites has been consolidated with one senior manager providing a consistent level
of discipline. Knighton Foods has been reintegrated into the business, providing stronger commercial
and operational control. This has been further enhanced through the implementation of SAP in 2016/17.
Systems resilience is built in through the deployment of dual data centres and has been enhanced following
the completion of a re-hosting initiative in 2016. Greater operational efficiency will be introduced to our
Logistics function through the warehousing and distribution consolidation programme over the next two
years. Procurement category strategy plans are in place to monitor and mitigate risk around key suppliers.
8. Legal compliance
The business is subject to a number of legal and regulatory
compliance requirements and must continually monitor new and
emerging legislation, in areas such as Health & Safety, the listing
regime, competition law, food safety, labelling regulations and
environmental standards.
Leading food industry processes are in place to manage Health & Safety and food safety issues,
including an ongoing programme of internal and external audits. There are dedicated Legal
and Regulatory teams in place to monitor changes in legislation, ensure compliance across the
organisation and defend against litigation where necessary.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 24
GOVERNANCE
Chairman’s introduction
Dear shareholder,
We believe that good corporate
governance is essential for building a
successful and sustainable business in
the long-term interests of shareholders.
An effective governance framework is also
designed to ensure accountability, fairness
and transparency in the Company’s
relationships with all of its stakeholders
whether customers, suppliers, employees,
the government or the wider community.
Areas of focus in the year
Over the year the Board has reviewed the
Group's three year strategic plan in light of
the changing commercial environment. The
Board has regularly reviewed new product
development and customer relations.
In addition the Board undertook an
external evaluation exercise, a detailed
review of risks facing the business and has
received regular updates on shareholder
communication.
Compliance with the UK
Governance Code 2014
The Board supports the principles laid down
by the UK Governance Code 2014 (the Code)
as issued by the Financial Reporting Council
which applies for the financial year ended
1 April 2017 (available at www.frc.org.uk).
Subject to not all directors being able to
attend the 2016 AGM (as outlined under
Board Attendance) I am pleased to confirm
that over the course of the year we complied
with all the provisions of the Code.
AGM
Our AGM will again be held at the offices
of Gowling WLG (UK) LLP, 4 More London
Riverside, London, SE1 2AU on Thursday
20 July 2017 at 11.00 am and I look forward
to seeing you then.
David Beever
Chairman
16 May 2017
Board tenure
The average appointment of
our non-executive directors is
3.6 years. Tenure of individual
appointments can be seen
in the adjacent graph. Our
Board evaluation determines
if individual directors continue
to be effective and considers if
new appointments are needed
to refresh the balance of skills on
the Board.
Board independence
Under the Code at least half the
Board, excluding the Chairman,
should comprise non-executive
directors determined by the
Board to be independent. The
Chairman was considered
independent on appointment.
Tsunao Kijima and Daniel
Wosner were both appointed
pursuant to Relationship
Agreements with our
shareholders Nissin and Oasis,
respectively and, whilst fully
independent of management,
are not considered independent
under the Code.
Executive directors
Gavin Darby
Alastair Murray
Non-executive directors
David Beever
Richard Hodgson
Tsunao Kijima1
Ian Krieger
Jennifer Laing
Pam Powell
Daniel Wosner2
David Beever
9.25
Richard Hodgson
2.25
Tsunao Kijima
0.75
Ian Krieger
Jennifer Laing
4.4
4.5
Pam Powell
4.0
Daniel Wosner
0.1
Average Year's
Service: 3.6
Chairman: 1
Independent directors: 4
Non-independent directors: 4
Board attendance
The Board held nine scheduled Board
meetings during the year and a number of other
meetings and calls were convened for specific
business. In addition there were three meetings
of the Audit, Remuneration and Nomination
Committees during the year. All directors are
expected to attend the AGM, scheduled Board
meetings and relevant Committee meetings,
unless they are prevented from doing so by
prior commitments. Where a director is unable
to attend a meeting they have the opportunity
to read the papers and ask the Chairman to
raise any comments. They are also updated on
the key discussions and decisions which were
taken at the meeting. Non-executive directors
also have the opportunity to meet without
management present.
Details of Board and Committee membership
and attendance at scheduled Board and
Committee meetings are set out in the table
below. Tsunao Kijima was unable to attend
two Board meetings and the AGM (held on
the same day) for personal reasons and Pam
Powell missed one meeting due to illness.
David Beever absented himself from meetings
of the Nomination Committee which discussed
the Chairman succession process. All
directors, except Tsunao Kijima, attended the
2016 AGM.
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
9/9
9/9
9/9
9/9
4/6
9/9
9/9
8/9
1/1
–
–
–
3/3
–
3/3
3/3
3/3
–
–
–
3/3
–
–
3/3
3/3
3/3
1/1
–
–
1/1
3/3
–
3/3
3/3
3/3
–
1. Appointed to the Board on 21 July 2016 as a representative of Nissin.
2. Appointed to the Board on 1 March 2017 as a representative of Oasis.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 25
GOVERNANCE
Board of directors
GAVIN DARBY
CHIEF EXECUTIVE OFFICER
RICHARD HODGSON
NON-EXECUTIVE DIRECTOR A N
Appointed to the Board: February 2013.
Appointed to the Board: January 2015.
PAM POWELL
NON-EXECUTIVE DIRECTOR A R N
Appointed to the Board: May 2013.
Skills and experience: Gavin has a strong consumer
goods pedigree and extensive senior leadership
experience. He spent 15 years at the Coca-Cola
Company in various senior positions, including Division
President roles for North West Europe and Central
Europe. Prior to joining Premier Foods, Gavin served
as CEO of Cable & Wireless Worldwide plc, leading a
successful turnaround of the business before negotiating
its eventual sale to Vodafone plc. Previously he worked at
Vodafone plc for nine years, during which time he served
as UK CEO and CEO of Americas, Africa, India and China.
Gavin is President of The Food and Drink Federation.
ALASTAIR MURRAY
CHIEF FINANCIAL OFFICER
Appointed to the Board: September 2013.
Skills and experience: Prior to joining Premier
Foods, Alastair spent 10 years at Dairy Crest Group
plc as Group Finance Director, where he helped lead
a significant restructuring to simplify the business,
creatively addressing its pension deficit and reinforcing
its position as an industry leader. Previously he was the
Group Finance Director at The Body Shop International
plc. Earlier in his career Alastair was a Divisional Finance
Director at Dalgety plc and spent 13 years in various
finance and operations roles at Unilever plc. He is a Fellow
of the Chartered Institute of Management Accountants.
DAVID BEEVER
CHAIRMAN R N
Appointed to the Board: January 2008 and appointed
Chairman in June 2012.
Skills and experience: After qualifying as a Chartered
Engineer, David has spent most of his career in the
financial sector. He was a Vice-Chairman of S. G.
Warburg where he handled many corporate finance
transactions for major UK and international companies.
He was later a board member of KPMG and Chairman
of Corporate Finance and has been Chairman of several
major companies.
Skills and experience: Richard has been Chief Executive
Officer of Pizza Express since 2013 and has over 20
years of experience in the food industry. In 2010 he was
appointed Commercial Director at Morrisons,
a newly created role, combining Trading and Marketing.
Richard joined Waitrose in 2006 as Commercial Director
and prior to that spent 10 years at Asda holding a
number of senior roles culminating in his appointment
as Marketing & Own Brand Director.
TSUNAO KIJIMA
NON-EXECUTIVE DIRECTOR
Appointed to the Board: July 2016.
Skills and experience: Tsunao is Managing Executive
Officer of Nissin, in charge of the USA and has had
responsibility for Nissin’s corporate functions including
strategy and M&A, business process optimisation,
corporate infrastructure and innovation. Prior to joining
Nissin in 2012, Tsunao spent most of his career at
Mitsubishi Corporation, where he served as Executive
Vice President.
IAN KRIEGER
SENIOR INDEPENDENT DIRECTOR (SID) A R N
Appointed to the Board: November 2012.
Skills and experience: Ian is the Senior Independent
Director and Chairman of the Audit Committee at
Safestore Holdings plc and also non-executive director
and Chairman of the Audit Committee at Capital &
Regional plc. He is also Vice Chairman of Anthony Nolan
and a trustee and Chair of Finance at the Nuffield Trust.
Ian is a Chartered Accountant and was a senior partner
and Vice Chairman of Deloitte until his retirement in 2012.
JENNIFER LAING
NON-EXECUTIVE DIRECTOR A R N
Appointed to the Board: October 2012.
Skills and experience: Jennifer has over 30 years
experience in brand building and communications
including 16 years with Saatchi & Saatchi, twice as
Chairman of the London office, and culminating in her
role as Chairman and CEO of Saatchi & Saatchi North
America. In the early 1990s she led her own advertising
agency, Laing Henry, which was subsequently sold
to Saatchi & Saatchi. Jennifer is Chairman of the IHG
Foundation UK Trust.
Skills and experience: Pam has more than 20 years
marketing experience developing some of the world’s
leading consumer brands. Most recently, she was the
Group Strategy and Innovation Director for SAB Miller,
one of the world’s leading brewers. Pam spent nine years
at SAB Miller in senior management roles and prior to
that held numerous marketing roles in the home and
personal care sector during a 13 year career at Unilever
plc, culminating in her role as global Vice-President of the
Skin Care category. Pam is also a non-executive director
at A.G. BARR p.l.c.
DANIEL WOSNER
NON-EXECUTIVE DIRECTOR R
Appointed to the Board: March 2017
Skills and experience: Daniel is Managing Director &
Head of Europe at Oasis Management Company Ltd.,
having joined Oasis in 2016, where he is also a member
of the firm’s Strategies Group and Corporate Governance
Group. As Head of Europe, Daniel oversees the firm’s
UK and Continental European investments. Prior to joining
Oasis, Daniel served as Head of the Asia Pacific Equity
Syndicate team at Barclays in Hong Kong. Prior
to moving to Hong Kong, Daniel worked with Barclays
and Lehman Brothers based in London. Daniel, a UK
national, received a Bachelor of Arts in Politics from
Leeds University.
Biographies for the Executive Leadership
Team can be found on our website
www.premierfoods.co.uk/about/leadership
Committee Membership
A Audit Committee: A Committee Chair
R Remuneration Committee: R Committee Chair
N Nomination Committee: N Committee Chair
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 26
GOVERNANCE
Governance
Corporate governance
The UK Governance Code 2014 (the Code) states
that the purpose of corporate governance is to
facilitate effective, entrepreneurial and prudent
management that can deliver the long-term
success of the company. The Board of directors is
responsible for the governance of the Company. The
shareholders’ role in governance is to appoint the
directors and the auditor and to satisfy themselves
that an appropriate governance structure is in place.
The responsibilities of the Board include setting the
Company’s strategic aims, providing the leadership
to put them into effect, supervising the management
of the business, monitoring performance and
reporting to shareholders on their stewardship.
Board Committees
The Board delegates responsibility for the oversight
of Board composition, financial performance, internal
controls and remuneration strategy to its three
Committees. Their terms of reference are available
on the Company’s website. Details of the work of the
Nomination, Audit and Remuneration Committees
are set out on pages 29, 30 and 35, respectively.
In addition the Board delegates day-to-day
responsibility for managing the business to the
Executive Leadership Team ('ELT') and its sub-
committees. The ELT comprises the heads of the
commercial businesses and key corporate functions.
The ELT meets monthly and members regularly
present to the Board. To read more about the work
of these Committees go to governance section of our
website www.premierfoods.co.uk/about/governance
Board roles and responsibilities
The Chairman is responsible for the leadership of the
Board and ensuring its effectiveness and promoting
the highest standards of corporate governance. He
chairs Board meetings ensuring timely and accurate
distribution of information and full review and
discussions of agenda items. The CEO is responsible
for the day-to-day management of the Company
working with the ELT to ensure the implementation of
the agreed strategy. The Senior Independent Director
(SID) supports the Chairman and leads the non-
executive directors in the oversight of the Chairman
and CEO. He is also available to shareholders if they
have concerns that cannot be raised through normal
channels. Further information on these roles can be
found on our website.
Director appointments
The Board has the power to appoint one or more
additional directors. Under the Articles any such
director holds office until the next AGM when they
are eligible for election. Shareholders may appoint,
re-appoint or remove, directors by an ordinary
resolution. In accordance with the Code all our
directors offer themselves for re-election every
year. In addition, the appointments of Tsunao Kijima
and Daniel Wosner are subject to the terms of
shareholder Relationship Agreements (see Conflicts
of interest below).
Board information
The main source of information is via the Board
pack which is designed to keep directors up-to-
date with all material business developments in
advance of Board meetings. In addition training on
specific issues is provided as and when required.
Non-executive directors also meet with senior
management outside of Board meetings to discuss
specific areas of interest in more detail e.g. brand
and marketing plans, customer strategy and pension
investment strategy The Board pack generally
contains the following standing items:
Conflicts of interest
The Group has procedures in place for managing
conflicts of interest and directors have continuing
obligations to update the Board on any changes
to these conflicts. This process includes relevant
disclosure at the beginning of each Board meeting
and also the Group’s annual formal review of
potential conflict situations which includes the use
of a questionnaire.
Under our Relationship Agreement with Nissin
they are entitled to nominate an individual for
appointment to the Board so long as they retain
an interest in shares in the Company representing
15% of issued share capital. Under our Relationship
Agreement with Oasis they are entitled to nominate
an individual for appointment to the Board so long
as they retain an interest in shares in the Company
representing 7% of issued share capital. During the
period ended 1 April 2017 no other director had
a material interest at any time in any contract of
significance with the Company or Group other than
their service contract.
Induction
All directors receive a tailored induction on joining
the Board covering their duties and responsibilities
as directors. Non-executive directors also receive
a full briefing document on all key areas of the
Group’s business and they may request further
information as they consider necessary. A typical
non-executive director induction would include
meetings with the ELT and key management, site
visits and an induction and governance pack.
• CEO introduction;
• H&S and employee issues;
• Commercial updates;
• New product development;
• Customer service levels;
• Operations
• Strategic projects;
• Capital expenditure;
• CFO report;
• Legal report;
• Investor Relations; and
• Treasury Report.
Board and Committee Evaluation
During the financial period an externally facilitated
board effectiveness review was undertaken
by Springboard Associates (an independent
consultancy firm with no other connection to the
Group). Springboard had previously carried out
an effectiveness review of the Board in 2013 and
consequently were able to provide insights on how
well Board and Committee practices had evolved
since that time.
Scope of the review
The scope of the review included a review of Board
and Committee papers and individual meetings
with directors and senior management which took
place in confidence, with Springboard noting that
all participants engaged willingly and expressed
their views openly. Springboard then attended, as
observers, a main Board meeting, plus an Audit and a
Remuneration Committee meeting. A comprehensive
report of their findings and resulting recommendations
was presented at a subsequent Board meeting.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 27
Overview of findings
It was noted that the Company had been through
a significant period of change since 2013 with
some transformational events such as a major
refinancing and disposal of the Hovis business
into a Joint Venture. Good progress had been
made in addressing the recommendations of the
2013 effectiveness review and subsequent internal
evaluations in 2014 and 2015 had built further on
some of the key findings and actions.
During this period there had been a strong focus
on developing a well-defined and robust strategy,
underpinned by detailed and comprehensive
budget plans. Board papers were generally felt to
be comprehensive and well prepared with increased
focus on streamlining the process with clear
executive summaries. The composition of the non-
executive directors was considered satisfactory with
a reasonable balance of skills and diversity.
During their individual meetings with directors
Springboard questioned Board processes during
the bid approach from McCormick & Company
Inc. in March 2016 and noted that the Board had
met regularly and it felt that it had been fully briefed
throughout (including with their external advisory
team), enabling it to respond quickly, decisively and
proactively to events.
Summary of actions for 2017/18
Strategy
It was noted that during the evaluation, the Board
was actively looking to 'rebalance' its strategic focus
in the light of significant currency depreciation follow
the EU referendum result and the cyclical inflationary
environment that was impacting the food industry.
Board challenge and focus
There was consensus that time was frequently short
and should be optimised for rigorous discussion of
the key strategic challenges, priorities and choices
facing the business. Board papers and presentations
should continue to focus on the key issues with even
greater use of precise executive summaries.
Post evaluation reviews
Post evaluation investment reviews take place
on an ad hoc basis and it was agreed that these
reviews should be formalised and built into the
annual Board agenda.
Review of non-executive director
performance
Over the course of the year, the Chairman
reviewed the performance of the non-executive
directors including: attendance; preparation for
and contribution at meetings; their knowledge and
understanding of the business; and any training and
development requirements.
Shareholders and other
stakeholders
Shareholders
An important role of the Board is to represent and
promote the interests of its shareholders as well as
being accountable to them for the performance and
activities of the Group.
Following this review it was agreed that the Board
has an appropriate balance of skills, experience,
independence and knowledge of the Company to
enable them to discharge their respective duties
and responsibilities effectively. It was concluded that
each non-executive director continued to make an
effective contribution to the Board and consequently
the Nomination Committee recommended the re-
election of all directors at the 2017 AGM.
Assessment of Chairman’s
performance
The Chairman's performance was reviewed as part
of the external Board evaluation process. Following
the review the Board concluded that David Beever
continued to perform an effective role as Chairman,
had no other significant external commitments and
was able to dedicate sufficient time to the role.
The Board believes it is very important to engage
with its shareholders and does this in a number
of ways through presentations, conference calls,
investor road shows, face-to-face meetings and the
AGM. Following the announcement of the Group’s
half year and year end results, presentations are
made to analysts, banks and major shareholders to
update them on the progress the Group has made
towards its goals and invite them to ask questions.
An Investor Relations report is prepared for each
Board meeting to update the directors on feedback
from shareholders and analysts and changes in the
shareholder register. Currently around six equity
research analysts publish research on the Group.
Copies of press releases, investor presentations,
webcasts, conference calls and Fact Sheets are
available on the Group’s website.
An Investor Day is held most years to provide
investors and analysts with a more detailed insight
into the business. This year the event was held at our
Ambrosia Creamery in Lifton and was attended by
the Chairman, CEO, CFO and senior management.
This focused on the Grocery business; in particular
the Desserts strategy, new product development and
operational capability.
The Chairman, Senior Independent Director and
Remuneration Committee chair each held meetings
with a number of shareholders over the period to
discuss governance and remuneration issues.
The main channels of communication with private
shareholders are via this annual report, our website
and the AGM. The AGM provides the Board with
an opportunity to meet and speak with private
shareholders to answer their questions. Directors meet
with shareholders both before and after the meeting.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 28
GOVERNANCE
Governance continued
Other stakeholders
Bondholders
Management hold conference calls with holders
of the Group's Senior Secured Notes following the
release of half year and full year results. Additionally,
management attend bond investor conferences at
least twice a year.
Pensions
Premier management attend the Trustee and
Investment Committee meetings for each of the
pension schemes, at which funding and investment
matters are monitored and discussed. The Company
also regularly reports on the Group's trading
performance. Additional ad hoc meetings have
been held this year in order to finalise the funding
arrangements following the 2016 actuarial valuations.
Banks
Regular updates are provided to the Group’s
current banking syndicate on the Group’s
financial performance.
Suppliers
The Group works with over 1,200 active suppliers
and develops close partnerships with its key
suppliers to deliver mutual benefit. 89% of products
we purchase are from UK based suppliers and our
top 250 suppliers now account for in excess of 90%
of our total spend on the goods and services that
we purchase.
We have an online supplier innovation portal which
seeks to leverage our suppliers’ unique capabilities
and strengths to feed into our product development
pipeline with the aim of creating new products which
will drive growth in both our businesses. Since
launching in September 2014 our suppliers have
presented more than 318 ideas through the portal,
of which a number have now been launched into the
market place.
The Group conducts an annual 'Voice of the
Supplier' survey with suppliers to help maintain
and strengthen supplier relationships, listen to their
feedback and benchmark progress. In 2016, our
anonymous survey was sent to our top 500 suppliers
representing over 96% of our total spend.
Of those suppliers who responded, 100% of strategic
suppliers confirmed our relationship was ‘Good’ or
‘Very Good’, with 90% of suppliers who are SMEs
(Small or Medium Sized Enterprises) saying Premier
Foods was a ‘Customer of Choice’. The outcome
of this survey was discussed at our annual Supplier
Conference, this forum being a key method to
communicate with our suppliers and to update them
on the Group's strategy and growth plans.
Colleagues
The Group is committed to ensuring that the people
who work for us are treated with respect, and that
their health, safety and basic human rights are
protected and promoted.
Communication and engagement
The Group recognises the value of good
communication in engaging our colleagues to
achieve common goals. Our suite of communications
channels include large digital news screens at every
site, our mobile-enabled intranet, monthly printed
and digital newspaper, weekly news round-up email
and posters. We also video stream our CEO-led
monthly briefing sessions directly to all sites in
addition to cascading through local briefings. We
continued to encourage colleagues to engage with
their local communities through supporting local
charities and by fund-raising for our corporate
charity partnership with Cancer Research UK. Senior
management road shows were held at all sites. In
addition, we consult colleagues where appropriate
on major changes to the business, and with most
colleagues being shareholders, we encourage them
to vote in advance of our AGM.
Health & Safety
Health & Safety is taken extremely seriously by
management at all levels in the Group, and we are
proud to have one of the lowest accident rates in
the food industry. Our unique, inclusive approach
to hazard identification and control, our ‘Total
Observation Process’, is a vital preventative tool in
making our factories safer places to work and is a
key ingredient of our industry leading performance
as indicated by the chart below.
Premier Foods Health & Safety record
(as at 1 April 2017)
RIDDOR
UK manufacture
of food
All UK
manufacture
0.49
0.23
Premier Foods
0.09
All RIDDOR accidents per 100,000 hours worked
The Board reviews Health & Safety performance at
every scheduled Board meeting, this includes two
important measures; Lost Time Accidents (LTA),
which represent accidents that result in a colleague
having to take any time off work and Reporting of
Injuries, Diseases and Dangerous Occurrences
Regulations (RIDDOR) which is the standard
regulatory measure of identifiable, unintended
incidents, which cause physical injury.
LTAs
2016/17
2015/16
2014/15
0.11
0.16
0.21
Our Safety Leadership Plus programme has been
successful in improving safety at sites and has
increased engagement across our factories, which
has helped to further reduce the LTA rate. In addition,
our Behavioural Safety programme is now being
rolled out at each site to ensure safety is embedded
at all levels.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 29
GOVERNANCE
Nomination Committee report
Dear shareholder,
On behalf of your Board, I am pleased to present the
Nomination Committee report for the period ended 1
April 2017. The Committee is responsible for:
• considering the size, structure and composition
of the Board;
• leading the formal, rigorous and transparent
process for the appointment of directors;
• making appointment recommendations so as
to maintain an appropriate balance of skills,
knowledge and experience on the Board; and
• ensuring a formal and rigorous Board and
Committee evaluation is undertaken on an
annual basis.
The Committee also reviews the succession
requirements of the Board and senior management on
a regular basis and makes recommendations to the
Board as appropriate. Committee membership and
meeting attendance is set out on page 24.
Board evaluation
Details of the external Board and Committee
evaluation that was carried out in the period and the
review of non-executive performance is set out on
pages 26 and 27.
Board balance and diversity
When selecting a new director the Board considers
a broad range of skills, backgrounds and experience
reflecting both the type of industry and the
geographical locations in which we operate. In 2011
the Board adopted a policy to have at least two
female Board directors by 2015 and this target was
successfully achieved in May 2013.
The Committee is also mindful of the benefits that
an inclusive culture can bring to our organisation
as a whole. We have strengthened our approach
with the introduction of a new Diversity & Equality
action plan which was approved by the Board in
March 2017. In addition, a diversity working group has
been established, which will formalise the Group’s
diversity reporting and KPIs and make sure we are fully
prepared for the requirement to report on gender pay
(which comes into force in 2018).
The Group's aim is to create a work environment
that promotes equality, dignity and respect for all
colleagues when it comes to promotion, progression,
training and development and when we select
candidates for employment.
Details of our gender diversity across the Board of
directors, senior management, central functions and
the Group as at 1 April 2017 are set out below.
David Beever
Nomination Committee Chairman
16 May 2017
Appointment process for
new Chairman
Following David Beever's decision to step down
as Chairman in 2017, I was appointed to lead
the external search for his successor.
Following presentations from a number
of leading search firms Russell Reynolds
(who are periodically used by the Group for
executive recruitment) were engaged to assist
and advise Premier Foods on the search and
appointment process.
Taking the findings from the 2016 board
effectiveness review as a starting point, and
in consultation with the Nomination Committee
and the Chief Executive, Russell Reynolds
designed a clear specification for the desired
candidate.
With the process underway we will update
shareholders on progress in due course.
Ian Krieger
Senior Independent Director
Gender Diversity (% female as at 1 April 2017)
60
50
40
30
20
10
0
e
g
a
t
n
e
c
r
e
P
%
9
% 2
5
2
%
5
2
5
1
/
4
1
0
2
6
1
/
5
1
0
2
3
1
0
2
%
0
2
2
:
7
1
/
6
1
0
2
%
9
3
6
1
/
5
1
0
2
%
3
3
4
3
:
7
1
/
6
1
0
2
%
5
2
5
1
/
4
1
0
2
%
9
1
3
1
0
2
%
5
4
%
6
4
%
4
4
%
3
4
5
1
/
4
1
0
2
6
1
/
5
1
0
2
3
1
0
2
1
4
1
:
7
1
/
6
1
0
2
PLC
Board
Senior
management
Central
functions
%
7
3
%
6
3
%
6
3
%
3
2
3
1
0
2
1
5
4
,
1
:
7
1
/
6
1
0
2
5
1
/
4
1
0
2
6
1
/
5
1
0
2
All
colleagues
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS
30
GOVERNANCE
Audit Committee report
Dear shareholder,
On behalf of your Board, I am pleased to present
the Audit Committee report for the period ended
1 April 2017. The Committee has responsibility, on
behalf of the Board, for reviewing the effectiveness
of the Company’s financial reporting systems and
the internal control policies and procedures for the
identification, assessment and reporting of risk.
The Committee also keeps under review the
relationship with the external auditor, including
the terms of their engagement and fees, their
independence and expertise, resources and
qualification, and the effectiveness of the audit process.
The Committee met with the internal and external
auditor on three occasions in the year without the
presence of management. Committee membership
and meeting attendance is set out on page 24.
I was appointed as Audit Committee Chairman
in April 2013 following my retirement as a senior
partner of Deloitte in 2012. All members of the
Committee are considered to be independent, with
a broad range of FMCG, commercial and marketing
experience relevant to the Group's business. The
qualifications of Committee members are set out on
page 25. In addition to the Committee members the
CEO, CFO, Director of Internal Audit and Risk and
external audit lead partner are regularly invited to the
Committee’s meetings.
Areas of review
During the financial period the Committee:
• Monitored financial reporting, including the annual
report and the full year, half year and quarterly
results announcements;
• Considered the viability statement for the Group
which can be found on page 33;
• Approved a new policy on external auditor
independence and non-audit services;
• Conducted a review of the external auditor's
effectiveness;
• Received regular reports from the internal audit
function, ensured it was adequately resourced,
monitored its activities and effectiveness, and
agreed the annual internal audit plan; and
• Received updates on calls received from the
whistle blowing helpline and on the Group’s
Speaking Up policy.
Auditor appointment, independence
and non-audit services
KPMG were appointed as external auditor in
September 2015 following a comprehensive tender
process. During the period the Audit Committee
reviewed and approved a new policy on external
auditor independence and non-audit services. This
was to bring the Group's current policy into line with
the EU Regulation and Statutory Audit Directive which
came into force in June 2016 and encompasses audit
firm rotation and restrictions on non-audit services.
The restrictions on non-audit services will not fully
impact the Group until the financial period 2020/21, in
the intervening period non-audit spend up to £100k
must be approved by the Audit Committee chairman
and spend in excess of £100k requires approval by the
full Audit Committee. A copy of the policy is available
to view on the Group's website: www.premierfoods.
co.uk/about/governance.
In accordance with our Auditor Independence
Policy the Committee has continued to review the
level of non-audit fees with management during
the year. The Committee also received an update
from KPMG’s lead partner on the internal controls
which they employ to safeguard their independence,
integrity and objectivity.
The Group has undergone a very significant
transformation over the last few years as management
have implemented the turnaround of the business.
This had resulted in the external auditor being
engaged to perform a number of non-audit services.
Now that the business has returned to a more stable
footing I am pleased to see that the level of non-audit
fees has reduced significantly. Non-audit fees for the
period were £20,221 (2014/15: £120,032) representing
5% of the audit fee.
2016/2017
2015/2016
2014/2015
Audit Fee: £400,000
Non-audit fee: £20,221
Audit Fee: £460,000
Non-audit fee: £120,032
Audit Fee: £425,000
Non-audit fee: £567,000
Committee effectiveness
An external Board and Committee evaluation was
carried out in the period (see pages 26 and 27).
External audit effectiveness
Given that KPMG were newly appointed during
the period ended 2 April 2016, it was deemed
appropriate to defer the review of their effectiveness
until the completion of the 2015/16 audit cycle.
Accordingly an effectiveness review was carried out
in September 2016. This was conducted by way of a
questionnaire sent to the Audit Committee members
and management involved in the audit process.
The review concluded that KPMG had performed
well and delivered a highly effective service. A good
working relationship had been established with clear
communication and appropriate focus on material
issues. A number of areas for development were
identified and these were incorporated into the
Audit plan for the period ended 1 April 2017. The
Committee has therefore concluded that KPMG
provide an effective audit service.
Risk management
Details of our risk management process are set out
in the risk management section on pages 20 to 21.
Internal controls
In accordance with the FRC guidance on audit
committees an annual review of internal controls is
conducted. The Board has delegated authority to
the Audit Committee to regularly monitor internal
controls and conduct the full annual review. This
review covers all material controls such as financial,
operational and compliance, and also the overall risk
management system in place throughout the year
under review up to the date of this annual report.
The Committee reports the results of this review
to the Board for discussion and, when necessary,
agreement on the actions required to address
any material control weaknesses. The Committee
confirms that it has not been advised of any failings
or breaches which it considers to be significant
during the financial period and found the internal
controls to be effective.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 31
included in the balance sheet. The Group’s RHM
Pension Scheme also holds assets for which quoted
prices are not available. On a combined basis the net
IAS19 valuation reported a surplus of £104.8m as at
1 April 2017 (2015/16: surplus of £130.9m), largely
driven by the fall in the discount rate on corporate
bond yields. The Committee reviewed the basis for
management’s assumptions and the movements
in the IAS 19 valuation in detail over the year. With
the exception of the discount rate, the financial
assumptions were based on the same methodology
as last year. The change in the discount rate
methodology was reviewed and it was concluded
that it was appropriate and the assumptions
were within the acceptable market range. Further
information is set out in note 23 on pages 93 to 98.
Deferred tax assets
A deferred tax asset is an asset on a Group’s
balance sheet, which may be used to reduce future
taxable income. Valuation of the asset involves a
number of assumptions including forecasts of future
taxable profits and growth rates and an assessment
of historic forecasts. The current year asset of
£32.4m was in line with £25.9m in 2015/16 as the
Group continued to have a net pension surplus. The
Committee will continue to keep under review any
tax volatility between the income statement and
other comprehensive income and management’s
policy relating to the order in which deferred tax
assets are recognised. Further information is set out
in note 8 on pages 72 to 74.
Ian Krieger
Audit Committee Chairman
16 May 2017
Internal Audit effectiveness
The effectiveness of the Group’s internal audit
function is reviewed on an annual basis. The review
was conducted with the Committee and the ELT and
covered the function’s independence, resource, the
scope of the annual audit plan, the reports issued
and the identification of issues. In addition, feedback
from post completion questionnaires for internal
audits undertaken during the period were also
reviewed. The Committee concluded that the internal
audit function remained effective.
accruals and provisions in detail. The Committee
also reviewed management’s internal processes
and controls. During the financial period internal
audit conducted a review of trade promotions to
assess planning, analysis of profitability, approval,
data entry and post evaluation reviews. In addition
commercial arrangements for the Knighton business
were also reviewed by the internal audit team as a
part of a wider review of financial controls following
the acquisition of the business in the financial period.
Further information is set out in note 3.3 on page 67.
Fair, balanced and understandable
The Board requested that the Audit Committee
confirm whether the annual report and accounts taken
as a whole were fair, balanced and understandable
and whether it provided the necessary information
for shareholders to assess the Group’s performance,
business model and strategy. The Audit Committee
recommended that the Board make this statement
which is set out on page 34.
In making this recommendation the Committee
considered the process for preparing the annual
report which included regular cross functional
reviews from the teams responsible for preparing the
different sections of the report, senior management
review and verification of the factual contents.
It also considered the balance and consistency
of information, the disclosure of risk and the key
messages presented in the report.
Significant issues in relation to the
financial statements
The Committee considered the following significant
issues in relation to the financial statements with
management and the internal and external auditor
during the year:
Commercial arrangements
Commercial payments to customers in the form of
rebates and discounts represent significant balances
in the income statement and balance sheet.
Calculations of these balances require management
assumptions and estimates. In the previous financial
period the Group introduced an integrated SAP
solution to its commercial functions which helped
reduce complexity and improve management
of trade promotions. The Committee reviewed
the assumptions and estimates and the level of
Carrying value of goodwill and brands
Goodwill and brands represent a significant item on
the balance sheet and their valuation is based on
future business plans whose outcome is uncertain.
The value of goodwill is reviewed annually by
management and the Committee and brands are
reviewed where there is an indicator of impairment.
The impairment testing for goodwill and brands is
based on a number of key assumptions which relies
on management judgement.
The brands, trademarks and licences are deemed
to be individual CGUs. For the purpose of goodwill,
the Group has four CGUs - Grocery, Sweet Treats,
International and Knighton. The Committee reviewed
the results of impairment testing of the CGUs. The
entire carrying value of goodwill in the Sweet Treats
CGU was written off in a prior financial period
and the International business has no goodwill or
intangible assets. The results of the impairment
testing included management’s assumptions in
respect of cash flows, long-term growth rates and
discount rates. The Committee also considered
sensitivities to changes in assumptions and related
disclosure as required by IAS 36. This year’s review
concluded that whilst headroom had reduced,
reflecting the fall in revenue and profit in the financial
period, no impairment was required. Further
information is set out in notes 12 and 13 on pages
77 to 79.
Defined benefit pension plans
The Group operates a number of defined benefit
schemes. The main schemes are closed to future
accrual but hold substantial assets and liabilities.
Valuation of the scheme liabilities is based on a
number of assumptions such as inflation, discount
rates and mortality rates, each of which could have
a material impact on the valuation under IAS 19
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 32
GOVERNANCE
Other statutory information
Directors’ report
The directors’ report consists of pages 02 to 52 and
has been drawn up and presented in accordance
with, and in reliance upon, applicable English
company law and the liabilities of directors in
connection with that report shall be subject to the
limitations and restrictions provided by such law.
In the directors’ report references to the Company
or Group are references to Premier Foods plc and
its subsidiaries.
Profit and dividends
The profit before tax on continuing operations for the
financial year was £12.0m (2015/16 loss: £13.0m).
The directors do not recommend the payment of a
dividend for the period ended 1 April 2017 (2015/16:
£nil). Under the terms of our current financing
arrangements dividends are permitted once the
Group’s Net debt/EBITDA ratio falls below 3.0x. The
Group is committed to deleveraging the business
and reducing the Net debt/EBITDA ratio (see our
Strategy on page 06)
Research and development
Applied research and development work continues
to be directed towards the introduction of new
and improved products; the application of new
technology to reduce unit and operating costs; and
to improve service to customers. Total research
and development spend (including capitalised
development costs) was £13.6m (2015/16: £12.1m).
Share capital information
The Company’s issued share capital as at 1 April
2017 comprised 826,567,063 ordinary 10p shares.
During the period 5,903,615 ordinary shares were
allotted. 5,650,000 shares were allotted to satisfy
the vesting of awards made to the management
population under the Company's Restricted
Stock Plan and 253,615 were allotted to satisfy
the vesting of awards made to colleagues under
the all-employee Sharesave Plan, details of the
movements can be found in note 25 on page 99. All
of the ordinary shares rank equally with respect to
voting rights and the rights to receive dividends and
distributions on a winding up. In accordance with the
Articles there are no restrictions on share transfers,
limitations on the holding of any class of shares or
any requirement for prior approval of any transfer
with the exception of certain officers and employees
who are required to seek prior approval to deal in
the shares of the Company and are prohibited from
any such dealing during certain periods under the
requirements of the UK Listing Rules and EU Market
Abuse Directive.
Colleagues who hold shares under the Premier
Foods plc SIP may instruct the trustee to vote on
their behalf in respect of any general meeting.
The directors were granted authority at the 2016
AGM to allot relevant securities representing
approximately one-third of the Company's issued
share capital. This authority will apply until the
conclusion of the 2017 AGM. A similar authority
will be sought from shareholders at the 2017 AGM.
The Company does not currently have authority to
purchase its own shares and no such authority is
being sought at the 2017 AGM.
Significant contracts – change
of control
The Company has various borrowing arrangements
including a revolving credit facility and senior
secured notes. These arrangements include
customary provisions that may require any
outstanding borrowings to be repaid and any
outstanding notes to be repurchased upon a
change of control of the Company. In addition,
the Cadbury licensing agreement also includes a
change of control provision, which could result in
the agreement being terminated or renegotiated if
the Company were to undergo a change of control
in certain limited circumstances.
The Company's executive and all-employee share
plans contain provisions as a result of which options
and awards may vest and become exercisable on
a change of control in accordance with the plan
rules. Details of directors service contracts and the
provisions relating to a change of control are set out
on page 39.
Articles of association
The Company’s Articles may only be amended by a
special resolution at a general meeting. The Articles
are available on our website. Subject to the provisions
of the statutes, the Company’s articles and any
directions given by special resolution the directors
may exercise all the powers of the Company.
Substantial shareholdings
Information provided to the Company pursuant to
the Financial Conduct Authority’s (FCA) disclosure
and Transparency Rules (DTRs) is published
on a Regulatory information Service and on the
Company’s website. As at 16 May 2017, the
Company has been notified of the following interests
of 3% or more in the Company:
Ordinary
shares
% of share
capital
Shareholder
Nissin Foods
Holdings Co., Ltd.
Oasis Management
Company Ltd1
Standard Life
Investments
(Holdings) Ltd
164,486,846
69,224,966
62,093,092
Paulson & Co. Inc.2
62,107,111
Brandes Investment
Partners, L.P.
Dimensional
Fund Advisors, L.P.
43,026,105
32,303,123
19.76
8.31
7.46
7.46
5.17
3.88
1. Held in the form of a total return swap.
2. 5.47% of which is held in the form of a total return swap.
NOTE: the information provided above was correct as at the date
of notification.
Powers of Directors
The powers of the directors are set out in the
Company's Articles of Association and may
be amended by way of a special resolution
of the Company.
Directors’ and officers’ liability
insurance
This insurance covers the directors and officers
against the costs of defending themselves in civil
proceedings taken against them in their capacity as
a director or officer of the Company and in respect of
damages resulting from the unsuccessful defence of
any proceedings.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 33
Access to external advice
Directors are allowed to take independent
professional advice in the course of their duties.
In addition, all directors have access to the advice
and services of the Company Secretary. If any
director were to have a concern over any unresolved
business issue following professional advice, they
are entitled to require the Company Secretary to
minute that concern. Should they later resign over
a concern, non-executive directors are asked to
provide a written statement to the Chairman for
circulation to the Board.
Greenhouse gas (GHG) emissions
reporting
The Companies Act 2006 (Strategic Report and
directors’ Reports) Regulations 2013 requires quoted
companies to report on environmental matters
to the extent it is necessary for an understanding
of the company’s business within their annual
report, including where appropriate the use of key
performance indicators (KPIs). In the table below we
have detailed our scope 1 & 2 GHG emissions for the
period 1 January 2015 to 31 December 2016 from
a 2011 baseline year. While the financial year end
of the Company has changed from 31 December,
the regulations permit environmental reporting
for a period outside of a company’s financial year.
The figures for both 2016 and 2015 include the
performance of Knighton Foods and the 2015
figures have been restated accordingly. The intensity
increases over the 2011 base year have arisen from
the divestment of low energy use/high production
tonnage sites, such as flour mills.
GHG
Emissions
Scope 1
Scope 2
Total annual
net emissions
Overall Intensity
(kgCO2e
per tonne of
product)
2016
2015
Base Year
(2011)
51,114.90
49,907.73
158,164.71
38,008.96
42,112.46
133,046.62
89,123.86
92,020.20
291,211.33
249.79
259.51
143.3
Methodology
Premier Foods’ GHG emissions were assessed and
calculated using internal data and emission factors
from Defra’s Conversion Factors for Company
Reporting 2016 for converting energy usage to
carbon dioxide equivalent (CO2(e)) emissions.
We have followed the methodology in the GHG
Protocol Corporate Accounting and Reporting
Standard (revised edition). The analysis has used an
operational control approach. This assessment takes
into account all of the emission sources required
under the Companies Act 2006. The emissions data
relates to all production sites within the control of the
Company during the period.
Employment of disabled persons
It’s our policy to give full and fair consideration to
applications for employment received from disabled
persons, having regard to their particular aptitudes
and abilities. Wherever possible we will continue the
employment of, and arrange appropriate training
for, employees who have become disabled persons
during the period of their employment. The Group
provides the same opportunities for training, career
development and promotion for disabled people as
for other colleagues.
Political donations
The Company's policy is not to make political
donations and no such donations were made in
the financial period.
Financial Risk Management
Details relating to financial risk management in relation
to the use of financial instruments by the Group can
be found in note 21 of the financial statements.
Going concern
The directors have a reasonable expectation that
the Company and Group have adequate resources
to continue in operational existence for the next
12 months and therefore continue to adopt the
going concern basis in preparing the consolidated
financial statements. Further information on the
basis of preparation is set out in note 2.1 on pages
62 and 63.
Viability Statement
In accordance with provision C2.2. of the 2014
revision of the Code, the directors have assessed
the prospect of the Company over a longer period
than the 12 months required by the 'Going Concern'
provision. The Board conducted this review for
a period of 3 years, which was selected for the
following reasons:
• The Group’s detailed strategic review covers a
three year period.
• The Group’s current financing arrangements are in
place for the next 3 years and pension deficit cash
contributions are largely fixed for this period.
The directors’ assessment has been made with
reference to the Group’s current position and
prospects, the Group’s strategy, the Board’s risk
appetite and the Group’s principal risks and how
these are managed, as detailed in the annual report.
The Group has reviewed its funding arrangements
and underlying financial models, including short
and long-term covenant and headroom positions. It
has concluded that it would take a significant profit
reduction to adversely impact funding availability.
Based on the risk profile of the organisation this
would require several high impact risks to materialise
at the same time with minimal mitigation in response,
which is considered very unlikely. Such an event
could also be mitigated by reducing Capex and /
or Consumer Marketing expenditure. The directors
therefore confirm that they have reasonable
expectation that the Group will continue to operate
and meet its liabilities as they fall due, for the next
three years.
Related parties
Details relating to related parties can be found in note
30 of the financial statements.
Post balance sheet events
Details relating to subsequent events can be found in
note 31 of the financial statements.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 34
GOVERNANCE
Other statutory information continued
Statement of directors’ responsibilities
in respect of the Annual Report and
the financial statements
The directors are responsible for preparing the
annual report and the Group and parent company
financial statements in accordance with applicable
law and regulations.
Company law requires the directors to prepare
Group and parent company financial statements
for each financial year. Under that law they are
required to prepare the Group financial statements
in accordance with IFRSs as adopted by the EU
and applicable law and have elected to prepare the
parent company financial statements in accordance
with UK Accounting Standards, including FRS 101
Reduced Disclosure Framework.
Under company law the directors must not approve
the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs
of the Group and parent company and of their profit
or loss for that period. In preparing each of the
Group and parent company financial statements,
the directors are required to:
• select suitable accounting policies and then apply
them consistently;
• make judgements and estimates that are
reasonable and prudent;
• for the Group financial statements, state whether
they have been prepared in accordance with
IFRSs as adopted by the EU;
• for the parent company financial statements, state
whether applicable UK Accounting Standards
have been followed, subject to any material
departures disclosed and explained in the parent
company financial statements; and
• prepare the financial statements on the going
concern basis unless it is inappropriate to
presume that the Group and the parent company
will continue in business.
The directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the parent company’s transactions and
disclose with reasonable accuracy at any time
the financial position of the parent company and
enable them to ensure that its financial statements
comply with the Companies Act 2006. They have
general responsibility for taking such steps as are
reasonably open to them to safeguard the assets
of the Group and to prevent and detect fraud and
other irregularities.
Under applicable law and regulations, the directors
are also responsible for preparing a Strategic Report,
Directors’ Report, Directors’ Remuneration Report
and Corporate Governance Statement that complies
with that law and those regulations.
The directors are responsible for the maintenance
and integrity of the corporate and financial
information included on the Company’s website.
Legislation in the UK governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibility statement of the
directors in respect of the annual
financial report
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance
with the applicable set of accounting standards,
give a true and fair view of the assets, liabilities,
financial position and profit or loss of the
Company and the undertakings included
in the consolidation taken as a whole; and
• the directors’ report includes a fair review
of the development and performance of the
business and the position of the issuer and the
undertakings included in the consolidation taken
as a whole, together with a description of the
principal risks and uncertainties that they face.
We consider the annual report and accounts, taken
as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders
to assess the Group’s position and performance,
business model and strategy.
Independent auditor
KPMG LLP (‘KPMG’) `have indicated their willingness
to be re-appointed as auditor of the Company.
Upon recommendation of the Audit Committee the
re-appointment of KPMG and the setting of their
remuneration will be proposed at the 2017 AGM.
Auditor and the disclosure of
information to the auditor
The Companies Act requires directors to provide
the Company’s auditor with every opportunity
to take whatever steps and undertake whatever
inspections they consider to be appropriate for the
purpose of enabling them to give their audit report.
The directors, having made appropriate enquiries,
confirm that:
• so far as the director is aware, there is no relevant
audit information of which the Company’s auditor
are unaware; and
• he/she has taken all the steps that he ought to
have taken as a director in order to make himself/
herself aware of any relevant audit information and
to establish that the Company’s auditor are aware
of that information.
The directors’ report was approved by the Board
on 16 May 2017 and signed on its behalf by:
Andrew McDonald
Company Secretary
Company.Secretary@premierfoods.co.uk
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 35
GOVERNANCE
Directors’ Remuneration report
Committee Chairman’s Letter
Dear shareholder,
On behalf of your Board, I am pleased to present
the Directors’ Remuneration report for the period
ended 1 April 2017.
Overview of remuneration strategy
The focus of our remuneration strategy is on rewarding
performance – the majority of executive remuneration
(approximately 70% at maximum) is variable and only
payable if demanding performance targets are met.
The performance measures are firmly linked to our
strategy and ultimately aligned with shareholders’
interests to deliver earnings growth and improved
shareholder value in the medium-term. The majority of
variable pay is payable in the form of shares.
Further information on how executive remuneration
links to our strategy is set out in the table on page 42.
2017 Remuneration Policy
The Committee's main focus over the year has
been to approve the Company's new Remuneration
Policy. During the design of the new policy, the
Committee consulted with the major shareholders.
As Chairman of the Committee, I wrote to the
Company's largest shareholders, the Investment
Association (IA) and Institutional Shareholder
Services (ISS) in order to update them on the
proposed changes and seek feedback.
The main principles applied to the review process
were to simplify remuneration arrangements, ensure
arrangements were in line with general market
practice and to retain flexibility to respond to future
requirements. No increases to overall quantum or
opportunity have been proposed and as a result there
are no material changes in remuneration arrangements.
Annual bonus plan
Structure
The current opportunity is 150% of salary for the
CEO of which 25% is paid in shares (not subject to
compulsory deferral) and a total of 105% of salary
for the CFO which comprises 75% of salary under
the annual bonus plan and 30% under the 2011
Deferred Share Bonus Plan ('DSBP') which is
subject to the same performance conditions as the
element under the annual bonus plan but deferred
for two years.
To simplify the bonus structure, it is proposed that
the annual bonus and DSBP are consolidated with
no change in quantum so that the annual bonus
opportunity is 150% of salary for the CEO and 105%
for the CFO.
Deferral
At the same time the Committee intends to introduce
bonus deferral for all executive directors, with not
less than 1/3rd of the total bonus awarded being
deferred into Premier Foods' shares for three years.
This will increase alignment between executive
directors and shareholders and will increase the
bonus payable in shares as a percentage of salary
for both CEO and CFO (which is currently 25% and
28.5%, respectively). In order to facilitate this deferral
the Company is seeking shareholder approval to
introduce a new Deferred Bonus Plan (DBP) at the
2017 AGM.
The deferred amount will be subject to recovery
provisions. Executive directors are required to
retain 50% of post-tax shares from the vesting of
LTIP awards until such time as their shareholding
guidelines have been met. Shares from the DBP will
be subject to the same retention requirement.
Long-Term Incentive Plan ('LTIP')
Structure
The current LTIP is comprised of performance
shares and matching shares. There have been
annual grants of performance shares under the
current plan, however, matching shares have not
been granted in recent years. Given matching shares
are minority practice, to simplify the structure and
align with market practice, matching shares will be
removed from the plan under the new policy.
In addition, to further align with best practice, a
two year post vesting holding period will apply and
current recovery provisions will be extended to
recovery and withholding provisions.
Executive shareholdings and external
directorships
Finally, the Company's guidelines on executive
directors' shareholdings and external directorships
have been incorporated into the Remuneration Policy.
Performance outcome for 2016/17
The Committee reviewed the CEO’s and CFO’s
performance over the financial period and assessed
the extent to which their annual bonus targets had
been achieved. Whilst significant progress was made
in respect of key Strategic and Personal objectives,
trading performance was below target. No bonus
awards have been made for the financial period,
details of the performance assessments are set out
on pages 43 to 45.
Arrangements for the coming period
Targets for the annual bonus and LTIP awards
for 2017/18 are aligned with the Group's strategic
priorities highlighted in the Chief Executive's review
on page 05.
As part of the Company's cost reduction programme
it was agreed that there would be no salary increase
for colleagues not involved in collective bargaining
for 2017/18 and consequently no salary increases are
proposed for the CEO and CFO. The CEO's salary
therefore remains unchanged since his appointment
in 2013.
I look forward to your continuing support.
Jennifer Laing
Remuneration Committee Chairman
16 May 2017
How the Remuneration report
is structured
• Directors’ Remuneration Policy 2017
(for approval by shareholders):
pages 36 to 41
• Remuneration of executive directors:
pages 42 to 49
• Other disclosures:
pages 50 to 51
• Remuneration of non-executive directors:
page 51
• Work of the Remuneration Committee:
page 52
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 36
GOVERNANCE
Directors’ Remuneration report continued
Remuneration Policy
Set out below is the Directors’ Remuneration Policy which, if approved, will apply from the close of the AGM on 20 July 2017. Total remuneration is made up of fixed
and performance-linked elements, with each element supporting different strategic objectives.
Link to strategy
Operation
Maximum opportunity
Performance measures
Base
salary
Provides an appropriate level
of fixed income.
Set at levels to attract and
retain talented individuals
with reference to the
Committee’s assessment of:
•
•
•
The specific needs of the
Group by reference to the
size and complexity of the
business, acknowledging
the Group is currently in a
turnaround situation;
The specific experience,
skills and responsibilities
of the individual; and
The market rates for
companies of comparable
size and complexity
and internal Company
relativities.
Help to recruit, retain and
promote the efficient use of
management time.
Benefits
Pension
To offer market competitive
levels of benefit and help
to recruit and retain and
to recognise long-term
commitment to the Group.
Normally reviewed annually (currently with
effect from 1 April) in conjunction with
those of the wider workforce.
Group performance is taken into consideration
when determining an appropriate level of base
salary increase for the Group as a whole and
personal performance is taken into account when
determining an appropriate level of base salary
increase for the executive.
Performance Period: N/A.
Salaries for the relevant year are detailed
in the Annual Report on Remuneration.
Whilst the Company does not have a
cap on salaries, increases are normally
expected to be in line with increases
across the management grades, subject
to particular circumstances such as a
significant change in role, responsibilities
or organisation. An explanation of
differences in remuneration policy for
executive directors compared with
other employees is set out later in this
Directors’ Remuneration Policy.
The Company typically provides the
following benefits:
• Company car or cash allowance. The
Company provides an executive driver
service, as and when appropriate,
to allow the CEO to work while
commuting to business appointments;
• Private health insurance;
• Life insurance;
• Telecommunication services;
• Professional memberships;
• Allowance for personal tax and
financial planning; and
• Other ancillary benefits, including
relocation expenses (as required).
Executive directors receive an allowance in
lieu of pension provision which is subject
to periodic review or may participate in
the Group’s defined contribution scheme
on the same basis as all other new
employees. Executive directors may also
salary sacrifice additional amounts into this
scheme but will not receive any additional
contribution from the Group. Only basic
pay is pensionable.
There is currently no maximum level,
however, the provision and level of
allowances and benefits are considered
appropriate and in line with market
practice.
N/A.
Performance Period: N/A.
N/A.
Performance Period: N/A.
The maximum contribution of allowance
for executive directors is 20% of basic
salary. The current level of contribution
or allowance for the current executive
directors is as follows:
• CEO: the allowance is 20% of basic
salary.
• CFO: the Company contributes 7.5%
of basic pay up to an Earnings Cap
(currently £150,600, but increasing each
April in line with the Retail Prices Index)
and pays a salary supplement (currently
£22,819, which increases each April in
line with the Retail Prices Index).
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 37
Link to strategy
Operation
Maximum opportunity
Performance measures
Annual
Bonus
Designed to incentivise
delivery of annual financial and
operational goals and directly
linked to delivery of the Group
strategy.
Long-Term
Incentive
Plan (LTIP)
The Premier Foods Long-
Term Incentive Plan ('LTIP')
provides a clear link to our
strategic goal of returning
to profitable growth with
sustainable share price
growth over the long-term.
Sharesave
Plan
To offer all employees
the opportunity to build a
shareholding in a simple and
tax-efficient manner.
Maximum (as a percentage of salary):
• CEO: 150%
• CFO: 105%
An annual bonus is earned based
on performance against a number of
performance measures which are linked to
the Group’s strategy. Maximum of 2/3rds
of the bonus is paid in cash and a minimum
of 1/3rd deferred into shares under the
Premier Foods Deferred Bonus Plan
('DBP') which are released after three years
subject to continued employment.
The rules of the DBP contain a dividend
equivalent provision enabling payments
to be made (in cash or shares) at the time
of vesting, in an amount equivalent to the
dividends that would have been paid on
the participant's vested shares between
the date of grant of the relevant award and
the date of vesting.
Recovery provisions apply for the cash and
share elements.
Annual grant of Performance Share
Awards.
Maximum individual limit of 200% of
salary.
Currently award levels are (as a
percentage of salary):
• CEO: 200%
• CFO: 150%
Performance conditions are designed to promote the
delivery of the Group’s strategy and can be made up
of a range of:
• Financial targets (e.g. turnover, trading profit and
cash flow) representing not less than 50% of the
total bonus opportunity, subject to the delivery of
a threshold level of trading profit;
• Short to medium-term strategic targets including
financial and non-financial Key Performance
Indicators, subject to the delivery of a threshold
level of profitability; and
• Personal performance representing not more
than 20% of the total bonus opportunity.
No more than 20% of the bonus will vest for
threshold performance with full vesting taking place
for equalling or exceeding the maximum target.
Specific details of the performance measures for
the relevant year can be found in the Annual Report
on Remuneration to the extent that they are not
commercially sensitive.
Performance Period: One year
Performance conditions are based on a range
of targets focused on the delivery of increased
shareholder value over the medium to long-term.
Currently these include a combination of total
shareholder return and adjusted earnings per share.
No more than 20% of the LTIP award will vest for
threshold performance with full vesting taking place
for equalling or exceeding the maximum target.
Performance Period: Three years
Holding Period: Two years (post vesting)
Performance Share Awards are the
conditional award of shares or nil cost
options which normally vest after three
years subject to performance conditions.
Awards under the LTIP, including the
determination of any relevant performance
conditions, will be considered and
determined on an annual basis at the
discretion of the Committee.
The rules contain a dividend equivalent
provision enabling payments to be made
(in cash or shares) at the time of vesting, in
an amount equivalent to the dividends that
would have been paid on the participant's
vested shares between the date of grant of
the relevant award and the date of vesting.
Recovery and withholding provisions apply
The Company’s Sharesave Plan is a
HMRC compliant scheme which is usually
offered annually to all employees. The key
terms of the plan will only be changed to
reflect HMRC changes.
Participants may save up to the statutory
limit (currently £500 per month but
subject to any lower limit set by the
Committee) over a three year period,
following which they have the opportunity
to buy Company shares at a price set at
the beginning of the savings period.
None, other than continued employment
Performance Period: Three years.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 38
GOVERNANCE
Directors’ Remuneration report continued
Link to strategy
Operation
Maximum opportunity
Performance measures
Shareholding
Guidelines
To align executives' interests
with shareholders.
Non-
executive
director fees
Provides an appropriate level
of fixed fee to recruit and
retain individuals with a broad
range of experience and skill
to support the Board in the
delivery of its duties.
Fees are reviewed annually.
Executive directors are expected to retain
50% of shares from vested awards under
the DBP and the LTIP (other than sales to
settle any tax or NICs due) until they reach
their guideline multiple of salary in shares.
The Committee will review progress
against the guidelines (which are set out
in the Annual Report on Remuneration)
on an annual basis.
The remuneration of non-executive
directors is determined by the Chairman
and executive directors. The remuneration
of the Chairman is determined by the
Remuneration Committee.
Includes a Chairman’s fee and standard
non-executive fee. Additional fees are
payable for additional responsibilities for
example the roles of Committee Chairs and
the Senior Independent Director.
Any reasonable business related expenses
(including tax thereon) which are determined
to be a taxable benefit can be reimbursed.
N/A.
N/A.
Performance Period: N/A.
N/A.
Performance Period: N/A.
Increases are normally expected to
be in line with the market, taking into
account increases across the Group
as a whole, subject to particular
circumstances such as a significant
change in role, responsibilities or
organisation.
The current aggregate maximum under
the Company's Articles of Association
for the Chairman and the non-
executive directors is £1,000,000.
1. Notes to the policy table
For the avoidance of doubt, in approving this Directors’
Remuneration policy, authority is given to the Company
to honour any commitments entered into with current
or former directors that have been disclosed to
shareholders in previous remuneration reports. Details
of any payments to former directors will be set out in
the Annual Report on Remuneration as they arise as
required under the Remuneration Regulations.
The Committee operates the Annual Bonus plan, DBP,
and LTIP according to their respective rules which
include flexibility in a number of areas. These include:
• the timing of awards and payments;
• the size of an award, within the maximum limits;
• the participants of the plan;
• the performance measures, targets and weightings
to be used for the annual bonus plan and long-term
incentive plans from year to year;
• the assessment of whether performance conditions
have been met;
• the treatment to be applied for a change of control
or significant restructuring of the Group;
• the determination of a good/bad leaver for
incentive plan purposes and the treatment of
awards thereof; and
• the adjustments, if any, required in certain
circumstances (e.g. rights issues, corporate
restructuring, corporate events and
special dividends).
Choice of performance measures and
approach to target setting
The Committee reviews the performance measures
used in the incentive arrangements on an annual basis
to ensure that they remain appropriate and aligned to
the delivery of the annual business plan and Group
strategy. The majority of annual bonus measures
will be focused on financial performance with the
remainder linked to individual performance and/or
strategic objectives. This approach is adopted in order
to link pay to the delivery of overall Group performance
measured across a balance of key strategic aims. The
targets will be set by reference to internal budgeting
and strategic plans for the financial and strategic
measures and key objectives identified by the
Committee for the personal performance measures.
Currently, the LTIP uses a combination of adjusted
earnings per share and total shareholder return based
measures to reflect both an internal measure of Group
performance as well as the delivery of shareholder
value. Targets are set taking into account both internal
and external assessments of future performance
and what constitutes good and superior returns for
shareholders. The Committee also retains the discretion
within the policy to adjust the targets and/or set different
measures and/or alter weightings for future awards.
In addition, the Committee also retains the discretion
within the policy to amend the existing performance
conditions for the incentive plans if events happen that
cause it to determine that the conditions are unable to
fulfil their original intended purpose.
The Committee will consider the bonus outcomes
against all of the pre-set targets following their
calculation and in exceptional circumstances
may moderate (up and down) these outcomes to
take account of a range of factors including the
Committee’s view of overall Group performance for
the year. No upward moderation would be undertaken
without first consulting with major shareholders.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 39
2. Remuneration scenarios & weighting
The chart below shows executive director remuneration at three different levels of performance (minimum, mid-point and maximum) as set out previously:
£3,312
42%
32%
26%
£2,087
34%
25%
41%
£862
100%
Footnotes:
1.
As the DBP is a portion of Annual Bonus it is included
within this segment.
2. The value of share awards does not include any
assumptions on share price movements.
3. The executive directors can participate in the
Sharesave Plan on the same basis as other employees.
For simplicity, the value that may be received from
participating in the Sharesave Plan has been excluded
from the scenario charts.
4. Assumptions when compiling the charts are:
Minimum = fixed pay only (base salary, benefits
and pension).
Mid-point = fixed pay plus 50% of Annual Bonus
payable and 50% of LTIP vesting.
Maximum = fixed pay plus 100% of Annual Bonus
payable and 100% of LTIP vesting
£985
31%
22%
47%
£465
100%
£1,505
41%
28%
31%
Minimum
£'000
Mid-point
£'000
Maximum
£'000
Minimum
£'000
Mid-point
£'000
Maximum
£'000
CEO
CFO
Fixed Pay
A nnual Bonus
LTIP
3. Service contracts
Executive directors have rolling service contracts. The current executive directors’ service contracts contain the key terms shown in the below table. In the event that
any additional executive directors are appointed, it is likely that their service contracts will contain broadly similar terms.
Provision
Remuneration
Change of Control
Notice Period
Payment in lieu of notice
Detailed terms
Salary, bonus, share incentives, expenses and pension entitlements in line with the above Directors’ Remuneration Policy Table.
The service agreements do not provide for any enhanced payments in the event of a change of control of the Company.
Standard notice periods are set at 12 months from the executive directors and Company.
The Company may, at its discretion, pay a sum equal to base salary, benefits, and pension contributions which would have been earned
during the Notice Period as payment in lieu of notice. This payment is payable in two six monthly instalments or until such earlier date
alternative employment is secured, subject to mitigation.
In the event of the Company serving notice within 12 months following a change of control then employment will terminate immediately and
the Company will make a payment in lieu of notice.
There is no entitlement to a pro rata bonus payment in lieu of notice.
The terms and conditions for the Chairman and non-executive directors are set out in their letters of appointment, which are available for inspection at the Company’s
registered office and will be available at the AGM, as are executive service contracts. The letters of appointment entitle the non-executive directors and the Chairman
to receive fees but do not have provisions on payment for early termination. The appointment of non-executive directors is for a fixed term of three years which
may be terminated by three months' notice from either party, with the exception of Tsunao Kijima and Daniel Wosner whose appointments are governed by the
Relationship Agreements with Nissin Foods Holdings Co., Ltd and Oasis Management Company Limited, respectively.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS
40
GOVERNANCE
Directors’ Remuneration report continued
4. External directorships
The Company recognises that its executive
directors may be invited to become non-executive
directors of companies outside the Company and
exposure to such non-executive duties can broaden
experience and knowledge, which would be of
benefit to the Company. Any external appointments
are subject to board approval (which would not
be given if the proposed appointment was with
a competing company, would lead to a material
conflict of interest or could have a detrimental effect
on a director’s performance).
5. Policy on payment for loss of office
The Committee aims to deal fairly with cases of
termination, while attempting to limit compensation
and honour contractual remuneration entitlements.
The principles that would be followed are:
• The executive directors have rolling contracts with
12 months’ notice periods.
• The Company may elect to terminate employment
immediately in circumstances where it considers
it to be appropriate by making a payment in lieu
of notice equivalent to the executive director’s
salary, pension and benefits for the notice period
in two equal instalments (the first within 28 days of
termination and the second six months following
the date of termination). These payments are
subject to the executive director’s duty to mitigate
his loss by finding alternative employment. If the
executive director finds an alternative position,
future payments will be reduced by the amount of
remuneration received by the executive director
pursuant to that alternative remunerated position.
• Salary, pensions and benefits will generally not
be paid to a 'bad leaver' in lieu of notice. The
Company may terminate an executive director’s
employment without notice (or payment in lieu) in
certain circumstances including where he commits
an act of dishonesty, is guilty of gross misconduct
or a serious breach of his service agreement.
• A time pro-rated bonus (where relevant in respect
of that bonus year) may be payable (and for the
current CEO will be payable) for the period of
active service from the start of the bonus year
to the date on which the director’s employment
terminates for ‘good leavers’. Any unpaid bonus
for the preceding completed bonus year may
also be payable (and for the current CEO will be
payable) to a ‘good leaver’. The amount of such
bonus will be determined at the discretion of the
Committee taking into account performance.
Any bonus payable could at the discretion of
the Remuneration Committee, be paid entirely
in cash. There is no entitlement to any bonus
(in respect of that or any previous bonus year)
following notice of termination (or cessation of
employment) for ‘bad leavers’ and they will not
receive any bonus in such circumstances.
• Any share-based entitlements granted to an
executive director under the Company’s share
plans will be determined based on the relevant
plan rules or award agreement. The default
treatment is that any outstanding awards lapse
on cessation of employment. However, in certain
prescribed circumstances, such as death,
disability, injury, redundancy (not in respect of
the DBP), transfer of the employing company or
business out of the Group or other circumstances
at the discretion of the Committee (taking into
account the individual’s performance and the
reasons for their departure) ‘good leaver’ status
can be applied. The ‘good leaver’ treatment under
the various plans is as follows:
– DBP and LTIP awards will vest on the normal
vesting date (unless the Remuneration
Committee decides that the awards should
vest on the date of cessation) subject to,
in the case of LTIP awards, performance
conditions (measured over the original time
period or a shorter period where the LTIP
awards vest on cessation of employment) and
are reduced pro-rata to reflect the proportion
of the period from grant actually served. The
Remuneration Committee has the discretion
to disapply time pro-rating if it considers it
appropriate to do so. However, it is envisaged
that this would only be applied in exceptional
circumstances. In determining whether an
executive should be treated as a ‘good leaver’
or not, the Committee will take into account the
performance of the individual and the reasons
for their departure.
– The Company may enable the provision of
outplacement services to a departing executive
director, where appropriate.
– Where it is necessary to discharge an existing
legal obligation (or by way of damages for
breach of such an obligation) or by way of
settlement or compromise of any claim arising
in connection with the termination of a director’s
office or employment the Committee may make
a payment to a departing executive director.
– In the event of change of control of the
Company, if the Company gives notice
to terminate or the executive director is
constructively dismissed, his employment shall
terminate immediately and he will be entitled
to a payment in lieu of notice equivalent to the
executive director’s salary, pension and benefits
for the 12 month notice period. Any share based
entitlements will be dealt with in accordance
with the rules of the relevant schemes.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 41
6. Recruitment policy
On the recruitment of an executive director the Committee will aim to align the executive’s remuneration package with the approved Directors’ Remuneration Policy.
In arriving at a remuneration package the Committee will take into account the skills and experience of the individual and the market rate for a candidate. The details
of the recruitment policy are set out below:
Reward Element
Detailed terms
Base Salary
In line with the above Directors’ Remuneration Policy table. However, includes discretion to pay lower base salary with incremental increases as new
appointee becomes established in the role.
Pension and benefits
In line with the above Directors’ Remuneration Policy table.
Performance based pay
Buy Outs
Footnotes:
Executive directors are entitled to participate in the Company’s Annual Bonus, DBP and Long-Term Incentive Plans in line with the above Directors’
Remuneration Policy table. The maximum variable pay for the CEO will be 350% of the base salary and 255% of base salary for the CFO and other
directors. In its discretion the Committee may set different performance measures to apply to awards made in year of appointment if it considers that to
be appropriate.
In order to facilitate external recruitment of executive directors, it may be necessary for the Committee to consider buying out existing incentive awards
which would be forfeited on the individual leaving their current employment. The Committee would seek, where possible, to provide a buy-out structure
which was consistent with the forfeited awards in terms of quantum, vesting period and performance conditions.
The buy out award may necessitate the use of the flexibility in the Listing Rules to make such awards outside the existing LTIP.
1. Should an executive appointment be made for an internal candidate, such an individual would be allowed to retain any and all provisions of their current remuneration package.
2. The Committee has discretion to authorise the payment of reasonable relocation costs (and tax thereon) which may be necessary to secure the appointment of an executive director.
7. Consideration of employees/wider Group
In line with current market practice, the Group does not actively consult with employees on executive remuneration. However, the Committee is kept updated during
the year on salary increases within the Group, and the level of annual bonus awards, as well as overseeing participation in long-term incentives for below Board
level senior management. As a result, the Committee is aware of how typical employee total remuneration compares to the potential total remuneration packages of
executive directors. The Group HR Director is a regular attendee at meetings of the Remuneration Committee and is able to brief the Committee on meetings which
have been held with employee representative bodies.
Differences in Remuneration Policy for executive directors compared to other employees
The executive directors’ remuneration policy is set within the wider context of the Group's remuneration policy for the wider workforce. The key differences of
quantum and structure in pay arrangements across the Group reflect the different levels of responsibilities, skill and experience required for the role. Executive
directors have a much greater emphasis on performance based pay through the annual bonus and the LTIP. Salaries for management grades are normally
reviewed annually (currently in April each year) and take account of both business and personal performance. Specific arrangements are in place at each site and
these may be annual arrangements or form part of a longer term arrangement linked to the delivery of efficiency targets.
The majority of management grades participate in the Annual Bonus plan to ensure alignment with the Group’s strategic priorities. Senior management participate in
long-term incentive arrangements reflecting their contribution to Group performance and enhancing shareholder value. All employees are encouraged to own shares
in the Company via the Sharesave Plan and executive directors through the shareholding guideline.
8. Consideration of shareholders’ views
The Remuneration Committee and the Board considers shareholder feedback received in relation to the AGM each year at a meeting immediately following the AGM
and any action required is incorporated into the Remuneration Committee’s action plan for the ensuing period. This, and any additional feedback received from
shareholders from time to time, is then considered by the Committee and as part of their annual review of remuneration arrangements.
Specific engagement with major shareholders may be undertaken when a significant change in remuneration policy is proposed or if a specific item of remuneration
is considered to be potentially contentious. During the design of the new policy, the Committee consulted with the major shareholders.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 42
GOVERNANCE
Directors’ Remuneration report continued
Annual Report on Remuneration
An advisory vote on this Annual Report on Remuneration will be put to shareholders at the AGM on 20 July 2017.
Single figure table for total remuneration (audited)
Single figure for the total remuneration received by each executive director for the periods ended 1 April 2017 (2016/17) and 2 April 2016 (2015/16).
Salary
Taxable Benefits
Pension
Annual bonus
Share based awards
Total
Directors
Gavin Darby
Alastair Murray
2016/17
£’000
2015/16
£’000
2016/17
£’000
2015/16
£’000
2016/17
£’000
2015/16
£’000
2016/17
£’000
2015/16
£’000
2016/17
£’000
2015/16
£’000
2016/17
£’000
2015/16
£’000
700
408
700
404
22
23
19
20
140
34
140
34
–
–
599
245
–
–
293
–
862
465
1,751
703
Benefits include those mentioned in the summary table in the Directors’ Remuneration Policy report on page 36.
Gavin Darby received a basic salary for the period of £700,000 per annum and a salary supplement in lieu of pension of 20% of base salary.
Alastair Murray received a basic salary for the period of £408,040 per annum and an annualised salary supplement in lieu of pension of 7.5% of the Earnings Cap
(£150,600 for the 2016/17 tax year) which equates to £11,295 for the period together with an additional RPI adjusted pensions supplement of £22,819 in respect of
the financial period.
No bonus award has been made to executive directors in respect of the financial year, details of the performance assessments are set out on pages 43 to 45.
How remuneration links with strategy
The following table summarises the performance measures for executive incentive arrangements and how they are aligned with our strategy (see our business model
and strategy on pages 04 to 06).
Strategic priority
Objective
Measures for 2017/18
Incentive scheme
Driving revenue growth, international
opportunities and strategic
partnerships.
Improving organisational efficiency
and lowering our cost base/
Maintaining strong cash flow
generation.
Deleveraging the business to below
3.0x Net debt/EBITDA to deliver
improved shareholder value over the
medium-term.
Profitable growth/ increase in earnings
Trading profit
Strategic objectives focused on
commercial opportunities
Annual Bonus
Annual Bonus
Debt reduction
Net debt & cash management
Annual Bonus
Adjusted EPS
Long-Term Incentive Plan
Share price growth
Relative TSR
Long-Term Incentive Plan
Being responsible and sustainable.
Development of key stakeholder relationships Personal objectives focused on building
Annual Bonus
stakeholder relationships
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 43
Base salary and fees (executive directors) (audited)
The Committee sets base salary by reference to the size and complexity of the business based on factors such as revenue, market share, and total enterprise value
rather than just market capitalisation, which can be volatile as a result of the Group’s capital structure. Given the challenges facing the business in 2013, the Board
felt it was important to appoint a CEO and CFO with significant experience to lead the Company through a period of significant change and consequently their
salaries were set at the upper quartile for the FTSE 250. The business turnaround has involved the establishment of a joint venture for the Hovis bread business
and the completion of a successful restructuring of our financial structure with the introduction of a new smaller lending group, an equity raise, the diversification of
funding through a high yield bond and also the completion of a new agreement with the Group’s pension trustees. In addition a new senior management team has
been brought in to lead the business. The Committee is mindful of these salaries when considering pay increases and elements of variable pay which are based on
multiples of salary.
In line with the salary increase to all employees not involved in collective bargaining the Committee approved a 1% salary increase for the CEO and CFO in 2016/17
(which took effect from 1 April 2016). Gavin Darby elected not to take a salary increase and therefore his salary remained unchanged from his appointment in 2013. As
part of the Company's cost reduction programme it was agreed that there would be no salary increase for employees not involved in collective bargaining for 2017/18.
Executive director
Gavin Darby
Alastair Murray
1 April 2017
£700,000
£408,040
Change
2 April 2016
Change
4 April 2015
–
–
£700,000
£408,040
–
+1%
£700,000
£404,000
Annual Bonus (executive directors) (audited)
Each year the Committee sets individual performance targets and bonus potentials for each of the executive directors. Annually the Committee reviews the level
of achievement against the performance targets set and, based on the Committee’s judgement, approves the bonus of each executive director. Annual bonus
payments are not pensionable.
Performance assessment for 2016/17
The Committee undertook a full and detailed review of the performance of each executive director against the targets set at the start of the period. As well as the specific
targets, the Committee also considered the financial performance of the business as a whole as well as an assessment of the market in which the Company operates.
As discussed in the Chairman's statement on page 03 the Company results for the period were below expectation due largely to a change in retailer promotional
strategy which reduced category volumes, and significant input cost inflation. As a result Trading profit was below both our target level of profit and the financial
underpin for the Annual Bonus plan. The additional financial measures of revenue growth and Net debt were also adversely effected. The Committee reviewed
performance against each of the Strategic targets (also subject to a financial underpin) and the extent to which they were achieved. The Committee agreed that whilst
significant progress had been made in the period in respect of Strategic measures the financial underpin had not been achieved and therefore no bonus was payable.
The Remuneration Committee agreed that both executive directors had achieved a significant proportion of their Personal objectives. As these are not financially
underpinned, a bonus equivalent to 12.6% of maximum opportunity for the CEO, and 11.5% for the CFO, could have been paid. However the Remuneration
Committee, together with both the CEO and CFO, have agreed that there will be no bonus payment in relation to the Personal objectives for 2016/17.
The Financial targets and performance assessment for Strategic and Personal targets are set out in the tables on pages 44 and 45 for information. Individual
weightings have been provided for each Strategic objective.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 44
GOVERNANCE
Directors’ Remuneration report continued
Gavin Darby (audited)
Performance
measure
Target
Stretch
Performance
outcome
Financial objectives (subject to Trading profit underpin of £131.0m)
Trading profit
Sales growth
£134m
2%
£136.2m
4%
£117.0m
-1.4%
Performance
measure
Performance outcome
Annual Bonus
Performance
(% of max
bonus)
Weighting
40%
10%
50%
–
–
–
Performance
(% of max
bonus)
Weighting
Short to medium-term Strategic objectives (subject to Trading profit underpin of £131m)
Commercial growth
opportunities
The Committee determined that the commercial project was close to completion but as negotiations had yet to be finalised it
would be fully assessed next year.
10.0%
–
Creation of strategic relationship board with Nissin. Growth opportunities starting to be delivered with the launch of new
Batchelors Super Noodles in a pot and the addition of Soba noodles distribution in the UK, as well as the establishment
of a US broker agreement.
Strong +18% growth of International business.
Shareholder value
Knighton Foods business integrated and stabilised.
Recovery of trading performance and EBITDA at the Hovis joint venture. New three year plan approved with financing in place.
Corporate
Development
Good progress noted, with strategic options sent to the Board. Following review it had been agreed not to progress with the
project.
Personal objectives
Customer
relationships
Strong development of relationships with major customers through direct engagement of the CEO. Progress recognised through
the enhanced score achieved in the 2016 Grocery Advantage Survey results.
Diversity strategy
Introduction of new Equality & Diversity action plan which was approved by the Board in March 2017.
Stakeholder
engagement
Leading role with Food and Drink Federation (FDF) culminating in election as President in 2017. Award of President’s Cup from
the Institute of Grocery Distribution (IGD) in October 2016. Pro-actively launched the Group’s 10 point plan to encourage healthy
eating in advance of the government’s Childhood Obesity Plan.
8.0%
4.0%
4.0%
2.3%
5.0%
33.3%
6.5%
4.0%
2.0%
1.0%
2.0%
–
Final outcome
16.7%
100%
12.6%
–
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 45
Annual Bonus
Performance
(% of max
bonus)
Weighting
30%
20%
50%
–
–
–
Performance
(% of max
bonus)
Weighting
4.0%
8.0%
3.3%
4.0%
7.0%
7.0%
33.3%
3.0%
–
3.3%
–
7.0%
3.0%
–
Alastair Murray (audited)
Performance
measure
Target
Stretch
Performance
outcome
Financial objectives (subject to Trading profit underpin of £131.0m)
Trading profit
Net debt
£134m
£510.9m
£136.2m
£499.0m
£117.0m
£523.0m
Performance
measure
Performance outcome
Short to medium-term Strategic objectives (subject to Trading profit underpin of £131m)
Commercial
Knighton Foods business integrated and stabilised; development of three year plan and financing in place.
The Committee agreed that certain commercial projects had progressed well but remained ongoing.
Cost and efficiency
Completion of major restructuring of the Group's warehousing and distribution network which exceeded cost savings objectives.
Pensions
Corporate
Development
Personal objectives
Shared service centre
and operational
efficiency
Discussions in regard to financial synergies with Nissin ongoing with senior management.
2016 Actuarial Valuation completed, new amended Framework Agreement signed with revised schedule of contributions which
significantly reduce the Group’s cash outflows over the next three years.
Good progress noted, with strategic options sent to the Board. Following review it was agreed not to progress with the project.
The Committee reviewed progress against a number of efficiency KPIs and it was agreed that 4 out of 6 had been successfully
delivered in the period.
Improvement in focus on resolving priority internal audit issues.
Investor relations
Strong engagement with shareholders and a successful capital markets day. However, overall the objective had not been
achieved.
Business systems
Successful completion of business systems integration with delivery of agreed annual savings. Improvements in ways of working
have delivered a significant reduction in major system issues across the Group.
Final outcome
16.7%
100%
11.5%
–
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS
46
GOVERNANCE
Directors’ Remuneration report continued
Annual bonus measures for 2017/18
The Committee has determined that the weightings for the annual bonus performance measures will remain broadly the same as last year split between Financial, Strategic
and Personal objectives representing 50%, 35% and 15% of opportunity, respectively.
The performance measures are linked to the Group's strategy to focus on revenue growth, cost efficiency and cash generation with the aim to deleverage the business.
Trading profit and Net debt are both Group KPIs (see page 08). Strategic objectives are focused on commercial opportunities to drive sales, generate cost savings and
improve free cash flow. The Board considers the Financial targets and certain of the Strategic and Personal objectives to be commercially sensitive but has agreed that the
targets will be disclosed as part of the performance assessment in next year’s annual report. The Financial and Strategic targets contain a Trading profit underpin.
If the Company's new Remuneration Policy and the Deferred Bonus Plan (DBP) are approved by shareholders in July 2017, 1/3rd of any annual bonus awarded in respect of
the 2017/18 financial year will be deferred in shares for 3 years under the new DBP.
Maximum opportunity as a % of salary
Performance measure
Financial objectives (subject to a Trading profit underpin)
Trading profit
Net debt
Short to medium-term Strategic objectives (subject to a Trading profit underpin)
CEO
• Delivery of incremental growth and value creation initiatives through relationships with our strategic partners.
• Corporate development opportunities.
CFO
• Corporate development opportunities.
• Delivery of incremental growth and value creation initiatives.
• Strategic cash flow and efficiency opportunities.
• Review of pension risk management.
Personal objectives
CEO
Organisational development/ Customer relationships/ Stakeholder management
CFO
Delivery of cost efficiency KPIs/ Improved efficiency within audit and control/ IT transition project
CEO
150%
CFO
105%
Weighting
Weighting
40%
10%
50%
35%
15%
30%
20%
50%
35%
15%
100%
100%
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 47
Long-Term Incentive Plan (LTIP)
The current LTIP was approved by shareholders in 2011; awards have two
elements, performance shares and matching shares. The Committee reviewed
the use of the matching shares element of the LTIP and it was concluded
that matching shares were no longer common practice in the market and
it is therefore proposed that this element of the LTIP be removed from the
Remuneration Policy going forward.
LTIP award for 2016/17 (audited)
Details of the LTIP award granted on 3 June 2016 are set out below.
Basis of award
award date
period
Value on
Performance
Gavin Darby
Alastair Murray
200%
150%
£1,400,000
03.04.16 – 31.03.19
£612,000
03.04.16 – 31.03.19
Targets
Performance measure
Weighting
Below
threshold
Threshold
Stretch
Relative TSR1
Adjusted EPS2
% of relevant portion
of award vesting3
2/3
1/3
< Median
Median
Upper quartile
< 9.2p
9.2p
10.2p
0%
20%
100%
1.
Measured against the constituents of the FTSE All Share Index (excluding investment trusts) around the
start of the period.
Deferred Share Bonus Plan (DSBP)
Alastair Murray participated in the DSBP which operated alongside the Annual
Bonus plan with a maximum opportunity of 30% of salary. The CEO does not
participate in the DSBP. Awards can be based on the achievement of a range of
Company-wide financial and strategic targets which are set at the start of each
financial period. If the objective is met, the bonus earned will be converted into
shares following the announcement of the results for the financial period and
deferred for a period of up to two years. These shares are subject to forfeiture over
the period of deferral and the shares for these awards are sourced in the market.
As set out in the Chairman's letter on page 35 in order to simplify remuneration
arrangements it is proposed that Alastair Murray's entitlement under the DSBP
is combined with his annual bonus going forward and therefore, if the new
Remuneration Policy is approved by shareholders in July 2017 no further
awards will be made under this plan.
DSBP award for 2016/17 (audited)
For the 2016/17 award, the Committee determined that the performance
targets for the DSBP would be aligned with those of the Annual Bonus plan
(excluding personal objectives). The two performance conditions were split
50:50 between Financial and Strategic measures subject to a Trading profit
underpin. As set out in the assessment of the 2016/17 annual bonus on page
43 the underpin was not met and consequently no award will be made under
the DSBP in respect of 2016/17.
CFO
30%
Deferred Share Bonus Plan
Maximum opportunity as a % of salary
Performance Measures (subject to
a Trading profit underpin of £131.0m)
Financial
Short to medium-term strategic objectives
Weighting
Outcome
3. Straight line vesting between threshold and stretch.
2. 2015/16 base year EPS was 8.3p.
50%
50%
100%
–
–
–
LTIP award for 2017/18
For the 2017/18 award the Committee proposes to use the same measures as
the 2016/17 LTIP award, i.e. a relative TSR condition (comprising 2/3rds of the
award) and an adjusted EPS condition (comprising 1/3rd of the award), which
is aligned with the Company’s focus on revenue, cost efficiency and cash
generation in order to reduce net debt and improve shareholder return over the
medium-term. The Committee believes that these measures are fully aligned
with the interests of shareholders and that awards will only vest following the
achievement of stretching performance targets.
The TSR condition requires at least a median ranking to be achieved for 20%
of this part of the award to vest, with full vesting taking place for an upper
quartile ranking against the constituents of the FTSE All Share Index (excluding
investment trusts). The Committee considers that the FTSE All Share Index is
an appropriate index to use as it includes a wide range of companies, including
the members of the FTSE Small Cap Index. The Compound Annual Growth
Rate (CAGR) for the adjusted EPS target ranges from 2.7% to 6.5%. The
Committee considers the targets to be challenging, particularly in the context of
current growth levels in the markets in which we operate. Further details of all
outstanding LTIP awards are provided in the table on page 49.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 48
GOVERNANCE
Directors’ Remuneration report continued
LTIP award for 2017/18 continued
Basis of award
award date
Value on
Performance
period
Gavin Darby
Alastair Murray
200%
150%
£1,400,000
03.04.17 – 31.03.20
£612,000
03.04.17 – 31.03.20
Targets
Performance measure
Weighting
Below
threshold
Threshold
Stretch
Relative TSR1
Adjusted EPS2
2/3
1/3
< Median
Median
Upper quartile
< 7.8p
7.8p
8.7p
% of relevant portion of
award vesting3
0%
20%
100%
Dilution limits
Awards under certain executive and all-employee share plans may be satisfied
using either newly issued shares or shares purchased in the market and held in
the Group’s Employment Benefit Trust (which held 250,420 shares as at 1 April
2017). The Group complies with the Investment Association guidelines in respect
of the dilutive effect of newly issued shares. The current dilutive impact of share
awards over a 10 year period is approximately 1%.
Pension payments
The table below provides details of the executive directors’ pension benefits:
Total
contributions
to DC-type
pension plan
£’000
Cash
in lieu of
contributions
to DC-type
pension plan
£’000
–
11
140
23
1. Measured against the constituents of the FTSE All Share Index (excluding investment trusts) around the
start of the period.
2. 2016/17 base year adjusted EPS was 7.2p.
3. Straight line vesting between threshold and stretch.
Gavin Darby
Alastair Murray
Executive directors have the right to participate in the Group’s defined
contribution (‘DC’) pension plan or elect to be paid some or all of their
contributions in cash. Gavin Darby is paid a cash contribution of 20% of salary
whilst Alastair Murray participates in the Group’s DC pension scheme and
receives a cash supplement.
Anticipated vesting of 2014 LTIP Award
The performance conditions for the 2014 LTIP award were based on a relative
TSR condition (comprising 2/3rds of the award) and an adjusted EPS condition
(comprising 1/3rd of the award). The Committee assessed the two performance
conditions in May 2017 and concluded that the targets had not been met and
consequently the 2014 LTIP award has lapsed in full.
Co-Investment Award
The Co-Investment Award, which was specific to Gavin Darby, was awarded
following his appointment as CEO in 2013 and designed to align the CEO with
shareholders and the delivery of share price growth. On appointment Gavin
Darby purchased shares worth 100% of annual base salary in the Company.
In return the Company made an award of shares worth 200% of salary which
vested in thirds on 1 May 2014, 2015 and 2016. The vesting of each tranche of
the award was subject to a bonus having been paid for the relevant financial year
and continued employment. The final tranche of the Co-Investment Award vested
on 1 May 2016 and Gavin Darby exercised the award on 5 August 2016. 354,062
shares were sold at 51.375p to cover tax and employee national insurance with
the remaining shares being retained. The final tranche of his Co-Investment
Award was included in the single figure table for the period 2015/16, details of
which are set out on page 42.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 49
Share ownership guidelines and share interest table (audited)
To align executive directors’ interests with those of shareholders they are expected to retain 50% of shares from vested awards under the DSBP and the LTIP (other
than sales to settle any tax or NICs due) until they reach a value at least equal to their annual salary (valued at the time of purchase or vesting). The following table
shows executive directors’ interests in Company shares. Awards under the LTIP are subject to a three year vesting period and will only vest if stretching performance
conditions are met. The figures shown represent the maximum number of shares a director could receive following the end of the vesting period if all performance
targets were achieved in full.
Gavin Darby
Alastair Murray
Shares owned
as at 1 April
Shares owned
as at 2 April
2017
5,213,336
309,522
2016
4,153,526
309,522
Extent to which
share ownership
guidelines met
Unvested share
interests under
the LTIP
Unvested share
interests under the
DSBP
449%
61%
9,217,341
4,349,253
–
157,560
Sharesave Plan
38,350
24,732
Total
14,469,027
4,841,067
Executive share awards
Date of grant
Balance as
at 2 April
2016
Shares
awarded in
the year
Shares
exercised in
the year
Shares
lapsed in
the year
Balance as
at 1 April
2017
Option
price
Share price
on date of
grant
Share price
on date of
exercise
Exercise
period/
vesting date
Gavin Darby
Co-Investment
Award
LTIP1
Sharesave Plan2
Alastair Murray
LTIP1
DSBP
Sharesave Plan2
22.02.13
22.02.13
25.06.14
11.06.15
03.06.16
11.10.13
26.09.14
15.12.15
20.12.16
25.06.14
11.06.15
03.06.16
03.06.16
15.12.15
20.12.16
751,814
2,255,442
2,629,107
3,294,117
–
–
–
–
–
3,294,117
3,214
10,404
16,906
–
–
–
–
7,826
751,814
–
–
–
–
–
–
–
–
–
2,255,442
–
–
–
–
–
–
–
–
–
2,629,107
3,294,117
3,294,117
3,214
10,404
16,906
7,826
8,961,004
3,301,943
751,814
2,255,442
9,255,691
1,126,760
1,782,352
–
–
16,906
–
–
–
1,440,141
157,560
–
7,826
2,926,018
1,782,352
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,126,760
1,782,352
1,440,141
157,560
16,906
7,826
4,531,545
–
–
–
–
–
72.79p
34.60p
31.94p
34.50p
–
–
–
-
31.94p
34.50p
62.07p
62.07p
53.25p
42.50p
42.50p
–
–
–
–
53.25p
42.50p
42.50p
42.50p
–
–
51.37p
–
–
–
–
–
–
–
–
–
–
–
–
–
–
01.05.16
31.03.16
31.03.17
31.03.18
31.03.19
01.12.16
01.12.17
01.02.19
01.02.20
31.03.17
31.03.18
31.03.19
02.06.18
01.02.19
01.02.20
1. All LTIP awards are in the form of performance shares. Details of the vesting of the 2014 LTIP Award are set out on page 48.
2. The Sharesave Plan is an HMRC tax advantaged scheme under which option prices for awards may be set at up to a 20% discount to the market value of shares immediately prior to the date the offer is made.
Executive directors are eligible to participate in the Group’s Sharesave Plan on the same basis as all other eligible employees.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 50
GOVERNANCE
Directors’ Remuneration report continued
Share ownership for the wider Group
The Committee recognises the importance of aligning colleagues across the
business with those of shareholders and encourages share ownership in order
to increase focus on the delivery of shareholder return. All members of the ELT
participate in the LTIP. In 2014 all colleagues (excluding the ELT) were given
an award of 500 free shares under the Share Incentive Plan and each year
colleagues are invited to join the Company’s all employee Sharesave Plan.
Participation in the Sharesave Plan currently represents 30% of the workforce.
Total shareholder return
The market price of a share in the Company on 31 March 2017 (the last trading
day before the end of the financial period) was 44.0 pence; the range during the
financial period was 37.0 pence to 59.50 pence.
This graph shows the value, by 1 April 2017, of £100 invested in Premier Foods
plc on 31 December 2008, compared with the value of £100 invested in the FTSE
Food Producers Index and FTSE All Share Index (excluding Investment Trusts)
on the same date. The Committee considers these to be the most appropriate
comparator indices to assess the performance of the Group. The other points
plotted are the values at intervening financial year-ends.
)
d
e
s
a
b
e
r
(
)
£
(
e
u
l
a
V
300
250
200
100
100
50
0
Chief Executive’s single figure for total remuneration
The table below shows the single figure for total remuneration and the annual
bonus and LTIP vesting as a percentage of maximum opportunity for the
financial period and the previous seven financial periods. The figures for
2014/15 represents a 15 month period.
Single Figure
for total
remuneration
Annual
bonus as
a % of
maximum
LTIP vesting
as a % of
maximum
CEO
Gavin Darby1
£862,455
–
Gavin Darby
Gavin Darby
Gavin Darby
Michael Clarke
Michael Clarke
Michael Clarke
Robert Schofield
Robert Schofield
£1,750,933
£1,736,749
£1,405,753
£1,122,795
£1,699,575
£2,277,070
£895,485
£715,052
Robert Schofield
£929,967
57.0%
23.4%
16%
–
66%
–
–
10%
29%
–
–
–
–
–
–
–
–
–
–
Year
2016/17
2015/16
2014/15
2013
2012
2011
2010
2009
1. Details of the single figure for total remuneration are set out on page 42.
Percentage change in CEO pay
For the purpose of this table pay is defined as salary, benefits and annual bonus.
There has been no increase to the CEO’s salary since his appointment in 2013.
The average pay of management grades (approximately 400 employees) is used
for the purposes of comparison as they are members of the Group’s Annual
Bonus plan. No bonus was paid to the CEO in 2016/17.
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Apr 15
Apr 16
Apr 17
Premier foods
FTSE Food Producers Index
Source: Datastream (Thomson Reuters)
FTSE All Share Index
(excluding Investment
Trusts)
Base salary
Benefits
Annual bonus
CEO
Management grades
% Change
2016/17
% Change
2015/16
% Change
2016/17
% Change
2015/16
–
+16%
–100%
–
–23%
+144%
–
–
+1%
–
–23%
+160%
Premier Foods plc Annual report for the 52 week period ended 1 April 2017
51
Non-executive directors’ terms of appointment
All non-executive directors have entered into letters of appointment/amendment
as detailed in the table below. The appointments are subject to the provisions of
the Companies Act 2006 and the Company’s Articles. Terms of appointment are
normally for three years or the date of the AGM immediately preceding the third
anniversary of appointment. Non-executive directors’ continued appointments
are evaluated annually, based on their contributions and satisfactory
performance. Following the expiry of a term of appointment, non-executives may
be re-appointed for a further three year period. Mr Kijima's and Mr Wosner's
appointments are governed by the terms of the Relationship Agreements with
Nissin and Oasis, respectively.
Date of original
appointment
22 January 2008
6 January 2015
21 July 2016
1 November 2012
1 October 2012
7 May 2013
1 March 2017
Expiry of current
appointment/
amendment
letter
Notice period
AGM 2017
AGM 2017
–
AGM 2018
AGM 2018
AGM 2016
AGM 2019
3 months
3 months
–
3 months
3 months
3 months
–
Relative importance of spend on pay
The following table sets out the amounts and percentage change in total employee
costs. The terms of our current banking facility contain restrictions on the payment
of dividends. Free cash flow and Net debt have therefore been included as
additional indicators. Cash flow demonstrates the cash available to reinvest in the
business and service debt payments and net debt highlights the importance of
organically deleveraging the business to a point at which dividend payments can be
resumed under the Group’s banking arrangements (see KPIs on pages 08 and 09).
Total employee costs
Free cash flow
Net debt
2016/17
2015/16
Change
£157.9m
£147.6m
£15.1m
£55.7m
£523.2m
£534.2m
+7.0%
-72.9%
-2.1%
Non-executive directors (audited)
Single figure for the total remuneration received by each non-executive director
for the financial periods ended 1 April 2017 and 2 April 2016.
Basic Fee
Committee
Chair Fee
SID Fee
Total Fees
2016/17
Total Fees
2015/16
David Beever
£265,000
Richard Hodgson
£57,000
Tsunao Kijima1
–
–
–
–
–
–
–
£265,000
£265,000
£57,000
£57,000
–
–
NED
David Beever
Richard Hodgson
Tsunao Kijima
Ian Krieger
Jennifer Laing
Pam Powell
Daniel Wosner
Ian Krieger
£57,000
£13,000
£10,000
£80,000
£79,167
Non-executive directors’ interests in shares (audited)
Jennifer Laing
£57,000
£10,500
Pam Powell
Daniel Wosner2
£57,000
£57,000
–
–
–
–
–
£67,500
£67,500
£57,000
£57,000
£4,750
–
1.
Mr Kijima was appointed a non-executive director on 21 July 2016 as a representative of Nissin, he
does not receive a fee or other remuneration for this role.
2. Mr Wosner was appointed a non-executive director on 1 March 2017 as a representative of Oasis.
Non-executive directors’ fees
The fees of our non-executive directors (NEDs) are set out below. A review
of non-executive fees was undertaken in May 2017 and no increase to fees
was recommended.
NED Fees
Chairman fee
Basic NED fee
Additional remuneration:
Audit Committee Chairman fee
Remuneration Committee Chairman fee
Senior Independent Director fee
1 April
2017
£265,000
£57,000
£13,000
£10,500
£10,000
Change
–
–
–
–
–
2 April
2016
£265,000
£57,000
£13,000
£10,500
£10,000
NED
David Beever
Richard Hodgson
Tsunao Kijima1
Ian Krieger
Jennifer Laing
Pam Powell
Daniel Wosner2
Ordinary shares owned
Ordinary shares owned
as at 1 April 2017
as at 2 April 2016
304,881
304,881
–
–
504,000
54,802
160,366
72,850
–
–
504,000
54,802
160,366
–
1.
Mr Kijima is Managing Director of our largest shareholder, Nissin. It was agreed on appointment that
he would not hold shares in the Company.
2. Mr Wosner was appointed a non-executive director on 1 March 2017 as a representative of Oasis.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 52
GOVERNANCE
Directors’ Remuneration report continued
The Committee
The table on page 24 identifies the Committee members and meeting
attendance. Both the Committee Chairman and a majority of the Committee
are independent. Daniel Wosner was appointed as a member of the Committee
following his appointment to the Board in March 2017. Whilst normally only
independent non-executive directors may become members of the Committee
it was felt that his input, as a representative of a major shareholder, would be
helpful when considering remuneration arrangements. In addition, the CEO,
HR Director and Aon Hewitt regularly attend by invitation. In accordance with
the Committee’s terms of reference, no one attending a Committee meeting
may participate in discussions relating to his/her own terms and conditions of
service or remuneration. Over the course of the year the Committee held three
scheduled meetings.
Advisers
Aon Hewitt Limited ('Aon') has been appointed as advisers to the Committee.
During the year Aon provided advice in connection with executive remuneration
arrangements, the Company's new Remuneration Policy and the introduction
of a new Annual Bonus plan for management operating below Board level. Aon
are signatories of the Remuneration Consultants Company Code of Conduct.
The trustees of the Company’s pension schemes have appointed Aon to act
as Administrators and Actuary to the schemes and, in the case of the RHM
pension scheme, to act as Investment Advisers. Aon operates independently of
the pension teams and the Committee is satisfied there is no conflict of interest.
Aon received fees of £65,715 (2015/16: £57,512) in respect of their advice to the
Committee during the financial period.
Role of the Remuneration Committee
The Committee has been delegated authority by the Board to approve the
overall design of the Remuneration Policy for executive directors and senior
management, to agree the terms of employment including recruitment and
termination terms of executive directors, approve the design of all share incentive
plans and recommend appropriate performance measures and targets for the
variable element of remuneration packages and determine the extent to which
performance targets have been achieved. The Committee’s terms of reference
are available on the Company’s website.
What the Committee discussed during the financial period:
• Reviewed the voting results for the 2016 Directors’ Remuneration report
at the AGM;
• Approved the Company's 2017 Remuneration Policy for approval by
shareholders;
• Approved a new management Annual Bonus plan for management at below
Board level;
• Reviewed and recommended executive directors’ and senior managers’
annual bonuses in respect of the financial period and set the targets for
the 2017/18 annual bonus in accordance with the strategic objectives
of the Company;
• Granted the 2016 awards under the Company’s all-employee and executive
share plans and agreed the targets for awards due to be made in 2017; and
• Discussed developments in best practice with regard to remuneration policy
and disclosure.
External appointments
The Board is open to executive directors who wish to take on a non-executive
directorship with a publicly quoted company in order to broaden their experience
and they may be entitled to retain any fees they receive. However, any such
appointment would be reviewed by the Board on a case by case basis. The current
executive directors do not have any external appointments with publicly quoted
companies. Gavin Darby is currently President of the Food and Drink Federation.
Statement of voting at Annual General Meeting
Whilst overall the Directors’ Remuneration report received strong support at the
AGM in 2016, there was a 15% vote against (full details are set out below). The
reasons for this vote were discussed by the Committee and it was concluded
that this was primarily the result of a vote from a certain shareholder. As a result
the Chairman of the Remuneration Committee and Senior Independent Director
met with this shareholder to discuss their concerns.
Date of AGM
Votes for
Votes against
Approval of
Directors'
Remuneration
Report 2015/16
21 July 2016
% of votes
cast
Approval of
the current
Remuneration
Policy
29 April 2014
% of votes
cast
436,369,922
85.41%
593,707,405
99.05%
74,559,365
14.59%
5,714,208
0.95%
100%
Total votes cast
510,929,287
100%
599,421,613
Votes withheld
25,572,566
3,168,444
The Directors’ Remuneration report was approved by the Board on 16 May 2017
and signed on its behalf by:
Jennifer Laing
Chairman of the Remuneration Committee
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 53
Independent
auditor's report
to the members of Premier Foods plc only
Opinions and conclusions arising from our audit
1. Our opinion on the financial statements is unmodified
We have audited the financial statements of Premier Foods plc for the
52 weeks ended 1 April 2017 set out on pages 58 to 112. In our opinion:
• the financial statements give a true and fair view of the state of the
Group’s and of the parent company’s affairs as at 1 April 2017 and
of the Group’s profit for the 52 weeks then ended;
• the Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union;
• the parent company financial statements have been properly prepared
in accordance with UK Accounting Standards, including FRS 101
Reduced Disclosure Framework; and
• the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006; and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
Overview
Materiality: Group financial
statements as a whole
£4.5m (2015/16: £5.25m)
0.57% (2015/16: 0.68%) of Group revenue
Coverage
95% (2015/16: 100%) of Group revenue
Risks of material misstatement
vs 2015/16
Recurring risks Revenue recognition relating to commercial arrangements
Carrying value of goodwill and Mr Kipling brand
Valuation of defined benefit pension plans
Recoverability of deferred tax assets
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 54
Independent auditor's report continued
2. Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements, the risks of material misstatement that had the greatest effect on our audit, in decreasing order of
audit significance, were those risks noted below. Following the completion of the acquisition of Knighton Foods Limited (‘Knighton’) in 2016/17, we have not assessed
‘accounting for investments’ as one of the risks that had the greatest effect on our audit and, therefore, it is not separately identified in our report this year.
Revenue recognition relating
to commercial arrangements
Commercial accruals
(£(38.6) million;
2015/16: £(35.9) million)
Refer to page 31 (Audit Committee
Report), page 67 (accounting
policy) and page 82 (financial
disclosures).
Revenue
(£790.4 million;
2015/16: £771.7 million)
Refer to page 31 (Audit Committee
Report), page 67 (accounting
policy) and page 68 (financial
disclosures).
The risk
Our response
Estimation uncertainty impacting revenue
Our procedures included:
The Group enters into commercial arrangements with its
customers on a regular basis to offer product promotions
and discounts. The Group measures revenue taking into
consideration estimated rebates and discounts.
• Accounting policies: Assessing the appropriateness of the revenue
recognition accounting policies, in particular those relating to volume rebates
and discounts and assessing compliance with the applicable accounting
standards;
Due to the nature of some arrangements and the number
of different arrangements in place, there is a risk that
these arrangements are not appropriately accounted for
and as a result revenue is misstated.
The Group also focuses on revenue as a key performance
measure which could create an incentive for revenue to be
overstated through manipulation of rebates and discounts,
resulting from the pressure management may feel to
achieve performance targets.
The most significant areas of estimation uncertainty are:
• estimating the sales volumes attributable to each
arrangement; and
• determining the period which the arrangements
cover and hence the correct period for recognition.
• Tests of details: Comparing a sample of promotions recorded during the
period to supporting evidence such as customer acceptance, electronic point
of sale data and customer debit notes to assess the accuracy of the estimate;
• Testing credit notes issued after the period end to assess the completeness of
the commercial accruals recorded and existence of revenue;
•
Inspecting supporting documentation for a sample of manual journals posted
to revenue accounts;
• Visiting a selection of customer stores before the period end, identifying
product promotions and assessing whether those promotions were
appropriately included within the commercial accrual; and
• Assessing disclosures: Considering the adequacy of the Group's disclosures
relating to the critical accounting policies, estimates and judgements in
respect of volume rebates and discounts.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 55
2. Our assessment of risks of material misstatement continued
Carrying value of goodwill
and Mr Kipling brand
(£692.5 million;
2015/16: £694.8 million)
Refer to page 31 (Audit Committee
Report), page 67 (accounting
policy) and pages 77 to 79
(financial disclosures).
The risk
Our response
Forecast-based valuation
Our procedures included:
Goodwill and brand asset values are dependent on the
achievement of future business plans which are inherently
uncertain.
The business operates in an environment of significant
retailer pressure on price, competitor activity and
increasing commodity prices. In light of these trading
challenges, there is a risk that the Group’s goodwill and
brand asset values, in particular the goodwill attributed
to the Grocery cash generating unit and the Mr Kipling
brand, may not be recoverable.
• Assessing cash generating units: Assessing the appropriateness of the
cash generating units identified;
• Assessing principles: Assessing the principles of the cash flow models for
the Grocery cash generating unit and Mr Kipling brand;
• Benchmarking assumptions: Evaluating assumptions used, in particular
those relating to: i) the short and long-term revenue growth rates; ii) future
changes in profitability; iii) the discount rates used; and iv) the royalty rate used
in the Mr Kipling brand assessment, comparing these with externally derived
data and using our own valuation specialists where applicable;
• Sensitivity analysis: Performing sensitivity analysis of key assumptions
including discount rates, short and long-term revenue growth rates,
profitability and royalty rate; and
• Assessing disclosures: Assessing whether the Group’s disclosures relating to
the sensitivity of the outcome of the impairment assessments to changes in key
assumptions reflect the risks inherent in the valuation of goodwill and brands.
Valuation of defined benefit
pension plans
(£104.8 million;
2015/16: £130.9 million)
Refer to page 31 (Audit Committee
Report), pages 66 to 67
(accounting policy) and pages 93
to 98 (financial disclosures).
Subjective valuation
Our procedures included:
Small changes in the assumptions used to determine the
liabilities of the RHM Pension Scheme, Premier Foods
Pensions Scheme and Premier Grocery Products Pension
Scheme, in particular those relating to inflation, mortality
and discount rates, can have a significant impact on the
valuation of the liabilities.
The Group’s RHM Pension Scheme holds assets for
which quoted prices are not available. The valuation of
these assets can have a significant impact on the surplus.
Valuations are prepared based on most recent information
available and are updated where appropriate, applying
judgement and estimation.
• Benchmarking assumptions: Challenging, with the support of our own
actuarial specialists, the key assumptions applied, being the inflation, mortality
and discount rate assumptions, against externally derived data;
• Asset confirmations: Obtaining asset statements in respect of the schemes’
investments directly from fund managers;
• Re-performing valuations: Re-performing valuations for a sample of scheme
assets and comparing those valuations to the asset statements received; and
• Assessing disclosures: Considering the adequacy of the Group’s disclosures
relating to the sensitivity of the surplus to the key assumptions.
Recoverability of deferred tax
assets
(£32.4 million;
2015/16: £25.9 million)
Forecast-based valuation
Our procedures included:
As the Group has a history of recent losses, there is
judgement in determining whether deferred tax assets
should be recognised.
• Assessing recognition: Reviewing historical taxable profits and considering
if there is convincing evidence that sufficient future taxable profits will be
available;
Refer to page 31 (Audit Committee
Report), page 67 (accounting
policy) and pages 71 to 74
(financial disclosures).
The Group utilises forecasts of future taxable profits to
determine the extent to which deferred tax assets can be
recognised, which is inherently uncertain due to the level
of judgement and estimation contained in forecasts.
• Evaluating assumptions: Evaluating assumptions used, in particular those
relating to: i) the short and long-term revenue growth rates; ii) future changes in
profitability; and iii) adjustments to profit before tax to determine taxable profits,
using our own tax specialists where applicable; and
• Assessing transparency: Assessing the adequacy of the Group’s disclosures
relating to the sensitivity of the recognition of deferred tax assets to changes in
key assumptions reflected in the inherent risk.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 56
Independent auditor's report continued
3. Our application of materiality and an overview of the scope of our audit
The materiality for the Group financial statements as a whole was set at £4.5 million
(2015/16: £5.25m), determined with reference to a benchmark of Group revenue of
which it represents 0.57% (2015/16: 0.68%). We consider Group revenue to be the
most appropriate benchmark as it is a key performance indicator.
We do not consider the pre-tax result an appropriate benchmark as
it is not currently a key measure of the performance of the Group. We
have given consideration to other profit metrics such as trading profit in
determining materiality.
We reported to the Audit Committee any corrected or uncorrected identified
misstatements exceeding £0.22 million (2015/16: £0.25m), in addition to other
identified misstatements that warranted reporting on qualitative grounds.
Of the Group’s 33 (2015/16: 40) reporting components, we subjected 5
(2015/16: 6) to full scope audits for Group purposes.
For the remaining components, we performed analysis at an aggregated Group
level to re-examine our assessment that there were no significant risks of material
misstatement within these.
The component materialities ranged from £0.6 million to £4.25 million (2015/16:
£0.6m to £4.0m), having regard to the mix of size and risk profile of the Group
across the components. All full scope components are managed from the
central locations in the UK and the work on all components subject to audit
was performed by the Group team.
Group revenue
£790.4m (2015/16: £771.7m)
Materiality
£4.5m (2015/16: £5.25m)
£4.5m Whole financial statements
materiality (2015/16: £5.25m)
£4.25m Range of materiality at
5 components (£4.25m–£0.6m)
(2015/16: £4.0m to £0.6m)
Group revenue
Group materiality
£0.22m Misstatements reported
to the audit committee
(2015/16: £0.25m)
Group Revenue
Group profit/loss before tax
95%
(2015/16:
96%)
96%
95%
95%
(2015/16:
100%)
100%
95%
Group total assets
99%
(2015/16:
99%)
99%
99%
Full scope for Group audit purposes 2016/17
Full scope for Group audit purposes 2015/16
Residual components
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 57
4. Our opinion on other matters prescribed by the Companies
Act 2006 is unmodified
In our opinion:
• the part of the Directors’ Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006; and
• the information given in the Strategic Report and the Directors’ Report for
the financial year is consistent with the financial statements.
Based solely on the work required to be undertaken in the course of the audit
of the financial statements and from reading the Strategic Report and the
Directors’ Report:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company,
or returns adequate for our audit have not been received from branches not
visited by us; or
• the parent company financial statements and the part of the Directors’
Remuneration Report to be audited are not in agreement with the accounting
records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for
our audit.
• we have not identified material misstatements in those reports; and
Under the Listing Rules we are required to review:
• in our opinion, those reports have been prepared in accordance with the
• the directors’ statements, set out on pages 62 to 63 and 33, in relation to
Companies Act 2006.
going concern and longer-term viability; and
5. We have nothing to report on the disclosures of principal risks
Based on the knowledge we acquired during our audit, we have nothing material
to add or draw attention to in relation to:
• the part of the Corporate Governance Statement on page 24 relating to
the company’s compliance with the eleven provisions of the 2014 UK
Corporate Governance Code specified for our review.
• the Directors’ statement of viability on page 33, concerning the principal
risks, their management, and, based on that, the Directors’ assessment and
expectations of the Group’s continuing in operation over the three years to 4
April 2020; or
• the disclosures in note 2 of the financial statements concerning the use of the
going concern basis of accounting.
6. We have nothing to report in respect of the matters on which we are
required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based on the
knowledge we acquired during our audit, we have identified other information
in the Annual Report that contains a material inconsistency with either that
knowledge or the financial statements, a material misstatement of fact, or that
is otherwise misleading.
In particular, we are required to report to you if:
• we have identified material inconsistencies between the knowledge we
acquired during our audit and the Directors’ statement that they consider that
the Annual Report and financial statements taken as a whole is fair, balanced
and understandable and provides the information necessary for shareholders
to assess the Group’s position and performance, business model and
strategy; or
• the Audit Committee Report does not appropriately address matters
communicated by us to the Audit Committee.
We have nothing to report in respect of the above responsibilities.
Scope and responsibilities
As explained more fully in the Directors’ Responsibilities Statement set out on page
34, the Directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view. A description of the scope of
an audit of financial statements is provided on the Financial Reporting Council’s
website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the
Company’s members as a body and is subject to important explanations and
disclaimers regarding our responsibilities, published on our website at www.kpmg.
com/uk/auditscopeukco2014a, which are incorporated into this report as if set out
in full and should be read to provide an understanding of the purpose of this report,
the work we have undertaken and the basis of our opinions.
Richard Pinckard
(Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
16 May 2017
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 58
Consolidated statement of profit or loss
Continuing operations
Revenue
Cost of sales
Gross profit
Selling, marketing and distribution costs
Administrative costs
Operating profit
Operating profit before impairment
Impairment of investments in associates
Finance cost
Finance income
Net movement on fair valuation of interest rate financial instruments
Share of loss from associates
Profit/(loss) before taxation from continuing operations
Taxation (charge)/credit
Profit after taxation from continuing operations
Loss from discontinued operations
Profit for the period attributable to owners of the parent
Basic and diluted earnings per share
From continuing operations (pence)
From discontinued operations (pence)
From profit for the period
Adjusted earnings per share1
From continuing operations (pence)
52 weeks ended
1 Apr 2017
52 weeks ended
2 Apr 2016
Note
4
5
12, 14
7
7
7
14
8
10
9
9
9
£m
790.4
(513.5)
276.9
(127.2)
(88.2)
61.5
61.5
–
(51.6)
1.5
0.6
–
12.0
(6.5)
5.5
–
5.5
0.7
–
0.7
7.2
£m
771.7
(476.2)
295.5
(128.4)
(112.6)
54.5
68.1
(13.6)
(48.1)
2.5
0.7
(22.6)
(13.0)
47.0
34.0
(4.8)
29.2
4.1
(0.6)
3.5
8.1
1. Adjusted earnings per share is defined as trading profit less net regular interest, less a notional tax charge at 20.0% (2015/16: 20.0%) divided by the weighted average number of ordinary shares of the Company.
Consolidated statement of comprehensive income
Profit for the period
Other comprehensive income, net of tax
Items that will never be reclassified to profit or loss
Remeasurements of defined benefit schemes
Deferred tax credit/(charge)
Items that are or may be reclassified to profit or loss
Exchange differences on translation
Other comprehensive (loss)/income, net of tax
Total comprehensive (loss)/income attributable to owners of the parent
The notes on pages 62 to 107 form an integral part of the consolidated financial statements.
Note
23
8
52 weeks ended
1 Apr 2017
52 weeks ended
2 Apr 2016
£m
5.5
(76.6)
14.9
(1.1)
(62.8)
(57.3)
£m
29.2
344.8
(65.9)
(0.4)
278.5
307.7
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 Consolidated balance sheet
ASSETS:
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Net retirement benefit assets
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Derivative financial instruments
Total assets
LIABILITIES:
Current liabilities
Trade and other payables
Financial liabilities
– short-term borrowings
– derivative financial instruments
Provisions for liabilities and charges
Current income tax liabilities
Non-current liabilities
Financial liabilities – long-term borrowings
Net retirement benefit obligations
Provisions for liabilities and charges
Other liabilities
Total liabilities
Net assets
EQUITY:
Capital and reserves
Share capital
Share premium
Merger reserve
Other reserves
Profit and loss reserve
Capital and reserves attributable to owners of the parent
Non-controlling interest
Total equity
59
As at
1 Apr 2017
£m
As at
2 Apr 2016
£m
Note
11
12
13
23
8
17
18
26
21
19
20
21
22
20
23
22
24
25
25
25
25
25
16
187.5
650.3
464.0
593.9
32.4
1,928.1
71.3
65.1
3.1
0.1
139.6
2,067.7
187.8
649.8
496.0
550.9
25.9
1,910.4
63.2
100.5
8.0
1.6
173.3
2,083.7
(191.7)
(204.7)
(21.3)
(2.9)
(10.0)
(0.7)
(226.6)
(505.0)
(489.1)
(43.1)
(11.1)
(1,048.3)
(1,274.9)
792.8
83.3
1,406.7
351.7
(9.3)
(1,039.6)
792.8
–
792.8
(0.4)
(2.0)
(6.3)
(0.7)
(214.1)
(541.8)
(420.0)
(47.3)
(12.0)
(1,021.1)
(1,235.2)
848.5
82.7
1,406.6
351.7
(9.3)
(979.3)
852.4
(3.9)
848.5
The notes on pages 62 to 107 form an integral part of the consolidated financial statements.
The financial statements on pages 58 to 61 were approved by the Board of directors on 16 May 2017 and signed on its behalf by:
Gavin Darby
Chief Executive Officer
Alastair Murray
Chief Financial Officer
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS
60
Consolidated statement of cash flows
Cash generated from operations
Interest paid
Interest received
Cash generated from operating activities
Cash outflow on business combination
Purchases of property, plant and equipment
Purchases of intangible assets
Cash used in investing activities
Repayment of borrowings
Movement in securitisation funding programme
Proceeds from share issue
Purchase of shares to satisfy share awards
Cash used in financing activities
Net decrease in cash and cash equivalents
Cash, cash equivalents and bank overdrafts at beginning of period
Cash, cash equivalents and bank overdrafts at end of period
The notes on pages 62 to 107 form an integral part of the consolidated financial statements.
52 weeks ended
1 Apr 2017
52 weeks ended
2 Apr 2016
£m
76.8
(41.3)
1.5
37.0
–
(15.1)
(5.8)
(20.9)
(34.6)
(6.4)
0.1
(1.1)
(42.0)
(25.9)
7.8
(18.1)
£m
137.1
(44.2)
2.5
95.4
(0.2)
(23.0)
(6.9)
(30.1)
(58.0)
(19.7)
0.3
(1.8)
(79.2)
(13.9)
21.7
7.8
Note
26
26
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 Consolidated statement of changes in equity
Share
capital
£m
82.6
Share
premium
£m
1,406.4
Merger
reserve
£m
351.7
Other
reserves
Profit and
loss reserve
Non-controlling
interest
£m
(9.3)
£m
(1,291.2)
Note
23
8
At 5 April 2015
Profit for the period
Remeasurements of defined benefit schemes
Deferred tax charge
Exchange differences on translation
Other comprehensive income
Total comprehensive income
Shares issued
Share-based payments
Purchase of shares to satisfy share awards
Deferred tax movements on share based payments
Non-controlling interest on change of ownership
At 2 April 2016
At 3 April 2016
Profit for the period
Remeasurements of defined benefit schemes
Deferred tax credit
Exchange differences on translation
Other comprehensive income
Total comprehensive income
Shares issued
Share-based payments
Purchase of shares to satisfy share awards
Adjustment for issue of share options
Deferred tax movements on share based payments
Movement in non-controlling interest
23
8
25
–
–
–
–
–
–
–
–
–
–
–
–
0.1
0.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,406.6
351.7
1,406.6
351.7
(9.3)
(9.3)
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
82.7
82.7
–
–
–
–
–
–
0.6
–
–
–
–
29.2
344.8
(65.9)
(0.4)
278.5
307.7
–
4.1
(1.8)
1.9
–
(979.3)
(979.3)
5.5
(76.6)
14.9
(1.1)
(62.8)
(57.3)
–
4.5
(1.1)
(0.6)
(1.9)
(3.9)
At 1 April 2017
83.3
1,406.7
351.7
(9.3)
(1,039.6)
The notes on pages 62 to 107 form an integral part of the consolidated financial statements.
61
Total
equity
£m
540.2
29.2
344.8
(65.9)
(0.4)
278.5
307.7
0.3
4.1
(1.8)
1.9
(3.9)
848.5
848.5
5.5
(76.6)
14.9
(1.1)
(62.8)
(57.3)
0.7
4.5
(1.1)
(0.6)
(1.9)
–
792.8
£m
–
–
–
–
–
–
–
–
–
–
–
(3.9)
(3.9)
(3.9)
–
–
–
–
–
–
–
–
–
–
–
3.9
–
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 62
Notes to the financial statements
1. General information
Premier Foods plc (the 'Company') is a public limited company incorporated and
domiciled in England and Wales, registered number 5160050, with its registered
office at Premier House, Centrium Business Park, Griffiths Way, St Albans,
Hertfordshire AL1 2RE. The principal activity of the Company and its subsidiaries
(the 'Group') is the manufacture and distribution of branded and own label food
products. Copies of the annual report and accounts are available on our website:
http://www.premierfoods.co.uk/investors/results-centre.
Amendments to IAS 1
Amendments to IAS 16 & 38
Amendments to IAS 16 & 41
Amendments to IAS 19
Amendments to IAS 27
Amendments to IAS 34
Disclosure Initiative
Clarification of Acceptable Methods of
Depreciation and Amortisation
Bearer Plants
Employee benefits
Equity Method in Separate Financial
Statements
Interim Financial Reporting
These Group consolidated financial statements were authorised for issue by the
Board of directors on 16 May 2017.
There has been no material impact on the Group’s results, net assets, cash flows
and disclosures on adoption of new or revised standards in the period.
2. Accounting policies
The principal accounting policies applied in the preparation of these consolidated
financial statements are set out below. These policies have been consistently
applied to all the periods presented, unless otherwise stated.
2.1 Basis of preparation
The consolidated financial statements of the Company have been prepared in
accordance with International Financial Reporting Standards ('IFRS') as adopted
by the European Union (EU) ('adopted IFRS') in response to IAS regulation
(EC1606/2002), related interpretations and the Companies Act 2006 applicable
to companies reporting under IFRS, and on the historical cost basis, with the
exception of derivative financial instruments which are incorporated using fair
value. Amounts are presented to the nearest £0.1m.
The statutory accounting period is the 52 weeks from 3 April 2016 to 1 April
2017 and comparative results are for the 52 weeks from 5 April 2015 to 2 April
2016. All references to the ‘period’, unless otherwise stated, are for the 52 weeks
ended 1 April 2017 and the comparative period, 52 weeks ended 2 April 2016.
The preparation of financial statements in conformity with adopted IFRS requires
the use of certain critical accounting estimates. It also requires management
to exercise its judgement in the process of applying the Group’s accounting
policies. The areas involving a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the consolidated
financial statements are disclosed in note 3.
The following accounting standards and interpretations, issued by the
International Accounting Standards Board ('IASB') or IFRIC (as endorsed by the
EU), are effective for the first time in the current financial period and have been
adopted by the Group:
International Financial Reporting Standards
Amendments to IFRS 5
Amendments to IFRS 7
Amendments to IFRS 10, 11, 12
Amendments to IFRS 11
Amendments to IFRS 20 & 12,
IAS 38
Non-current assets held for sale and
discontinued operations
Financial instruments
Transition guidance
Accounting for Acquisitions of Interests
in Joint Operations
Investment entities: Applying the
Consolidation Exception
The following amendments to published standards, effective for periods on or
after 1 January 2017, have been endorsed by the EU:
International Financial Reporting Standards
IFRS 9
IFRS 15
Amendments to IFRS 15
Financial Instruments
Revenue from Contracts with Customers
Revenue from Contracts with Customers
The following standards and amendments to published standards, effective for
periods on or after 1 January 2017, have not been endorsed by the EU:
International Financial Reporting Standards
Amendments to IAS 7
Amendments to IAS 12
Amendments to IAS 28
Amendments to IAS 40
Amendments to IFRS 1
Amendments to IFRS 2
Amendments to IFRS 4
Amendments to IFRS 12
IFRS 16
Disclosure Initiative
Recognition of Deferred Tax Assets
for Unrealised Losses
Investments in Associates and Joint
Ventures
Investment Property
First-time Adoption of IFRS
Classification and Measurement of
Share-based Payment Transactions
Applying IFRS 9 Financial Instruments
with IFRS 4 Insurance Contracts
Disclosure of Interests in Other Entities
Leases
During 2016/17 the Group completed a detailed review of the requirements of
IFRS 15 against current accounting policies. As a result of the review it has been
concluded that current accounting policies are in line with the new standard.
As the business evolves the Group will continue to review transactions with
customers to ensure compliance with IFRS 15 on adoption.
The Group is currently assessing the impact of the other above new standards
that are not yet effective and is yet to quantify the potential impact.
Basis for preparation of financial statements on a going concern basis
The Group’s revolving credit facility includes net debt/EBITDA and EBITDA/
interest covenants. In the event these covenants are not met then the Group
would be in breach of its financing agreement and, as would be the case in
Premier Foods plc Annual report for the 52 week period ended 1 April 2017
63
any covenant breach, the banking syndicate could withdraw funding to the
Group. The Group was in compliance with its covenant tests as at 1 October
2016 and 1 April 2017. The Group’s forecasts, taking into account reasonably
possible changes in trading performance, show that the Group expects to be
able to operate within the level of its current facilities including covenant tests.
Notwithstanding the net current liabilities position of the Group, the directors
have a reasonable expectation that the Group has adequate resources to
continue in operational existence for the next 12 months. The Group therefore
continues to adopt the going concern basis in preparing its consolidated
financial statements.
2.2 Basis of consolidation
(i) Subsidiaries
The consolidated financial statements include the financial statements of
Premier Foods plc and entities controlled by the Company (its subsidiaries).
Control is achieved where the Company is exposed to or has rights to
variable returns from involvement with an investee and has the ability to
affect those returns through its power over the investee.
The results of subsidiaries acquired or disposed of during the period are
included in the consolidated statement of profit or loss from the effective
date of acquisition or up to the effective date of disposal, as appropriate.
In addition, comparatives are also restated to reclassify material disposed
businesses into discontinued operations where appropriate.
All intra-Group transactions, balances, income and expenses are eliminated
on consolidation.
2.3 Revenue
Revenue comprises the invoiced value for the sale of goods net of sales rebates,
discounts, value added tax and other taxes directly attributable to revenue
and after eliminating sales within the Group. Revenue is recognised when the
outcome of a transaction can be measured reliably and when it is probable that
the economic benefits associated with the transaction will flow to the Group.
Revenue is recognised on the following basis:
(i) Sale of goods
Sales of goods are recognised as revenue on transfer of the risks and
rewards of ownership, which typically coincides with the time when the
merchandise is delivered to customers and title passes.
(ii) Sales rebates and discounts
Sales related discounts comprise:
– Long-term discounts and rebates, which are sales incentives to customers
to encourage them to purchase increased volumes and are related to total
volumes purchased and sales growth.
– Short-term promotional discounts, which are directly related to promotions
run by customers.
Sales rebates and discount accruals are established at the time of sale
based on management’s best estimate of the amounts necessary to meet
claims by the Group’s customers in respect of these rebates and discounts.
Accruals are made for each individual promotion or rebate arrangement
and are based on the type and length of promotion and nature of customer
agreement. At the time an accrual is made the nature and timing of the
promotion is typically known. Estimation is required for sales volumes/
activity, phasing and the amount of product sold on promotion.
(iii) Commercial income
Commercial income received from suppliers through rebates and discounts
are recognised within cost of sales over the period(s) to which the underlying
contract or agreement relates. Accrued income is recognised for rebates
on contracts covering the current period, for which no cash was received at
the balance sheet date. Deferred income is recognised for rebates that were
received from suppliers at the balance sheet date but relate to contracts
covering future periods.
2.4 Segmental reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the Chief Operating Decision Maker ('CODM'). The CODM
is responsible for allocating resources and assessing performance of the
operating segments. See note 4 for further details.
2.5 Share-based payments
The Company operates a number of equity-settled and share-based
compensation plans. The fair value of the employee services received in
exchange for the grant of shares or options is recognised as an expense over
the vesting period. The total amount to be expensed over the vesting period is
determined by reference to the fair value of shares or options granted, excluding
the impact of any non-market vesting conditions (for example, EPS targets).
Non-market vesting conditions are included in assumptions about the number
of shares or options that are expected to vest. At each balance sheet date, the
Group revises its estimates of the number of shares or options that are expected
to vest and recognises the impact of the revision to original estimates, if any, in
the statement of profit or loss, with a corresponding adjustment to equity.
2.6 Foreign currency translation
Transactions in foreign currencies are recorded at the rate of exchange at the
date of the transaction. Monetary assets and liabilities denominated in foreign
currencies are translated into the functional currency of the subsidiaries at rates
of exchange ruling at the end of the financial period.
The results of overseas subsidiaries with functional currencies other than in
sterling are translated into sterling at the average rate of exchange ruling in the
period. The balance sheets of overseas subsidiaries are translated into sterling
at the closing rate. Exchange differences arising from retranslation at the period
end exchange rates of the net investment in foreign subsidiaries are recorded as
a separate component of equity in reserves. When a foreign operation is sold,
exchange differences previously taken to equity are recognised in the statement
of profit or loss as part of the gain or loss on sale.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS
64
Notes to the financial statements continued
2.6 Foreign currency translation continued
Goodwill and fair value adjustments arising on the acquisition of a foreign entity
are treated as assets and liabilities of the foreign entity and translated at the
closing rate. All other exchange gains or losses are recorded in the statement of
profit or loss.
2.7 Property, plant and equipment ('PPE')
Property, plant and equipment is stated at historical cost less accumulated
depreciation and impairment.
PPE is initially recorded at cost. Cost includes the original purchase price of the
asset and the costs attributable to bringing the asset to its working condition
for its intended use. Subsequent expenditure is added to the carrying value
of the asset when it is probable that incremental future economic benefits will
transfer to the Group. All other subsequent expenditure is expensed in the
period it is incurred.
Differences between the cost of each item of PPE and its estimated residual
value are written off over the estimated useful life of the asset using the straight-
line method. Reviews of the estimated remaining useful lives and residual
values of individual productive assets are performed annually, taking account of
commercial and technological obsolescence as well as normal wear and tear.
Freehold land is not depreciated. The useful economic lives of owned assets
range from 15 to 50 years for buildings, 5 to 30 years for plant and equipment
and 10 years for vehicles. All items of PPE are reviewed for impairment when
there are indications that the carrying value may not be fully recoverable.
Assets under construction represent the amount of expenditure recognised in
the course of its construction. Directly attributable costs that are capitalised
as part of the PPE include the employee costs and an appropriate portion of
relevant overheads. When the item of PPE is available for use, it is depreciated.
The carrying value relating to disposed assets is written off to profit or loss on
disposal of PPE.
2.8 Business combinations and goodwill
Business combinations are accounted for using the acquisition method.
The consideration for each acquisition is measured at the aggregate of the
acquisition date fair values of assets given, liabilities incurred or assumed and
equity instruments issued by the Group in exchange for control of the acquiree.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a
business combination are measured at their fair values at the acquisition date,
irrespective of the extent of any non-controlling interest. Acquisition related costs
are recognised in profit or loss as incurred.
Where the measurement of the fair value of identifiable net assets is incomplete at the
end of the reporting period in which a business combination occurs, the Group will
report provisional fair values. The recognised assets and liabilities are measured at fair
values that reflect the conditions at the date of the acquisition. These provisional fair
values may be updated for information not known at the reporting date.
The Group has applied IFRS 3 (Revised) Business Combinations to business
combinations after 1 July 2009. The accounting for business combinations
transacted prior to this date have not been restated.
2.9 Intangible assets
In addition to goodwill, the Group recognises the following intangible assets:
Acquired intangible assets
Acquired brands, trademarks and licences that are controlled through custody
or legal rights and that could be sold separately from the rest of the business
are capitalised, where fair value can be reliably measured. All of these assets are
considered to have finite lives and are amortised on a straight-line basis over their
estimated useful economic lives that range from 20 to 40 years for brands and
trademarks and 10 years for licences.
Software
Development costs that are directly attributable to the design and testing of
identifiable and unique software products controlled by the Group are recognised
as intangible assets when the project or process is technically and commercially
feasible. Directly attributable costs that are capitalised as part of the software
product include the software development employee costs and an appropriate
portion of relevant overheads.
Software development costs are amortised over their estimated useful lives on a
straight-line basis over a range of 3 to 10 years.
The useful economic lives of intangible assets are determined based on a review
of a combination of factors including the asset ownership rights acquired and the
nature of the overall product life cycle. Reviews of the estimated remaining useful
lives and residual values of individual intangible assets are performed annually.
Research
Research expenditure is charged to the statement of profit or loss in the period in
which it is incurred.
2.10 Impairment
The carrying value of non-financial assets, other than goodwill and inventories,
are reviewed at least annually to determine whether there is an indication of
impairment. Assets that are subject to amortisation are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. Non-financial assets, other than goodwill, that have
suffered an impairment loss are reviewed for possible reversal of the impairment
at each reporting date.
Where an indication of impairment exists, the recoverable amount is estimated
based on the greater of its value in use and its fair value less costs to sell. In
assessing value in use, the estimated future cash flows, adjusted for the risks
specific to each asset, are discounted to their present value using a discount
rate that reflects current market assessment of the time value of money and the
general risks affecting the food manufacturing industry.
Impairment losses are recognised in the statement of profit or loss in the period
in which they occur.
For the purpose of impairment testing, assets are grouped together into the
smallest group of assets that generate cash inflows from continuing use that are
largely independent of the cash flows of other assets.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 65
2.11 Finance cost and income
Finance cost
Borrowing costs are accounted for on an accruals basis in the statement of
profit or loss using the effective interest method.
Finance income
Finance income is recognised on a time proportion basis, taking into account
the principal amounts outstanding and the interest rates applicable, taking into
consideration the interest element of derivatives.
2.12 Leases
Assets held under finance leases, where substantially all the risks and rewards of
ownership are transferred to the Group, are capitalised and included in property,
plant and equipment at the lower of the present value of future minimum lease
payments or fair value. Each asset is depreciated over the shorter of the lease
term or its estimated useful life on a straight-line basis. Obligations relating to
finance leases, net of finance charges in respect of future periods, are included
under borrowings. The interest element of the rental obligation is allocated to
accounting periods during the lease term to reflect a constant rate of interest on
the remaining balance of the obligation for each accounting period.
Leases in which a significant portion of risks and rewards of ownership are
retained by the lessor are classified as operating leases. Rental costs under
operating leases, net of any incentives received from the lessor, are charged to
the statement of profit or loss on a straight-line basis over the lease period.
2.13 Inventories
Inventory is valued at the lower of cost and net realisable value. Where
appropriate, cost includes production and other attributable overhead expenses
as described in IAS 2 Inventories. Cost is calculated on a first-in, first-out basis
by reference to the invoiced value of supplies and attributable costs of bringing
the inventory to its present location and condition. Net realisable value is the
estimated selling price in the ordinary course of business less estimated costs of
completion and the estimated costs necessary to make the sale.
All inventories are reduced to net realisable value where the estimated selling
price is lower than cost.
A provision is made for slow moving, obsolete and defective inventory where
appropriate.
2.14 Taxation
Income tax on the profit or loss for the period comprises current and deferred tax.
Current tax
Income tax is recognised in the statement of profit or loss except to the extent
that it relates to items recognised directly in other comprehensive income ('OCI')
in which case it is recognised in equity. Current tax is the expected tax payable
on the taxable income for the period, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable in respect of
previous periods.
Deferred tax
Deferred taxation is accounted for in respect of temporary differences between
the carrying amount of assets and liabilities in the financial statements and the
corresponding tax bases used in computation of taxable profit. Deferred taxation
is not provided on the initial recognition of an asset or liability in a transaction,
other than in a business combination, if at the time of the transaction there is no
effect on either accounting or taxable profit or loss.
Deferred tax is measured at the tax rates that are expected to apply in the
periods in which the asset or liability is settled based on tax rates (and tax
laws) that have been enacted or substantively enacted at the balance sheet
date. It is recognised in the statement of profit or loss except when it relates to
items credited or charged directly to OCI, in which case the deferred tax is also
recognised in equity.
Deferred tax assets are recognised to the extent that it is probable that future
taxable profit will be available against which the temporary difference can be
utilised. Their carrying amount is reviewed at each balance sheet date on the
same basis.
Deferred tax assets and liabilities are offset when they relate to income taxes
levied by the same taxation authority and when the Group intends to settle its
current tax assets and liabilities on a net basis.
2.15 Employee benefits
Group companies provide a number of long-term employee benefit
arrangements, primarily through pension schemes. The Group has both defined
benefit and defined contribution plans.
Defined benefit plans
A defined benefit plan is a pension plan that defines the amount of pension
benefit that an employee will receive on retirement, usually dependent on factors
such as age, years of service and compensation.
The liability recognised in the balance sheet in respect of defined benefit
pension plans is the present value of the defined benefit obligation at the
balance sheet date less the fair value of plan assets, together with adjustments
for remeasurement and past service costs. Defined benefit obligations are
calculated using assumptions determined by the Group with the assistance of
independent actuaries using the projected unit credit method. The present value
of the defined benefit obligation is determined by discounting the estimated
future cash outflows using yields of high-quality corporate bonds that are
denominated in the currency in which the benefits will be paid, and that have
terms to maturity approximating to the terms of the related pension liability.
Remeasurement arising from experience adjustments and changes in actuarial
assumptions are charged or credited to the statement of comprehensive income
in the period in which they arise. Past service costs, administration costs, and
the net interest on the net defined benefit surplus are recognised immediately in
the statement of profit or loss.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 66
Notes to the financial statements continued
Defined benefit plans continued
Curtailments are recognised as a past service cost when the Group makes an
significant reduction in the number of employees covered by a plan or amends
the terms of a defined benefit plan so that a significant element of future service
by current employees no longer qualifies or qualify for amended benefits.
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 information.
Defined contribution plans
A defined contribution plan is a pension plan under which the Group pays
fixed contributions into a separate entity, which then invests the contributions
to buy annuities for the pension liabilities as they become due based on the
value of the fund. The Group has no legal or constructive obligations to pay
further contributions.
Obligations for contributions to defined contribution pension plans are recognised
as an expense in the statement of profit or loss as they fall due. Differences
between contributions payable in the period and contributions actually paid are
recognised as either accruals or prepayments in the balance sheet.
2.16 Provisions
Provisions (for example restructuring or property exit costs) are recognised when
the Group has present legal or constructive obligations as a result of past events,
it is probable that an outflow of resources will be required to settle the obligations
and a reliable estimate of the amount can be made. In the case of where the Group
expects a provision to be reimbursed, for example under an insurance contract,
the reimbursement is recognised as a separate asset when the reimbursement
is virtually certain. Where material, the Group discounts its provisions using a
pre-tax rate that reflects current market assessments of the time value of money
and the risks specific to the liability. Where discounting is used, the increase in the
provision due to the passage of time is recognised as a finance expense.
2.17 Financial instruments
Financial assets and financial liabilities are recognised on the Group’s balance sheet
when the Group becomes a party to the contractual provisions of the instrument.
Trade and other receivables
Trade and other receivables are initially measured at fair value and subsequently
measured at amortised cost less any provision for impairment. A provision is
made for impairment when there is objective evidence that the Group will not
be able to collect all amounts due according to the terms of the receivables.
Trade and other receivables are discounted when the time value of money is
considered material.
Cash and cash equivalents
Cash and cash equivalents, with original maturities at inception of less than 90
days, comprise cash in hand and demand deposits, and other short-term highly
liquid investments that are readily convertible to a known amount of cash and
are subject to an insignificant risk of changes in value. For the purpose of the
statement of cash flows, cash and cash equivalents also include bank overdrafts.
Bank borrowings
Interest-bearing bank loans and overdrafts are measured initially at fair value and
subsequently at amortised cost, using the effective interest rate method. Any
difference between the proceeds (net of transaction costs and inclusive of debt
issuance costs) and the settlement or redemption of borrowings is recognised
over the term of the borrowings in accordance with the Group’s accounting
policy for borrowing costs.
Trade and other payables
Trade and other payables are initially measured at fair value and subsequently
measured at amortised cost. Trade payables and other liabilities are discounted
when the time value of money is considered material.
Equity instruments
Equity instruments issued by the Company are recorded at the amount of the
proceeds received, net of directly attributable issue costs.
Derivative financial instruments
Derivatives embedded in other financial instruments or other host contracts are
treated as separate derivatives when their risk and characteristics are not closely
related to those of the host contracts and the host contracts are not carried
at fair value, with unrealised gains or losses reported in the statement of profit
or loss. Derivatives are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently re-measured at their fair value.
Movements in fair value of foreign exchange derivatives are recognised within
operating profit and those relating to interest rate swaps are recorded within the
net movement on fair valuation of interest rate financial instruments.
2.18 Deferred income
Deferred income is recognised and released over the period to which the relevant
agreement relates.
3. Critical accounting policies, estimates and judgements
The following are areas of particular significance to the Group’s financial
statements and include the use of estimates and the application of judgement,
which is fundamental to the compilation of a set of financial statements. Results
may differ from actual amounts.
3.1 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.
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). Key assumptions used are mortality rates, discount rates and
inflation set with reference to bond yields. Each of the underlying assumptions is
set out in more detail in note 23.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 67
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.
To the extent a surplus arises under IAS 19, the Group ensures that it can
recognise the associated asset in line with IFRIC 14.
3.2 Goodwill and other intangible assets
Impairment reviews in respect of goodwill are performed annually unless an
event indicates that an impairment review is necessary. Impairment reviews
in respect of intangible assets are performed when an event indicates that an
impairment review is necessary. Examples of such triggering events include
a significant planned restructuring, a major change in market conditions or
technology, expectations of future operating losses, or a significant reduction
in cash flows. In performing its impairment analysis, the Group takes into
consideration these indicators including the difference between its market
capitalisation and net assets.
The Group reviews its identified Cash Generating Units ('CGUs') for the purpose
of testing goodwill on an annual basis, taking into consideration whether
assets generate independent cash inflows. The recoverable amounts of CGUs
are determined based on the higher of net realisable value and value in use
calculations. These calculations require the use of estimates.
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 purpose of testing goodwill. See note 12 for further details.
Acquired brands, trademarks and licences are considered to have finite lives that
range from 20 to 40 years for brands and trademarks and 10 years for licences.
The determination of the useful lives takes into account certain quantitative
factors such as sales expectations and growth prospects, and also many
qualitative factors such as history and heritage, and market positioning, hence
the determination of useful lives are subject to estimates and judgement. The
brands, trademarks and licences are deemed to be individual CGUs. For further
details see note 13.
3.3 Advertising and promotion costs
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 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 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.
Expenditure on advertising is charged to the statement of profit or loss when
incurred, except in the case of airtime costs when a particular campaign is used
more than once. In this case they are charged in line with the airtime profile.
3.4 Deferred tax assets
When assessing whether the recognition of a deferred tax asset can be justified,
and if so at what level, the directors take into account the following:
• Historic business performance
• Projected profits or losses included in the latest board approved forecast
and other relevant information that allow profits chargeable to corporation
tax to be derived
• The total level of recognised and unrecognised losses that can be used
to reduce future forecast taxable profits
• The period over which there is sufficient certainty that profits can be made
that would support the recognition of an asset
Further disclosures of the amounts recognised (and unrecognised) are contained
within note 8.
4. Segmental analysis
IFRS 8 requires operating segments to be determined based on the Group’s
internal reporting to the Chief Operating Decision Maker ('CODM'). The CODM
has been determined to be the Executive Leadership Team as it is primarily
responsible for the allocation of resources to segments and the assessment of
performance of the segments.
The Group's operating segments are defined as 'Grocery', 'Sweet Treats',
'International' and 'Knighton'. The Grocery segment primarily sells savoury ambient
food products and the Sweet Treats segment sells sweet ambient food products.
The International and Knighton segments have been aggregated within the Grocery
segment for reporting purposes as revenue is below 10 percent of the Group's total
revenue and the segments are considered to have similar characteristics to that of
Grocery. This is in accordance with the criteria set out in IFRS 8.
The CODM uses Divisional contribution as the key measure of the segments’
results. Divisional contribution is defined as gross profit after selling, marketing
and distribution costs. Divisional contribution is a consistent measure within the
Group and reflects the segments’ underlying trading performance for the period
under evaluation.
The Group uses trading profit to review overall group profitability. Trading profit
is defined as operating profit/(loss) before taxation before net finance costs,
amortisation of intangible assets, impairment, fair value movements on foreign
exchange and other derivative contracts, restructuring costs, profits and
losses associated with divestment activity and net interest on pensions and
administrative costs.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 68
Notes to the financial statements continued
4. Segmental analysis continued
The segment results for the period ended 1 April 2017 and for the period ended 2 April 2016 and the reconciliation of the segment measures to the respective
statutory items included in the consolidated financial statements are as follows:
Period ended 1 Apr 2017
Period ended 2 Apr 2016
Revenue
Divisional contribution
Group and corporate costs
Trading profit
Amortisation of intangible assets
Fair value movements on foreign exchange and other derivative contracts
Restructuring costs
Net interest on pensions and administrative expenses
Operating profit before impairment
Impairment of investments in associates
Operating profit
Finance cost
Finance income
Net movement on fair valuation of interest rate financial
Share of loss from associates
Profit/(loss) before taxation
Depreciation
Grocery
£m
563.1
129.9
Sweet Treats
£m
227.3
19.8
(7.7)
(8.5)
Total
£m
790.4
149.7
(32.7)
117.0
(37.9)
(1.0)
(15.8)
(0.8)
61.5
–
61.5
(51.6)
1.5
0.6
–
12.0
(16.2)
Grocery
£m
548.6
142.1
Sweet Treats
£m
223.1
25.0
(8.2)
(7.9)
Continuing
operations
£m
771.7
167.1
(38.3)
128.8
(37.6)
2.6
(11.2)
(14.5)
68.1
(13.6)
54.5
(48.1)
2.5
0.7
(22.6)
(13.0)
(16.1)
Revenues in the period ended 1 April 2017, on a continuing basis, from the Group’s four principal customers, which individually represent over 10% of total revenue,
are £172.7m, £115.4m, £95.2m and £84.6m (Period ended 2 April 2016: £164.7m, £124.1m, £92.8m and £92.4m).
Inter-segment transfers or transactions are entered into under the same terms and conditions that would be available to unrelated third parties.
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
United Kingdom
Other Europe
Rest of world
Total
Period ended
1 Apr 2017
Period ended
2 Apr 2016
£m
745.7
21.9
22.8
790.4
£m
735.5
18.8
17.4
771.7
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 Non-current assets
United Kingdom
5. Operating profit
5.1 Analysis of costs by nature
Employee benefits expense (note 6)
Depreciation of property, plant and equipment (note 11)
Amortisation of intangible assets (note 13)
Impairment of investment in associates (note 12, 14)
Loss on disposal of non-current assets
Operating lease rental expenditure
Repairs and maintenance expenditure
Research and development costs
Restructuring costs
Auditor remuneration (note 5.2)
Operating lease commitments are further disclosed in note 27.
5.2 Auditor remuneration
Fees payable to the Group’s auditor for the audit of the consolidated and parent company accounts of Premier Foods plc
Fees payable to the Group’s auditor and its associates for other services:
- The audit of the Group’s subsidiaries, pursuant to legislation
- Services relating to corporate finance transactions
Total auditor remuneration
The total operating profit charge for auditor remuneration was £0.4m (2015/16: £0.6m).
69
As at
1 Apr 2017
£m
As at
2 Apr 2016
£m
1,928.1
1,910.4
Period ended
1 Apr 2017
£m
(157.9)
(16.2)
(37.9)
–
(0.8)
(4.0)
(25.9)
(7.7)
(15.8)
(0.4)
Period ended
2 Apr 2016
£m
(147.6)
(16.1)
(37.6)
(13.6)
(1.8)
(4.0)
(23.7)
(6.9)
(11.2)
(0.6)
Period ended
1 Apr 2017
£m
(0.3)
(0.1)
–
(0.4)
Period ended
2 Apr 2016
£m
(0.4)
(0.1)
(0.1)
(0.6)
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 70
Notes to the financial statements continued
6. Employees
Employee benefits expense
Wages and salaries
Social security costs
Termination benefits
Share options granted to directors and employees1
Contributions to defined contribution schemes (note 23)
Total
Period ended
1 Apr 2017
Period ended
2 Apr 2016
£m
£m
(131.3)
(12.7)
(3.9)
(3.9)
(6.1)
(124.7)
(11.9)
(1.5)
(4.1)
(5.4)
(157.9)
(147.6)
1. This excludes £0.6m of accelerated share based payment charges which have been charged to restructuring costs. The total expense for share options granted to directors and employees is £4.5m.
Average monthly number of people employed (including executive and non executive directors):
Average monthly number of people employed
Management
Administration
Production, distribution and other
Total
2016/17
Number
2015/16
Number
632
463
3,037
4,132
611
419
2,842
3,872
Directors’ remuneration is disclosed in the audited section of the Directors Remuneration Report on pages 35 to 52, which form part of these consolidated
financial statements.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 7. Finance income and costs
Interest payable on bank loans and overdrafts
Interest payable on senior secured notes
Interest payable on revolving facility
Interest payable on interest rate derivatives
Other interest payable1
Amortisation of debt issuance costs
Write off of financing costs2
Total finance cost
Interest receivable on bank deposits
Total finance income
Movement on fair valuation of interest rate derivative financial instruments
Net finance cost
71
Period ended
1 Apr 2017
Period ended
2 Apr 2016
£m
(5.3)
(30.6)
(3.4)
(0.9)
(7.2)
(4.1)
(51.5)
(0.1)
(51.6)
1.5
1.5
0.6
£m
(5.1)
(30.8)
(5.9)
(1.2)
(0.3)
(4.4)
(47.7)
(0.4)
(48.1)
2.5
2.5
0.7
(49.5)
(44.9)
1.
Included in other interest payable is £5.6m (2015/16: £0.1m) relating to the unwind of the discount on certain of the Group's long-term provisions.
2. Relates to the securitisation facility in the period ended 2 April 2016, which terminated in January 2016.
The net movement on fair valuation of interest rate financial instruments relates to a £0.6m favourable movement on interest rate swaps held (2015/16: £0.7m favourable).
8. Taxation
Current tax
Deferred tax
– Current period
– Prior periods
– Adjustment to restate opening deferred tax at 17.0%
Income tax (charge)/credit
2016/17
2015/16
Total
£m
Continuing
operations
£m
Discontinued
operations
£m
(6.4)
1.1
(1.2)
(6.5)
51.9
(4.5)
(0.4)
47.0
1.0
-
-
1.0
Total
£m
52.9
(4.5)
(0.4)
48.0
Reductions in the UK corporation tax rate from 20.0% to 19.0% (effective from 1 April 2017) and to 18.0% (effective 1 April 2020) were substantively enacted
on 26 October 2015.
An additional reduction to 17.0% (effective from 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the Company’s future current tax
charge accordingly.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS
72
Notes to the financial statements continued
Current tax continued
Tax relating to items recorded in other comprehensive income included:
Deferred tax credit/(charge) on reduction of corporate tax rate
Deferred tax credit on losses
Deferred tax credit/(charge) on pension movements
Period ended
1 Apr 2017
Period ended
2 Apr 2016
£m
1.6
8.4
4.9
14.9
£m
(3.7)
–
(62.2)
(65.9)
The tax (charge)/credit for the period differs from the standard rate of corporation tax in the United Kingdom of 20.0% (2015/16: 20.0%). The reasons for this are
explained below:
Profit/(loss) before taxation
Tax (charge)/credit at the domestic income tax rate of 20.0% (2015/16: 20.0%)
Tax effect of:
Non-deductible items
Share of loss from associates
Adjustment for share-based payments
Previously unrecognised losses utilised
Adjustment due to current period deferred tax being provided at 17.0% (2015/16: 18.0%)
Movements in losses recognised
Adjustment to restate opening deferred tax at 17.0% (2015/16: 18.0%)
Adjustments to prior periods
Income tax (charge)/credit
Period ended
1 Apr 2017
Period ended
2 Apr 2016
£m
12.0
(2.4)
(1.0)
–
(0.9)
–
0.3
(2.5)
(1.1)
1.1
(6.5)
£m
(13.0)
2.6
(1.0)
(4.6)
(0.9)
0.1
0.4
55.3
(0.4)
(4.5)
47.0
The movements in losses recognised for the period ended 1 April 2017 of £(2.5m) relates to the derecognition of corporation tax losses, the future recoverability of
which is not certain. In the prior period, the £55.3m movement relates to the recognition of deferred tax assets to offset an increase in deferred tax liabilities.
The adjustments to prior periods of £1.1m relates to correction of prior period accelerated capital allowances following a change to the capital allowances claimed in
submitted returns. In the prior period, the £(4.5m) adjustment to prior periods related to the utilisation of losses in prior periods which arose following verification of
losses noted 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. In all cases this is 17.0% (2015/16: 18.0%) except for an asset of £48.4m (2015/16: £70.5m)
relating to corporation tax losses where a rate of 17.7% has been used.
At 3 April 2016 / 5 April 2015
(Charged)/credited to the statement of profit or loss
Credited/(charged) to other comprehensive income
(Charged)/credited to equity
At 1 April 2017 / 2 April 2016
The Group has recognised a deferred tax asset based on future taxable profits, derived from the latest Board approved forecasts.
2016/17
£m
2015/16
£m
25.9
(6.5)
14.9
(1.9)
32.4
41.9
48.0
(65.9)
1.9
25.9
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 73
The Group has not recognised deferred tax assets of £2.6m (2015/16: £nil) relating to UK corporation tax losses as the future recoverability of these losses is not
certain. In addition the Group has not recognised a tax asset of £34.8m (2015/16: £34.8m) relating to ACT and £46.2m (2015/16: £48.9m) relating to capital losses.
Under current legislation these can generally be carried forward indefinitely.
Deferred tax liabilities
At 5 April 2015
Prior year restatement of opening balances
– To statement of profit or loss
Current period credit
Prior period (charge)/credit
Charged to other comprehensive income
At 2 April 2016
At 3 April 2016
Prior period restatement of opening balances
– To statement of profit or loss
– To other comprehensive income
Current period credit/(charge)
Credited to other comprehensive income
At 1 April 2017
Deferred tax assets
At 5 April 2015
Prior period restatement of opening balances
– To statement of profit or loss
– To equity
Current period credit/(charge)
Prior year charge
– To statement of profit or loss
Charged to other comprehensive income
Credited to equity
Deferred tax credit on discontinued activities
At 2 April 2016
At 3 April 2016
Prior period restatement of opening balances
– To statement of profit or loss
– To equity
Current period credit/(charge)
Credited to other comprehensive income
Prior period credit/(charge)
– To statement of profit or loss
Charged to equity
At 1 April 2017
Intangibles
£m
(69.8)
7.0
2.1
(0.7)
–
(61.4)
(61.4)
3.4
–
1.8
–
(56.2)
Retirement
benefit obligation
£m
–
–
–
–
(23.8)
(23.8)
(23.8)
(0.3)
1.6
(0.3)
4.9
(17.9)
Other
£m
(4.0)
0.4
–
3.4
–
(0.2)
(0.2)
–
–
–
–
Total
£m
(73.8)
7.4
2.1
2.7
(23.8)
(85.4)
(85.4)
3.1
1.6
1.5
4.9
(0.2)
(74.3)
Accelerated tax
depreciation
£m
22.8
(2.2)
–
14.2
(1.2)
–
–
–
33.6
33.6
(1.8)
–
4.7
–
10.9
–
47.4
Retirement
benefit
obligation
Share based
payments
Financial
instruments
Losses
£m
43.0
(0.5)
(3.7)
0.8
(1.2)
(38.4)
–
–
–
–
–
–
–
–
–
–
–
£m
0.8
(0.1)
–
0.3
(0.1)
–
1.9
–
2.8
2.8
(0.1)
(0.1)
0.6
–
–
(1.8)
1.4
£m
2.9
(0.3)
–
(0.6)
–
–
–
–
2.0
2.0
(0.2)
–
(1.8)
–
–
–
–
£m
41.9
(4.2)
–
36.3
(4.5)
–
–
1.0
70.5
70.5
(2.1)
–
(10.2)
8.4
(9.8)
–
56.8
Other
£m
4.3
(0.4)
–
(0.2)
(1.3)
–
–
–
2.4
2.4
(0.1)
–
(1.2)
–
–
–
1.1
Total
£m
115.7
(7.7)
(3.7)
50.8
(8.3)
(38.4)
1.9
1.0
111.3
111.3
(4.3)
(0.1)
(7.9)
8.4
1.1
(1.8)
106.7
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 74
Notes to the financial statements continued
Deferred tax continued
Where there is a legal right of offset and an intention to settle as such, deferred tax assets and liabilities may be presented on a net basis. This is the case for most
of the Group’s deferred tax balances and therefore they have been offset in the tables above. Substantial elements of the Group’s deferred tax assets and liabilities,
primarily relating to the defined benefit pension obligation, are greater than one year in nature.
9. Earnings/(loss) per share
Basic earnings/(loss) per share has been calculated by dividing the profits attributable to owners of the parent of £5.5m (2015/16: £29.2m profit) by the weighted
average number of ordinary shares of the Company.
Weighted average shares
Weighted average number of ordinary shares for the purpose of basic earnings/(loss) per share
Effect of dilutive potential ordinary shares:
– Share options
Weighted average number of ordinary shares for the purpose of diluted earnings/(loss) per share
Earnings per share calculation
2016/17
Number
(000s)
2015/16
Number
(000s)
830,059
826,017
9,875
1,005
839,934
827,022
Continuing operations
Earnings after tax (£m)
Earnings per share (pence)
Discontinued operations
Loss after tax (£m)
Loss per share (pence)
Total
Earnings after tax (£m)
Earnings per share (pence)
Period ended 1 Apr 2017
Period ended 2 Apr 2016
Dilutive effect
of share
options
Basic
Diluted
Basic
Dilutive effect
of share
options
Diluted
5.5
0.7
–
–
5.5
0.7
0.0
–
0.0
5.5
0.7
–
–
5.5
0.7
34.0
4.1
(4.8)
(0.6)
29.2
3.5
0.0
0.0
0.0
34.0
4.1
(4.8)
(0.6)
29.2
3.5
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.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 75
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 20.0% (2015/16: 20.0%) divided by the weighted
average number of ordinary shares of the Company.
Net regular interest is defined as net finance costs after excluding write-off of financing costs, fair value movements on interest rate financial instruments and
other interest.
Trading profit and Adjusted EPS have been reported as the directors believe these assist in providing additional useful information on the underlying trends,
performance and position of the Group.
Trading profit
Less net regular interest
Adjusted profit before tax
Notional tax at 20.0%
Adjusted profit after tax
Average shares in issue (m)
Adjusted EPS (pence)
Net regular interest
Net finance cost
Exclude fair value movements on interest rate financial instruments
Exclude write-off of financing costs
Exclude other interest
Net regular interest
Period ended
1 Apr 2017
Period ended
2 Apr 2016
£m
117.0
(42.8)
74.2
(14.8)
59.4
830.1
7.2
(49.5)
(0.6)
0.1
7.2
(42.8)
£m
128.8
(44.9)
83.9
(16.8)
67.1
826.0
8.1
(44.9)
(0.7)
0.4
0.3
(44.9)
10. Discontinued operations
Income and expenditure incurred on discontinued operations during the period ended 2 April 2016 comprised costs relating to the Bread business which was
disposed of during the period ended 4 April 2015.
Revenue
Operating expenses
Operating loss before impairment
Impairment
Operating loss
Finance cost
Loss before taxation
Taxation credit
Loss after taxation from discontinued operations
Period ended
1 Apr 2017
Period ended
2 Apr 2016
£m
–
–
–
–
–
–
–
–
–
£m
–
(4.3)
(4.3)
–
(4.3)
(1.5)
(5.8)
1.0
(4.8)
During the period, discontinued operations contributed to a net outflow of £nil (2015/16: £3.7m outflow) to the Group’s operating cash flows, a net inflow of £nil
(2015/16: £nil) to investing activities and £nil (2015/16: £nil) to financing activities.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 76
Notes to the financial statements continued
11. Property, plant and equipment
The Group’s borrowings are secured on the assets of the Group including property, plant and equipment.
Cost
At 5 April 2015
Additions
Disposals
Acquisition of subsidiary
Transferred into use
At 2 April 2016
Additions
Disposals
Transferred into use
At 1 April 2017
Aggregate depreciation and impairment
At 5 April 2015
Depreciation charge
Disposals
At 2 April 2016
Depreciation charge
Disposals
At 1 April 2017
Net book value
At 2 April 2016
At 1 April 2017
Land and
buildings
£m
Vehicles, plant
and equipment
£m
Assets under
construction
£m
98.3
0.2
–
2.4
0.8
101.7
0.7
(0.9)
0.5
240.7
14.6
(4.9)
–
24.2
274.6
6.3
(1.3)
5.0
102.0
284.6
(35.6)
(1.9)
–
(37.5)
(1.9)
0.4
(39.0)
64.2
63.0
(146.4)
(14.2)
2.8
(157.8)
(14.3)
1.0
(171.1)
116.8
113.5
29.1
5.5
–
–
(25.0)
9.6
9.7
–
(5.5)
13.8
(2.8)
–
–
(2.8)
–
–
(2.8)
6.8
11.0
Total
£m
368.1
20.3
(4.9)
2.4
–
385.9
16.7
(2.2)
–
400.4
(184.8)
(16.1)
2.8
(198.1)
(16.2)
1.4
(212.9)
187.8
187.5
The Group’s borrowings are secured on the assets of the Group including property, plant and equipment.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 12. Goodwill
Carrying value
Opening balance
Acquisition of subsidiary
Fair value adjustments on acquisition of subsidiary
Closing balance
Goodwill attached to each of the Group’s CGUs is as follows:
Grocery
Knighton
Net carrying value of goodwill
77
As at
1 Apr 2017
£m
As at
2 Apr 2016
£m
649.8
–
0.5
650.3
646.0
3.8
–
649.8
As at
1 Apr 2017
As at
2 Apr 2016
£m
646.0
4.3
650.3
£m
646.0
3.8
649.8
Key assumptions
The key assumptions for calculating value in use are cash flows, long-term growth rate and discount rate.
Cash flow assumptions
The cash flows used in the value in use calculation are pre-tax cash flows based on the latest Board approved budget for the first year and the latest Board
approved forecasts in respect of the following two years. An estimate of capital expenditure required to maintain these cash flows is also made.
The key assumptions when forecasting cash flows are revenue growth and divisional contribution margin.
Revenue growth is forecast based on known or forecast customer sales initiatives, including, to the extent agreed, customer business plans or agreements for the
next period, current and forecast new product development, promotional and marketing strategy, and specific category or geographical growth. External factors,
including the consumer environment, are also taken into account in the more short-term forecasts. The compound annual growth rate over the three year forecast
period is 0.5% (2015/16: 2.2%).
Divisional contribution margin is forecast based on the projected mix of branded and non-branded sales, supply chain costs, raw material input costs, purchasing
initiatives and selling costs.
Long-term growth rate assumptions
For the purposes of impairment testing, the three year Board approved forecasts are extrapolated into perpetuity using growth assumptions relevant for the business
sector. The growth rate applied of 2.00% (2015/16: 2.50%) is based on the long-term growth in UK GDP as the directors expect food consumption to follow GDP
growth. This is not considered to be higher than the average long-term industry growth rate. The long-term growth rate is common to all CGUs.
Discount rate assumptions
The discount rate applied to the cash flows is calculated using a pre-tax rate based on the weighted average cost of capital ('WACC') which would be anticipated
for a market participant investing in the Group. The Directors believe it is appropriate to use a single common discount rate for all impairment testing as each CGU
shares similar risk profiles.
The Group has considered the impact of the current economic climate in determining the appropriate discount rate to use in impairment testing. At 1 April 2017,
the pre-tax rate used to discount the forecasted cash flows has been determined to be 9.8% (2015/16: 9.5%).
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 78
Notes to the financial statements continued
Sensitivity analysis
An illustration of the sensitivity to reasonably possible changes in key assumptions in the impairment test for the Grocery CGU is as follows:
Reasonably possible change in assumption
Impact on value in use
Revenue growth
Divisional contribution margin
Long-term growth rate
Discount rate
Increase/decrease by 2.0%
Increase/decrease by 2.0%
Increase/decrease by 0.4%
Increase/decrease by 0.5%
Increase/decrease by £139.6m/£144.8m
Increase/decrease by £124.0m/£123.4m
Increase/decrease by £71.9m/£63.4m
Decrease/increase by £91.1m/£106.5m
Under each of the above sensitivities no individual scenario would trigger an impairment for the Grocery CGU.
Impairment charge
There has been no goodwill or intangible asset impairment recognised in 2016/17 (2015/16: £nil). A total impairment charge of £13.6m was recognised in 2015/16
relating to the Group’s investments in Hovis Holdings Limited ('Hovis') (£9.3m) and Knighton Foods Investments Limited ('Knighton') (£4.3m). The impairment related
to Hovis reflected the highly competitive bread industry and the significant losses made in that period. The impairment related to Knighton reflected the challenging
market conditions faced by the Knighton business.
13. Other intangible assets
Cost
At 5 April 2015
Additions
Transferred into use
At 2 April 2016
Additions
Transferred into use
At 1 April 2017
Accumulated amortisation and impairment
At 5 April 2015
Amortisation charge
At 2 April 2016
Amortisation charge
At 1 April 2017
Net book value
At 2 April 2016
At 1 April 2017
Brands/
trademarks/
licences
£m
Software
£m
Customer
relationships
£m
Assets under
construction
£m
114.8
2.9
10.6
128.3
2.1
2.5
132.9
(71.7)
(11.6)
(83.3)
(12.2)
(95.5)
45.0
37.4
693.2
134.8
–
–
–
–
693.2
134.8
–
–
–
–
693.2
134.8
(219.0)
(26.0)
(245.0)
(25.7)
(270.7)
448.2
422.5
(134.8)
–
(134.8)
–
(134.8)
–
–
11.1
2.3
(10.6)
2.8
3.8
(2.5)
4.1
–
–
–
–
–
2.8
4.1
Total
£m
953.9
5.2
–
959.1
5.9
–
965.0
(425.5)
(37.6)
(463.1)
(37.9)
(501.0)
496.0
464.0
All amortisation is recognised within administrative costs. Included in the assets under construction additions for the period are £1.3m (2015/16: £0.8m) of internal
costs. The Group’s borrowings are secured on the assets of the Group including other intangible assets.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 The material brands held on the balance sheet are as follows:
Bisto
OXO
Batchelors
Sharwood's
Mr Kipling
79
Carrying value
at 1 Apr 2017
£m
Estimated
useful life
remaining
Years
119.8
80.7
62.5
56.6
46.5
20
30
20
20
20
14. Associates
In the 52 weeks ended 2 April 2016, a total impairment charge of £13.6m was recognised relating to the Group’s investments in Hovis and Knighton.
At 2 April 2016, the Group owned 49% of the ordinary share capital of Knighton. On 24 May 2016, the Group acquired the remaining 51% of the ordinary share capital
of Knighton.
At 5 April 2015
Interest receivable
Share of loss from associates
Impairment charge
At 2 April 2016 and 1 April 2017
Hovis
£m
22.6
0.8
(14.1)
(9.3)
–
Knighton
£m
12.6
0.2
(8.5)
(4.3)
–
Total
£m
35.2
1.0
(22.6)
(13.6)
–
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 80
Notes to the financial statements continued
15. Investments
In accordance with Section 409 of the Companies Act 2006 and The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, as
amended by The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015, a full list of subsidiary undertakings, associate undertakings and
joint operations (showing the country of incorporation, registered address and effective percentage of equity shares held) as at 1 April 2017 is disclosed below.
Company
% Held by Parent
Company of the
Group
% held by Group
companies, if
different
Share Class
Country
Registered Address
Premier Foods Investments No.1 Limited
100%
N/A
£1.00 Ordinary shares
England & Wales
Premier House, Griffiths Way,
St Albans, Hertfordshire, AL1 2RE
Premier Foods Investments Limited
Premier Foods Finance plc
RHM Limited
RHM Group Holding Limited
RHM Group Two Limited
RHM Group Three Limited
Premier Foods Group Services Limited
Premier Foods Group Limited
Centura Foods Limited
Premier Foods (Holdings) Limited
H.L. Foods Limited
Hillsdown Europe Limited
Premier Financing Limited
CH Old Co Limited
Hillsdown International Limited
Premier International Foods UK Limited
RH Oldco Limited
Alpha Cereals Unlimited
RHM Frozen Foods Limited
RHM Overseas Limited
Knighton Foods Investments Limited
Knighton Foods Limited
Knighton Foods Properties Limited
Hovis Holdings Limited
Hovis Limited
Citadel Insurance Company Limited
Diamond Foods Lebensmittelhandel GmbH
Premier Brands Limited
Premier Foods, Inc.
Premier Grocery Products Ireland Limited
Premier Foods Ireland Manufacturing Limited
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
100% £1.00 Ordinary shares
100% £1.00 Ordinary shares
100% £0.001 Ordinary-a shares
100% £0.10 Ordinary shares
100% £0.01 Ordinary shares
100% £0.01 Ordinary shares
100% £0.01 Ordinary shares
100% £0.25 Ordinary shares
100% £1.20 Ordinary shares
100% £1.00 Ordinary shares
100% £1.00 Ordinary shares
100% £2.90 Ordinary shares
100% £1.00 Ordinary shares
100% £1.00 Ordinary shares
100% £1.00 Ordinary shares
100% £1.00 Ordinary shares
100% £1.00 Ordinary shares
100% £0.05 Ordinary shares
100% £1.00 Ordinary shares
100% £1.00 Ordinary shares
100% £1.00 Ordinary shares
100% £1.00 Ordinary shares
100% £1.00 Ordinary shares
49% £0.01 Ordinary shares
49% £0.01 Ordinary shares
100% £1.00 Ordinary Shares
Isle of Man
100% €0.5113 Ordinary shares
Germany
100% £1.00 Ordinary shares
Scotland
100% USD$0.01 Common Stock
United States
shares
100% €1.00 Ordinary shares
Ireland
€1.26 Ordinary shares
Ioma House, Hope Street,
Douglas, Isle of Man, IM1 1AP
Cecilienallee 6, Dusseldorf, 40474,
Germany
Summit House, 4-5 Mitchell
Street, Edinburgh, Scotland,
EH6 7BD
The Corporation, Trust Company,
Corporation Trust Centre, 1209
Orange Street, DE 19801, USA
25-28 North Wall, Quay,
Dublin 1, Ireland
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 81
16. Ownership of subsidiaries/businesses
On 1 April 2016, the Group gained control (as defined under IFRS 10) of Knighton, in which the Group already held 49% of the ordinary share capital and associated
voting rights.
On 24 May 2016, the Group acquired the remaining 51% of the ordinary share capital of Knighton.
Goodwill of £4.3m is attributable to the intellectual property of Knighton and synergies which arose on acquisition.
Given the proximity of the transfer of control to 2 April 2016, the values of identifiable assets and liabilities acquired were provisional. During the period, a fair value
adjustment has been made in respect of provisions for liabilities that existed at the acquisition date but for which information was not available.
The following table summarises the consideration for Knighton, and the amounts of the assets acquired and liabilities assumed.
Recognised amounts of identifiable assets acquired
and liabilities assumed
Property, plant & equipment
Inventories
Trade and other receivables
Trade and other payables
Cash and cash equivalents
Financial liabilities – borrowings and other loans
Total identifiable net liabilities
Non-controlling interest
Goodwill
Equity
Total consideration
As at
2 April 2016
Provisional
values on
acquisition
£m
2.4
7.0
9.2
(16.2)
(0.2)
(9.9)
(7.7)
3.9
3.8
–
–
Purchase of
NCI
£m
Fair value
adjustments
£m
–
–
–
–
–
–
–
(3.9)
–
3.9
–
–
–
–
(0.5)
–
–
(0.5)
–
0.5
–
–
As at
1 Apr 2017
Fair values
£m
2.4
7.0
9.2
(16.7)
(0.2)
(9.9)
(8.2)
–
4.3
3.9
–
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 82
Notes to the financial statements continued
17. Inventories
Raw materials
Work in progress
Finished goods and goods for resale
Total inventories
Inventory write-offs in the period amounted to £4.7m (2015/16: £2.0m).
The borrowings of the Group are secured against all the assets of the Group including inventories.
18. Trade and other receivables
Trade receivables
Trade receivables provided for
Net trade receivables
Prepayments
Other tax and social security receivable
Other receivables
Total trade and other receivables
As at
1 Apr 2017
As at
2 Apr 2016
£m
13.8
2.9
54.6
71.3
£m
12.2
3.4
47.6
63.2
As at
1 Apr 2017
As at
2 Apr 2016
£m
53.8
(6.7)
47.1
12.5
5.1
0.4
65.1
£m
102.8
(19.8)
83.0
12.5
4.4
0.6
100.5
The borrowings of the Group are secured against all the assets of the Group including trade and other receivables.
During 2016, the Group entered into a Receivables Financing Agreement pursuant to which the Group assigns various receivables owed to it in return for funding.
Receivables are only eligible for sale if they meet certain criteria. The facility limit is £30 million. As at 1 April 2017, £30 million was drawn.
19. Trade and other payables
Trade payables
Commercial accruals
Tax and social security payables
Other payables and accruals
Total trade and other payables
As at
1 Apr 2017
As at
2 Apr 2016
£m
(132.5)
(38.6)
(5.0)
(15.6)
(191.7)
£m
(137.8)
(35.9)
(4.8)
(26.2)
(204.7)
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 20. Bank and other borrowings
Current:
Bank overdrafts
Finance lease obligations
Total borrowings due within one year
Non-current:
Secured senior credit facility – revolving
Transaction costs
Bank term loan
Senior secured notes
Transaction costs
Securitisation facility
Total borrowings due after more than one year
Total bank and other borrowings
83
As at
1 Apr 2017
£m
(21.2)
(0.1)
(21.3)
(22.0)
5.6
(16.4)
–
–
(500.0)
11.4
(488.6)
–
–
(505.0)
(526.3)
As at
2 Apr 2016
£m
(0.2)
(0.2)
(0.4)
(55.0)
6.9
(48.1)
(1.5)
(1.5)
(500.0)
14.2
(485.8)
(6.4)
(6.4)
(541.8)
(542.2)
Revolving credit facility
The revolving credit facility of £272m is due to mature in March 2019 and attracts a leverage based margin of between 2.5% and 4.0% above LIBOR. Banking
covenants of net debt / EBITDA and EBITDA / interest are in place and are tested biannually.
The Group entered into a three year floating to fixed interest rate swap in June 2014, with a nominal value of £150m amortising to £50m, attracting a swap rate
of 1.44%.
Term loan
The term loan at the prior period end related to that of Knighton and would have matured in October 2018, priced at 2.75% above LIBOR. This was repaid during
the period.
Securitisation facility
The securitisation facility drawn at the prior period end related to that of Knighton and would have matured in October 2018, priced at 2.25% above LIBOR.
This was repaid during the period.
Senior secured notes
The senior secured notes are listed on the Irish GEM Stock Exchange. The notes totalling £500m are split between fixed and floating tranches. The fixed note of
£325m matures in March 2021 and attracts an interest rate of 6.50%. The floating note of £175m matures in March 2020 and attracts an interest rate of 5.00%
above LIBOR.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 84
Notes to the financial statements continued
21. Financial instruments
The Group’s activities expose it to a variety of financial risks: market risk (arising
from adverse movements in foreign currency, commodity prices and interest
rates), credit risk and liquidity risk. The Group uses a variety of derivative financial
instruments to manage certain of these risks. The management of these risks,
along with the day-to-day management of treasury activities is performed by
the Group Finance function. The policy framework governing the management
of these risks is defined by the Board. The framework for management of these
risks is incorporated into a policies and procedures manual.
The Group also enters into contracts with suppliers for its principal raw
material requirements, some of which are considered commodities, diesel
and energy. These commodity and energy contracts are part of the Group's
normal purchasing activities. Some of the risk relating to diesel is mitigated
with the use of derivative financial instruments. The Treasury Risk Management
Committee monitors and reviews the Group’s foreign currency exchange,
commodity price and energy price exposures and recommends appropriate
hedging strategies for each.
(a) Market risk
i) Foreign exchange risk
The Group’s main operating entities’ functional currency and the Group’s
presentational currency is sterling although some transactions are executed
in non-sterling currencies, including euros and US dollars. The transactional
amounts realised or settled are therefore subject to the effect of movements in
these currencies against sterling. Management of these exposures is centralised
and managed by the Group Finance function. It is the Group's policy to manage
the exposures arising using forward foreign currency exchange contracts and
currency options. Hedge accounting is not sought for these transactions.
The Group generates some of its profits in non-sterling currencies and has
assets in non-sterling jurisdictions, principally the euro.
The principal foreign currency affecting the translation of subsidiary
undertakings within the Group financial statements is the euro. The rates
applicable are as follows:
Principal rate of exchange: euro/sterling
Period ended
Average
Period ended
1 Apr 2017
Period ended
2 Apr 2016
1.1695
1.1903
1.2536
1.3584
The majority of the Group’s assets and liabilities are denominated in the
functional currency of the relevant subsidiary.
The table below shows the Group's currency exposures as at 1 April 2017
and 2 April 2016 that gave rise to net currency gains and losses recognised
in the consolidated statement of profit or loss as a result of monetary assets
and liabilities that are not denominated in the functional currency of the
subsidiaries involved.
Functional currency of subsidiaries
– Sterling
As at
1 Apr 2017
£m
(7.1)
0.8
(6.3)
As at
2 Apr 2016
£m
(3.3)
0.1
(3.2)
Net foreign currency monetary assets:
– Euro
– US dollar
Total
In addition the Group also has forward foreign currency exchange contracts
outstanding at the period end in order to manage the exposures above but also
to hedge future transactions in foreign currencies. The sterling nominal amounts
outstanding are as follows:
Euro
US dollar
Total
As at
1 Apr 2017
As at
2 Apr 2016
£m
(34.9)
–
(34.9)
£m
(21.9)
(0.6)
(22.5)
Sensitivities are disclosed below using the following reasonably possible scenarios:
If the US dollar were to weaken against sterling by 20 US dollar cents, with
all other variables held constant, profit after tax would increase by £0.1m
(2015/16: £nil).
If the US dollar were to strengthen against sterling by 20 US dollar cents, with
all other variables held constant, profit after tax would decrease by £0.1m
(2015/16: £0.1m increase).
If the euro were to weaken against sterling by 10 euro cents, with all other variables
held constant, profit after tax would decrease by £2.1m (2015/16: £1.2m decrease).
If the euro were to strengthen against sterling by 10 euro cents, with all other
variables held constant, profit after tax would increase by £1.8m (2015/16:
£1.4m increase).
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 85
This is primarily driven by the effect on the mark to market valuation of the
foreign exchange derivatives of the Group where the hedged rates differ from
the spot rate.
Fixed rate derivative financial liabilities constitute two (2015/16: two) floating to
fixed interest rate swaps with a notional value of £25m each and a total notional
value of £50m (2015/16: £100m). These mature in December 2017.
(ii) Commodity price risk
The Group purchases a variety of commodities for use in production and
distribution which can experience significant price volatility, which include, inter-
alia, dairy, wheat, cocoa, edible oils, diesel and energy. The price risk on these
commodities is managed by the Group through the Treasury Risk Management
Committee. It is the Group’s policy to minimise its exposure to this volatility by
adopting an appropriate forward purchase strategy or by the use of derivative
financial instruments where they are available.
(iii) Interest rate risk
The Group’s borrowing facilities comprise senior secured notes and a revolving
facility, in sterling. Interest is charged at floating rates plus a margin on the
amounts drawn down, and at 40% for the non-utilised portion of the facility,
hence the borrowings are sensitive to changes in interest rates.
The Group then seeks to mitigate the effect of adverse movements in interest
rates by entering into derivative financial instruments that reduce the level of
exposure to floating rates. The target of fixed/capped debt is defined in the
Group Treasury policy and procedures, however, the amount hedged can be
amended subject to agreement by the Board. Hedge accounting is not sought
for these transactions.
The gross cash flows on the interest rate derivatives are sensitive to changes in
interest rates as they are driven by three month LIBOR which is reset on a quarterly
basis. As at 1 April 2017 the reset rate was 0.3439% (2015/16: 0.5875%).
The weighted average interest rate for these derivative financial instruments
is as follows:
Cash and deposits earn interest at floating rates based on banks’ short-term
treasury deposit rates. Short-term trade and other receivables are interest-free.
At 1 April 2017, for every 50 basis points reduction in rates below the last floating
reset rate of 0.3439% (2015/16: 0.5875%) (based on three month LIBOR) with all
other variables held constant, annualised net interest expense would decrease
by £0.6m (2015/16: £0.5m decrease).
At 1 April 2017, if interest rates were 200 basis points higher than the last floating
reset rate of 0.3439% (2015/16: 0.5875%) (based on three month LIBOR), with all
other variables held constant, annualised net interest expense would increase by
£2.4m (2015/16: £2.1m increase).
The Group’s other financial assets and liabilities are not exposed to material
interest rate risk.
(b) Credit risk
The Group’s principal financial assets are cash and cash equivalents and trade
and other receivables.
Cash and cash equivalents are deposited with high-credit quality financial
institutions and although a significant amount of sales are to a relatively small
number of customers these are generally the major grocery retailers whose
credit risk is considered low.
At 1 April 2017, trade and other receivables of £15.4m (2015/16: £18.5m) were
past due but not impaired. These relate to customers with whom there is no
history of default.
As at 1 April 2017
As at 2 April 2016
Weighted
average
interest rate
%
1.4
1.4
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 86
Notes to the financial statements continued
(b) Credit risk continued
The ageing of trade and other receivables was as follows:
Trade and other receivables
As at 1 April 2017
As at 2 April 2016
Fully
performing
£m
32.1
65.1
Past due
1–30 days
31–60 days
61–90 days
91–120 days
120+ days
£m
10.4
7.6
£m
3.0
3.4
£m
0.1
3.0
£m
0.3
1.1
£m
1.6
3.4
Total
£m
47.5
83.6
At 1 April 2017, trade and other receivables of £6.7m (2015/16: £19.8m) were determined to be specifically impaired and provided for. The total includes receivables
from customers which are considered to be experiencing difficult economic situations.
The Group does not hold any collateral as security against its financial assets.
Movements in the provision for impairment of trade receivables are as follows:
As at 3 April 2016 / 5 April 2015
Receivables written off during the period as uncollectable
Acquisition of subsidiary
Provision for receivables impairment raised
As at 1 April 2017 / 2 April 2016
2016/17
2015/16
£m
19.8
(16.7)
–
3.6
6.7
£m
29.5
(15.2)
0.5
5.0
19.8
(c) Liquidity risk
The Group manages liquidity risk through both the treasury and finance functions. Cash flow forecasts are prepared and reviewed on a weekly basis, normally
covering a period of three months.
In addition, cash flow forecasts are prepared as part of the Group’s overall budgeting and forecasting processes and performance is monitored against this each
month. This is intended to give the Board sufficient forward visibility of debt levels.
The Group’s net debt level can vary from month to month and there is some volatility within months. This reflects seasonal trading patterns, timing of receipts from
customers and payments to suppliers, patterns of inventory holdings and the timing of the spend on major capital and restructuring projects. For these reasons the
debt levels at the period end date may not be indicative of debt levels at other points throughout the period.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 87
The following table analyses the Group’s financial liabilities into relevant maturity groupings based on the contractual undiscounted cash flows.
Within 1 year
£m
1 and 2 years
£m
2 and 3 years
£m
3 and 4 years
£m
4 and 5 years
£m
Over 5 years
£m
Total
£m
At 1 April 2017
Trade and other payables
Bank overdraft
Senior secured notes - fixed
Senior secured notes - floating
Secured senior credit facility – revolving
Finance lease obligations
At 2 April 2016
Trade and other payables
Bank overdraft
Bank term loan
Senior secured notes – fixed
Senior secured notes – floating
Secured senior credit facility – revolving
Finance lease obligations
Securitisation facility
(186.7)
(21.2)
–
–
–
(0.1)
(199.9)
(0.2)
–
–
–
–
(0.2)
–
–
–
–
–
(22.0)
–
–
–
–
–
–
–
–
–
–
–
–
(175.0)
–
–
–
–
(1.5)
–
–
(55.0)
–
(6.4)
–
–
(325.0)
–
–
–
–
–
–
–
(175.0)
–
–
–
–
–
–
–
–
–
–
–
–
(325.0)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(186.7)
(21.2)
(325.0)
(175.0)
(22.0)
(0.1)
(199.9)
(0.2)
(1.5)
(325.0)
(175.0)
(55.0)
(0.2)
(6.4)
The senior secured notes - floating and secured senior credit facility - revolving are re-priced quarterly to LIBOR, and other liabilities are not re-priced before the
maturity date.
At 1 April 2017 the Group had £220.1m (2015/16: £201.8m) of facilities not drawn expiring between one and two years (2015/16: two and three years).
The borrowings are secured by a fixed and floating charge over all the assets of the Group.
The following table analyses the contractual undiscounted cash flows of interest on the floating rate debt to maturity (based on the last fixed rate reset of 0.3439%
(2015/16: 0.5875%) plus applicable margin).
At 1 April 2017
At 2 April 2016
Within 1 year
£m
1 and 2 years
£m
2 and 3 years
£m
3 and 4 years
£m
4 and 5 years
£m
Over 5 years
£m
10.3
12.1
9.5
10.0
9.4
9.8
–
9.8
–
–
–
–
Total
£m
29.2
41.7
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 88
Notes to the financial statements continued
(c) Liquidity risk continued
The following table analyses the Group’s derivative financial instruments into relevant maturity groupings based on the remaining period at the balance sheet date to
the contractual maturity date. The amounts disclosed are the undiscounted cash flows.
Within 1 year
£m
1 and 2 years
£m
2 and 3 years
£m
3 and 4 years
£m
4 and 5 years
£m
Over 5 years
£m
Total
£m
At 1 April 2017
Forward foreign exchange contracts:
– Outflow
– Inflow
Commodities:
– Outflow
Interest rate swaps:
– Outflow
– Inflow
Total derivative financial instruments
At 2 April 2016
Forward foreign exchange contracts:
– Outflow
– Inflow
Commodities:
– Outflow
Interest rate swaps:
– Outflow
– Inflow
Total derivative financial instruments
(34.9)
34.4
(1.8)
(0.7)
0.2
(2.8)
(22.5)
24.1
(3.3)
(1.3)
0.5
(2.5)
–
–
–
–
–
–
–
–
–
(0.7)
0.3
(0.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(34.9)
34.4
(1.8)
(0.7)
0.2
(2.8)
(22.5)
24.1
(3.3)
(2.0)
0.8
(2.9)
The above table incorporates the contractual cash flows of the interest rate derivatives with floating rates of interest calculated based on LIBOR of 0.3439% (2015/16:
0.5875%) at the balance sheet date.
(d) Fair value
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.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 89
Set out below is a summary of methods and assumptions used to value each category of financial instrument.
Loans and receivables:
Cash and cash equivalents
Trade and other receivables
Financial assets at fair value through profit or loss:
Derivative financial instruments
– Forward foreign currency exchange contracts
– Commodity and energy derivatives
Financial liabilities at fair value through profit or loss:
Derivative financial instruments
– Forward foreign currency exchange contracts
– Commodity and energy derivatives
– Interest rate swaps
– Other financial liabilities
Financial liabilities at amortised cost:
Trade and other payables
Senior secured notes
Senior secured credit facility – revolving
Bank term loan
Bank overdraft
Finance lease obligations
Securitisation facility
As at 1 Apr 2017
As at 2 Apr 2016
Carrying
amount
£m
Fair
value
£m
Carrying
amount
£m
3.1
47.5
–
0.1
(0.5)
–
(0.4)
(2.0)
(186.7)
(500.0)
(22.0)
–
(21.2)
(0.1)
–
3.1
47.5
–
0.1
(0.5)
–
(0.4)
(2.0)
(186.7)
(502.9)
(22.0)
–
(21.2)
(0.1)
–
8.0
83.6
1.6
–
–
(1.0)
(1.0)
–
(199.9)
(500.0)
(55.0)
(1.5)
(0.2)
(0.2)
(6.4)
Fair
value
£m
8.0
83.6
1.6
–
–
(1.0)
(1.0)
–
(199.9)
(511.7)
(55.0)
(1.5)
(0.2)
(0.2)
(6.4)
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 90
Notes to the financial statements continued
(d) Fair value continued
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).
Financial assets at fair value through profit or loss:
Derivative financial instruments
– Forward foreign currency exchange contracts
– Commodity derivatives
Financial liabilities at fair value through profit or loss:
Derivative financial instruments
– Forward foreign currency exchange contracts
– Commodity derivatives
– Interest rate swaps
Financial liability
Financial liabilities at amortised cost:
Senior secured notes
As at 1 Apr 2017
As at 2 Apr 2016
Level 1
£m
Level 2
£m
Level 1
£m
Level 2
£m
–
–
–
–
–
–
–
0.1
(0.5)
–
(0.4)
(2.0)
–
–
–
–
–
–
(502.9)
–
(511.7)
1.6
–
–
(1.0)
(1.0)
–
–
Fair value estimation
Derivatives
Forward exchange contracts are marked to market using prevailing market prices. Hedge accounting has not been applied to forward contracts and as a result the
movement in the fair value of £2.1m has been charged to the statement of profit or loss in the period (2015/16: £2.5m credit).
Commodity derivatives are marked to market using prevailing prices and are also not designated for hedge accounting. As a result the fair value movement of £1.1m
has been credited to the statement of profit or loss (2015/16: £0.1m credit).
Interest rate swaps are marked to market using prevailing market prices. Interest rate swaps are also not designated for hedge accounting. As a result the movement
in the fair value of £0.6m has been credited to the statement of profit or loss in the period (2015/16: £0.7m credit).
Short and long-term borrowings, loan notes and interest payable
Fair value is calculated based on discounted expected future principal and interest rate cash flows. The fair value of the floating rate debt approximates the carrying
value above.
Trade and other receivables/payables
The carrying value of receivables/payables with a remaining life of less than one year is deemed to reflect the fair value given their short maturity. The fair values of
non-current receivables/payables are also considered to be the same as the carrying value due to the size and nature of the balances involved.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 91
(e) Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and
benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may return capital to shareholders, issue new shares, or sell assets to reduce debt.
The directors do not recommend the payment of a dividend for the period ended 1 April 2017 (2015/16: £nil).
Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net
debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as equity plus net debt.
The gearing ratios at the balance sheet date were as follows:
Total borrowings
Less cash and cash equivalents
Net debt
Total equity
Total capital
Gearing ratio
As at
1 Apr 2017
As at
2 Apr 2016
£m
(526.3)
3.1
(523.2)
(792.8)
£m
(542.2)
8.0
(534.2)
(848.5)
(1,316.0)
(1,382.7)
40%
39%
Gearing is flat year on year due to a relatively unchanged RHM Pension Scheme surplus.
Under the Group’s financing arrangement, the Group is required to meet two covenant tests which are calculated and tested on a 12 month rolling basis at the half
year and full year, each year. The Group has complied with these tests at 1 October 2016 and 1 April 2017.
(f) Financial compliance risk
Risk
The Group continues to operate with a high level of net debt of £523.2m (2015/16: £534.2m) and is subject to operating within banking covenants set out in its
refinancing agreement agreed with its banking syndicate, which include net debt/EBITDA and EBITDA/interest covenant tests. 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 their
funding to the Group.
In addition to covenant compliance the Group must ensure that it manages its liquidity such that it has sufficient funds to meet its obligations as they fall due.
It also supports three defined benefit pension schemes in the UK; two of the three schemes have significant technical funding deficits which could have an adverse
impact on the financial condition of the Group.
Mitigation
The Group has financing arrangements which provide funding until 2021.
The Group reviews its performance on an ongoing basis and formally tests and reports on covenant compliance to the Group's banking syndicate at each reporting
date. In the event of a forecast covenant breach the Group would seek a covenant waiver or amendment from its banking syndicate.
The Group manages liquidity risk through the Group Finance functions. Cash flow forecasts are prepared and reviewed on a weekly basis, normally covering a period
of three months. In addition, cash flow forecasts are prepared as part of the Group’s overall budgeting and forecasting processes and performance is monitored
against this each month.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 92
Notes to the financial statements continued
Mitigation continued
Funding agreements have been reached with the trustees of the pension schemes which fixes deficit contributions until the finalisation of the next triennial valuations
due in March / April 2019, subject to amendment in the event that the Company recommences payment of dividends. The Group continues to monitor the pension
risks closely, working with the trustees to ensure a collaborative approach.
22. Provisions for liabilities and charges
Property provisions primarily relate to provisions for non-operational leasehold properties, dilapidations against leasehold properties and environmental liabilities. The
costs relating to certain non-operational leasehold properties and dilapidation provisions will be incurred over a number of years in accordance with the length of the
leases. Other provisions primarily relate to insurance claims and provisions for restructuring costs. These provisions have been discounted at rates between 0.30%
and 1.72%. The unwinding of the discount is charged to the statement of profit or loss under finance cost.
At 5 April 2015
Utilised during the period
Additional charge in the period
Unwind of discount
Acquisition of subsidiary
Released during the period
At 2 April 2016
Utilised during the period
Additional charge in the period
Unwind of discount
Released during the period
Retranslation of foreign currency balances
At 1 April 2017
Analysis of total provisions:
Non-current
Current
Total
Property
£m
(33.9)
2.4
(2.2)
(1.5)
–
2.4
(32.8)
1.3
(1.5)
(5.6)
4.6
–
(34.0)
Other
£m
(26.3)
1.8
(2.5)
(0.1)
(0.1)
6.4
(20.8)
4.4
(5.7)
–
3.1
(0.1)
(19.1)
Total
£m
(60.2)
4.2
(4.7)
(1.6)
(0.1)
8.8
(53.6)
5.7
(7.2)
(5.6)
7.7
(0.1)
(53.1)
As at
1 Apr 2017
As at
2 Apr 2016
£m
(43.1)
(10.0)
(53.1)
£m
(47.3)
(6.3)
(53.6)
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 93
23. Retirement benefit schemes
Defined benefit schemes
The Group operates a number of defined benefit schemes under which current
and former employees have built up an entitlement to pension benefits on their
retirement. These are as follows:
(a) The Premier schemes, which comprise:
Premier Foods Pension Scheme ('PFPS')
Premier Grocery Products Pension Scheme ('PGPPS')
Premier Grocery Products Ireland Pension Scheme ('PGPIPS')
Chivers 1987 Pension Scheme
Chivers 1987 Supplementary Pension Scheme
(b) The RHM schemes, which comprise:
RHM Pension Scheme
Premier Foods Ireland Pension Scheme
The most recent triennial actuarial valuation of the PFPS, the PGPPS and RHM
pension schemes were carried out on 31 March 2016 / 5 April 2016 to establish
ongoing funding arrangements. Deficit recovery plans have been agreed with
the Trustees of each of the PFPS and PGPPS. The RHM Pension Scheme was
in surplus and no deficit contributions are payable. On 28 March 2017, and
following the finalisation of the triennial actuarial valuation, the Group announced
it had agreed a revised schedule of pension payments with the Trustees of the
pension schemes.
Actuarial valuations for the schemes based in Ireland took place during the
course of 2013 and 2014. They are all due further valuations in 2016 and 2017,
the results of which will not be known until later in 2017.
The exchange rates used to translate the overseas euro based schemes are
£1.00 = €1.1903 for the average rate during the period, and £1.00 = €1.1695 for
the closing position at 1 April 2017.
All defined benefit plans are held separately from the Company under Trusts.
Trustees are appointed to operate the schemes in accordance with their
respective governing documents and pensions law. The schemes meet the
legal requirement for member nominated trustees representation on the trustee
boards and the UK schemes have appointed a professional independent Trustee
as Chair of the boards. The members of the trustee boards undertake regular
training and development to ensure that they are equipped appropriately to
fulfil their function as trustees. In addition each trustee board has appointed
professional advisers to give them the specialist expertise they need to support
them in the areas of investment, funding, legal, covenant and administration.
The trustee boards of the UK schemes generally meet at least four times a
year to conduct their business. To support these meetings the Trustees have
delegated certain aspects of the schemes’ operation to give specialist focus
(e.g. investment, administration and compliance) to committees for which
further meetings are held as appropriate throughout the year. These committees
regularly report to the full trustee boards.
The schemes invest through investment managers appointed by the trustees
in a broad range of assets including UK and Global equities and Corporate and
Government bonds. The plan assets do not include any of the Group’s own
financial instruments, nor any property occupied by, or other assets used by, the
Group. The pension schemes hold a security over the assets of the Group which
rank pari passu with the banks and bondholders in the event of insolvency, up to
a cap.
The main risks to which the Group is exposed in relation to the funded pension
schemes are as follows:
• Liquidity risk – the PFPS and PGPPS have significant technical funding
deficits which could increase. The RHM Pension Scheme is currently in
surplus, but subsequent valuations could reveal a deficit. As such this could
have an adverse impact on the financial condition of the Group. The current
funding plans in place following the 2016 actuarial valuations fixes the deficit
contributions from 1 April 2017 until 31 December 2021. 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 both the schemes
assets and liabilities. 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.
The schemes can limit or hedge their exposure to the yield and inflation risks
described above by investing in assets that move in the same direction as the
liabilities in the event of a fall in yields, or a rise in inflation. The RHM pension
scheme has largely hedged its inflation and interest rate exposure to the extent
of its funding level. The PFPS and PGPPS have broadly hedged 50% of their
respective liabilities and have put in place a plan to further increase hedging over
time as its funding level improves.
The liabilities of the schemes are approximately 48% in respect of former active
members who have yet to retire and approximately 52% in respect of pensioner
members already in receipt of benefits. The mean duration of the liabilities is
approximately 19 years.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 94
Notes to the financial statements continued
Defined benefit schemes continued
At the balance sheet date, the combined principal actuarial assumptions were as follows:
Discount rate
Inflation – RPI
Inflation – CPI
Expected salary increases
Future pension increases
At 1 Apr 2017
At 2 Apr 2016
Premier
schemes
RHM schemes
Premier
schemes
RHM schemes
2.65%
3.30%
2.20%
n/a
2.15%
2.65%
3.30%
2.20%
n/a
2.15%
3.55%
3.00%
1.90%
n/a
2.00%
3.55%
3.00%
1.90%
n/a
2.00%
For the smaller overseas schemes the discount rate used was 1.80% (2015/16: 1.85%) and future pension increases were 1.45% (2015/16: 1.50%).
At 2 April 2016 the discount rate was derived from a bond curve where all bonds had been rated AA by at least two credit agencies. At 1 April 2017 the discount
rate was derived based on a bond 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 impact of this change in methodology increased the discount rate by 0.05%.
The mortality assumptions are based on standard mortality tables and allow for future mortality improvements. The life expectancy assumptions are as follows:
Male pensioner, currently aged 65
Female pensioner, currently aged 65
Male non-pensioner, currently aged 45
Female non-pensioner, currently aged 45
At 1 Apr 2017
At 2 Apr 2016
Premier
schemes
RHM schemes
Premier
schemes
RHM schemes
87.7
89.5
88.8
90.8
85.9
88.3
86.8
89.5
87.8
90.0
89.1
91.5
86.2
88.4
87.5
89.9
A sensitivity analysis on the principal assumptions used to measure the scheme liabilities at the period end is as follows:
Discount rate
Inflation
Change in assumption
Increase/decrease by 0.1%
Increase/decrease by 0.1%
Impact on scheme liabilities
Decrease/increase by £84.0m/£86.4m
Increase/decrease by £38.6m/£43.7m
Assumed life expectancy at age 60 (rate of mortality)
Increase by 1 year
Increase by £204.8m
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
2017. Extrapolation of these results beyond the sensitivity figures shown may not be appropriate.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 95
The fair values of plan assets split by type of asset are as follows:
Assets with a quoted price in an active market at 1 April 2017:
UK equities
Global equities
Government bonds
Corporate bonds
Property
Absolute return products
Cash
Other
Assets without a quoted price in an active market at 1 April 2017:
Infrastructure funds
Swaps
Private equity
Other
Fair value of scheme assets as at 1 April 2017
Assets with a quoted price in an active market at 2 April 2016:
UK equities
Global equities
Government bonds
Corporate bonds
Property
Absolute return products
Cash
Other
Assets without a quoted price in an active market at 2 April 2016:
Infrastructure funds
Swaps
Private equity
Other
Fair value of scheme assets as at 2 April 2016
Premier
schemes
£m
0.3
7.1
22.4
23.0
8.1
399.7
13.4
199.7
–
–
–
–
673.7
1.4
18.5
22.7
–
8.2
368.3
8.7
156.1
–
–
–
0.3
584.2
% of total
%
0.0
1.1
3.3
3.4
1.2
59.3
2.0
29.7
–
–
–
–
100
0.2
3.1
3.9
–
1.4
63.1
1.5
26.7
–
–
–
0.1
100
RHM
schemes
£m
% of total
%
Total
£m
% of total
%
0.6
519.0
496.7
–
349.3
884.5
55.7
2.8
242.6
1,116.1
321.7
201.9
4,190.9
0.5
385.0
452.1
1.9
284.1
859.3
318.2
2.5
228.0
862.5
259.4
105.2
3,758.7
0.0
12.4
11.9
–
8.3
21.1
1.3
0.1
5.8
26.6
7.7
4.8
100
0.0
10.2
12.0
0.1
7.6
22.9
8.5
0.1
6.1
22.8
6.9
2.8
100
0.9
526.1
519.1
23.0
357.4
1,284.2
69.1
202.5
242.6
1,116.1
321.7
201.9
4,864.6
1.9
403.5
474.8
1.9
292.3
1,227.6
326.9
158.6
228.0
862.5
259.4
105.5
4,342.9
0.0
10.8
10.7
0.5
7.3
26.4
1.4
4.2
5.0
22.9
6.6
4.2
100
0.1
9.3
10.9
0.0
6.7
28.2
7.5
3.7
5.2
20.0
6.0
2.4
100
The RHM scheme invests directly in interest rate and inflation swaps to protect from fluctuations in interest rates and inflation.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 96
Notes to the financial statements continued
Defined benefit schemes continued
The amounts recognised in the balance sheet arising from the Group’s obligations in respect of its defined benefit schemes are as follows:
Present value of funded obligations
Fair value of plan assets
(Deficit)/surplus in schemes
At 1 April 2017
RHM schemes
£m
(3,597.0)
4,190.9
593.9
Premier
schemes
£m
(1,162.8)
673.7
(489.1)
At 2 April 2016
RHM schemes
£m
(3,207.8)
3,758.7
550.9
Premier
schemes
£m
(1,004.2)
584.2
(420.0)
Total
£m
(4,759.8)
4,864.6
104.8
Total
£m
(4,212.0)
4,342.9
130.9
The aggregate surplus of £130.9m has reduced to a surplus of £104.8m in the current period. This movement of £26.1m (2015/16: £342.7m increase) is primarily
due to asset performance in the RHM schemes offset in part by the impact of a reduction in the discount rate on the defined benefit obligations.
Changes in the present value of the defined benefit obligation were as follows:
Defined benefit obligation at 5 April 2015
Interest cost
Remeasurement gains
Exchange differences
Benefits paid
Defined benefit obligation at 2 April 2016
Interest cost
Current service cost
Remeasurement losses
Exchange differences
Benefits paid
Premier
schemes
£m
RHM
schemes
£m
Total
£m
(1,065.9)
(3,394.4)
(4,460.3)
(33.7)
63.0
(4.6)
37.0
(109.3)
162.2
(2.5)
136.2
(143.0)
225.2
(7.1)
173.2
(1,004.2)
(3,207.8)
(4,212.0)
(34.2)
-
(155.1)
(3.8)
34.5
(110.6)
(0.1)
(437.8)
(2.0)
161.3
(144.8)
(0.1)
(592.9)
(5.8)
195.8
Defined benefit obligation at 1 April 2017
(1,162.8)
(3,597.0)
(4,759.8)
Premier Foods plc Annual report for the 52 week period ended 1 April 2017
Changes in the fair value of plan assets were as follows:
Fair value of plan assets at 5 April 2015
Interest income on plan assets
Remeasurement (losses)/gains
Administrative costs
Contributions by employer
Exchange differences
Benefits paid
Fair value of plan assets at 2 April 2016
Interest income on plan assets
Remeasurement gains
Administrative costs
Contributions by employer
Exchange differences
Benefits paid
Fair value of plan assets at 1 April 2017
The reconciliation of the net defined benefit (deficit)/surplus over the period is as follows:
(Deficit)/surplus in schemes at 5 April 2015
Amount recognised in profit or loss
Remeasurements recognised in other comprehensive income
Contributions by employer
Exchange rate losses
(Deficit)/surplus in schemes at 2 April 2016
Amount recognised in profit or loss
Remeasurements recognised in other comprehensive income
Contributions by employer
Exchange rate losses
(Deficit)/surplus in schemes at 1 April 2017
97
Premier
schemes
£m
612.5
18.7
(19.4)
(2.6)
7.6
4.4
(37.0)
584.2
20.2
54.0
(3.0)
49.2
3.6
(34.5)
673.7
Premier
schemes
£m
(453.4)
(17.6)
43.6
7.6
(0.2)
(420.0)
(17.0)
(101.1)
49.2
(0.2)
(489.1)
RHM
schemes
£m
Total
£m
3,636.0
4,248.5
117.4
139.0
(5.0)
5.3
2.2
(136.2)
3,758.7
130.2
462.3
(3.3)
2.5
1.8
(161.3)
4,190.9
RHM
schemes
£m
241.6
3.1
301.2
5.3
(0.3)
550.9
16.2
24.5
2.5
(0.2)
593.9
136.1
119.6
(7.6)
12.9
6.6
(173.2)
4,342.9
150.4
516.3
(6.3)
51.7
5.4
(195.8)
4,864.6
Total
£m
(211.8)
(14.5)
344.8
12.9
(0.5)
130.9
(0.8)
(76.6)
51.7
(0.4)
104.8
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS
98
Notes to the financial statements continued
Defined benefit schemes continued
Remeasurements recognised in the consolidated statement of comprehensive income are as follows:
Remeasurement (loss)/gain on plan liabilities
Remeasurement gain/(loss) on plan assets
Net remeasurement (loss)/gain for the period
2016/17
RHM schemes
£m
(437.8)
462.3
24.5
Premier
schemes
£m
(155.1)
54.0
(101.1)
2015/16
RHM schemes
£m
162.2
139.0
301.2
Premier
schemes
£m
63.0
(19.4)
43.6
Total
£m
(592.9)
516.3
(76.6)
Total
£m
225.2
119.6
344.8
The actual return on plan assets was a £666.7m gain (2015/16: £255.7m gain), which is £516.3m more (2015/16: £119.6m more) than the interest income on plan
assets of £150.4m (2015/16: £136.1m) at the start of the relevant periods.
The remeasurement loss on liabilities of £592.9m (2015/16: £225.2m gain) comprises a gain due to member experience of £112.6m (2015/16: £15.5m gain), a gain
due to demographic assumptions of £41.8m (2015/16: £49.8m gain) and a loss due to changes in financial assumptions of £747.3m (2015/16: £159.9m gain).
The net remeasurement loss taken to the consolidated statement of comprehensive income was £76.6m (2015/16: £344.8 gain). This loss was £61.7m (2015/16:
£278.9m gain) net of taxation (with tax at 17% for UK schemes, and 12.5% for Irish schemes).
The Group expects to contribute between £4m and £8m annually to its defined benefit plans in relation to expenses and government levies and £35-38m of
additional annual contributions to fund the scheme deficits up to 2022/23.
The Group has an unconditional right to a refund of any surplus in the RHM Pension Scheme once the liabilities have been discharged and so the asset has not been
restricted and no additional liability has been recognised.
The Accounting Standards Board under IFRIC 14, are currently reviewing the recognition of a pensions surplus in the financial statements of an entity. Dependent
upon the final published standard, there is potential that any future defined benefit surplus may not be recognised in the financial statements of the Group and
additionally, the deficit valuation methodology may also change.
The total amounts recognised in the consolidated statement of profit or loss are as follows:
Operating profit
Current service costs
Administrative costs
Net interest (cost)/credit
Total
2016/17
2015/16
Premier
schemes
£m
RHM schemes
£m
–
(3.0)
(14.0)
(17.0)
(0.1)
(3.3)
19.6
16.2
Total
£m
(0.1)
(6.3)
5.6
(0.8)
Premier
schemes
£m
RHM schemes
£m
–
(2.6)
(15.0)
(17.6)
–
(5.0)
8.1
3.1
Total
£m
–
(7.6)
(6.9)
(14.5)
Defined contribution schemes
A number of companies in the Group operate defined contribution schemes, including provisions to comply with Auto enrolment requirements laid down by law. In
addition a number of schemes providing life assurance benefits only are operated. The total expense recognised in the statement of profit or loss of £6.1m (2015/16:
£5.4m) represents contributions payable to the plans by the Group at rates specified in the rules of the plans.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017
24. Other liabilities
Deferred income
Other accruals
Other liabilities
99
As at
1 Apr 2017
As at
2 Apr 2016
£m
(10.9)
(0.2)
(11.1)
£m
(11.7)
(0.3)
(12.0)
Deferred income relates to amounts received in relation to a previously disposed business.
25. Reserves and share capital
Share premium
The share premium reserve comprises the premium paid over the nominal value of shares for shares issued.
Merger reserve
The merger reserve comprises the non-statutory premium arising on shares issued as consideration for acquisition of subsidiaries where merger relief applies, less
subsequent realised losses relating to those acquisitions.
Other reserves
Other reserves comprise the hedging reserve, which represents the effective portion of the gains or losses on derivative financial instruments that have historically
been designated as hedges.
Profit and loss reserve
The profit and loss reserve represents the cumulative profit or loss and the own shares reserve which represents the cost of shares in Premier Foods plc, purchased
in the market and held by the Employee Benefit Trust on behalf of the Company in order to satisfy options and awards under the Company’s incentive schemes.
250,420 shares in Premier Foods plc were held by the Employee Benefit Trust at 1 April 2017, with a market value of £110,185 (2015/16: 34,336 shares with a market
value of £19,486).
Share capital
At 5 April 2015
Shares issued under share schemes
At 2 April 2016
Shares issued under share schemes
At 1 April 2017
Ordinary
shares @
nominal value
(£0.10/share)
£m
82.6
0.1
82.7
0.6
83.3
Number of
shares
825,741,256
825,807
826,567,063
5,903,615
832,470,678
Share
premium
£m
Total
£m
1,406.4
1,489.0
0.2
1,406.6
0.1
1,406.7
0.3
1,489.3
0.7
1,490.0
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 100
Notes to the financial statements continued
Share award schemes
The Company’s share award schemes are summarised as follows:
1.
2.
3.
4.
5.
A CEO Co-Investment Award ('CEO Co-Investment Award'). The scheme was structured as a share matching plan and was specifically created to facilitate the
recruitment of Gavin Darby as CEO in 2013. The award was equity-settled and the outstanding tranche of the award vested on 1 May 2016. No further awards
will be made under this plan.
A Long-Term Incentive Plan ('LTIP') for executive directors and senior managers, approved by shareholders in 2011. The LTIP is comprised of performance
shares whereby participants have the right to subscribe for ordinary shares at nil cost. These awards are equity-settled and have a maximum term of three years.
The vesting of the 2014, 2015 and 2016 Performance Share awards are conditional on achievement of a combination of absolute adjusted earnings per share
targets and average share price targets.
A Restricted Stock Plan ('RSP') which provides specific ad hoc share awards to managers. Awards are normally subject only to continued employment and may
be equity-settled or cash-settled and normally have a retention term of two to three years for senior management. In addition an element of the 2015/16 and
2016/17 annual bonus was satisfied in the form of shares awarded under the RSP.
A Share Incentive Plan ('SIP') for all employees. An award of free shares was made to all employees in 2014 by the Company under this HMRC tax-advantaged
plan. Free shares are held by a trustee for a minimum of three years. Subject to continuing employment, participants may elect to remove shares from the trust
after this three year holding period, however, there are tax and National Insurance advantages for the employee should the shares be left in the trust for over five
years. No further awards under this plan are currently anticipated.
A Deferred Share Bonus Plan ('DSBP'). Currently only the CEO participates in the DSBP which operates alongside the Annual Bonus plan. Awards are based on
the achievement of a range of targets which are set at the start of each financial period. If the objective is met, the bonus earned will be converted into shares
following the announcement of the results for the financial period and deferred for a period of up to two years. These shares are subject to forfeiture over the
period of deferral.
Share option schemes
The Company’s share option schemes are summarised as follows:
1.
A Savings Related Share Option Scheme ('Sharesave Plan') for all employees. The employees involved in this HMRC tax advantaged save as you earn
scheme have the right to subscribe for up to 10.1 million ordinary shares. The number of shares subject to options, the periods in which they were granted
and the periods in which they may be exercised are given below. These options are equity-settled, have a maximum term of 3.5 years and generally vest only
if employees remain in employment to the vesting date.
Further details of the share award and share options schemes can be found in the Directors’ Remuneration report.
Details of share award and option schemes
Details of the share awards of the Premier Foods plc CEO Co-Investment Award are as follows:
Premier Foods plc CEO Co-Investment Award
Outstanding at the beginning of the period
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
2016/17
Awards
751,814
(751,814)
–
–
2015/16
Awards
1,503,628
(751,814)
751,814
–
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 101
The awards outstanding at 1 April 2017 had a weighted average remaining contractual life of nil years (2015/16: 0.1 years). The weighted average fair value of awards
granted during the period was nil pence per award.
Details of the share awards of the Premier Foods plc LTIP (Performance share award) are as follows:
Premier Foods plc LTIP (Performance share award)
Outstanding at the beginning of the period
Granted during the period
Forfeited during the period
Outstanding at the end of the period
Exercisable at the end of the period
2016/17
Awards
2015/16
Awards
21,314,764
10,972,494
8,963,895
12,913,256
(2,490,712)
(2,570,986)
27,787,947
21,314,764
–
2,255,442
The awards outstanding at 1 April 2017 had a weighted average remaining contractual life of 1.1 years (2015/16: 1.5 years). The weighted average fair value of awards
granted during the period was nil pence per award.
Details of the share awards of the Premier Foods plc Restricted Stock Plan are as follows:
Premier Foods plc Restricted Stock Plan
Outstanding at the beginning of the period
Granted during the period
Exercised during the period
Forfeited during the period
Outstanding at the end of the period
Exercisable at the end of the period
2016/17
Awards
2015/16
Awards
13,145,634
10,865,450
308,430
5,054,120
(7,314,128)
(1,848,747)
(826,259)
(925,189)
5,313,677
13,145,634
938,156
612,592
The awards outstanding at 1 April 2017 had a weighted average remaining contractual life of 0.3 years (2015/16: 0.7 years). The weighted average fair value of awards
granted during the period was nil pence per award.
Details of the share options of the Premier Foods plc Deferred Share Bonus Plan are as follows:
Premier Foods plc Deferred Share Bonus Plan
Outstanding at the beginning of the period
Granted during the period
Outstanding at the end of the period
Exercisable at the end of the period
2016/17
Awards
–
157,560
157,560
–
2015/16
Awards
–
–
–
–
The awards outstanding at 1 April 2017 had a weighted average remaining contractual life of 1.2 years (2015/16: nil years). The weighted average fair value of awards
granted during the period was nil pence per award.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 102
Notes to the financial statements continued
Share option schemes continued
Details of the share options of the Premier Foods plc Share Incentive Plan are as follows:
Premier Foods plc Share Incentive Plan
Outstanding at the beginning of the period
Exercised during the period
Transferred out during the period
Forfeited during the period
Outstanding at the end of the period
Exercisable at the end of the period
2016/17
Awards
2015/16
Awards
1,613,000
1,907,000
(45,250)
(52,750)
(52,000)
(68,000)
–
(226,000)
1,463,000
1,613,000
–
–
The awards outstanding at 1 April 2017 had a weighted average remaining contractual life of 1.0 years (2015/16: 2.0 years). The weighted average fair value of awards
granted during the period was nil pence per award.
Details of the share options of the Premier Foods plc Sharesave Plan are as follows:
Premier Foods plc Sharesave Plan
Outstanding at the beginning of the period
Exercised during the period
Granted during the period
Forfeited/lapsed during the period
Outstanding at the end of the period
Exercisable at the end of the period
2016/17
2015/16
Weighted
average
exercise price
(p)
36
33
35
36
35
72
Awards
16,999,242
(253,615)
6,046,060
(2,560,353)
20,231,334
1,074,318
Weighted
average
exercise price
(p)
43
32
32
47
36
34
Awards
10,146,073
(825,807)
10,403,820
(2,724,844)
16,999,242
494,594
During the period 6.0 million (2015/16: 10.4 million) options were granted under the Sharesave Plan, with a weighted average exercise price at the date of exercise of
35 pence per ordinary share (2015/16: 36 pence).
The options outstanding at 1 April 2017 had a weighted average exercise price of 72 pence (2015/16: 34 pence), and a weighted average remaining contractual life of
1.1 years (2015/16: 2.2 years).
In 2016/17, the Group recognised an expense of £4.5m (2015/16: £4.1m), related to all equity-settled share-based payment transactions.
A summary of the range of exercise price and weighted average remaining contractual life is shown below:
Weighted average remaining life and exercise prices
At 10 pence
£0.10 to £9.90
£10.00 to £20.00
Total
As at 1 Apr 2017
Weighted
average
remaining
contractual life
(years)
Weighted
average
exercise price
(p)
1.0
1.1
–
1.0
10
35
–
19
As at 2 Apr 2016
Weighted
average
remaining
contractual life
(years)
Weighted
average
exercise price
(p)
1.2
2.2
–
1.5
10
36
–
18
Number
outstanding
36,825,212
16,999,242
–
53,824,454
Number
outstanding
34,722,184
20,231,334
–
54,953,518
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 103
Valuation method
The Group uses the Black-Scholes model to determine the fair value of share options at grant dates. Fair values determined from the model use assumptions that are
revised for each share-based payment arrangement.
The expected Premier Foods plc share price volatility was determined using an average for food producers as at the date of grant. The risk-free rate has been
determined from market yield curves for government gilts with outstanding terms equal to the average expected term to exercise for each relevant grant.
26. Notes to the cash flow statement
Reconciliation of profit/(loss) before tax to cash flows from operating activities
Continuing operations
Profit/(loss) before taxation
Net finance cost
Share of loss from associates
Operating profit
Depreciation of property, plant and equipment
Amortisation of intangible assets
Loss on disposal of non-current assets
Impairment of investments in associates
Fair value movements on foreign exchange and other derivative contracts
Equity settled employee incentive schemes
(Increase)/decrease in inventories
Decrease in trade and other receivables
Decrease in trade and other payables and provisions
Movement in retirement benefit obligations
Cash generated from continuing operations
Discontinued operations
Cash generated from operating activities
Reconciliation of cash and cash equivalents to net borrowings
Net outflow of cash and cash equivalents
Decrease/(increase) in finance leases
Decrease in borrowings
Other non-cash movements
Decrease in borrowings net of cash
Total net borrowings at beginning of period
Total net borrowings at end of period
Period ended
1 Apr 2017
Period ended
2 Apr 2016
£m
12.0
49.5
–
61.5
16.2
37.9
0.8
–
1.0
4.5
(8.1)
35.4
(22.0)
(50.4)
76.8
–
76.8
£m
(13.0)
44.9
22.6
54.5
16.1
37.6
1.8
13.6
(2.6)
4.1
12.7
26.2
(24.8)
1.6
140.8
(3.7)
137.1
Period ended
1 Apr 2017
Period ended
2 Apr 2016
£m
(25.9)
0.1
40.9
(4.1)
11.0
(534.2)
(523.2)
£m
(13.9)
(0.2)
69.8
(5.0)
50.7
(584.9)
(534.2)
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 104
Notes to the financial statements continued
26. Notes to the cash flow statement continued
Analysis of movement in borrowings
Bank overdrafts
Cash and bank deposits
Net cash and cash equivalents
Borrowings - term facilities
Borrowings - revolving credit facilities
Borrowings - senior secured notes
Finance lease obligations
Securitisation facility
Gross borrowings net of cash1
Debt issuance costs
Total net borrowings1
1.
Borrowings exclude derivative financial instruments.
As at
2 Apr 2016
Cash flows
Other non-cash
movements
£m
(0.2)
8.0
7.8
(1.5)
(55.0)
(500.0)
(0.2)
(6.4)
(555.3)
21.1
(534.2)
£m
(21.0)
(4.9)
(25.9)
1.5
33.0
–
0.1
6.4
15.1
–
15.1
£m
–
–
–
–
–
–
–
–
–
(4.1)
(4.1)
As at
1 Apr 2017
£m
(21.2)
3.1
(18.1)
–
(22.0)
(500.0)
(0.1)
–
(540.2)
17.0
(523.2)
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.
Cash, cash equivalents and bank overdrafts
As at 1 Apr 2017
As at 2 Apr 2016
Offset
asset
126.3
Offset
liability
(144.4)
Net offset
liability
(18.1)
Offset
asset
134.7
Offset
liability
(126.9)
Net offset
asset
7.8
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 105
27. Operating lease commitments
The Group has lease agreements in respect of property, plant and equipment, for which future minimum payments extend over a number of years.
Leases primarily relate to the Group’s properties, which principally comprise offices and factories. Lease payments are typically subject to market review every five
years to reflect market rentals, but because of the uncertainty over the amount of any future changes, such changes have not been reflected in the table below.
Within our leasing arrangements there are no significant contingent rental, renewal, purchase or escalation clauses.
The future aggregate minimum lease payments under non-cancellable operating leases for continuing operations are as follows:
Within one year
Between 2 and 5 years
After 5 years
Total
As at 1 Apr 2017
As at 2 Apr 2016
Property
Plant and
Equipment
Property
Plant and
Equipment
£m
3.3
6.8
10.2
20.3
£m
2.4
2.7
–
5.1
£m
2.7
5.5
4.8
13.0
£m
2.5
4.0
–
6.5
The Group has made provision for the aggregate minimum lease payments under non-cancellable operating leases for discontinued operations, as described
in note 22.
The Group sub-lets various properties under non-cancellable lease arrangements. Sub-lease receipts of £0.6m (2015/16: £0.7m) were recognised in the statement
of profit or loss during the period. The total future minimum sub-lease payments at the period end is £0.3m (2015/16: £0.8m).
28. 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 2017 of £1.8m
(2015/16: £1.3m).
29. Contingencies
There were no material contingent liabilities at 1 April 2017 (2015/16: none). Other contingencies and guarantees in respect of the Parent Company are described in
note 9 of the Parent Company financial statements.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 106
Notes to the financial statements continued
30. Related party transactions
The following transactions were carried out with related parties:
(a) Key management compensation
Key management personnel of the Group are considered to be the executive and non-executive directors and the Executive Leadership Team. Details of their
remuneration are set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures'. Further information about the remuneration
of individual directors is provided in the audited section of the Directors Remuneration Report on pages 35 to 52.
Short-term employee benefits
Post employment benefits
Share-based payments
Total
Period ended
1 Apr 2017
Period ended
2 Apr 2016
£m
5.1
0.4
0.9
6.4
£m
5.6
0.1
1.5
7.2
(b) Transactions with associates
The Group’s associates are considered to be related parties. Transactions relating to Knighton are those up to the date of consolidation. Transactions with associates
are set out below:
Sale of goods:
– Hovis
Sale of services:
– Hovis
Total sales
Purchase of goods:
– Hovis
– Knighton
Total purchases
Period ended
1 Apr 2017
Period ended
2 Apr 2016
£m
0.4
0.7
1.1
12.6
–
12.6
£m
0.4
0.8
1.2
12.5
18.2
30.7
As at 1 April 2017 the Group had outstanding balances with Hovis. Total trade receivables was £0.7m (2015/16: £0.5m) and total trade payables was £2.7m
(2015/16: £1.8m).
(c) Other related parties
As at 1 April 2017 the following are considered to be related parties under the Listing Rules due to their shareholdings exceeding 10% of the Group’s total issued
share capital:
• Nissin Foods Holdings Co., Ltd. ('Nissin') is considered to be a related party to the Group by virtue of its 19.76% (2015/16: 19.9%) equity shareholding in Premier
Foods plc and of its power to appoint a member to the Board of directors. There have been recharges of £0.2m (2015/16: £nil) to Nissin in the period.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 107
31. Subsequent events
The following subsequent events occurred after the balance sheet date:
Mondelez partnership
On 8 May 2017 the Group announced that it had signed non-binding 'Heads of Terms' to be a Strategic Global Partnership with Mondelez International for Cadbury
cake. Once finalised, this agreement will extend the Group’s long standing partnership for another five years with the option to the Group of extending this for an
additional three years.
Capital refinancing
On 16 May 2017 the Group announced that it had amended and extended the term of its revolving credit facility with its lending syndicate from March 2019 to
December 2020. The £272m facility, which was £22m drawn at 1 April 2017, is expected to reduce by £55m to £217m, subject to the issue of new £210m Senior
Secured floating rate notes outlined below. The interest margin under the revolving credit facility is unchanged. The covenant package attached to the revolving credit
facility is:
2017/18 H1
2017/18 FY
2018/19 H1
2018/19 FY
2019/20 H1
2019/20 FY
2020/21 H1
Net debt /
EBITDA1
EBITDA /
Interest1
5.35x
5.10x
5.35x
4.80x
5.15x
4.50x
4.75x
2.65x
2.70x
2.70x
2.70x
2.70x
2.75x
2.85x
1.
Net debt, EBITDA and Interest are as defined under the revolving credit facility.
The Group also announced the proposed issue of a new five year £210m Senior Secured floating rate note due 2022, to replace its £175m Senior Secured floating
rate, due to mature March 2020, and to make a prepayment under the revolving credit facility. Pricing of the new £210m Senior Secured floating rate notes is to be
confirmed following completion of the transaction and the notes are expected to be callable at 101% after one year.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 108
Company financial statements
The following statements reflect the financial position of the Company, Premier Foods plc as at 1 April 2017 and 2 April 2016. These financial statements were
prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) and the UK Companies Act 2006. The directors have
taken advantage of the exemption available under section 408 of the Companies Act 2006 and not presented a Company profit and loss account.
Balance sheet
Non-current assets
Investments in Group undertakings
Current assets
Receivables
Deferred tax assets
Cash at bank and in hand
Total assets
Payables: amounts falling due within one year
Net current assets
Total assets less current liabilities
Equity
Called up share capital
Share premium account
Profit and loss account
Total shareholders' funds
Note
3
4
6
5
7
As at
1 Apr 2017
£m
10.7
As at
2 Apr 2016
£m
6.5
1,279.2
1,261.4
2.1
0.8
2.0
0.7
1,292.8
1,270.6
(316.0)
966.1
976.8
83.3
1,406.7
(513.2)
976.8
(314.3)
949.8
956.3
82.7
1,406.6
(533.0)
956.3
The notes on pages 110 to 112 form an integral part of the financial statements.
The financial statements on pages 108 to 109 were approved by the Board of directors on 16 May 2017 and signed on its behalf by:
Gavin Darby
Chief Executive Officer
Alastair Murray
Chief Financial Officer
Premier Foods plc Annual report for the 52 week period ended 1 April 2017
Statement of changes in equity
At 5 April 2015
Profit for the period
Share-based payments
Shares issued
At 2 April 2016
Profit for the period
Share-based payments
Shares issued
At 1 April 2017
109
Called up share
capital
Share premium
account
Profit and loss
account
£m
82.6
–
–
0.1
82.7
–
–
0.6
83.3
£m
1,406.4
–
–
0.2
£m
(552.1)
15.0
4.1
–
1,406.6
(533.0)
–
–
0.1
15.7
4.1
–
1,406.7
(513.2)
Total
£m
936.9
15.0
4.1
0.3
956.3
15.7
4.1
0.7
976.8
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 110
Notes to the Company financial statements
1. Accounting policies
Basis of preparation
These financial statements were prepared in accordance with Financial
Reporting Standard 101 Reduced Disclosure Framework ('FRS 101').
In preparing these financial statements, the Company applies the recognition,
measurement and disclosure requirements of International Financial Reporting
Standards as adopted by the EU ('Adopted IFRSs'), but makes amendments
where necessary in order to comply with Companies Act 2006 and where
advantage of certain disclosure exemptions available under FRS 101 have
been taken, as the Group financial statements contains equivalent disclosures.
Disclosure exemptions are as follows:
• Cash flow statements and related notes;
• Presentation of comparative period reconciliations;
• Share based payments;
• Financial instruments and capital management;
• Standards not yet effective; and
• Disclosures in respect of compensation of key management personnel.
The profit for the period of £15.7m (2015/16: £15.0m profit) is recorded in the
accounts of Premier Foods plc.
The Company has ensured that its assets and liabilities are measured in
compliance with FRS 101. The financial statements have been prepared under
the historical cost convention.
The preparation of the financial statements requires the directors to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and the disclosure of contingent liabilities at the date of the financial
statements. The key estimates and assumptions are set out in the accounting
policies below, together with the related notes to the accounts.
The directors consider that the accounting policies set out below are the most
appropriate and have been consistently applied.
The Company is exempt as permitted under Financial Reporting Standard 101
from disclosing related party transactions with entities that are wholly owned
subsidiaries of the Premier Foods plc Group.
Investments
Investments are stated at cost less any provision for impairment in their value.
Taxation
Tax on the profit or loss for the period comprises current and deferred tax. Tax
is recognised in the profit and loss account except to the extent that it relates
to items recognised directly in equity or other comprehensive income, in which
case it is recognised directly in equity or other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or
loss for the period, using tax rates enacted or substantively enacted at the balance
sheet date, and any adjustment to tax payable in respect of previous periods.
Deferred tax is provided on temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used
for taxation purposes. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted at the balance
sheet date.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the temporary difference
can be utilised.
Cash and cash equivalents
Short-term cash deposits, which can be called on demand without any material
penalty, are included within cash balances in the balance sheet.
Share based payments
The Company operates a number of equity-settled and cash-settled share-
based compensation plans. The fair value of employee share option plans
is calculated using an option valuation model, taking into account the terms
and conditions upon which the awards were granted. In accordance with
International Financial Reporting Standard 2, Share-Based Payment ('IFRS 2'),
the resulting expense is charged to the profit and loss account over the vesting
period of the options for employees employed by the Parent Company, or treated
as an investment in subsidiaries in respect of employees employed by the
subsidiaries where the expense is recharged. The value of the charge is adjusted
to reflect expected and actual levels of options vesting.
The total amount to be expensed over the vesting period is determined by
reference to the fair value of the share awards/options granted, excluding the
impact of any non-market vesting conditions (for example, profitability and sales
growth targets). Non-market vesting conditions are included in assumptions
about the number of share awards/options that are expected to vest. At each
balance sheet date, the Company revises its estimates of the number of share
awards/options that are expected to vest and recognises the impact of the
revision to original estimates, if any, in profit and loss, with a corresponding
adjustment to equity.
Dividends
Dividend distributions to the Company shareholders are recognised as a liability
in the Company’s financial statements in the period in which the dividends are
approved by the Company’s shareholders, and for interim dividends in the period
in which they are paid.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 111
Operating lease agreements
Leases in which a significant portion of risks and rewards of ownership are
retained by the lessor are classified as operating leases. Rental costs under
operating leases, net of any incentives received from the lessor, are charged to
the profit and loss account on a straight-line basis over the lease period.
Financial guarantees
Where the Company enters into financial guarantee contracts to guarantee
the indebtedness of other companies within its group, the Company considers
these to be insurance arrangements and accounts for them as such. In this
respect, the Company treats the guarantee contract as a contingent liability
until such time as it becomes probable that the Company will be required to
make a payment under the guarantee.
2. Operating profit
Audit fees in respect of the Company are £nil (2015/16: £nil). Note 5.2 of the
Group consolidated financial statements provides details of the remuneration
of the Company's auditors on a Group basis.
At 1 April 2017, the Company had two employees (2015/16: two). Directors'
emolument disclosures are provided in the Single Figure Table on page 42 of
this annual report.
3. Investments in Group undertakings
2016/17
2015/16
£m
£m
4. Receivables
Amounts owed by Group undertakings
As at
1 Apr 2017
£m
1,279.2
As at
2 Apr 2016
£m
1,261.4
Amounts owed by Group undertakings are unsecured, have no fixed date of
repayment, are repayable on demand and are not subject to interest rate risk as
they are interest free, with the exception of £379.1m (2015/16: £361.9m) which
attracted interest at a rate of LIBOR plus 4.0% (2015/16: LIBOR plus 4.0%).
Carrying value approximates fair value.
5. Payables: amounts falling due within one year
Amounts owed to Group undertakings
Group relief payable
Total payables falling due within one year
As at
1 Apr 2017
£m
(296.0)
(20.0)
(316.0)
As at
2 Apr 2016
£m
(294.3)
(20.0)
(314.3)
Amounts owed to Group undertakings are unsecured, have no fixed date of
repayment, are repayable on demand and are not subject to interest rate risk
as they are interest free, with the exception of £29.6m (2015/16: £28.3m) which
attracted interest at a rate of LIBOR plus 4% (2015/16: LIBOR plus 4.0%).
Carrying value approximates fair value.
Cost
At 3 April 2016 / 5 April 2015
Additions
At 1 April 2017 / 2 April 2016
Accumulated impairment
At 3 April 2016 / 5 April 2015
At 1 April 2017 / 2 April 2016
NBV at 1 April 2017 / 2 April 2016
1,765.8
4.2
1,770.0
(1,759.3)
(1,759.3)
10.7
1,762.4
3.4
1,765.8
(1,759.3)
(1,759.3)
6. Deferred Tax
At 3 April 2016 / 5 April 2015
Credited to the statement of profit and loss
At 1 April 2017 / 2 April 2016
2016/17
2015/16
£m
2.0
0.1
2.1
£m
1.8
0.2
2.0
6.5
The deferred tax asset relates to share-based payments.
In 2016/17 a capital contribution of £4.2m (2015/16: £3.4m) was given in the form
of share incentive awards to employees of subsidiary companies which were
reflected as an increase in investments. Refer to note 15 in the Group financial
statements for a full list of the undertakings.
STRATEGIC REPORTINTRODUCTIONGOVERNANCEFINANCIAL STATEMENTS 112
Notes to the Company financial statements continued
7. Called up share capital and other reserves
a) Called up share capital
Issued and fully paid
832,470,678 (2015/16: 826,567,063) ordinary
shares of 10 pence each
As at
1 Apr 2017
£m
As at
2 Apr 2016
£m
83.3
82.7
b) Share-based payments
The costs reflect the Company’s share option schemes in operation. Further
details are available in note 25 of the Group’s consolidated financial statements.
The charge relating to employees of the Company amounted to £0.3m
(2015/16: £0.7m). Further details of these schemes can be found in the Directors
Remuneration report on page 47 to 48.
8. Operating lease commitments
The Company has total future minimum lease payments under non-cancellable
operating leases in respect of land and buildings as follows:
Within one year
Between 2 and 5 years
After 5 years
Total operating lease commitments
As at
1 Apr 2017
£m
–
–
–
–
As at
2 Apr 2016
£m
0.7
1.0
–
1.7
The lease expense has been borne by a subsidiary company.
9. Contingencies and guarantees
Premier Foods plc has provided guarantees to third parties in respect of
borrowings of certain subsidiary undertakings. The maximum amount
guaranteed at 1 April 2017 is £0.8bn (2015/16: £0.8bn).
10. Subsequent events
There were no subsequent events.
Premier Foods plc Annual report for the 52 week period ended 1 April 2017 Manage your shares
The Company’s Register of Members is maintained by our registrar, Equiniti.
Shareholders with queries relating to their shareholding should contact Equiniti
directly using the details given below:
Equiniti, Aspect House, Spencer Road, Lancing, BN99 6DA.
Telephone – 0371 384 2030 (or +44 121 415 7047 if calling from outside the UK).
Calls to this number are charged at a national rate.
Lines are open 8.30 am to 5.30 pm Monday to Friday, excluding UK public holidays.
Or visit Equiniti’s Shareview website:
www.shareview.co.uk
Trademarks
The Company’s trademarks are shown in italics throughout this annual report. The Company has an exclusive worldwide licence to use the Loyd
Grossman name on certain products and an exclusive worldwide licence to use the Paul Hollywood name on certain products. The Company has
an exclusive licence to use the Cadbury trademark in the UK (and other specified territories) on a variety of ambient cake products. Cadbury is a
trademark of Mondelez International, Inc.
Cautionary Statement
The purpose of this annual report is to provide information to shareholders of Premier Foods plc ('the Company'). The Company, its directors,
employees and advisers do not accept or assume responsibility to any other person to whom this document is shown or into whose hands
it may come and any such responsibility or liability is expressly disclaimed. It contains certain forward-looking statements with respect to the
financial condition, results, operations and businesses of the Company. These statements and forecasts involve risk and uncertainty because
they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or
developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this annual report
should be construed as a profit forecast.
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Premier Foods plc
Premier House
Centrium Business Park
Griffiths Way
St Albans
Hertfordshire
AL1 2RE
T: 01727 815850
Registered in England and Wales No. 5160050
www.premierfoods.co.uk
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7
ANNUAL REPORT AND
FINANCIAL STATEMENTS
2016/17