Premier Foods Annual Report 2018

FY2018 Annual Report · Premier Foods

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ANNUAL REPORT
FOR THE 52 WEEKS ENDED 31 MARCH 2018

INTRODUCTION

Overview
and headlines

A RETURN
TO GROWTH

Our growth this year has been led through leveraging
our strategic partnerships, driving further progress in our
international markets and supported by our innovation –
and this has helped us to deliver our best revenue growth
in over five years.

This demonstrates that our strategy is working and is an
important step towards our target of reducing our Net debt
to EBITDA1 ratio to below 35 by March 2020.

HIGHLIGHTS

FINANCIAL HEADLINES

Group revenue

Trading profit2

£790.4m

£819.2m

£117.0m

£123.0m

2016/17

2017/18

2016/17

2017/18

Profit before tax

£20.9m

£12.0m

Net debt2

£523.2m

£496.4m

2016/17

2017/18

2016/17

2017/18

OPERATIONAL HEADLINES

• Full year revenue up +3.6%; H2 revenue up +5.3%.

EXPLORE OUR REPORT

INTRODUCTION
About Premier Foods
Chairman’s statement

STRATEGIC REPORT
Business model
Chief Executive’s review
Strategy
Strategy in action
Key performance indicators
Operating and financial review
Being a responsible food company
Risk management

GOVERNANCE
Chairman’s introduction
Board of directors
Governance overview
Nomination Committee report
Audit Committee report
Other statutory information
Statement of directors'
responsibilities
Directors' Remuneration report

FINANCIAL STATEMENTS
Independent auditor's report
Consolidated financial statements
Notes to the consolidated financial
statements
Company financial statements
Notes to the Company financial
statements

02
03

04
05
06
07
08
10
18
25

30
31
32
34
35
37

39
40

57
64

68
110

112

• Statutory profit before tax up +74.2% to £20.9m; basic earnings per share 0.9 pence.

The directors’ report is comprised of pages
02 to 56

• Ahead of revenue, Trading profit and Net debt market expectations for the full year.

• Extended revolving credit facility and launched offering of new £300m 5 year Senior Secured

fixed rate notes.

•

International sales2 increased +25% in the full year.

• Strategic partnerships with Nissin and Mondelēz International delivered 55% of revenue

growth.

1. Net debt/EBITDA is EBITDA on an

adjusted basis as defined on page 16

A definition and reconciliation of
non-GAAP measures to reported
measure is set out on page 16

FINANCIAL STATEMENTSGOVERNANCEINTRODUCTIONSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 About
Premier Foods

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. Around
96% of what we sell is made in the UK from
quality ingredients, wherever we can sourced
sustainably from British suppliers and farmers.

We operate primarily in the ambient food sector
which continues to be the largest sector within
the total £184.5 bn2 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, Snacks &
Soups and Ambient Desserts. Our Sweet Treats
business is responsible for growing our brands in
the Ambient Cakes category.

Our market
position

Total3
market size

No. 1

£503m

Category

Our brands

Bisto, OXO, Paxo

Flavourings &
Seasonings

Cooking Sauces &
Accompaniments

Sharwood’s, Loyd Grossman, Homepride

No. 1

£959m

Quick Meals, Snacks
& Soups

Batchelors, Smash

No. 1

£447m

Ambient Desserts

Ambrosia, Bird’s, Angel Delight, Mr Kipling,
Cadbury

No. 1

£392m

Ambient Cakes

Mr Kipling, Cadbury, Lyons

No. 1

£1,053m

We also have a growing presence in the home-baking category with brands including our new
Paul Hollywood range of mixes.

Expanding internationally
We’re also working hard to expand
internationally by finding new
markets for our brands around
the world – our International
business grew 25% in the financial
period. We’re continuing to build
momentum in Ireland and also
responding to increasing consumer
interest in a range of our brands
such as Mr Kipling and Cadbury
cake, Sharwood’s cooking sauces
and Batchelors packet soups in
a number of markets including
Australia and the USA.

Strategic partnerships
In August 2017, we signed a new
strategic global partnership with
Mondelēz International to renew the
Company’s long-standing licence
to produce and market Cadbury
branded cake and ambient dessert
products. The new partnership will
run until at least 2022, is expanded
to cover 46 countries including
South Africa, Canada, Japan, China
and India and has the potential
to use the full range of Cadbury
brands in ambient cake in addition
to the Oreo brand.

Since we entered into a co-operation
agreement with Nissin 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 noodles
and Cup Noodle brands in the UK
and we’re now working with Nissin
to further expand international
opportunities for our brands using
Nissin’s global network.

Customers
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.

1. Kantar Worldpanel Total Market Penetration for the 52 weeks to 22 April 2018.
2.
3. Kantar Worldpanel Total Market for the 52 weeks to 31 March 2018.

Institute of Grocery Distribution, UK Grocery June 2017.

UK Grocery channel value2

2016/17

2017/18

Hypermarkets

£16.5bn

£16.2bn

Supermarkets

£86.6bn

£86.0bn

Convenience

£37.5bn

£40.0bn

Discounters

£17.9bn

£20.1bn

Online

Other

£10.5bn

£10.4bn

£10.0bn

£11.8bn

INTRODUCTION
Chairman’s
statement

During the year to 31 March 2018, encouragingly
revenue grew to £819.2m (an increase of 3.6%),
Trading profit grew to £123.0m (an increase of
5.1%) and profit before tax increased to £20.9m.
Importantly, the business has taken a positive
step towards its objective of achieving an EBITDA
to Net debt ratio of less than three times, reducing
the level of Net debt by £26.8m to £496.4m.

Overview of the business
As a new joiner to the business and Board in
October, my impression, is that there are a lot
of positive attributes to the business, which are
not always recognised. It is now well integrated
and efficient, generating comparatively
good operating margins on its revenues in
a challenging sector. The standard of brand
management and other support functions
compares well with contemporary best practice
which is a strength in the food industry, where
future growth comes from understanding and
aligning with consumer
trends. I have visited many
of the business’s factories.
These are impressive
assets and the heart of the
business, full of long-serving
teams, with know-how,
pride and enthusiasm. The
level of skill, professionalism
and commitment across
the business, provides it
with a platform for further
performance.

The business has a strong
stable of category-leading
British brands, which play
an important role in UK food production and
distribution. The business has now become
increasingly innovative. This is reflected in
the accelerating programme of new product
development, brand extensions, strategic
partnerships, a growing international business
and rigorous cost management through
continuous process improvements. These have
made meaningful contributions to the results for
the year and should support future performance.

Not everything in business is plain sailing,
particularly with the economic and sector
headwinds mentioned by Gavin Darby, our Chief
Executive Officer, in his statement on page 05.
We operate in a sector which has seen a lot of
change, which we anticipate continuing with
Brexit and ongoing changes to respond to issues
in relation to nutrition and plastic. However, this
is a business well versed in the need to swiftly
adapt. At Premier Foods, we are in the good
position of having brands that play a role in
everyday family lives, brands that our consumers
value, enjoy and benefit from. Ensuring that
they continue to do this is important and so is
accepting our broader social responsibility for
well-being and the environment. Our policies
on food content and use, as well as packaging,
have been reviewed by the Board and further
details can be found on pages 18 to 24. These
are important topics that we intend to continue
making progress with over the coming years.

In closing, I would like to reassure readers that
the Board and the management are fully aware
of our responsibility to achieve a position in which
we create increasing and sustainable value for
shareholders. Although good progress has been
made during the year, the Company still has
relatively substantial levels of debt and pensions
obligations. We are acutely aware that there
remains much continuing work to do in managing
these and achieving effective, practical, long-term
solutions. We are conscious of our responsibility
to those who support us by providing finance,
as well as our obligations to colleagues and
pensioners who depend on the outcome of this
work. We appreciate your continued support,
as well as that of our customers, partners and
suppliers.

I believe that the business is doing the right things
and making progress.

Keith Hamill OBE
Non-executive Chairman
15 May 2018

“At Premier Foods,
we are in the good
position of having
brands that play a
role in everyday family
lives, brands that our
consumers value,
enjoy and benefit
from.”

Board changes
Turning to our Board, David
Beever retired as Chairman
in November 2017 after
nearly ten years’ service – his
colleagues and many friends
in the business thank him and
wish him well. Tsunao Kijima,
a non-executive director
appointed by Nissin under our
Relationship Agreement with
our largest shareholder, retired
from the Board in March
2018 and was succeeded
by Shinji Honda. We would
like to thank Tsunao for his

service and we welcome Shinji to the Board. In
addition, Daniel Wosner resigned from the Board
on 28 March 2018, when Oasis Management
Company Limited gave notice of the termination
of its Relationship Agreement, and I would like to
thank him for his service on the Board.

FINANCIAL STATEMENTSGOVERNANCEINTRODUCTIONSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 INTRODUCTIONBusiness
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 few years.

Our values define how we work together
and do our jobs. All colleagues in the business
understand the importance of our five key
values:

• We aim higher;
• We champion fresh ideas;
• We are agile;
• We are united; and
• We respect and encourage one another.

B RAND

WE CREATE
THE FOOD THE
NATION LOVES
MOST FOR
MODERN LIFE

O
P

BRANDS

CUSTOMERS

OPERATIONS

• Unique portfolio of leading

• Ability to serve a wide

• Excellent operational

British brands

• Strong insights into UK

range of channels in both
the UK and overseas

consumers

• Understanding our

• Creating innovative

new products to meet
consumers’ needs

customers and working
with them to deliver
mutual growth plans

capability

• Ability to manufacture a

diverse range of products
and formats
• Experienced and

dedicated workforce

Underpinned by our values and our commitment to
be a responsible food company

R
E
M
O
T
U S

The strategic report on pages 04 to 29 was
approved by the Board of directors on 15 May
2018 and signed on its behalf by

Gavin Darby
Chief Executive Officer

STRATEGIC REPORT

Chief Executive’s
review

I’m pleased to report a positive set of results
which beat market expectations on all key
metrics and demonstrates that our key
strategies are working. 2016/17 was a tough
year for the food industry, so we responded by
rebalancing our priorities to place our business
on a stronger footing. We set out a clear plan
to reduce our Net debt to EBITDA leverage
ratio to below three times, a plan to which we
are completely committed; balancing three key
levers of revenue growth, cost control and cash
generation.

During the year we successfully executed
the first stage of this plan. Encouragingly,
after a slower start in the first quarter, growth
accelerated during the year, with revenue in
the second half up +5.3% and +7.0% higher
in quarter four.

Three important drivers of this performance were
innovation, our International
business and our strategic
relationships with Nissin and
Mondelēz International.

We have seen an
acceleration of our product
innovation this year with
Batchelors Super Noodles,
Batchelors Pasta ‘n’ Sauce
and Angel Delight all now
available in convenient pots.
Our innovation is focused
across four key areas; Health
& Nutrition, Convenience,
Snacking/On the go and
Indulgence, all strengthening
our customer relationships
through invigorated ranges. From gluten
free products, to lower calorie cakes, lower
sugar custard and to ready to use gravy, our
teams have been busy launching the products
consumers love in the formats they tell us they
need.

Through our two important strategic
partnerships with Mondelēz International and
Nissin, we have a strong platform to further grow
our business. Our relationship with Mondelēz
International has expanded significantly,
providing the scope to further grow the Cadbury
cake brand across an exciting 46 international

geographies. Australia is now our biggest market
after the UK, due to the growth of Cadbury
cake and Mr Kipling. Meanwhile, our strategic
Nissin partnership, not only provides access
to a new supply chain and set of commercial
relationships, but worldwide market leading
Research & Development expertise which
enabled us to bring UK consumers Batchelors
Super Noodles in a pot, along with Nissin's Soba
noodles and Cup Noodle. This has also helped
Batchelors become the fastest growing brand
in our portfolio in 2017/18, with over 13 million
Super Noodles pots sold in the year.

Our International business saw strong double
digit sales growth, an impressive trajectory at
+25% which has nearly doubled sales over
the last three years and means we have now
grown for 14 consecutive quarters. Australia and
Ireland are our two biggest International markets
focussing initially on Cadbury,
Mr Kipling and Sharwood’s.

“Our focus has
placed Premier Foods
back into revenue
growth of 3.6%, a
really encouraging
performance, which
provides us with
strong momentum for
the year ahead.”

The business environment
has seen lots of challenges
over the past year, rising
inflation and input prices,
as well as an important
focus on the packaging
we use and the nutritional
content of the products we
sell. I am passionate about
these topics and Premier
Foods is taking a leading
role alongside our industry
peers, the Food and Drink
Federation (FDF) and with
the government. The obesity
problem in our country is

one that we all must play our part to solve and
Premier Foods is committed to doing just that,
whilst also providing choice and the great tasting
products our consumers love. Meanwhile, Brexit
continues to be at the forefront of our minds. We
have successfully navigated the input cost wave
initiated by the post referendum devaluation
of Sterling, and we remain vigilant about the
potential impacts from ongoing EU negotiations.

Alongside this we have been actively working
on cost reduction. This is a two year plan, of
which we are halfway through and includes
ongoing efficiency programmes in our

manufacturing sites, as well as the restructuring
of our warehousing and distribution network.
Combining our distribution operations into a
single site in Tamworth is no small feat. We
experienced some implementation challenges,
but phase one of the transition is now complete
and the second phase is well underway. With
the process of integrating the rest of our Grocery
and our Sweet Treats businesses under one roof
during the course of this year, we look forward to
better serving our customers.

This year we have taken another stride towards
our strategic milestone of reducing our Net debt
to EBITDA ratio to below three times, with Net
debt now standing at £496.4m. This work has
included tight focus on our capital investment,
maintaining the affordability of our pension
payments and disciplined management of
working capital. Given this progress, we are now
targeting to pass the milestone of 35 Net debt to
EBITDA by March 2020.

In closing, I would like to acknowledge the tough
but necessary decisions we made to resize
our head office functions during the year. I am
acutely aware that cost reduction programmes
of this scale, forced us to bid farewell to some
valued and very capable colleagues and ask
much more from those who remained. My
sincere thanks go to everyone concerned for
their understanding and commitment.

So in summary, it has been a pleasing year
overall where we have made progress in
a number of key areas. We remain totally
committed to delivering shareholder value and
believe the strategy we have set out is the right
one. With the strong momentum we created in
2017/18, we look to build upon this and expect
to make further progress in the year ahead.

Gavin Darby
Chief Executive Officer
15 May 2018

INTRODUCTIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018
Strategy

The Group’s strategy is to give an equal focus to growing revenue, delivering cost efficiencies and
generating cash. We believe this balanced approach will enable us to successfully deleverage the
business and we are now targeting a Net debt to EBITDA ratio of below 3.05 by March 2020.

DRIVE REVENUE GROWTH

COST CONTROL & EFFICIENCY

C O S T CONTRO
& E F FICIENCY

• UK – Innovation through insights;
growing to 10% of branded sales

• UK – Strengthen well established

customer relationships

•

International – Strong double digit
growth through new and existing
markets

• Strategic Partnerships – Nissin and

Mondelēz International

• Logistics restructuring programme

• Manufacturing cost savings

programmes

• Capital projects

• Holistic margin management

• Maintain SG&A % sales

D
R

ATIO

H
R

CAS
G ENE

TARGETING BELOW 3.0X
NET DEBT/EBITDA
BY MARCH 2020

DELIVERING
SHAREHOLDER VALUE

CASH GENERATION

• Tightly focused capital expenditure

• Maintain affordability of pension deficit contributions

• Disciplined working capital management

STRATEGIC REPORT

Strategy
in action

In the UK, a core objective is to deliver growth through innovation by investing in insights, marketing
and our colleagues. At the same time we are leveraging the benefits of our strategic partnerships
and driving strong growth internationally, whilst maintaining tight control of cash flow through cost
control and efficiencies.

UK
Our innovation is
aligned to consumer
trends
We focus our insights and
new products on four key
consumer trends: Health
& Nutrition; Convenience;
Snacking/On the go and
Indulgence. Batchelors, OXO,
Loyd Grossman and Cadbury
cake have all benefited from
new products launched
in the year and delivered
revenue growth. Innovation
has also been successful
in rejuvenating some of our
smaller brands, such as Angel
Delight, which saw +11%
revenue growth in 2017/18
following the launch of our
new ready to eat pots.

International
A substantial driver
for future growth
We have had another strong
performance from our
International business which
has seen sales growth of 92%
over the last three years.

Growth was particularly good
in Australia which is now
our largest overseas market
followed by Ireland. Overall
Australia achieved +81% sales
growth driven principally by
Cake which now holds a 9.6%
share. We also entered into
a third category during Q4 (in
addition to Cake and Sauces)
with the launch of Batchelors
Soupa!

New products
accounted for 6.4%
of UK branded sales

International
revenue up +25% to
£61m in 2017/18

Strategic
partnerships
Increasing
importance of
our strategic
partnerships
Revenue from our partnerships
with Nissin and Mondelēz
International resulted in
revenue growth of +19%. This
was driven by our Batchelors
Super Noodles pot product
and sales and distribution of
Nissin’s Soba noodles and
Cup Noodle ranges in the UK.
In 2017/18 we extended our
long standing relationship with
Mondelēz International for
a further five years and saw
increased sales growth from
Cadbury cake.

55% of Group
revenue growth in
the year came from
our partnerships

Cost control &
efficiency
Strong plans in
place to maintain
margin
We are undertaking a major
transformation of our logistics
operations into a single
warehousing and distribution
operation in Tamworth and
are on track to deliver £10m
of savings from manufacturing
and logistics operations. The
first phase of the project was
completed in the year and
the final two phases will be
completed over the course
of 2018/19. In addition we
continue to focus capital
investment on projects to
increase capacity and to
streamline manufacturing
processes.

On track to deliver
£10m in savings

INTRODUCTIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Key performance
indicators

We use a 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.

Group revenue
Year-on-year growth
in revenue.

Trading profit
Trading profit is
defined in the Operating and
financial review on page 16.

Net debt to
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 page 16.

Free
cash flow
Free cash flow is defined in the
Operating and financial review
on page 16.

£790.4m

£819.2m

£117.0m

£123.0m

2017/18:

3.65

(2016/17: 3.95)

2017/18:

£28.8m

(2016/17: £15.1m)

2016/17

2017/18

2016/17

2017/18

Why is this important?
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.

Progress we’ve made
Trading profit increased
by 5.1% in the year. This
improvement was driven by
the benefits of revenue growth
and a disciplined focus on
cost efficiency, including SG&A
savings from our cost saving
programme.

Why is this important?
The ratio is tied with the
Group’s priority to organically
deleverage the business.

Progress we’ve made
Net debt reduced by £26.8m
from £523.2 in 2016/17 to
£496.4m in 2017/18. As a
result of this deleveraging and
EBITDA growth the ratio of
Net debt to EBITDA reduced
from 3.95 to 3.65. The Group
is targeting a Net debt to
EBITDA ratio below 3.05 by
March 2020.

Why is this important?
Free cash flow is a measure
of the cash generated by the
Group to pay down debt. It is
also a good indicator of the
underlying quality of earnings
and the overall health of the
business.

Progress we’ve made
Free cash flow increased from
£15.1m in 2016/17 to £28.8m
in 2017/18. This was driven
by the increase in Trading
profit, lower pension deficit
contributions, restructuring
costs and capital expenditure.

Why is this important?
Delivering revenue growth is one
of our strategic priorities. This
captures both branded and non-
branded performance across all
channels we operate in.

Progress we’ve made
Group revenue increased
by 3.6% in the full year
to £819.2m and we grew
revenue in the last three
quarters of 2017/18 and
at 5.3% in H2. This is our
best revenue performance
for five years. This growth
demonstrates strong results
from our strategic partnerships
with Nissin and Mondelēz
International, continued
growth of our International
business and the benefit of
our innovation programme in
the year.

STRATEGIC REPORTReferences to ‘underlying sales' and 'underlying Trading profit’ in the 2016/17 annual report have been removed as there are no adjustments required to
be made to statutory results for 2017/18 or 2016/17. Environmental and Health & Safety performance is reported in more detail in the section on being a
responsible food company on pages 18 to 24.

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 for the 52 weeks ending
31 March 2018 and 1 April 2017).

Grocery

Sweet Treats

24.7% 24.7%

23.1%

22.1%

SG&A as a % of
Group revenue
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
Revenue value of new product
launches with a claimable
nutrition benefit, e.g. 'source
of fibre' as well as no red
traffic lights on front of pack
within our Grocery portfolio.

2017/18:

7.9%

(2016/17: 8.8%)

2017/18:

86%

(2016/17: 93%)

2017/18:

82%

(2016/17: 78%)

Why is this important?
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.

Progress we’ve made
SG&A as a % of revenue
reduced from 8.8% to 7.9%
during the year. This is driven
by the results of our cost
and efficiency programme
announced in January 2017.

2016/
17

2017/
18

2016/
17

2017/
18

Why is this important?
Increasing market share
indicates consumer preference
for our products and also
demonstrates successful
partnerships with customers
to grow our overall categories.

Progress we’ve made
Grocery market share was
flat in 2017/18 compared to
the prior year. We have seen
share gains in our Quick Meals,
Snacks & Soups category
following successful new
product launches under the
Batchelors brand, offset by
share losses for Ambrosia
following a move to more
optimal promotional strategies.
Sweet Treats market share was
down slightly, reflecting lower
levels of promotional activity in
some parts of the market.

Why is this important?
This is an important measure of
the quality of our product portfolio.
It drives recipe improvements
and ensures focus on consistent
product quality.

Progress we’ve made
Overall our performance
fell in the year reflecting an
improvement in the quality of
certain non-branded competitor
products. To address this
we have introduced a new
programme focused on our
top selling Grocery and Sweet
Treats products to ensure
that all test superior to our
competitors.

The review covered 70% of our
branded portfolio (by retail sales
value) as part of a three-year
rolling programme.

Why is this important?
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 being a responsible food
company on page 18.

Progress we’ve made
Over the course of the period
82% of new product launches
within our Grocery portfolio
delivered a claimable nutritional
benefit and none of these
products had a 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.

INTRODUCTIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Operating and
financial review

We are pleased to report revenue growth of +3.6%, our strongest performance for over five years.
After a slower start in the first quarter, performance accelerated during the year, with revenue
in the second half up +5.3% and +7.0% higher in quarter four.

Three important drivers of this performance were innovation, our International business and our
strategic partnerships with Nissin and Mondelēz International. Trading profit progress in the year
benefitted from this encouraging commercial performance as well as our disciplined focus on cost
and efficiency. We reduced Net debt to less than £500m and are now targeting a Net debt to EBITDA
ratio below 3.05 – our initial target level – by March 2020.

Revenue
Group revenue (£m)
Branded
Non-branded
Total
% change
Branded
Non-branded
Total

Grocery
498.3
90.9
589.2

3.4%
12.1%
4.6%

Sweet Treats
171.8
58.2
230.0

(3.2%)
16.9%
1.2%

Group
670.1
149.1
819.2

1.6%
13.9%
3.6%

Group revenue for the 52 weeks ended 31 March
2018 was £819.2m, an increase of 3.6% on the
previous year. Branded revenue grew by +1.6%
to £670.1m while Non-branded revenue delivered
another strong result, up 13.9% to £149.1m. The
Group recorded a strong second half of the year
in revenue terms, with growth of +5.3% while
fourth quarter revenues advanced +7.0%.

Revenues in the Grocery business unit grew by
+4.6% in the year to £589.2m; branded revenues
advanced +3.4% and Non-branded revenue
increased +12.1%. In the Sweet Treats business,
revenues were £230.0m, a +1.2% increase on
the prior year. Branded revenues were (3.2%)
weaker while Non-branded revenues increased
by +16.9%. The Group experienced a mix effect
on branded cake during the year with higher
branded cake sales in the International business
unit (reported in the Grocery segment) offset by
lower branded cake sales in the UK (reported in
the Sweet Treats segment). However branded
revenues in Sweet Treats saw an improving trend
towards the end of the year, with revenues flat in
the fourth quarter.

The Group expected weaker sales in the first
quarter, and this proved to be the case, with
revenues down (3.1%). However, also as
expected, excellent progress followed during
the remainder of the year, with average revenue
growth for the subsequent three quarters of
+5.6%. While the wider consumer environment
remains a challenging one, the Group notes the
different trends seen between food and non-food
sections of the UK consumer goods market, with
food sector sales demonstrating stronger trends
through the year, particularly in the second
half. Additionally, while there has been a clearly
demonstrable gap between the rate of general
inflation and average earnings over the past year,
this has now shown recent signs of narrowing.

The second half of the year brought a stronger
and more consistent performance by the Group’s
brands, with an average of +2.1% revenue
growth across its eight largest brands. The fourth
quarter was particularly strong, with revenue up
+7.0%, as colder weather saw good volume
growth compared to the prior year, especially in
the Group’s Grocery categories.

Batchelors led this growth with increased
revenues of +13.0% in H2 and +10.6% in the
full year. Three years ago, Batchelors had strong
brand metrics (with household penetration of
50% and 30% market share) but revenues were
falling by (12%) per annum and the portfolio was
in clear need of revitalisation. Since then, utilising
the extensive manufacturing and research &
development expertise of our strategic partner,
Nissin, coupled with the Group’s innovation
programme informed by its consumer insights,
the Batchelors range has been substantially
updated. Over the last year, the brand has
introduced Super Noodles pots and Pasta ‘n’
Sauce pots in a variety of flavours and these
ranges have been instrumental in the brand’s
growth during 2017/18. For 2018/19, new
products to market include Cup a Soup to go
and Super Rice & Sauce, both in convenient
pot formats, presenting the platform for further
progress this year.

Other brands which delivered revenue growth in
the year included Bisto, Oxo, Loyd Grossman
and Cadbury cake. These brands have
benefitted from new products launched to
market during the year, aligned to key consumer
trends which the Group outlines as: Health &
Nutrition; Snacking/On the go; Convenience
and Indulgence. Sales of Bisto grew in the year
due to mix benefits as consumers increasingly
switched to the more premium Bisto Best range
and Oxo also saw increased revenue following
the launch of ready to use Stock in pouches.
Two of the Group’s smaller brands, Angel
Delight and Saxa both benefitted from double-
digit revenue progression in the year supported
by new ranges such as ready to eat pots and
premium product variants respectively.

The improving trend as seen in branded
Sweet Treats in the fourth quarter reflected
the introduction of new Mr Kipling Fruit Slices
with lower average calories per slice than the
standard slices range and television advertising
in the run up to the Easter period.

STRATEGIC REPORTThe Group benefits from two major strategic
partnerships; with Nissin Foods Holdings
(“Nissin”) and Mondelēz International. Revenue
grew +19% during the year as a result of
initiatives with these two key partnerships
and they accounted for 55% of the Group’s
revenue growth in the year. The partnership
with Nissin includes their support in developing
the Batchelors Super Noodles pot product and
the sales and distribution of the Soba noodles
and Cup Noodle ranges in the UK. The long
standing relationship with Mondelēz International
was extended for a further five years during
2017/18 with an option to extend by a further
three. The performance of Cadbury cake was
again strong in the year, reflecting further growth
in Australia. While sales of Cadbury cake in the
UK were held back partly due to short-term
capacity constraints in the year, a focus of
capital investment in 2018/19 is set to increase
Cadbury cake manufacturing capacity to satisfy
this raised level of demand.

The International business has enjoyed its third
consecutive year of excellent progress, with
sales8 up +25% in the full year and +34% in Q4
on a constant currency basis, while margins also
increased. Over this three year period, sales has
increased by 92% and the team has expanded
from 9 to 43 people at the year end. International
revenue of £61m now accounts for 7.5% of total
Group revenue and has grown at a compound
annual growth rate of 24% over the last three
years.

The stand out performer during the year was
Australia, which is now the Group’s largest
market outside the UK, with revenue growth
of +81%. Cadbury cake and Mr Kipling both
continue to be the main contributors to growth,
now with a combined market share of nearly
10%, however the Group also entered into its
third category in the fourth quarter of the year,
with the launch of Batchelors Soupa!.

Revenues for the Non-branded parts of the
portfolio have grown strongly for the second
year in succession and now account for nearly
£150m of Group revenue. The constituent
parts of the Group’s Non-branded business are
varied and include seasonal and non-seasonal
cake ranges, business to business contracts in
Grocery and the Knighton Foods (“Knighton”)
business. The growth in this area in 2017/18
was broad and reflected contract wins in
Grocery, seasonal and non-seasonal cake and
increased sales at Knighton.

In overall terms, the Group’s Non-branded business is one which plays an important and supportive
role and accordingly, there are some key principles the Group employs. These principles are to:
deploy low levels of capital investment; support the recovery of manufacturing overheads and apply
strict financial hurdles on new contracts.

Trading profit1
£m
Divisional contribution2
Grocery
Sweet Treats
Total
Group & corporate costs
Trading profit

The Group reported Trading profit of £123.0m in
the year; growth of £6.0m compared to 2016/17.
Divisional contribution was £6.1m higher than
the prior year period at £155.8m. The Grocery
business recorded Divisional contribution broadly
flat to last year of £130.0m while in Sweet Treats,
Divisional contribution increased by £6.0m to
£25.8m. Group & corporate costs were in line
with the prior year at £32.8m.

Grocery Divisional contribution benefitted from
increased sales during the year, as commented
above. The Group also experienced material
input cost inflation in the early part of 2017/18
from both commodity cost increases and the
devaluation of Sterling. 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 collaborative approach which the Group
applies when working with its customers took
longer than expected and while this impacted
margins in the first half of the year, these returned
to more normal levels in the fourth quarter.

The Grocery business unit realised benefits
from the completion of the Group’s SG&A
savings programme in the year, while consumer
marketing investment was also lower in the
year in total terms, as the Group focused its
marketing efforts on only higher return on
investment activity.

The results of the International and Knighton
business units are consolidated in the results of
the Grocery business unit. As outlined above,
the International business enjoyed another
excellent year and also generated growth
in Divisional contribution; its margins being
higher than the Group’s Sweet Treats business.
Knighton’s performance in the first half of the
year was below that of the comparative period,
but improved in the second half of the year.

2017/18

2016/17

Change

130.0
25.8
155.8
(32.8)
123.0

129.9
19.8
149.7
(32.7)
117.0

0.1%
30.3%
4.1%
(0.4%)
5.1%

The group is on track to deliver £10m from
its initiatives to increase the efficiency of its
manufacturing and logistics operations. The
principal activity during the year was the first
stage of a major transformation of warehousing
and distribution operations. This programme will
consolidate all the Group’s logistics operations at
a single location in Tamworth, central England.
The first phase of the transition experienced
implementation challenges, but these are now
substantially resolved and the second phase of
the transition is underway. The logistics element
of the overall operational efficiency programme
is delivering good savings and return on
investment.

In Sweet Treats, Gross profit margins were
broadly in line with the prior year, as revenue
growth was offset by adverse performances at
manufacturing sites. The growth in Divisional
contribution of +£6.0m was due to savings
from lower levels of SG&A costs following the
completion of the Group’s SG&A restructuring
programme and lower levels of consumer
marketing investment compared to 2016/17.

Group and corporate costs were in line with the
prior year as the central functions element of
SG&A savings from the Group’s restructuring
programme were offset by costs relating to
the resumption of management incentive
schemes following non-payment in the prior
year. The Group has resumed recruiting with a
good balance of both internal promotions and
external recruits sourced by a highly effective
direct internal team, demonstrating a good
return on investment. A new bonus structure for
management has been put in place for 2018/19
which is aligned to shareholder interests,
designed to incentivise and reward high levels
of performance and increase the Group’s
competitiveness in the employment market.

INTRODUCTIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Operating and
financial review

Operating profit
£m
Adjusted EBITDA3
Depreciation
Trading profit
Amortisation of intangible assets
Fair value movements on foreign exchange and derivatives
Restructuring costs
Net interest on pensions and administrative expenses
Operating profit before impairment
Impairment of goodwill & intangible assets
Operating profit

2017/18
139.6
(16.6)
123.0
(36.3)
0.1
(8.5)
(2.5)
75.8
(6.5)
69.3

2016/17
133.2
(16.2)
117.0
(37.9)
(1.0)
(15.8)
(0.8)
61.5
–
61.5

Change
+4.8%
(2.5%)
+5.1%
+4.2%
–
+46.2%
–
+23.3%
–
+12.7%

Adjusted EBITDA grew by £6.4m in the year to £139.6m and depreciation was £16.6m, slightly higher than the prior year.

Operating profit increased 12.7% in 2017/18 to £69.3m largely due to a reduction in restructuring costs to £8.5m from £15.8m in the prior year.
Restructuring costs in the year primarily related to charges associated with the Group’s logistics restructuring programme. An impairment charge of
£6.5m in the year related to the write off of goodwill at Knighton Foods and the write off of Lyons’ cakes intangible brand asset.

Amortisation of intangible assets was slightly lower in the year, at £36.3m, and net interest on pensions and administrative expenses was £2.5m in
2017/18, £1.7m higher than the prior year. This comprised administrative expenses incurred of £5.5m, partly offset by a net interest credit of £3.0m
owing to an opening combined pension schemes surplus.

Finance costs
£m
Senior secured notes interest
Bank debt interest

Amortisation of debt issuance costs
Net regular interest5
Fair value movements on interest rate financial instruments
Write-off of financing costs
Discount unwind
Other interest
Net finance cost

2017/18
32.2
7.2
39.4
5.0
44.4
(0.4)
4.0
(0.4)
0.8
48.4

2016/17
30.6
8.1
38.7
4.1
42.8
(0.6)
0.1
5.6
1.6
49.5

Change
(5.2%)
11.1%
(2.1%)
(22.0%)
(3.6%)
32.7%
–
–
50.0%
2.4%

Net finance cost was £48.4m for the year; £1.1m and 2.4% lower than 2016/17. Net regular interest in 2017/18 was £44.4m, an increase of £1.6m
although slightly lower than management expectations. The largest component of finance costs was interest due to holders of the Group’s Senior
Secured notes of £32.2m. Bank debt interest of £7.2m was £0.9m lower in the period due to lower levels of average debt and slightly lower LIBOR levels
in the first half of the year compared to the prior period. Amortisation of debt issuance costs was £5.0m.

In the prior year, a £5.6m discount unwind charge relating to long term property provisions held by the Group due to a reduction in gilt yields was
reflected in the reported Net finance cost of £49.5m. In the current period, an increase in gilt yields resulted in a benefit of £0.4m. Write-off of financing
costs of £4.0m in the first year related to the write off of transaction costs associated with the issue in 2014 of six year Senior Secured floating rate notes
due March 2020, which were repaid during the period.

STRATEGIC REPORTTaxation
£m
Overseas current tax
- Current year
Deferred tax
- Current period
- Prior periods
- Adjustment to restate opening deferred tax at 17.0%
Income tax charge

2017/18

2016/17

Change

0.8

(4.1)
(8.1)
(2.3)
(13.7)

–

(6.4)
1.1
(1.2)
(6.5)

0.8

2.3
(9.2)
(1.1)
(7.2)

A tax charge of £13.7m in the year compared to a £6.5m in the prior year. The £13.7m charge included a current period charge of £4.1m, a prior period
charge of £8.1m and an adjustment to restate opening deferred tax of £2.3m. The current period charge included a tax charge at 19.0% on profit before
tax of £20.9m, and adjustments to prior periods of £8.1m relates to prior period losses which have been reviewed as part of the submission of returns.

A deferred tax liability at 31 March 2018 of £12.1m compared to a deferred tax asset of £32.4m at 1 April 2017. This movement primarily reflects a higher
pensions surplus reported at 31 March 2018 compared to 1 April 2017.

Earnings per share
Earnings per share (£m)
Operating profit
Net finance cost
Profit before taxation
Taxation
Profit after taxation
Average shares in issue
Basic earnings per share (pence)

2017/18
69.3
(48.4)
20.9
(13.7)
7.2
836.8
0.9

2016/17
61.5
(49.5)
12.0
(6.5)
5.5
830.1
0.7

Change
7.8
1.1
8.9
(7.2)
1.7
(6.7)
0.2

The Group reported a profit before tax of £20.9m in the year, compared to a profit before tax of £12.0m in the comparative period. Profit after tax was
£7.2m, a £1.7m increase on the prior year. This resulted in basic earnings per share of 0.9 pence, an increase of 0.2 pence on the prior year.

Adjusted earnings per share (£m)
Trading profit
Less: Net regular interest
Adjusted profit before tax4
Less: Notional tax (19%/20%)
Adjusted profit after tax6
Average shares in issue (millions)
Adjusted earnings per share (pence)7

2017/18
123.0
(44.4)
78.6
(14.9)
63.7
836.8
7.6

2016/17
117.0
(42.8)
74.2
(14.8)
59.4
830.1
7.2

Change
6.0
(1.6)
4.4
(0.1)
4.3
(6.7)
0.4

Adjusted profit before tax was £78.6m in 2017/18, an increase of £4.4m in the year, as the increase in Trading profit in the year of £6.0m was partially
offset by higher interest costs as described above. Adjusted profit after tax was £63.7m in the year after deducting a notional 19.0% tax charge of
£14.9m. This was an increase of £4.3m compared to the prior year. Based on average shares in issue of 836.8 million shares, adjusted earnings per
share in the period was 7.6 pence, a +6.4% increase on the previous year.

INTRODUCTIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Operating and
financial review

Free cash flow
£m
Trading profit
Depreciation
Other non-cash items
Interest
Taxation
Pension contributions
Capital expenditure
Working capital & other
Restructuring costs
Purchase of own shares
Proceeds from share issue
Sale of property, plant & equipment
Financing fees
Free cash flow10
Statutory cash flow statement
Cash generated from operating activities
Cash used in investing activities
Cash generated from/(used in) financing activities

£m
Net increase/(decrease) in cash & cash equivalents

2017/18
123.0
16.6
2.8
(38.0)
1.0
(39.8)
(19.2)
(0.6)
(12.5)
–
1.2
1.3
(7.0)
28.8

52.4
(17.9)
7.2

2017/18
41.7

2016/17
117.0
16.2
4.3
(39.8)
–
(51.7)
(20.9)
4.7
(13.7)
(1.1)
0.1
–
–
15.1

37.0
(20.9)
(42.0)

2016/17
(25.9)

The Group reported Free cash flow in the year
of £28.8m. Trading profit of £123.0m was
£6.0m ahead of the prior year for the reasons
outlined above, while depreciation was broadly
in line with 2016/17. Interest paid in the year
was £38.0m due to lower levels of average debt
during the year. A taxation credit of £1.0m was
received in the period from Irish tax authorities
in respect of tax paid in prior years. Pension
contributions in the year were £39.8m, in line
with expectations, and a reduction of £11.9m
from the prior year, principally due to the re-
negotiation of deficit contributions to the Group’s
pension schemes announced in March 2017.
Capital expenditure was £1.7m lower in the
period at £19.2m; the Group’s expectations
for the coming year are for investment of no
more than £22m, and a return to a more equal
balanced weighting across efficiency, growth and
maintenance projects after a year more weighted
to maintenance. Restructuring costs associated
with redundancies relating to the Group’s
cost reduction and efficiency programmes
and implementation costs associated with the
Group’s logistics transformation programme

together amounted to £12.5m, £1.2m lower
than the prior year. Financing fees of £7.0m
relate to costs associated with the extension
of the Group’s revolving credit facility and the
issue of new £210m Senior Secured floating rate
notes early in the financial year.

On a statutory basis, cash generated from
operations was £89.4m compared to £76.8m
in 2016/17. This was primarily due to lower
pension deficit contributions, and an increase
in Operating profit, as described above. Cash
generated from operating activities was £52.4m
in the year after deducting net interest paid of
£38.0m and taxation received of £1.0m. Cash
used in investing activities was £(17.9)m in the
year compared to £(20.9)m in 2016/17. Cash
generated from financing activities was £7.2m
in 2017/18 compared to cash used of £42.0m
in the prior year. This was principally due to
proceeds from borrowings of £210.0m which
reflected the issue of new Senior Secured
floating rate notes, the repayment of the 2014
£175.0m Senior Secured floating rate notes and
the associated reduction in the Group’s revolving
credit facility.

At 31 March 2018, the Group held cash and
bank deposits of £23.6m.

Net debt and sources of finance

Net debt9 at 1 April 2017
Free cash inflow in period
Movement in debt issuance costs
Net debt at 31 March 2018
adjusted EBITDA
Net debt / EBITDA

£m
523.2
(28.8)
2.0
496.4
139.6
3.56x

Net debt at 31 March 2018 was £496.4m; a
£26.8m reduction compared to the prior year.
The movement in debt issuance costs in the
period was £2.0m.

In the first half of the year, the Group extended the
term of its revolving credit facility with its lending
syndicate from March 2019 to December 2020. The
total facility, which was undrawn at 31 March 2018,
reduced from £272m to £217m in June 2017.

The Group also completed the issuance of new five
year £210m Senior Secured floating rate notes due
July 2022, at a coupon of 5.00% +LIBOR during
the first half of the year. This new note replaced the
Group’s £175m Senior Secured floating rate notes,
previously due to mature March 2020.

The Group has today announced the proposed
issue of new five year £300m Senior Secured
fixed rate notes due 2023, to refinance its £325m
existing Senior Secured fixed rate notes, due to
mature March 2021. Pricing of the new £300m
Senior Secured fixed rate notes is to be confirmed
and the notes are expected to be callable after two
years. The Group’s £210m Senior Secured floating
rate notes (“FRN”) which attract a coupon of 5.0%
+ LIBOR, mature in July 2022, and there are no
plans to call or refinance these notes at this time.

The Group has also extended the term of its
revolving credit facility with its lending syndicate
from December 2020 to December 2022, effective
on the redemption of the existing Senior Secured
fixed rate notes, and subject to a future refinancing
of the Group’s FRN. The £217m facility, which was
not drawn at 31 March 2018, will reduce by £41m
to £176m. The interest margin under the revolving
credit facility will reduce by twenty five basis points
and the financial covenants, which are tested bi-
annually, are unchanged.

STRATEGIC REPORTPensions

IAS 19 Accounting Valuation (£m)
Assets
Liabilities
Surplus/(Deficit)
Net of deferred tax (17.0%)

RHM
4,184.5
(3,430.5)
754.0
625.8

31 March 2018

Premier Foods
679.1
(1,116.1)
(437.0)
(362.7)

Combined
4,863.6
(4,546.6)
317.0
263.1

RHM
4,190.9
(3,597.0)
593.9
493.0

1 April 2017

Premier Foods
673.7
(1,162.8)
(489.1)
(406.0)

Combined
4,864.6
(4,759.8)
104.8
87.0

The IAS 19 pension schemes valuation reported a surplus for the combined RHM and Premier Foods’ pension schemes at 31 March 2018 of £317.0m,
equivalent to £263.1m net of a deferred tax charge of 17.0%. This compares to a combined RHM and Premier Foods’ schemes surplus at 1 April 2017 of
£104.8m and £87.0m net of deferred tax. A deferred tax rate of 17.0% is deducted from the IAS19 retirement benefit valuation of the Group’s schemes to
reflect the fact that pension deficit contributions made to the Group’s pension schemes are allowable for tax.

The valuation at 31 March 2018 comprised a £754.0m surplus in respect of the RHM schemes and a deficit of £437.0m in relation to the Premier Foods
schemes. Assets in the combined schemes were just £1.0m lower than the same point last year at £4,863.6m. RHM scheme assets decreased by
£6.4m to £4,184.5m while the Premier Foods’ schemes assets increased by £5.4m.

Liabilities in the combined schemes decreased by £213.2m in the year to £4,546.6m. The value of liabilities associated with the RHM scheme were
£3,430.5m, a reduction of £166.5m while liabilities in the Premier Foods schemes were £46.7m lower at £1,116.1m. The reduction in the value
of liabilities in both schemes is due to a slight increase in the discount rate assumption, from 2.65% to 2.70% and a reduction in the inflation rate
assumption; from 3.3% to 3.15%.

Combined pensions schemes (£m)
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)

31 March 2018

1 April 2017

296.5
1,046.4
20.7
391.0
1,323.3
32.4
254.6
715.3
344.0
439.4
4,863.6

527.0
519.1
23.0
357.4
1,284.2
69.1
242.6
1,116.1
321.7
404.4
4,864.6

2.70%
3.15%/2.05%

2.65%
3.3%/2.2%

The net present value of future deficit payments, to the end of the respective recovery periods remains at c.£300–320m.

Outlook
The Group’s strategy is to drive profitable revenue growth and deliver cost efficiencies to generate cash. Accordingly, its focus is on achieving an
initial leverage target of below 3.05 Net debt/EBITDA. The Group now expects to reach this milestone by March 2020 through a combination of profit
improvement and Net debt reduction.

In the UK, a core objective for the Group continues to be the delivery of growth through innovation and realising benefits from its increasingly important
strategic partnerships. Plans are in place this year to increase consumer marketing investment, invest in our colleagues and deliver savings from our cost
efficiency programmes. The Group expects the International business to continue to deliver strong double-digit growth over the medium term. This year
the Group expects to make further balanced progress in all its key priorities; weighted to the second half, and building on the strong momentum created
in 2017/18.

Gavin Darby
Chief Executive Officer

Alastair Murray
Chief Financial Officer

INTRODUCTIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Operating and
financial review

Appendices
The Company’s results are presented for the 52 weeks ended 31 March 2018 and the comparative period, 52 weeks ended 1 April 2017. All references
to the ‘quarter’, unless otherwise stated, are for the 13 weeks ended 31 March 2018 and the comparative period, 13 weeks ended 1 April 2017.

Quarter 4 Sales
Q4 Sales (£m)
Branded
Non-branded
Total
% change
Branded
Non-branded
Total

Grocery
129.5
24.0
153.5

+7.8%
+18.5%
+9.4%

Sweet Treats
43.7
7.2
50.9

(0.3%)
+5.1%
+0.5%

Group
173.2
31.2
204.4

+5.6%
+15.3%
+7.0%

Notes and definitions of Non-GAAP measures
The Company 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. Trading profit is defined as profit/(loss) before tax before net finance costs, 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.

2. Divisional contribution refers to Gross Profit less selling, distribution and marketing expenses directly attributable to the relevant business unit.
3. Adjusted EBITDA is Trading profit as defined in (1) above excluding depreciation.
4. Adjusted profit before tax is Trading profit as defined in (1) above less net regular interest.
5. Net regular interest is defined as net finance cost after excluding write-off of financing costs, fair value movements on interest rate financial

instruments and other interest.

6. Adjusted profit after tax is Adjusted profit before tax as defined in (4) above less a notional tax charge of 19.0% (2016/17: 20.0%).
7. Adjusted earnings per share is Adjusted profit after tax as defined in (6) above divided by the weighted average of the number of shares of

836.8 million (52 weeks ended 1 April 2017: 830.1 million).
International sales remove the impact of foreign currency fluctuations and adjusts prior year sales to ensure comparability in geographic market
destinations. The constant currency calculation is made by adjusting the current year’s sales to the same exchange rate as the prior year.

9. Net debt is defined as total borrowings, less cash and cash equivalents and less capitalised debt issuance costs.
10. Free cash flow is defined as the change in Net debt as defined in (9) above before the movement in debt issuance costs.
11. References to ‘Underlying results’ in previous financial periods have been removed as there are no adjustments required to be made to

statutory results for 2017/18 or 2016/17.

STRATEGIC REPORT

Additional notes:
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.

In line with accounting standards, the International and Knighton business units, the results of which are aggregated within the Grocery business unit, are
not required to be separately disclosed for reporting purposes.

£m
Deficit contributions
Administration costs
Total

2018/19
35
6–8
41–43

Future pension cash payments schedule

2019/20
37
6–8
43–45

2020/21
38
8–10
46–48

2021/22
38
8–10
46–48

2022/23
38
8–10
46–48

INTRODUCTIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Being a responsible
food company

Introduction
As one of the UK’s largest food manufacturers
nothing is more important than the quality and
safety of the food we produce and the health
and safety of all those that work in our business.
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.

To support this we’ve developed our
sustainability agenda around a theme of
'Bringing Britain Together' which reflects the
values inherent in our brand portfolio. In this
way we can bring our colleagues, suppliers
and stakeholders together to address issues
important to the sustainability of our business,
our communities and our country. Bringing
Britain Together is based around five core
commitments:

• encouraging healthier food choices for our

consumers and our colleagues;

• developing the skills our industry needs for

the future;

• collaborating with our suppliers to drive

higher ethical and environmental standards;

• delivering environmental improvements

•

across our operations; and
supporting our communities on a local and
national level.

Encouraging healthier food choices
We are proud to supply great British brands
that millions of consumers love and enjoy as
part of a balanced, healthy diet. We recognise
that consumers' tastes are changing, and that
industry and government need to work together
to promote healthier lifestyles and choices.

We want to play our part and have a strong
track record in doing so, reducing the amount of
salt in our products by 1,000 tonnes since 2010
and so far we have also removed 350 tonnes
of sugar from our products, primarily from our
cakes and desserts. Reformulating our Ambrosia
Devon Custard over two phases has removed
approximately 200 tonnes of sugar from the UK
diet annually.

We know that some of our customers want to
look at their whole diet to ensure a balanced and
healthy approach. Calories are a good reflection
of this at a product level, so we introduced calorie

Our 10 commitments to Healthier Choices:

caps of 325 calories for all new cake products
and 450 calories for all new desserts products
launched over the last year. We have also
extended our 'better-for-you' options with three
new Mr Kipling cake slices: Rockin’ Raspberry,
Awesome Apple and Smashing Strawberry, all
with 30% less sugar and an average of just 92
calories per slice.

Some consumers are looking to cut down on their
gluten intake, so we have been working closely
with Coeliac UK to cater for our ‘Free From’
consumers. Gluten free Bisto and Paxo were
launched this year, enabling those with a gluten
or wheat intolerance to still enjoy the perfect roast
dinner. Mr Kipling also entered the ‘Free From’
cake category, with gluten free Cherry Bakewell
Mini Tarts and Loaf Cake, Ginger and Lemon Loaf
Cake, and Apple Loaf Cake.

Remove 1,000 tonnes of added
sugar from our portfolio by end of 2018

(vs 2015 base year), primarily through a
4–10% reduction across our cake, desserts
and cooking sauces brands.

Introduce calorie caps for all of our

cakes and desserts in line with Public
Health England’s proposed maximum calorie
caps (325 for cake and 450 for desserts).

Continue expanding the proportion

of single portion packs of cake from
40% to at least 50% of our branded cake
portfolio by end of 2018, to help consumers
control their intake.

Reduce salt to meet the
Government’s 2017 salt targets in
15 categories, and ensure all new products
are in line with these targets.

Prohibit the advertising or marketing

of foods high in sugar, salt or fat in any

broadcast and non-broadcast media directly
targeted at children under the age of 16.

Help improve consumer understanding

of nutrition by enhancing the information
we provide through our own communications
channels and continuing to champion front of
pack traffic light nutrition labelling.

350
tonnes

of sugar removed from our products

Ensure at least three-quarters of

new products, in our Grocery portfolio

are 'better-for-you' choices.

Launch nutritious new products,
including a range of affordable quick
meals with higher levels of fibre, protein and
micro-nutrients.

Work with our suppliers to create
innovative new technologies, ingredients

and products that will provide a nutritional
benefit to our brands.

Expand healthy eating programmes

across all of our factories and offices to
encourage colleagues to make healthier choices.

Embedded

On target

Below target

STRATEGIC REPORT82% of the new Grocery products we launched
this year were also ‘better-for-you’, defined by
having a claimable nutritional benefit, for example
‘source of protein’ as well as not having any red
traffic lights on the front of pack which signposts
that the products are not high in fat, saturated fat,
sugar or salt. For example, we launched a range
of cooking sauces for younger consumers under
the Homepride brand with no added salt or sugar
– and low in fats, sugar and salt.

Providing healthy choices is just as important for
our workforce and so three of our factory sites
(Ashford, Lifton and Stoke) have been trialling
a new healthy eating programme this year, to
increase the choice and availability of healthier
food options in our canteens. Feedback has
been extremely positive, so we hope to roll this
out across more of our sites in the year ahead.

In 2016/17 we set out 10 commitments to
Healthier Choices that we aim to deliver by
the end of 2018 (see the table opposite). We
are pleased to confirm that of these, eight are
now fully embedded and one is on target. Our
commitment to expand the proportion of single
portion packs of cake from 40% to at least 50%
is currently below target and we are reviewing
actions to address this.

Developing the skills our industry needs
The UK food industry continues to experience
a shortage of skills in critical areas, such
as engineering and food science, with the
uncertainty surrounding Brexit only adding to
the issue. To counter this we are committed to
bringing new people into our industry, and in the
past year have invested resources into working
with schools and higher education, as well as
continuing to increase the number of apprentices
and graduates in the organisation, across all
areas and locations.

Apprentices are an important part of our
future talent strategy and we now employ
more apprentices than ever before. In the past
12 months alone, 41 new apprenticeships
(a combination of new recruits and existing
colleagues) have started and we will add around
70 more apprentices in the next financial year.
Graduates also play an important role in building
internal talent pipelines. In 2018 we’ll recruit
our fourth consecutive intake of ‘Commercial’
graduates, and we are starting to see those who
have completed their three-year programme take
on permanent key roles within the organisation.

We continue to support local schools and
colleges, and believe we have an important
part to play in helping young people, parents
and teachers to understand the wealth of
career opportunities that exist in our industry.
Consequently, we work very closely with the
Institute of Grocery Distribution (IGD) and we are
one of the biggest supporters of their Feeding
Britain’s Future schools campaign, where we
provide volunteers to support structured pre-
employment skills training sessions for year 9
and year 12 students. In the past year, Premier
Foods’ volunteers took part in 108 workshops in
a variety of schools across the country.

We have also developed partnerships with local
schools through the IGD’s Schools Programme
initiative, and five of our sites now have formal
relationships with local schools, providing CV
writing, confidence building and interview skills,
and importantly, introducing students to the many
career opportunities in the food and drink sector.

Collaborating with our suppliers
to drive higher standards
The Group works with over 1,200 active
suppliers and develops close partnerships with
its key suppliers to deliver mutual benefits.
Over the year 83% of our total (third party)
spend was with UK based suppliers. This slight
reduction from the previous year (2016/17: 89%)
was principally the result of the devaluation
of Sterling, cost inflation and more expensive
imports. Our top 250 suppliers now account
for in excess of 90% of our total spend on the
goods and services that we purchase.

Whatever we buy, it’s important we understand
the impact the product has on the environment,
animal welfare and the people that produce
it. We always aim to purchase ingredients
and packaging 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 the WWF’s
Palm Oil Buyers Scorecard. We were also
pleased to retain our third tier ranking in the
Business Benchmark on Farm Animal Welfare’s
(BBFAW) annual rankings in recognition of
our commitments and 2025 goals to support
improved animal welfare. We will be working with
the BBFAW to investigate ways to improve our
performance in the year ahead.

We continue to champion high ethical standards
at our own sites and through our supply
chain. For the third year running all of our
manufacturing sites (except for our Knighton
Foods business ('Knighton')) have become
Stronger Together business partners, meaning
they’ve been recognised for addressing modern
day slavery and third party exploitation in the
workplace. Knighton will become a business
partner over the course of 2018. 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,
98% of our direct spend was covered by Sedex
registered suppliers (excludes Knighton).

Building on our commitment to health & safety,
we have initiated a programme with our UK
co-manufacture suppliers to improve safety
standards within our supply chain. Over the
year we visited and assessed 12 of our key UK
partners from an H&S perspective, sharing best
practice and learnings.

83%

of total business spend is with UK suppliers

INTRODUCTIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Being a responsible
food company

Food waste
We maintained our zero waste to landfill
commitment and further reduced the amount
of waste sent for incineration by 23% as a
result of improved segregation and awareness.
As a business we have signed up to the
Champions 12.3 commitment (a coalition that
consists of governments, businesses and
other organisations) to work towards the UN
Sustainable Development Goal 12.3 of halving
food waste by 2030. We have identified a
number of opportunities to drive down food
waste. One project completed in 2017/18
at our Ashford site has removed 188 tonnes
of salt food waste from anaerobic digestion
disposal. This salt is cleaned and recycled back
into salt that can be used as water softener
in our boiler systems. We have been actively
working to increase food redistribution through
Company Shop and their charity, Community
Shop. This has enabled us to increase our food
redistribution by 36% during the calendar year to
31 December 2017 compared to 2016. Further
increases in food redistribution are planned, with
new targets outlined in the table opposite.

Plastic packaging
We strongly believe that in order to effectively
address the global issue of plastic packaging
waste, we must work collaboratively, including
industry players, local and national governments,
civil society and consumers. We support the vision
of a circular economy, where plastic is valued and
every part of the value chain works together to
ensure that it doesn’t pollute the environment.

As a business, our products are packed in a way
that balances food safety, with freshness and
taste, shelf-life, convenience and environmental
sustainability. Less than one third of our
packaging is plastic and 70% of our packaging is
currently recyclable, according to current WRAP
On-Pack Recycling Label guidelines. In addition
to this, we clearly label our products to encourage
consumers to recycle and we have removed
over 240 tonnes of plastic materials from our
packaging portfolio in the last three years. We are
still striving to do more and have plans in place to
increase that to 320 tonnes by the end of 2018.

In March 2018, we established a project group
to review the role of plastic in our packaging and
continue to identify ways to further reduce our
plastic use and improve its recyclability. And in
April 2018, we became a founder member of
the UK Plastics Pact, see the table opposite for
further details of the key initiatives.

Zero

waste to landfill maintained in 2017/18

Delivering environmental improvements
across our operations1
We’re continually looking for ways to improve
our environmental performance and actively
engage in the wider environmental agenda in the
UK. All colleagues are encouraged to play their
part through our ‘Green Matters’ initiative, an
internal environmental campaign supported by
68 Environmental Champions across our sites (a
20% increase in Champions from 2016/17).

The Green Matters initiative is in partnership
with the Woodland Trust’s Woodland Carbon
Scheme. This scheme encourages colleagues
to save energy and CO2 emissions by planting
25m2 of trees for every tonne of carbon we
reduce our emissions by. In the three years
that the scheme has been running we have
planted 21 acres of new woodland. This has
removed a further 3,498 tonnes of CO2 from
the atmosphere over and above the reduction
achieved by our sites. We plan to further improve
this initiative by working with the Woodland
Trust and the Rivers Trust to plant the trees
on farmland that produces our raw materials.
This work will not only reduce CO2, but provide
added benefits such as reducing soil erosion,
prevention of flooding and shelterbelts to
improve crop yields.

All of our manufacturing sites (excluding
Knighton) are accredited to ISO 14001
Environmental Management Systems. We
reduced our CO2 emissions per tonne in eight
out of our nine manufacturing sites achieving a
3.6% reduction in emissions overall compared to
the previous year as a result of greater efficiency
and focus. In 2017 we removed Heavy Fuel Oil
as the main source of power for the boilers from
our Lifton site and this has greatly reduced the
sulphur and particulates emissions from the site.
During 2018 the site will transition to natural
gas, and this is expected to reduce the CO2
emissions from the site by approximately 25%.

Higher production volumes meant that our non-
ingredient water usage was higher in the period.
However, river water abstraction at our Lifton
site in Devon reduced by more than half due to
investment in water efficient cooling technology.

STRATEGIC REPORTEnvironmental performance 2017/181
As reported last year, we have moved from reporting against annual targets to reporting progress against longer-term goals aligned with the various
commitments we've made to industry programmes. These also reflect our formal obligations under the Climate Change Agreement, Carbon
Reduction Commitment and European Union Emissions Trading Scheme.

This table outlines the longer-term targets under the FDF's 2025 Ambition and the Courtauld 2025 commitment on food waste against which we are
tracking our own progress.

Area
CO2 emissions

Target
Achieve a 55% absolute reduction in
CO2 emissions by 2025 against the
1990 baseline.

Progress
Our overall CO2 emissions in 2017/18 have reduced by 26.4% to 75,950
tonnes against our baseline figure of 103,102 tonnes CO2 (Year ended
31 December 2008 when we first started to collate emissions data).

Food waste

Packaging

Water

Transport

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.

Increase food waste re-distribution to
over 750 tonnes per annum by 2020.

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.

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.

During 2017/18 we have continued to maintain zero waste to landfill. We
have increased the amount of food waste that goes to re-distribution by 233
tonnes, an increase of 36% and 77.5% of our food waste was reused for
animal feed or redistributed.

We are proud to be founder members of both Courtauld 2025 and the UK
Plastics Pact. Together by 2025, these initiatives aim to:

reduce consumer waste in the home, including packaging, by 20%;

•
• eliminate unnecessary single use plastic;
• move to 100% reusable, recyclable or compostable plastic packaging;
• ensure that 70% of plastic packaging is effectively recycled or

composted; and

• use an average of 30% recycled content across plastic packaging.

Premier Foods sits on the Courtauld 2025 Water Stewardship Steering
Group as Co-Chair. Projects are underway to change the Premier Foods
Green Matters initiative to focus on planting trees where they can reduce
water stress, flooding and soil erosion from farm land.

Our overall water usage was 787,453 Cubic Meters, a reduction of
21.5% against our baseline figure of 1,002,512 Cubic Meters (Year
ended 31 December 2008 when we first started to collate water usage
data).

Electric vehicle charging points have been installed at three of our sites and
within the next twelve months charging points will be installed at a further
three sites.

The consolidation of our logistics operations during the year has seen a
reduction in road miles of approximately 367,000 miles and we estimate
that this will have reduced our CO2 emissions from transport by around 480
tonnes.

1. With the exception of CO2 emissions, environmental performance excludes the performance of Knighton.

➚ On target

INTRODUCTIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Being a responsible
food company

£410K

raised for Cancer Research UK

Supporting our communities
Supporting the communities in which we
operate locally and nationally is in the DNA of
our business and a powerful way to engage
our colleagues behind a shared and meaningful
ambition.

March 2018 saw the conclusion of our three
year partnership with Cancer Research UK
(CRUK), raising £410,000 for the charity and far
exceeding our original target of £250,000 with
a large proportion of donations sourced from
employee led fundraising activities and events
right across the country. We are extremely proud
of our colleagues’ efforts, which we know will
make a huge difference to CRUK’s life saving
fight against cancer.

Hot on the heels of this success, April 2018
saw colleagues vote to support Mind UK as our
corporate charity partner for the next two years
and plans are already underway for a range of
exciting fundraising events, including a 22 mile
charity walking challenge along the Jurassic
coastline.

We know that aiming for a collective goal is a
wonderful way to raise money for an important
cause whilst also bringing our sites together,
however, many colleagues also appreciate being
able to fundraise for more local charities and
community projects. Over the past year this
has included supporting local children centres,
community groups, woodland projects and
hosting lunches for the elderly.

To reflect this, we are broadening our charity
ambitions to three key areas:

•

raising £200,000 for our corporate charity
partner Mind UK over two years;
supporting local community projects and
initiatives through employee led volunteering
and fundraising; and
supporting Grocery Aid, an industry charity
that makes life better for grocery people in
need.

Our colleagues
Learning and development
The development of our people, at sites and
in our offices, is important if we are to be able
to respond to the changing demands of our
industry. We invest in site based training to
equip our people with the right skills to operate
safely, effectively and more efficiently, and where
appropriate, we support colleagues who need
a professional qualification to help them to do
their jobs.

We have just completed the final cohort of our
leadership academy programme where, over the
past 18 months, almost 100 senior leaders have
taken part. We’re now looking at a development
programme for middle and first line managers,
to start during 2018.

Health & Safety
Health & Safety is taken extremely seriously
by management at all levels in the business,
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 in our
industry leading performance as indicated
by the chart opposite.

Our ambition is to have zero accidents across
our business, and to support this we have
launched a behavioural programme across
our sites called BeSafe. This encourages all
colleagues to identify and discuss both safe and
unsafe actions within their workplace, carried
out by co-workers or contractors, to heighten
understanding and awareness of individual
behaviours within the workplace. Since launch,
colleagues have identified 851 safe acts and 502
unsafe acts. This then helps manufacturing sites
to target resources to improve safety in the most
effective areas.

The Board reviews Health & Safety performance
as part of the CEO’s report at every scheduled
Board meeting, which 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.

Our Safety Leadership Plus programme has
been successful in improving safety at sites
and has increased engagement across our
factories, which has helped to maintain our
industry-leading health & safety performance.
In addition, our Behavioural Safety programme
is being rolled out at each site to ensure safety
is embedded at all levels.

STRATEGIC REPORTWe have monitored and published our gender
diversity statistics since 2011 and a key target
of our diversity agenda has been to improve
female representation in senior management.
We are addressing this through improvements in
recruitment, talent management, flexible working
and maternity provision. This has helped us to
increase the number of women in leadership roles
from 25% in 2015/16 to 32% as at 31 March
2018. However, we recognise that there is still
much work to do in this area and it will continue
to be an area of focus for the business.

Gender pay reporting
As a food manufacturing business, more than
80% of the people we employ work in our
factories, where the balance of the workforce is
male (67:33). Whilst this level of gender diversity
is indicative of the food manufacturing industry
as a whole, it means our gender balance is
uneven and, because staff turnover levels at
sites are low, it will take time to address this.
The picture is different in our office environments.
Here the balance is even at 50:50, largely
because these types of working environments
tend to attract both men and women.

Following the government’s decision to introduce
mandatory gender pay gap reporting, we were
one of the first large businesses in our industry
to publish data on our gender pay gap.

Full details can be found on our corporate
website www.premierfoods.co.uk/
responsibility/Gender-Diversity

RIDDOR

UK manufacture
of food

All UK
manufacture

Premier
Foods

0.09

0.47

0.23

All RIDDOR accidents per 100,000 hours worked
(excludes Knighton)
LTAs

2017/18

2016/17

2015/16

0.13

0.11

0.16

All LTAs per 100,000 hours worked (excludes Knighton)

Communication and engagement
We continue to place a high degree of importance
on communicating with colleagues at all levels of
the organisation. In recent years we have invested
in this area, with large digital news screens at
every site, our mobile-enabled intranet, a weekly
news round-up email and posters. We also video
stream our CEO led colleague briefing sessions
direct to all sites in addition to cascading it
through local briefings.

We believe it is important to hear views from
our colleagues in order to understand how
the working environment can be improved. In
our manufacturing sites, we have constructive
relationships with our Trade Union colleagues,
whilst in head office we have recently run
‘Listening Groups’ and regularly host ‘Meet the
CEO’ sessions and ‘Lunch and Learn’ events.

Diversity and inclusion
We are committed to having an inclusive
culture across our whole organisation. We aim
to ensure all existing or potential colleagues
are given equal opportunities and are equally
respected, valued and encouraged to give their
best at all times.

In March 2017, the Board approved a new
Diversity & Equality policy statement which sets
out our approach to equal opportunities and the
avoidance of discrimination at work. We have
also established a diversity working group which
monitors progress against key areas and reports
annually to the Board.

Rather than focusing on setting specific targets
for diversity (gender and ethnicity) our focus
has been to understand where issues arise,
identify and remove potential blocks and seek
to improve processes and training. This has
involved:

• communicating our Diversity & Equality

policy across the business and incorporating
it into the induction process for new starters;
identification of areas in the business where
diversity is considered to be low;
specific training for those involved in
recruitment;

•

• meetings between HR leads and senior

management to raise awareness of issues,
provide training and identify solutions; and

• annual collation of data and review of

progress.

Gender diversity
(% female as at 31 March 2018)

47%

159

43%

141

36%

1,446

1,451

32%

33%

Senior
management

Central
functions

All
colleagues

2017/18

2016/17

INTRODUCTIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Being a responsible
food company

right decision. The code was introduced in 2012
and is updated and reissued on a periodic basis.
A copy of the code is included in the induction
pack for new joiners and is available on the
Group’s intranet and corporate website.

The code is made up of 10 key elements
including: acting honestly and complying with
the law; competing fairly; food safety; and
treating people fairly. We also have a confidential
whistleblowing call line to enable anyone
who comes into contact with our business
(whether colleagues, contractors, agency
workers, customers, suppliers or distributors)
to raise any concerns they have that cannot be
dealt with through the normal channels. Calls
logged with the whistleblowing service are
followed up promptly by the appropriate person
within the business and the issues raised and
management’s response are reviewed by the
Audit Committee. The Audit Committee also
reviews the whistleblowing service annually
and arranges for it to be refreshed and
communicated to sites.

Anti-corruption and anti-bribery
The Group has in place an Anti-Corruption
Policy and a code of conduct for third parties
which provides guidance for complying with
anti-corruption laws. This is provided to
graded managers and those who operate in
commercial roles, with formal training provided
where appropriate. This covers, amongst other
things, guidance on dealings with third parties,
facilitation payments, gifts and hospitality
and charitable and political donations. We do
not tolerate any form of bribery or corruption
and expect all colleagues, business partners,
suppliers, contractors, joint venture partners,
customers, agents, distributors and other
representatives to act in accordance with all
laws and applicable Group policies.

Food safety and quality
At Premier Foods we operate a Food Safety
and Quality System based around the British
Retail Consortium Global Food Standard
version 7, with all sites (excluding Charnwood
Foods) audited by an independent accreditation
body to this standard. Our Charnwood Foods
business operates to a specific customer Quality
Management System.

We also have an internal quality compliance
team focused on controls and standards across
all manufacturing sites, co-manufacturers and
raw material suppliers. In total, 116 audits have
been carried out in 2017/18, to assure standards
within our supply chain. In addition, we have had
numerous customer audits and visits across our
manufacturing facilities to confirm our standards
are in compliance with customer requirements.

A particular focus for our business is the
authenticity of the materials we purchase. We
have a surveillance programme in place to verify
the quality and authenticity of ingredients where
we have carried out in excess of 1,000 tests.

We have also been heavily involved in the
establishment of the Food Industry Intelligence
Network where we sit on the Governing Board
and chair their Technical Steering Group. This is
a UK food industry initiative to share intelligence
and data on food authenticity following the
horse meat scandal in 2013. In addition, to
support our food safety and quality standards,
Premier Foods has an internationally recognised
laboratory facility carrying out research and
analysis of food ingredients and packaging,
employing around 48 scientists and performing
approximately 100,000 tests per annum.

The data illustrates our mean and median
hourly gender pay gap, at the snapshot date
of 5 April 2017.

Gender pay gap

Mean 14.6%
Median 9.8%

Gender bonus gap

Mean 40.1%
Median −15.7%

Although there is clearly a gap, it is below the
UK average of 18.4% (ONS Labour Market
data March to May 2017). Also it is important to
emphasise that as a business we are completely
committed to the principles of equal pay and
at Premier Foods women and men are paid
equally for doing equivalent jobs with equivalent
experience.

Our gender pay gap is the result of having
more men than women in management roles
which attract higher salary levels. Our gender
bonus gap is primarily driven by having more
men than women on our leadership team, and
these colleagues attract a higher level of bonus.
However, at a median level the gap reverses and
our female colleagues earn 15.7% more than
their male counterparts.

Code of conduct and
whistleblowing helpline
We are committed to ensuring that the people
who work within our business are treated with
respect, and their health, safety and basic
human rights are protected and promoted.
We have a code of conduct which sets out
the standards of behaviour all employees are
expected to follow and provides useful guidance
to help employees when it comes to making the

STRATEGIC REPORTSTRATEGIC REPORT

Risk
management

Our approach
As with any business we face risks and uncertainties. We believe that effective risk management supports the successful delivery of our strategic
objectives. We have an established risk management framework to identify, evaluate, mitigate and monitor the risks we face as a business. Our risk
management framework incorporates both a top-down approach to identify our principal risks and bottom-up approach to identify our operational risks.
The Executive Leadership Team (ELT) perform a robust assessment of the principal risks on a periodic basis and with the Audit Committee at least twice
a year. The review includes an assessment of the movement in the risks, the strength of the controls relied on and the status of mitigating actions. The
principles of risk management have also been embedded into the day to day operations of the business units and corporate functions.

The long-term viability statement on page 29 provides a broader assessment of the longer term prospects of the Group after consideration of the
principal risks and availability of funding.

n
w
o
d
p
o
T

p
u
m
o
t
t
o
B

RISK MANAGEMENT FRAMEWORK

Board of Directors
Assess principal risks and set risk appetite.
Overall responsibility for maintaining sound
risk management and internal controls

Audit Committee
Set risk management framework. Assess
effectiveness of the Group’s risk framework
and internal controls

Executive Leadership Team
Implement risk management framework.
Assess effectiveness of the Group’s risk
framework and internal controls

Risk & Internal Audit
Test internal controls and co-ordinate
risk management activity, provide support
to business risk owners and report risk
information across the Group

Operational Management
Own and review operational risks,
operate controls and implement
mitigation actions

• Periodic reports provided to the ELT

and Board on how effectively risks are
being managed

• Strategic reviews with ELT

• Group principal risks reviewed and
agreed with ELT and the Board

E P O R T

D R

T
I

RISK
MANAGEMENT
PROCESS

NITOR A N

O
M

• Controls defined to address risks within

tolerance and ownership defined

• Risk action plans created to manage

risks within appetite

A S U RE

M E

• Risk appetite set by the Board for all

principal risks

• Measurement of risks against appetite

and escalation process

Principal risks and uncertainties
The Board have carried out a robust assessment of the principal risks facing
the Group, including those that would threaten its business model, future
performance, solvency or liquidity. Outlined in this report are the Group’s
principal risks (gross) and uncertainties, and the key mitigating activities in place
to address them. These are the principal risks of the Group as a whole and
are not in any order of priority. We are exposed to a variety of other risks but
we report those we believe are likely to have the greatest current or near-term
impact on our strategic and operational plans and reputation. They are grouped
into external risks, which may occur in the markets or environment in which we
operate, and operational risks, which are related to internal activity linked to our
own operations and internal controls. The ‘Changes since 2016/17’ highlight
changes in the profile of our principal risks or describe our experience and
activity over the last year.

Risk appetite
Our approach is to minimise exposure to reputational, financial and operational
risk, while accepting and recognising a risk/rewards trade-off in pursuit of our
strategic and commercial objectives. As a food manufacturing company, with
many well known brands, the integrity of our business is crucial and cannot
be put at risk. Consequently, we have a zero tolerance for risks relating to
Occupational Health & Safety and food safety. We operate in a challenging and
highly competitive market place and as a result we recognise that strategic,
commercial and investment risks will be required to seize opportunities and
deliver results at pace. We are therefore prepared to make certain financial and
operational investments in pursuit of growth objectives, accepting the risks that
the anticipated benefits from these investments may not always be fully realised.
Our acceptance of risk is subject to ensuring that potential benefits and risks are
fully understood and sensible measures to mitigate those risks are established.

INTRODUCTIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018

Risk
management

How risk management links to our strategy

Drive revenue growth

Cost control & efficiency

Cash generation

1 Market and retailer actions

Link to strategy

▲

Risk trend

Risk and potential impact As a primarily UK based company, our sales are concentrated with a relatively small number of major customers who
operate in a highly competitive market. Actions taken by these retailers (for example changes in pricing and promotion strategies), may negatively impact
on our financial performance and can also have an impact on the overall market for our products.
How we manage it
• We have strong relationships with the major retailers built on the strength of

Changes since 2016/17
• Since last year, the UK Grocery market has returned to growth

our brands, our expertise in our categories and shopper insight.

albeit the level of competition remains high.

• We have a programme of continuous innovation rooted in customer insight and

designed to build category growth for our customers and brands.

• We are growing our International business which reduces dependence on the

UK market.

• Consolidation of retailers and/or wholesalers continues in the

market and a further consolidation is now proposed between two
of our largest customers.

2 Brexit & macroeconomic environment

Link to strategy

▲

Risk trend

Risk and potential impact
The strength of the UK economy can have an impact on demand for our products. While much uncertainty remains over the exact form of the UK’s
exit from the EU, a further devaluation of Sterling against the Euro would increase the Group’s cost base, potentially affecting margins and hence funds
available for investment. The Group is also exposed to cyclical inflation in soft commodities and other inputs to our business. A more detailed Brexit
assessment is on page 29.
How we manage it
• We manage the impact of commodity price inflation and foreign exchange
volatility through hedging activity and ongoing supplier risk management.
• A cross-functional committee headed by the CFO and Procurement and

Changes since 2016/17
• The UK has agreed a draft withdrawal agreement with the EU
with an exit date of March 2019 and a transition period (up to
December 2020). If intrusive customs controls were introduced at
UK ports following the end of the transition period, any resultant
disruption would be likely to adversely affect our supply chain.
It is becoming harder to recruit temporary labour, particularly for
logistics and manufacturing operations.

•

Central Operations Director has been put in place to manage the Group's
readiness for Brexit. See page 29 for more details.

3 Operational integrity

Link to strategy

▼ Risk trend

Risk and potential impact
Delivery of our strategy depends on our ability to minimise operational disruption from issues with facilities, factory infrastructure as well as procurement
and logistics functions. Supply chain weaknesses e.g. disruption due to unforeseen events and single supplier risks, may impact negatively on our
reputation, financial performance and key customer relationships.
How we manage it
• We have a crisis management process in place and business

Changes since 2016/17
• The first phase of warehouse consolidation project experienced

•

continuity plans are reviewed and refreshed on an ongoing basis.
Insurance coverage is in place to mitigate against the financial impact
of material site issues.

• We have an on-going programme to consolidate our warehousing and

distribution capability to increase our operational efficiency. There are close
relationships at all levels of the business with our outsourced logistics
provider.

• Procurement category plans are in place to mitigate against single supplier

risk.

• We have robust quality management standards applied and rigorously

monitored across our supply chain.

some implementation issues which impacted on customer service
levels during 2017, which have since improved.

• The second phase of the programme is in progress and senior

management are closely monitoring progress and performance;
albeit there is no absolute guarantee that further challenges will not
be encountered.

STRATEGIC REPORT

4 Technology

Link to strategy

NEW Risk trend

Risk and potential impact
A successful cyber attack or other systems failure could result in us not being able to manufacture or deliver products, plan our supply chain, pay and
receive money, or maintain proper financial control. This could a have major customer, financial, reputational and regulatory impact on our business.
How we manage it
• We use a range of techniques including firewalls, anti-virus software, and
duplicated systems that are comparable to those used in peer companies.

Changes since 2016/17
• Organisations in all sectors are targeted by an increasing volume

and sophistication of cyber attacks which in certain cases have
caused major disruption to their factory operations and supply
chains.

• During 2017/18 the audit committee formally reviewed IT security
and where recommendations for improvement were made these
are in hand.

5 Legal compliance

Link to strategy

▼ Risk trend

Risk and potential impact
Our business is subject to a number of legal and regulatory requirements and must continuously monitor new and emerging legislation in areas such as
Health & Safety, listing rules, competition law, food safety, labelling and environmental standards. Failure to comply with such requirements may have a
significant negative impact on our reputation and incur financial penalties.

How we manage it
• We have leading food industry processes in place to manage Health & Safety
and food safety issues (including an ongoing programme of internal and
external audits).

• We have dedicated Legal and Regulatory teams in place to monitor

the laws and regulations to ensure compliance and defend against litigation
where necessary.

Changes since 2016/17
• Other than in respect of GDPR, where we have taken a committed

approach to compliance, there have been no significant changes
to the legal and regulatory landscape and we continue to monitor
compliance.

6 Product portfolio

Link to strategy

▼ Risk trend

Risk and potential impact
Demand for our products is subject to changes in consumer trends and government legislation. Furthermore, sales of many of the Group’s products
can be adversely affected by warm seasonal weather conditions. Failure to keep our product ranges contemporary and relevant to our consumers
would lead to a diminishing consumer demand which will impact negatively on our reputation and financial performance.

How we manage it
• We have a programme of innovation, based on deep rooted consumer

Changes since 2016/17
• A growing proportion of our sales are from new products and we

insights, to continuously modernise our portfolio of distinctly British brands
to ensure they remain relevant to today's shoppers.

look to build on this.

• Public Health England guidelines called for a 20% reduction in
sugar which is a core ingredient in some of our products.
In January 2018, the government announced its environmental
strategy which includes a target to reduce the use of plastic in
packaging.

•

• We remain on target to achieve reductions of up to 1,000 tonnes

in sugar from our portfolio by the end of 2018.

• We have developed a strategy to reduce and recycle the plastic in

our packaging.

INTRODUCTIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018

Risk
management

7 HR and employee risk

Link to strategy

▼ Risk trend

Risk and potential impact
We may be unable to attract and retain the critical capabilities and skills needed in our business to deliver our strategy, business plan and projects.

How we manage it
• We continue to invest in colleague development and engagement initiatives

Changes since 2016/17
• The restructuring of roles as part of our efforts to deliver cost

on a focused basis.

• We have processes in place to attract talent into the business with the right

capabilities and behaviours.

• We have succession plans in place to retain our internal talent pipeline.

savings in early 2017 was completed swiftly and the new business
structure has stabilised.

• We successfully filled a significant number of key management

vacancies through our internal talent pipeline and through direct
sourcing.

• Reward and variable compensation schemes have been

strengthened.

• We have invested in leadership development for our colleagues.

8 Strategy delivery

Link to strategy

▼ Risk trend

Risk and potential impact
Our balanced strategy seeks to deliver revenue growth, cash generation and cost efficiency. The strategy focuses marketing investment behind key
brands. Our strategy may take longer than expected to deliver results which may impact on our ability to grow shareholder value.

How we manage it
• Given the seasonal nature of many of our brands media investment is

Changes since 2016/17
• Our financial results for 2017/18 demonstrate that we are

targeted in the periods of peak consumer demand and through the most cost
effective channels.

delivering against our strategy and this is supported by our internal
plans for 2018/19.

• Our new and existing product development programmes are based

• As mentioned previously a key change is the increase in value

on deep consumer insight and continue to make our product ranges more
relevant to the ever changing lives of our consumers.

generated by our product development programme which is
growing and ahead of our strategic road map.

• Our strong strategic relationships with our key customers facilitate the

creation and joint ownership of plans for mutual growth.

• Our collaboration initiatives with Nissin and Mondelēz International
continue to be successful with strong consumer demand which
continues to increase.

9 International expansion

Link to strategy

▼ Risk trend

Risk and potential impact
Our plans to expand our international business are subject to global market forces; fluctuations in national economies and currency movements; societal
and political changes; a range of consumer trends and evolving legislation. Failure to recognise and respond to any of these factors could directly impact
on our future profitability and rate of growth.

How we manage it
• We carry out careful due diligence prior to entering a new market.
• We closely monitor current and forecast performance of our business and

where required adapt our marketing approach.

Changes since 2016/17
• We have since renewed our licence with Mondelēz International
which has given us access to a broader range of Cadbury
products and geographies.

• Our focus is to continue building our presence in Australia and the
USA and we are currently exploring opportunities to enter new
markets.

STRATEGIC REPORT

10 Treasury and pensions

Link to strategy

▼ Risk trend

Risk and potential impact
We are the sponsoring employer of a number of large historical pension schemes and also have significant amounts of long-term debt, these items
taken together are a substantial liability on the balance sheet. Tri-annual pension fund valuations, and hence requests for deficit repair contributions
(“DRCs”), are heavily impacted by financial market conditions over which the Group has no control. Trustees could potentially request DRC’s which are
not compatible with the Group’s ability to pay. Furthermore, our ability to manage our debt capital structure may be impacted by market trends which
are outside of our control e.g. interest rate movements or volatility in the high yield debt markets.

How we manage it
• Our executive directors are actively engaged with the pension trustees on
scheme funding and investment matters. The RHM pension scheme has a
high degree of hedging.

Changes since 2016/17
• During the year, the RHM pension scheme has reduced its

investment risk.

• Our revolving credit facility has been extended from December

• We have a strong relationship with our banking group and continue to review

2020 to December 2022.

our debt capital structure and revolving credit facilities.

Brexit implications
The Board continues to keep the possible implications of Brexit for the
Group’s operations under review. A cross-functional team, led by two
Executive Leadership Team members, is in place to manage the Group’s
readiness for Brexit. Since the Article 50 Notice having been served, there
have been further announcements about the likely terms of the post-Brexit
trade arrangements between the UK and the EU, as well as about any
possible transitional arrangements (including the Irish Border) and time
period.

Nevertheless, at this time there still remains significant uncertainty about
the probable impact on the Group. Although we are a UK based business,
we purchase a meaningful amount of our commodities from the EU
which leaves us exposed to movements in Sterling and Euro quoted
commodities. Our supply chain is also primarily UK based although
we do have a seasonal labour workforce from EU countries in our Sweet
Treats business. Depending on the arrangements agreed between the UK
and the EU, the issues that could directly affect our operations, potentially
causing us to incur additional cost, are likely to be:

1. The imposition of tariffs on finished goods and commodities traded

between the UK and EU;

2. Potentially higher logistics and administration costs due to increased

customs border checks; and

3. Potential delays at UK ports impacting supply of raw materials to our

factories.

The Board also considered the nature of the Group’s activities and the
degree to which the business has changed and evolved in the relatively
short-term. The Board considered the Group’s profitability, cash flows
and key financial ratios over this period and the potential impact that the
principal risks and uncertainties set out on pages 25 to 29 could have on
the solvency or liquidity of the Group.

Sensitivity analysis was applied to these metrics and the projected
cash flows were stress tested against a number of severe but plausible
scenarios. As of 31 March 2018, £202.0m of committed borrowing
facilities available to the Group were undrawn. The Board considered
the level of performance that would cause the Group to breach its debt
covenants (see note 17 to the financial statements) and a variety of factors
that have the potential to reduce trading profit substantially. These included
the rate and success of the Group's strategy; actions which could damage
the Group’s reputation for the long-term and macroeconomic influences
such as fluctuations in world currency, commodity markets and the
implications of the UK’s withdrawal from the EU (Brexit).

The Board have considered the principal risks and uncertainties and the
potential impact of these on the Group’s profitability or available cash
resource. In assessing the Group’s viability, the Board also considered
all of the severe but plausible scenarios simultaneously materialising and
for a sustained period, in conjunction with mitigating actions such as
reducing discretionary costs. The likelihood of the Group having insufficient
resources to meet its financial obligations and remain within its covenants
is unlikely under this analysis.

A further, indirect, issue that could affect our future performance would
arise if the Brexit process caused significant revisions to macroeconomic
performance in the UK, thus impacting on our performance in this market.

Based on this assessment, the Board confirm that they have a reasonable
expectation that the Group will be able to continue in operation and meet
its liabilities as they fall due over the three-year period to 31 March 2021.

Long-term viability statement
The Board have determined that the most appropriate period over which
to assess the Group’s viability, in accordance with the UK Corporate
Governance Code, is three years. This is consistent with the Group’s
business model which devolves operational decision-making to the
businesses, each of which sets a strategic planning time horizon
appropriate to its activities which are typically of three years duration.

INTRODUCTIONSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018
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 Group’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 and
approved the Group’s annual budget and three-
year strategic plan. The Board also continued to
keep under review strategic options which could
potentially add value for shareholders and other
stakeholders, and accelerate the delivery of the
Board’s strategic objectives. The Board has
regularly reviewed performance against budget
with the CEO, CFO and Managing Directors
of the UK and International business units and
received regular updates on consumer trends,
new product developments and customer
relations.

The Board received regular updates on shareholder
communications and also reviewed the Group’s
approach to nutrition, healthier food options, sugar
reduction, modern day slavery, gender pay and
plastic packaging.

Compliance with the
UK Governance Code 2016
The Board supports the principles laid down
by the UK Governance Code 2016 (the Code)
as issued by the Financial Reporting Council
which applies to accounting periods beginning
on or after 17 June 2016 (available at www.frc.
org.uk). I am pleased to confirm that over the
course of the year we have complied with all
relevant provisions set out in 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 Wednesday 18 July 2018 at
11.00 am and I look forward to seeing you then.

Keith Hamill
Non-executive Chairman
15 May 2018

Board appointments and tenure
David Beever, who had served as a non-executive
director for nearly 10 years and as Chairman for five
years, retired from the Board on 9 November 2017.
Keith Hamill was appointed as a non-executive director
on 1 October 2017 and as Chairman with effect from
9 November. Tsunao Kijima, who was appointed
pursuant to our shareholder relationship agreement
with Nissin Foods Holdings Company Limited (“Nissin”),
retired as a non-executive director on 23 February
2018 and Shinji Honda was appointed in his place. In
addition, on 28 March 2018 Daniel Wosner, who was
appointed pursuant to our shareholder relationship
agreement with Oasis Management Company Ltd
(“Oasis”), stepped down as a non-executive director.
The average appointment of our non-executive
directors is 3.3 years. Tenure of individual appointments
can be seen in the adjacent chart.

2012 2013 2014 2015 2016 2017 2018

Keith Hamill

0.5 years

Richard Hodgson

3.25 years

Shinji Honda

1 month

Ian Kreiger

5.4 years

Jennifer Laing

5.5 years

Pam Powell

4.9 years

Average years service: 3.3 years

Board attendance
The Board held 10 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
Committee, five meetings of the Remuneration Committee and two meetings of the Nomination
Committee. 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. Jennifer Laing was unable to attend one Audit Committee
meeting which was rescheduled at short notice and Tsunao Kijima was unable to attend one
Board meeting. David Beever absented himself from meetings of the Nomination Committee which
discussed the Chairman succession process. All directors attended the 2017 AGM.

Executive directors
Gavin Darby
Alastair Murray
Non-executive directors
Keith Hamill1
Richard Hodgson2
Shinji Honda3
Ian Krieger
Jennifer Laing
Pam Powell
Former directors
David Beever4
Tsunao Kijima5
Daniel Wosner6

Board
10/10
10/10

5/5
10/10
1/1
10/10
10/10
10/10

6/6
8/9
10/10

Audit
Committee
–
–

Remuneration
Committee
–
–

Nomination
Committee
–
–

–
3/3
–
3/3
2/3
3/3

–
–
–

–
2/2
–
5/5
5/5
5/5

2/2
–
2/2

–
2/2
–
2/2
2/2
2/2

1/1
–
–

Appointed to the Board on 1 October 2017.
Appointed a member of the Remuneration Committee on 20 December 2017.
Appointed to the Board on 23 March 2018 as a representative of Nissin.

3.
4. Retired as a director on 9 November 2017.
5. Retired as a director on 23 march 2018.
6. Retired as a director on 28 March 2018.

GOVERNANCEBoard
of directors

Keith Hamill N N
Non-Executive Chairman
Appointed to the Board: Joined the Board
in October 2017 and appointed Chairman in
November 2017.

Skills and experience: Keith is currently a
non-executive director of Samsonite International
S.A. and Chairman of Horsforth Holdings Ltd,
a privately held investment holding company
for a number of leisure businesses. Keith is a
highly experienced Chairman and non-executive
director and his previous appointments include
Chairman of Travelodge, Tullet Prebon plc, Moss
Bros Group plc, Collins Stewart plc and Heath
Lambert and non-executive director of easyJet
plc. Earlier in his career Keith was a partner at
PwC and was Group Finance Director of Forte
plc and WHSmith Group plc.

Gavin Darby
Chief Executive Officer
Appointed to the Board: February 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.

Richard Hodgson A R N
Non-Executive Director
Appointed to the Board: January 2015.

Skills and experience: Richard is Chief
Executive Officer of Yo!Sushi and has over 20
years of experience in the food industry. He
was previously Chief Executive Officer at Pizza
Express, a role he held for four years until May
2017. 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.

Shinji Honda
Non-Executive Director
Appointed to the Board: March 2018.

Skills and experience: Shinji is Chief Strategy
Officer of Nissin Foods Holdings Company
Ltd (“Nissin”), with responsibility for overseas
operations, including Europe. Prior to joining
Nissin in January 2018, Shinji spent his entire
professional career at Takeda Pharmaceutical
Company Limited (“Takeda”), a leading Japanese
pharmaceutical company. He was named
Member of the Board of Takeda in June 2013
and Corporate Strategy Officer in October 2014,
having previously spent a significant amount of
time overseeing Takeda’s international operations
where his responsibilities included President and
CEO of Takeda North America.

Ian Krieger A R N A
Senior Independent Director
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 a non-
executive director and Chairman of the Audit

Committee at Capital & Regional plc and Primary
Health Properties plc. He is also 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 A R N R
Non-Executive Director
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.

Pam Powell A R N
Non-Executive Director
Appointed to the Board: May 2013.

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. and Cranswick plc.

Biographies for the Executive Leadership
Team can be found on our website:
www.premierfoods.co.uk/about/leadership

Audit Committee
Remuneration Committee
Nomination Committee

Committee Chair
Committee Chair
Committee Chair

INTRODUCTIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 GOVERNANCEGovernance
overview

Corporate governance
The UK Governance Code 2016 (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
Group. The responsibilities of the Board include
setting the Group’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 roles and responsibilities
The Chairman is responsible for the leadership
of the Board, 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 Senior Independent Director (SID) supports
the Chairman and leads the non-executive
directors in the oversight of the Chairman. He
is also available to shareholders if they have
concerns that cannot be raised through normal
channels. The other non-executive directors
(NEDs) bring a range of knowledge and
experience to the Board, their role is to use their
experience, objectivity and sound judgement
to effectively scrutinise and challenge executive
management’s plans and performance and the
development of the Group’s vision, values and
strategy.

The CEO is responsible for the day-to-day
management of the Group working with the
Executive Leadership Team ('ELT') to ensure
the implementation of the agreed strategy. The
role of the Company Secretary is to ensure that
there is an effective flow of information between
executive management and the Chairman and
non-executive directors. The Company Secretary
also advises the Board on legal and governance
matters and supports the Board evaluation
process and induction programme.

Board Committees and the ELT
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 34, 35 and 56, respectively.

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.

In addition the Board delegates day-to-day
responsibility for managing the business to the
ELT and its sub-committees. The ELT comprises
the heads of the commercial business units,
operations 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 independence
Under the Code at least half the Board, excluding
the Chairman, should comprise non-executive
directors determined by the Board to be
independent. Only independent non-executive
directors are members of the Company’s
Board committees. The Chairman, who was
considered independent on appointment, chairs
the Nomination Committee but is not a member
of the Audit or Remuneration Committees. Shinji
Honda, who represents our largest shareholder,
Nissin, is fully independent of management but is
not considered independent.

Board
independence

Chairman: 1

Independent directors: 4

Non-independent directors: 3

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. On 28 March 2018
Oasis served notice to terminate their relationship
agreement with the Company and Daniel Wosner,
who had been appointed as a non-executive
director pursuant to the agreement, retired from
the Board. During the period to 31 March 2018 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.

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:
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.

GOVERNANCEBoard and Committee evaluation
An externally facilitated board effectiveness review
was undertaken by Springboard Associates Limited
(an independent consultancy firm with no other
connection to the Group) in the 2016/17 financial
period. As a consequence, the evaluation for
2017/18 was conducted internally. The process was
led by the Chairman supported by the Company
Secretary. The review was undertaken in the
form of a questionnaire which covered: strategy;
performance; risk management; Board governance
and culture; Board process, information and
support; and committee performance.

The responses were collated and reviewed with
the Chairman and a report was discussed with
the Board in May 2018, together with an update
on progress against the 2016/17 action plan.

2017/18 action plan
Strategy – It was agreed the Board would
continue to review the Group's long-term strategy
to identify opportunities to accelerate leverage
reduction and enhance shareholder value.

Commercial – Long-term category growth
plans would be reviewed as part of the strategic
plan.

Succession planning – An additional
Nomination Committee meeting would be
scheduled to review succession planning for
the senior management team.

Review of non-executive
director performance
Over the course of the year, the Chairman
reviewed the contribution and performance of
the independent non-executive directors and this
was considered as part of the Board evaluation
process. Following this review it was agreed
that the Board had an appropriate balance of
skills, experience, independence and knowledge
of the Group to enable them to discharge their
respective duties and responsibilities effectively.

The second term of appointment for Ian Krieger
and Jennifer Laing are due to expire at the
AGM in July 2018. The Nomination Committee
considered Ian Krieger’s contribution as Senior
Independent Director and Audit Committee
Chair and Jennifer Laing’s contribution as
Remuneration Committee Chair. It was agreed
that due to their experience and commitment to
their roles it would be appropriate for them to be
re-appointed for a further three-year term ending
at the Company’s AGM in 2021, following which
they will both have served over eight years.

Consequently, the Nomination Committee
recommended the re-election (or election)
of all directors at the 2018 AGM.

In addition, Investor Days are held periodically
which provide investors and analysts with a
more detailed insight into the business.

The Chairman, Senior Independent Director
and Remuneration Committee Chair also hold
meetings with shareholders when appropriate to
discuss governance and remuneration issues.

The main channels of communication with
private shareholders are via the 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.

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
principal pension schemes, at which funding
and investment matters are monitored and
discussed. The Company also regularly reports
on the Group’s trading performance. During
the year the Company and Trustees reviewed
the investment risk profile of the schemes
and agreed certain changes that maintained
the expected return on assets but reduced
the overall level of risk within the investment
strategies.

Banks
Regular updates are provided to the Group’s
current banking syndicate on the Group’s
financial performance.

Assessment of Chairman’s performance
As part of the annual Board evaluation process,
Ian Krieger, the Senior Independent Director,
led a review of the Chairman’s performance.
A meeting was held in May 2018 with the other
independent non-executive directors, without
the Chairman being present. The review focused
on the relationship between the Chairman
and the CEO, the overall leadership of the
Board, the governance process, the conduct
of Board meetings and the quality of debate. In
addition, the Chairman’s relationship with major
shareholders and his understanding of their
priorities was discussed. A summary of the key
findings was discussed at a subsequent meeting
between the SID and the Chairman. The review
concluded that Keith Hamill was bedding into
the role well and performing a highly effective
role as Chairman. It was also noted that the
Chairman had no other significant external
commitments and was able to dedicate sufficient
time to the role.

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.

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. The Group
also hosts a conference call for investors and
analysts following the announcement of its Q1
and Q3 trading updates. 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.

INTRODUCTIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Nomination Committee
report

Dear shareholder,
On behalf of your Board, I am pleased to present the
Nomination Committee report for the period ended
31 March 2018. 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
and makes recommendations to the Board as
appropriate. Only independent non-executives
are members of the Committee, details of the
Committee’s membership and meeting attendance
are set out on pages 30 and 31.

Board evaluation
Details of the internal Board and Committee
evaluation that was carried out in the period and
the review of non-executive performance is set out
on page 33. Having considered the results of the
evaluation the Committee has confirmed that all
directors should be recommended for re-election (or
election in the case of Shinji Honda and myself).

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.

Induction
Following my appointment as Chairman in
November 2017 I have undertaken an extensive
induction programme which has included meetings
with key shareholders and advisers. Meetings
have also been held with members of the ELT and
other senior management in the business, together
with a number of visits to key manufacturing sites
across the Group.

Board gender diversity
(% female as at 31 March 2018)

22%

25%

In addition, I have met with each of the
independent non-executive directors and
considered the balance of skills and experience of
the Board. I believe the current Board has a broad
range of retail, marketing, commercial and financial
experience which is appropriate for the size and
complexity of the Group.

Keith Hamill
Nomination Committee Chairman
15 May 2018

2016/17

2017/18

2017/18 2 of 8 directors

2016/17 2 of 9 directors

The Committee is also mindful of the benefits that
an inclusive culture can bring to our organisation
as a whole. Further information on our approach
to diversity and the levels of diversity across the
Group can be found on page 23.

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 along
with the other independent non-executive directors. In line with best
practice, Mr Beever took no part in the succession process.

next stage. Following the completion of a detailed review process
Keith Hamill was identified as the preferred candidate due to his
strong background in consumer facing businesses and his significant
experience as a chairman and non-executive director at a wide range
of UK, international and private equity businesses.

Following a panel review, 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.
Following consultation with the Nomination Committee and the Chief
Executive, Russell Reynolds designed a clear specification for the
desired candidate. An initial list was drawn up with candidates from
a range of backgrounds. Members of the Nomination Committee
met to review the list and identified a short list to take forward to the

The Committee assessed that Keith had the appropriate credentials
and experience to successfully meet the demands of the role and,
following a review of his other external commitments, were confident
that he had the capacity to discharge his responsibilities as Chairman
effectively.
Ian Krieger
Senior Independent Director

GOVERNANCEAudit Committee
report

Dear shareholder,
On behalf of your Board, I am pleased to
present the Audit Committee report for the
period ended 31 March 2018. The Committee
has responsibility, on behalf of the Board, for
reviewing the effectiveness of the Group’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.

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 independent non-executives,
with a broad range of FMCG, commercial and
marketing experience relevant to the Group’s
business. Details of Committee membership,
their qualifications and meeting attendance are
set out on pages 30 and 31. In addition to the
Committee members the CEO, CFO, Chairman,
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 going concern and viability
statements for the Group which can be
found on pages 38 and 29, respectively;
• 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;

•

• conducted a bi-annual review of key risks
facing the business and assessed the
Group’s mitigation plans;
reviewed the Group’s IT systems and controls,
cyber security, the potential impact of Brexit
and the procedures for compliance with the
European General Data Protection Regulation
which comes into force in May 2018;
reviewed and approved the Group’s Tax
Strategy for publishing on the Group’s
website; and
reviewed calls received from the whistle
blowing helpline and approved an update to
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. In November 2016 the Audit
Committee reviewed and approved a new policy
on external auditor independence and non-audit
services. This brought the Group’s policy into
line with the EU Regulation and Statutory Audit
Directive which came into force in June 2016 and
encompassed 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. Non-audit
fees for the period were £115,000 (2016/17:
£20,221) representing 22% of the audit fee.
The work undertaken related to assurance work
performed by KPMG in respect of the issue of a
new five year Senior Secured floating rate note
during the first quarter of 2017/18.

Committee effectiveness
An internal Board and Committee evaluation was
carried out in the period (see page 33).

External audit effectiveness
A review of the external auditor’s effectiveness
was carried out in November 2017. This
was conducted by way of a questionnaire
sent to the Audit Committee members and
management involved in the audit process,
the recommendations from the post audit
debrief meeting between the Finance team
and KPMG and an update on independence
provided by KPMG. The review focused on the
scope of the audit, the KPMG team, the audit
work performed, the governance process and
fees. The responses of the Audit Committee
and management were again very positive,
reflecting the view that KPMG continued to
provide a strong audit team who had delivered
an effective, efficient and high quality audit. A
number of areas for development were identified
and these were incorporated into the Audit
plan for the period ended 31 March 2018. The
Committee therefore concluded that KPMG
provide an effective audit service. KPMG’s
procedures for ensuring compliance with quality
control standards, maintaining independence,
integrity and objectivity were also reviewed and
no matters were identified which might impair
the auditor’s independence and objectivity.

Risk management
Details of our risk management process are set
out in the risk management section on pages 25
to 29.

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

INTRODUCTIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 GOVERNANCEAudit Committee
report

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.

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. The Committee
concluded that the internal audit function
remained effective.

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 position and performance, business
model and strategy. The Audit Committee
recommended that the Board make this
statement which is set out on page 39.

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.

Audit Quality Review (AQR)
The Financial Reporting Council's AQR team
monitors the quality of audit work of the major
UK audit firms through inspections of a sample
of audits and related procedures at individual
audit firms. During the period, the 2016/17
external audit of the Group by KPMG was
reviewed by the AQR. The Committee and
KPMG have discussed the review findings, which
noted a small number of recommendations for
improvement and also areas of high standard.
The recommendations were incorporated into
the 2017/18 audit work. The Committee do not

consider any of the findings to have a significant
impact on KPMG's audit approach.

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 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 our Accounts Receivable
processes and controls which included certain
areas of commercial arrangements. Further
information is set out in note 3.3 on page 73.

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 goodwill
impairment testing of the CGUs and the review
of the carrying value of certain of the Group’s
brands. 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 and also estimate of fair value less costs to
sell of brands. The Committee also considered
sensitivities to changes in assumptions and
related disclosure as required by IAS 36.
This year’s review concluded that a £2.2m
impairment of one of the Group's brands was
required. A goodwill impairment of £4.3m was
recognised during the year relating to Knighton.
Further information is set out in notes 11 and 12
on pages 82 and 83.

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 included in the balance sheet. The Group’s
RHM Pension Scheme also holds assets for
which quoted prices are not available. As at
31 March 2018 the RHM Pension Schemes
reported a surplus of £754.0m and the Premier
Schemes reported a deficit of £437.0m. (2016/17:
RHM Pension Schemes surplus of £593.9m;
Premier Schemes deficit of £489.1m), largely
driven by the increase in the discount rate which
is based on corporate bond yields and reduction
in inflation assumptions. The Committee reviewed
the basis for management’s assumptions and the
movements in the IAS 19 valuation in detail over
the year. The financial assumptions were based
on the same methodology as last year. Further
information is set out in note 20 on pages 95
to 101.

Ian Krieger
Audit Committee Chairman
15 May 2018

GOVERNANCEOther statutory
information

Directors’ report
The directors’ report consists of pages 02 to
56 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 £20.9m (2016/17:
£12.0m). The directors do not recommend the
payment of a dividend for the period ended
31 March 2018 (2016/17: £nil). Under the terms
of our current financing arrangements dividends
are permitted once the Group’s Net debt to
EBITDA ratio falls below 3.05. The Group is
committed to deleveraging the business and
reducing the Net debt to 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 £9.2m (2016/17: £13.6m).

Share capital information
The Company’s issued share capital as at
31 March 2018 comprised 840,622,217 ordinary
shares of 10p each. During the period 8,151,539
ordinary shares were allotted to satisfy the
vesting of awards made to the management
population under the Company’s Restricted
Stock Plan and the vesting of awards made to
colleagues under the all-employee Sharesave
Plan, details of the movements can be found in
note 22 on page 102. 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 EU
Market Abuse Regulation.

Colleagues who hold shares under the Premier
Foods plc Share Incentive Plan may instruct the
trustee to vote on their behalf in respect of any
general meeting.

The directors were granted authority at the 2017
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 2018 AGM. A similar authority
will be sought from shareholders at the 2018
AGM. The Company does not currently have
authority to purchase its own shares and no
such authority is being sought at the 2018 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 44.

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 15 May 2018,
the Company has been notified of the following
interests of 3% or more in the Company:

Ordinary
shares1

Shareholder
Nissin Foods
Holdings Co., Ltd. 164,486,846
Oasis Management
Company Ltd3
75,752,885
Paulson & Co. Inc.3 62,107,111
Brandes Investment
Partners, L.P.
Bank of America
Corporation
Standard Life
Aberdeen plc

42,162,265

43,026,105

39,171,378

% of share
capital2

19.57

9.01
7.39

5.12

5.02

4.66

1. Number of shares held at date of notification.
Per cent of share capital as at 31 March 2018.
2.
3. Held in the form of shares and as total return swap.
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.

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 appointment
of Shinji Honda is subject to the terms of
a shareholder relationship agreement (see
Conflicts of interest on page 32).

INTRODUCTIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 GOVERNANCEOther statutory
information

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.

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
In the table below we have detailed our scope
1 & 2 GHG emissions for the period 1 January
2016 to 31 December 2017 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 intensity increases over the 2011 base year
have arisen from the divestment of low energy
use/high production tonnage sites, such as flour
mills. The figures for 2016 and 2017 include the
performance of our Knighton business. The 2016
figures differ from those reported in the 2016/17
annual report, as they included the Rugby
distribution centre. This was divested in April
2017, so the 2016 figures have been rebased
to take this into account and give an accurate
comparison for 2017.

GHG Emissions
Scope 1
Scope 2
Total annual net emissions
Overall Intensity (kgCO2e per tonne of product)

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 18 of the financial
statements.

Going concern and viability statement
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 page 68. The Company’s Viability
Statement is set out in the section on risk
management on page 29.

Related parties
Details on related parties can be found
in note 27 of the financial statements.

Post balance sheet events
Details relating to subsequent events can be
found in note 28 of the financial statements.

Methodology
Premier Foods’ GHG emissions were assessed
and calculated using internal data and emission
factors from Defra’s Conversion Factors for
Company Reporting 2017 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 Group during the period.

Employment of people with disabilities
It is our policy to give full and fair consideration
to applications for employment received from
people with disabilities, 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 during the period
of their employment. We provide the same
opportunities for training, career development
and promotion for people with disabilities 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.

2017
44,157.39
31,792.58
75,949.97
219.69

2016
45,030.02
37,429.23
82,459.25
231.11

Base Year
(2011)
158,164.71
133,046.62
291,211.33
143.3

GOVERNANCEStatement 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 International
Financial Reporting Standards as adopted by the
European Union (IFRSs as adopted by the EU)
and applicable law and have elected to prepare
the parent company financial statements on the
same basis.

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:

misstatement, whether due to fraud or error, and
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:

•

select suitable accounting policies and
then apply them consistently;

• make judgements and estimates that are

•

reasonable, relevant and reliable;
state whether they have been prepared
in accordance with IFRSs as adopted by
the EU;

• assess the Group and parent company’s
ability to continue as a going concern,
disclosing, as applicable, matters related
to going concern; and

• use the going concern basis of accounting
unless they either intend to liquidate the
Group or the parent company or to cease
operations, or have no realistic alternative
but to do so.

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 are responsible
for such internal control as they determine
is necessary to enable the preparation of
financial statements that are free from material

•

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 2018 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/

she 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 15 May 2018 and signed on its behalf by:

Andrew McDonald
Company Secretary
company.secretary@premierfoods.co.uk

INTRODUCTIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 GOVERNANCEDirectors'
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 31 March 2018.

2017 Directors’ Remuneration Policy
At the AGM last year we proposed a new three
year Remuneration Policy and this received
strong shareholder approval, with 98.8% of
votes cast in favour.

Performance outcome for 2017/18
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. Following a difficult
trading period in 2016/17 the Group delivered a
strong performance in 2017/18 with revenue and
Trading profit up 3.6% and 5.1%, both ahead of
market expectation. Net debt, a key metric for
the Group, reduced significantly from £523.2m
to £496.4m. In addition, a significant proportion
of the executive directors’ strategic and personal

objectives were also achieved. Following the
review the Committee assessed that, based on
performance over the year, a bonus of 59.5%
of opportunity for Mr Darby and of 59.0% of
opportunity for Mr Murray was appropriate.
However, for reasons of affordability, it was agreed
between the Committee and the executive
directors, that the bonus payments to both Mr
Darby and Mr Murray would be capped at 35% of
opportunity. Accordingly, a bonus of £367,500 was
approved for Mr Darby and a bonus of £152,954
was approved for Mr Murray. Full details of the
assessment are set out on pages 48 to 50.

Following the approval of the 2017 Remuneration
Policy, one third of any annual bonus payment
to executive directors will be made in the form of
shares deferred for a three year period, details of
the Deferred Bonus Plan are set out on page 51.

The Committee assessed the performance
conditions for the 2015 LTIP award and,
following this assessment, the award has
lapsed in full.

Arrangements for the coming period
The targets for the annual bonus and LTIP
awards for 2018/19 are aligned with the Group’s
strategic priorities and this is illustrated in the
table below. Further details of the measures for
2018/19 are provided on page 51.

The Committee approved a salary increase of
2.0% for colleagues not involved in collective
bargaining for 2018/19 and the same salary
increase was approved for the CEO and CFO.
Gavin Darby has again elected not to take a
salary increase and therefore his salary remains
unchanged since his appointment in 2013.

I look forward to your continuing support.

Jennifer Laing
Remuneration Committee Chairman
15 May 2018

Overview of remuneration and link to 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.

The following table summarises the performance measures for executive directors' annual bonus and LTIP arrangements and how they are aligned with
our strategy (see our business model and strategy on pages 04 to 07).

Annual Bonus Measures
Trading profit
Strategic objectives focused on
commercial opportunities

Objective
Profitable growth/increase in earnings • Driving revenue growth
International expansion
•
• Strategic partnerships

Strategic priority

Net debt & cash management

Debt reduction

• Cash generation
• Reducing our Net debt to EBITDA ratio to below 3.05

Personal objectives

Developing stakeholder relationships

• Being a responsible and sustainable business

LTIP Measures
Adjusted EPS

Relative TSR

Objective
Profitable growth/increase in earnings • Driving revenue growth

Strategic priority

Share price growth

• Delivering shareholder return over the medium term

GOVERNANCERemuneration Policy
The Directors’ Remuneration Policy was approved by shareholders at the AGM held on 20 July 2017 (98.8% of votes cast being in favour) and became
effective from that date. The approved policy can be found in the 2016/17 annual report and on the Group's website. The text set out below is included
to assist with the understanding of the Annual Report on Remuneration for the 52 weeks ended 31 March 2018 and has been updated to reflect 2017/18
pension limits and the current non-executive directors and the scenario charts on page 47 has been updated to reflect current remuneration levels. There
are no proposals to amend the Directors’ Remuneration Policy at the 2018 AGM.

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

Benefits

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.

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
(£154,200 for 2017/18, but increasing
each April in line with the Retail Prices
Index) and pays a salary supplement
(£23,389 for 2017/18, which increases
each April in line with the Retail Prices
Index).

INTRODUCTIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Directors'
Remuneration report

Link to strategy

Operation

Maximum opportunity

Performance measures

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)

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 two thirds
of the bonus is paid in cash and a minimum
of on third 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 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.

None, other than continued employment

Performance period: Three years.

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.

Annual
Bonus

Designed to incentivise
delivery of annual financial
and operational goals and
directly linked to delivery of
the Group's 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.

GOVERNANCELink 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.

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.

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.

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.

INTRODUCTIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Directors'
Remuneration report

2. Remuneration scenarios and weighting
The charts showing executive director remuneration at different levels of performance are set out on page 47.

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 Shinji Honda whose appointment is
governed by the Relationship Agreement with Nissin Foods Holdings Co., Ltd.

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.

GOVERNANCE• 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.

INTRODUCTIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Directors'
Remuneration report

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
Base salary

Detailed terms
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

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 the 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.

Footnotes:
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.
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 consider 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.

GOVERNANCEAnnual Report on Remuneration
An advisory vote on this Annual Report on Remuneration will be put to shareholders at the AGM on 18 July 2018.

Single figure table for total remuneration (audited)
Single figure for the total remuneration received by each executive director for the 52 weeks ended 31 March 2018 (2017/18) and 1 April 2017 (2016/17).

Directors
Gavin Darby
Alastair Murray

Salary

2017/18
£’000
700
408

2016/17
£’000
700
408

Taxable Benefits
2016/17
2017/18
£’000
£’000
22
22
23
24

Pension

2017/18
£’000
140
35

2016/17
£’000
140
34

Annual bonus
2017/18
£’000
368
153

2016/17
£’000
–
–

Share based
awards

Total

2017/18
£’000
–
–

2016/17
£’000
–
–

2017/18
£’000
1,230
620

2016/17
£’000
862
465

Gavin Darby received a basic salary for the period of £700,000 per annum, a salary supplement in lieu of pension of 20% of base salary and received a
bonus of £367,500 for the financial period. Benefits related to the provision of an executive driver service, private health insurance and annual medical
assessment.

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 (£154,200 for the 2017/18 tax year) which equates to £11,568 for the period together with an additional RPI adjusted pensions supplement
of £23,389. Mr Murray received a bonus of £152,954 for the financial period. Benefits related to the provision of a company car and private health
insurance.

Full details of the annual bonus performance assessment is set out on pages 48 to 50.

Remuneration scenarios and outcome for the year

CEO

£3,310

42%

CFO

£2,085

34%

25%

32%

£1,230

30%

£860

100%

41%

26%

70%

£1,508

41%

£988

31%

22%

47%

£468

100%

28%

31%

£620

25%

75%

These charts indicate the level of remuneration
that could be earned by executive directors at
minimum, mid-point and maximum under the
Company's current Directors' Remuneration
Policy and, in addition, the actual level of
remuneration received for 2017/18.

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).

Minimum
£’000

Mid-point
£’000

Maximum
£’000

Actual
2017/18

Minimum
£’000

Mid-point
£’000

Maximum
£’000

Actual
2017/18

Mid-point = fixed pay plus 50% of Annual Bonus

payable and 50% of LTIP vesting.

Fixed pay

Annual Bonus

LTIP

Maximum = fixed pay plus 100% of Annual Bonus

payable and 100% of LTIP vesting

INTRODUCTIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018

Directors'
Remuneration report

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 were 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.

As part of the Group’s cost reduction programme it was agreed that there would be no salary increase for employees not involved in collective bargaining
in 2017/18 and therefore there was no change to executive directors’ salaries in the financial year. In line with the salary increase to all employees not
involved in collective bargaining the Committee has approved a 2.0% salary increase for the CEO and CFO for 2018/19 (which took effect on 1 April
2018). Gavin Darby has again elected not to take a salary increase and therefore his salary remains unchanged from his appointment
in 2013.

Executive director
Gavin Darby
Alastair Murray

31 March 2018
£700,000
£416,200

Change
–
+2.0%

1 April 2017
£700,000
£408,040

Change
–
–

2 April 2016
£700,000
£408,040

Payments to former directors and payments for loss of office (audited)
There have been no payments to former directors or payments for loss of office in the year (2016/17: nil).

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 2017/18
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 Group operates.

As discussed in the Chairman's statement and CEO Review on pages 03 and 05 the Group delivered a strong overall performance in 2017/18.
Trading profit was £123.0m which represented a 5.1% increase on prior year, however, whilst this was above market expectation it was slightly behind
the stretching target set by management at the start of the period. Net debt reduced by £26.8m (5.1%) to £496.4m as a result of strong cash flow
management and increased Trading profit and this exceeded the target of £514.2m.

The Committee in addition reviewed performance against each of the Strategic targets (also subject to a financial underpin) and the Personal targets
and the extent to which they were achieved. Following the review the Committee assessed that, based on performance over the year, a bonus of 59.5%
of opportunity for Mr Darby and of 59% of opportunity for Mr Murray was appropriate. However, for reasons of affordability, it was agreed between the
Committee and the executive directors, that the bonus payments to both Mr Darby and Mr Murray would be capped at 35% of opportunity. Accordingly a
bonus of £367,500 was approved for Mr Darby and a bonus of £152,954 was approved for Mr Murray.

Further details of the specific Financial, Strategic and Personal targets and the performance outcome are set out in the tables on pages 49 and 50 for
information. Individual weightings have been provided for each Strategic objective.

Following the approval of the 2017 Remuneration Policy one third of any annual bonus payment to executive directors is made in the form of shares
deferred for a three year period under the Deferred Bonus Plan (DBP), details of the DBP are set out on page 51.

GOVERNANCE40%
10%
50%

15.0%
7.5%
22.5%

Weighting

Performance (%
of max bonus)

15.0%

13.0%

10.0%

7.0%

Gavin Darby (audited)

Performance measure
Financial objectives (subject to Trading profit underpin of £121.8m)
Trading profit
Net Debt

Target

Stretch

Performance
outcome

Weighting

Annual Bonus

Performance (%
of max bonus)

£125.0m
£514.2m

£128.0m
£490.0m

£123.0m
£496.4m

Performance outcome

Performance measure
Short to medium-term Strategic objectives (subject to Trading profit underpin of £121.8m)
Commercial growth
opportunities

Successful completion of strategic contract renewal with Mondelēz International with
increased tenure (to at least 2022), expanded to incorporate 46 countries and the
opportunity to access additional brand range.

Incremental growth from strategic partnership with Nissin through Batchelors Super
Noodle Pots and distribution of Nissin’s Soba noodles, initiated test launch of Nissin’s
Cup Noodle and delivered revenue significantly above target.

Corporate development

Led review of strategic opportunities which was presented to the Board.

10.0%

4.0%

35.0%

24.0%

Personal objectives
Organisation design

Establishment of single UK BU organisation with revised operational model and
delivered annualised SG&A savings of £10m. New management structure has helped
to accelerate revenue growth and deliver the business plan.

Customer relations

Continued development of relationships with major customers through direct
engagement of the CEO and senior management team.

Stakeholder engagement

Leading role as President of the Food and Drink Federation working with the
government to shape the approach to key issues facing the food industry, including
Brexit and health and wellness. Appointed to the government’s Industry Sector
Counsel. Initiated the Group’s strategy for plastic packaging.

Final outcome

15.0%
100%

13.0%
59.5%

INTRODUCTIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018

Directors'
Remuneration report

Alastair Murray (audited)

Performance measure
Financial objectives (subject to Trading profit underpin of £121.8m)
Trading profit
Net debt

Target

Stretch

Performance
outcome

Weighting

Annual Bonus

Performance
(% of max bonus)

£125.0m
£514.2m

£128.0m
£490.0m

£123.0m
£496.4m

30%
20%
50%

11.0%
15.0%
26.0%

Weighting

Performance
(% of max bonus)

10.0%

Performance measure
Short to medium-term Strategic objectives (subject to Trading profit underpin of £121.8m)
Corporate development

Performance outcome

Successfully negotiated new revolving credit facility with extended maturity to
December 2020. Re-financed the £210m Senior Secured floating rate notes which
extended the maturity until 2022 with no increase in coupon.

Incremental growth and
value creation opportunities

Hovis joint venture – Provided Board level support for a number of major commercial
and corporate projects.

5.0%

4.0%

Cost and efficiency

Pensions

Knighton business – New CFO recruited and new IT system successfully integrated but
overall trading performance below plan.

SG&A savings of £10m fully implemented with associated organisational restructure
now embedded. Net debt reduced by £26.8m through effective control of capex and
other discretionary spend.

Integrated Risk Management review completed by the three principal pension
schemes. Agreed a de-risking strategy with the RHM trustees which has reduced the
overall level of risk whilst maintaining expected asset return.

Personal objectives
Shared service centre and
operational efficiency

Audit and control

Strategy for shared service centre agreed and introduction of robotic process
automation initiated.

New head of Internal Audit successfully inducted into the business and no major
control failures reported in the period.

Business systems

Transfer of IT systems to new third party logistics provider successfully completed and
costs control and service level KPIs achieved.

5.0%

–

10.0%

5.0%

35.0%

24.0%

Final outcome

15.0%
100%

9.0%
59.0%

GOVERNANCE

Annual bonus measures for 2018/19
The Committee has determined that the weightings for the annual bonus
performance measures will remain 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.

One third of any annual bonus awarded in respect of the 2017/18 financial
year will be deferred in shares for three years under the Deferred Bonus Plan.

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
• Business development opportunities to

deliver incremental growth.

• Delivery of value creation initiatives through
relationships with our strategic partners.

• Develop business turnaround plan for

Knighton Foods business.

CFO
• Corporate development opportunities to

deliver incremental growth.

• Strategic cash flow and efficiency

opportunities to accelerate debt reduction.
• Completion of logistics consolidation and

delivery of targeted savings.

Personal objectives
CEO
Stakeholder management, organisational
development and succession planning
CFO
Delivery of cost efficiency KPIs, IT system
security resilience and organisational
development

CEO
150%

CFO
105%

Weighting

40%
10%
50%

35%

15%

40%
10%
50%

35%

15%

Deferred Bonus Plan (DBP)
Following the approval of the new Directors’ Remuneration Policy in July
2017, one third of any annual bonus payment awarded to executive
directors will be in the form of shares. These shares are awarded under
the terms of the DBP which was approved by shareholders in July
2017. Awards will normally be made within six weeks following the
announcement of the Group’s full year results in the form of nil cost
options. The awards will normally vest on the third anniversary of grant
and, if awarded in the form of nil cost options will then be exercisable up
until the tenth anniversary of grant. The shares are subject to forfeiture and
claw back provisions.

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. Awards
were based on the achievement of a range of Company-wide financial and
strategic targets set at the start of each financial period. Any bonus earned
was converted into shares following the announcement of the results for
the financial period and deferred for a period of two years. The shares for
these awards were sourced in the market and are subject to forfeiture over
the period of deferral.

In order to simplify remuneration arrangements Alastair Murray’s entitlement
under the DSBP has been combined with his annual bonus going forward
and therefore no further awards will be made under this plan. The one
outstanding award of 157,560 shares (see table on page 53) will vest on
2 June 2018.

Long-Term Incentive Plan (LTIP)
The current LTIP was approved by shareholders in 2011; awards can
be made as either performance shares or matching shares. In 2017 the
Committee reviewed the use of the matching shares and concluded that
they were no longer common practice in the market and therefore no
further awards will be made as matching shares under the LTIP.

LTIP award for 2017/18 (audited)
Details of the LTIP award granted on 13 June 2017 are set out below.

Basis of award
200%
150%

Max value on
award date
£1,400,000
£612,060

Performance
period
01.04.17– 31.03.20
01.04.17– 31.03.20

Weighting
2/3

1/3

Targets

Below
threshold
< Median

< 7.8p
0%

Threshold
Median

7.8p
20%

Stretch
Upper
quartile
8.7p
100%

Gavin Darby
Alastair Murray

Performance
measure
Relative TSR¹

Adjusted EPS2
% of relevant
portion of award
vesting3

1. Measured against the constituents of the FTSE All Share Index (excluding

100%

investment trusts) around the start of the period.
2016/17 base year adjusted EPS was 7.2p.
Straight line vesting between threshold and stretch.

INTRODUCTIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Directors'
Remuneration report

LTIP award for 2018/19
For the 2018/19 award the Committee proposes to use the same measures
as the 2017/18 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 3.4% to 8.8%. 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 53.

Basis of award
200%
150%

Max value on
award date
£1,400,000
£624,300

Performance
period
01.04.18 – 31.03.21
01.04.18 – 31.03.21

Weighting
2/3

1/3

Targets

Below
threshold
< Median

< 8.4p
0%

Threshold
Median

8.4p
20%

Stretch
Upper
quartile
9.8p
100%

Gavin Darby
Alastair Murray

Performance
measure
Relative TSR¹

Adjusted EPS2
% of relevant
portion of award
vesting3

1. Measured against the constituents of the FTSE All Share Index (excluding

investment trusts) around the start of the period.
2017/18 base year adjusted EPS was 7.6p.
Straight line vesting between threshold and stretch.

Performance assessment for the 2015 LTIP award
The performance conditions for the 2015 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 2018 and concluded that the
targets had not been met and consequently the 2015 LTIP award has
lapsed.

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
656,780 shares as at 31 March 2018). 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 2%.

Pension payments
The table below provides details of the executive directors’ pension
benefits:

Gavin Darby
Alastair Murray

Total
contributions
to DC-type
pension plan
£’000
–
12

Cash
in lieu of
contributions
to DC-type
pension plan
£’000
140
23

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.

Share ownership guidelines and share interests table (audited)
To align executive directors’ interests with those of shareholders they are
expected to retain 50% of shares from vested awards under the DBP, 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. In July 2017 the Company adopted a two year holding period
post vesting. 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.

GOVERNANCEShare ownership guidelines and share interest table (audited)

Gavin Darby1
Alastair Murray

Shares owned as
at 31 March 2018
5,601,595
309,522

Shares owned as
at 1 April 2017
5,213,336
309,522

Extent to which
share ownership
guidelines met
471%
61%

Unvested share
interests under LTIP
Awards
10,032,268
4,728,175

Unvested shares
interests under
DSBP Awards
–
157,560

Sharesave Awards
24,732
24,732

Total
15,658,595
5,219,989

1. Held in the name of Mr and Mrs Darby
Executive share awards (audited)

Date of grant

Balance as at
1 April 2017

Awarded in
the year

Exercised in
the year

Lapsed in
the year

Balance as at
31 March 2018

Option
price

Share price
on date of
grant

Share price
on date of
exercise

Vesting
date

Maximum
expiry
date

Gavin Darby
LTIP

Sharesave Plan

Alastair Murray
LTIP

DSBP
Sharesave Plan

25.06.14
11.06.15
03.06.16
13.06.17
11.10.13
26.09.14
15.12.15
20.12.16

25.06.14
11.06.15
03.06.16
13.06.17
03.06.16
15.12.15
20.12.16

2,629,107
3,294,117
3,294,117

–
–
–
– 3,444,034
–
–
–
–
9,255,691 3,444,034

3,214
10,404
16,906
7,826

1,126,760
1,782,352
1,440,141

–
–
–
– 1,505,682
–
–
–
4,531,545 1,505,682

157,560
16,906
7,826

– 2,629,107
–
–
–
–
10,404
–
–

–
3,294,117
3,294,117
3,444,034
–
–
16,906
7,826
10,404 2,632,321 10,057,000

–
–
–
3,214
–
–
–

– 1,126,760
–
–
–
–
–
–
– 1,126,760

–
–
–
–
–
–

–
1,782,352
1,440,141
1,505,682
157,560
16,906
7,826
4,910,467

–
–
–
–
72.79
34.60
31.94
34.50

–
–
–
–
–
31.94
34.50

51.75
42.00
42.50
40.50
–
–
–
–

51.75
42.00
42.50
40.50
42.50
–
–

– 31.03.17 24.06.21
– 31.03.18 10.06.22
– 31.03.19 02.06.23
– 31.03.20 12.06.24
– 01.12.16 01.06.17
37.20 01.12.17 01.06.18
– 01.02.19 01.08.19
– 01.02.20 01.08.20

– 31.03.17 24.06.21
– 31.03.18 10.06.22
– 31.03.19 02.06.23
– 31.03.20 12.06.24
– 02.06.18 02.12.18
– 01.02.19 01.08.19
– 01.02.20 01.08.20

All LTIP awards are in the form of performance shares. The Remuneration Committee concluded that the performance conditions for the 2015 LTIP had not been met and
consequently the award lapsed in full on 10 May 2018.

2. Mr Darby exercised an option over 10,404 shares under the Company's Sharesave Plan on 27 March 2018 and all shares were retained, this resulted in a notional gain on
exercise of £270.50. 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.

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 approximately 30% of colleagues.

INTRODUCTIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Directors'
Remuneration report

Total shareholder return
The market price of a share in the Company on 29 March 2018 (the last
trading day before the end of the financial period) was 37.8 pence; the
range during the financial period was 36.5 pence to 45.8 pence.

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 eight financial periods. The figures
for 2014/15 represents a 15 month period.

Year
CEO
2017/18 Gavin Darby1
2016/17 Gavin Darby
2015/16 Gavin Darby
2014/15 Gavin Darby
Gavin Darby
2013
Michael Clarke
Michael Clarke
Michael Clarke
Robert Schofield
Robert Schofield
Robert Schofield

2010
2009

2012
2011

Single
figure for total
remuneration
£1,229,383
£862,455
£1,750,933
£1,736,749
£1,405,753
£1,122,795
£1,699,575
£2,277,070
£895,485
£715,052
£929,967

Annual bonus
as a % of
maximum
35.0%
–
57.0%
23.4%
16.0%
–
66.0%
–
–
10.0%
29.0%

LTIP
vesting as a %
of maximum
–
–
–
–
–
–
–
–
–
–
–

Full details of the single figure for total remuneration are set out on page 47.

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.

CEO

Management grades

% Change
2017/18
0%
0%
-

% Change
2016/17
0%
+16%
–100%

% Change
2017/18
+2.0%
0%
-11.3%

% Change
2016/17
0%
0%
–23%

Base salary
Benefits
Annual bonus

)

d
e
s
a
b
e
r
(

)

(

e
u
a
V

350

300

250

200

150

100

31/12/2008

31/12/2009 31/12/2010 31/12/2011 31/12/2012 31/12/2013 04/04/2015

02/04/2016 01/04/2017 31/03/2018

Premier Foods

FTSE All Share (excl, Investment Trusts)

FTSE Food Producers

Source: FactSet

This graph shows the value, by 31 March 2018, 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.

GOVERNANCE

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 page 08).

Total employee costs
Free cash flow
Net debt

2017/18
£148.2m
£28.8m
£496.4m

2016/17
£157.9m
£15.1m
£523.2m

Change
-6.1%
+90.7%
-5.1%

Non-executive directors (audited)
Single figure for the total remuneration received by each non-executive
director for the financial periods ended 31 March 2018 and 1 April 2017.

Director
Keith Hamill1
Richard Hodgson
Shinji Honda2
Ian Krieger
Jennifer Laing

Pam Powell
Former directors
David Beever3
Tsunao Kijima2
Daniel Wosner4

Basic fee
235,000
57,000
–
57,000
57,000

57,000

265,000
–
57,000

Committee
Chair fee
–
–
–
13,000
10,500

SID fee

Total fees
2017/18
– 117,500
–
57,000
–
–
10,000
80,000
–
67,500

Total fees
2016/17
–
57,000
–
80,000
67,500

–

–
–
–

–

57,000

– 161,610 265,000
–
–
–
4,750
–
57,000

1. Mr Hamill was appointed as a non-executive director on 1 October 2017 and as

Chairman on 9 November 2017.

2. Mr Honda was appointed as a non-executive director on 23 March 2018 as a
representative of Nissin in place of Mr Kijima who stepped down as a non-
executive director on 23 March 2018 following his decision to retire from Nissin.
Neither Mr Kijima nor Mr Honda receive a fee or other remuneration in respect of
their roles.

3. Mr Beever retired as a non-executive director on 9 November 2017.
4. Mr Wosner, who was a representative of Oasis, resigned as a non-executive

director on 28 March 2018.

Non-executive directors’ fees
The fees of our non-executive directors (NEDs) are set out below. Keith
Hamill was appointed as Chairman in November 2017 following the
retirement of David Beever and his fee was agreed at £235,000. A review
of non-executive directors’ fees was undertaken in February 2018 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

31 March
2018
£235,000
£57,000

£13,000

£10,500
£10,000

Change
-11%
–

–

–
–

1 April
2017
£265,000
£57,000

£13,000

£10,500
£10,000

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 Honda’s appointment is governed by the terms of the
relationship agreement with Nissin.

NED
Keith Hamill
Richard Hodgson
Shinji Honda
Ian Krieger
Jennifer Laing
Pam Powell

Date of original
appointment
1 October 2017
6 January 2015
23 March 2018
1 November 2012
1 October 2012
7 May 2013

Expiry of current
appointment/
amendment
letter
AGM 2020
AGM 2020
–
AGM 2018
AGM 2018
AGM 2019

Notice period
6 months
3 months
–
3 months
3 months
3 months

INTRODUCTIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018
Directors'
Remuneration report

Non-executive directors’ interests in shares (audited)

During the financial period the Committee discussed the following:

NED
Keith Hamill1
Richard Hodgson
Shinji Honda2
Ian Krieger
Jennifer Laing
Pam Powell

Ordinary
shares owned
as at 31 March
2018
266,666
–
–
504,000
54,802
160,366

Ordinary shares
owned
as at 1 April
2017
–
–
–
504,000
54,802
160,366

1. Mr Hamill was appointed as a non-executive on 1 October 2017.
2. Mr Honda is Chief Strategy Officer of our largest shareholder, Nissin. It was
agreed on appointment that he would not hold shares in the Company.

The Committee
Details of the Committee members and meeting attendance are set out on
pages 30 and 31. The Committee Chairman and all current members of
the Committee are independent. Mr Wosner was appointed a member of
the Committee when he joined the Board in March 2017 but resigned from
the Committee in July 2017 in order to ensure the Committee consisted
of only independent non-executive directors. 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 five 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 and the Company’s new
Remuneration Policy. 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 £28,166 (2016/17: £65,715) 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 Group’s website.

• Reviewed the voting results for the 2017 Directors’ Remuneration

Report and the Directors’ Remuneration Policy at the AGM;

• Reviewed 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 2018/19 annual bonus in accordance with the
strategic objectives of the Group;

• Granted the 2017 awards under the Company's all-employee and
executive share plans and agreed the targets for awards due to be
made in 2018; 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
Both the Directors’ Remuneration Report and the Directors’ Remuneration
Policy received strong support at the AGM in 2017 with more than 98% of
shares voted being in favour. Full details of the voting on the resolutions are
set out below.

Approval of
Directors'
Remuneration
Report
2016/17
20 July 2017
544,613,759
6,198,168
550,811,927
66,079

% of votes
cast

Approval of
the current
Directors’
Remuneration
Policy
20 July 2017
98.87% 540,647,973
1.13% 6,432,867
100% 547,080,840
3,797,166

% of votes
cast

98.82%
1.18%
100%

Date of AGM
Votes for
Votes against
Total votes cast
Votes withheld

The Directors’ Remuneration Report was approved by the Board on
15 May 2018 and signed on its behalf by:

Jennifer Laing
Chairman of the Remuneration Committee

GOVERNANCEIndependent
auditor’s report

1. Our opinion is unmodified
We have audited the financial statements of Premier Foods plc (“the
Company”) together with its subsidiaries (“the Group”) for the 52 weeks
ended 31 March 2018 that comprise the consolidated statement of profit
or loss, consolidated statement of comprehensive income, consolidated
balance sheet, consolidated statement of cash flows, consolidated
statement of changes in equity, Company balance sheet, Company
statement of changes in equity and the related notes, including the Group
and Company accounting policies in notes 2 & 1 respectively.

In our opinion:
•

the financial statements give a true and fair view of the state of the
Group’s and of the Company’s affairs as at 31 March 2018 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 (IFRSs as adopted by the EU);
the 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.

•

Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are
described below. We believe that the audit evidence we have obtained
is a sufficient and appropriate basis for our opinion. Our audit opinion is
consistent with our report to the Audit Committee.

We were appointed as auditor by the directors on 4 September 2015. The
period of total uninterrupted engagement is for the three 52 week periods
ended 31 March 2018. We have fulfilled our ethical responsibilities under,
and we remain independent of the Group in accordance with, UK ethical
requirements including the FRC Ethical Standard as applied to listed public
interest entities. No non-audit services prohibited by that standard were
provided.

Overview
Materiality:
Group financial
statements as a whole
Coverage
Group risks of material misstatement
Recurring risks

£4.5m (2016/17: £4.5m)
0.55% (2016/17: 0.57%)

of Group revenue
95% (2016/17: 95%) of Group revenue
vs 2016/17


Revenue relating to commercial
arrangements
Carrying value of goodwill and the
Sharwood's and Paxo brands*
Valuation of defined benefit pension plans

Company risks of material misstatement
Company
recurring risk

Recoverability of balances with Group
undertakings

* Prior year risk related to the Mr Kipling brand



INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 FINANCIAL STATEMENTSIndependent auditor’s
report

2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the
most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit
matters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters
and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures
undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and
consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.

The risk
Estimation uncertainty impacting
revenue
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.
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.

Our response
Our procedures included:
• Accounting policies: Assessing the appropriateness of the revenue
recognition accounting policies, in particular those relating to rebates
and discounts and assessing compliance with the applicable accounting
standards;

• Controls testing: Testing the design, implementation and effectiveness of the

Group’s automated controls over the authorisation and calculation of rebates
and discounts;

• 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 2017/18 revenue;

• Obtaining 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 accrued for; 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.

Our results
The results of our testing were satisfactory and we consider revenue relating to
commercial arrangements to be acceptable (2016/17: acceptable).

Revenue relating
to commercial
arrangements
Commercial accruals
(£(46.2m); 2016/17:
£(38.6m))

Refer to page 36 (Audit
Committee Report), page
73 (accounting policy)
and page 86 (financial
disclosures).

FINANCIAL STATEMENTS2. Key audit matters: our assessment of risks of material misstatement (continued)

Carrying value of
goodwill and the
Sharwood's and Paxo
brands
Goodwill
(£650.3m; 2016/17
£646.0m)
Refer to page 36 (Audit
Committee Report), page
73 (accounting policy) and
pages 82 to 84 (financial
disclosures).

The risk
Forecast-based valuation
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 and the Group’s
financial constraints on brand investment,
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 Sharwood's and
Paxo brands, may not be recoverable.

Our response
Our procedures included:
• Assessing cash generating units: Assessing the appropriateness of the

cash generating units identified;

• Assessing methodology: Assessing the methodology of the valuation

models for the Grocery cash generating unit and the brands;

• 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 EBITDA multiple
assumption used in the brand assessments, comparing these with externally
derived data and using our own valuation specialists where applicable;

• Sensitivity analysis: Performing sensitivity analysis of key assumptions noted

above; 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
considering the adequacy of the Group’s disclosures relating to brands.

Valuation of defined
benefit pension plans
Defined benefit
obligation
(£(4,546.6m); 2016/17:
£(4,759.8m))
Valuation of scheme
assets for which a
quoted price is not
available (excluding
swaps)
£821.3m; 2016/17:
£766.2m)
Refer to page 36 (Audit
Committee Report), page
73 (accounting policy) and
pages 95 to101 (financial
disclosures).

Subjective valuation
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.

Our results
The results of our testing were satisfactory and we consider the carrying value of
goodwill and Sharwood's and Paxo brands to be acceptable (2016/17: goodwill
and the Mr Kipling brand: acceptable).
Our procedures included:
• 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;

• Assessing experts: Assessing the competence and objectivity of the fund
managers and custodians who prepared asset statements to support the
Group’s valuation of scheme assets;

• Asset confirmations: Obtaining asset statements in respect of the schemes’

investments directly from fund managers and custodians; and
• Assessing disclosures: Considering the adequacy of the Group’s

disclosures relating to the sensitivity of the surplus to the key assumptions.

Our results
The results of our testing were satisfactory and we consider the valuation of
defined benefit pension plans to be acceptable (2016/17: acceptable).

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Independent auditor’s
report

2. Key audit matters: our assessment of risks of material misstatement (continued)

Recoverability of
balances with Group
undertakings
Company only
(£1,296.9m; 2016/17:
£1,279.2m)
Refer to page112
(accounting policy) and
page 114 (financial
disclosures).

The risk
Subjective valuation
The carrying amount of the intra-group
receivables balance represents 99%
of the Company’s total assets. Their
recoverability is dependent on the
achievement of future business plans
which are inherently uncertain.
In addition, due to their materiality
in the context of the Company financial
statements, this is considered to be the
area that had the greatest effect on our
overall Company audit.

Our response
Our procedures included:
• Test of details: Comparing the amounts due from Group undertakings

with the relevant subsidiaries’ draft balance sheet to identify whether their
net assets were in excess of the amount due and assessing whether those
subsidiaries have historically been profit-making;

• For the amounts due from Group undertakings where the carrying amount
exceeded the net asset value, comparing the carrying amount with the
expected value of the business based on a discounted cash flow analysis; and

• Benchmarking assumptions: Evaluating assumptions used in the

discounted cash flow analysis as described in the goodwill impairment key
audit matter above.

Our results
We found the Group’s assessment of the recoverability of the Group receivables
balance to be acceptable.

Removal of key audit matter in respect of deferred tax assets
As the Group is no longer in a deferred tax asset position, we do not assess this as one of the most significant risks in our current year audit and,
therefore, it is not separately identified in our report this year.

FINANCIAL STATEMENTSn Full scope for Group audit purposes

2017/18

n Full scope for Group audit purposes

2016/17

n Residual components

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 £4.5m (2016/17: £4.5m), determined with reference to a benchmark
of Group revenue of which it represents 0.55% (2016/17: 0.57%). 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.

Materiality for the Company financial statements as a whole was set at
£0.6m (2016/17: £0.6m), determined with reference to a benchmark of
profit before tax, of which it represents 4.0% (2016/17: 3.8%).

We reported to the Audit Committee any corrected or uncorrected
identified misstatements exceeding £0.22m (2016/17: £0.22m), in addition
to other identified misstatements that warranted reporting on qualitative
grounds.

Group revenue

95%
(2016/17: 95%)

Group profit before tax

Of the Group’s 33 (2016/17: 33) reporting components, we subjected 5
(2016/17: 5) to full scope audits for Group purposes.

97%
(2016/17: 95%)

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 £0.6m to £4.25m (2016/17:
£0.6m to £4.25m), 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 total assets

95%
(2016/17: 99%)

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Independent auditor’s
report

4. We have nothing to report on going concern
We are required to report to you if:

• we have anything material to add or draw attention to in relation to the
directors’ statement in note 2 to the financial statements on the use of
the going concern basis of accounting with no material uncertainties
that may cast significant doubt over the Group and Company’s use
of that basis for a period of at least twelve months from the date of
approval of the financial statements; or
the related statement under the Listing Rules set out on pages 29, 38
and 68 is materially inconsistent with our audit knowledge.

•

We have nothing to report in these respects.

5. We have nothing to report on the other information in the
Annual Report
The directors are responsible for the other information presented in the
Annual Report together with the financial statements. Our opinion on the
financial statements does not cover the other information and, accordingly,
we do not express an audit opinion or, except as explicitly stated below,
any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider
whether, based on our financial statements audit work, the information
therein is materially misstated or inconsistent with the financial statements
or our audit knowledge. Based solely on that work we have not identified
material misstatements in the other information.

Strategic report and directors’ report
Based solely on our work on the other information:

• we have not identified material misstatements in the strategic report

•

and the directors’ report;
in our opinion the information given in those reports for the financial
year is consistent with the financial statements; and
in our opinion those reports have been prepared in accordance with
the Companies Act 2006.

Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the Companies Act 2006.

Disclosures of principal risks and longer-term viability Based on the
knowledge we acquired during our financial statements audit, we have
nothing material to add or draw attention to in relation to:

•

the directors’ confirmation within the viability statement on page 29
that they have carried out a robust assessment of the principal risks
facing the Group, including those that would threaten its business
model, future performance, solvency and liquidity;
the Principal Risks disclosures describing these risks and explaining
how they are being managed and mitigated; and
the directors’ explanation in the viability statement of how they have
assessed the prospects of the Group, over what period they have
done so and why they considered that period to be appropriate, and
their statement as to whether they have a reasonable expectation that
the Group will be able to continue in operation and meet its liabilities
as they fall due over the period of their assessment, including any
related disclosures drawing attention to any necessary qualifications
or assumptions.

Under the Listing Rules we are required to review the viability statement.
We have nothing to report in this respect.

Corporate governance disclosures We are required to report to you if:

• we have identified material inconsistencies between the knowledge
we acquired during our financial statements 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 section of the annual report describing the work of the Audit
Committee does not appropriately address matters communicated by
us to the Audit Committee.

•

We are required to report to you if the Corporate Governance Statement
does not properly disclose a departure from the eleven provisions of the
UK Corporate Governance Code specified by the Listing Rules for our
review.

We have nothing to report in these respects.

FINANCIAL STATEMENTS6. We have nothing to report on the other matters on which
we are required to report by exception
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 Company,
or returns adequate for our audit have not been received from
branches not visited by us; or
the 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 nothing to report in these respects.

7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 39, the directors
are responsible for: the preparation of the financial statements including
being satisfied that they give a true and fair view; such internal control
as they determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud
or error; assessing the Group and Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern; and
using the going concern basis of accounting unless they either intend to
liquidate the Group or the Company or to cease operations, or have no
realistic alternative but to do so.

Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or other irregularities (see below), or error, and to
issue our opinion in an auditor’s report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement
when it exists.

Misstatements can arise from fraud, other irregularities or error and are
considered material if, individually or in aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the
basis of the financial statements.

A fuller description of our responsibilities is provided on the FRC’s website
at www.frc.org.uk/auditorsresponsibilities.

Irregularities – ability to detect
We identified areas of laws and regulations that could reasonably be
expected to have a material effect on the financial statements from our
sector experience and through discussion with the directors (as required
by auditing standards).

We had regard to laws and regulations in areas that directly affect
the financial statements including financial reporting (including related
company legislation) and taxation legislation. We considered the extent of
compliance with those laws and regulations as part of our procedures on
the related financial statements items.

In addition we considered the impact of laws and regulations in the specific
areas of health and safety and certain aspects of company legislation. With
the exception of any known or possible non-compliance, and as required
by auditing standards, our work in respect of these was limited to enquiry
of the directors and other management and inspection of regulatory
and legal correspondence. We considered the effect of any known or
possible non-compliance in these areas as part of our procedures on the
related financial statements items. Further details in respect of possible
incentives for revenue to be overstated through manipulation of rebates
and discounts is set out in the key audit matter disclosures in section 2 of
this report.

We communicated identified laws and regulations throughout our team
and remained alert to any indications of non- compliance throughout the
audit.

As with any audit, there remained a higher risk of non-detection of non-
compliance with relevant laws and regulations irregularities), as these may
involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal controls.

8. The purpose of our audit work and to whom we owe our
responsibilities
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the Company’s
members those matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than the Company
and the Company’s members, as a body, for our audit work, for this
report, or for the opinions we have formed.

Richard Pinckard
(Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square London
E14 5GL
15 May 2018

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Consolidated statement
of profit or loss

Revenue
Cost of sales
Gross profit
Selling, marketing and distribution costs
Administrative costs
Operating profit

Operating profit before impairment
Impairment of goodwill
Impairment of intangible assets

Finance cost
Finance income
Net movement on fair valuation of interest rate financial instruments
Profit before taxation
Taxation charge
Profit for the period attributable to owners of the parent

Basic earnings per share
From profit for the year

Diluted earnings per share
From profit for the year

Adjusted earnings per share1
From adjusted profit for the year

52 weeks ended
31 March 2018
£m
819.2
(547.5)
271.7
(115.9)
(86.5)
69.3

52 weeks ended
1 April 2017
£m
790.4
(513.5)
276.9
(127.2)
(88.2)
61.5

75.8
(4.3)
(2.2)

(50.4)
1.6
0.4
20.9
(13.7)
7.2

0.9

7.6

61.5
–
–

(51.6)
1.5
0.6
12.0
(6.5)
5.5

0.7

7.2

Note
4

11
12

7
7
7

1 Adjusted earnings per share is defined as trading profit less net regular interest, less a notional tax charge at 19.0% (2016/17: 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 (charge)/credit
Items that are or may be reclassified to profit or loss
Exchange differences on translation
Other comprehensive income/(loss), net of tax
Total comprehensive income/(loss) attributable to owners of the parent

The notes on pages 68 to 109 form an integral part of the consolidated financial statements.

Note

20
8

52 weeks ended
31 March 2018
£m
7.2

52 weeks ended
1 April 2017
£m
5.5

174.8
(29.7)

0.5
145.6
152.8

(76.6)
14.9

(1.1)
(62.8)
(57.3)

FINANCIAL STATEMENTSFINANCIAL STATEMENTS

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
Deferred tax liabilities
Other liabilities

Total liabilities
Net assets
EQUITY:
Capital and reserves
Share capital
Share premium
Merger reserve
Other reserves
Profit and loss reserve
Total equity

The notes on pages 68 to 109 form an integral part of the consolidated financial statements.

The financial statements on pages 64 to 67 were approved by the Board of directors on 15 May 2018 and signed on its behalf by:

Gavin Darby Chief Executive Officer

Alastair Murray Chief Financial Officer

As at
31 March 2018
£m

As at
1 April 2017
£m

Note

10
11
12
20
8

14
15
23
18

17
18
19

17
20
19
8
21

22
22
22
22
22

185.2
646.0
428.4
754.0
–
2,013.6

76.4
74.8
23.6
0.1
174.9
2,188.5

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

(214.4)

(191.7)

–
(2.1)
(7.9)
–
(224.4)

(520.0)
(437.0)
(35.7)
(12.1)
(10.0)
(1,014.8)
(1,239.2)
949.3

84.1
1,407.6
351.7
(9.3)
(884.8)
949.3

(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

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018

Consolidated statement
of cash flows

Cash generated from operations
Interest paid
Interest received
Taxation received
Cash generated from operating activities
Purchases of property, plant and equipment
Purchases of intangible assets
Sale of property, plant and equipment
Cash used in investing activities
Repayment of borrowings
Proceeds from borrowings
Movement in securitisation funding programme
Financing fees
Proceeds from share issue
Purchase of shares to satisfy share awards
Cash generated from/(used) in financing activities
Net increase/(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 68 to 109 form an integral part of the consolidated financial statements.

52 weeks ended
31 March 2018
£m
89.4
(39.6)
1.6
1.0
52.4
(15.8)
(3.4)
1.3
(17.9)
(197.0)
210.0
–
(7.0)
1.2
–
7.2
41.7
(18.1)
23.6

52 weeks ended
1 Apr 2017
£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)

Note
23

FINANCIAL STATEMENTSConsolidated statement
of changes in equity

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
At 1 April 2017
At 2 April 2017
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
Adjustment for issue of share options
Deferred tax movements on share-based
payments
At 31 March 2018

Note

20
8

Share
capital
£m
82.7

Share
premium
£m
1,406.6

Merger
reserve
£m
351.7

–

–
–
–
–
–
0.6
–
–
–

–
–

83.3
83.3

–

–
–
–
–
–
0.8
–
–

–

84.1

–

–
–
–
–
–
0.1
–
–
–

–
–

–

–
–
–
–
–
–
–
–
–

–
–

1,406.7
1,406.7

351.7
351.7

–

–
–
–
–
–
0.9
–
–

–

–
–
–
–
–
–
–
–

–

1,407.6

351.7

Other
reserves
£m
(9.3)
–

Profit
and loss
reserve
£m
(979.3)
5.5

Non-
controlling
interest
£m
(3.9)
–

–
–
–
–
–
–
–
–
–

(76.6)
14.9
(1.1)
(62.8)
(57.3)
–

4.5
(1.1)
(0.6)

–
–
(9.3)
(9.3)
–

(1.9)
(3.9)
(1,039.6)
(1,039.6)
7.2

–
–
–
–
–
–
–
–

174.8
(29.7)
0.5
145.6
152.8

–

2.8
(0.5)

–
(9.3)

(0.3)
(884.8)

–
–
–
–
–
–
–
–
–

–

3.9
–
–
–

–
–
–
–
–
–
–
–

–
–

The notes on pages 68 to 109 form an integral part of the consolidated financial statements.

Total
equity
£m
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
792.8
7.2

174.8
(29.7)
0.5
145.6
152.8
1.7
2.8
(0.5)

(0.3)
949.3

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 FINANCIAL STATEMENTSNotes 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.

These Group consolidated financial statements were authorised for issue
by the Board of directors on 15 May 2018.

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 2 April 2017
to 31 March 2018 and comparative results are for the 52 weeks from
3 April 2016 to 1 April 2017. All references to the ‘period’, unless
otherwise stated, are for the 52 weeks ended 31 March 2018 and the
comparative period, 52 weeks ended 1 April 2017.

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), effective for periods on or after 1 January 2017, have been
endorsed by the EU:

International Financial Reporting Standards
Amendments to IAS 12

Recognition of Deferred Tax Assets for
Unrealised Losses
Disclosure Initiative

Amendments to IAS 7

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.

The following amendments to published standards, effective for periods
on or after 1 January 2018, have been endorsed by the EU:

International Financial Reporting Standards
Amendments to IFRS 12

IFRS 9
IFRS 15
Clarifications to IFRS 15
Amendment to IFRS 15
IFRS 16

Recognition of Deferred Tax Assets for
Unrealised Losses
Financial Instruments
Revenue from Contracts with Customers
Revenue from Contracts with Customers
Effective date of IFRS 15
Leases

The following standards and amendments to published standards,
effective for periods on or after 1 January 2018, have not been endorsed
by the EU:

International Financial Reporting Standards
Amendments to IFRS 2

Amendments to IFRS 9
Amendments to IFRS 12

Classification and Measurement of
Share-based Payment Transactions
Financial Instruments
Disclosure of Interests in Other Entities

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 materially 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, as detailed in note 17. In the event these covenants
are not met then the Group would be in breach of its financing agreement
and, as would be the case in any covenant breach, the banking syndicate
could withdraw funding to the Group. The Group was in compliance
with its covenant tests as at 30 September 2017 and 31 March 2018.
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.

FINANCIAL STATEMENTS2.2 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.

(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.

All intra-Group transactions, balances, income and expenses are
eliminated on consolidation.

(ii) Associates
Associates are entities over which the Group has significant influence but
not control. Investments in associates are accounted for using the equity
method of accounting. The Group’s only associate is Hovis Holdings
Limited (‘Hovis’), the investment for which was previously impaired. The
impairment loss is reviewed for possible reversal at each reporting date.

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.

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 Group 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.

All other exchange gains or losses are recorded in the statement of profit
or loss.

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Notes to the
financial statements

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.

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.

2.9 Impairment
The carrying values 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
assessed 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 the fair value less costs to sell, the
market approach is often used to derive market multiples from a set of
comparative assets.

The carrying value relating to disposed assets is written off to profit or loss
on disposal of PPE.

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.

2.10 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.

2.8 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.

FINANCIAL STATEMENTS2.11 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.

2.12 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.

2.13 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 period.

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.

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 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.

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Notes to the
financial statements

2.14 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.

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.

To the extent a surplus arises under IAS 19, the Group ensures that it can
recognise the associated asset in line with IFRIC 14.

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.

2.15 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, and the reimbursement is virtually
certain, the Group does not recognise a provision. 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.

2.16 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.

FINANCIAL STATEMENTSEquity 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.

2.17 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, 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. Each of the underlying assumptions is set out in more detail in
note 20.

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).

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 CGUs for the purposes 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 fair value less costs of disposal 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 purposes of testing
goodwill. See note 11 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 2.9 and note 12.

3.3 Commercial arrangements
Sales rebates and discounts are accrued on each relevant promotion or
customer agreement and are charged to the statement of profit or loss at
the time of the relevant promotional buy-in as a deduction from revenue.
Accruals for each individual promotion or rebate arrangement are based
on the type and length of promotion and nature of customer agreement.
At the time an accrual is made the nature 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.

Judgements, apart from those involving estimation as above, do not have
a significant impact on the financial statements.

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Notes to the
financial statements
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 profit/loss before tax before net finance costs, amortisation
of intangible assets, impairment, fair value movements on foreign exchange and other derivative contracts, restructuring costs and net interest on
pensions and administrative expenses.

The segment results for the period ended 31 March 2018 and for the period ended 1 April 2017 and the reconciliation of the segment measures to the
respective statutory items included in the consolidated financial statements are as follows:

52 weeks ended 31 March 2018

52 weeks ended 1 April 2017

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 goodwill and intangible assets
Operating profit
Finance cost
Finance income
Net movement on fair valuation of interest rate
financial instruments
Profit before taxation

Grocery
£m
589.2
130.0

Sweet
Treats
£m
230.0
25.8

Grocery
£m
563.1
129.9

Sweet
Treats
£m
227.3
19.8

Total
£m
819.2
155.8
(32.8)
123.0
(36.3)

0.1
(8.5)
(2.5)
75.8
(6.5)
69.3
(50.4)
1.6

0.4
20.9

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

Depreciation

(8.5)

(8.1)

(16.6)

(7.7)

(8.5)

(16.2)

Revenues in the period ended 31 March 2018, from the Group’s four principal customers, which individually represent over 10% of total revenue, are
£179.7m, £118.1m, £87.7m and £87.6m (Period ended 1 April 2017: £172.7m, £115.4m, £95.2m and £84.6m).

Inter-segment transfers or transactions are entered into under the same terms and conditions that would be available to unrelated third parties.

FINANCIAL STATEMENTSThe 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

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 10)
Amortisation of intangible assets (note 12)
Impairment of goodwill (note 11)
Impairment of intangible assets (note 12)
Loss on disposal of non-current assets
Operating lease rental expenditure
Repairs and maintenance expenditure
Research and development costs
Net foreign exchange (loss) / gain
Restructuring costs
Auditor remuneration (note 5.2)

Operating lease commitments are further disclosed in note 24.

52 weeks ended
31 March 2018
£m
758.1
27.6
33.5
819.2

52 weeks ended
1 April 2017
£m
745.7
21.9
22.8
790.4

52 weeks ended
31 March 2018
£m
2,013.6

52 weeks ended
1 April 2017
£m
1,928.1

52 weeks ended
31 March 2018
£m
(149.8)
(16.6)
(36.3)
(4.3)
(2.2)
(0.1)
(3.5)
(24.0)
(6.3)
(0.1)
(8.5)
(0.4)

52 weeks ended
1 April 2017
£m
(157.9)
(16.2)
(37.9)
–
–
(0.8)
(4.0)
(25.9)
(7.7)
0.2
(15.8)
(0.4)

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Notes to the
financial statements
5. Operating profit continued
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
– Other services relating to taxation
– Services relating to corporate finance transactions
Total auditor remuneration

The total operating profit charge for auditor remuneration was £0.4m (2016/17: £0.4m).

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 20)
Total

52 weeks ended
31 March 2018
£m

52 weeks ended
1 April 2017
£m

(0.3)

(0.1)
–
(0.1)
(0.5)

(0.3)

(0.1)
–
–
(0.4)

52 weeks ended
31 March 2018
£m

52 weeks ended
1 April 2017
£m

(126.2)
(11.8)
(2.9)
(2.8)
(6.1)
(149.8)

(131.3)
(12.7)
(3.9)
(3.9)
(6.1)
(157.9)

In 2016/17 this excluded £0.6m of accelerated share based payments charges which have been charged to restructuring costs. The total expense for share options
granted to directors and employees was £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

2017/18
Number

558
439
3,056
4,053

2016/17
Number

632
463
3,037
4,132

Directors’ remuneration is disclosed in the audited section of the Directors Remuneration Report on pages 47 to 56, which form part of these
consolidated financial statements.

FINANCIAL STATEMENTS7. Finance income and costs

Interest payable on bank loans and overdrafts
Interest payable on senior secured notes
Interest payable on revolving facility
Interest receivable/(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

52 weeks ended
31 March 2018
£m
(7.8)
(32.2)
(1.1)
0.1
(0.4)
(5.0)
(46.4)
(4.0)
(50.4)
1.6
1.6
0.4
(48.4)

52 weeks ended
1 April 2017
£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
(49.5)

Included in other interest payable is £0.4m credit (2016/17: £5.6m charge) relating to the unwind of the discount on certain of the Group's long term provisions.
Relates to the refinancing of the floating rate note and extension of the revolving credit facility in the period ended 31 March 2018.

The net movement on fair valuation of interest rate financial instruments relates to a £0.4m favourable movement on close out of the interest rate swaps,
which expired in December 2017 (2016/17: £0.6m favourable).

8. Taxation
Current tax

Overseas current tax
– Current year
Deferred tax
– Current period
– Prior periods
– Adjustment to restate opening deferred tax at 17.0%
Income tax charge

52 weeks ended
31 March 2018
£m

52 weeks ended
1 April 2017
£m

0.8

–

(4.1)
(8.1)
(2.3)
(13.7)

(6.4)
1.1
(1.2)
(6.5)

As a result of the 2015 Finance Act provision to reduce the UK corporation tax rate from 20% to 19% from 1 April 2017, the applicable rate of corporation
tax for the period is 19%. As a result of the 2016 Finance Act provision to reduce the UK corporation tax rate to 17% from 1 April 2020, deferred tax
balances have been stated at 17%, the rate at which they are expected to reverse.

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Notes to the
financial statements
8. Taxation continued
Tax relating to items recorded in other comprehensive income included:

Deferred tax credit on reduction of corporate tax rate
Deferred tax credit on losses
Deferred tax (charge)/credit on pension movements

52 weeks ended
31 March 2018
£m
–
4.1
(33.8)
(29.7)

52 weeks ended
1 April 2017
£m
1.6
8.4
4.9
14.9

The tax charge for the period differs from the standard rate of corporation tax in the United Kingdom of 19.0% (2016/17: 20.0%). The reasons for this are
explained below:

Profit before taxation
Tax charge at the domestic income tax rate of 19.0% (2016/17: 20.0%)
Tax effect of:
Non-deductible items
Other disallowable items
Impairment of goodwill
Adjustment for share-based payments
Adjustment due to current period deferred tax being provided at 17.0% (2016/17: 17.0%)
Movements in losses recognised
Adjustment to restate opening deferred tax at 17.0% (2016/17: 17.0%)
Adjustments to prior periods
Current tax relating to overseas business
Income tax charge

52 weeks ended
31 March 2018
£m
20.9
(4.0)

52 weeks ended
1 April 2017
£m
12.0
(2.4)

(0.1)
(0.4)
(0.8)
(0.6)
0.7
1.1
(2.3)
(8.1)
0.8
(13.7)

(1.0)
–
–
(0.9)
0.3
(2.5)
(1.1)
1.1
–
(6.5)

The movements in losses recognised for the 52 weeks ended 31 March 2018 of £1.1m (2016/17: £(2.5m)) relates to the reduction in the amount of
corporation tax losses not recognised. Corporation tax losses are not recognised where their future recoverability is uncertain.
The adjustments to prior periods of £8.1m (2016/17: £1.1m) relates to prior period losses which have been reviewed as part of the submission of returns.
The adjustment to restate opening deferred tax at 17% of £(2.3m) (2016/17: £(1.1m)) relates to restating losses which were provided at 17.7% in 2016/17

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% (2016/17: 17.0%). In 2016/17 an asset of
£56.8m relating to corporation tax losses was calculated using a rate of 17.7%.

At 2 April 2017 / 3 April 2016
Charged to the statement of profit or loss
(Charged)/credited to other comprehensive income
Charged to equity
At 31 March 2018 / 1 April 2017

2017/18
£m
32.4
(14.5)
(29.7)
(0.3)
(12.1)

2016/17
£m
25.9
(6.5)
14.9
(1.9)
32.4

In 2016/17 the Group recognised a deferred tax asset based on future taxable profits, derived from the latest Board approved forecasts.
The Group has not recognised deferred tax assets of £2.2m (2016/17: £2.6m) 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 (2016/17: £34.8m) relating to ACT and £42.1m (2016/17: £46.2m)
relating to capital losses. Under current legislation these can generally be carried forward indefinitely.
78

FINANCIAL STATEMENTSDeferred tax liabilities

At 3 April 2016
Current period credit/(charge)
Credited to other comprehensive income
Prior period credit/(charge)
– To statement of profit or loss
– To other comprehensive income
At 1 April 2017
At 2 April 2017
Current period credit/(charge)
Charged to other comprehensive income
Prior period credit
– To statement of profit or loss
At 31 March 2018

Deferred tax assets

At 3 April 2016
Current period credit/(charge)
Credited to other comprehensive income
Charged to equity
Prior year credit/(charge)
– To statement of profit or loss
– To equity
At 1 April 2017
At 2 April 2017
Current period credit/(charge)
Credit to other comprehensive income
Charged to equity
Prior period (charge)/credit
– To statement of profit or loss
At 31 March 2018

Net deferred tax (liability)/asset
As at 31 March 2018
As at 1 April 2017

Intangibles
£m
(61.4)
1.8
–

3.4
–
(56.2)
(56.2)
1.9
–

0.1
(54.2)

Accelerated tax
depreciation
£m
33.6
4.7
–
–

Share based
payments
£m
2.8
0.6
–
(1.8)

Financial
instruments
£m
2.0
(1.8)
–
–

9.1
–
47.4
47.4
3.0
–
–

(2.1)
48.3

(0.1)
(0.1)
1.4
1.4
(0.1)
-
(0.3)

–
1.0

(0.2)
–
–
–
–
–
–

–
–

Retirement
benefit
obligation
£m
(23.8)
(0.3)
4.9

(0.3)
1.6
(17.9)
(17.9)
(2.1)
(33.8)

–
(53.8)

Losses
£m
70.5
(10.2)
8.4
–

(11.9)
–
56.8
56.8
(3.7)
4.1
–

(14.6)
42.6

Other
£m
(0.2)
–
-

–
–
(0.2)
(0.2)
–
–

–
(0.2)

Other
£m
2.4
(1.2)
–
–

(0.1)
–
1.1
1.1
(3.1)
–
–

6.2
4.2

Total
£m
(85.4)
1.5
4.9

3.1
1.6
(74.3)
(74.3)
(0.2)
(33.8)

0.1
(108.2)

Total
£m
111.3
(7.9)
8.4
(1.8)

3.2
(0.1)
106.7
106.7

(3.9)
4.1
(0.3)

(10.5)
96.1

£m
(12.1)
32.4

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.

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Notes to the
financial statements
9. Earnings per share
Basic earnings per share has been calculated by dividing the profits attributable to owners of the parent of £7.2m (2016/17: £5.5m) 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 per share
Effect of dilutive potential ordinary shares:
– Share options
Weighted average number of ordinary shares for the purpose of diluted earnings per share

Earnings per share calculation

2017/18
Number
(000s)
836,818

4,872
841,690

2016/17
Number
(000s)
830,059

9,875
839,934

Profit after tax (£m)
Earnings per share (pence)

52 weeks ended 31 March 2018

52 weeks ended 1 April 2017

Basic
7.2
0.9

Dilutive effect of
share options

0.0

Diluted
7.2
0.9

Basic
5.5
0.7

Dilutive effect of
share options

0.0

Diluted
5.5
0.7

Dilutive effect of share options
The dilutive effect of share options is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of
all dilutive potential ordinary shares. The only dilutive potential ordinary shares of the Company are share options and share awards. A calculation is
performed to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the
Company’s shares) based on the monetary value of the share awards and the subscription rights attached to the outstanding share options.

No adjustment is made to the profit or loss in calculating basic and diluted earnings per share.

Adjusted earnings per share (“Adjusted EPS”)
Adjusted earnings per share is defined as trading profit less net regular interest, less a notional tax charge at 19.0% (2016/17: 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.

FINANCIAL STATEMENTSTrading 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 19.0% (2016/17: 20%)
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

10. Property, plant and equipment

Cost
At 2 April 2016
Additions
Disposals
Transferred into use
At 1 April 2017
Additions
Disposals
Transferred into use
At 31 March 2018
Aggregate depreciation and impairment
At 2 April 2016
Depreciation charge
Disposals
At 1 April 2017
Depreciation charge
Disposals
At 31 March 2018
Net book value
At 1 April 2017
At 31 March 2018

The Group’s borrowings are secured on the assets of the Group including property, plant and equipment.

52 weeks ended
31 March 2018
£m
123.0
(44.4)
78.6
(14.9)
63.7
836.8
7.6

52 weeks ended
1 April 2017
£m
117.0
(42.8)
74.2
(14.8)
59.4
830.1
7.2

(48.4)
(0.4)
4.0
0.4
(44.4)

Land and
buildings
£m

Vehicles, plant
and equipment
£m

Assets under
construction
£m

101.7
0.7
(0.9)
0.5
102.0
2.6
–
0.4
105.0

(37.5)
(1.9)
0.4
(39.0)
(2.4)
–
(41.4)

63.0
63.6

274.6
6.3
(1.3)
5.0
284.6
4.8
(5.1)
7.5
291.8

(157.8)
(14.3)
1.0
(171.1)
(14.2)
4.1
(181.2)

113.5
110.6

9.6
9.7
–
(5.5)
13.8
7.9
(2.8)
(7.9)
11.0

(2.8)
–
–
(2.8)
–
2.8
–

11.0
11.0

(49.5)
(0.6)
0.1
7.2
(42.8)

Total
£m

385.9
16.7
(2.2)
–

400.4
15.3
(7.9)
–

407.8

(198.1)
(16.2)
1.4
(212.9)
(16.6)
6.9
(222.6)

187.5
185.2

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018
Notes to the
financial statements
11. Goodwill

Carrying value
Opening balance
Fair value adjustments on acquisition of subsidiary
Impairment charge
Closing balance

Goodwill attached to each of the Group's CGUs is as follows:

Grocery
Knighton
Net carrying value of goodwill

As at
31 March 2018
£m

As at
1 April 2017
£m

650.3
–
(4.3)
646.0

649.8
0.5
–
650.3

As at
31 March 2018
£m
646.0

–
646.0

As at
1 April 2017
£m
646.0
4.3
650.3

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, the latest Board
approved forecasts in respect of the following two years and a fourth year approximating steady state is included. 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 2.2% (2016/17: 0.5%).

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 cash flows are extrapolated into perpetuity using growth assumptions relevant for the business sector.
The growth rate applied of 1.75% (2016/17: 2.00%) 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 31 March 2018, the pre-tax rate used to discount the forecasted cash flows has been determined to be 9.8% (2016/17: 9.8%).

FINANCIAL STATEMENTSSensitivity analysis
An illustration of the sensitivity to reasonably possible changes in key assumptions in the impairment test for the Grocery CGU is as follows:

Revenue growth
Divisional contribution margin
Long term growth rate
Discount rate

Reasonably possible change in assumption
Increase/decrease by 2.0%
Increase/decrease by 2.0%
Increase/decrease by 0.4%
Increase/decrease by 0.5%

Impact on value in use
Increase/decrease by £58.9m/£60.7m
Increase/decrease by £128.3m/£128.4m
Increase/decrease by £71.5m/£63.2m
Decrease/increase by £91.3m/£106.3m

Under each of the above sensitivities no individual scenario would trigger an impairment for the Grocery CGU.

Impairment charge
An impairment charge of £6.5m was recognised during the period (2016/17: £nil). This comprised of a £4.3m write off of goodwill relating to Knighton
Foods Investments Limited (“Knighton”) and a £2.2m impairment of intangible assets. See note 12 for further details. The goodwill impairment related
to Knighton and reflects the challenging trading conditions faced by the business. The impairment of intangible assets reflects the challenging market
conditions faced by the Lyons brand.

12. Other intangible assets

Cost
At 2 April 2016
Additions
Transferred into use
At 1 April 2017
Additions
Transferred into use
At 31 March 2018

Accumulated amortisation and impairment
At 2 April 2016
Amortisation charge
At 1 April 2017
Amortisation charge
Impairment charge
At 31 March 2018
Net book value
At 1 April 2017
At 31 March 2018

Software
£m

128.3
2.1
2.5
132.9
1.7
4.0
138.6

(83.3)
(12.2)
(95.5)
(13.1)
–
(108.6)

37.4
30.0

Brands/
trademarks/
licences
£m

Customer
relationships
£m

Assets under
construction
£m

693.2
–
–
693.2
–
–
693.2

(245.0)
(25.7)
(270.7)
(23.2)
(2.2)
(296.1)

422.5
397.1

134.8
–
–
134.8
–
–
134.8

(134.8)
–
(134.8)
–
–
(134.8)

–
–

2.8
3.8
(2.5)
4.1
1.2
(4.0)
1.3

–
–
–
–
–
–

4.1
1.3

All amortisation is recognised within administrative costs.

Included in the assets under construction additions for the period are £0.4m (2016/17: £1.3m) of internal costs.

The Group’s borrowings are secured on the assets of the Group including other intangible assets.

Total
£m

959.1
5.9
–
965.0
2.9
–
967.9

(463.1)
(37.9)
(501.0)
(36.3)
(2.2)
(539.5)

464.0
428.4

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Notes to the
financial statements
12. Other intangible assets continued
The material brands held on the balance sheet are as follows:

Bisto
Oxo
Batchelors
Sharwoods
Mr Kipling

Carrying value at
31 March 2018
£m
113.8
77.9
59.3
53.7
44.1

Estimated useful
life remaining
Years
19
29
19
19
19

13. 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 31 March 2018 is disclosed below.

Company
Premier Foods Investments No.1 Limited

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

Registered Address
Premier House
Griffiths Way
St Albans
Hertfordshire
AL1 2RE

% Held by Parent
Company of the
Group
100%

% held by Group
companies, if
different
N/A

Share Class
£1.00 Ordinary shares

Country
England &
Wales

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
£1.00 Ordinary shares
100%
£1.00 Ordinary shares
100%
£1.00 Ordinary shares
100%

FINANCIAL STATEMENTSCompany
Hovis Holdings Limited
Hovis Limited
00241018 Limited
DFL Oldco Limited
F.M.C. (Meat) Limited
Haywards Foods Limited
Kings Norton No.5 Limited
RLP Old Co Limited
Vic Hallam Holdings Limited
W & J B Eastwood Limited
Citadel Insurance Company Limited

% Held by Parent
Company of the
Group
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%

% held by Group
companies, if
Share Class
different
£0.01 Ordinary shares
49%
£0.01 Ordinary shares
49%
£1.00 Ordinary shares
100%
£1.00 Ordinary shares
100%
£0.25 Ordinary shares
100%
£1.00 Ordinary shares
100%
£1.00 Ordinary shares
100%
£1.00 Ordinary shares
100%
£0.25 Ordinary shares
100%
100%
£1.00 Ordinary shares
100% £1.00 Ordinary Shares

Daltonmoor Limited

100% £1.00 Ordinary shares

100% €0.5113 Ordinary shares Germany

100% £1.00 Ordinary shares

Scotland

100% USD$0.01 Common
Stock shares

United
States

100% €1.00 Ordinary shares
€1.26 Ordinary shares

Ireland

Diamond Foods Lebensmittelhandel GmbH

Premier Brands Limited

Premier Foods, Inc.

Premier Grocery Products Ireland Limited
Premier Foods Ireland Manufacturing Limited
14. Inventories

Raw materials
Work in progress
Finished goods and goods for resale
Total inventories

Inventory write-offs in the period amounted to £4.6m (2016/17: £4.7m).

The borrowings of the Group are secured against all the assets of the Group including inventories.

Country

Registered Address

Isle of Man

England &
Wales

Ioma House
Hope Street
Douglas
Isle of Man
IM1 1AP
2 Woolgate Court St
Benedicts Street
Norwich
Norfolk
NR2 4AP
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

As at
31 March 2018
£m
12.4
1.7
62.3
76.4

As at
1 April 2017
£m
13.8
2.9
54.6
71.3

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Notes to the
financial statements
15. 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
31 March 2018
£m
58.0
(4.4)
53.6
13.5
4.7
3.0
74.8

As at
1 April 2017
£m
53.8
(6.7)
47.1
12.5
5.1
0.4
65.1

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 31 March 2018, £30 million was drawn
(2016/17: £30 million).

16. Trade and other payables

Trade payables
Commercial accruals
Tax and social security payables
Other payables and accruals
Total trade and other payables

17. 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

Senior secured notes
Transaction costs

Total borrowings due after more than one year
Total bank and other borrowings

As at
31 March 2018
£m
(133.8)
(46.2)
(4.7)
(29.7)
(214.4)

As at
1 April 2017
£m
(132.5)
(38.6)
(5.0)
(15.6)
(191.7)

As at
31 March 2018
£m

As at
1 April 2017
£m

–
–
–

–
5.6
5.6

(535.0)
9.4
(525.6)
(520.0)
(520.0)

(21.2)
(0.1)
(21.3)

(22.0)
5.6
(16.4)

(500.0)
11.4
(488.6)
(505.0)
(526.3)

The Group entered into three year floating to fixed interest rate swaps in June 2014, with a nominal value of £150m amortising to £50m, attracting a
swap rate of 1.44%. This expired in December 2017.

FINANCIAL STATEMENTSSenior secured notes
The senior secured notes are listed on the Irish GEM Stock Exchange. The notes totalling £535m 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 £210m matures in July 2022 and attracts an interest
rate of 5.00% above LIBOR.

Revolving credit facility
Of the revolving credit facility of £217m, £34m is due to mature in March 2019 and £183m in December 2020. It 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 covenant package attached to the revolving credit facility is:

2018/19 FY
2019/20 FY

Net debt/EBITDA1
4.805
4.505

Net debt/Interest1
2.705
2.755

1. Net debt, EBITDA and Interest are as defined under the revolving credit facility.
18. 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, principally the euro. 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

The majority of the Group’s assets and liabilities are denominated in the functional currency of the relevant subsidiary.

52 weeks ended
31 March 2018
1.1406
1.1336

52 weeks ended
1 April 2017
1.1695
1.1903

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Notes to the
financial statements
18. Financial instruments continued
The table below shows the Group’s currency exposures as at 31 March 2018 and 1 April 2017 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.

Net foreign currency monetary assets:
– Euro
– US dollar
Total

Functional currency of
subsidiaries – Sterling

As at
31 March 2018
£m

As at
1 April 2017
£m

(8.2)
(0.0)
(8.2)

(7.1)
0.8
(6.3)

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
Total

As at
31 March 2018
£m
(33.2)
(33.2)

As at
1 April 2017
£m
(34.9)
(34.9)

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 remain constant
(2016/17: £0.1m increase).

If the US dollar were to strengthen against sterling by 20 US dollar cents, with all other variables held constant, profit after tax would remain constant
(2016/17: £0.1m decrease).

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 (2016/17:
£1.8m 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 £2.5m (2016/17:
£2.1m increase).

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.

(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 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.

FINANCIAL STATEMENTSThe 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 31 March 2018 the reset rate was 0.52125% (2016/17: 0.3439%), however this has no impact as the interest rate derivatives
expired in December 2017.

The weighted average interest rate for these derivative financial instruments is as follows:

52 weeks ended 31 March 2018
52 weeks ended 1 April 2017

Weighted average
interest rate %
1.4
1.4

In the year, fixed rate derivative financial liabilities constituted two floating to fixed interest rate swaps with a notional value of £25m each and a total
notional value of £50m. These matured in December 2017.

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 31 March 2018, for every 50 basis points reduction in rates below the last floating reset rate of 0.7859% (2016/17: 0.3439%) (based on three month
LIBOR) with all other variables held constant, annualised net interest expense would decrease by £1.1m (2016/17: £0.6m decrease).

At 31 March 2018, if interest rates were 200 basis points higher than the last floating reset rate of 0.7859% (2016/17: 0.3439%) (based on three month
LIBOR), with all other variables held constant, annualised net interest expense would increase by £4.2m (2016/17: £2.4m 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 31 March 2018, trade and other receivables of £12.9m (2016/17: £15.4m) were past due but not impaired. These relate to customers with whom
there is no history of default.

The ageing of trade and other receivables was as follows:

Fully performing
£m

1-30 days
£m

31-60 days
£m

61-90 days
£m

91-120 days
£m

120+ days
£m

Past due

Trade and other receivables
As at 31 March 2018
As at 1 April 2017

43.7
32.1

8.2
10.4

1.8
3.0

0.4
0.1

0.9
0.3

1.6
1.6

At 31 March 2018, trade and other receivables of £4.4m (2016/17: £6.7m) were determined to be specifically impaired and provided for. The total
includes receivables from customers which are considered to be experiencing difficult economic situations.

Total
£m

56.6
47.5

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 2 April 2017 / 3 April 2016
Receivables written off during the period as uncollectable
Provision for receivables impairment raised
As at 31 March 2018 /1 April 2017

2017/18
£m
6.7
(3.5)
1.2
4.4

2016/17
£m
19.8
(16.7)
3.6
6.7

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Notes to the
financial statements
18. Financial instruments continued
(c) Liquidity risk
The Group manages liquidity risk through the Group Finance function. 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.

The following table analyses the Group’s financial liabilities into relevant maturity groupings based on the contractual undiscounted cash flows.

At 31 March 2018
Trade and other payables
Senior secured notes – fixed
Senior secured notes – floating
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

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

(209.7)
–
–

(186.7)
(21.2)
–
–
–
(0.1)

–
–
–

–
–
–
–
(22.0)
–

–
(325.0)
–

–
–
–
(175.0)
–
–

–
–
-

–
–
(210.0)

–
–
(325.0)
–
–
–

–
–
–
–
–
–

–
–
–

–
–
–
–
–
–

Total
£m

(209.7)
(325.0)
(210.0)

(186.7)
(21.2)
(325.0)
(175.0)
(22.0)
(0.1)

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 31 March 2018 the Group had £202m (2016/17: £220m) of facilities not drawn, £34m expiring in less than one year and £168m expiring between two
and three years (2016/17: one and two 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
0.7859% (2016/17: 0.3439%) plus applicable margin).

At 31 March 2018
At 1 April 2017

Within 1 year
£m
13.1
10.3

1 and 2 years
£m
13.1
9.5

2 and 3 years
£m
12.8
9.4

3 and 4 years
£m
12.2

4 and 5 years
£m
4.1

–

Over 5 years
£m
–
–

Total
£m
55.3
29.2

FINANCIAL STATEMENTSThe 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 31 March 2018
Forward foreign exchange contracts:
– Outflow
– Inflow
Commodities:
– Outflow
Total derivative financial instruments
At 1 April 2017
Forward foreign exchange contracts:
– Outflow
– Inflow
Commodities:
– Outflow
Interest rate swaps:
– Outflow
– Inflow
Total derivative financial instruments

(33.1)
32.7

(0.6)
(1.0)

(34.9)
34.4

(1.8)

(0.7)
0.2
(2.8)

–
–

–

–
–
–

–
–

–

–
–
–

–
–

–

–
–
–

–
–

–

–
–
–

–
–

–

–
–
–

(33.1)
32.7

(0.6)
(1.0)

(34.9)
34.4

(1.8)

(0.7)
0.2
(2.8)

The above table incorporates the contractual cash flows of the interest rate derivatives with floating rates of interest calculated based on LIBOR of
0.7859% (2016/17: 0.3439%).

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Notes to the
financial statements
18. Financial instruments continued
(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. 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
– Commodity and energy derivatives
Financial liabilities at fair value through profit or loss:
Derivative financial instruments
– Forward foreign currency exchange contracts
– Interest rate swaps
Other financial liabilities
Financial liabilities at amortised cost:
Trade and other payables
Senior secured notes
Senior secured credit facility – revolving
Bank overdraft
Finance lease obligations

As at 31 March 2018

As at 1 April 2017

Carrying amount
£m

Fair value
£m

Carrying amount
£m

Fair value
£m

23.6
56.6

3.1
47.5

0.1

(0.4)
–
(1.7)

(209.7)
(535.0)
–
–
–

(0.4)
–
(1.7)

(209.7)
(539.3)
–
–
–

(0.5)
(0.4)
(2.0)

(186.7)
(500.0)
(22.0)
(21.2)
(0.1)

(0.5)
(0.4)
(2.0)

(186.7)
(502.9)
(22.0)
(21.2)
(0.1)

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
– Commodity derivatives
Financial liabilities at fair value through profit or loss:
Derivative financial instruments
– Forward foreign currency exchange contracts
– Interest rate swaps
Other financial liabilities
Financial liabilities at amortised cost:
Senior secured notes

As at 31 March 2018

As at 1 April 2017

Level 1
£m

Level 2
£m

Level 1
£m

Level 2
£m

–

–
–
–

0.1

(0.4)
–
(1.7)

–

–
–
–

(539.3)

–

(502.9)

0.1

(0.5)
(0.4)
(2.0)

–

FINANCIAL STATEMENTS

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 £0.1m has been credited to the statement of profit or loss in the period (2016/17: £2.1m charge).

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 £nil has been credited to the statement of profit or loss (2016/17: £1.1m 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 £0.4m has been credited to the statement of profit or loss in the period (2016/17: £0.6m credit). The interest rate swaps
expired in December 2017.

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.

(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 31 March 2018 (2016/17: £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 bank deposits
Net debt
Total equity
Total capital
Gearing ratio

As at
31 March 2018
£m
(520.0)
23.6
(496.4)
(949.3)
(1,445.7)
34%

As at
1 April 2017
£m
(526.3)
3.1
(523.2)
(792.8)
(1,316.0)
40%

Gearing is lower year on year due to a higher Pension Scheme surplus and lower debt levels.

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 30 September 2017 and 31 March 2018.

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Notes to the
financial statements
18. Financial instruments continued
(f) Financial compliance risk
Risk
The Group continues to operate with a high level of net debt of £496.4m (2016/17: £523.2m) 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 between 2020 and 2022.

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 function. 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.

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.

19. 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 are not included in note 24 and 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 0.99% and 1.77% (2016/17: 0.3% and 1.72%). The unwinding of the discount is
charged or credited to the statement of profit or loss under finance cost.

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
Utilised during the period
Additional charge in the period
Unwind of discount
Released during the period
At 31 March 2018

Property
£m
(32.8)
1.3
(1.5)
(5.6)
4.6
–
(34.0)
1.0
(1.0)
0.4
1.5
(32.1)

Other
£m
(20.8)
4.4
(5.7)
–
3.1
(0.1)
(19.1)
5.0
(1.2)
–
3.8
(11.5)

Total
£m
(53.6)
5.7
(7.2)
(5.6)
7.7
(0.1)
(53.1)
6.0
(2.2)
0.4
5.3
(43.6)

FINANCIAL STATEMENTSAnalysis of total provisions:

Non-current
Current
Total

As at
31 March 2018
£m
(35.7)
(7.9)
(43.6)

As at
1 April 2017
£m
(43.1)
(10.0)
(53.1)

20. 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 valuations 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. Actuarial valuations for the schemes based in Ireland took
place during the course of 2016 and 2017.

The exchange rates used to translate the overseas euro based schemes are £1.00 = €1.1336 for the average rate during the period,
and £1.00 = €1.1406 for the closing position at 31 March 2018.

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.

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Notes to the
financial statements
20. Retirement benefit schemes continued
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 2019. 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 schemes liabilities and certain of the assets. However, the liabilities may grow by more

in monetary terms, thus increasing the deficit in the scheme.
Inflation risk – the majority of the schemes liabilities increase in line with inflation and so if inflation is greater than expected, the liabilities will increase.

•

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 49% in respect of former active members who have yet to retire and approximately 51% in respect of
pensioner members already in receipt of benefits. The mean duration of the liabilities is approximately 19 years.

All pension schemes are closed to future accrual.

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 31 March 2018

At 1 April 2017

Premier
schemes
2.70%
3.15%
2.05%
n/a
2.10%

RHM
schemes
2.70%
3.15%
2.05%
n/a
2.10%

Premier
schemes
2.65%
3.30%
2.20%
n/a
2.15%

RHM
schemes
2.65%
3.30%
2.20%
n/a
2.15%

For the smaller overseas schemes the discount rate used was 1.80% (2016/17: 1.80%) and future pension increases were 1.45% (2016/17: 1.45%).

At 31 March 2018 and 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).

FINANCIAL STATEMENTS
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 31 March 2018

At 1 April 2017

Premier
schemes
87.6
89.5
88.6
90.7

RHM
schemes
85.8
88.3
86.7
89.5

Premier
schemes
87.7
89.5
88.8
90.8

RHM
schemes
85.9
88.3
86.8
89.5

A sensitivity analysis on the principal assumptions used to measure the scheme liabilities at the period end is as follows:

Discount rate
Inflation
Assumed life expectancy at age 60 (rate of mortality)

Change in assumption
Increase/decrease by 0.1%
Increase/decrease by 0.1%
Increase by 1 year

Impact on scheme liabilities
Decrease/increase by £77.1m/£79.1m
Increase/decrease by £30.4m/£40.1m
Increase by £193.6m

The sensitivity information has been derived using projected cash flows for the Schemes valued using the relevant assumptions and membership profile
as at 31 March 2018. Extrapolation of these results beyond the sensitivity figures shown may not be appropriate.

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018
Notes to the
financial statements
20. Retirement benefit schemes continued
The fair values of plan assets split by type of asset are as follows:

Premier
schemes
£m

% of
total

RHM
schemes
£m

% of
total

Total
£m

% of
total

Assets with a quoted price in an active market
at 31 March 2018:
UK equities
Global equities
Government bonds
Corporate bonds
Property
Absolute return products
Cash
Other
Assets without a quoted price in an active
market at 31 March 2018:
Infrastructure funds
Swaps
Private equity
Other
Fair value of scheme assets as at 31 March 2018
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

0.2
7.6
25.0
20.7
7.5
391.0
12.8
214.1

–
–
–
0.2
679.1

0.3
7.1
22.4
23.0
8.1
399.7
13.4
199.7

–
–
–
–
673.7

0.0
1.1
3.7
3.0
1.1
57.7
1.9
31.5

–
–
–
0.0
100

0.0
1.1
3.3
3.4
1.2
59.3
2.0
29.7

–
–
–
–
100

0.3
288.4
1,021.4
–
383.5
932.3
19.6
3.0

254.6
715.3
344.0
222.1
4,184.5

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

0.0
6.9
24.3
–
9.2
22.3
0.5
0.1

6.1
17.1
8.2
5.3
100

0.0
12.4
11.9
–
8.3
21.1
1.3
0.1

5.8
26.6
7.7
4.8
100

0.5
296.0
1,046.4
20.7
391.0
1,323.3
32.4
217.1

254.6
715.3
344.0
222.3
4,863.6

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

0.0
6.1
21.5
0.4
8.0
27.2
0.7
4.5

5.2
14.7
7.1
4.6
100

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

The RHM scheme invests directly in interest rate and inflation swaps to protect from fluctuations in interest rates and inflation.

FINANCIAL STATEMENTSThe 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

Premier schemes
£m
(1,116.1)
679.1
(437.0)

At 31 March 2018

RHM schemes
£m
(3,430.5)
4,184.5
754.0

Total
£m
(4,546.6)
4,863.6
317.0

Premier schemes
£m
(1,162.8)
673.7
(489.1)

At 1 April 2017

RHM schemes
£m
(3,597.0)
4,190.9
593.9

Total
£m
(4,759.8)
4,864.6
104.8

The aggregate surplus of £104.8m has increased to a surplus of £317.0m in the current period. This increase of £212.2m (2016/17: £26.1m decrease) is
primarily due to the gain on asset experience and the impact of the change in the financial assumptions on the defined benefit obligations.

Changes in the present value of the defined benefit obligation were as follows:

Defined benefit obligation at 2 April 2016
Interest cost
Current service cost
Remeasurement losses
Exchange differences
Benefits paid
Defined benefit obligation at 1 April 2017
Interest cost
Remeasurement gains
Exchange differences
Benefits paid
Defined benefit obligation at 31 March 2018

Premier
schemes
£m
(1,004.2)
(34.2)
–
(155.1)
(3.8)
34.5
(1,162.8)
(29.9)
36.6
(1.2)
41.2
(1,116.1)

RHM
schemes
£m
(3,207.8)
(110.6)
(0.1)
(437.8)
(2.0)
161.3
(3,597.0)
(93.0)
87.6
(0.7)
172.6
(3,430.5)

Total
£m
(4,212.0)
(144.8)
(0.1)
(592.9)
(5.8)
195.8
(4,759.8)
(122.9)
124.2
(1.9)
213.8
(4,546.6)

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018
Notes to the
financial statements
20. Retirement benefit schemes continued
Changes in the fair value of plan assets were as follows:

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
Interest income on plan assets
Remeasurement (losses) / gains
Administrative costs
Contributions by employer
Exchange differences
Benefits paid
Fair value of plan assets at 31 March 2018

The reconciliation of the net defined benefit (deficit)/surplus over the period is as follows:

(Deficit)/surplus in schemes at 2 April 2016
Amount recognised in profit or loss
Remeasurements recognised in other comprehensive income
Contributions by employer
Exchange differences
(Deficit)/surplus in schemes at 1 April 2017
Amount recognised in profit or loss
Remeasurements recognised in other comprehensive income
Contributions by employer
Exchange differences
(Deficit)/surplus in schemes at 31 March 2018

100

Premier
schemes
£m
584.2
20.2
54.0
(3.0)
49.2
3.6
(34.5)
673.7
17.3
(7.6)
(3.0)
38.6
1.3
(41.2)
679.1

Premier
schemes
£m
(420.0)
(17.0)
(101.1)
49.2
(0.2)
(489.1)
(15.6)
29.0
38.6
0.1
(437.0)

RHM
schemes
£m
3,758.7
130.2
462.3
(3.3)
2.5
1.8
(161.3)
4,190.9
108.6
58.2
(2.5)
1.2
0.7
(172.6)
4,184.5

RHM
schemes
£m
550.9
16.2
24.5
2.5
(0.2)
593.9
13.1
145.8
1.2
–
754.0

Total
£m
4,342.9
150.4
516.3
(6.3)
51.7
5.4
(195.8)
4,864.6
125.9
50.6
(5.5)
39.8
2.0
(213.8)
4,863.6

Total
£m
130.9
(0.8)
(76.6)
51.7
(0.4)
104.8
(2.5)
174.8
39.8
0.1
317.0

FINANCIAL STATEMENTS
Remeasurements recognised in the consolidated statement of comprehensive income are as follows:

Remeasurement gain/(loss) on plan liabilities
Remeasurement (loss)/gain on plan assets
Net remeasurement gain/(loss) for the period

Premier
schemes
£m
36.6
(7.6)
29.0

2017/18

RHM
schemes
£m
87.6
58.2
145.8

Premier
schemes
£m
(155.1)
54.0
(101.1)

2016/17

RHM
schemes
£m
(437.8)
462.3
24.5

Total
£m
124.2
50.6
174.8

Total
£m
(592.9)
516.3
(76.6)

The actual return on plan assets was a £176.5m gain (2016/17: £666.7m gain), which is £50.6m more (2016/17: £516.3m more) than the interest
income on plan assets of £125.9m (2016/17: £150.4m) at the start of the relevant periods.

The remeasurement gain on liabilities of £124.2m (2016/17: £592.9m loss) comprises a gain due to changes in financial assumptions of £83.9m
(2016/17: £747.3m loss), a gain due to member experience of £32.8m (2016/17: £112.6m gain) and a gain due to demographic assumptions of £7.5m
(2016/17: £41.8m gain).

The net remeasurement gain taken to the consolidated statement of comprehensive income was £174.8m (2016/17: £76.6 loss). This gain was £145.1m
(2016/17: £61.7m loss) net of taxation (with tax at 17% for UK schemes, and 12.5% for Irish schemes).

The Group expects to contribute between £6m and £10m 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 concluded that it has an unconditional right to a refund of any surplus in the RHM Pension Scheme once the liabilities have been
discharged and 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

Premier
schemes
£m

–
(3.0)
(12.6)
(15.6)

2017/18

RHM
schemes
£m

–
(2.5)
15.6
13.1

Premier
schemes
£m

–
(3.0)
(14.0)
(17.0)

2016/17

RHM
schemes
£m

(0.1)
(3.3)
19.6
16.2

Total
£m

–
(5.5)
3.0
(2.5)

Total
£m

(0.1)
(6.3)
5.6
(0.8)

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 (2016/17: £6.1m) represents contributions payable to the plans by the Group at rates specified in the rules of the plans.

101

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Notes to the
financial statements
21. Other liabilities

Deferred income
Other accruals
Other liabilities

Deferred income relates to amounts received in relation to a previously disposed business.

22. Reserves and share capital
Share premium
The share premium reserve comprises the premium paid over the nominal value of shares for shares issued.

As at
31 March 2018
£m
(9.8)
(0.2)
(10.0)

As at
1 April 2017
£m
(10.9)
(0.2)
(11.1)

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. 656,780 shares in Premier Foods plc were held by the Employee Benefit Trust at 31 March 2018, with a market value of £248,263
(2016/17: 250,420 shares with a market value of £110,185).

Share capital

At 2 April 2016
Shares issued under share schemes
At 1 April 2017
Shares issued under share schemes
At 31 March 2018

102

Number of
shares
826,567,063
5,903,615
832,470,678
8,151,539
840,622,217

Ordinary shares
@ nominal value
(£0.10/share)
£m
82.7
0.6
83.3
0.8
84.1

Share
premium
£m
1,406.6
0.1
1,406.7
0.9
1,407.6

Total
£m
1,489.3
0.7
1,490.0
1.7
1,491.7

FINANCIAL STATEMENTSShare award schemes
The Company’s share award schemes are summarised as follows:

1. 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.

2. 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 2015, 2016 and 2017 Performance Share awards are conditional on achievement of a combination
of absolute adjusted earnings per share targets and average share price targets.

3. 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.

4. 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.

5. 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

2017/18
Awards
–
–
–
–

2016/17
Awards
751,814
(751,814)
-
–

There were no awards outstanding at 31 March 2018 (2016/17: weighted average remaining contractual life of nil years). There were no awards granted
in the period (2016/17: weighted average fair value of awards granted of nil pence per award).

103

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

2017/18
Awards
27,787,947
9,759,169
(7,847,596)
29,699,520
6,146,066

2016/17
Awards
21,314,764
8,963,895
(2,490,712)
27,787,947
–

The awards outstanding at 31 March 2018 had a weighted average remaining contractual life of 0.9 years (2016/17: 1.1 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 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

2017/18
Awards
5,313,677
–
(4,647,811)
(292,161)
373,705
373,705

2016/17
Awards
13,145,634
308,430
(7,314,128)
(826,259)
5,313,677
938,156

The awards outstanding at 31 March 2018 had a weighted average remaining contractual life of nil years (2016/17: 0.3 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 year
Outstanding at the end of the period
Exercisable at the end of the period

2017/18
Awards
157,560
–
157,560
–

2016/17
Awards
–
157,560
157,560
–

The awards outstanding at 31 March 2018 had a weighted average remaining contractual life of 0.2 years (2016/17: 1.2 years). The weighted average fair
value of awards granted during the period was nil pence per award.

104

FINANCIAL STATEMENTSDetails 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

2017/18
Awards
1,463,000
(126,400)
(25,600)
(44,500)
1,266,500
–

2016/17
Awards
1,613,000
(45,250)
(52,750)
(52,000)
1,463,000
–

The awards outstanding at 31 March 2018 had a weighted average remaining contractual life of nil years (2016/17: 1.0 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

2017/18

2016/17

Options
20,231,334
(3,536,539)
4,988,669
(3,847,836)
17,835,628
792,451

Weighted
average exercise
price (p)
35
34
33
44
33
35

Options
16,999,242
(253,615)
6,046,060
(2,560,353)
20,231,334
1,074,318

Weighted
average exercise
price (p)
36
33
35
36
35
72

During the period 5.0 million (2016/17: 6.0 million) options were granted under the Sharesave Plan, with a weighted average exercise price at the date of
exercise of 33 pence per ordinary share (2016/17: 35 pence).

The options outstanding at 31 March 2018 had a weighted average exercise price of 35 pence (2016/17: 72 pence), and a weighted average remaining
contractual life of 1.6 years (2016/17: 1.1 years).

In 2017/18, the Group recognised an expense of £2.8m (2016/17: £4.5m), 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 31 March 2018

As at 1 April 2017

Weighted
average
remaining
contractual life
(years)
0.9
1.6
–
1.1

Weighted
average exercise
price (p)
10
33
–
18

Number
outstanding
31,497,285
17,835,628
–
49,332,913

Number
outstanding
34,722,184
20,231,334
–
54,953,518

Weighted
average
remaining
contractual life
(years)
1.0
1.1
–
1.0

Weighted average
exercise price (p)
10
35
–
19

105

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Notes to the
financial statements
22. Reserves and share capital continued
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.

23. Notes to the cash flow statement
Reconciliation of profit before tax to cash flows from operations

Profit before taxation
Net finance cost
Operating profit
Depreciation of property, plant and equipment
Amortisation of intangible assets
Loss on disposal of non-current assets
Impairment of intangible assets
Impairment of goodwill
Fair value movements on foreign exchange and other derivative contracts
Equity settled employee incentive schemes
(Increase) in inventories
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables and provisions
Movement in retirement benefit obligations
Cash generated from operations

Reconciliation of cash and cash equivalents to net borrowings

Net inflow/(outflow) of cash and cash equivalents
Decrease in finance leases
(Increase)/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

106

52 weeks ended
31 March 2018
£m
20.9
48.4
69.3
16.6
36.3
0.1
2.2
4.3
(0.1)
2.8
(5.1)
(10.2)
10.7
(37.5)
89.4

52 weeks ended
31 March 2018
£m
41.7
0.1
(13.0)
(2.0)
26.8
(523.2)
(496.4)

52 weeks ended
1 April 2017
£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

52 weeks ended
1 April 2017
£m
(25.9)
0.1
40.9
(4.1)
11.0
(534.2)
(523.2)

FINANCIAL STATEMENTSAnalysis of movement in borrowings

Bank overdrafts
Cash and bank deposits
Net cash and cash equivalents
Borrowings – revolving credit facilities
Borrowings – senior secured notes
Finance lease obligations
Gross borrowings net of cash1
Debt issuance costs2
Total net borrowings1

As at
1 April 2017
£m
(21.2)
3.1
(18.1)
(22.0)
(500.0)
(0.1)
(540.2)
17.0
(523.2)

Cash flows
£m
21.2
20.5
41.7
22.0
(35.0)
0.1
28.8
–
28.8

Other non-cash
movements
£m
–
–
–
–
–
–
–
(2.0)
(2.0)

As at
31 March 2018
£m
–
23.6
23.6
–
(535.0)
–
(511.4)
15.0
(496.4)

1. Borrowings exclude derivative financial instruments.
2.

The non-cash movement in debt issuance costs relates to the amortisation of capitalised borrowing costs only.

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 31 March 2018

As at 1 April 2017

Offset asset
121.1

Offset liability Net offset liability
23.6

(97.5)

Offset asset
126.3

Offset liability
(144.4)

Net offset asset
(18.1)

24. 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 31 March 2018

As at 1 April 2017

Property
£m
2.5
5.3
9.4
17.2

Plant and
Equipment
£m
1.8
1.9

–

3.7

Property
£m
3.3
6.8
10.2
20.3

Plant and
Equipment
£m
2.4
2.7

–

5.1

The Group has made provision for the aggregate minimum lease payments under non-cancellable operating leases.

The Group sub-lets various properties under non-cancellable lease arrangements. Sub-lease receipts of £0.2m (2016/17: £0.6m) were recognised in the
statement of profit or loss during the period. The total future minimum sub-lease payments at the period end is £0.2m (2016/17: £0.3m).

25. 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 31 March
2018 of £2.1m (2016/17: £1.8m).

107

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 FINANCIAL STATEMENTS

Notes to the
financial statements
26. Contingencies
There were no material contingent liabilities at 31 March 2018 (2016/17: none). Other contingencies and guarantees in respect of the Parent Company
are described in note 8 of the Parent Company financial statements.

27. 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 47 to 56.

Short term employee benefits
Post employment benefits
Share-based payments
Total

52 weeks ended
31 March 2018
£m
4.4
0.5
1.1
6.0

52 weeks ended
1 April 2017
£m
5.1
0.4
0.9
6.4

(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
– Nissin
Total sales
Purchase of goods:
– Hovis
– Nissin
Total purchases

52 weeks ended
31 March 2018
£m

52 weeks ended
1 April 2017
£m

0.3

0.7
0.1
1.1

11.9
7.1
19.0

0.4

0.7
0.2
1.3

12.6
–
12.6

As at 31 March 2018 the Group had outstanding balances with Hovis. Total trade receivables was £0.5m (2016/17: £0.7m) and total trade payables was
£2.5m (2016/17: £2.7m).

(c) Other related parties
As at 31 March 2018 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 19.57% (2016/17: 19.76%) equity shareholding
in Premier Foods plc and of its power to appoint a member to the Board of directors.

108

28. Subsequent events
On 15 May 2018 the Group announced the proposed issue of new five year £300m Senior Secured fixed rate notes due 2023, to refinance its £325m
existing Senior Secured fixed rate notes, due to mature March 2021. Pricing of the new £300m Senior Secured fixed rate notes is to be confirmed and
the notes are expected to be callable after two years.

The Group has also announced that it has extended the term of its revolving credit facility with its lending syndicate from December 2020 to December
2022, effective on the redemption of the existing Senior Secured fixed rate notes. The £217m facility, which was not drawn at 31 March 2018, is
expected to reduce by £41m to £176m. The interest margin under the revolving credit facility will reduce by twenty five basis points and the financial
covenants, which are tested bi-annually, are unchanged.

109

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 COMPANY FINANCIAL STATEMENTS

The following statements reflect the financial position of the Company, Premier Foods plc as at 31 March 2018 and 1 April 2017. 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

As at
31 March 2018
£m

Note

As at
1 April 2017
£m

4
6

12.8

10.7

1,296.9
2.2
2.1
1,314.0
(317.6)
983.6
996.4

84.1
1,407.6
(495.3)
996.4

1,279.2
2.1
0.8
1,292.8
(316.0)
966.1
976.8

83.3
1,406.7
(513.2)
976.8

The notes on pages 112 to 115 form an integral part of the financial statements.

The financial statements on pages 110 to 111 were approved by the Board of directors on 15 May 2018 and signed on its behalf by:

Gavin Darby
Chief Executive Officer

Alastair Murray
Chief Financial Officer

110

Statement of
changes in equity

At 2 April 2016
Profit for the period
Share-based payments
Shares issued
At 1 April 2017
Profit for the period
Share-based payments
Shares issued
At 31 March 2018

Called up
share capital
£m
82.7
–
–
0.6
83.3
–
–
0.8
84.1

Share premium
account
£m
1,406.6
–
–
0.1
1,406.7
–
–
0.9
1,407.6

Profit and loss
account
£m
(533.0)
15.7
4.1
–
(513.2)
15.1
2.8
–
(495.3)

Total
£m
956.3
15.7
4.1
0.7
976.8
15.1
2.8
1.7
996.4

111

INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 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.

COMPANY FINANCIAL STATEMENTS

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 £15.1m (2016/17: £15.7m 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.

112

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 (2016/17: £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 31 March 2018, the Company had two employees (2016/17: two).
Directors’ emolument disclosures are provided in the Single Figure Table
on page 47 of this annual report.

1. Accounting policies continued
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.

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INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018
COMPANY FINANCIAL STATEMENTS

Notes to the Company
financial statements
3. Investments in Group undertakings

Cost
At 2 April 2017 / 3 April 2016
Additions
At 31 March 2018 / 1 April 2017
Accumulated impairment
At 2 April 2017 / 3 April 2016
At 31 March 2018 / 1 April 2017
NBV at 31 March 2018 / 1 April 2017

2017/18
£m

2016/17
£m

1,770.0
2.1
1,772.1

(1,759.3)
(1,759.3)
12.8

1,765.8
4.2
1,770.0

(1,759.3)
(1,759.3)
10.7

In 2017/18 a capital contribution of £2.1m (2016/17: £4.2m) 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 13 in the Group financial statements for a full list of the undertakings.

4. Receivables

Amounts owed by Group undertakings

As at
31 March 2018
£m
1,296.9

As at
1 April 2017
£m
1,279.2

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 £396.8m (2016/17: £379.1m) which attracted interest at a rate of LIBOR plus 4.0% (2016/17: 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
31 March 2018
£m
(297.6)
(20.0)
(317.6)

As at
1 April 2017
£m
(296.0)
(20.0)
(316.0)

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 £31.0m (2016/17: £29.6m) which attracted interest at a rate of LIBOR plus 4% (2016/17: LIBOR plus
4.0%). Carrying value approximates fair value.

6. Deferred Tax

At 2 April 2017 / 3 April 2016
Credited to the statement of profit and loss
At 31 March 2018 / 1 April 2017

The deferred tax asset relates to share-based payments.

114

2017/18
£m
2.1
0.1
2.2

2016/17
£m
2.0
0.1
2.1

7. Called up share capital and other reserves
(a) Called up share capital

Issued and fully paid
840,622,217 (2016/17: 832,470,678) ordinary shares of 10 pence each

As at
31 March 2018
£m

As at
1 April 2017
£m

84.1

83.3

(b) Share-based payments
The costs reflect the Company’s share option schemes in operation. Further details are available in note 22 of the Group’s consolidated financial
statements.

The charge relating to employees of the Company amounted to £0.8m (2016/17: £0.3m). Further details of these schemes can be found in the Directors
Remuneration report on page 40 to 56.

8. 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 31 March 2018 is £0.8bn (2016/17: £0.8bn).

9. Subsequent events
There were no reportable events after the reporting period.

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INTRODUCTIONGOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTPremier Foods plc Annual Report for the 52 weeks ended 31 March 2018 Shareholder
notes

116

Additional
information

Shareholder enquiries
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

Company advisers
Statutory Auditor
KPMG LLP
15 Canada Square
London
E14 5GL

Corporate brokers
Credit Suisse
One Cabot Square
London
E14 4QJ

Jefferies
Vintners Place
68 Upper Thames Street
London
EC4V 3BJ

Financial PR Advisors
Maitland
13 King’s Boulevard
London
N1C 4BU

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 a
non-exclusive licence for use in other specified
territories) on a variety of ambient cake products.
Cadbury is a trademark of the Mondelēz
International Group.

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.

Premier Foods plc

Premier House
Centrium Business Park
Griffiths Way
St Albans
Hertfordshire
AL1 2RE

01727 815850

Registered in England and Wales No. 5160050