P
R
E
M
I
E
R
F
O
O
D
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
f
o
r
t
h
e
5
2
w
e
e
k
s
e
n
d
e
d
3
0
M
a
r
c
h
2
0
1
9
ANNUAL REPORT
FOR THE 52 WEEKS ENDED 30 MARCH 2019
WE CREATE THE FOOD THE NATION
LOVES MOST FOR MODERN LIFE
Group revenue
Trading profit1
£790.4m
£819.2m
£824.3m
£117.0m
£123.0m
£128.5m
2016/17
2017/18
2018/19
2016/17
2017/18
2018/19
Profit/(loss) before tax
£20.9m
£12.0m
2016/17
2017/18
£(42.7)m
Net debt2
£523.2m
£496.4m
£469.9m
2018/19
2016/17
2017/18
2018/19
Our Top 10 Brands
Financial and operational headlines
Full year revenue
up +0.6%
to £824.3m
Trading profit1
up +4.5%
to £128.5m
Statutory loss before tax
£(42.7)m; due to GMP
pension recognition and
impairment of intangible
assets
Net debt to EBITDA ratio2
reduced to
3.25
Logistics transformation
programme now completed
and performance returned
to normal
Mr Kipling revenue
increased
+12%
following brand relaunch
in the UK
A definition and reconciliation of non-GAAP measures to reported measure is set out on page 17.
1.
2. Net debt/EBITDA is EBITDA on an adjusted basis as defined on page 17.
Explore our report
INTRODUCTION
About Premier Foods
Chairman’s statement
STRATEGIC REPORT
Our Purpose, Values and Business
model
Chief Executive’s review
Strategy
Strategy in action
Key performance indicators
Operating and financial review
Being a responsible business
Risk management
02
03
04
05
06
07
08
10
18
26
GOVERNANCE
FINANCIAL STATEMENTS
Board of directors
Governance overview
Nomination Committee report
Audit Committee report
Other statutory information
Statement of directors’ responsibilities
Directors’ Remuneration report
32
34
37
38
41
43
44
Independent auditor’s report
Consolidated financial statements
Notes to the consolidated financial
statements
Company financial statements
Notes to the Company financial
statements
62
73
77
118
120
The director's report is comprised of pages 02 to 61.
01
Annual report for the 52 weeks ended 30 March 2019 INTRODUCTION 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 the nation loves most for modern life. And today you’ll find our brands in
94% 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 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.
Category
Flavourings &
Seasonings
Cooking Sauces &
Accompaniments
Quick Meals, Snacks
& Soups
Ambient Desserts
Ambient Cakes
Our brands
Bisto, OXO, Paxo
Sharwood’s, Loyd Grossman,
Homepride
Batchelors, Smash
Ambrosia, Bird’s, Angel Delight,
Mr Kipling, Cadbury
Mr Kipling, Cadbury, Lyons
Our market
position
No. 1
No. 1
No. 1
No. 1
Total3
market size
£480m
£977m
£454m
£405m
No. 1
£1,119m
In addition, the Group has a portfolio of other branded food products and a non-branded food
business which manufactures products, such as cakes and desserts, on behalf of many of the UK’s
leading food retailers. Our Knighton Foods ('Knighton') business manufactures and sells non-branded
powdered beverages and dessert products.
Expanding internationally
We’re also working hard to expand
internationally by finding new
markets for our brands around the
world – our International business
now accounts for around 6.5% of
Group revenue. We have significant
businesses in Ireland and Australia
with established relationships with
the major food retailers. In addition,
we see further opportunities for
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 New
Zealand, USA, South Africa and
Canada.
Strategic partnerships
Since we entered into a co-
operation agreement with Nissin
Foods Holdings Co., Ltd ('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 expand international
opportunities further for our brands
using Nissin’s global network.
In 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.
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 24 March 2019.
Institute of Grocery Distribution, UK Grocery June 2018.
2.
3. Kantar Worldpanel Total Market for the 52 weeks to 24 March 2019
02
UK Grocery channel value2
Hypermarkets
Supermarkets
Convenience
Discounters
Online
2018/19
£16.5bn
£89.1bn
£40.1bn
£23.0bn
£11.4bn
n
n
n
n
n
Premier Foods plc
Other responsibilities
The business’s policies, and progress on
their implementation, in relation to its social
responsibilities, including food safety, consumer
health, the environment and employee safety, are
set out on pages 18 to 25 of this report.
Thank you
I would like to extend my thanks to all of the
business’s partners, suppliers, customers and
colleagues for their continued support as the
Board looks to create increasing and sustainable
value from what is a good underlying business.
Keith Hamill OBE
Non-executive Chairman
14 May 2019
Chairman’s statement
Results
The results for the year to 30 March 2019 are
set out in the financial statements and discussed
in the operating and financial review. Revenue
reached £824.3m, an increase of 0.6%, and
adjusted profit before tax reached £88.0m.
Importantly the level of Net debt reduced by
£26.5m to £469.9m, with the EBITDA to Net
debt ratio improving to 3.2 times.
Strategic review
Premier Foods is generally a sound business,
with efficient manufacturing and well-known
brands which are being reinvigorated by
innovation. However, for historical reasons, its
financial position and the value of its equity are
affected by high levels of leverage in the form of
borrowings, a major deficit in one of its pension
schemes and the size of the total liabilities in all
the Group’s pension schemes, when compared
with the scale of the business.
On 27 February 2019, the Board announced
that, following discussions with the largest
shareholders, it had decided to conduct a review
of its strategic options for increasing shareholder
value. Work is continuing on this important
process and the Board will be providing updates
in due course.
Board changes
After six years as CEO, Gavin Darby stepped
down in January 2019. Alastair Murray is filling
that role on an interim basis and I thank him for
his work in undertaking that responsibility.
In conjunction with the announcement of the
Strategic Review, Daniel Wosner (of shareholder
Oasis Management Company Ltd), Orkun Kilic
(of shareholder Paulson & Co. Inc.) and Simon
Bentley joined the Board as non-executive
directors. To facilitate these changes, Ian Krieger
and Jennifer Laing retired, each having served
over six years on the Board as non-executive
directors. I would like to thank them for their
significant contributions.
These changes gave rise to some areas of non-
compliance with the UK Corporate Governance
Code, which the Board intends to remedy when
it is practical to do so.
Following the Board changes, and taking
account of the shareholding of Nissin Foods
Holdings Co., Ltd, shareholders holding
approximately 43.5% of the Company’s
share capital are represented on the Board.
However, the Board remains conscious of its
responsibility to take account of the interest
of all shareholders. It is also aware of its
responsibilities to all stakeholders, including
lenders, bond holders, employees and members
of the Group’s pension schemes.
"The Board has announced
that, following discussions with
the largest shareholders, it has
decided to conduct a review
of its strategic options for
increasing shareholder value.
Work is continuing on this
important process and the Board
will be providing updates in due
course."
Ambrosia
In November 2018, it was announced that the
business was considering a sale of the Ambrosia
brand, if it could obtain a satisfactory price.
In February 2019, it was announced that this
process had been concluded and that, in the
present business climate, it would not result in
a satisfactory financial outcome. I would like
to thank everyone involved for their hard work
during this process. Ambrosia has a strong
future growth plan which will be executed
as part of the Premier Foods business.
03
Annual report for the 52 weeks ended 30 March 2019 INTRODUCTION
Our Purpose, Values and Business model
Our purpose and values help guide us every day. They outline what we’re all about and the kind
of company we want to be.
Our purpose – We create the food
the nation loves most for modern life.
Our purpose reminds us what we’re here
to do – create great food our consumers
love, food that is tasty, easy to prepare and
reliable, with a meaningful heritage that
resonates with markets around the world.
We’re proud of our iconic brands and our
great products, and our purpose shows
how our food is at the heart of what every
colleague does every day.
Our values
We’re committed to creating a truly great
place to work. Our shared values give us a
common framework for decisions and help
guide us in the way we do things. They
were developed by our colleagues for
our entire business. We challenge each
other to live them day-by-day and doing
so forms a crucial part of the performance
appraisal of all colleagues.
We aim higher . . .
We’re determined to be the best,
consistently delivering at the highest level.
We champion fresh ideas . . .
We’re creative in what we do and how we
do it.
We are agile . . .
We’re energetic and act with pace.
We are united . . .
We achieve more when we work together.
We respect and encourage
one another . . .
We bring out the best in each other.
04
Business Model
As a business we believe we have certain
capabilities which set us apart from our
competitors. We have a broad range of category
leading British brands, we have the ability to
serve a wide range of customer channels in
both the UK and overseas and the capability
to manufacture a diverse range of products in
multiple formats.
We have a unique portfolio of British brands
which are well-loved by the British consumer.
We put the consumer at the heart of everything
we do and use our insights to create innovative
new products that meet consumers’ needs.
We build strong relationships with our customers
and build joint plans for mutual growth. We are
able to service a full range of customers from the
major retailers, discounters, convenience, food
service, wholesale and international markets.
Our manufacturing capability gives us the scope
to manufacture a diverse range of products from
sauces, powder mixes, desserts and cakes in
a range of formats from tins, jars, pouches and
cartons. We have an experienced management
team who have a deep understanding of today’s
food industry and a workforce with many years
of experience in manufacturing and product
development.
BRANDS
CUSTOMERS
OPERATIONS
• Ability to serve a wide
• Excellent operational
• Unique portfolio of
leading 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 BUSINESS
Being a responsible business
Being responsible and sustainable underpins our business model 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. We are proud of our leading standards of both food safety and
Health and Safety. Further information on our responsibilities can be found on pages 18 to 25.
The strategic report on pages 04 to 31 was approved by the Board of directors on 14 May 2019
and signed on its behalf by
Alastair Murray
Acting CEO & Chief Financial Officer
Premier Foods plc Chief Executive’s review
At the end of a year which has posed some
significant challenges, I am pleased to be able
to report on a set of results in which many
of the key financial metrics have moved in a
positive direction and both Trading profit and
Net debt have exceeded market expectation.
Trading profit grew by 4.5% to £128.5m and
we delivered a £26.5m reduction in Net debt,
improving our gearing to a ratio of 3.2 times Net
debt to EBITDA.
Our UK growth strategy made good progress in
strengthening our core stable of brands whilst
innovating through new products that make
consumers' lives easier. Driven from a bedrock
of consumer insight, our innovation strategy
is focused around four key consumer trends:
Health and Nutrition; Convenience; Snacking/
On-the-go; and Indulgence.
Our biggest brand, Mr Kipling, returned to
TV screens for the first time in two years with
an advertising campaign focused on bringing
exceedingly good moments of unexpected joy
to everyday life. This much-loved brand also
launched a Health and Nutrition version of an
established cake range, with 30% reduced sugar
Angel and Chocolate Slices.
In Grocery, Batchelors continued to build on
the positive momentum of last year, as it gained
further traction with consumers both from its
core range and its range of convenient pot
products: Super Noodles; Pasta n Sauce; Soup
to Go; and Super Rice & Sauce. This pots range
continued to deliver strong growth in the year,
increasing both volume and revenue by over
40%. Nissin's Soba noodles and Cup Noodle
products also grew strongly in the year, up nearly
+60% compared to the prior year.
Meanwhile, Cadbury Cake brought the familiar
Easter indulgence of Cadbury Crème Egg to the
cake family, with the launch of Cadbury Crème
Egg cupcakes.
As a business, our innovation as a percentage of
branded sales increased to 6.7% from 6.4% in
2017/18. This is testament to our rapid speed to
market, as demonstrated with the launch of Mr
Kipling unicorn slices, which hit shelves in less
than four months after spotting this on demand
trend.
“Premier Foods has delivered
consistent progress over the last
two years, growing Revenue,
Trading profit, adjusted earnings
and reducing Net debt. In the
last year, Mr Kipling, Ambrosia,
Batchelors, Sharwood’s and
Nissin's Soba noodles all
displayed healthy growth and,
together with the strength of
our customer relationships,
we increased Trading profit
by 4.5%.”
In our International business, high customer
stock levels in Australia resulted in reduced
cake sales to this market. In addition, we
implemented price rises to export wholesalers
to ensure competitive pricing across all markets.
As a result of these two factors, which are not
expected to repeat, International sales fell by
12.5% in the year. Nonetheless, Sharwood’s
and Mr Kipling remain strong performers for
international markets, particularly in Australia and
the USA. We are confident the business has the
right plan in place for growth in the coming year,
including an exciting launch into the Caribbean
territories of Jamaica and Trinidad & Tobago.
It was a particularly challenging year for
distribution, with our logistics transformation
programme experiencing significant issues,
impacting sales volumes and efficiencies.
These operational challenges have now been
addressed and service levels have returned to
normal, so our focus is once again on improving
cost efficiency. I would like to thank our
customers for their patience and understanding
during this period.
In common with most other food companies, we
made thorough preparations for the eventuality of
a no-deal Brexit on 29 March 2019, including new
packaging artwork, alternative arrangements for
exporting to the EU and a build-up of inventories.
Most of these actions will remain useful for the
future and we will continue to monitor political
developments over coming months and will take
further actions as appropriate.
In closing, I would just like to thank all colleagues
for their enormous contribution over the past year.
Despite a backdrop of many potential distractions,
the core UK branded business is performing well
as we look to increase capital and consumer
marketing investment during 2019/20. This
underlying performance gives us good momentum
and confidence for the year ahead.
Alastair Murray
Acting CEO &
Chief Financial Officer
14 May 2019
05
Annual report for the 52 weeks ended 30 March 2019 STRATEGIC REPORT Strategy
Our strategy is divided into three main pillars: (i) to drive revenue growth by pursing an innovation
strategy and international opportunities, while fostering strong and established customer relationships
in the United Kingdom; (ii) to improve the Group’s organisational efficiency and lower its cost base;
and (iii) to maintain strong cash flow generation. The aim of this strategy is to deleverage the business
and the Group is targeting a Net debt to adjusted EBITDA ratio below 3.05.
Drive revenue growth
We have a portfolio of well-loved British
brands, many of which have leading
sales positions in their respective product
categories. We aim to deliver growth of
these brands ahead of category trends
through advertising and marketing these
brands, and developing and introducing
new branded products to the market.
The Group continuously works to further
develop relationships with its customers
by focusing on customer service, brand
investment, product innovation and
category management expertise. There
are further opportunities for growth by
expanding the Group’s brand portfolio in
selected international markets and though
our strategic partnerships with Nissin and
Mondelēz International.
Cost control & efficiency
Improving the efficiency and cost base of our
operations remains an important objective
of the Group. In our factories, we continue
to invest in capital projects designed to
reduce cost as well as supporting product
innovation. During the year, we completed
the implementation of a major logistics
transformation programme to consolidate
all our physical distribution arrangements
in one central UK location. Although we
experienced some early challenges with
the solution, these are now resolved and
the future focus is on driving further cost
efficiencies in this area. Elsewhere in the
business, we continue to maintain a tight
control on SG&A costs where we aim to
maximise the proportion of resource focused
on revenue generating activities.
Cash generation
Delivery of consistent cash generation remains
an important objective across the business.
We have recovery plans with our pension
funds which recognise the importance of
balancing the competing demands on the
Group’s free cash flow. In 2019/20, we expect
to be able to raise investment in the business
through capital expenditure and consumer
marketing whilst still delivering a meaningful
reduction in Net debt.
DRIVE REVENUE GROWTH
COST CONTROL & EFFICIENCY
CASH GENERATION
• Logistics restructuring programme
• Manufacturing cost savings
programmes
• Capital projects
• Margin enhancement initiatives
• Maintain SG&A as a % of revenue
• Tightly focused capital expenditure
• Maintain affordability of pension deficit
contributions
• Disciplined working capital
management
• 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
06
Premier Foods plc 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
Products that meet
consumers' needs
International
Expanding into new
international territories
Strategic partnerships
Delivering continued
momentum
Cost control & efficiency
Logistics restructuring
programme completed
Our innovation strategy is built
on an in-depth consumer
understanding, focused on four
key trends: Health and Nutrition;
Convenience; Snacking/On-
the-go; and Indulgence. 77% of
new products launched this year
had a claimable health benefit,
such as the new Mr Kipling and
Ambrosia ranges with 30% less
sugar. We continued the growth
of our convenience ranges with
Loyd Grossman Pasta Italia pots
and Sharwood’s Noodle pots.
In addition, the major brand
relaunch for Mr Kipling, with new
packaging and media support,
resulted in revenue growth of
+12%.
New products now
account for 6.7% of
branded sales
Revenue growth from
Mr Kipling was up +48%
and Sharwood’s was up
+14%, largely due to strong
performances in Australia.
Our new Mr Kipling packing
design was rolled out to key
markets in Australia, North
America, New Zealand and
South Africa. In addition, we
launched Cadbury cake in
South Africa.
After identifying the Caribbean
as a growing market for cake,
we have now launched a
core range of both Mr Kipling
and Cadbury in Jamaica and
Trinidad & Tobago.
Revenue growth
from Mr Kipling up
+48%
Continued progress from
our relationship with Nissin
with the national extension of
Cup Noodle distribution and
continued growth of Soba
noodle products which are
now available in Ireland’s three
biggest retailers.
Innovation aligned to
indulgence has resulted in
a range of new products for
2019, leveraging our strategic
global partnership with
Mondelēz International, with
the launch of new cupcake
ranges under the Cadbury
Oreo and Freddo brands.
Nissin Soba noodles
and Cup Noodle up
+58%
Phase three of our logistics
transformation project
experienced some significant
challenges in the year.
However, the consolidation of
our logistics operations to a
single provider at Tamworth
has now been completed and
customer service levels have
returned to normal. Further
work is now underway to
explore cost optimisation and
efficiency benefits.
We are also planning to
increase investment in the
coming year through targeted
growth initiatives, including
additional manufacturing
flexibility and capacity.
£25m targeted for
capital investment
07
Annual report for the 52 weeks ended 30 March 2019 STRATEGIC REPORT 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 on the
delivery of our key strategic priorities. They are used to measure performance, highlight areas for attention and corrective action, as well as recognising
good performance and celebrating success. Trading profit and Net debt also form part of management’s bonus objectives, and an overview of how
remuneration links to our strategy is set out on page 45.
Group revenue
Year-on-year growth in
revenue.
Trading profit
Trading profit is defined in the
operating and financial review
on page 17.
Net debt to adjusted
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 17.
Free cash flow
Free cash flow is defined in
the operating and financial
review on page 17.
£790.4m £819.2m £824.3m
£117.0m £123.0m
£128.5m
3.93
£28.8m
£29.2m
3.56
3.23
£15.1m
2016/17
2017/18
2018/19
2016/17
2017/18
2018/19
2016/17
2017/18
2018/19
2016/17
2017/18
2018/19
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 0.6% in the full year to
£824.3m. This growth was
driven by Mr Kipling, our largest
brand, growing +12% following
its successful brand relaunch in
the UK. Additionally, Ambrosia,
Batchelors, Sharwood’s and
Soba all delivered healthy
growth.
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 4.5% in the year. This
improvement was driven
primarily by the branded
revenue growth in the Grocery
business unit.
Why is this important?
This ratio is the key metric
used by the Group in
measuring its debt level
relative to the overall
performance of the business.
Progress we’ve made
Net debt reduced by £26.5m
from £496.4m in 2017/18 to
£469.9m in 2018/19. As a
result of this deleveraging and
EBITDA growth, the ratio of
Net debt to EBITDA reduced
from 3.65 to 3.25. The Group
is targeting a Net debt to
EBITDA ratio below 3.05.
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 of £29.2m
in 2018/19 was broadly in
line with last year. Cash flow
benefits from the increase
in Trading profit, Hovis cash
receipt and timing benefit from
interest payable on the £300m
fixed rate notes due October
2023 were offset by an
increase in cash flows related
to restructuring costs and early
redemption of the £325m fixed
rate notes due March 2021.
08
Premier Foods plc Environmental and Health and Safety performance is reported in more detail in the section on being a responsible business on pages 18 to 25. Following
a review in the year, we have launched a new responsibility programme based around five key pillars (see page 18 for further details). As a result, our KPI
on 'better-for-you' choices will be replaced by a new nutritional measure based on extending our range of healthier foods within our core range.
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 30 March 2019 and
31 March 2018).
Grocery
Sweet Treats
24.6% 24.5%
22.0% 22.4%
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.
8.8%
7.9%
8.2%
% 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.
93%
86%
95%
78%
82%
77%
2017/
18
2018/
19
2017/
18
2018/
19
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
broadly flat in the year. We again
saw share gains in our Quick
Meals, Snacks and Soups
category, following the continued
popularity of our convenient
pots ranges. While we lost some
share in Ambient Desserts, this
improved in the second half of
the year. In Sweet Treats, we
have grown share following the
successful brand relaunch of our
largest brand, Mr Kipling.
2016/17
2017/18
2018/19
2016/17
2017/18
2018/19
2016/17
2017/18
2018/19
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
increased slightly in the year
to 8.2%, as a result of inflation
and as we invested further in
revenue generating resource.
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
improved in the year, reflecting
an increase in the quality of our
branded products, following the
introduction of a new programme
focused on the Group's 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 four-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 business
on page 18.
Progress we’ve made
Over the course of the period,
77% of new product launches
within our Grocery portfolio
delivered a claimable nutritional
benefit (ahead of our annual
target of 75%) and none of these
products had a red traffic light on
front of pack, which signposts
that the products are not high in
fat, saturated fat, sugar or salt.
09
Annual report for the 52 weeks ended 30 March 2019 STRATEGIC REPORT Operating and financial review
Premier Foods has delivered consistent progress over the last two years, growing revenue,
Trading profit, adjusted earnings and reducing Net debt.
In the last year, Mr Kipling, our largest brand, grew +12% following its successful brand relaunch in
the UK and in addition Ambrosia, Batchelors, Sharwood’s and Nissin's Soba noodles also displayed
healthy growth. While we saw a decline in International revenue and experienced significant
operational challenges with the final phase of our logistics transformation programme, our improved
structural resilience still resulted in us growing Trading profit by 4.5%.
Revenue
Group revenue (£m)
Branded
Non-branded
Total
% change
Branded
Non-branded
Total
Group revenue for the 52 weeks ended 30 March
2019 was £824.3m, up +0.6% compared to
the prior year. Branded revenue grew by +1.4%
to £679.2m while non-branded revenue was
(2.7%) lower at £145.1m. In the second half of
the year, Group revenue was 0.1% higher than
the comparative period. A stronger fourth quarter
saw revenue grow +3.1%, benefitting slightly
from Brexit related stock build by customers and
followed a weaker third quarter when revenue
was (2.2%) lower.
Grocery business unit revenues increased
by +1.3% in the year to £597.0m; within this
branded revenue was flat as strong momentum
in the UK was offset by a softer International
performance. Non-branded revenue increased
+8.6% to £98.7m. In the Sweet Treats business,
full year revenues were £227.3m, a (1.2%)
decrease on the prior year as branded revenue
growth of +5.3% was offset by non-branded
revenue which was (20.3%) lower.
Grocery
Sweet Treats
498.3
98.7
597.0
0.0%
+8.6%
+1.3%
180.9
46.4
227.3
+5.3%
(20.3%)
(1.2%)
Group
679.2
145.1
824.3
+1.4%
(2.7%)
+0.6%
Sweet Treats
A major contributor to the branded revenue result
was due to the growth of the Group’s largest
brand, Mr Kipling. At a Group level, Mr Kipling saw
revenue increase by +12%, with UK revenue up
+10% and International markets ahead +48%. In
the UK, Mr Kipling benefitted from a major brand
relaunch, including an updated pack design and
brand logo, television advertising, and supported
by new product development such as Unicorn and
Flamingo slices. Internationally, the brand enjoyed
particular success in Australia and the USA. While
Cadbury cake sales in the UK were lower due
to the timing effects of Easter and the impact of
discontinuing some low margin product lines, the
core portfolio enjoyed good growth.
Looking to 2019/20, the Group is set to launch
a premium range of Mr Kipling ‘Signature’
cakes with variants such as After Dinner Mint
Fancies and Chocolate, Caramel & Pecan
slices. The Group is also planning to introduce
some exciting new lines under Cadbury cakes
in 2019/20. Ranges include new Cadbury cake
slices, Oreo cupcakes and Freddo cupcakes.
Grocery
Batchelors entered the year with strong
momentum having delivered revenue growth of
+11% in 2017/18 compared to the prior year.
In 2018/19, Batchelors continued to build on
this momentum as it gained further traction with
consumers with its range of convenient pot
products: Super Noodles; Pasta n Sauce; Soup
to Go; and Super Rice & Sauce. This pots range
continued to deliver strong growth in the year,
increasing both volume and revenue by over
40%. Nissin's Soba noodles and Cup Noodle
products also grew strongly in the year, up
nearly +60% compared to the prior year.
Angel Delight was another brand in the portfolio
which continued its momentum from the prior
year into 2018/19, delivering growth of 15%;
building on the popularity of ready to eat pots
with consumers. Elsewhere in the Desserts
category, Ambrosia staged a year of recovery,
with growth of 7% in the second half of the year,
benefitting from stronger instore activity and
execution in major retail customers.
Sharwood’s also saw revenue increase in the
year, with growth of over 7% and as with
Mr Kipling, this good progress was replicated
in both UK and International markets. Key to
the success in the UK was excellent instore
execution at major retailers during the second
half of the year and especially for the Chinese
New Year event in the fourth quarter of the
year. Sharwood’s plans for the coming year
include the launch of Sharwood’s Rice pots,
Curry pastes and extension of premium cooking
sauces in pouches. Loyd Grossman cooking
sauces saw lower sales in the year as it cut back
on low margin promotional activity.
During the Group’s second financial quarter of
the year, the UK experienced a prolonged period
of hot weather, with average temperatures in
July and August significantly higher than the
equivalent months last year. Consequently, the
majority of the Group’s categories – some of
which are biased to perform more strongly in
colder weather – saw value declines in both July
10
Premier Foods plc and August. Bisto gravy and Ambrosia custard
were the branded products most affected by
this temperature pattern during the second
quarter.
The Group is committed to developing ‘better-
for-you’ choices across its portfolio. This means
providing a meaningful (typically 30%) reduction
in sugar, salt, fat or calories; or no added sugar
or salt; or a 'free from' option such as gluten
free. Alongside this, the Group is aiming to
increase the proportion of its new product
development which delivers ‘better-for-you’
options or which help consumers improve their
diet. One of the Group’s key targets in this area
is to remove 1,000 tonnes of sugar from its
portfolio by the end of 2019.
In 2019/20, the Group plans to launch a fresh
new brand ‘Plantastic’. Under this exciting new
brand, the Group will launch a cross category
range of products using plant-based ingredients,
targeting the growing trend of consumers
looking for plant-based and vegan products.
The products are planned for launch during the
course of this financial year in the Desserts,
Cake and Soup categories. In terms of the
supply chain, these products will be sourced
from a combination of in-house manufacturing
and co-manufacturer partners.
International
The Group’s International business did not
enjoy the same universal success during the
year as it had in the previous three years as
revenue fell (12.5%). Cadbury cake sales were
adversely affected in the year by elevated stock
levels in Australian customers’ supply chains; a
situation which has now normalised. Retail sales
of Cadbury cake in Australia, as measured by
market share data, continue to show progress
compared to the prior year, with sales up
+8.9%. Including Mr Kipling cake, the Group’s
share of branded cake in Australia increased
from 6.8% to 7.5% in the year.
Additionally, price increases implemented for UK
wholesalers who export some of the Group’s
products also resulted in significantly lower
sales.
Sharwood’s and Mr Kipling saw good
performances, with increased revenue outside
the UK of +14% and +48% respectively. Much
of this benefit was seen in Australia; Sharwood’s
enjoyed increased distribution in customers of
the core product range and Mr Kipling continued
to perform well, also growing market share.
Looking ahead to 2019/20, the International
business has just entered two new markets
with the launch of both Mr Kipling and Cadbury
cakes in Jamaica and Trinidad & Tobago. The
Group also plans to extend its distribution of
Mr Kipling cake in the USA and Canada and
both Mr Kipling and Cadbury cake in South
Africa during 2019/20. Additionally, leveraging
the strategic partnership with Nissin, a range of
Sharwood’s noodle pots are to be launched in
Australia during the year.
Non-branded
In non-branded, revenue growth of +8.6% in
the Grocery business was due to contract wins
in cooking sauces, stuffing and noodles and
an improved performance at our business-to-
business subsidiary Knighton. In Sweet Treats,
revenue was (20.3%) lower. Following a very
strong set of performances over recent years in
non-branded cake, the Group exited some lower
value pies and tarts contracts and saw some
shelf space conceded to branded products
which resulted in lower revenues. Revenue was
also heavily impacted by capacity constraints
in the second and third quarters of the year
during the final phase of the Group’s logistics
transformation programme.
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 profit
£m
Divisional contribution2
Grocery
Sweet Treats
Total
Group & corporate costs
Trading profit
2018/19
2017/18
Change
138.3
23.6
161.9
(33.4)
128.5
130.0
25.8
155.8
(32.8)
123.0
+6.3%
(8.4%)
+3.9%
(1.8%)
+4.5%
The Group reported Trading profit of £128.5m in the year, growth of £5.5m, up +4.5% compared to
2017/18. Divisional contribution increased by £6.1m to £161.9m. The Grocery business recorded
Divisional contribution growth of £8.3m to £138.3m while Sweet Treats Divisional contribution was
£2.2m lower than the prior year at £23.6m. Group & corporate costs were £0.6m higher than the
prior year.
In the first half of the year, Grocery Divisional contribution benefitted from previous changes in the
promotional strategy of Ambrosia. The business reduced the depth of promotional deals it offered
which resulted in lower volumes and revenue in the period but growth in Divisional contribution.
Additionally, Divisional contribution margins in the Grocery business grew 2.1 percentage points in
the first half compared to the prior year. This is in line with margins two years ago, whereby margins
in the prior year were impacted by a longer than expected process to recover input cost inflation
seen across the Group’s categories.
11
Annual report for the 52 weeks ended 30 March 2019 STRATEGIC REPORT Operating and financial review
With recovery of this input cost inflation
complete, the second half of the year saw the
benefits of UK branded revenue growth flow
through to Divisional contribution, partly offset by
increased warehousing and distribution costs.
Consumer marketing investment was slightly
lower compared to the prior year, although
the Group expects to significantly increase its
investment in this area in 2019/20 with five of
the Group’s major brands to benefit from media
advertising in the year.
The results of the International and Knighton
business units are consolidated in the results of
the Grocery business unit. Knighton delivered
Divisional contribution improvement in the year
and overall delivered strong progress with its
turnaround programme.
In Sweet Treats, the revenue benefits following
the successful Mr Kipling brand relaunch
were offset at the Divisional contribution level
by lower non-branded sales volumes and
challenges experienced with the Group’s logistics
transformation programme. The third and final
phase of this programme, the transfer of Sweet
Treats to a new third-party managed warehouse
in Tamworth, completed at the end of the second
quarter of the year but did not initially achieve the
required performance. These issues adversely
impacted both sales volume and efficiency in
the second and third quarters, however these
issues have now been resolved and customer
service levels returned to normal levels in the
fourth quarter of the year. Further work is now
underway to optimise the cost base in this area.
Operating profit
£m
Adjusted EBITDA3
Depreciation
Trading profit
Amortisation of intangible assets
Fair value movements on foreign exchange
and derivatives
Net interest on pensions and administrative
expenses
Non-trading items
GMP equalisation
Restructuring costs
Impairment of goodwill and intangible assets
Other
Operating profit
The Group reports an operating profit of £4.5m
for 2018/19, compared to £69.3m in the prior
year. The growth in Trading profit of £5.5m in
the year, as outlined above, was offset by an
impairment of goodwill and intangible assets
of £30.6m and costs of £41.5m relating to the
recognition of Guaranteed Minimum Pension
('GMP') charges.
Amortisation of intangibles was £1.9m lower
than 2017/18 due to certain SAP software
modules becoming fully amortised in the
year. Fair valuation of foreign exchange and
derivatives was a charge of £1.3m in the year.
The Group recognised £41.5m of estimated
costs in the year associated with the equalisation
of GMP for pension benefits accrued between
1990 and 1997. This follows a judgement case
of Lloyds Banking Group on 26 October 2018
which referred to the equal treatment of men
and women who contracted out of the State
Earnings Related Pension Scheme between
these dates. It should be noted that the final
cost will differ to the estimated cost when the
actual method of equalisation is agreed between
the scheme Trustees in due course. Any future
and final adjustment to the cost recognised in
2018/19 will be reflected in the Consolidated
statement of comprehensive income. All UK
companies who operated defined benefit
pension schemes during these dates will be
affected by this ruling. Of this £41.5m non-cash
2018/19
145.5
(17.0)
128.5
(34.4)
(1.3)
(1.3)
(41.5)
(16.8)
(30.6)
1.9
4.5
2017/18
139.6
(16.6)
123.0
(36.3)
0.1
(2.5)
–
(8.5)
(6.5)
–
69.3
Change
5.9
(0.4)
5.5
1.9
(1.4)
1.2
(41.5)
(8.3)
(24.1)
1.9
(64.8)
charge, approximately two-thirds relates to the
RHM pension scheme and the balance relates to
the Premier Foods pension schemes.
Restructuring costs were £16.8m in the year; an
£8.3m increase on the prior year and included
circa £14m associated with the consolidation
of the Group’s logistics operations to one
central location in the year due to higher
than anticipated implementation costs. This
programme has now completed and the Group
does not expect to incur any further restructuring
costs associated with this programme.
Advisory fees associated with strategic reviews
and corporate activity were also included in
restructuring costs in the year. Other non-trading
items of £1.9m refer to a past service pension
credit of £3.9m due to inflation increases
no longer required in a smaller Irish pension
scheme, partly offset by costs related to the
departure of previous CEO Gavin Darby.
Net interest on pensions and administrative
expenses was a charge of £1.3m. Expenses
for operating the Group’s pension schemes
were £10.3m in the year, offset by a net interest
credit of £9.0m due to an opening surplus of the
Group’s combined pension schemes.
12
Premier Foods plc An impairment charge of £30.6m was recognised in the year and related to
impairment of Sharwood’s and Saxa intangible brand assets to ensure the
carrying value of the brand on the balance sheet reflects the Group’s latest
view on brand valuation. The prior year charge of £6.5m was due to the
write-off of Knighton goodwill and Lyons intangible brand asset. Following
the impairment of Sharwood’s, amortisation of intangibles is expected to
be lower in 2019/20 at approximately £30m.
increase in gilt yields was reflected in reported Net finance cost.
In 2018/19, a discount unwind charge of £3.0m was included in the Net
finance cost of £47.2m.
Other interest income of £7.6m in the year relates to monies received from
the Group’s associate Hovis Holdings Limited ('Hovis') and reflects the
reversal of a previous impairment.
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 and early
redemption fees
Discount unwind
Other finance income
Other interest cost
Net finance cost
2018/19
2017/18
Change
31.7
5.1
36.8
3.7
40.5
32.2
7.2
39.4
5.0
44.4
–
(0.4)
11.3
3.0
(7.6)
–
47.2
4.0
(0.4)
–
0.8
48.4
0.5
2.1
2.6
1.3
3.9
(0.4)
(7.3)
(3.4)
7.6
0.8
1.2
Net finance cost was £47.2m for the year; a decrease of £1.2m on
2017/18. Net regular interest in the year was £40.5m, a decrease of
£3.9m compared to the prior year. Consistent with recent years, the
largest component of finance costs in the year was interest due to holders
of the Group’s senior secured notes, which was £31.7m. The interest on
the senior secured notes was £0.5m lower compared to the prior year
following the re-financing of the June 2021 £325m fixed rate notes at a
coupon of 6.5% to the October 2023 £300m fixed rate notes to the slightly
lower coupon of 6.25%. Bank debt interest of £5.1m was £2.1m lower
in the year due to lower levels of average debt and a lower margin on the
revolving credit facility following the refinancing completed in May 2018.
Amortisation of debt issuance costs was £3.7m, £1.3m lower than the
prior year due to lower transaction costs associated with the issue of the
£300m 6.25% Fixed rate notes compared with the retired £325m 6.5%
Fixed rate notes.
Write-off of financing costs and early redemption fees of £11.3m include
a £5.7m fee related to the write-off of transaction costs associated with
the senior secured fixed rate notes due March 2021, which were repaid
during the year, and a £5.6m redemption fee associated with the early
call of the March 2021 bond. In the prior year, a £0.4m discount unwind
credit relating to long-term property provisions held by the Group due to an
Taxation
£m
Overseas current tax
Current year
Deferred tax
Current period
Prior periods
– Adjustment to restate
opening deferred tax
at 17.0%
Income tax credit/
(charge)
2018/19
2017/18
Change
1.1
6.1
1.7
–
8.9
0.8
(4.1)
(8.1)
(2.3)
(13.7)
0.3
10.2
9.8
2.3
22.6
A tax credit of £8.9m in the year compared to a £13.7m charge in the prior
year. This included a deferred tax credit in the current year of £6.1m, largely
reflecting the loss before tax reported of £42.7m and a credit of £1.7m
relating to the adjustment of prior period losses and capital allowances.
A current year tax credit of £1.1m was in respect of overseas tax.
A deferred tax liability at 30 March 2019 of £13.5m compared to a liability
of £12.1m at 31 March 2018. This movement is primarily due to a slightly
higher pensions surplus reported at 30 March 2019 compared to 31 March
2018 reflecting the allowability for tax on pensions contribution payments.
Recognised and unrecognised deferred tax assets relating to brought
forward losses were approximately £44m at 30 March 2019 and equate to
around £250m of future taxable profits.
The corporation tax rate and deferred tax rate applied in calculations are
19.0% and 17.0% respectively.
Earnings per share
Earnings per share (£m)
Operating profit
Net finance cost
Loss before taxation
Taxation
(Loss)/Profit after taxation
Average shares in issue
Basic (loss)/earnings
per share (pence)
2018/19
2017/18
Change
4.5
(47.2)
(42.7)
8.9
(33.8)
841.5
(4.0)
69.3
(48.4)
20.9
(13.7)
7.2
836.8
0.9
(64.8)
1.2
(63.6)
22.6
(41.0)
(4.7)
(4.9)
13
Annual report for the 52 weeks ended 30 March 2019 STRATEGIC REPORT Operating and financial review
The Group reported a loss before tax of £(42.7)m in the year, compared to a profit before tax of
£20.9m in 2017/18. A loss after tax was £(33.8)m, compared to a £7.2m profit in the prior year.
Adjusted earnings per share (£m)
2018/19
2017/18
Trading profit
Less: Net regular interest
Adjusted profit before tax
Less: Notional tax (19%)
Adjusted profit after tax6
Average shares in issue (millions)
Adjusted earnings per share (pence)
128.5
(40.5)
88.0
(16.7)
71.3
841.5
8.5
123.0
(44.4)
78.6
(14.9)
63.7
836.8
7.6
Change
+4.5%
+8.9%
+12.1%
(12.1%)
+12.1%
+0.6%
+11.5%
Adjusted profit before tax was £88.0m in the year, an increase of £9.4m compared to the prior year
due to growth both in Trading profit and lower interest costs as described above. Adjusted profit after
tax increased £7.6m to £71.3m in the year after deducting a notional 19.0% tax charge of £16.7m.
Based on average shares in issue of 841.5 million shares, adjusted earnings per share in the year
was 8.5 pence, growth in the year of +11.5%.
Free cash flow
£m
Trading profit
Depreciation
Other non-cash items
Interest
Taxation
Pension contributions
Capital expenditure
Working capital and other
Restructuring costs
Proceeds from share issue
Sale of property, plant and equipment
Hovis repayment of loan note
Financing fees
Free cash flow10
Statutory cash flow statement
Cash generated from operating activities
Cash used in investing activities
Cash (used in)/generated from financing activities
Net increase in cash and cash equivalents
2018/19
2017/18
128.5
17.0
2.4
(30.1)
–
(41.9)
(17.7)
(7.7)
(18.1)
1.4
–
7.6
(12.2)
29.2
57.7
(17.7)
(35.8)
4.2
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
41.7
The Group reported an inflow of Free cash in the period of £29.2m. Trading profit of £128.5m was
£5.5m ahead of the prior year for the reasons outlined above, while depreciation of £17.0m was
slightly higher than 2017/18. Other non-cash items of £2.4m was predominantly due to share based
payments.
14
Net interest paid was £7.9m lower in the year at
£30.1m, reflecting the timing of interest payable
on the £300m fixed rate notes due October
2023 which were issued in the first half of the
year. This is a one-off benefit to cash interest
paid; in 2019/20 cash interest is expected to be
in the range of £35-39m. No taxation was paid
in the period due to the availability of brought
forward losses and capital allowances, however,
a payment of £1.0m was received in the prior
period from Irish tax authorities in respect of tax
paid in prior years.
Pension contributions in the year were £41.9m,
in line with expectations, and £2.1m higher
than the prior year. Pension deficit contribution
payments made to the Premier Foods pension
schemes of £34.9m were the largest component
of cash paid in the year; the balance being
expenses connected to administering both
the RHM and Premier Foods schemes and
government levies. Pension deficit contribution
payments in 2019/20 are expected to be £37m
and administration and government levy costs
approximately £6-8m.
Capital expenditure was £17.7m in the year,
£1.5m lower than the prior year. In 2019/20,
the Group expects to increase its capital
expenditure to circa £25m to fund investment
in both growth projects supporting the Group’s
innovation strategy and cost release projects
to deliver efficiency savings. For example, the
Group is investing in one of its lines at its Stoke
cake manufacturing site which will provide
enhanced and varied product innovation
capabilities.
Working capital investment was £7.7m in the
year compared to £0.6m in 2017/18. Part of
this movement reflected higher stock levels in
anticipation of the original planned date to leave
the European Union to protect the Company
against the risk of delays at ports.
Restructuring costs were £18.1m compared to
£12.5m in the comparative period. These were
predominantly associated with implementation
costs of the Group’s logistics transformation
programme and also advisory costs connected
with the potential disposal of the Ambrosia
brand which has since concluded.
Premier Foods plc Financing fees of £12.2m relate to costs associated with the extension
of the Group’s revolving credit facility and the issue of new £300m Senior
secured fixed rate notes early in the financial year. This comprised £5.6m
due to the early redemption of previously issued fixed rate notes due
March 2021 and £6.6m of other fees associated with the issue of the new
fixed rate notes and extension of the Group’s revolving credit facility.
The Group received a partial repayment of its loan note and associated
interest from Hovis of £7.6m in the year. There is the possibility of the
Group receiving a second tranche during 2019/20.
On a statutory basis, cash generated from operations was £80.2m
compared to £89.4m in 2017/18. Cash generated from operating activities
was £57.7m in the year after deducting net interest paid of £22.5m, which
includes the partial repayment of the loan note from Hovis as described
above. Cash used in investing activities was £17.7m in 2018/19 compared
to £17.9m in the prior year. Cash used in financing activities was £35.8m
in the year versus £7.2m cash generated in 2017/18. This was due to the
repayment of the £325m fixed rate notes due March 2021, partly offset
by proceeds received from the issue of £300m floating rate notes due
October 2023 and the payment of financing fees as described above.
At 30 March 2019, the Group held cash and bank deposits of £27.8m
compared to £23.6m at 31 March 2018 and the Group’s revolving credit
facility was undrawn.
Net debt and sources of finance
Net debt at 31 March 2018
Free cash inflow in period
Movement in debt issuance costs
Net debt at 30 March 2019
Adjusted EBITDA
Net debt/EBITDA
£m
496.4
(29.2)
2.7
469.9
145.5
3.235
Net debt at 30 March 2019 was £469.9m; a £26.5m reduction compared
to the prior year. The Group has now successively reduced its Net debt
every year since 2008 and its Net debt to EBITDA ratio of 3.235 is the
lowest for many years. The movement in debt issuance costs in the year
was £2.7m.
During the year, the Group extended the term of its revolving credit facility
with its lending syndicate from December 2020 to December 2022,
subject to a future refinancing of the Group’s £210m Floating rate notes.
The total facility was reduced from £217.0m to £176.6m in June 2018
and was undrawn at 30 March 2019.
The Group also completed the issuance of new five year £300m Senior
Secured fixed rate notes due October 2023, at a coupon of 6.25%
during the year. These new notes replaced the Group’s £325m Senior
Secured fixed rate notes, previously due to mature March 2021, and which
attracted an interest coupon of 6.5%.
Pensions
The IAS 19 pension schemes valuation reported a surplus for the combined RHM and Premier Foods’ pension schemes at 30 March 2019 of £373.1m,
£56.1m higher than 31 March 2018 and equivalent to £309.7m net of a deferred tax charge of 17.0%. A deferred tax rate of 17.0% is deducted from the
IAS 19 retirement benefit valuation of the Group’s schemes to reflect the fact that pension deficit contributions made to the Group’s pension schemes are
allowable for tax. An increase in the RHM surplus of £83.8m to £837.8m was partly offset by an increase in the deficit of the Premier Foods’ schemes
deficit of £27.7m to £464.7m.
IAS 19 Accounting Valuation (£m)
Assets
Liabilities
Surplus/(Deficit)
Net of deferred tax (17.0%)
30 March 2019
RHM
Premier Foods
4,333.6
(3,495.8)
837.8
695.4
707.1
(1,171.8)
(464.7)
(385.7)
Combined
5,040.7
(4,667.6)
373.1
309.7
31 March 2018
RHM
Premier Foods
4,184.5
(3,430.5)
754.0
625.8
679.1
(1,116.1)
(437.0)
(362.7)
Combined
4,863.6
(4,546.6)
317.0
263.1
15
Annual report for the 52 weeks ended 30 March 2019 STRATEGIC REPORT Operating and financial review
Assets in the combined schemes increased by £177.1m to £5,040.7m
in the period. RHM scheme assets increased by £149.1m to £4,333.6m
while the Premier Foods’ schemes assets increased by £28.0m to
£707.1m. The most significant movement by asset class is that of
government bonds which increased by £444.0m in the year, predominantly
in the RHM scheme.
IFRS 16 – Leases
A new accounting standard, IFRS 16 – Leases, came into effect for
accounting periods commencing on or after 1 January 2019, replacing the
previous standard, IAS 17. Accordingly, the first accounting period that the
Group will adopt IFRS 16 will be for the 52 weeks ending 28 March 2020,
including Interim results for the 26 weeks ending 28 September 2019.
Liabilities in the combined schemes increased by £121.0m in the year to
£4,667.6m. The value of liabilities associated with the RHM scheme were
£3,495.8m, an increase of £65.3m while liabilities in the Premier Foods
schemes were £55.7m higher at £1,171.8m. The increase in the value of
liabilities in both schemes is due to a lower discount rate assumption of
2.45% (31 March 2018: 2.70%) and an increase in the RPI inflation rate
assumption; from 3.15% to 3.25%.
The Group’s Pension Trustees have just commenced the triennial actuarial
valuation process of the Group’s pension schemes as at 31 March 2019
(RHM scheme) and 5 April 2019 (Premier Foods main scheme). This
exercise typically takes a number of months to conclude; the output of
which will be provided in due course.
Combined pensions schemes (£m)
30 March 2019
31 March 2018
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)
179.5
1,490.4
26.9
436.5
1,141.2
38.1
256.1
556.4
446.1
469.5
5,040.7
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
2.45%
2.70%
3.25%/2.15% 3.15%/2.05%
The net present value of future deficit payments, to the end of the
respective recovery periods remains at circa £300–320m.
Under IFRS 16, the key test for a lease is to assess the recognition of right
of use of an identified asset. Typically, this will result in the majority of the
Group’s operating leases now to be held on the Balance Sheet, whereas
under IAS 17 that was not universally the case. Provisions for long-term
non-operational lease will now be shown as lease liabilities.
It is important to note that while there is no economic or cash impact to the
Group as a result of this accounting standard change, certain disclosures
such as Net debt will be impacted. The Group has elected to transition
to IFRS 16 using the Modified Retrospective Approach, and as such,
comparatives will not be re-stated at 28 March 2020. However, to assist in
understanding the impact of IFRS 16 on the Group’s summary results for
2018/19, Net debt would have been approximately £20m higher than that
reported and outlined above. It should be noted that in future years, there
may be a degree of volatility in the value of assets and liabilities recognised
with respect to leases, reflecting the timing of lease renewals and any
fluctuations to discount rates.
Outlook
The Group’s strategy is to improve operating performance through driving
profitable revenue growth and delivering cost efficiencies to generate cash.
The Group has delivered consistent progress over the last two years,
both in increasing its adjusted earnings and reducing Net debt. The Board
recognises there remains much work still to do, and the outcome of its
strategic review will be outlined in due course.
In the coming year, the Group plans to increase both capital investment
and consumer marketing, with up to five of its largest brands expected to
benefit from media advertising over the next twelve months. The Group is
now demonstrating more consistent delivery of its innovation strategy and
is becoming ever more resilient. The International business is expected to
return to double-digit revenue growth in 2019/20. The Group continues to
focus on reducing Net debt and expects to deliver a similar level of debt
paydown in 2019/20 as it did in 2018/19. While the first half of this year
is expected to start slowly, reflecting the timing of consumer marketing
investment, the Group anticipates that with its encouraging new product
innovation programme and strong customer relationships, it will make
further progress in the year.
Alastair Murray
Acting CEO & Chief Financial Officer
14 May 2019
16
Premier Foods plc Appendices
The Company’s results are presented for the 52 weeks ended 30 March
2019 and the comparative period, 52 weeks ended 31 March 2018. All
references to the ‘quarter’, unless otherwise stated, are for the 13 weeks
ended 30 March 2019 and the comparative period, 13 weeks ended
31 March 2018.
Quarter 4 Sales
Q4 Sales (£m)
Branded
Non-branded
Total
% change
Branded
Non-branded
Total
Grocery
Sweet Treats
135.0
25.5
160.5
+4.2%
+6.4%
+4.6%
45.5
4.7
50.2
+4.2%
(35.2%)
(1.4%)
Group
180.5
30.2
210.7
+4.2%
(3.3%)
+3.1%
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, non-trading items, fair value
movements on foreign exchange and other derivative contracts 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, early redemption fee, fair value movements on
interest rate financial instruments and other interest payable.
6. Adjusted profit after tax is Adjusted profit before tax as defined in (4)
above less a notional tax charge of 19.0% (2017/18: 19.0%).
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
841.5 million (52 weeks ended 31 March 2018: 836.8 million).
8.
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.
Additional notes
The directors believe that users of the financial statements are most
interested in underlying trading performance and cash generation of the
Group. As such intangible asset amortisation and impairment are excluded
from Trading profit because they are non-cash items.
GMP equalisation charge has been excluded from Trading profit because it
is a one-off material item not related to underlying trading performance of
the Group.
Restructuring costs have been excluded from Trading profit because they
are incremental costs incurred as part of specific initiatives that may distort
a user’s view of underlying trading performance.
Net regular interest is used to present the interest charge related to the
Group’s ongoing financial indebtedness, and therefore excludes non-cash
items and other credits/charges which are included in the Group’s net
finance cost.
Group & corporate costs refer to Group and corporate expenses which are
not directly attributable to a 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.
Future pension cash payments schedule
£m
2019/20
2020/21
2021/22
2022/23
Deficit contributions
Administration costs
Total
37
6-8
43-45
38
8-10
46-48
38
8-10
46-48
38
8-10
46-48
17
Annual report for the 52 weeks ended 30 March 2019 STRATEGIC REPORT Being a responsible business
Introduction
Our purpose is to create the food the nation
loves most for modern life, and we are
committed to doing this responsibly and in a
way that is sustainable for our business, our
communities and our planet.
This year we have refreshed our responsibility
agenda to ensure it continues to focus on the
issues that matter most to our business and its
stakeholders. Our efforts are focused around
five core commitments that we believe address
the issues most relevant now and in the future,
and through which we can make a positive
difference:
• Encourage healthier choices
• Realise people’s potential
• Support our communities
• Drive ethical sourcing
• Reduce our environmental footprint
18
Encourage healthier
choices
We’re proud to produce great tasting and
affordable British brands that consumers love
and enjoy as part of a healthy, balanced diet.
The health of our consumers matters to us and
we believe industry and government must work
together to educate consumers on nutrition
and make it easier for them to make informed
choices. We remain committed to playing our
part to encourage healthier food choices and
this year we have made significant progress
against our previous 10 health commitments, as
outlined below. To ensure we remain focused on
areas where we can be most effective, in 2019
we have taken the opportunity to evolve these
commitments into a set of more relevant, long-
term goals, which we are now working towards.
Over the last year
we have made
significant strides
towards our 2018
goal of removing
1,000 tonnes of
sugar from our
portfolio, against
a base year of 2015, and are on track to achieve
this target in 2019. Reformulation of our Mr Kipling
Deep Filled Mince Pies and Mr Kipling Apple Pies
reduced their sugar content by 9.6% and 9%
respectively, and across all Mr Kipling pies we
removed 161 tonnes of sugar from our portfolio.
We also made category history and launched the
first ever ‘better-for-you’ version of an established
cake range with the launch of our 30% reduced
sugar Mr Kipling Angel and Chocolate Slices.
Calories continue to be a popular way for
consumers to measure and plan their diet, and
we’re proud that all our cake and dessert products
meet the Public Health England ('PHE') calorie caps
set out in their sugar reduction programme. Single
portion, individually wrapped cakes are another
useful way of enabling consumers to manage their
intake, and last year saw 42% of our total volume
cake sales come from single portion ranges.
77% of our Grocery products launched this year
were ‘better-for-you’ products, defined by having
a claimable nutrition benefit, for example ‘source
of fibre’, as well as no 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
our new range of Sharwood’s Wholegrain Noodles
and Naan Breads, our Homepride Extra Veg Pasta
Bakes which per portion provide consumers with
one and a half of their recommended five portions
of vegetables and fruit per day, and our 25%
reduced fat Sharwood’s Korma and Tikka Masala
cooking sauces.
Having already removed 1,000 tonnes of salt
from our portfolio since 2010, all new and
existing product development
this year has met PHE’s 2017
salt targets for their respective
categories. Furthermore, we’re
compliant with PHE salt targets in
13 of the 15 categories in which
we committed to meet targets.
We’re making good progress
in the two remaining categories,
cake and fruit pies.
We are responsible when advertising and
promoting our products, particularly when it
comes to younger consumers, and we do not
target under 16-year olds in broadcast and non-
broadcast media to promote products high in
sugar, salt and fat.
We continue to champion transparent nutrition
labelling so that consumers can make informed
choices about the products they buy. As one of the
first food manufacturers to adopt the government’s
voluntary front of pack traffic light nutrition labelling
scheme, we have since supported the Institute
of Grocery Distribution ('IGD') to develop best
practice guidance to promote consistency
across the industry to facilitate a better consumer
understanding of the nutrition information provided.
We were also the first company to implement this
new label format in line with the IGD guidance
document following its publication in 2017.
We continue to work with our suppliers to
consider technologies that can deliver nutritional
benefits to our consumers. Our focus has been
on innovations that allow us to remove salt and
sugar without compromising on product form
and taste. We are now expanding our focus
to include the development of 'better-for-you'
versions of products, for instance a no added
sugar version or a wholegrain alternative.
Premier Foods plc Building on the success of our healthy eating
in the workplace trials last year, at three of
our factories, this year we have rolled out the
programme to a further three factories (Carlton,
Worksop and Moreton), and introduced a
healthier, low-calorie range at our St Albans
Head Office café. We remain committed to
rolling out this programme to all our sites with
canteens by 2020.
Our new nutrition KPIs:
Extend our range of healthier foods:
• By 2025, every core range will include
at least one 'better-for-you' option. (i.e.
reduced/no added sugar, reduced salt,
reduced fat, reduced/low in calories, a
wholegrain alternative to white, or free from
key allergens).
• From 2019, introduce at least one new
range each year that enables consumers
to improve their diet by eating more
vegetables, protein or fibre, or delivering
products that are fortified for greater
nutrition.
Enhance the nutrition profile of our
existing core range:
• Continue to work with government to
implement the Childhood Obesity Plan and
their reformulation programmes (targeting
salt, sugar and calorie reductions).
Educate our consumers and colleagues
on the nutrition choices they are making
to encourage healthier eating:
• Continue to adopt clear and transparent
labelling across our portfolio to help
consumers easily understand their nutrition
choices.
• Extend our Healthy Eating in the
Workplace programme across all our
sites by 2020.
Realise people's
potential
Developing skills
When we welcome colleagues into our business
– no matter at what level – we help them
develop the confidence and skills to move onto
and up the career ladder. We are committed to
investing in self-led learning and this year we
launched LinkedIn Learning for all IT-enabled
colleagues, offering access to over 7,000 online
courses. We use psychometric tools to help us
to understand how to unlock the potential of
high-performing individuals and teams across
our business, and from this we can develop
tailored training to hone key skills, for example
our Sales Academy programme. Meanwhile our
Leadership programmes equip our leaders with
practical skills and tools to enable them to raise
the bar and lead the business with authenticity
and integrity.
Apprenticeships are an important part of
our future talent strategy, providing career
progression for existing colleagues and attracting
new recruits. We have supported the training
and development of 40 apprentices year-on-
year for the last two years and plan to maintain
this level in the coming financial year. Graduates
continue to play an important role in building
our internal talent pipelines and in 2019 we’ll
recruit our fifth consecutive intake of commercial
graduates, in addition to longer-standing
finance and procurement programmes. We are
pleased to see that those who have completed
their graduate programmes have taken on
permanent key roles within the organisation and
are contributing to strengthening our functional
expertise and delivery.
To address the skills gap faced by our industry
in critical areas including STEM (science,
technology, engineering and maths) based
roles, we continue to play an active role driving
awareness of and promoting the breadth of
career opportunities that exist within our sector.
We work closely with the IGD to support their
Feeding Britain’s Future schools campaign, and
this year Premier Foods’ volunteers took part in
90 pre-employment skills training sessions for
year 9 and year 12 students. We also support
the IGD’s Schools Programme initiative, with
five of our sites actively supporting local schools
and providing CV writing, confidence building
and interview skills training. And we work with
the Food and Drink Federation (FDF) to support
the MEng programme at Sheffield Hallam
through student placements at our factories and
mentoring support.
Fairness and equality of opportunity
Diversity and inclusion
We are committed to having an inclusive culture
across our whole organisation. This means
ensuring that all existing or potential colleagues
are given equal opportunities and are respected,
valued and encouraged to give their best at
all times.
Our Diversity and Equality policy statement,
approved by the Board in 2017, sets out
our approach to equal opportunities and the
avoidance of discrimination at work. Our diversity
working group monitors progress against key
areas of this statement and reports annually to
the Board.
Rather than focusing on setting specific targets
for diversity (gender and ethnicity) our focus
remains to understand where issues arise,
identify and remove potential blocks and seek to
improve processes and training. This involves:
• Communicating our Diversity and 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.
In 2019 we are rolling out a company wide
Diversity and Inclusion programme. This will
initially target our senior managers via face-to-
face development, and will be followed by group
based and online programmes for the wider
colleague population.
19
Annual report for the 52 weeks ended 30 March 2019 STRATEGIC REPORT Being a responsible business
Gender diversity
(% female as at 30 March 2019 for Premier
Foods and Knighton)
48%
187
30%
25
32%
25
47%
159
36%
1,560
36%
1,446
Senior
management
Central
functions
All
colleagues
2018/19
2017/18
We 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
continue to address this through improvements
in recruitment, talent management, flexible
working and maternity provision. In 2018/19
the proportion of women in leadership roles
compared to men dropped slightly compared
to the previous year to 29% and addressing this
gap continues to be an area of focus for the
business.
Gender pay gap reporting
We are confident that colleagues are paid
equally for comparable jobs and satisfied that
progress has been made to reduce our gender
pay gap in 2018 compared with the previous
year. Although this is a positive step, for an
organisation like ours, where we employ many
more men than women and turnover is low, it is
challenging to significantly impact the pay gap
annually and there may be some years where
change is slower than we would like.
The data in the next column illustrates our Hourly
Pay Mean Gap and Hourly Pay Median Gap at
a snapshot date of 5 April 2018. This is for our
total business, including entities that employ
fewer than 250 colleagues as well as those that
employ more.
20
Gender pay gap
Mean 12% (2017: 15%)
Median 6% (2017: 10%)
Gender bonus gap
Mean 34% (2017: 40%)
Median −362% (2017: -16%)
Overall, both our Hourly Pay Mean Gap and
Hourly Pay Median Gap have reduced in 2018
(versus 2017) and we are encouraged by this.
We will continue to strive to reduce the gap
that exists, however it should be noted that the
legislation requires us to report in a way that can
on occasions produce unusual data and so we
would encourage people to look at the trend over
several years in addition to the annual results.
Code of conduct and
whistleblowing helpline
The Group is committed to ensuring that
everyone that comes into contact with the
business is treated with respect, and their health,
safety and basic human rights are protected
and promoted. The Board has approved a code
of conduct which sets out the standards of
behaviour all employees are expected to follow
and provides a useful guidance to help colleagues
when it comes to making the 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.
Health and Safety
Health and Safety in the workplace
Health and Safety is taken extremely seriously
by management at all levels throughout the
business, and we are proud to continue 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 safe places to
work and is a key component in our industry
leading performance.
This year we have successfully rolled out our
Behavioural Safety Programme, BeSafe, out to all
but one of our sites, namely Moreton, on account
of personnel changes. BeSafe is due to be rolled
out at Moreton imminently. The programme
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. In the last 12
months, colleagues have identified 3,419 Safe
Acts and 2,153 Unsafe Acts. This then helps
manufacturing sites to target resources to improve
safety in the most effective areas.
The Board reviews Health and 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, along
with our BeSafe initiative, continues to be
successful in improving safety at sites and has
increased engagement across our factories,
which has helped to maintain our industry-
leading Health and Safety performance.
Premier Foods plc The sites are now progressing towards ISO 45001
certification and all sites aim to be certified to the
new international standard in the next 12 months.
Support our
communities
RIDDOR
0.53
Supporting the communities in which we
operate both locally and nationally is in the DNA
of our business and a powerful way to engage
our colleagues behind a shared and meaningful
purpose.
0.23
We do this in three key ways:
0.02
UK
manufacture
of food
All UK
manufacture
Premier
Foods
(All RIDDOR accidents per 100,000 hours worked
(excludes Knighton))
LTAs
0.13
0.16
0.10
0.11
By supporting our
corporate charity
partner, Mind UK
By supporting
GroceryAid, an industry
charity that makes
life better for grocery
people in need
2018/19 2017/18 2016/17
2015/16
(All LTAs per 100,000 hours worked (excludes Knighton))
Health and wellbeing
We continue to make every effort to protect the
health and wellbeing of our colleagues. Through our
dedicated Occupational Health team we provide
professional specialist health advice to colleagues
on the effects of work on their health. We advise
our colleagues on ways to improve physical and
psychological well-being within the workplace and
strategies to prevent illness and injury.
In early 2019 we conducted our first ever
Health Needs Assessment survey and invited
all colleagues to take part. We had an almost
50% response rate and are now developing our
new Health and Wellbeing strategy, which will be
launched in 2019.
local
By supporting
community projects
local to our sites
In April 2018, following an all-colleague vote to
determine our next corporate charity partner, we
embarked on a two-year partnership with Mind
UK. We set ourselves an ambitious target to
raise £200,000 to support their important work,
and specifically their Peer Support Service which
empowers people to use their own mental health
experiences to help others, either on a one-to-
one basis, online or in a group, and includes
a range of activities such as crafts, walking or
meeting for coffee.
During the first year of our partnership,
colleagues have rallied together to raise over
£75,000 for Mind UK. This has come from
a combination of employee led fundraising
initiatives like summer barbecues, seasonal
raffles, fun runs, bake sales and our site-based
donation stations where colleagues can donate
clothing and homeware to be sold in Mind
UK shops. It also came from our company
wide charity challenge event which saw 100
colleagues each walk 22 miles of the Jurassic
Coast to collectively raise £30,000.
We also leveraged our partnership to raise
awareness of mental health across our business.
We’ve signed the ‘Time to Change' pledge which
aims to end mental health stigma in the work
place, and we’ve hosted events such as Time to
Talk Day and Mental Health Awareness Week at
each of our sites. The aim of these events is to
encourage discussion about mental health whilst
also giving colleagues access to support materials.
Ahead of the second year of our charity
partnership, we have recently launched a payroll
giving scheme, enabling colleagues to make
a regular donation directly from their salary to
either Mind UK or to GroceryAid each month.
Regular donations are vital to helping charities
effectively forecast and plan their funding, so
we’re hoping this scheme will have a positive
impact on our charity partners.
Our ongoing support of industry charity,
GroceryAid, has seen us stage fundraising events
organised through our GroceryAid southern
network committee members, drive awareness
and understanding of GroceryAid through our
network of Charity Champions, plus provide
senior representation at central events throughout
the year. In recognition of our support, in 2019
we’ve been awarded Gold level supporter status
(up from Bronze), an achievement we’re very
proud of.
Our colleagues continue to embrace supporting
their local communities and this year projects
they have chosen to support include: St Johns
Hospice; Claire House Children’s Hospice;
Clatterbridge Cancer Unit; Age Concern St
Albans; Kingfisher Dementia Club; Riding for
the Disabled Duchy Group; and Okehampton
Foodbank. Supporting local causes enables
colleagues to make a visible difference within
their local community and is a powerful tool for
bringing people together.
21
Annual report for the 52 weeks ended 30 March 2019 STRATEGIC REPORT Being a responsible business
Drive ethical
sourcing
The Group works with over 1,200 active suppliers
and our aim is to develop long-term, sustainable
partnerships with our key suppliers which drive
mutual benefits. Over the year, 86% of our total
(third party) spend was with UK based suppliers,
a rise of 3% on the previous year due in part to
the expansion of our international business, Brexit
contingency planning and our innovation drive.
Our top 250 suppliers now account for in excess
of 93% of our total spend on the goods and
services that we purchase.
Ethical standards and commitments
We believe it is important to understand the
impact that our purchased goods have on the
environment, animal welfare and the people
who produce it. We therefore always aim to
purchase ingredients and packaging certified to
recognised environmental and ethical standards,
such as palm oil from producers that meet the
Roundtable for Sustainable Palm Oil ('RSPO')
criteria, egg products that are certified from
cage-free hens, cocoa from UTZ (a programme
for sustainable farming) certified producers, or
cardboard boxes and other paper products
that meet the Forestry Stewardship Council
requirements.
In the latest World Wide Fund for Nature ('WWF')
Palm Oil Buyers Scorecard, we received top
marks in recognition of our positive action to
support sustainable palm oil sourcing. Indeed,
over 90% of the palm oil we use is now fully
traceable back to the producing mill. We have
also switched to sourcing sustainable cocoa
from UTZ certified producers for some of our
customer own-label brands, and accordingly
in 2018 our Carlton and Knaresborough sites
achieved UTZ certification. We are pleased
to have retained our tier three ranking in the
annual Business Benchmark on Farm Animal
Welfare ('BBFAW'), whilst also improving on our
scores from the previous year in recognition of
increased transparency across our supply chain.
We continue to champion high ethical labour
standards throughout our supply chain and ask
all our ingredients and packaging suppliers to
become members of Sedex (the Supplier Ethical
Data Exchange). This is supported by our own
Sedex Member Ethical Audits covering areas
including health and safety and labour rights.
By year end, 88% of direct suppliers were
registered with Sedex, equating to 98% of our
direct spend (excludes Knighton).
Modern day slavery
We are committed to tackling all forms of hidden
labour exploitation, including slavery and human
trafficking, and have policies in place to help
identify and eradicate these practices within our
own business (see ‘Realise people’s potential’)
and to reduce and eliminate risks across our
complex supply chain. In addition, each year
we issue a copy of the Premier Foods Group,
Standard Terms and Conditions for the Purchase
of Goods and Services to all our suppliers, and
use this as an opportunity to circulate key policy
documents such as our Ethical Trading Policy,
Ethical Trading Initiative ('ETI') Base Code and
our Modern Day Slavery Statement. All suppliers
are also subject to a systematic and documented
verification process, to determine whether they
conform to our required labour standards.
Key members of the Supply Chain team
(Procurement and Technical) have received
specific training on modern day slavery and
trafficking, designed to raise awareness of the
issues and to empower them to recognise and
respond to indicators of human rights abuse
within our supply chain. All new Procurement
colleagues also receive this training as part of
their formal induction process.
Ethical audits
All supplier food safety audits cover an element
of ethical standards and labour practices, and
where concerns are identified, we will carry out
a SMETA (Sedex Member Ethical Trade Audit)
ethical audit. We assess suppliers as determined
by reference to the supplier Sedex risk rating,
geographic sourcing region and nature of the
product supplied. Where this assessment deems
it necessary to complete an ethical audit, these
are carried out by a member of the compliance
team or our third party auditing company.
If issues of non-compliance with the standards
are discovered during the audit, we will work
with the supplier to ensure that they have an
appropriate, time-bound corrective action plan
in place. We will then conduct a follow up audit
to ensure that all non-conformances have been
closed out.
Over the last 12 months we have completed four
SMETA ethical audits across our supply base.
We have also conducted strategic category
reviews across high risk supply chains, including
our coconut products supply chain, based in the
Philippines and Indonesia. These reviews help us to
minimise risks associated with modern day slavery
and trafficking.
We also conduct specific SMETA ethical audits
across all our own manufacturing sites on a
two-year programme, completing four in the last
12 months, and audit some indirect suppliers,
particularly where we deem there are higher risks of
potential labour abuse or trafficking.
Health and safety
We take a risk-based approach to assessing
and managing risks and have worked closely
with our co-manufacturers in order to drive
greater health and safety standards across our
supply chain. We have conducted a number of
audits across our co-manufacturing suppliers
where we identify potential risk and put in place
targeted improvement plans where required.
In the coming year we are aiming to set up a
Best Practice in Food Manufacturing Health &
Safety Forum, inviting a range of other large food
manufacturers to participate.
Food safety and quality
The safety and quality of our products is of
paramount importance to us.
We operate a Food Safety and Quality System
based around the British Retail Consortium Global
Food Standard version 7 (version 8 from February
2019), with all sites (excluding Charnwood Foods)
audited by an independent accreditation body to
this standard. All audits are unannounced, and
we’re proud that this year all our sites achieved a
rating of B or above, and 87% achieved A or AA
ratings. Our Charnwood Foods business operates
to a specific customer Quality Management
System and has met all requirements.
22
Premier Foods plc Our internal quality compliance team focuses
on controls and standards across all our
manufacturing sites, auditing to our Corporate
Technical Standard, supporting a range of
initiatives, and driving continuous improvement
quality programmes.
We conduct Food Safety and Compliance audits
on all direct suppliers and co-manufacturers
deemed medium or high risk, as determined
by assessment of the supplier’s accreditations,
geographic sourcing region and nature of the
product supplied. These are carried out by a
member of the compliance team or our third
party auditing company, with 78 completed
for suppliers and 30 completed for co-
manufacturers this year. We have also had a
number of customer audits and visits across our
manufacturing facilities to confirm our standards
are in compliance with customer requirements.
A particular focus for the business is the
authenticity of the materials we purchase. We
have been heavily involved in the establishment
of the Food Industry Intelligence Network ('FIIN')
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
of 2013 with 43 members across food Retail,
Foodservices and manufacturing, representing a
very significant element of the UK food industry. We
have a targeted authenticity and safety surveillance
programme in place for raw materials and have
carried out circa 800 tests in the last 12 months.
To support our food safety and quality standards,
we have an internationally recognised laboratory,
Premier Analytical Services ('PAS') carrying out
research and analysis of food ingredients and
packaging, employing around 48 scientists and
performing approximately 100,000 tests per annum.
Packaging
Our products are packaged in a way that
balances the need to ensure food safety,
preserve freshness and taste, prevent food
waste, provide convenience, and share
important information with consumers.
We continue to work hard to optimize our
packaging to reduce its environmental impact;
using more materials from certified sustainable
sources wherever possible, increasing our
use of recycled materials, and increasing the
recyclability of our packaging.
All the corrugated paper we use within our
packaging is from Forestry Stewardship Council
('FSC') certified sources and is fully recyclable.
Plastic constitutes 11% of our packaging by
weight and, in accordance the current on-
pack recycling label guidelines, almost 70%
of it is recyclable. Over the last three years
we’ve removed 320 tonnes of plastic from
our packaging, and in 2019 we’ve removed
400 tonnes of black plastic from our portfolio,
by switching from using black plastic trays to
recyclable clear plastic trays across our
Mr Kipling cakes and pies.
The below chart illustrates the split in our use of
packaging materials by volume weight and their
respective recyclability rates. In total 94% of our
packaging, by weight, is recyclable.
100%
93%
99%
39%
39%
69%
11%
11%
Glass
Paper
Plastic
Metal
% total weight
% total recyclable
Reduce our environmental
footprint
Delivering environmental improvements
across our operations
We strive for continual improvement when it
comes to our environmental performance and
encourage all colleagues to play their part in
driving improvements across our operations.
Our internal Green Matters environmental
campaign, which is supported by 65
Environmental Champions, runs in partnership
with the Woodland Trust’s Woodland Carbon
Scheme and commits us to planting 25m2 of
trees for every tonne of CO2 we reduce our
emissions by. Over the last four years we’ve
planted over 29 acres of new woodland, which
in turn has removed 4,924 tonnes of CO2 from
the atmosphere, over and above the reduction
achieved by our sites. Building on this success,
we’re now working in partnership with the
Woodland Trust, the Rivers Trust and several food
businesses to develop a programme focused
around planting trees where they can reduce
water stress, flooding and soil erosion from farm
land. Planting is due to begin in 2019.
In 2018 we reduced our CO2 emissions per
tonne in eight of our ten manufacturing sites and
achieved a 17.9% reduction in emissions overall
compared to the previous year. Contributing to
this was our switch from using kerosene as the
main source of power for the boilers at our Lifton
site to natural gas, which resulted in a reduction
in CO2 emissions of approximately 25%.
In 2018 we installed metering at our Ashford
site, allowing us to monitor our use of energy,
water and other utilities. This has already enabled
us to optimise our energy use and reduce it by
over 1 million kWhs in 2018 compared to 2017.
Across our business we have reduced non-
ingredient water use by 7% this year, achieved
through projects including rainwater harvesting at
our Andover mill, and improved cleaning practices
and leak identification and repair across our sites.
All of our manufacturing sites (excluding
Knighton Foods) are accredited to ISO 14001
Environmental Management Systems.
23
Annual report for the 52 weeks ended 30 March 2019 STRATEGIC REPORT Being a responsible business
Plastics
We support a vision for a circular plastics
economy, where plastic is valued and kept in the
economy, but out of the environment. It’s why, in
April 2018, we signed up as a founding member
of the UK Plastics Pact and pledged to work
with governments, businesses, local authorities,
NGOs and citizens to help transform the UK
plastics packaging sector by 2025 and commit
to support its ambitions (see the table opposite
for further details of its key goals).
To help us fulfil this commitment and shape our
own use of plastics within product packaging,
we’ve adopted a recycle, reduce and remove
strategy. This means reviewing the recyclability
of and volume of plastics used within our
packaging and identifying where we can make
improvements. Where an alternative packaging
material is available, is deemed suitable and is
more sustainable for the environment, we will
look to remove plastic. In addition, in 2019 we
set ourselves specific goals to help us fulfil our
commitments, and will report on our progress
against these annually.
Food waste
In addition to fulfilling our zero waste to landfill
commitment since 2013, by working with
Company Shop and their charity Community
Shop, in 2018 we successfully redistributed 304
tonnes of food waste back into the human food
chain to support those most in need. This is an
uplift of 24% compared to 2017.
We support the UN Sustainable Development
Goal 12.3 of halving food waste globally by
2030. As such, as we have signed up to
Champions 12.3 (a coalition that consists
of governments, businesses and other
organisations) which aims to mobilise action
and accelerate progress toward achieving
this goal, and in 2018 we were one of the first
companies in the UK to publicly report our
food waste figures through Champions 12.3
reports published on Tesco’s website. In 2018
we also became a founder signatory of the
IGD WRAP Food Waste Reduction Roadmap,
which encourages food and drink organisations
to consistently measure and report their
food surplus and waste data. We are also a
signatory of the Courtauld Commitment 2025,
a voluntary 10-year ambition that brings together
organisations across the food chain to make
food and drink production and consumption
more sustainable.
We have identified and begun implementing
further opportunities to drive down food waste
within our business, including redistributing
canteen food waste away from incineration and
into anaerobic digestion to create power from
biomethane.
Our plastic KPIs:
Embed environmentally sustainable
packaging across our portfolio:
• 100% of our plastic packaging to be
recyclable, reusable or compostable
by 2025.
• We continuously review our customer
and consumer packaging to minimise it
wherever possible. Through this we aim
to reduce the weight of plastics used by
500 tonnes by 2025.
Engage with our supply chain to
minimise the environmental impact of our
packaging and explore more sustainable
solutions for our packaging innovation:
• We will remove problematic plastics (PVC
and PS) from our portfolio by the end of
2020.
• We will actively seek to increase the use
of recycled plastic content across our
portfolio to help create a market-pull for
recycled polymers, wherever practicable,
and in compliance with food safety
standards.
• As we innovate new packaging, we will
investigate use of all recyclable plastic
material options as well as reusable
designs, compostable substrates and also
any non-plastic packaging which may offer
improved long term sustainability.
Educate consumers and customers by
providing clarity on disposal options:
• We will continue to clearly and transparently
label our products, in compliance with On-
Pack Recycling Label ('OPRL') guidelines,
so that our consumers can easily
understand the recyclability of any end of
life waste packaging. With 100% of our UK
Retail portfolio to carry OPRL guidelines by
the end 2019.
24
Premier Foods plc
Environmental performance 2018/19
This table outlines the progress we have made against our longer-term environmental goals, aligned with the commitments we have made to industry
programmes including the FDF 2025 Ambition, the Courtauld 2025 Commitment, Champions 12.3 and the UK Plastics Pact. These also reflect our
formal obligations under the Climate Change Agreement, Carbon Reduction Commitment and European Union Emissions Trading Scheme.
Area
CO2
emissions
Target
Achieve a 55% absolute reduction in CO2
emissions by 2025 against the 1990 baseline
Food
waste
Send zero food waste to landfill from direct
operations and contribute to reducing food waste
across the whole supply chain from farm to fork,
including within our operations.
Increase food waste redistribution to over 750
tonnes per annum by 2020.
Packaging 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.
Water
Deliver continuous improvement in the use of
water across the whole supply chain and take
action to ensure sustainable water management
and stewardship.
Contribute to an industry-wide target to reduce
water use by 25% by 2020 compared to 2007.
Transport Reduce the environmental impact of our
transport operations, whether from own fleet
operations or third-party hauliers, in terms of
both carbon intensity and air quality aspects.
Embed a fewer and friendlier food miles
approach within food transport practices.
Progress
Our overall CO2 emissions in 2018/19 have reduced by 37% to 64,718
tonnes against our baseline figure of 103,102 tonnes CO2 (year ended
31 December 2008 when we first started to collect emissions data, on
a like-for-like basis and adjusted for site disposals).
During 2018/19 we have continued to maintain zero waste to landfill. We
have increased the amount of food waste that goes to redistribution to
304 tonnes, an increase of 24% compared with the previous year.
We became a founder member of Champions 12.3, and were one of the
first companies in the UK to publicly declare our food waste figures.
We are proud to be founder members of the 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, recycle 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.
Work is now underway to identify opportunities to enable us to support
these commitments, and we will be reporting our progress against the
UKPP annually from 2019.
The Group Environmental Manager sits on the Courtauld 2025 Water
Stewardship Steering Group as Co-Chair. Our planned project, in partnership
with the Rivers Trust, to plant trees where they can reduce water stress,
flooding and soil erosion from farm land is planned to start in 2019.
In 2018/19 we exceeded this target, reducing our overall water usage
by 719,753 cubic metres (on a like-for-like basis and adjusted for site
disposals), 28.2% less than our baseline figure of 1,002,512 cubic
metres (year ended 31 December 2008 when we first started to collate
water usage data).
Electric vehicle charging points have now been installed on or adjacent to
eight of our manufacturing or office sites.
The consolidation of our logistics operations to a single distribution centre
in Tamworth has resulted in an estimated reduction of approximately
1.1 million road miles this year. This will have reduced the CO2 emissions
from transport by an estimated 1,260 tonnes.
1. With the exception of CO2 emissions, environmental performance excludes the performance of Knighton.
On target
25
Annual report for the 52 weeks ended 30 March 2019 STRATEGIC 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 a bottom-up approach to identify our operational risks.
The Executive Leadership Team ('ELT') perform a robust risk assessment on a periodic basis and the output is reviewed with the Audit Committee at least
twice a year. This 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 31 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 and 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
ID
E
N
T
I
F
Y
RISK
MANAGEMENT
PROCESS
NITOR A N
O
M
R
E
S
P
O
N
D
• 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
Risk appetite
Our approach is to minimise exposure to reputational, financial and operational risk, while accepting and recognising a risk/reward 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 and Safety and food safety. We operate in
a challenging and highly competitive marketplace 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.
26
Premier Foods plc
Principal risks and uncertainties
The Board has 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. 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. These risks
(gross) and uncertainties are identified in the heatmap below (in no particular order), followed by a
more detailed description including key mitigating activities in place to address them. The ‘Changes
since 2017/18’ highlight changes in the profile of our principal risks or describe our experience and
activity over the last year.
h
g
H
i
9
t
c
a
p
m
I
i
m
u
d
e
M
Exceeding risk appetite
10
2
1
3
8
5
4
6
7
w
o
L
Low
Within risk appetite
Likelihood
Medium
1 No-deal Brexit and macroeconomic environment
2 Market and retailer actions
3 Operational integrity
4 Information Technology
5 Legal compliance
Risk trend
Risk increased
Risk reduced
Risk stable
High
6 Product portfolio
7 HR and employee risk
8 Strategy delivery
9 International expansion
10 Treasury and pensions
1 No-deal Brexit and
macroeconomic environment
Link to strategy
Risk trend ▼
Risk and potential impact
The prolonged uncertainty and the
prospect of a no-deal Brexit presents a
significant risk to our business which will
affect our supply chain and exposes us to
the risk of further devaluation of sterling
against the euro, thereby increasing the
Group’s cost base. Any deterioration in
the strength of the UK economy will have
an impact on demand for our products.
The Group is also exposed to cyclical
inflation in soft commodities and other
inputs to our business. A more detailed
Brexit assessment is set out on page 31.
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 Group CFO and Group Procurement
Director has been put in place to manage
the Group’s readiness for Brexit. See
page 31 for more details.
Changes since 2017/18
• The date of the UK’s departure from the
EU has been delayed to 31 October
2019 and there is no majority in the UK
Parliament for a no-deal Brexit.
• However, the possibility of a no-deal
Brexit still exists should the UK fail
to reach an agreement on a revised
Withdrawal Bill by 31 October 2019.
27
Annual report for the 52 weeks ended 30 March 2019 STRATEGIC REPORT Risk management
2 Market and retailer actions
3 Operational integrity
4 Information Technology
Link to strategy
Risk trend ▼
Link to strategy
Risk trend ▼
Link to strategy
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 have a 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.
• A cyber insurance policy has been
purchased to insure the Group against
potential losses arising from a cyber-
security breach.
Changes since 2017/18
• We continue to see an increasing
frequency in cyber-attacks (including
phishing and ransomware) in the
marketplace which are increasingly
sophisticated.
• We have increased investment to
improve information and cyber-security
controls and cyber-risk awareness.
• We have a programme of continuous
•
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 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 our
brands, our expertise in our categories
and shopper insight.
innovation rooted in customer insight and
designed to build category growth for our
customers and brands.
• We continue to develop our International
business which reduces dependence on
the UK market.
Changes since 2017/18
• The Competition & Markets Authority
('CMA') have blocked the proposed
merger of two of our largest customers.
28
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 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 consolidated our third party
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.
Changes since 2017/18
• We experienced operational issues with
our warehouse and distribution centre in
Tamworth which had a negative impact
on our results.
• Operations at Tamworth have returned
to a stable state and management is
now working to ensure it operates in an
efficient and cost-effective manner.
• A new Logistics Director was appointed
to work with our outsourced logistics
provider to oversee and drive continuous
improvement.
Premier Foods plc
5 Legal compliance
6 Product portfolio
7 HR and employee risk
Link to strategy
Risk trend ▼
Link to strategy
Risk trend ▼
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 (domestic and
international) in areas such as Health
and Safety, Listing Rules, competition
law, food safety, labelling regulations
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 and 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 2017/18
• A programme was put in place to
achieve readiness for the introduction
of General Data Protection Regulation
('GDPR') in the EU on 25 May 2018.
Ongoing data protection processes and
compliance will be overseen by the Legal
team.
Risk and potential impact
Demand for our products is subject
to changes in consumer trends and
government legislation. Furthermore,
sales of many of the Company’s products
can be adversely affected by warm
seasonal weather conditions.
How we manage it
• We have a programme of innovation,
based on deep-rooted consumer
insights, to continuously modernise our
portfolio of distinctly British brands to
ensure they remain relevant to today’s
shoppers.
• We continue to review the impact of
weather on sales during our monthly
product performance reviews.
Changes since 2017/18
• The Department of Health & Social Care
('DHSC') issued proposals in January
2019 to curb multi-buy promotions for
HFSS (High Fat Salt Sugar) products by
late 2020. We will review the potential
impact on sales and promotional activity,
and engage with the DHSC during the
consultation process.
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
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.
Changes since 2017/18
• There were no significant changes to
this risk.
• During the year the management bonus
scheme (which covers approximately
400 colleagues) has been strengthened
to aid with retention and recruitment.
29
Annual report for the 52 weeks ended 30 March 2019 STRATEGIC REPORT
Risk management
8 Strategy delivery
9 International expansion
10 Treasury and pensions
Link to strategy
Risk trend ▼
Link to strategy
Risk trend ▼
Link to strategy
Risk trend ▼
Risk and potential impact
Our ambitious 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 2017/18
• Growth of our International business
was impacted principally by over-supply
of cake in the Australian market and
price rises to export wholesalers which
resulted in lower sales within this group
of customers.
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 taken
together, are a substantial liability on
the balance sheet. Tri-annual pension
fund valuations, and hence requests for
deficit recovery contributions ('DRCs'),
are heavily impacted by financial market
conditions over which the Group has no
control. Trustees could potentially request
DRCs 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. Our revolving
credit facility expires in December 2022.
How we manage it
• Our executive director is actively
engaged with the pension trustees on
scheme funding and investment matters.
• The RHM pension scheme has a high
degree of hedging.
• We have a strong relationship with our
banking group and continue to review
our debt capital structure and revolving
credit facilities.
Changes since 2017/18
• On 26 October 2018, the High Court
ruled that pension schemes need to
equalise benefits for the inequality of
Guaranteed Minimum Pensions ('GMP')
between men and women. The impact
of this ruling is an increase in our pension
liabilities for the period ended 30 March
2019.
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 the speed at which we can deliver
shareholder value.
How we manage it
• Given the seasonal nature of many of our
brands, media investment is targeted in
the periods of peak consumer demand
and through the most cost-effective
channels.
• Our new and existing product
development programmes are based
on deep consumer insight and continue
to make our product ranges more
relevant to the ever-changing lives of our
consumers.
• Our strong strategic relationships with
our key customers facilitate the creation
and joint ownership of plans for mutual
growth.
Changes since 2017/18
• Our financial results for 2018/19
demonstrate that we are delivering
against our strategy and this is
supported by our internal plans for the
coming financial year which incorporates
an increase in consumer marketing and
capital expenditure.
• We embarked on a corporate exercise
to sell the Ambrosia brand to accelerate
debt repayment and allow accelerated
investment in the business. The process
did not result in a satisfactory financial
outcome but we continue to explore
strategic options to enhance shareholder
value.
30
Premier Foods plc
Brexit statement
As outlined in our initial update in November
2018, since the United Kingdom ('UK')
referendum result on membership of the
European Union ('EU') in June 2016 we have
been working to assess and mitigate the
likely impacts of Brexit on our customers and
suppliers under a variety of potential outcomes.
Given the continued uncertainty around the
overall shape of Brexit and in line with most
other food companies, we focused our efforts on
preparing for a no-deal Brexit.
Our fundamental objective is to ensure that we
offer continuity of service and supply to our
customers, wherever they are, and the purpose
of this statement is to provide further information
on how we plan to achieve this objective.
Background
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.
Brexit focus areas
Our initial risk assessment identified a number of
key areas that may potentially be impacted by
Brexit. In recent months we focused on those
areas that could have the most direct impact
on our ability to service customers, specifically
maintaining effective customer service and
supply chain, in the main related to efficient
movement of goods, the impact of potential tariff
and quota restrictions and ensuring compliance
with regulatory frameworks.
Our established Brexit Committee has fully
assessed each area and likely impacts have
been evaluated. We are also represented on
the Food and Drink Federation ('FDF'). In April
2019 the UK Parliament delayed the date of the
UK’s departure from the EU to 31 October 2019,
unless an agreement can be reached sooner. As
we approach the new deadline, we will review
the actions we need to take should there be an
increased risk of a no-deal Brexit.
Trading model
We have made minor amendments to our
internal trading model within Europe (principally
the Republic of Ireland) to ensure that our ability
to move UK manufactured product in to the EU
and vice versa is not at risk. These amendments
include reviewing which ports and airports are
best placed to offer the appropriate service
levels post-Brexit, as well as ensuring that we
have the right legal entities (i.e. those with full EU
recognition) looking after our imports and exports.
We do not expect customers or suppliers to be
significantly affected by our changes.
Customer service and supply chain
We worked with our customers and supply
chain partners to prepare for a no-deal Brexit.
We developed contingency plans to ensure
supply continuity and the effective operation of
our manufacturing sites and the likely resulting
confusion and delays at borders. These included
a programme of building our inventory of
finished goods and critical raw materials for our
key products. We expect to return stock levels
back to usual levels in the first few months of
the 2019/20 financial year and we will keep a
watching brief as the timings and our new trading
environment become clear. We also secured
additional warehousing capacity in the Republic of
Ireland ('ROI') to ensure continuity of supply.
Tariffs
The UK Government issued guidance on a
temporary tariff regime in the event of a no-deal
Brexit in March 2019. We have researched the
implications of potential tariffs and considered
the potential impact on our cost base and
explored strategies to mitigate them. The actions
we have undertaken include a review of our
supply chain for components and raw materials,
a plan to build stocks in-country i.e. ROI prior to
the date the UK leaves the EU and changes to
systems and processes to capture and report on
the new tariffs.
Regulatory
The Brexit Committee has reviewed the potential
regulatory impact of a no-deal Brexit on our
products which are produced and packaged
in the UK. We have put in place measures to
ensure our products will be compliant so as to
protect customer service levels after Brexit.
Viability statement
The Board has determined that the most
appropriate period over which to assess the
Company’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. The
Board also considered the nature of the Group’s
activities and the degree to which the business
changes and evolves 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 27 to 31 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 30 March 2019, £161.6m 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 of
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, and macro-economic
influences such as fluctuations in world currency,
commodity markets and the implications of Brexit.
The Board has considered the principal risks or
uncertainties and the potential impact of these
on the Group’s profitability or available cash
resources. In assessing the Group’s viability,
the Board also considered all the severe but
plausible scenarios simultaneously materialising
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.
Based on this assessment, the Board confirms
that it has 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 2 April 2022.
31
Annual report for the 52 weeks ended 30 March 2019 STRATEGIC REPORT Board of directors
Keith Hamill 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.
Alastair Murray
Acting CEO & Chief Financial Officer
Appointed to the Board: Appointed as Chief
Financial Officer in September 2013 and
additionally appointed Acting CEO in February
2019, on a temporary basis, while the Board
undertakes a search process to appoint a new
Chief Executive Officer.
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.
Simon Bentley A R N
Non-executive director
Appointed to the Board: February 2019.
Shinji Honda
Non-executive director
Appointed to the Board: March 2018.
Skills and experience: Simon is Executive
Chairman of UK mobile cash operator Cash on
the Move. Simon has over 30 years’ experience
in finance and retail, having previously served as
Chairman and Chief Executive of Blacks Leisure
Group plc, Acting Chairman/Senior Independent
Director of Sports Direct International plc,
Chairman of Umberto Giannini, and Deputy
Chairman of Mishcon de Reya. Earlier in his
career, Simon spent 10 years with accountancy
firm Landau Morley, latterly as a Senior Partner.
He is a qualified Chartered Accountant.
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.
Skills and experience: Shinji is Managing
Executive Officer and Chief Strategy Officer of
Nissin Foods Holdings Co., Ltd (‘Nissin’), with
responsibility for Nissin's long-term growth
strategy and 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 Senior
Managing Director and Corporate Strategy
Officer in October 2014, having previously had
responsibility for creating the company's long-
term growth strategy and overseeing Takeda’s
international operations, including the role of
President and CEO of Takeda North America.
Orkun Kilic
Non-executive director
Appointed to the Board: February 2019.
Skills and experience: Orkun is the Managing
Partner of Paulson Europe LLP, having joined
the company in 2011 where he was made
Head of European Investments in 2015. He is
the Portfolio Manager of the Paulson European
Opportunities Fund. Prior to joining Paulson
Europe, Orkun worked in Investment Banking
with Morgan Stanley, focusing on mergers and
acquisitions. Orkun received his Masters of
Business Administration from Harvard Business
School in 2009. He graduated magna cum laude
in business administration and economics from
Koc University, Turkey. Orkun also received his
Masters of Science in Financial Engineering from
Bogazici University, Turkey.
A
R
N
Audit Committee
Remuneration Committee
Nomination Committee
A
R
N
Committee Chair
Committee Chair (position currently vacant)
Committee Chair
32
Premier Foods plc Board attendance
During the year there were ten scheduled meetings of the Board and two meetings of the Audit
Committee, four meetings of the Remuneration Committee and three meetings of the Nomination
Committee. In addition, a number of other Board meetings and calls were convened for specific
business. 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 meetings and
Committee meetings are set out in the table below. Shinji Honda was unable to attend one Board
meeting due to a previously agreed business commitment overseas. Ian Krieger was unable to join
one Remuneration Committee meeting and one Nomination Committee meeting, both of which were
called at short notice, due to other business commitments. All directors (serving at the time) attended
the 2018 AGM.
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.
Daniel Wosner
Non-executive director
Appointed to the Board: February 2019 (having
previously served as a non-executive director
from March 2017 to March 2018).
Skills and experience: Daniel is Managing
Director & Head of Europe at Oasis Management
Company Ltd (‘Oasis’), having joined Oasis in
2016, where he is also a member of the firm’s
Strategies Group and Corporate Governance
Group. As Head of Europe, Daniel oversees the
firm’s UK and Continental European investments.
Prior to joining Oasis, Daniel served as Head of
the Asia Pacific Equity Syndicate team at Barclays
in Hong Kong and, before that, he worked with
Barclays and Lehman Brothers based in London.
Daniel, a UK national, received a Bachelor of Arts in
Politics from Leeds University.
Executive directors
Alastair Murray
Non-executive directors
Keith Hamill
Simon Bentley1
Richard Hodgson
Shinji Honda
Orkun Kilic1
Pam Powell
Daniel Wosner1
Former directors
Gavin Darby2
Ian Krieger3
Jennifer Laing3
Board
10/10
10/10
1/1
10/10
9/10
1/1
10/10
1/1
8/8
9/9
9/9
Appointed to the Board on 27 February 2019.
1.
2. Resigned as a director on 31 January 2019.
3. Resigned as a director on 27 February 2019.
Audit
Committee
Remuneration
Committee
Nomination
Committee
–
–
–
2/2
–
–
2/2
–
–
2/2
2/2
–
–
–
4/4
–
–
4/4
–
–
3/4
4/4
–
–
–
3/3
–
–
3/3
–
–
1/2
2/2
33
Biographies for the Executive Leadership Team can be found on our website:
www.premierfoods.co.uk/about/leadership
Annual report for the 52 weeks ended 30 March 2019 GOVERNANCE Governance overview
Chairman's introduction
Dear shareholder
The Board believes 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.
Overview of the year
As shareholders will be aware, there was
opposition to a number of resolutions tabled
at the AGM in 2018 and, over the course of the
year, I have continued an extensive dialogue
with our major shareholders. The views of
shareholders have been reviewed and discussed
by the Board as a whole, and we have also
spent considerable time reviewing the Group’s
strategy and the options which may accelerate
shareholder value, whilst giving careful
consideration to all shareholders’ views.
In November 2018, the Group announced that
it was engaged in discussions with third parties
regarding the potential disposal of its Ambrosia
brand. Whilst a number of parties expressed
interest in the business, and the Group engaged
in detailed discussions with a small group of
potential buyers, the Board concluded that in the
business climate at that time, the process would
not result in a satisfactory financial outcome. As
a result, these discussions were concluded.
In addition, over the year the Board has reviewed
and approved the Group’s annual budget and
three-year financial forecast. The Board has
regularly reviewed performance against budget
with the CEO, Acting CEO & Chief Financial
Officer 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 reviewed the Group’s approach to
Health and Safety, product safety and the control
of allergens as well as trends and issues relating
to nutrition, modern day slavery, gender pay and
plastic packaging. The Board also undertook a
review of talent management and succession
planning for senior management.
34
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).
However, as highlighted in the Chairman’s
Statement on page 03, there have been several
Board changes in the final quarter of the year
and, as a result, there are a number of areas of
non-compliance with the Code as we go through
a period of transition.
We currently do not have a Senior Independent
Director or Remuneration Committee Chair and
we are currently undertaking a search process
for a new CEO. As a result of the number of
Board changes, it was also agreed that the
normal review of Board effectiveness and of the
Chairman should be postponed until later in the
year. In addition, for a temporary period, there
was no Chair of the Audit Committee although
this position has now been filled.
The Board intends to remedy any areas of
non-compliance as soon as is practicable.
AGM
Our AGM will again be held at the offices
of Gowling WLG (UK) LLP, 4 More London
Riverside, London, SE1 2AU on Wednesday
17 July 2019 at 11.00 am and I look forward to
seeing you then.
Keith Hamill OBE
Non-executive Chairman
14 May 2019
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 discussion 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.
As noted earlier, the Company does not currently
have a SID but intends to rectify this situation as
soon as is practicable. 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
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
Premier Foods plc
website. Details of the work of the Nomination,
Audit and Remuneration Committees are set out
on pages 37, 38 and 44, respectively.
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 and
key corporate functions. The ELT meets monthly
and members regularly present to the Board.
Board appointments and tenure
Gavin Darby, who served as Chief Executive Officer
for six years, stepped down as a director on
31 January 2019. On 27 February 2019, following
discussions with shareholders, we announced
the appointment of Daniel Wosner of Oasis
Management Company Ltd ('Oasis'), Orkun Kilic of
Paulson & Co. Inc. ('Paulson') and Simon Bentley as
non-executive directors. To facilitate these changes
Ian Krieger and Jennifer Laing both retired from the
Board with effect from that date. The average length
of appointment of our non-executive directors is 1.8
years, the tenure of individual appointments can be
seen in the following chart.
Board Tenure
s
r
a
e
y
5
2
4
.
n
o
s
g
d
o
H
d
r
a
h
c
R
i
s
r
a
e
y
5
1
.
l
l
i
m
a
H
h
t
i
e
K
h
t
n
o
m
1
y
e
l
t
n
e
B
n
o
m
S
i
r
a
e
y
1
a
d
n
o
H
i
j
i
n
h
S
s
r
a
e
y
9
5
.
l
l
e
w
o
P
m
a
P
h
t
n
o
m
1
c
i
l
i
K
n
u
k
r
O
h
t
n
o
m
1
r
e
n
s
o
W
l
i
e
n
a
D
Board independence
As the Group is a smaller company, as
defined under the Code, we comply with the
requirement to have at least two independent
non-executive directors. The Board intends
to assess the balance on the Board, in view
of the requirements of the 2018 Code (which
will apply to our next financial period) which
recommends that at least half the Board,
excluding the Chairman, should comprise non-
executive directors determined by the Board to
be independent.
Board
independence
Chairman: 1
Independent directors: 3
Non-independent directors: 4
Only independent non-executive directors are
members of the Company’s Board committees,
with the exception of the Chair of the Nomination
Committee. 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,
Orkun Kilic and Daniel Wosner, who represent our
three largest shareholders, are fully independent of
management but are not considered independent.
Conflicts of interest
The Group has procedures in place for
managing conflicts of interest and directors have
continuing obligations to update the Board on
any changes to these conflicts. This process
includes relevant disclosure at the beginning of
each Board meeting and also the Group’s annual
formal review of potential conflict situations
which includes the use of a questionnaire.
Under our Relationship Agreements with Nissin,
Oasis and Paulson, each is entitled to nominate
an individual for appointment to the Board so
long as they retain an interest in shares in the
Company (for Nissin this represents 15% of
issued share capital and for Oasis and Paulson
this represents 10% of issued share capital).
As a result, around 43.5% of the shareholder
register are now represented on the Board.
During the period to 30 March 2019 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 or letter
of appointment.
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 Board
colleagues, the ELT and key management, site
visits and an induction and governance pack.
35
Annual report for the 52 weeks ended 30 March 2019 GOVERNANCE
Governance overview
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 business review;
Health and Safety, employee and corporate
affairs updates; commercial updates; new
product development; customer service levels;
operations and logistics; strategic projects;
capital expenditure; CFO report; management
accounts; investor relations; and treasury report.
Board and Committee evaluation
As a consequence of the Board changes
which took place in the final quarter of the year,
it was agreed that the Board evaluation for
2018/19 would be postponed until later in the
year to allow new members time to familiarise
themselves with Board colleagues and the Board
and Committee processes.
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. The evaluation for
2019/20 will therefore be externally facilitated.
Assessment of Chairman’s performance
As part of the annual Board evaluation process
a review is undertaken of the Chairman’s
performance, led by the Senior Independent
Director. As with the Board evaluation, it was
agreed that it was appropriate to defer this
review until later in the year.
Connecting with our stakeholders
Like all major businesses the Group operates in
a complex and interconnected commercial and
regulatory environment which impacts and touches
many different stakeholders. The Board must act
in a way most likely to promote the success of the
Group for the benefit of its members as a whole,
and in so doing, have regard for the interests of its
wider stakeholders and the viability of the business
over the long-term.
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 five 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.
In addition, Investor Days are held periodically
which provide investors and analysts with a
more detailed insight into the business. The
Group hosted a half-day event at its offices in
July 2018.
The Chairman 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 are available to meet with
shareholders both before and after the meeting.
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
Senior 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 concluded that
the potential for a 'buy in' or 'buy out' of RHM
Pension Scheme liabilities is currently closer
than previously anticipated and will be jointly
monitoring the market over the next few years.
Banks
Regular updates are provided to the Group’s
current banking syndicate on the Group’s
financial performance.
Other stakeholders
Details of how we engage with other
stakeholders including colleagues, suppliers,
community, government and wider society are
set out in the section on responsibility on pages
18 to 25.
36
Premier Foods plc Nomination Committee report
Dear shareholder
On behalf of your Board, I am pleased to present
the Nomination Committee report for the period
ended 30 March 2019. 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. With the exception of myself, as
Group Chairman, only independent non-executives
are members of the Committee. Details of the
Committee’s membership and meeting attendance
are set out on pages 32 and 33.
Appointment process for new CEO
The Committee, led by the Chairman, is
responsible for undertaking the search process
for a new CEO, following the departure of Gavin
Darby in January 2019.
Russell Reynolds (who are periodically used by
the Group for executive recruitment) have been
engaged to assist and advise Premier Foods on
the search and appointment process. Following
consultation with the Chairman and the
Nomination Committee, Russell Reynolds have
drawn up a clear specification for the desired
candidate and we look forward to updating
shareholders further in due course.
Appointment of new NEDs
Following discussions with shareholders
in February 2019, the Board entered into
relationship agreements with Oasis and Paulson
and agreed to appoint Daniel Wosner and
Orkun Kilic as non-executive directors and
that Ian Krieger and Jennifer Laing would both
step down from the Board. At the same time,
the Board was made aware of the availability
of Simon Bentley and, recognising the need
to appoint a new non-executive director with
relevant financial experience, it was agreed to
accelerate the selection process on the basis
of a sole candidate. Members of the Board
met with Mr Bentley over several stages of
interview, following which it was agreed that
Mr Bentley had the necessary business and
financial experience and satisfied the criteria for
independence.
Succession management
There is a strong culture of succession
management within the organisation which has
resulted in an increasing proportion of senior
roles being filled internally. This is recognised by
colleagues and helps with retention of talent and
in external recruitment. There is an established
leadership programme in place designed to
help prepare senior managers to take on more
challenging roles and this is complemented at a
more junior level with our graduate recruitment
programme. The Board reviewed succession
plans during the year. This covered the executive
directors, the Executive Leadership Team and
their direct reports. In the majority of cases
internal candidates were identified, although
there were a number of positions where, due
to the nature of the role, external succession
was assessed to be the only viable option.
Development plans and succession gaps were
reviewed. The Board also assessed the diversity
of the pipeline for succession and it was noted
that 50% of the current and medium-term
succession candidates were female.
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. The Committee is also mindful of
the benefits that an inclusive culture can bring
to our organisation as a whole and further
information on our approach to diversity and the
levels of diversity across the Group can be found
on pages 19 and 20.
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. Whilst we have had two female
Board members since 2013, following the
Board changes announced in February 2019,
the number of female directors has currently
reduced to one. The Board remains committed
to its policy on diversity and intends to remedy
the situation as soon as is practicable.
Board diversity
25%
12.5%
2017/18
2018/19
2018/19 1 of 8 directors
2017/18 2 of 8 directors
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 by the Nomination Committee
as part of its assessment of the composition
of the Board. Following this review it was
agreed that, notwithstanding the areas of non-
compliance which require remedy (as highlighted
on page 34), the Board had an appropriate
balance of skills, experience and knowledge of
the Group to enable it to discharge its respective
duties and responsibilities effectively. In addition,
the current Board was felt to have a broad range
of retail, marketing, commercial and financial
experience which is appropriate for the size
and complexity of the Group. Consequently, the
Nomination Committee recommended the re-
election (or election) of all directors at the 2019
AGM.
Keith Hamill OBE
Nomination Committee Chairman
14 May 2019
37
Annual report for the 52 weeks ended 30 March 2019 GOVERNANCE Audit Committee report
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 42 and 31, respectively;
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
reviewed calls received from the
whistleblowing helpline.
•
•
Committee effectiveness
As set out on page 34, the 2018/19 Board and
Committee evaluation has been deferred.
Auditor appointment, independence and
non-audit services
KPMG were appointed as external auditor in
September 2015 following a comprehensive
tender process. In 2016, the Audit Committee
reviewed and approved a new policy on external
auditor independence and non-audit services
which brought the Group’s policy into line
with the EU Regulation and Statutory Audit
Directive (which came into force in 2016) and
encompasses audit firm rotation and restrictions
on non-audit services. The restrictions on non-
audit services will not fully impact the Group until
the financial period 2020/21. In the intervening
period, non-audit spend up to £100,000 must
be approved by the Audit Committee Chairman
and spend in excess of £100,000 requires
approval by the full Audit Committee.
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 that they employ to safeguard their
independence, integrity and objectivity.
KPMG undertook a significant level of non-audit
work during the period which related to the
preparation of a working capital report in respect
of the proposed sale of the Group’s Ambrosia
brand and assurance work in respect of the
issue of £300m 5 year Senior Secured fixed rate
notes during the first quarter of 2018/19. As a
consequence, non-audit fees for the period were
£493,020 (2017/18: £115,000) representing
127% of the audit fee. The Committee is mindful
of guidelines in respect of non-audit services and
the potential threat to auditor independence. The
Committee assessed that, in both cases, the
nature of the work would be best performed by
KPMG due to their knowledge of the business,
the timescale required for completing the
assignments and the overall cost in undertaking
the work. In addition, KPMG consulted their
own internal Audit Quality and Risk Management
team prior to agreeing the engagements.
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.
External auditor effectiveness
Over the course of the year, the Committee
has continued to review the effectiveness and
independence of the auditor and assessed
the effectiveness of the external audit process
by reference to the scope of the audit work
undertaken, presentations to the Committee,
feedback from management involved in the
audit process and separate review meetings
held without management. Following this
assessment, the Committee has recommended
to the Board that KPMG be reappointed at the
AGM in 2019 (the Board’s recommendation is
set out on page 43).
Dear shareholder
On behalf of your Board, I am pleased to
present the Audit Committee report for the
period ended 30 March 2019. 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 two occasions in the
year without the presence of management.
I was appointed as Audit Committee Chairman
in March 2019, following the retirement of
Ian Krieger who had chaired the Committee
since 2013. 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 32
and 33. In addition to the Committee members,
the CEO, CFO, Chairman, Group Director of
Financial Control, Head of Internal Audit and
external audit partners are regularly invited to the
Committee’s meetings.
38
Premier Foods plc 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 rely on management
judgement.
The brands, trademarks and licences are
deemed to be individual Cash Generating
Units (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.
There is no goodwill attributable to the Sweet
Treats or Knighton CGUs and the International
CGU 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 and costs to sell
the 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 £30.6m
impairment relating to two of the Group’s brands
was required. A goodwill impairment of £4.3m
was recognised during the prior period relating
to Knighton. Further information is set out in
notes 11 and 12 on pages 93 and 94.
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 43.
In making this recommendation the Committee
considered the process for preparing the annual
report, which included regular cross functional
reviews from the teams responsible for preparing
the different sections of the report, senior
management review and verification of the factual
contents. It also considered the balance and
consistency of information, the disclosure of risk
and the key messages presented in the report.
Significant issues in relation to the
financial statements
The Committee considered the following
significant issues in relation to the financial
statements with management and the internal
and external auditor during the year:
Commercial arrangements
Commercial payments to customers in the form
of rebates and discounts represent significant
balances in the income statement and balance
sheet. Calculations of these balances require
management assumptions and estimates,
including volumes sold and the period of the
arrangements. 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 trade promotions
management system which included certain areas
of commercial arrangements. Further information
is set out in note 3.4 on page 84.
Risk management
Details of our risk management process are set
out in the risk management section on pages
26 to 31.
Internal controls
In accordance with the FRC guidance on audit
committees and the Code, an annual review of
internal controls is conducted. The Board has
delegated authority to the Audit Committee to
monitor internal controls and conduct the annual
review. This review covers all material controls,
such as financial, operational and compliance,
and also the overall risk management system in
place throughout the year under review, up to
the date of this annual report. The Committee
reports the results of this review to the Board
for discussion and, when necessary, agreement
on the actions required to address any material
control weaknesses. The Committee confirms
that it has not been advised of any failings or
breaches which it considers to be significant
during the financial period and found the internal
controls to be effective.
Internal audit
Audit work over the year focused on the
following five core areas:
Governance and oversight – Data protection,
anti-bribery and corruption and Competition law.
Business and Operations – Trade promotions
management, business continuity planning,
accounts payable and inventory management.
Finance, HR & admin – Payroll, expenses and
the control framework.
Site/Factory – Financial and operational control
environment.
Technology – Cyber security systems, policies,
procedures and controls.
Following my appointment as Audit Committee
Chair, I have held a number of meetings with the
Head of Internal Audit. In addition, the Committee
has considered the effectiveness of the function
as part of its review and approval of the three-year
audit plan and has also considered the resourcing
of the function and its interaction with the external
auditor. The Committee has concluded that the
internal audit function remains effective.
39
Annual report for the 52 weeks ended 30 March 2019 GOVERNANCE Audit Committee report
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 30 March 2019 the RHM
Pension Scheme reported a surplus of £837.8m
and the Premier Schemes reported a deficit
of £464.7m (2017/18: RHM Pension Scheme
surplus of £754m; Premier Schemes deficit of
£437.0m), largely driven by the decrease in the
discount rate which is based on corporate bond
yields and increase 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 and also
the methodology for calculating the GMP
equalisation charge. While the impact of GMP
equalisation will take a number of years to fully
assess, the Committee reviewed management’s
best estimate of the impact on liabilities and
corresponding charge to the statement of profit
and loss. The financial assumptions were based
on the same methodology as last year. Further
information is set out in note 20 on pages 105
to 111.
Deferred Tax
Deferred tax arises due to timing differences
and can either be an asset or liability on the
balance sheet. An asset may be used to reduce
future taxable income; a liability represents a
future tax payment that is expected to be made.
Calculating the value of the asset or liability
accurately involves assessing several factors such
as forecasts of future taxable profits and growth
rates and an assessment of historic forecasts
as well as accessibility of losses held in Group
companies and any periods open to HMRC
enquiry. The current year liability of £13.5m was
compared to a liability of £12.1m in 2017/18,
largely driven by a slight increase in the pension
scheme combined surplus. Further information is
set out in note 8 on pages 88 to 90.
Outsourcing of warehousing and
distribution
Given the continued complexity associated with
the transition to the single warehousing and
distribution provider and the resulting financial
implications, the Audit Committee reviewed the
quantum, nature and classification of associated
implementation costs as well as the valuation
of inventory at the period end. In doing so, the
estimation uncertainty inherent in the inventory
valuation was reviewed as well as any judgement
applied by management when classifying
implementation costs as restructuring.
Simon Bentley
Audit Committee Chairman
14 May 2019
40
Premier Foods plc Other statutory information
Directors’ report
The directors’ report consists of pages 02 to
61 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 loss before tax for the financial year was
£(42.7)m (2017/18: profit of £20.9m). The directors
do not recommend the payment of a dividend
for the period ended 30 March 2019 (2017/18:
£nil). Under the terms of our current financing
arrangements dividends are only permitted once
the Group’s Net debt to EBITDA ratio (as defined
in the relevant agreements) 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 £9.9m
(2017/18: £9.2m).
Share capital information
The Company’s issued share capital as at
30 March 2019 comprised 844,928,687 ordinary
shares of 10p each. During the period 4,306,470
ordinary shares were allotted to satisfy the
vesting of awards made to colleagues under
the all-employee Sharesave Plan, details of the
movements can be found in note 22 on page
112. 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 of
the Company 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
2018 AGM to allot relevant securities under two
separate resolutions (i) up to one-third of the
Company’s issued share capital; and (ii) up to
two-thirds of the Company’s issued share capital
in connection with a rights issue. This authority
will apply until the conclusion of the 2019
AGM. A similar authority will be sought from
shareholders at the 2019 AGM. The Company
does not currently have authority to purchase
its own shares and no such authority is being
sought at the 2019 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 49.
Articles of association
The Company’s Articles (which are available on
the Group's website www.premierfoods.co.uk)
may only be amended by a special resolution
at a general meeting. 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 13 May 2019,
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 Ltd
101,312,591
Paulson & Co. Inc.3 101,199,294
Brandes Investment
Partners, L.P.
Bank of America
Corporation
JPMorgan Chase
& Co
Standard Life
Aberdeen plc
45,797,425
39,171,378
42,162,265
43,026,105
% of share
capital2
19.47
11.99
11.98
5.09
4.99
5.42
4.64
1. Number of shares held at date of notification.
Per cent of share capital as at 30 March 2019.
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, reappoint or remove directors by an
ordinary resolution. In addition, the appointment
of Messrs Honda, Kilic and Wosner are subject to
the terms of shareholder relationship agreements
(see Conflicts of interest on page 35).
41
Annual report for the 52 weeks ended 30 March 2019 GOVERNANCE Other 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.
Political donations
The Company’s policy is not to make political
donations and no such donations were made in
the financial period.
Greenhouse gas (GHG)
emissions reporting
In the table opposite we have detailed our scope
1 & 2 GHG emissions for the period 1 January
2017 to 31 December 2018 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. In comparison with 2017, we have reduced
our GHG emissions by 17.2% in 2018. The
reduction in emissions is largely the result of the
move from kerosene to natural gas at our Lifton
site and the reduction in the overall amount of
coal power generated electricity used by the
National Grid.
GHG Emissions
Scope 1
Scope 2
Total annual net emissions
Overall Intensity (kgCO2e per tonne of product)
Methodology
Premier Foods’ GHG emissions were assessed and
calculated using internal data and emission factors
from Defra’s Conversion Factors for Company
Reporting 2018 for converting energy usage to
carbon dioxide equivalent (CO2(e)) emissions.
We have followed the methodology in the GHG
Protocol Corporate Accounting and Reporting
Standard (revised edition). The analysis has used
an operational control approach. This assessment
takes into account all of the emission sources
required under the Companies Act 2006. The
emissions data relates to all production sites within
the control of the Company during the period.
Colleague 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 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,
while in head office we run ‘Listening Groups’
and also host ‘Meet the CEO’ sessions and
‘Lunch and Learn’ events.
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
2018
38,938.29
25,779.88
64,718.17
181.84
2017
44,157.39
31,792.58
75,949.97
219.69
Base Year
(2011)
158,164.71
133,046.62
291,211.33
143.3
for training, career development and promotion
for people with disabilities as for other colleagues.
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.
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 77. The Company’s
viability statement is set out in the section on risk
management on page 31.
Related parties
Details on related parties can be found in note
27 on page 117.
Subsequent events
Details relating to subsequent events can be
found in note 28 on page 117.
42
Premier Foods plc Statement of directors’ responsibilities
in respect of the annual report and the financial statements
The directors are responsible for preparing
the annual report and the Group and parent
Company financial statements in accordance
with applicable law and regulations.
Company law requires the directors to prepare
Group and parent Company financial statements
for each financial year. Under that law they
are required to prepare the Group financial
statements in accordance with 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 in
accordance with UK accounting standards,
including FRS 101 Reduced Disclosure
Framework.
Under company law the directors must not
approve the financial statements unless they
are satisfied that they give a true and fair view
of the state of affairs of the Group and parent
Company and of their profit or loss for that
period. In preparing each of the Group and
parent Company financial statements, the
directors are required to:
•
select suitable accounting policies and then
apply them consistently;
• make judgements and estimates that are
•
•
reasonable, relevant and reliable;
for the Group financial statements, state
whether they have been prepared in
accordance with IFRSs as adopted by
the EU;
for the parent Company financial statements,
state whether applicable UK accounting
standards have been followed, subject
to any material departures disclosed and
explained in the parent Company financial
statements;
• 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
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:
•
•
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 reappointed as auditor of the
Company. Upon recommendation of the Audit
Committee the reappointment of KPMG and the
setting of their remuneration will be proposed at
the 2019 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 14 May 2019 and signed on its behalf by:
Simon Rose
General Counsel & Company Secretary
companysecretary@premierfoods.co.uk
43
Annual report for the 52 weeks ended 30 March 2019 GOVERNANCE Directors’ Remuneration report
Annual Statement
Dear shareholder
There is currently no Chair of the Remuneration
Committee, following the retirement of Jennifer
Laing, who stepped down from the Board in
February 2019. The Board intends to remedy
this situation as soon as is practicable. I have
been nominated, on behalf of the Board, to
make this statement in respect of the Directors’
Remuneration report for the period ended
30 March 2019.
Gavin Darby
Following discussions between the Board and
Gavin Darby it was announced on 13 November
2018 that he would step down as CEO of
the Company, with effect from 31 January
2019, having served as CEO for six years. The
Committee exercised discretion to treat Mr
Darby as a ‘good leaver’ in relation to his leaving
arrangements (which were made available
following his departure on the Group’s website)
and full details are provided on page 53. All
payments were made pursuant to the terms
of his service agreement and in line with the
Directors’ Remuneration Policy and applicable
share plan rules.
Alastair Murray
Alastair Murray was appointed Acting CEO on
1 February 2019, in addition to his current role
of Chief Financial Officer, on a temporary basis
whilst the Board conducts a search process
for a new CEO. In recognition of this significant
additional responsibility, it was agreed that
Alastair would receive an additional monthly
salary supplement of £20,000 (which does not
count towards pension, annual bonus or long-
term incentives) whilst he carries out this role.
Annual Bonus performance
outcome for 2018/19
The Committee reviewed the performance of
both executive directors over the financial period
and assessed the extent to which their annual
bonus goals had been achieved. The Group
delivered a strong performance in 2018/19 with
Trading profit up 4.5% and Net debt reduced
significantly from £496.4m to £469.9m, both
ahead of market expectation.
In addition, the Committee assessed the
executive directors’ strategic and personal goals
and it was agreed that a significant proportion of
these had been successfully achieved. Following
the review the Committee assessed that, based
on performance over the year, a bonus of
60.0% of opportunity for Mr Darby (reduced pro
rata for his period of service) and of 53.0% of
opportunity for Mr Murray was appropriate.
Full details of the assessment are set out on
pages 53 to 55.
One-third of any annual bonus payment to
Mr Murray will be 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 56. The time pro-rated
bonus payable to Mr Darby will be paid fully in
cash, in accordance with the ‘Policy on payment
for loss of office’ (see page 50).
Annual Bonus for 2019/20
The Committee reviewed the structure of the
annual bonus scheme during the year and
has made a number of changes to simplify the
performance measure and their weightings,
whilst maintaining alignment with the delivery of
the Group’s strategy. As a result, the personal
element of bonus has been removed and the
weighting for Strategic measures increased
to 50%. In addition, the overall number of
Strategic objectives has been reduced. These
changes are all within the Company’s existing
Remuneration Policy.
Annual Bonus
performance
measures
Financial
Strategic
Personal
2018/19
2019/2020
50%
35%
15%
50%
50%
–
LTIP
The Committee assessed the performance
conditions for the 2016 LTIP award and, following
this assessment, the award has lapsed in full.
The targets for the annual bonus and LTIP
awards for 2019/20 are aligned with the Group’s
strategic priorities and this is illustrated in the
table opposite. Further details of the measures for
2019/20 are provided on page 57.
Salary
The Committee approved a salary increase
for 2018/19 of 2.0% for Mr Murray, in line with
the increase for all colleagues not involved in
collective bargaining.
Remuneration Policy
In line with regulatory requirements, the
Committee will be reviewing the Company's
Remuneration Policy during the year and
the new Remuneration Policy will be put to
shareholders at the AGM in 2020.
Voting at the AGM
The Company received a significant vote
against the Remuneration Report at the AGM
in July 2018. This was the result of certain
shareholders opposing a number of resolutions
at the meeting, rather than an issue specifically
directed at the Company’s Remuneration Policy.
As highlighted in the Chairman’s Statement on
page 03, the Board continues to give careful
consideration to the views of all shareholders
and continues to look at strategic options which
may accelerate the creation of shareholder value.
2018 UK Corporate Governance Code
Following the publication of the UK Governance
Code in 2018, the Committee is undertaking a
review of remuneration arrangements in light of
the new requirements.
On behalf of the Board
14 May 2019
Richard Hodgson
Non-executive director
44
Premier Foods plc 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
and 06).
Strategic priority
Drive revenue
growth
Group KPIs
(see pages 08 and 09)
Annual Bonus Goals
(see page 56)
LTIP targets
(see page 57)
Group revenue
Trading profit
Branded market share
Trading profit
Strategic objectives
Adjusted EPS
Cost control
& efficiency
SG&A as a % of
Group revenue
Net debt
Strategic objectives
Cash generation Free cash flow
Net debt/EBITDA
Reducing
Net debt
Delivering
shareholder
value
Net debt
Strategic objectives
Net debt
Strategic objectives
Strategic objectives
Relative TSR
Being
responsible and
sustainable
Health and safety
Healthier choices
Environmental
(see pages 18 to 25)
Strategic objectives
Share ownership and retention periods
To align executive directors’ interests with those of shareholders they 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 a value at
least equal to their annual salary (valued at the time of purchase or vesting).
In addition, to encourage a focus on the long-term sustainable development
of the business, retention periods have been introduced for both the annual
bonus scheme and Long-Term Incentive Plan. One-third of any annual bonus
award is deferred into shares for three years under the Deferred Bonus Plan. In
addition, any shares which vest under LTIP awards granted since 2018 will be
deferred for a further two-year period.
Y1
Y2
Y3
Y4
Y5
Annual Bonus (Deferred Bonus Plan)
LTIP
Performance period
Retention period
Risk, discretion and judgement
The Committee seeks to ensure that targets for annual bonus and long-
term incentives are aligned with the Group’s strategy and the long-term
sustainable development of the business. Targets are reviewed to ensure
they reflect the overall risk appetite set by the Board and do not encourage
inappropriate behaviours or excessive risk taking.
The Committee retains discretion to override formulaic outcomes produced
by the performance conditions where, in the Committee’s view, they do not
reflect the performance of the business over the period, individual performance
or where events happen that cause the Committee to determine the conditions
are unable to fulfil their original intended role.
Malus and clawback
Recovery provisions apply to both the cash and share elements of the
annual bonus plan and recovery and withholding provisions apply to the LTIP.
Non-executive directors
Fees payable to non-executive directors are determined by the Board. The
level of fee is set in the context of the time commitment and responsibilities
required by the role. As a result, additional fees are payable to the Chairs
of the Audit and Remuneration committees and also for the role of Senior
Independent Director. These are reviewed on an annual basis, no change
has been made to the basic NED fee since 2009.
Senior management and the wider workforce
Remuneration for executive directors 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 sizes of roles
and levels of accountability required for the role and that executive directors and
senior management 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 July
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 and the Board is kept regularly updated on
these arrangements.
The Committee reviews the level of salary increases for colleagues not
involved in collective bargaining and also reviews and approves the annual
bonus plan for the general management population. Financial objectives
for executive directors and the management population are aligned and
strategic objective cascaded down the management structure. During
the year, the Committee approved changes to the management scheme
to make it more competitive and aid recruitment and retention. 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 our shareholding
guidelines. In line with the recommendations of the new UK Governance
Code, published in 2018, the Committee is currently reviewing how it
engages with colleagues across the business.
45
Annual report for the 52 weeks ended 30 March 2019 GOVERNANCE Directors’ Remuneration report
Remuneration 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 30 March 2019 and has been updated to reflect 2018/19
pension limits, the current salary review date and current composition of the Board. In addition, the scenario chart on page 49 has been updated to
reflect current remuneration levels. There are no proposals to amend the Directors’ Remuneration Policy at the 2019 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.
Normally reviewed annually (currently with
effect from 1 July) 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.
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.
The Company typically provides the
following benefits:
• Company car or cash allowance in
lieu of company car. 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;
•
•
• Professional memberships;
• Allowance for personal tax and financial
Telecommunication services;
Life insurance;
Pension
To offer market competitive
levels of benefit and help
to recruit and retain and
to recognise long-term
commitment to the Group.
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.
N/A.
Performance period: N/A.
The maximum contribution of allowance
for executive directors is 20% of basic
salary. The level of contribution or
allowance for the current executive
director is as follows:
The Company contributes 7.5% of basic
pay up to an Earnings Cap (£160,800 for
2018/19, but increasing each April in line
with the Retail Prices Index) and pays a
salary supplement (£24,348 for 2018/19),
which increases each April in line with the
Retail Prices Index).
46
Premier Foods plc Link to strategy
Operation
Maximum opportunity
Performance measures
Annual
Bonus
Designed to incentivise
delivery of annual financial and
operational goals and directly
linked to delivery of the Group’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.
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 one-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.
The current award level for the CFO is
150% of salary.
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 an 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.
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)
Participants may save up to the statutory
limit (currently £500 per month but subject
to any lower limit set by the Committee)
over a three year period, following
which they have the opportunity to buy
Company shares at a price set at the
beginning of the savings period.
None, other than continued employment
Performance period: Three years.
47
Annual report for the 52 weeks ended 30 March 2019 GOVERNANCE Directors’ Remuneration report
Link to strategy
Operation
Maximum opportunity
Performance measures
Shareholding
guidelines
To align executives’ interests
with shareholders.
Non-executive
director fees
Provides an appropriate level
of fixed fee to recruit and
retain individuals with a broad
range of experience and skill
to support the Board in the
delivery of its duties.
Fees are reviewed annually.
Executive directors are expected to retain
50% of shares from vested awards under
the DBP and the LTIP (other than sales to
settle any tax or NICs due) until they reach
their guideline multiple of salary in shares
(which is currently 100% of salary). The
Committee will review progress against the
guidelines (which are set out in the Annual
Report on Remuneration) on an annual
basis.
The remuneration of non-executive
directors is determined by the Chairman
and executive directors. The remuneration
of the Chairman is determined by the
Remuneration Committee.
Includes a Chairman’s fee and standard
non-executive fee. Additional fees are
payable for additional responsibilities, for
example the roles of Committee Chairs and
the Senior Independent Director.
Any reasonable business-related expenses
(including tax thereon) which are determined
to be a taxable benefit can be reimbursed.
N/A.
N/A.
Performance period: N/A.
N/A.
Performance period: N/A.
Increases are normally expected to be in
line with the market, taking into account
increases across the Group as a whole,
subject to particular circumstances
such as a significant change in role,
responsibilities or organisation.
The current aggregate maximum under
the Company’s Articles of Association
for the Chairman and the non-executive
directors is £1,000,000.
1. Notes to the policy table
For the avoidance of doubt, in approving this Directors’ Remuneration
policy, authority is given to the Company to honour any commitments
entered into with current or former directors that have been disclosed to
shareholders in previous remuneration reports. Details of any payments to
former directors will be set out in the Annual Report on Remuneration as
they arise as required under the Remuneration Regulations.
The Committee operates the Annual Bonus plan, DBP, and LTIP according
to their respective rules which include flexibility in a number of areas. These
include:
•
•
•
•
•
•
•
•
the timing of awards and payments;
the size of an award, within the maximum limits;
the participants of the plan;
the performance measures, targets and weightings to be used for the
annual bonus plan and long-term incentive plans from year-to-year;
the assessment of whether performance conditions have been met;
the treatment to be applied for a change of control or significant
restructuring of the Group;
the determination of a good/bad leaver for incentive plan purposes and
the treatment of awards thereof; and
the adjustments, if any, required in certain circumstances (e.g.
rights issues, corporate restructuring, corporate events and special
dividends).
Choice of performance measures and approach to target setting
The Committee reviews the performance measures used in the incentive
arrangements on an annual basis to ensure that they remain appropriate
and aligned to the delivery of the annual business plan and Group strategy.
Currently the annual bonus measures consist of financial targets (50%) and
strategic objectives (50%). 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.
Currently, the LTIP uses a combination of adjusted earnings per share and
total shareholder return based measures to reflect both an internal measure
of Group performance as well as the delivery of shareholder value. Targets
are set taking into account both internal and external assessments of future
performance and what constitutes good and superior returns for shareholders.
The Committee also retains the discretion within the policy to adjust the targets
and/or set different measures and/or alter weightings for future awards.
In addition, the Committee also retains the discretion within the policy to
amend the existing performance conditions for the incentive plans if events
happen that cause it to determine that the conditions are unable to fulfil
their original intended purpose.
The Committee will consider the bonus outcomes against all of the pre-set
targets following their calculation and in exceptional circumstances may
moderate (up and down) these outcomes to take account of a range of
factors, including the Committee’s view of overall Group performance
for the year. No upward moderation would be undertaken without first
consulting with major shareholders.
48
Premier Foods plc 2. Remuneration scenarios and weighting
This chart indicates the level of remuneration that could be earned by the current executive director at minimum, target, maximum and maximum +50%
growth, under the Company’s current Directors’ Remuneration Policy.
Chief Financial Officer
£2,000
£1,800
£1,600
£1,400
£1,200
£1,000
£800
£600
)
0
0
0
'
£
(
n
o
i
t
a
r
e
n
u
m
e
R
£1,006
31%
22%
£475
£1,849
51%
£1,537
41%
28%
24%
£400
100%
47%
31%
25%
£200
£0
Minimum
Target
Maximum Max +50%
growth
Fixed pay
Annual Bonus
LTIP
Notes:
1.
2.
3.
As the DBP is a portion of Annual Bonus it is included within this
segment.
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.
Assumptions when compiling the charts are:
Minimum = fixed pay only (base salary, benefits and pension).
Target = fixed pay plus 50% of Annual Bonus payable and 50% of LTIP
vesting.
Maximum = fixed pay plus 100% of Annual Bonus payable and 100%
of LTIP vesting.
Maximum +50% growth = fixed pay plus 100% of Annual Bonus
payable and 100% of LTIP vesting at a 50% higher share price than
when the LTIP was awarded.
3. Service contracts
The current executive director has a rolling service contracts. The current executive director's service contract contains the key terms shown in the table
below. 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 agreement does not provide for any enhanced payment in the event of a change of control of the Company.
Standard notice period is set at 12 months from the executive director 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 Messrs Honda, Kilic and Wosner whose appointments are
governed by their Relationship Agreements between the Company and Nissin Foods Holdings Co., Ltd, Paulson & Co. Inc. and Oasis Management Company
Ltd, respectively.
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).
49
Annual report for the 52 weeks ended 30 March 2019 GOVERNANCE
Directors’ Remuneration report
− 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.
5. Policy on payment for loss of office
The Committee aims to deal fairly with cases of termination, while
attempting to limit compensation and honour contractual remuneration
entitlements. The principles that would be followed are:
• The executive directors have rolling contracts with 12 months’ notice
periods.
• The Company may elect to terminate employment immediately in
circumstances where it considers it to be appropriate by making a
payment in lieu of notice equivalent to the executive director’s salary,
pension and benefits for the notice period in two equal instalments (the
first within 28 days of termination and the second six months following
the date of termination). These payments are subject to the executive
director’s duty to mitigate his loss by finding alternative employment. If
the executive director finds an alternative position, future payments will
be reduced by the amount of remuneration received by the executive
director pursuant to that alternative remunerated position.
• Salary, pensions and benefits will generally not be paid to a ‘bad
leaver’ in lieu of notice. The Company may terminate an executive
director’s employment without notice (or payment in lieu) in certain
circumstances, including where he commits an act of dishonesty,
is guilty of gross misconduct or a serious breach of his service
agreement.
• A time pro-rated bonus (where relevant in respect of that bonus year)
may be payable (and for the former CEO was 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 former CEO was 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:
50
Premier Foods plc 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
Pension and benefits
Performance based pay
Buy outs
Notes:
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.
In line with the above Directors’ Remuneration Policy table.
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.
1.
2.
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 July
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.
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.
51
Annual report for the 52 weeks ended 30 March 2019 GOVERNANCE Directors’ Remuneration report
Annual Report on Remuneration
An advisory vote on this Annual Report on Remuneration will be put to shareholders at the AGM on 17 July 2019.
Single figure table for total remuneration (audited)
Single figure for the total remuneration received by each executive director for the 52 weeks ended 30 March 2019 (2018/19) and 31 March 2018 (2017/18).
Salary
Salary supplement
Taxable benefits
Pension
Annual Bonus
Share based awards
Total
Gavin Darby
Mr Darby received a basic salary of £700,000 per annum and a salary
supplement in lieu of pension of 20% of base salary on a pro rata basis
for the period up to 31 January 2019. Mr Darby received a pro rata bonus
of £525,500 for the financial period to 31 January 2019. Benefits were
provided for the period up to 31 January 2019 relating to the provision of
an executive driver service, private health insurance and annual medical
assessment.
Alastair Murray
Mr Murray received a basic salary for the period of £416,201 per annum
and an annualised supplement in lieu of pension of 7.5% of the Earnings
Cap (£160,800 for the 2018/19 tax year) which equates to £12,060 for the
period together with an additional RPI adjusted pensions supplement of
£24,348. He was appointed Acting CEO on 1 February 2019, in addition
to his current role of Chief Financial Officer, on a temporary basis whilst
the Board conducts a search process for a new CEO. In recognition of
this significant additional responsibility, it was agreed that Mr Murray would
receive a monthly salary supplement of £20,000 (which does not count
towards pension, annual bonus or long-term incentives) whilst he carries
out this role.
Mr Murray received a bonus of £231,615 for the financial period. Benefits
related to the provision of a company car, use of an executive driver service
(following his appointment as Acting CEO) and private health insurance. In line
with the current Remuneration Policy, one-third of his annual bonus award will
be in the form of shares deferred for three years.
Full details of the annual bonus performance assessments for Mr Darby
and Mr Murray are set out on pages 53 to 55.
52
Gavin Darby
Alastair Murray
2018/19
£’000
583
–
17
117
525
–
1,242
2017/18
£’000
700
–
22
140
368
–
1,230
2018/19
£’000
416
40
27
36
232
–
751
2017/18
£’000
408
–
24
35
153
–
620
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 was brought in to lead the business. The
Committee is mindful of these salaries when considering pay increases and
elements of variable pay which are based on multiples of salary.
In line with the salary increase to all employees not involved in collective
bargaining, the Committee approved a 2.0% salary increase for the CEO
and CFO for 2018/19 (which took effect on 1 April 2018). Gavin Darby
elected not to take a salary increase and therefore his salary remained
unchanged from his appointment in 2013. The Company has moved the
annual salary review date from 1 April to 1 July so that it takes place after
the completion of the Group's annual performance review. The Committee
reviewed the proposals for 2019/20 and approved an increase of 2.5% to
Mr Murray's CFO salary, in line with all employees not involved in collective
bargaining with effect from 1 July 2019. In this transitional year, the
increase will be backdated to 1 April 2019.
Executive director
Gavin Darby
Alastair Murray
Salary from
1 April 2018
£700,000
£416,201
Change
–
+2.0%
Salary from
1 April 2017
£700,000
£408,040
Premier Foods plc Payments for loss of office and payments to former
directors (audited)
Payments for loss of office in the year totalled £498,654 (2017/18: nil)
and no other payments were made to former directors. This consisted
of £461,779 paid to Mr Darby (see below for further details). In addition
£20,000 was paid to Ian Krieger and £16,875 was paid to Jennifer Laing,
in lieu of notice, following their departure from the Board.
The Committee exercised discretion to pay Mr Darby £863,557 in lieu of his
12-month notice period in respect of salary, contractual benefits and pension
supplement. This will be paid in two equal instalments (the first was paid
immediately following Mr Darby’s resignation as a Director and the second
payment of £431,779 will be made six months following the resignation
date). In the event of him becoming otherwise employed or engaged before
the second payment is made, it will be reduced by the amount received
(or to be received over the next six months) in respect of such employment
or engagement, save for the potential for one permitted non-executive
directorship, as contemplated by his service agreement. In addition, the
Company agreed to make a payment of £20,000 for advisory services
provided to Mr Darby following his departure and a payment of £10,000
(excluding VAT) towards legal fees incurred in connection with his departure.
The Remuneration Committee exercised its discretion to treat Mr Darby as
a ‘good leaver’ in relation to his annual bonus, Long-Term Incentive Plan
and Deferred Bonus Plan awards.
As a result, he was eligible to receive a pro rata bonus in respect of time
served in the financial year ended 30 March 2019.
Awards under the Premier Foods Long-Term Incentive Plan will, in
accordance with the Company’s Remuneration Policy and the rules of the
Plan, after a time pro rata reduction to reflect the period of time served
during the applicable vesting period, vest on the normal vesting dates,
subject to satisfaction of the applicable performance conditions at the end
of the performance period. The value of any shares that may vest will be
calculable at the relevant dates of vesting.
An award under the Premier Foods Deferred Bonus Plan (over 299,291 shares
arising from the 2017/18 bonus award) will, in accordance with the Directors’
Remuneration Policy, vest on the normal vesting date in full without time pro-
rating. The value of the shares will be calculable at the date of vesting. The
Remuneration Committee exercised its discretion to disapply time pro-rating in
respect of the award.
In accordance with the rules of the Sharesave plan, Mr Darby’s Sharesave
options lapsed when his employment ended.
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 2018/19
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 Chief Executive's review
on pages 03 and 05, the Group delivered a strong overall performance in
2018/19 with Trading profit up +4.5% to £128.5m and Net debt reduced
significantly from £496.4m to £469.9m, both ahead of market expectation.
When assessing performance against the Financial target for Net debt, the
Committee and management agreed it would be appropriate to adjust the
outcome for the year to reflect the partial repayment of a loan note from
the Group’s Associate company, Hovis (see page 15) and this reduced the
final assessment from 10% to 8%.
The Committee 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 60.0% of opportunity for Mr Darby (reduced pro rata for his period
of service) and of 53.0% of opportunity for Mr Murray was appropriate.
Further details of the specific Financial, Strategic and Personal targets
and the performance outcome are set out in the tables on pages 54 and
55. Individual weightings have been provided for each Strategic objective.
One-third of any annual bonus payment to Mr Murray will be 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 56. The time pro-rated
bonus payable to Mr Darby will be paid fully in cash, in accordance with
the ‘Policy on payment for loss of office’ (see page 50).
53
Annual report for the 52 weeks ended 30 March 2019 GOVERNANCE Directors’ Remuneration report
Gavin Darby (audited)
Performance measure
Financial objectives (subject to a Trading profit underpin of £125.0m)
Trading profit
Net debt
£128.5m
£485.1m
Target
Annual Bonus
Performance
outcome
Stretch
£136.5m
£470.0m
£128.5m
£469.9m
Performance measure
Short to medium-term Strategic objectives (subject to a Trading profit underpin of £125.0m)
Business Development
Rationalised margins across the business and entered new Caribbean market,
however, overall performance below expectation.
Performance outcome
Strategic Partnerships
Successfully developed Nissin and Mondelēz International relationships with significant
increase in Nissin Cup Noodle and Soba Noodles distribution and the launch of
Cadbury cake in South Africa.
Knighton Foods
Continued turnaround of Knighton Foods business with new three-year plan.
Cost and efficiency
Successful implementation of Phase two of logistics transformation project but with
significant implementation challenges during Phase three, impacting customer service
and sales performance. Following completion of the consolidation exercise, customer
service levels have returned to normal.
Personal objectives
ELT succession plans
Stakeholder engagement
Succession plans for ELT and senior leadership team shared with the Board.
Joined the new Secretary of State Food and Drink Sector Council and progressed
health and wellness agenda. Introduced new sustainability framework with KPIs.
Final outcome
54
Weighting
Performance
(% of max bonus)
40.0%
10.0%
50.0%
20.0%
8.0%
28.0%
Weighting
Performance
(% of max bonus)
10.0%
5.0%
10.0%
5.0%
10.0%
5.0%
7.5%
0.0%
35.0%
17.5%
15.0%
100%
14.5%
60.0%
Premier Foods plc Alastair Murray (audited)
Performance measure
Financial objectives (subject to a Trading profit underpin of £125.0m)
Trading profit
Net debt
£128.5m
£485.1m
Target
Annual Bonus
Stretch
Performance
outcome
Weighting
Performance
(% of max bonus)
£136.5m
£470.0m
£128.5m
£469.9m
Performance outcome
Performance measure
Short to medium-term Strategic objectives (subject to a Trading profit underpin of £125.0m)
Corporate development
opportunities
Completed review of strategic options and managed potential Ambrosia sale process.
Successful completion of initiatives to ensure continued debt reduction and delivery of
our Net debt/EBITDA target.
Knighton Foods
Continuation of Knighton stabilisation and turnaround plan.
Logistics consolidation
Corporate development
Phase two of logistics transformation project completed but operational difficulties
during Phase three resulted in financial performance being adversely affected and
realisation of cost reduction targets delayed.
Negotiated extension to the Group's revolving credit facility, extending maturity from
December 2020 to December 2022 and successfully issued new five-year £300m
Senior Secured fixed rate notes due 2023.
Personal objectives
Shared service centre and
operational efficiency
IT System Security
Organisational development
Introduction of robotics project within shared financial service centre and delivery
against a number of KPIs.
Strengthened IT security systems across the Group following review with the Board.
Reviewed and strengthened capability within the head office finance team and
implemented action plan arising from colleague engagement survey.
40.0%
10.0%
50.0%
20.0%
8.0%
28.0%
Weighting
Performance
(% of max bonus)
9.0%
6.0%
9.0%
8.0%
3.0%
0.0%
9.0%
6.0%
35.0%
15.0%
Final outcome
15.0%
100%
10.0%
53.0%
55
Annual report for the 52 weeks ended 30 March 2019 GOVERNANCE
Directors’ Remuneration report
Annual bonus measures for 2019/20
As discussed in the Annual Statement on page 44, during the year
the Committee agreed to simplify the weightings for the annual bonus
performance measures.
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
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 both contain Trading profit
underpins.
One-third of any annual bonus awarded in respect of the 2019/20 financial
year will be deferred in shares for three years under the Deferred Bonus
Plan.
Alastair Murray
Maximum opportunity as a % of salary
Performance measure
Financial objectives (subject to a Trading profit underpin)
Trading profit
Net debt
Strategic objectives (subject to a Trading profit underpin)
• Strategic review
• Business development opportunities
• Logistics transformation
105%
Weighting
40%
10%
50%
50%
100%
Deferred Bonus Plan (DBP)
One-third of any annual bonus payment awarded to executive directors is
made 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 clawback provisions. Details
of the DBP awards granted on 8 August 2018 are set out below:
2017/18
Annual
Bonus
Gavin Darby
£367,500
Alastair Murray £152,954
Bonus
deferral
(one-third)
£122,500
£50,985
Shares
awarded
Deferral period
299,291 08.08.18 – 08.08.21
124,565 08.08.18 – 08.08.21
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 58)
vested on 2 June 2018.
56
Premier Foods plc 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.
Performance assessment for the 2016 LTIP award
The performance conditions for the 2016 LTIP award were based
on a relative TSR condition (comprising two-thirds of the award) and
an adjusted EPS condition (comprising one-third of the award). The
Committee assessed the two performance conditions in May 2019 and
concluded that the targets had not been met and consequently the 2016
LTIP award has lapsed.
LTIP award for 2018/19 (audited)
Details of the LTIP award granted on 8 August 2018 are set out below.
Gavin Darby
Alastair Murray
Basis of award
200%
150%
Max value on
award date
Performance
period
£1,400,000 01.04.18 – 31.03.21
£624,302 01.04.18 – 31.03.21
Performance measure
Relative TSR¹
Adjusted EPS2
% of relevant portion of
award vesting3
Targets
Weighting
2/3
Below
threshold
< Median
Threshold
Median
1/3
< 8.4p
8.4p
Stretch
Upper
quartile
9.8p
0%
20%
100%
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.
2.
3.
LTIP award for 2019/20
For the 2019/20 award the Committee proposes to use the same
measures as the 2018/19 LTIP award, i.e. a relative TSR condition
(comprising two-thirds of the award) and an adjusted EPS condition
(comprising one-third 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 5.9% to 9.3%. 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 58.
Alastair Murray
Basis of award
150%
Max value on
Performance
award date
period
£624,302 01.04.18 – 31.03.21
Performance measure
Relative TSR¹
Adjusted EPS2
% of relevant portion of
award vesting3
Targets
Weighting
2/3
Below
threshold
< Median
Threshold
Median
1/3
< 10.1p
10.1p
Stretch
Upper
quartile
11.1p
0%
20%
100%
1. Measured against the constituents of the FTSE All Share Index (excluding
investment trusts) around the start of the period.
2018/19 base year adjusted EPS was 8.5p.
Straight-line vesting between threshold and stretch.
2.
3.
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
381,850 shares as at 30 March 2019). 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 2.5%.
Pension payments
The table below provides details of the executive directors’ pension
benefits:
Gavin Darby
Alastair Murray
Cash in lieu of
contributions to DC-type
pension plan
£’000
117
36
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. Mr Darby and Mr Murray receive all of their
contributions in cash and neither participates in the Group’s DC pension
plan.
57
Annual report for the 52 weeks ended 30 March 2019 GOVERNANCE Directors’ Remuneration report
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.
Share ownership guidelines and share interest table (audited)
Gavin Darby1
Alastair Murray
Shares owned as
at 30 March 2019
5,601,595
392,878
Shares owned as
at 31 March 2018
5.601,595
309,522
Extent to which
share ownership
guidelines met
471%
69%
Unvested share
interests under
LTIP Awards
5,349,359
4,471,110
Unvested share
interests under
DBP Awards
299,291
124,565
Sharesave Awards
–
24,732
Total
11,250,245
5,013,285
1. Held in the name of Mr and Mrs Darby. Mr Darby stepped down as CEO on 31 January 2019 and the shareholding information reflects the position at that date.
Executive share awards (audited)
Date of grant
Balance as at
1 April 2018
Awarded in
the year
Exercised in
the year
Lapsed in
the year
Balance as
at 30 March
2019 Option price
Share price
on date of
grant
Share price
on date of
exercise
Vesting
date
Gavin Darby
LTIP 1,2
DBP
Sharesave Plan 4
Alastair Murray
LTIP 1
DBP
DSBP 3
Sharesave Plan 4
11.06.15
3,294,117
3,294,117
03.06.16
13.06.17 3,444,034
08.08.18
08.08.18
15.12.15
20.12.16
–
–
–
– 3,420,473
299,291
–
–
16,906
–
7,826
10,057,000 3,719,764
– 3,294,117
–
370,024
–
2,924,093
– 1,568,041 1,875,993
– 2,871,200
549,273
–
–
299,291
16,906
–
–
7,826
–
–
- 8,128,114 5,648,650
–
–
11.06.15 1,782,352
03.06.16
1,440,141
13.06.17 1,505,682
08.08.18
08.08.18
03.06.16
15.12.15
20.12.16
– 1,525,287
124,565
–
–
157,560
–
16,906
–
7,826
4,910,467 1,649,852
– 1,782,352
–
–
–
–
157,560
–
–
–
– 1,440,141
– 1,505,682
–
1,525,287
–
124,565
–
–
–
16,906
–
7,826
157,560 1,782,352 4,620,407
–
–
–
–
–
31.94
34.50
–
–
–
–
–
–
31.94
34.50
42.00
42.50
40.50
41.20
41.20
–
–
42.00
42.50
40.50
41.20
41.20
42.50
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31.03.18
31.03.19
31.03.20
31.03.21
08.08.21
01.02.19
01.02.20
31.03.18
31.03.19
31.03.20
31.03.21
08.08.21
02.06.18
01.02.19
01.02.20
Maximum
expiry
date
10.06.22
02.06.23
12.06.24
07.08.25
08.08.28
01.08.19
01.08.20
10.06.22
02.06.23
12.06.24
07.08.25
08.08.28
02.12.18
01.08.19
01.08.20
1.
2.
The Remuneration Committee concluded that the performance conditions for the 2016 LTIP had not been met and consequently the award lapsed in full on 9 May 2019.
The shares shown as lapsed under Mr Darby’s 2016, 2017 and 2018 LTIP awards illustrate the impact of time pro-rating following cessation of his employment on
31 January 2019.
3. Mr Murray exercised an option over 157,560 shares under the Deferred Share Bonus Plan on 20 September 2018. 74,204 shares were sold at a price of 42.25p to cover
4.
tax and NI and the remaining 83,356 shares were retained.
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. Mr Darby’s outstanding Sharesave awards lapsed on the cessation of his employment on 31 January 2019.
58
Premier Foods plc Share ownership for the wider Group
The Committee recognises the importance of aligning colleagues interests
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. Participation in the Sharesave Plan currently
represents approximately 25% of colleagues.
Total shareholder return
The market price of a share in the Company on 29 March 2019 (the last
trading day before the end of the financial period) was 36.40 pence; the
range during the financial period was 46.85 pence to 30.00 pence.
)
d
e
s
a
b
e
r
(
)
£
(
l
e
u
a
V
350
300
250
200
150
100
50
0
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
30/03/2019
Premier Foods
FTSE All Share (excluding Investment Trusts)
FTSE Food Producers
Source: FactSet
This graph shows the value, by 30 March 2019, 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.
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 nine financial periods. The figures
for 2014/15 represent a 15-month period.
CEO
Alastair Murray1
Year
2018/19
2018/19 Gavin Darby1
2017/18 Gavin Darby
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
£158,297
£1,241,708
£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
53.0%
60.0%
35.0%
–
57.0%
23.4%
16.0%
–
66.0%
–
–
10.0%
29.0%
LTIP
vesting
as a % of
maximum
–
–
–
–
–
–
–
–
–
–
–
–
–
1. Mr Darby stepped down as CEO on 31 January 2019 and Mr Murray was
appointed Acting CEO, in addition to his role as Chief Financial Officer, with
effect from 1 February 2019. For Mr Murray the figure was calculated as his pro
rata CFO salary, pension, bonus and benefits plus his £20,000 monthly salary
supplement for the period he was Acting CEO. Full details of the single figure for
total remuneration are set out on page 52.
Percentage change in CEO pay
For the purpose of this table, pay is defined as salary, benefits and annual
bonus. The figure for the CEO is a combination 10 months pro rata salary
for Mr Darby and 2 months pro rata CFO salary for Mr Murray plus the
monthly salary supplement for the period Mr Murray was Acting CEO. 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
2018/19
-1.1%
0%
+53.2%
% Change
2017/18
0%
0%
–
% Change
2018/19
+2.0%
0%
+111.2%
% Change
2017/18
+2.0%
0%
–11.3%
Base salary
Benefits
Annual bonus
59
Annual report for the 52 weeks ended 30 March 2019 GOVERNANCE
Directors’ Remuneration report
Non-executive directors’ fees
The fees of our non-executive directors (NEDs) are set out below. A review
of non-executive directors’ fees was last 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
30 March
2019
£235,000
£57,000
£13,000
£10,500
£10,000
Change
–
–
–
–
–
31 March
2018
£235,000
£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 reappointed for a further
three-year period. The terms of appointment for Mr Honda, Mr Kilic and Mr
Wosner are governed by the terms of the relationship agreements between
the Company and Nissin, Paulson and Oasis, respectively.
NED
Keith Hamill
Simon Bentley
Richard Hodgson
Shinji Honda
Orkun Kilic
Pam Powell
Daniel Wosner
Date of original
appointment
1 October 2017
27 February 2019
6 January 2015
23 March 2018
27 February 2019
7 May 2013
27 February 2019
Expiry of current
appointment/
amendment
letter
AGM 2020
AGM 2021
AGM 2020
–
–
AGM 2019
–
Notice period
6 months
3 months
3 months
–
–
3 months
–
Relative importance of spend on pay
The following table sets out the amounts and percentage change in
total employee costs. The figure for 2018/19 includes GMP equalisation
costs of £41.5m, for further information see note 6 on page 87. 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
2018/19
£202.3m
£29.2m
£469.9m
2017/18
£149.8m
£28.8m
£496.4m
Improvement/
Deterioration
+35.0%
+1.4%
+5.3%
Non-executive directors (audited)
Single figure for the total remuneration received by each non-executive
director for the financial periods ended 30 March 2019 and 31 March
2018.
Basic fee
235,000
4,988
Director
Keith Hamill
Simon Bentley2
Richard
Hodgson
Shinji Honda1
Orkun Kilic1
Pam Powell
Daniel Wosner1
Former directors
David Beever3 265,000
Ian Krieger4
52,250
Jennifer Laing4 52,250
57,000
–
–
57,000
–
Committee
Chair fee
–
–
SID fee
Total fees
2018/19
Total fees
2017/18
– 235,000 117,500
–
4,988
–
–
–
–
–
–
– 57,000
–
–
–
–
– 57,000
–
–
57,000
–
–
57,000
57,000
–
11,916
9,625
–
– 161,610
9,167 73,333 80,000
67,500
– 61,875
1. Messrs Honda, Kilic and Wosner are appointed pursuant to relationship
agreements with our three largest shareholders and do not receive a fee for their
roles as non-executive directors. Mr Wosner served as a non-executive director
from March 2017 to March 2018 and during this period he received a basic NED
fee of £57,000.
2. Mr Bentley was appointed Chair of the Audit Committee on 28 March 2019 and
will receive an additional fee of £13,000 per annum from that date.
3. David Beever retired from the Board on 9 November 2017.
4.
Ian Krieger and Jennifer Laing both stepped down from the Board in February
2019 and received a payment of £20,000 and £16,875, respectively, in lieu of
notice, as set out under payments for loss of office on page 53.
60
Premier Foods plc
Non-executive directors’ interests in shares (audited)
NED
Keith Hamill
Simon Bentley1
Richard Hodgson
Shinji Honda
Orkun Kilic1
Pam Powell
Daniel Wosner1
Former directors
Ian Krieger2
Jennifer Laing2
Ordinary shares
owned
as at 30 March
2019
266,666
–
–
–
–
160,366
72,850
Ordinary shares
owned
as at 31 March
2018
266,666
–
–
–
–
160,366
72,850
504,000
54,802
504,000
54,802
1. Messrs Bentley, Kilic and Wosner were appointed as non-executive directors on
27 February 2019.
2. Mr Krieger and Ms Laing stepped down as non-executive directors on 27 February
2019.
The Committee
Details of the Committee members and meeting attendance are set out
on pages 32 and 33. Jennifer Laing stepped down as Remuneration
Committee Chair and as a non-executive director on 27 February 2019.
There is currently no Chair of the Remuneration Committee but the Board
intends to remedy this situation as soon as is practicable. Throughout the
financial period all members of the Committee have been independent. In
addition, the Chairman, CEO, HR Director and Aon plc ('Aon') attended
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 four meetings.
Advisers
The Executive Compensation practice of Aon has been appointed as advisers
to the Committee. During the year, Aon provided advice in connection
with executive remuneration arrangements. 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 £40,255 (2017/18: £28,166) 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.
During the financial period the Committee discussed the following:
• Reviewed the voting results for the 2018 Directors’ Remuneration
Report;
• Reviewed the 2018/19 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 2019/20 annual bonus in accordance with the
strategic objectives of the Group;
• Granted the 2018 awards under the Company’s all-employee and
executive share plans and agreed the targets for awards due to be
made in 2019;
• Reviewed and approved the termination payments for Gavin Darby
who stepped down as CEO and a director during the year; 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 director does not hold any
external appointments with publicly quoted companies.
Statement of voting at Annual General Meeting
As referred to on page 44, there was a significant vote against the
Directors’ Remuneration Report at the AGM in 2018, full details of the
voting on the resolutions are set out below.
Approval of
Directors’
Remuneration
Report
2017/18
18 July 2018
451,896,084
152,454,204
604,350,288
51,932,255
% of votes
cast
Approval of
the current
Directors’
Remuneration
Policy
20 July 2017
74.77% 540,647,973
25.23% 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
14 May 2019 and signed on its behalf by:
Richard Hodgson
Non-executive director
61
Annual report for the 52 weeks ended 30 March 2019 GOVERNANCE Independent 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 30 March 2019 which 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
accounting policies in note 2 to the Group financial statements and note 1
to the parent Company financial statements.
Overview
Materiality:
Group financial
statements as a whole
Coverage
Key audit matters
Recurring risks
(Group)
£4.5m (2017/18: £4.5m)
0.55% (2017/18: 0.57%)
of Group revenue
95% (2017/18: 95%) of Group revenue
vs 2017/18
Valuation of defined benefit pension plans
Carrying value of goodwill and the
Sharwood’s brand*
Revenue subject to commercial
arrangements
The impact of the UK’s decision to leave
the European Union
Outsourcing of warehousing and logistics
Accuracy of amount for net deferred tax
liabilities recognised
Recoverability of balances with Group
undertakings
New risks
(Group)
Recurring risks
(Company only)
* Prior year risk related to both the Paxo and Sharwood's brand
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 30 March 2019 and of the
Group’s loss for the 52 weeks then ended;
the Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union;
the parent Company financial statements have been properly prepared
in accordance with UK accounting standards, including FRS 101
Reduced Disclosure Framework; and
the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
•
•
•
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 first appointed as auditor by the Directors on 4 September 2015.
The period of total uninterrupted engagement is for the four the financial
years ended 30 March 2019. 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.
62
Premier Foods plc 2. Key audit matters: including our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, 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 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 impact of the UK’s
decision to leave the
European Union
Refer to page 31
(Brexit statement).
The risk
Our response
Unprecedented levels of uncertainty
Our procedures included:
All audits assess and challenge the
reasonableness of estimates, in
particular as described in the carrying
value of goodwill and the Sharwood’s
brand, and related disclosures
and assess and challenge the
appropriateness of the going concern
basis of preparation of the financial
statements (see below). All of these
depend on assessments of the future
economic environment and the Group’s
future prospects and performance.
In addition, we are required to consider
the other information presented in the
Annual Report including the principal
risks disclosure and the viability
statement and to consider the Directors’
statement that the Annual report and
financial statements taken as a whole
are fair, balanced and understandable
and provide the information necessary
for shareholders to assess the Group’s
position and performance, business
model and strategy.
Brexit is one of the most significant
economic events for the UK and at the
date of this report its effects are subject
to unprecedented levels of uncertainty
of outcomes, with the full range of
possible effects unknown.
We developed a standardised firm-wide approach to the consideration of the
uncertainties arising from Brexit in planning and performing our audits.
• Our Brexit knowledge – We considered the Directors’ assessment
of Brexit-related sources of risk for the Group’s business and financial
resources compared with our own understanding of the risks. We
considered the Directors’ plans to take action to mitigate the risks.
• Sensitivity analysis – When addressing the carrying value of goodwill
and the Sharwood’s brand and other areas that depend on forecasts, we
compared the Directors’ analysis to our assessment if the full range of
reasonably possible scenarios resulting from Brexit uncertainty and, where
forecast cash flows are required to be discounted, considered adjustments
to discount rates for the level of remaining uncertainty.
• Assessing transparency – As well as assessing individual disclosures
as part of our procedures on the carrying value of goodwill and the
Sharwood’s brand we considered all of the Brexit related disclosures
together, including those in the strategic report, comparing the overall
picture against our understanding of the risks.
Our results
As reported under the carrying value of goodwill and the Sharwood’s brand, we
found the resulting estimates and related disclosures and disclosures in relation
to going concern to be acceptable.
However, no audit should be expected to predict the unknowable factors or all
possible future implications for a company and this is particularly the case in
relation to Brexit.
63
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Independent auditor’s report
2. Key audit matters: including our assessment of risks of material misstatement (continued)
The risk
Our response
Subjective valuation
Our procedures included:
• Benchmarking assumptions: Challenged, 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: Assessed 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: Used our pensions centre of excellence to obtain
asset statements in respect of the schemes’ investments directly from fund
managers and custodians;
• Our actuarial expertise: Utilised our own actuarial specialists to assess
the methodology used in estimating the impact of GMP;
• Expectation vs outcome: Utilised our own actuarial specialists to
estimate the GMP impact by using our independent valuation model and
compared this to the amount recognised by the Group, challenging the
assumptions used; and
• Assessing disclosures: Considered 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
net defined benefit pension plan assets/liabilities to be acceptable (2017/18:
acceptable).
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.
Due to the ruling over GMP in
November 2018 there is an additional
charge to the profit and loss account
for the year. It will take some years for
the impact of GMP to be fully assessed
and in the meantime the Directors have
included their best estimate of the
impact on the valuation of the liabilities.
The effect of these matters is that
we determined that the pension
assumptions have a high degree of
estimation uncertainty, with a potential
range of reasonable outcomes greater
than our materiality for the financial
statements as a whole, and possibly
many times that amount.
Valuation of defined
benefit pension plans
Defined benefit obligation
(£(4,667.6m); 2017/18:
£(4,546.6m))
Valuation of scheme
assets for which a quoted
price is not available
(excluding swaps)
(£931.5m; 2017/18:
£820.7m)
Guaranteed minimum
pension (GMP)
equalisation charge in the
current year £(41.5m)
Refer to page 40 (Audit
Committee Report), page
83 (accounting policy)
and page 105 (financial
disclosures).
64
Premier Foods plc 2. Key audit matters: including our assessment of risks of material misstatement (continued)
Carrying value of
goodwill and the
Sharwood’s brand
Goodwill
(£646.0m; 2017/18:
£646.0m)
Sharwood’s brand value
(£23.4m; 2017/18: £53.7m)
Refer to page 39 (Audit
Committee Report), page
84 (accounting policy)
and page 93 (financial
disclosures).
The risk
Our response
Forecast based valuation
Our procedures included:
Goodwill and brand asset values are
dependent on the achievement of future
business plans which are inherently
uncertain.
The business operates in an
environment of significant retailer
pressure on price, competitor activity
and increasing commodity prices. In
light of these trading challenges and
the Group’s financial constraints on
brand investment, there is a risk that the
Group's goodwill, which is all attributed
to the Grocery cash generating unit, and
the brand asset value for Sharwood's
may not be recoverable.
The effect of these matters is that
we determined that the valuation
assumptions used have a high degree
of estimation uncertainty, with a
potential range of reasonable outcomes
greater than our materiality for the
financial statements as a whole.
• Assessing cash generating units: Assessed the appropriateness of the
cash generating units identified;
• Assessing methodology: Assessed the methodology of the valuation
models for the Grocery cash generating unit and the brands;
• Benchmarking assumptions: Evaluated assumptions used in those
models, in particular those relating to: i) the short and long-term revenue
growth rates; ii) future changes in profitability; iii) the discount rates used;
iv) the EBITDA multiple assumption; and v) royalty rate utilised in the brand
assessments, comparing these with externally derived data and using our
own valuation specialists where applicable;
• Sensitivity analysis: Performed sensitivity analysis of key assumptions
noted above; and
• Assessing disclosure: Assessed 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.
Our results
The results of our testing were satisfactory and we consider the carrying
value at 30 March 2019 of goodwill and Sharwood’s brand to be acceptable
(2017/18: carrying value at 31 March 2018 of goodwill, Sharwood’s and Paxo
brands acceptable).
65
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Independent auditor’s report
2. Key audit matters: including our assessment of risks of material misstatement (continued)
Revenue subject
to commercial
arrangements
Commercial accruals
(£(45.3m); 2017/18:
£(46.2m))
Refer to page 39 (Audit
Committee Report), page
84 (accounting policy)
and page 97 (financial
disclosures).
Our response
Our procedures included:
• Accounting policies: Assessed 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: Tested the design, implementation and effectiveness of
the Group’s manual and automated controls over the authorisation and
calculation of rebates and discounts;
• Tests of details: Compared a sample of promotions recorded during
the financial year to supporting evidence such as customer acceptance,
electronic point of sale data and customer debit notes to assess the
accuracy of the estimate;
• Examined credit notes issued after 30 March 2019 to assess the
completeness of the commercial accruals recorded;
• Examined changes to rebate and discount accruals after 30 March 2019 to
assess the accuracy of accruals recorded at 30 March 2019;
• Obtained supporting documentation for a sample of manual journals
posted to revenue accounts;
• Visited a selection of customer stores before the period end, identifying
product promotions and assessing whether those promotions were
appropriately accrued for; and
• Assessing disclosures: Considered 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 subject to
commercial arrangements to be acceptable (2017/18: acceptable).
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 the Directors 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
appropriate period for recognition.
The estimation of commercial
arrangements recognised is material
and considered to be complex and
judgemental, with a potential range of
reasonable outcomes greater than our
materiality for the financial statements
as a whole.
66
Premier Foods plc 2. Key audit matters: including our assessment of risks of material misstatement (continued)
The risk
Outsourcing of
warehousing and
logistics
Presentation appropriateness,
physical quantities and subjective
estimate
Finished goods and
goods for resale (£58.7m;
2017/18: £62.3m)
Refer to page 40 (Audit
Committee Report), page
84 (accounting policy) and
pages 85 and 96 (financial
disclosures).
The Group has restructured its supply
chain, outsourcing its warehousing and
logistics to a single external provider.
This restructuring has resulted in
additional costs which the Directors
have presented in restructuring costs.
The Directors have applied judgement
in determining whether such costs
should be treated as non-trading. The
inaccurate or inconsistent presentation
and disclosure of these items could lead
to distortion in reported trading profit
results and insufficient transparency.
Due to the business disruption
caused by the restructuring, inventory
management has been less than
effective during the period. This has
resulted in a risk in relation to the
existence of the inventory recorded.
The estimation of the valuation of
finished goods, given the level of slow
moving, short shelf life finished goods,
damages and returns, is material and
complex.
The inventory provision recognised has
a high degree of estimation uncertainty,
with a potential range of reasonable
outcomes greater than our materiality
for the financial statements as a whole.
Our response
Our procedures included:
• Control testing: Evaluated the design and implementation of the Group’s
controls over the quantity of finished goods;
• Count vs system reconciliation: Tested a sample of period end finished
goods through performing an independent count and reconciling the
results to the amounts recorded;
• Tests of detail: Assessed the Directors’ assumptions relating to finished
goods provision against our own knowledge of their recent finished goods
write offs;
• Assessed the cost recorded compared with the net realisable value for a
sample of finished goods;
• Compared a sample of the items identified as restructuring to supporting
documentation to assess the nature of the items and therefore if they have
been appropriately included in restructuring costs based on the Group’s
accounting policy; and
• Assessing disclosures: Assessed the presentation and transparency of
restructuring costs.
Our results
The results of our testing were satisfactory. We consider the presentation of,
and amount recorded for restructuring costs related to the outsourcing of
warehousing and logistics to be acceptable as part of non-trading costs. We
consider the value recorded in relation to finished goods to be acceptable.
67
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Independent auditor’s report
2. Key audit matters: including our assessment of risks of material misstatement (continued)
Accuracy of amount for
net deferred tax liabilities
recognised
Deferred tax balances
(£(13.5m); 2017/18:
£(12.1m))
Refer to page 40 (Audit
Committee Report), page
83 (accounting policy)
and page 88 (financial
disclosures).
The risk
Our response
Processing and calculation error
Our procedures included:
The deferred tax assets and liabilities
on a gross basis are highly material to
the financial statements as a whole. The
Group has material prior period losses
and a complex historic tax position, with
a number of years not fully agreed with
HMRC.
Given the complexity and historic nature
of the tax position, there is a risk that
there are errors in determining the
amount of the net deferred tax liability
recognised.
• Tests of detail: Used our tax specialists we critically assessed the prior
period losses brought forward, including assessing group relief allocations
and reconciling amounts brought forward to the most recent tax
computations;
• Used our tax specialists to assess the impact of legislation, including
corporate interest restrictions and corporate tax loss relief restrictions on
the deferred tax balance; and
• Assessed the model used to calculate the deferred tax balances and
evaluating the inputs used.
Our results
The results of our testing were satisfactory and we consider the accuracy of
the deferred tax balances to be acceptable.
Recoverability of
balances with Group
undertakings
Company only
(£1,314.6m; 2017/18:
£1,296.9m)
Refer to page 120
(accounting policy) and
page 121 (financial
disclosures).
Subjective valuation
Our procedures included:
The carrying amount of the intra-group
receivables balance represents 99%
(2017/18: 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.
• Tests of details: Compared 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 when the carrying amount
exceeded the net asset value, compared the carrying amount with the
expected value of the business based on a discounted cash flow analysis;
and
• Benchmarking assumptions: Evaluated assumptions used in the
discounted cash flow analysis as described in the carrying value of
goodwill and Sharwood’s brand key audit matter above.
Our results
We found the Group’s assessment of the recoverability of the Group
receivables balance to be acceptable (2017/18: acceptable).
68
Premier Foods plc 3. Our application of materiality and an overview of the scope
of our audit
The materiality of the Group financial statements as a whole was set at
£4.5m (2017/18: £4.5m), determined with reference to a benchmark of
Group revenue of £824.3m (2017/18: £819.2m) of which it represents
0.55% (2017/18: 0.55%). 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 (2017/18: £0.6m), determined with reference to a benchmark of
profit before tax of £15.4m (2017/18: £12.3m), of which it represents 3.9%
(2017/18: 4.0%).
We reported to the Audit Committee any corrected or uncorrected
identified misstatements exceeding £0.22m (2017/18: £0.22m), in addition
to other identified misstatements that warranted reporting on qualitative
grounds.
Of the Group’s 33 (2017/18: 33) reporting components, we subjected 5
(2017/18: 5) to full scope audits for Group purposes.
For the remaining components, we performed analysis at an aggregated
Group level to re-examine our assessment that there were no significant
risks of material misstatement within these.
The component materialities ranged from £0.6m to £4.25m (2017/18:
£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.
Total profits and losses that made
up Group profit before tax
99%
(2017/18: 97%)
Group revenue
95%
(2017/18: 95%)
Group total assets
99%
(2017/18: 95%)
n
n
n
Full scope for Group audit purposes 2018/19
Full scope for Group audit purposes 2017/18
Residual components
69
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Independent auditor’s report
4. We have nothing to report on going concern
The Directors have prepared the financial statements on the going concern
basis as they do not intend to liquidate the Company or the Group or to
cease their operations, and as they have concluded that the Company’s
and the Group’s financial position means that this is realistic. They have
also concluded that there are no material uncertainties that could have
cast significant doubt over their ability to continue as a going concern for
at least a year from the date of approval of the financial statements (“the
going concern period”).
Our responsibility is to conclude on the appropriateness of the Directors’
conclusions and, had there been a material uncertainty related to going
concern, to make reference to that in this audit report. However, as we
cannot predict all future events or conditions and as subsequent events
may result in outcomes that are inconsistent with judgements that were
reasonable at the time they were made, the absence of reference to a
material uncertainty in this auditor's report is not a guarantee that the
Group and the Company will continue in operation.
In our evaluation of the Directors’ conclusions, we considered the inherent
risks to the Group’s and Company’s business model and analysed how
those risks might affect the Group’s and Company’s financial resources or
ability to continue operations over the going concern period. The risks that
we considered most likely to adversely affect the Group’s and Company’s
available financial resources over this period were:
• continued slow down in the broader macro-economic environment
and therefore market share; and
the potential for retail industry consolidation.
•
As these were risks that could potentially cast significant doubt on the
Group’s and the Company's ability to continue as a going concern, we
considered sensitivities over the level of available financial resources
indicated by the Group’s financial forecasts taking account of reasonably
possible (but not unrealistic) adverse effects that could arise from these
risks individually and collectively and evaluated the achievability of the
actions the Directors consider they would take to improve the position
should the risks materialise. We also considered less predictable but
realistic second order impacts, such as the impact of Brexit and the
erosion of customer or supplier confidence, which could result in a rapid
reduction of available financial resources.
Based on this work, 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 page 31, 41
and 77 is materially inconsistent with our audit knowledge.
•
We have nothing to report in these respects, and we did not identify going
concern as a key audit matter.
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.
70
Premier Foods plc •
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
•
31 and the Risk Management section on page 26 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.
Our work is limited to assessing these matters in the context of only the
knowledge acquired during our financial statements audit. As we cannot
predict all future events or conditions and as subsequent events may result
in outcomes that are inconsistent with judgements that were reasonable
at the time they were made, the absence of anything to report on these
statements is not a guarantee as to the Group’s and Company’s longer-
term viability.
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.
6. 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 parent
•
Company, or returns adequate for our audit have not been received
from branches not visited by us; or
the parent Company financial statements and the part of the Directors’
Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not
made; or
• we have not received all the information and explanations we require
for our audit.
We have nothing to report in these respects.
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 43, 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 parent 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 parent 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.
71
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Owing to the inherent limitations of an audit, there is an unavoidable
risk that we may not have detected some material misstatements
in the financial statements, even though we have properly planned
and performed our audit in accordance with auditing standards. For
example, the further removed non-compliance with laws and regulations
(irregularities) is from the events and transactions reflected in the financial
statements, the less likely the inherently limited procedures required by
auditing standards would identify it. In addition, as with any audit, there
remained a higher risk of non-detection of irregularities, as these may
involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal controls. We are not responsible for preventing non-
compliance and cannot be expected to detect non-compliance with all
laws and regulations.
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
14 May 2019
Independent auditor’s report
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
general commercial and sector experience and through discussion with
the Directors and other management (as required by auditing standards),
and from inspection of the Group’s regulatory and legal correspondence
and discussed with the Directors and other management the policies
and procedures regarding compliance with laws and regulations. We
communicated identified laws and regulations throughout our team and
remained alert to any indications of non-compliance throughout the audit.
This included communication from the Group to component audit teams of
relevant laws and regulations identified at Group level.
The potential effect of these laws and regulations on the financial
statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly affect
the financial statements including financial reporting legislation (including
related companies legislation), taxation legislation, the listing rules (given
its listed status) and the disclosure guidance and transparency rules we
assessed the extent of compliance with these laws and regulations as part
of our procedures on the related financial statement items.
Secondly, the Group is subject to many other laws and regulations where
the consequences of non-compliance could have a material effect on
amounts or disclosures in the financial statements, for instance through
the imposition of fines or litigation or the loss of the Group’s licence to
operate. We identified the following areas as those most likely to have
such an effect: health and safety (in relation to the factories it uses to
produce products), competition law, food safety (relating to products
they produce), labelling and environmental standards, employment
law. Auditing standards limit the required audit procedures to identify
non-compliance with these laws and regulations to enquiry of the
Directors and other management and inspection of regulatory and legal
correspondence, if any. Through these procedures, we became aware of
actual or suspected non-compliance and considered the effect as part
of our procedures on the related financial statement items. The identified
actual or suspected non-compliance was not sufficiently significant to our
audit to result in our response being identified as a key audit matter. Our
additional audit procedures included further enquiry of the Directors and
other management, inspection of regulatory and legal correspondence
and obtained confirmation in respect of the non-compliance directly from
external legal counsel.
72
Premier Foods plc Consolidated statement of profit or loss
Revenue
Cost of sales
Gross profit
Selling, marketing and distribution costs
Administrative costs
Operating profit
Finance cost
Finance income
(Loss)/profit before taxation
Taxation credit/(charge)
(Loss)/profit for the period attributable to owners of the parent
Basic (loss)/earnings per share
From (loss)/profit for the period (pence)
Diluted (loss)/earnings per share
From (loss)/profit for the period (pence)
Adjusted earnings per share1
From adjusted (loss)/profit for the period (pence)
52 weeks ended
30 Mar 2019
£m
824.3
(542.6)
281.7
(119.8)
(157.4)
4.5
(56.7)
9.5
(42.7)
8.9
(33.8)
52 weeks ended
31 Mar 2018
£m
819.2
(547.5)
271.7
(115.9)
(86.5)
69.3
(50.4)
2.0
20.9
(13.7)
7.2
(4.0)
(4.0)
8.5
0.9
0.9
7.6
Note
4
4, 5
7
7
8
9
9
9
1.
Adjusted earnings per share is defined as trading profit less net regular interest, less a notional tax charge at 19.0% (2017/18: 19.0%) divided by the weighted average
number of ordinary shares of the Company.
Consolidated statement of comprehensive income
(Loss)/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
Items that are or may be reclassified to profit or loss
Exchange differences on translation
Other comprehensive income, net of tax
Total comprehensive income attributable to owners of the parent
The notes on pages 77 to 117 form an integral part of the consolidated financial statements.
Note
20
8
52 weeks ended
30 Mar 2019
£m
(33.8)
52 weeks ended
31 Mar 2018
£m
7.2
53.2
(9.1)
(0.2)
43.9
10.1
174.8
(29.7)
0.5
145.6
152.8
73
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Consolidated balance sheet
ASSETS:
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Net retirement benefit 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
– derivative financial instruments
Provisions for liabilities and charges
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
As at
30 Mar 2019
£m
As at
31 Mar 2018
£m
Note
10
11
12
20
14
15
23
18
16
18
19
17
20
19
8
21
22
22
22
22
22
186.0
646.0
366.4
837.8
2,036.2
77.8
89.2
27.8
–
194.8
2,231.0
185.2
646.0
428.4
754.0
2,013.6
76.4
74.8
23.6
0.1
174.9
2,188.5
(238.0)
(214.4)
(1.6)
(9.7)
(249.3)
(497.7)
(464.7)
(32.4)
(13.5)
(10.6)
(1,018.9)
(1,268.2)
962.8
84.5
1,408.6
351.7
(9.3)
(872.7)
962.8
(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
The notes on pages 77 to 117 form an integral part of the consolidated financial statements.
The financial statements on pages 73 to 76 were approved by the Board of directors on 14 May 2019 and signed on its behalf by:
Alastair Murray
Acting Chief Executive Officer and Chief Financial Officer
74
Premier Foods plc Consolidated statement of cash flows
Cash generated from operations
Interest paid
Interest received
Other finance income
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
Financing fees
Proceeds from share issue
Cash (used) in/generated from financing activities
Net increase 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 77 to 117 form an integral part of the consolidated financial statements.
52 weeks ended
30 Mar 2019
£m
80.2
(32.0)
1.9
7.6
–
57.7
(14.3)
(3.4)
–
(17.7)
(325.0)
300.0
(12.2)
1.4
(35.8)
4.2
23.6
27.8
52 weeks ended
31 Mar 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
Note
23
23
75
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Consolidated statement of changes in equity
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
At 1 April 2018
Loss 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
Deferred tax movements on share-
based payments
At 30 March 2019
Note
20
8
22
20
8
22
Share
capital
£m
83.3
–
–
–
–
–
–
0.8
–
–
–
84.1
84.1
–
–
–
–
–
–
0.4
–
–
84.5
Share
premium
£m
1,406.7
–
–
–
–
–
–
0.9
–
–
–
1,407.6
1,407.6
–
–
–
–
–
–
1.0
–
Merger
reserve
£m
351.7
–
–
–
–
–
–
–
–
–
–
351.7
351.7
–
–
–
–
–
–
–
–
Other
reserves
£m
(9.3)
–
Profit and
loss
reserve
£m
(1,039.6)
7.2
–
–
–
–
–
–
–
–
–
(9.3)
(9.3)
–
–
–
–
–
–
–
–
174.8
(29.7)
0.5
145.6
152.8
–
2.8
(0.5)
(0.3)
(884.8)
(884.8)
(33.8)
53.2
(9.1)
(0.2)
43.9
10.1
–
2.1
–
1,408.6
–
351.7
–
(9.3)
(0.1)
(872.7)
Total
equity
£m
792.8
7.2
174.8
(29.7)
0.5
145.6
152.8
1.7
2.8
(0.5)
(0.3)
949.3
949.3
(33.8)
53.2
(9.1)
(0.2)
43.9
10.1
1.4
2.1
(0.1)
962.8
The notes on pages 77 to 117 form an integral part of the consolidated financial statements.
76
Premier Foods plc Notes to the financial statements
1. General information
Premier Foods plc (the “Company”) is a public limited company
incorporated and domiciled in England and Wales, registered number
5160050, with its registered office at Premier House, Centrium Business
Park, Griffiths Way, St Albans, Hertfordshire AL1 2RE. The principal activity
of the Company and its subsidiaries (the “Group”) is the manufacture
and distribution of branded and own label food products. Copies of the
annual report and accounts are available on our website: http://www.
premierfoods.co.uk/investors/results-centre.
These Group consolidated financial statements were authorised for issue
by the Board of directors on 14 May 2019.
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 items recorded at fair value. Amounts are
presented to the nearest £0.1m.
The statutory accounting period is the 52 weeks from 1 April 2018 to
30 March 2019 and comparative results are for the 52 weeks from 2 April
2017 to 31 March 2018. All references to the ‘period’, unless otherwise
stated, are for the 52 weeks ended 30 March 2019 and the comparative
period, 52 weeks ended 31 March 2018.
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”), effective for periods on
or after 1 January 2018, have been endorsed by the EU:
International Financial Reporting Standards
IFRS 9
IFRS 15
Amendments to IFRS 2
Amendments to IAS 28
(early adopted)
Financial Instruments
Revenue from Contracts with Customers
Share based payments
Investments in Associates and Joint Ventures
The impact on adoption of the new or revised standards is explained in
the following paragraphs with the exception of the amendment to IFRS 2
which has no material impact on the Group’s results, net assets, cashflows
and disclosures on adoption.
The following standards and amendments to published standards, effective
for periods on or after 1 January 2019, have been endorsed by the EU:
International Financial Reporting Standards
IFRS 16
IFRS 23
Amendments to IFRS 9
Leases
Borrowing costs
Financial Instruments
The following standards and amendments to published standards, effective
for periods on or after 1 January 2019, have not been endorsed by the EU:
International Financial Reporting Standards
Annual improvements to
IFRS
Amendments to IAS 19
2015-2017 cycle
Employee Benefits
IFRS 9 Financial Instruments
On 1 April 2018 the Group adopted IFRS 9 ‘Financial Instruments’, which
replaced IAS 39 ‘Financial Instruments – Recognition and Measurement’.
The Group has not restated comparative information for prior periods as
permitted by the standard.
• Classification and Measurement: On 1 April 2018, the Group
reclassified its financial assets to the new categories based on the
Group’s reason for holding the assets and the nature of the cash flows
from the assets. See note 18 for further information. There were no
changes to the carrying values of the Group’s financial assets from
adopting the new classification model. There have been no changes to
the classification or measurement of the Group’s financial liabilities.
Impairment: From 1 April 2018 the Group implemented an expected
credit loss impairment model for financial assets. For trade receivables,
the calculation methodology has been updated to consider expected
losses based on the ageing profile and forward-looking information.
The adoption of the expected credit loss approach has not resulted in
any material change in impairment provision for any financial asset.
•
IFRS 15 Revenue from Contracts with Customers
On 1 April 2018 the Group adopted IFRS 15 ‘Revenue from Contracts
with Customers’ with no impact on the financial statements as the Group
accounting policies were already in line with the new standard. This new
standard has been applied retrospectively.
77
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Notes to the financial statements
2. Accounting policies continued
IAS 28 Investments in Associates and Joint Ventures
(amendment)
On 1 April 2018 the Group early adopted IAS 28 ‘Investments in
Associates and Joint Ventures (amendment)’, the amendment clarifies
that the Group should apply IFRS 9 Financial Instruments to other financial
instruments in an associate or joint venture. This includes the Group's long
term interests in its associate Hovis Holdings Limited (“Hovis”). On early
adoption of IAS 28 (amendment), the Group have applied the amendment
retrospectively, although the comparative information relating to prior years
will not be restated as the impact is immaterial.
IFRS 16 Leases
The preparations for this standard are substantially complete. The Group
intends on adopting the ‘modified retrospective’ approach and in the full
year 2019/20 reporting, the comparative information relating to prior years
will not be restated.
The Group has reviewed all relevant contracts to identify leases. This
review included an assessment about whether the contract depends on
a specific asset, whether the Group obtains substantially all the economic
benefits from the use of that asset and whether the Group has the right
to direct the use of that asset. Based on this assessment, the estimated
impact of IFRS 16 on the Group’s financial statements at 30 March 2019
has been calculated as follows:
Balance sheet: The Group estimates that the adoption of IFRS 16 will result
in total financial assets and liabilities of approximately £20m.
The Group estimates that the adoption of IFRS 16 will not have a material
impact on the Statement of Profit or Loss or the Statement of Cashflows.
The Group intends to apply the exemptions provided by IFRS 16 for short-
term leases (less than a year) and leases for low-value assets.
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 29 September 2018 and 30 March 2019. 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.
78
2.2 Basis of consolidation
(i) Subsidiaries
The consolidated financial statements include the financial statements of
Premier Foods plc and entities controlled by the Company (its subsidiaries).
Control is achieved where the Company is exposed to or has rights to
variable returns from involvement with an investee and has the ability to
affect those returns through its power over the investee.
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. Other financial instruments in associates
are accounted for under IFRS 9 Financial Instruments. The Group’s only
associate is Hovis, the investment for which was previously impaired.
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 when a customer gains
control of the goods, 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.
Premier Foods plc (iii) Commercial income
Commercial income received from suppliers through rebates and
discounts are recognised within cost of sales over the period(s) to
which the underlying contract or agreement relates. Accrued income
is recognised for rebates on contracts covering the current period, for
which no cash was received at the balance sheet date. Deferred income
is recognised for rebates that were received from suppliers at the balance
sheet date but relate to contracts covering future periods.
2.4 Segmental reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the Chief Operating Decision Maker (“CODM”). The
CODM is responsible for allocating resources and assessing performance
of the operating segments. See note 4 for further details.
2.5 Share-based payments
The 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.
2.7 Property, plant and equipment (“PPE”)
Property, plant and equipment is stated at historical cost less accumulated
depreciation and impairment.
PPE is initially recorded at cost. Cost includes the original purchase
price of the asset and the costs attributable to bringing the asset to its
working condition for its intended use. Subsequent expenditure is added
to the carrying value of the asset when it is probable that incremental
future economic benefits will transfer to the Group. All other subsequent
expenditure is expensed in the period it is incurred.
Differences between the cost of each item of PPE and its estimated
residual value are written off over the estimated useful life of the asset
using the straight-line method. Reviews of the estimated remaining useful
lives and residual values of individual productive assets are performed
annually, taking account of commercial and technological obsolescence as
well as normal wear and tear. Freehold land is not depreciated. The useful
economic lives of owned assets range from 15 to 50 years for buildings,
5 to 30 years for plant and equipment and 10 years for vehicles.
All items of PPE are reviewed for impairment when there are indications
that the carrying value may not be fully recoverable.
Assets under construction represent the amount of expenditure
recognised in the course of its construction. Directly attributable costs
that are capitalised as part of the PPE include the employee costs and
an appropriate portion of relevant overheads. When the item of PPE is
available for use, it is depreciated.
The carrying value relating to disposed assets is written off to profit or loss
on disposal of PPE.
2.8 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.
79
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Notes to the financial statements
2. Accounting policies continued
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 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.
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.
80
2.11 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 value in use. 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 periods.
Deferred tax
Deferred tax 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.
Premier Foods plc 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 as at the balance
sheet date.
The measurement of deferred tax assets and liabilities reflect the director’s
intention regarding the manner of recovery of an asset or settlement of a
liability.
For the purpose of recognising deferred tax on the pension scheme
surplus, withholding tax (at 35%) would apply for any surplus being
refunded to the Group at the end of the life of the scheme. Corporation tax
(at 17%) would apply for any surplus expected to unwind over the life of
the scheme.
The directors have concluded that the corporation tax rate should apply to
the recognition of deferred tax on the pension scheme surplus.
Deferred tax 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.
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 or surplus 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 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 liability or surplus are recognised immediately in the
statement of profit or loss.
Curtailments are recognised as a past service cost when the Group makes
a 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 with no restrictions.
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.
81
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Bank borrowings
Interest-bearing bank loans and overdrafts are measured initially at fair
value and subsequently at amortised cost, using the effective interest rate
method. Any difference between the proceeds (net of transaction costs
and inclusive of debt issuance costs) and the settlement or redemption of
borrowings is recognised over the term of the borrowings in accordance
with the Group’s accounting policy for borrowing costs.
Trade and other payables
Trade and other payables are initially measured at fair value and
subsequently measured at amortised cost. Trade payables and other
liabilities are discounted when the time value of money is considered
material.
Equity instruments
Equity instruments issued by the Company are recorded at the amount of
the proceeds received, net of directly attributable issue costs.
2.17 Deferred income
Deferred income is recognised and released over the period to which the
relevant agreement relates.
Notes to the financial statements
2. Accounting policies continued
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.
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
Current year: Trade and other receivables are initially measured at the
transaction price and at the point of recognition an expected credit loss
is recognised to reflect the future risk of default. Trade receivables are
subsequently measured at amortised cost less any additional, specific
provisions for impairment. A specific 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.
Prior year: 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.
82
Premier Foods plc Estimates
The following are considered to be the key estimates within the financial
statements:
3.2 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).
Equalisation of Guaranteed Minimum Pension benefits (“GMP”) has been
estimated taking the minimum cost approach permitted by the Lloyds
Judgment. The costs are based on a comparison of the cumulative
value of members’ benefits with the benefits of a notional member of
the opposite sex. This is method C2 under the terminology of the Lloyds
Judgment, more detail on GMP is included in note 20.
Plan assets of the defined benefit schemes include a number of assets for
which quoted prices are not available. At each reporting date, the Group
determines the fair value of these assets with reference to most recently
available asset statements from fund managers.
Where statements are not available at the reporting date a roll forward
of cash transactions between statement date and balance sheet date is
performed.
3. Critical accounting policies, estimates
and judgements
The following are areas of particular significance to the Group’s financial
statements and may include the use of estimates, which is fundamental
to the compilation of a set of financial statements. Results may differ from
actual amounts.
Critical accounting policies
The following are considered to the critical accounting policies within the
financial statements:
3.1 Deferred tax
Deferred tax arises due to certain temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and those for taxation purposes. The Group has significant loss related to
prior periods. The deferred tax assets and liabilities on a gross basis are
material to the financial statements.
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 as at the balance
sheet date.
For the purpose of recognising deferred tax on the pension scheme
surplus, withholding tax (at 35%) would apply for any surplus being
refunded to the Group at the end of the life of the scheme. Corporation tax
(at 17%) would apply for any surplus expected to unwind over the life of
the scheme.
The directors have concluded that the corporation tax rate should apply to
the recognition of deferred tax on the pension scheme surplus, reflecting
the directors’ intention regarding the manner of recovery of the asset.
Deferred tax 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.
When calculating the value of the deferred tax asset or liability,
consideration is given to the size of gross deferred tax liabilities and
deferred tax assets available to offset this. To the extent that deferred tax
assets exceed liabilities, estimation is required around the level of asset
that can be supported. The following factors are taken into consideration.
• 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 are contained within note 8.
83
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Notes to the financial statements
3. Critical accounting policies, estimates
and judgements continued
3.3 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.
statements:
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.
If the Group concludes that an impairment review is necessary in respect of
intangible brand assets, an analysis of value in use and fair value less costs
to sell is performed. When assessing fair value less costs to sell, the Group
considers the royalty that would otherwise be payable if the brand were licensed
over the life of the brand and compares this to the carrying value and also an
EBITDA multiple approach. Key assumptions include the level of royalty and
EBITDA multiple.
For further details see note 2.9 and note 12.
3.4 Commercial arrangements
Sales rebates and discounts are accrued on each relevant promotion or
customer agreement and are charged to the statement of profit or loss at
the time of the relevant promotional buy-in as a deduction from revenue.
Accruals for each individual promotion or rebate arrangement are based
on the type and length of promotion and nature of customer agreement.
At the time an accrual is made the nature, funding level and timing of the
promotion is typically known. Areas of estimation are sales volume/activity,
phasing and the amount of product sold on promotion.
For short term promotions, the Group performs a true up of estimates
where necessary on a monthly basis, using real time customer sales
information where possible and finally on receipt of a customer claim
which typically follows 1-2 months after the end of a promotion. For longer
term discounts and rebates the Group uses actual and forecast sales to
estimate the level of rebate. These accruals are updated monthly based on
latest actual and forecast sales.
3.5 Inventory valuation
Management has used estimation in the valuation of finished goods taking
into account shelf life, inventory turnover and condition of inventory held at
the period end. Consideration is given to the shelf life of the inventory, and
any customer agreements that specify an expected remaining shelf life of
each product.
84
Judgements
The following are considered to be the key judgements within the financial
3.6 Non-trading items
Non-trading items have been presented separately throughout the financial
statements. These are items that management believes require separate
disclosure by virtue of their nature in order that the users of the financial
statements obtain a clear and consistent view of the Group’s underlying
trading performance. In identifying non-trading items, management have
applied judgement including whether i) the item is related to underlying
trading of the Group; and/or ii) how often the item is expected to occur.
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, non-trading items, fair value movements
on foreign exchange and other derivative contracts and net interest on
pensions and administrative expenses.
During the period, the Group has additionally excluded pension past
service costs and credits from trading profit in order to present a clear and
consistent view of underlying trading performance.
Premier Foods plc The segment results for the period ended 30 March 2019 and for the period ended 31 March 2018 and the reconciliation of the segment measures to the
respective statutory items included in the consolidated financial statements are as follows:
52 weeks ended 30 March 2019
52 weeks ended 31 March 2018
Revenue
Divisional contribution
Group and corporate costs
Trading profit
Amortisation of intangible assets
Fair value movements on foreign exchange and other
derivative contracts
Net interest on pensions and administrative expenses
Non-trading items:1
GMP equalisation charge
Restructuring costs
Impairment of intangible assets and goodwill
Other
Operating profit
Finance cost
Finance income2
Net movement on fair valuation of interest rate
financial instruments
(Loss)/profit before taxation
Depreciation
Grocery
£m
597.0
138.3
Sweet Treats
£m
227.3
23.6
(9.0)
(8.0)
Total
£m
824.3
161.9
(33.4)
128.5
(34.4)
(1.3)
(1.3)
(41.5)
(16.8)
(30.6)
1.9
4.5
(56.7)
9.5
–
(42.7)
(17.0)
Grocery
£m
589.2
130.0
Sweet Treats
£m
230.0
25.8
(8.5)
(8.1)
Total
£m
819.2
155.8
(32.8)
123.0
(36.3)
0.1
(2.5)
-
(8.5)
(6.5)
–
69.3
(50.4)
1.6
0.4
20.9
(16.6)
1. Non-trading items include restructuring costs of £16.8m (2017/18: £8.5m) relating primarily to implementation costs incurred during the Group’s warehousing and
distribution consolidation, principally labour, rent and inventory costs.
Finance income includes reversal of the impairment of the Hovis loan note, driven by the receipt of £7.6m from Hovis.
2.
Revenues in the period ended 30 March 2019, from the Group’s four principal customers, which individually represent over 10% of total Group revenue,
are £184.8m, £119.6m, £90.2m and £86.2m (2017/18: £179.7m, £118.1m, £87.7m and £87.6m). These revenues relate to both the Grocery and Sweet
Treats reportable segments.
The Group primarily supplies the UK market, although it also supplies certain products to other countries in Europe and the rest of the world. The
following table provides an analysis of the Group’s revenue, which is allocated on the basis of geographical market destination, and an analysis of the
Group’s non-current assets by geographical location.
Revenue
United Kingdom
Other Europe
Rest of world
Total
52 weeks
ended
30 Mar 2019
£m
770.8
26.1
27.4
824.3
52 weeks
ended
31 Mar 2018
£m
758.1
27.6
33.5
819.2
85
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Notes to the financial statements
4. Segmental analysis continued
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)
Operating lease rental expenditure
Repairs and maintenance expenditure
Research and development costs
Non trading items
– GMP equalisation charge1
– Restructuring costs
– Other non trading items
Auditor remuneration (note 5.2)
1 For further detail of GMP equalisation please refer to note 20
Operating lease commitments are further disclosed in note 24.
5.2 Auditor’s remuneration
Fees payable to the Group’s auditor for the audit of the consolidated and
parent company accounts of Premier Foods plc
– The audit of the Group’s subsidiaries, pursuant to legislation
Fees payable to the Group’s auditor and its associates for other services:
– Audit related assurance services
– Services relating to corporate finance transactions
Total auditor remuneration
The total operating profit charge for auditor remuneration was £0.8m (2017/18: £0.4m).
86
As at
30 Mar 2019
£m
2,036.2
As at
31 Mar 2018
£m
2,013.6
52 weeks ended
30 Mar 2019
£m
(202.3)
(17.0)
(34.4)
–
(30.6)
(3.6)
(21.3)
(6.9)
52 weeks ended
31 Mar 2018
£m
(149.8)
(16.6)
(36.3)
(4.3)
(2.2)
(3.5)
(24.0)
(6.3)
(41.5)
(16.8)
1.9
(0.8)
–
(8.5)
–
(0.4)
52 weeks ended
30 Mar 2019
£m
52 weeks ended
31 Mar 2018
£m
(0.3)
(0.2)
(0.1)
(0.3)
(0.9)
(0.3)
(0.1)
(0.1)
–
(0.5)
Premier Foods plc 6. Employees
Employee benefits expense
Wages, salaries and bonuses
GMP equalisation and past service cost related to defined benefit pension schemes1
Social security costs
Termination benefits
Share options granted to directors and employees
Contributions to defined contribution schemes (note 20)
Total
1.
For further detail of GMP equalisation please refer to note 20
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
52 weeks ended
30 Mar 2019
£m
52 weeks ended
31 Mar 2018
£m
(142.4)
(37.6)
(12.3)
(1.2)
(2.1)
(6.7)
(202.3)
2018/19
Number
518
403
3,262
4,183
(126.2)
–
(11.8)
(2.9)
(2.8)
(6.1)
(149.8)
2017/18
Number
558
439
3,056
4,053
Directors’ remuneration is disclosed in the audited section of the Directors Remuneration Report on pages 44 to 61, which form part of these
consolidated financial statements.
87
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Notes to the financial statements
7. Finance income and costs
Interest payable on bank loans and overdrafts
Interest payable on senior secured notes
Interest payable on revolving facility
Interest receivable on interest rate derivatives
Other interest payable1
Amortisation of debt issuance costs
Write off of financing costs2
Early redemption fee3
Total finance cost
Interest receivable on bank deposits
Movement on fair valuation of interest rate derivative financial instruments
Other finance income4
Total finance income
Net finance cost
52 weeks ended
30 Mar 2019
£m
(6.2)
(31.7)
(0.8)
–
(3.0)
(3.7)
(45.4)
(5.7)
(5.6)
(56.7)
1.9
–
7.6
9.5
(47.2)
52 weeks ended
31 Mar 2018
£m
(7.8)
(32.2)
(1.1)
0.1
(0.4)
(5.0)
(46.4)
(4.0)
–
(50.4)
1.6
0.4
–
2.0
(48.4)
Included in other interest payable is £3.0m charge (2017/18: £0.4m credit) relating to the unwind of the discount on certain of the Group’s long term provisions.
1.
2. Relates to the refinancing of the senior secured fixed rate notes due 2021 and revolving credit facility in the current period and senior secured floating rate notes due 2020
in the previous period.
3. Relates to a non-recurring payment arising on the early redemption of the £325m senior secured fixed rate notes due 2021 as part of the refinancing of the Group’s debt in
the period.
4. Relates to partial reversal of the impairment of the Hovis loan note, driven by the receipt of £7.6m from Hovis.
The net movement on fair valuation of interest rate financial instruments in 2017/18 related to a £0.4m favourable movement on close out of the interest
rate swaps, which expired in December 2017.
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 credit/(charge)
52 weeks ended
30 Mar 2019
£m
52 weeks ended
31 Mar 2018
£m
1.1
6.1
1.7
–
8.9
0.8
(4.1)
(8.1)
(2.3)
(13.7)
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.
88
Premier Foods plc Tax relating to items recorded in other comprehensive income included:
Deferred tax credit on losses
Deferred tax charge on pension movements
52 weeks ended
30 Mar 2019
£m
1.1
(10.2)
(9.1)
52 weeks ended
31 Mar 2018
£m
4.1
(33.8)
(29.7)
The tax credit/(charge) for the period differs from the standard rate of corporation tax in the United Kingdom of 19.0% (2017/18: 19.0%). The reasons for
this are explained below:
(Loss)/profit before taxation
Tax credit/(charge) at the domestic income tax rate of 19.0% (2017/18: 19.0%)
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% (2017/18: 17.0%)
Movements in losses recognised
Adjustment to restate opening deferred tax at 17.0% (2017/18: 17.0%)
Adjustments to prior periods
Current tax relating to overseas business
Income tax credit/(charge)
52 weeks ended
30 Mar 2019
£m
(42.7)
8.2
52 weeks ended
31 Mar 2018
£m
20.9
(4.0)
(0.9)
–
–
(0.4)
(0.8)
–
–
1.7
1.1
8.9
(0.1)
(0.4)
(0.8)
(0.6)
0.7
1.1
(2.3)
(8.1)
0.8
(13.7)
The movements in losses recognised for the period ended 30 March 2019 is £nil (2017/18: £1.1m). Corporation tax losses are not recognised where
future recoverability is uncertain.
The adjustments to prior periods of £1.7m (2017/18: £(8.1m)) relate mainly to the adjustment of prior period losses and capital allowances which have
been revised following submission of tax returns.
Deferred tax
Deferred tax is calculated in full on temporary differences using the tax rate appropriate to the jurisdiction in which the asset/(liability) arises and the tax
rates that are expected to apply in the periods in which the asset or liability is settled. In all cases this is 17.0% (2017/18: 17.0%).
At 1 April 2018/2 April 2017
Credited/(charged) to the statement of profit or loss
Charged to other comprehensive income
Charged to equity
At 30 March 2019/31 March 2018
2018/19
£m
(12.1)
7.8
(9.1)
(0.1)
(13.5)
2017/18
£m
32.4
(14.5)
(29.7)
(0.3)
(12.1)
The Group has not recognised £3.0m of deferred tax assets (2017/18: £2.2m not recognised) relating to UK corporation tax losses. In addition the Group
has not recognised a tax asset of £34.8m (2017/18: £34.8m) relating to ACT and £41.3m (2017/18: £42.1m) relating to capital losses. Under current
legislation these can generally be carried forward indefinitely.
89
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Notes to the financial statements
8. Taxation continued
Deferred tax liabilities
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
At 1 April 2018
Current period credit
Charged to other comprehensive income
Prior period charge
– To statement of profit or loss
At 30 March 2019
Deferred tax assets
Intangibles
£m
(56.2)
1.9
–
Retirement
benefit obligation
£m
(17.9)
(2.1)
(33.8)
0.1
(54.2)
(54.2)
6.7
–
(0.1)
(47.6)
Accelerated
tax depreciation
£m
47.4
3.0
–
Retirement
benefit obligation
£m
–
–
–
Share based
payments
£m
1.4
(0.1)
–
Financial
instruments
£m
–
0.0
–
–
(2.1)
48.3
48.3
1.3
–
-
3.1
52.7
–
–
–
–
–
–
-
–
–
(0.3)
–
1.0
1.0
-
-
(0.1)
–
0.9
–
–
–
–
–
–
–
–
–
At 2 April 2017
Current period credit/(charge)
Credited to other comprehensive
income
Charged to equity
Prior period (charge)/credit
– To statement of profit or loss
At 31 March 2018
At 1 April 2018
Current period credit/(charge)
Credited to other comprehensive
income
Charged to equity
Prior period (charge)/credit:
– To statement of profit or loss
At 30 March 2019
Net deferred tax liability
As at 30 March 2019
As at 31 March 2018
–
(53.8)
(53.8)
1.5
(10.2)
–
(62.5)
Losses
£m
56.8
(3.7)
4.1
–
(14.6)
42.6
42.6
(1.8)
1.1
-
(0.9)
41.0
Other
£m
(0.2)
–
–
–
(0.2)
(0.2)
–
–
(0.8)
(1.0)
Other
£m
1.1
(3.1)
–
–
6.2
4.2
4.2
(1.6)
–
–
0.4
3.0
Total
£m
(74.3)
(0.2)
(33.8)
0.1
(108.2)
(108.2)
8.2
(10.2)
(0.9)
(111.1)
Total
£m
106.7
(3.9)
4.1
(0.3)
(10.5)
96.1
96.1
(2.1)
1.1
(0.1)
2.6
97.6
£m
(13.5)
(12.1)
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.
90
Premier Foods plc 9. (Loss)/earnings per share
Basic (loss)/earnings per share has been calculated by dividing the loss attributable to owners of the parent of £33.8m (2017/18: £7.2m profit) by the
weighted average number of ordinary shares of the Company.
Weighted average shares
Weighted average number of ordinary shares for the purpose of basic earnings per share
Effect of dilutive potential ordinary shares:
– Share options
Weighted average number of ordinary shares for the purpose of diluted earnings per share
(Loss)/earnings per share calculation
2018/19
Number
(000s)
841,454
–
841,454
2017/18
Number
(000s)
836,818
4,872
841,690
(Loss)/profit after tax (£m)
(Loss)/earnings per share (pence)
52 weeks ended 30 March 2019
52 weeks ended 31 March 2018
Dilutive
effect of
share
options
–
Basic
(33.8)
(4.0)
Diluted
(33.8)
(4.0)
Basic
7.2
0.9
Dilutive
effect of
share
options
0.0
Diluted
7.2
0.9
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.
There is no dilutive effect of share options calculated in the current period as the Group made a loss.
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% (2017/18: 19.0%) 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, other finance income, early redemption fee,the fair value
movements on interest rate financial instruments and other interest payable.
Trading profit and Adjusted EPS have been reported as the directors believe these assist in providing additional useful information on the underlying
trends, performance and position of the Group.
91
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Notes to the financial statements
9. (Loss)/earnings per share continued
Trading profit
Less net regular interest
Adjusted profit before tax
Notional tax at 19.0% (2017/18: 19%)
Adjusted profit after tax
Average shares in issue (m)
Adjusted EPS (pence)
Net regular interest
Net finance cost
Exclude other finance income
Exclude fair value movements on interest rate financial instruments
Exclude write-off of financing costs
Exclude early redemption fee
Exclude other interest payable
Net regular interest
10. Property, plant and equipment
Cost
At 1 April 2017
Additions
Disposals
Transferred into use
At 31 March 2018
Additions
Disposals
Transferred into use
At 30 March 2019
Aggregate depreciation and impairment
At 1 April 2017
Depreciation charge
Disposals
At 31 March 2018
Depreciation charge
Disposals
At 30 March 2019
Net book value
At 31 March 2018
At 30 March 2019
52 weeks ended
30 Mar 2019
£m
128.5
(40.5)
88.0
(16.7)
71.3
841.5
8.5
52 weeks ended
31 Mar 2018
£m
123.0
(44.4)
78.6
(14.9)
63.7
836.8
7.6
(47.2)
(7.6)
–
5.7
5.6
3.0
(40.5)
Land and
buildings
£m
Vehicles, plant
and
equipment
£m
Assets under
construction
£m
102.0
2.6
–
0.4
105.0
0.2
(0.6)
0.3
104.9
(39.0)
(2.4)
–
(41.4)
(2.7)
0.3
(43.8)
63.6
61.1
284.6
4.8
(5.1)
7.5
291.8
9.3
(0.2)
8.8
309.7
(171.1)
(14.2)
4.1
(181.2)
(14.3)
0.2
(195.3)
110.6
114.4
13.8
7.9
(2.8)
(7.9)
11.0
8.6
–
(9.1)
10.5
(2.8)
–
2.8
–
–
–
–
11.0
10.5
(48.4)
–
(0.4)
4.0
–
0.4
(44.4)
Total
£m
400.4
15.3
(7.9)
–
407.8
18.1
(0.8)
–
425.1
(212.9)
(16.6)
6.9
(222.6)
(17.0)
0.5
(239.1)
185.2
186.0
The Group’s borrowings are secured on the assets of the Group including property, plant and equipment.
92
Premier Foods plc 11. Goodwill
Carrying value
Opening balance
Impairment charge
Closing balance
As at
30 Mar 2019
£m
As at
31 Mar 2018
£m
646.0
–
646.0
650.3
(4.3)
646.0
Goodwill is attached to the Group’s Grocery business unit.
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 post-tax cash flows based on the latest Board approved budget for the first year and the Board
approved forecasts in respect of the following two years. An estimate of capital expenditure required to maintain these cash flows is also made.
The key assumptions when forecasting cash flows are revenue growth and divisional contribution margin.
Revenue growth is forecast based on known or forecast customer sales initiatives, including, to the extent agreed, customer business plans or agreements
for the next period, current and forecast new product development, promotional and marketing strategy, and specific category or geographical growth.
External factors, including the consumer environment, are also taken into account in the more short term forecasts. The compound annual growth rate over
the three year forecast period is 2.2% (2017/18: 2.2%).
Divisional contribution margin is forecast based on the projected mix of branded and non-branded sales, raw material input costs, purchasing initiatives
and marketing and distribution 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 1.5% (2017/18: 1.75%) 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 goodwill.
Discount rate assumptions
The discount rate applied to the cash flows is calculated using a post-tax rate based on the weighted average cost of capital (“WACC”) which would be
anticipated for a market participant investing in the Group.
The Group has considered the impact of the current economic climate in determining the appropriate discount rate to use in impairment testing. In the
current period, the post-tax rate used to discount the forecast cash flows has been determined to be 10.0% (2017/18: 9.8%).
Sensitivity analysis
An illustration of the sensitivity to reasonably possible changes in key assumptions in the impairment test for the Grocery CGU is as follows:
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 £76.1m/£103.5m
Increase/decrease by £128.5m/£128.5m
Increase/decrease by £65.4m/£58.4m
Decrease/increase by £79.6m/£91.8m
Under each of the above sensitivities no individual scenarios would trigger an impairment for the Grocery CGU. Under a combination of reasonably
possible scenarios and taking into account mitigating actions no impairment would be triggered.
Goodwill impairment charge
There has been no goodwill impairment charge recognised in 2018/19 (2017/18: £4.3m). The goodwill impairment in the prior year related to Knighton
Foods Investments Limited (“Knighton”) and reflected the challenging trading conditions faced by the business.
93
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Notes to the financial statements
12. Other intangible assets
Cost
At 1 April 2017
Additions
Transferred into use
At 31 March 2018
Additions
Transferred into use
At 30 March 2019
Accumulated amortisation and impairment
At 1 April 2017
Amortisation charge
Impairment charge
At 31 March 2018
Amortisation charge
Impairment charge
At 30 March 2019
Net book value
At 31 March 2018
At 30 March 2019
Brands/
trademarks/
licences
£m
Customer
relationships
£m
Assets under
construction
£m
693.2
–
–
693.2
-
-
693.2
(270.7)
(23.2)
(2.2)
(296.1)
(23.0)
(30.6)
(349.7)
397.1
343.5
134.8
–
–
134.8
–
–
134.8
(134.8)
–
–
(134.8)
–
–
(134.8)
–
–
4.1
1.2
(4.0)
1.3
1.3
(0.7)
1.9
–
–
–
–
–
–
–
1.3
1.9
Software
£m
132.9
1.7
4.0
138.6
1.7
0.7
141.0
(95.5)
(13.1)
–
(108.6)
(11.4)
–
(120.0)
30.0
21.0
Total
£m
965.0
2.9
–
967.9
3.0
–
970.9
(501.0)
(36.3)
(2.2)
(539.5)
(34.4)
(30.6)
(604.5)
428.4
366.4
All amortisation is recognised within administrative costs.
Included in the assets under construction additions for the period are £1.1m (2017/18: £0.4m) in respect of internal costs.
The Group’s borrowings are secured on the assets of the Group including other intangible assets.
The material brands held on the balance sheet are as follows:
Bisto
OXO
Batchelors
Mr Kipling
Sharwoods
Carrying value at
30 March 2019
£m
107.8
75.2
56.0
41.8
23.4
Estimated useful life
remaining
Years
18
28
18
18
18
Intangible assets impairment charge
The intangible asset impairment relates to two brands, Sharwood’s: £27.5m, and Saxa: £3.1m. The impairments reflect management’s latest assessment
of brand value following a strategic review of the Group’s brands and a re-evaluation of the assumptions which underpin the valuation.
94
Premier Foods plc 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 30 March 2019 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
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
100%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
Share Class
% held
by Group
companies,
Country
if different
£1.00 Ordinary shares England & Wales
N/A
£1.00 Ordinary shares
100%
£1.00 Ordinary shares
100%
100% £0.001 Ordinary-a shares
£0.10 Ordinary shares
100%
£0.01 Ordinary shares
100%
£0.01 Ordinary shares
100%
£0.01 Ordinary shares
100%
£0.25 Ordinary shares
100%
£1.20 Ordinary shares
100%
£1.00 Ordinary shares
100%
£1.00 Ordinary shares
100%
£2.90 Ordinary shares
100%
£1.00 Ordinary shares
100%
£1.00 Ordinary shares
100%
£1.00 Ordinary shares
100%
£1.00 Ordinary shares
100%
£1.00 Ordinary shares
100%
£0.05 Ordinary shares
100%
£1.00 Ordinary shares
100%
£1.00 Ordinary shares
100%
£1.00 Ordinary shares
100%
£1.00 Ordinary shares
100%
£1.00 Ordinary shares
100%
£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%
£1.00 Ordinary shares
100%
£1.00 Ordinary Shares
100%
Isle of Man
Daltonmoor Limited*
0%
100%
£1.00 Ordinary shares England & Wales
Registered Address
Premier House
Griffiths Way
St Albans
Hertfordshire
AL1 2RE
Ioma House
Hope Street
Douglas
Isle of Man
IM1 1AP
2 Woolgate Court
St Benedicts Street
Norwich
Norfolk NR2 4AP
95
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Notes to the financial statements
13. Investments continued
Company
Diamond Foods Lebensmittelhandel GmbH
% Held
by Parent
Company of the
Group
0%
% held
by Group
companies,
if different
Share Class
100% €0.5113 Ordinary shares
Country
Germany
Premier Brands Limited*
0%
100%
£1.00 Ordinary shares
Scotland
Premier Foods, Inc.
0%
100% USD$0.01 Common Stock
shares
United States
Premier Grocery Products Ireland Limited
Premier Foods Ireland Manufacturing Limited
0%
100%
€1.00 Ordinary shares
€1.26 Ordinary shares
Ireland
*Dormant entities
14. Inventories
Raw materials
Work in progress
Finished goods and goods for resale
Total inventories
Registered Address
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
30 Mar 2019
£m
16.4
2.7
58.7
77.8
As at
31 Mar 2018
£m
12.4
1.7
62.3
76.4
Inventory write-offs in the period amounted to £7.7m (2017/18: £4.6m). The increase in the current period relates to implementation issues during the
Group’s warehousing and distribution consolidation.
The borrowings of the Group are secured on the assets of the Group including inventories.
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
30 Mar 2019
£m
71.2
(4.8)
66.4
11.8
10.3
0.7
89.2
As at
31 Mar 2018
£m
58.0
(4.4)
53.6
13.5
4.7
3.0
74.8
The borrowings of the Group are secured on 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 on a non-recourse basis. Receivables are only eligible for sale if they meet certain criteria. The facility limit is £30 million. As at 30 March 2019,
£30 million was drawn (2017/18: £30 million).
96
Premier Foods plc 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
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
30 Mar 2019
£m
(149.1)
(45.3)
(4.9)
(38.7)
(238.0)
As at
31 Mar 2018
£m
(133.8)
(46.2)
(4.7)
(29.7)
(214.4)
As at
30 Mar 2019
£m
As at
31 Mar 2018
£m
–
5.8
5.8
(510.0)
6.5
(503.5)
(497.7)
(497.7)
–
5.6
5.6
(535.0)
9.4
(525.6)
(520.0)
(520.0)
Secured senior credit facility – revolving
The revolving credit facility of £177m is due to mature in December 2022 and attracts a leverage based margin of between 2.25% and 3.75% 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:
2019/20 FY
2020/21 FY
Net debt /
EBITDA1
4.50x
4.25x
Net debt /
Interest1
2.75x
2.85x
1. Net debt, EBITDA and Interest are as defined under the revolving credit facility.
Senior secured notes
The senior secured notes are listed on the Irish GEM Stock Exchange. The notes totalling £510m are split between fixed and floating tranches. The fixed
note of £300m matures in October 2023 and attracts an interest rate of 6.25%. The floating note of £210m matures in July 2022 and attracts an interest
rate of 5.00% above LIBOR.
97
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Notes to the financial statements
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
52 weeks ended
30 Mar 2019
1.1612
1.1334
52 weeks ended
31 Mar 2018
1.1406
1.1336
The majority of the Group’s assets and liabilities are denominated in the functional currency of the relevant subsidiary.
The table below shows the Group’s currency exposures as at 30 March 2019 and 31 March 2018 that gave rise to net currency gains and losses
recognised in the consolidated statement of profit or loss as a result of monetary assets and liabilities that are not denominated in the functional currency
of the subsidiaries involved.
Functional currency of subsidiaries –
Sterling
As at 30 Mar 2019
£m
As at 31 Mar 2018
£m
(3.2)
3.0
(0.2)
(0.4)
(8.2)
(0.0)
–
(8.2)
Net foreign currency monetary assets:
– Euro
– US dollar
– Other
Total
98
Premier Foods plc 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
30 Mar 2019
£m
(51.3)
(51.3)
As at
31 Mar 2018
£m
(33.2)
(33.2)
Sensitivities are disclosed below using the following reasonably possible scenarios:
If the US dollar were to weaken against sterling by 20 US dollar cents, with all other variables held constant, profit after tax would increase by £0.1m
(2017/18: remain constant).
If the US dollar were to strengthen against sterling by 20 US dollar cents, with all other variables held constant, profit after tax would decrease by £0.1m
(2017/18: remain constant).
If the euro were to weaken against sterling by 10 euro cents, with all other variables held constant, profit after tax would decrease by £3.2m (2017/18:
£2.1m 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 £3.8m (2017/18:
£2.5m 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 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 35% of the applicable margin for the non-utilised portion of the facility, hence the borrowings are sensitive to changes in
interest rates.
In the prior 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 expired 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.
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 30 March 2019, trade and other receivables of £10.2m (2017/18: £12.9m) were past due but not impaired. These relate to customers with whom
there is no history of default.
99
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Notes to the financial statements
18. Financial instruments continued
The ageing of trade and other receivables was as follows:
Trade and other receivables
As at 30 March 2019
As at 31 March 2018
Fully
performing
£m
56.9
43.7
1–30
days
£m
4.1
8.2
31–60
days
£m
1.3
1.8
Past due
61–90
days
£m
0.8
0.4
91–120
days
£m
1.0
0.9
120+ days
£m
3.0
1.6
Total
£m
67.1
56.6
At 30 March 2019, trade and other receivables of £4.8m (2017/18: £4.4m) were determined to be specifically impaired and provided for. The total
includes receivables from customers which are considered to be experiencing difficult economic situations.
The Group does not hold any collateral as security against its financial assets.
Movements in the provision for impairment of trade receivables are as follows:
As at 1 April 2018/2 April 2017
Receivables written off during the period as uncollectable
Provision for receivables impairment raised
As at 30 March 2019/31 March 2018
2018/19
£m
4.4
(2.2)
2.6
4.8
2017/18
£m
6.7
(3.5)
1.2
4.4
(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 30 March 2019
Trade and other payables
Senior secured notes – fixed
Senior secured notes – floating
At 31 March 2018
Trade and other payables
Senior secured notes – fixed
Senior secured notes – floating
Within 1
year
£m
(233.1)
–
–
(209.7)
–
–
1 and 2
years
£m
–
–
–
–
–
–
2 and 3
years
£m
–
–
–
–
(325.0)
–
3 and 4
years
£m
–
–
(210.0)
–
–
–
4 and 5
years
£m
–
(300.0)
–
–
–
(210.0)
Over 5 years
£m
–
–
–
–
–
–
Total
£m
(233.1)
(300.0)
(210.0)
(209.7)
(325.0)
(210.0)
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.
100
Premier Foods plc At 30 March 2019 the Group had £161.6m (2017/18: £202.0m) of facilities not drawn, expiring between three to four years (2017/18: two and
three years).
The borrowings are secured by a fixed and floating charge over all the assets of the Group.
The following table analyses the contractual undiscounted cash flows of interest on the floating rate debt to maturity (based on the last fixed rate reset
of 0.9279% (2017/18: 0.7859%) plus applicable margin).
At 30 March 2019
At 31 March 2018
Within 1
year
£m
13.3
13.1
1 and 2
years
£m
13.3
13.1
2 and 3
years
£m
13.3
12.8
3 and 4
years
£m
4.8
12.2
4 and 5
years
£m
–
4.1
Over 5 years
£m
–
–
Total
£m
44.7
55.3
The following table analyses the Group’s derivative financial instruments into relevant maturity groupings based on the remaining period at the balance
sheet date to the contractual maturity date. The amounts disclosed are the undiscounted cash flows.
Within 1
year
£m
1 and 2
years
£m
2 and 3
years
£m
3 and 4
years
£m
4 and 5
years
£m
Over 5 years
£m
Total
£m
At 30 March 2019
Forward foreign exchange
contracts:
– Outflow
– Inflow
Commodities:
– Outflow
Total derivative financial
instruments
At 31 March 2018
Forward foreign exchange
contracts:
– Outflow
– Inflow
Commodities:
– Outflow
Total derivative financial
instruments
(51.2)
49.7
(1.9)
(3.4)
(33.1)
32.7
(0.6)
(1.0)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(51.2)
49.7
(1.9)
(3.4)
(33.1)
32.7
(0.6)
(1.0)
101
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS 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.
As at 30 Mar 2019
As at 31 Mar 2018
Loans and receivables:
Cash and cash equivalents
Trade and other receivables1
Financial assets at amortised cost:
Trade and other receivables1
Financial assets at fair value through profit or loss:
Trade and other receivables1
Derivative financial instruments
– Commodity and energy derivatives
Financial liabilities at fair value through profit or loss:
Derivative financial instruments
– Forward foreign currency exchange contracts
– Commodity and energy derivatives
Other financial liabilities
Financial liabilities at amortised cost:
Trade and other payables
Senior secured notes
1. Refer to “Adoption of IFRS 9” section below
Carrying
amount
£m
27.8
–
62.5
4.6
–
(1.5)
(0.1)
–
(233.1)
(510.0)
Fair
value
£m
27.8
–
62.5
4.5
–
(1.5)
(0.1)
–
(233.1)
(515.0)
Carrying
amount
£m
23.6
56.6
–
–
0.1
(0.4)
–
(1.7)
(209.7)
(535.0)
Fair
value
£m
23.6
56.6
–
–
0.1
(0.4)
–
(1.7)
(209.7)
(539.3)
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 and energy derivatives
Financial liabilities at fair value through profit or loss:
Derivative financial instruments
– Forward foreign currency exchange contracts
– Commodity and energy derivatives
Other financial liabilities
Financial liabilities at amortised cost:
Senior secured notes
102
As at 30 Mar 2019
As at 31 Mar 2018
Level 1
£m
Level 2
£m
Level 1
£m
Level 2
£m
–
–
–
–
–
(1.5)
(0.1)
–
–
–
–
–
(515.0)
–
(539.3)
0.1
(0.4)
–
(1.7)
–
Premier Foods plc
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 £1.1m has been charged to the statement of profit or loss in the period (2017/18: £0.1m credit).
Commodity derivatives are marked to market using prevailing prices and are also not designated for hedge accounting. As a result the fair value
movement of £0.2m has been charged to the statement of profit or loss (2017/18: £nil).
Interest rate swaps are marked to market using prevailing market prices. Interest rate swaps are also not designated for hedge accounting. The interest rate
swaps expired in December 2017. As a result there is no movement recognised in the statement of profit or loss in the period (2017/18: £0.4m credit).
Short and long term borrowings, loan notes and interest payable
Fair value is calculated based on discounted expected future principal and interest rate cash flows. The fair value of the floating rate debt approximates
the carrying value above.
Trade and other receivables/payables
The carrying value of receivables/payables with a remaining life of less than one year is deemed to reflect the fair value given their short maturity. The fair
values of non-current receivables/payables are also considered to be the same as the carrying value due to the size and nature of the balances involved.
(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 30 March 2019 (2017/18: £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
30 Mar 2019
£m
(497.7)
27.8
(469.9)
(962.8)
(1,432.7)
33%
As at
31 Mar 2018
£m
(520.0)
23.6
(496.4)
(949.3)
(1,445.7)
34%
Gearing is lower year on year due to a lower debt level.
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 29 September 2018 and 30 March 2019.
103
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS 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 £469.9m (2017/18: £496.4m) 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. The banking covenants relate to the Group’s revolving credit facility, which was undrawn at 30 March
2019 (2017/18: undrawn).
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 2022 and 2023.
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 as at March/April 2019, with finalisation expected in early 2020, 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.
Adoption of IFRS 9 – Impact on measurement of financial assets
On the date of initial application of IFRS 9, 1 April 2018, financial assets of £56.6m previously measured as loans and receivables were reclassified, £6.2m
to fair value through profit or loss under IFRS 9 and £50.4m to amortised cost under IFRS 9. The assets at fair value through profit or loss are assets
which are sold into the Receivables Financing Arrangement, those at amortised cost represent assets which are held.
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 and legal matters and provisions for
restructuring costs. These provisions have been discounted at rates between 0.69% and 1.55% (2017/18: 0.99% and 1.77%). The unwinding of the
discount is charged or credited to the statement of profit or loss under finance cost.
104
Premier Foods plc At 1 April 2017
Utilised during the period
Additional charge in the period
Unwind of discount
Released during the period
Retranslation of foreign currency balances
At 31 March 2018
Utilised during the period
Additional charge in the period
Unwind of discount
Released during the period
At 30 March 2019
Analysis of total provisions:
Within one year
Between 2 and 5 years
After 5 years
Total
Property
£m
(34.0)
1.0
(1.0)
0.4
1.5
–
(32.1)
2.4
–
(3.0)
0.9
(31.8)
Other
£m
(19.1)
5.0
(1.2)
–
3.8
–
(11.5)
1.0
(2.6)
–
2.8
(10.3)
Total
£m
(53.1)
6.0
(2.2)
0.4
5.3
0.0
(43.6)
3.4
(2.6)
(3.0)
3.7
(42.1)
As at
30 Mar 2019
£m
(9.7)
(5.0)
(27.4)
(42.1)
As at
31 Mar 2018
£m
(7.9)
(10.9)
(24.8)
(43.6)
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 the RHM pension scheme 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 = €1.1334 for the average rate during the period, and £1.00 =
€1.1612 for the closing position at 30 March 2019.
105
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Notes to the financial statements
20. Retirement benefit schemes continued
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 to support the security and funding of their
pension obligations. Asset classes used include government bonds, private equity, absolute return products, swaps and infrastructure.
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 RHM
Pension Scheme holds a security over the assets of the Group which ranks pari passu with the banks and bondholders in the event of insolvency, up to a cap.
The schemes incorporate a Liability Driven Investment (LDI) strategy to more closely match the assets with changes in value of liabilities. The RHM
Pension Scheme uses assets including interest rate and inflation swaps, index linked bonds and infrastructure in its LDI strategy, The smaller schemes
use a pooled fund approach for LDI.
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
Group continues to monitor the pension risks closely working with the trustees to ensure a collaborative approach.
• Mortality risk – the assumptions adopted make allowance for future improvements in life expectancy. However, if life expectancy improves at a faster
rate than assumed, this would result in greater payments from the schemes and consequently increases in the schemes liabilities. The trustees review
the mortality assumption on a regular basis to minimise the risk of using an inappropriate assumption.
• Yield risk – a fall in government bond yields will increase the schemes liabilities and certain of the assets. However, the liabilities may grow by more in
monetary terms, thus increasing the deficit in the scheme.
Inflation risk – the majority of the schemes liabilities increase in line with inflation and so if inflation is greater than expected, the liabilities will increase.
Investment risk - the risk that investments do not perform in line with expectations.
•
•
The 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 47% in respect of former active members who have yet to retire and approximately 53% in respect of
pensioner members already in receipt of benefits.
All pension schemes are closed to future accrual.
106
Premier Foods plc On 26 October 2018 the High Court handed down its judgment in the Lloyds Banking Group case. The judgment confirmed the requirement to equalise
the Guaranteed Minimum Pension benefits accrued between 1990 and 1997 from contracting out of the State Earnings Related Pension Scheme, treating
men and women equally with respect to these benefits. The judgment highlighted an acceptable range of methods the Trustees are entitled to adopt to
achieve equalisation. The estimated cost of equalisation is £41.5m and has been recognised as a past service cost through the income statement. The cost
represents the Directors’ best estimate of the cost based on actuarial advice and is consistent with the principles outlined in the judgment.
The final cost will differ from this amount when the actual method of equalisation is agreed with the scheme Trustees and subsequently implemented.
The cost related to equalisation was between 0.8% and 1.5% of scheme liabilities. A sensitivity analysis of the equalisation costs is as follows:
− a 0.1% increase in the percentage of liability impacted by GMP equalisation would lead to an increase in the defined benefit obligation of
approximately £5m
− a 0.1% decrease in the percentage of liability impacted by GMP equalisation would lead to a decrease in the defined benefit obligation of
approximately £5m
At the balance sheet date, the combined principal accounting assumptions were as follows:
Discount rate
Inflation – RPI
Inflation – CPI
Expected salary increases
Future pension increases
At 30 Mar 2019
At 31 Mar 2018
Premier
schemes
2.45%
3.25%
2.15%
n/a
2.10%
RHM
schemes
2.45%
3.25%
2.15%
n/a
2.10%
Premier
schemes
2.70%
3.15%
2.05%
n/a
2.10%
RHM
schemes
2.70%
3.15%
2.05%
n/a
2.10%
For the smaller overseas schemes the discount rate used was 1.50% (2017/18: 1.80%) and future pension increases were 1.30% (2017/18: 1.45%).
At 30 March 2019 and 31 March 2018, the discount rate was derived based on a bond yield curve expanded to also include bonds rated AA by one
credit agency (and which might for example be rated A or AAA by other agencies).
The 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 30 Mar 2019
At 31 Mar 2018
Premier
schemes
87.4
89.3
88.4
90.5
RHM
schemes
85.3
87.8
86.1
88.9
Premier
schemes
87.6
89.5
88.6
90.7
RHM
schemes
85.8
88.3
86.7
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/decrease by 1 year
Impact on scheme liabilities
Decrease/increase by £78.1m/£79.9m
Increase/decrease by £35.2m/£30.6m
Increase/decrease by £208.2m/£208.6m
The sensitivity information has been derived using projected cash flows for the Schemes valued using the relevant assumptions and membership profile
as at 30 March 2019. Extrapolation of these results beyond the sensitivity figures shown may not be appropriate.
107
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS 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 30 March 2019:
UK equities
Global equities
Government bonds
Corporate bonds
Property
Absolute return products
Cash
Other
Assets without a quoted price in an active
market at 30 March 2019:
Infrastructure funds
Swaps
Private equity
Other
Fair value of scheme assets
as at 30 March 2019
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
0.4
7.5
29.9
26.9
31.3
365.7
8.0
224.8
–
–
–
12.6
707.1
0.2
7.6
25.0
20.7
7.5
391.0
12.8
214.1
–
–
–
0.2
679.1
0.1
1.1
4.2
3.8
4.4
51.7
1.1
31.8
–
–
–
1.8
100
0.0
1.1
3.7
3.0
1.1
57.7
1.9
31.5
–
–
–
0.0
100
0.3
171.3
1,460.5
–
405.2
775.5
30.1
2.8
256.1
556.4
446.1
229.3
4,333.6
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
0.0
4.0
33.6
–
9.4
17.9
0.7
0.1
5.9
12.8
10.3
5.3
100
0.0
6.9
24.3
–
9.2
22.3
0.5
0.1
6.1
17.1
8.2
5.3
100
0.7
178.8
1,490.4
26.9
436.5
1,141.2
38.1
227.6
256.1
556.4
446.1
241.9
5,040.7
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
0.0
3.5
29.7
0.5
8.7
22.6
0.8
4.5
5.1
11.0
8.8
4.8
100
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
For assets without a quoted price in an active market, fair value is determined with reference to net asset value statements provided by third parties.
The RHM scheme invests directly in interest rate and inflation swaps to protect from fluctuations in interest rates and inflation.
108
Premier Foods plc The amounts recognised in the balance sheet arising from the Group’s obligations in respect of its defined benefit schemes are as follows:
Present value of funded obligations
Fair value of plan assets
(Deficit)/surplus in schemes
At 30 March 2019
At 31 March 2018
Premier
schemes
£m
(1,171.8)
707.1
(464.7)
RHM
schemes
£m
(3,495.8)
4,333.6
837.8
Total
£m
(4,667.6)
5,040.7
373.1
Premier
schemes
£m
(1,116.1)
679.1
(437.0)
RHM
schemes
£m
(3,430.5)
4,184.5
754.0
Total
£m
(4,546.6)
4,863.6
317.0
The aggregate surplus of £317.0m has increased to a surplus of £373.1m in the current period. This increase of £56.1m (2017/18: £212.2m increase) is
primarily due remeasurement gains on assets and change in demographic (mortality) assumptions.
Changes in the present value of the defined benefit obligation were as follows:
Defined benefit obligation at 1 April 2017
Interest cost
Remeasurement gains
Exchange differences
Benefits paid
Defined benefit obligation at 31 March 2018
Interest cost
Past service cost
Remeasurement losses
Exchange differences
Benefits paid
Defined benefit obligation at 30 March 2019
Changes in the fair value of plan assets were as follows:
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
Interest income on plan assets
Remeasurement gains
Administrative costs
Contributions by employer
Exchange differences
Benefits paid
Fair value of plan assets at 30 March 2019
Premier
schemes
£m
(1,162.8)
(29.9)
36.6
(1.2)
41.2
(1,116.1)
(29.1)
(11.1)
(53.9)
0.8
37.6
(1,171.8)
Premier
schemes
£m
673.7
17.3
(7.6)
(3.0)
38.6
1.3
(41.2)
679.1
17.7
14.2
(6.5)
41.1
(0.9)
(37.6)
707.1
RHM
schemes
£m
(3,597.0)
(93.0)
87.6
(0.7)
172.6
(3,430.5)
(90.3)
(26.5)
(94.6)
0.5
145.6
(3,495.8)
RHM
schemes
£m
4,190.9
108.6
58.2
(2.5)
1.2
0.7
(172.6)
4,184.5
110.7
187.5
(3.8)
0.8
(0.5)
(145.6)
4,333.6
Total
£m
(4,759.8)
(122.9)
124.2
(1.9)
213.8
(4,546.6)
(119.4)
(37.6)
(148.5)
1.3
183.2
(4,667.6)
Total
£m
4,864.6
125.9
50.6
(5.5)
39.8
2.0
(213.8)
4,863.6
128.4
201.7
(10.3)
41.9
(1.4)
(183.2)
5,040.7
109
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Notes to the financial statements
20. Retirement benefit schemes continued
The reconciliation of the net defined benefit (deficit)/surplus over the period is as follows:
(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
Amount recognised in profit or loss
Remeasurements recognised in other comprehensive income
Contributions by employer
Exchange differences recognised in other comprehensive income
(Deficit)/surplus in schemes at 30 March 2019
Remeasurements recognised in the consolidated statement of comprehensive income are as follows:
Remeasurement (loss)/gain on plan liabilities
Remeasurement gain/(loss) on plan assets
Net remeasurement (loss)/gain for the period
Premier
schemes
£m
(53.9)
14.2
(39.7)
2018/19
RHM
schemes
£m
(94.6)
187.5
92.9
Total
£m
(148.5)
201.7
53.2
Premier
schemes
£m
(489.1)
(15.6)
29.0
38.6
0.1
(437.0)
(29.0)
(39.7)
41.1
(0.1)
(464.7)
Premier
schemes
£m
36.6
(7.6)
29.0
RHM
schemes
£m
593.9
13.1
145.8
1.2
–
754.0
(9.9)
92.9
0.8
–
837.8
2017/18
RHM
schemes
£m
87.6
58.2
145.8
Total
£m
104.8
(2.5)
174.8
39.8
0.1
317.0
(38.9)
53.2
41.9
(0.1)
373.1
Total
£m
124.2
50.6
174.8
The actual return on plan assets was a £330.1m gain (2017/18: £176.5m gain), which is £201.7m more (2017/18: £50.6m more) than the interest income
on plan assets of £128.4m (2017/18: £125.9m).
The remeasurement loss on liabilities of £148.5m (2017/18: £124.2m gain) comprises a loss due to changes in financial assumptions of £226.7m
(2017/18: £83.9m gain), a loss due to member experience of £9.1m (2017/18: £32.8m gain) and a gain due to demographic assumptions of £87.3m
(2017/18: £7.5m gain).
The net remeasurement gain taken to the consolidated statement of comprehensive income was £53.2m (2017/18: £174.8m gain). This gain was
£44.1m (2017/18: £145.1m gain) 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 that the trustees of the RHM pension scheme do not have the unilateral right to wind up the scheme, so the asset has not been restricted
and no additional liability has been recognised.
The International 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.
110
Premier Foods plc The total amounts recognised in the consolidated statement of profit or loss are as follows:
Operating profit
Past service costs
GMP equalisation
Other
Administrative costs
Net interest (cost)/credit
Total (cost)/credit
Premier
schemes
£m
2018/19
RHM
schemes
£m
(26.5)
–
(6.5)
(11.4)
(44.4)
(15.0)
3.9
(3.8)
20.4
5.5
Premier
schemes
£m
2017/18
RHM
schemes
£m
–
–
(3.0)
(12.6)
(15.6)
–
–
(2.5)
15.6
13.1
Total
£m
(41.5)
3.9
(10.3)
9.0
(38.9)
Total
£m
–
–
(5.5)
3.0
(2.5)
Defined contribution schemes
A number of companies in the Group operate defined contribution schemes, including provisions to comply with auto enrolment requirements laid down
by law. In addition a number of schemes providing life assurance benefits only are operated. The total expense recognised in the statement of profit or
loss of £6.7m (2017/18: £6.1m) represents contributions payable to the plans by the Group at rates specified in the rules of the plans.
21. Other liabilities
Deferred income
Other accruals
Other liabilities
As at
30 Mar 2019
£m
(8.4)
(2.2)
(10.6)
As at
31 Mar 2018
£m
(9.8)
(0.2)
(10.0)
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.
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. 381,850 shares in Premier Foods plc were held by the Employee Benefit Trust at 30 March 2019, with a market value of £0.1m
(2017/18: 656,780 shares with a market value of £0.2m).
111
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Notes to the financial statements
22. Reserves and share capital continued
Share capital
At 1 April 2017
Shares issued under share schemes
At 31 March 2018
Shares issued under share schemes
At 30 March 2019
Share award schemes
The Company’s share award schemes are summarised as follows:
Number of
shares
832,470,678
8,151,539
840,622,217
4,306,470
844,928,687
Ordinary shares @
nominal value
(£0.10/share)
£m
83.3
0.8
84.1
0.4
84.5
Share
premium
£m
1,406.7
0.9
1,407.6
1.0
1,408.6
Total
£m
1,490.0
1.7
1,491.7
1.4
1,493.1
1. 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 2016, 2017 and 2018 Performance Share awards are conditional on achievement of a combination
of absolute adjusted earnings per share targets and relative TSR targets.
2. 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.
3. 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.
4. A Deferred Share Bonus Plan (“DSBP”). Only the acting CEO participated in the DSBP which operated alongside the Annual Bonus plan. Awards
were based on the achievement of a range of targets which were set at the start of each financial period. If the objective was met, the bonus earned
was 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. The one outstanding award under the DSBP vested in 2018 and no further awards will be
made under the plan.
5. A Deferred Bonus Plan (“DBP”). One third of any annual bonus payment awarded to executive directors is made 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.
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.
112
Premier Foods plc Details of share award and option schemes
Details of the share awards of the Premier Foods plc LTIP (Performance share award) are as follows:
Premier Foods plc LTIP (Performance share award)
Outstanding at the beginning of the period
Granted during the period
Forfeited during the period
Outstanding at the end of the period
Exercisable at the end of the period
2018/19
Awards
29,699,520
7,640,497
(12,829,541)
24,510,476
5,141,727
2017/18
Awards
27,787,947
9,759,169
(7,847,596)
29,699,520
6,146,066
The awards outstanding at 30 March 2019 had a weighted average remaining contractual life of 0.9 years (2017/18: 0.9 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
2018/19
Awards
373,705
–
–
–
373,705
373,705
2017/18
Awards
5,313,677
–
(4,647,811)
(292,161)
373,705
373,705
The awards outstanding at 30 March 2019 had a weighted average remaining contractual life of nil years (2017/18: nil 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
Vested during the period
Outstanding at the end of the period
Exercisable at the end of the period
Details of the share options of the Premier Foods plc Deferred Share Bonus Plan are as follows:
Premier Foods plc Deferred Bonus Plan
Outstanding at the beginning of the period
Granted during the period
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
2018/19
Awards
157,560
–
(157,560)
–
–
2018/19
Awards
–
423,856
–
423,856
–
2017/18
Awards
157,560
–
–
157,560
–
2017/18
Awards
–
–
–
–
–
The awards outstanding at 30 March 2019 had a weighted average remaining contractual life of 1.4 years (2017/18: 0.2 years). The weighted average fair
value of awards granted during the period was nil pence per award.
113
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Notes to the financial statements
22. Reserves and share capital continued
Details of the share options of the Premier Foods plc Share Incentive Plan are as follows:
Premier Foods plc Share Incentive Plan
Outstanding at the beginning of the period
Exercised during the period
Transferred out during the period
Forfeited during the period
Outstanding at the end of the period
Exercisable at the end of the period
2018/19
Awards
1,266,500
(76,693)
(19,075)
(1,000)
1,169,732
–
2017/18
Awards
1,463,000
(126,400)
(25,600)
(44,500)
1,266,500
–
The awards outstanding at 30 March 2019 had a weighted average remaining contractual life of nil years (2017/18: nil 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
2018/19
2017/18
Weighted
average exercise
price
(p)
33
32
30
33
32
32
Options
17,835,628
(4,306,470)
5,022,240
(2,447,511)
16,103,887
2,673,154
Weighted
average exercise
price
(p)
35
34
33
44
33
35
Options
20,231,334
(3,536,539)
4,988,669
(3,847,836)
17,835,628
792,451
During the period 5.0 million (2017/18: 5.0 million) options were granted under the Sharesave Plan, with a weighted average exercise price at the date of
exercise of 30 pence per ordinary share (2017/18: 33 pence).
The options outstanding at 30 March 2019 had a weighted average exercise price of 32 pence (2017/18: 33 pence), and a weighted average remaining
contractual life of 1.6 years (2017/18: 1.6 years).
In 2018/19, the Group recognised an expense of £2.1m (2017/18: £2.8m), 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
As at 30 Mar 2019
Weighted average
remaining
contractual
life (years)
0.8
1.6
–
1.1
Weighted
average exercise
price
(p)
10
32
–
18
Number
outstanding
26,477,769
16,103,887
–
42,581,656
As at 31 Mar 2018
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
At 10 pence
£0.10 to £9.90
£10.00 to £20.00
Total
114
Premier Foods plc 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 (loss)/profit before tax to cash flows from operations
(Loss)/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
GMP equalisation and past service cost related to defined benefit pension schemes1
Increase in inventories
Increase in trade and other receivables
Increase in trade and other payables and provisions
Movement in retirement benefit obligations
Cash generated from operations
1.
For further detail of GMP equalisation please refer to note 20
Reconciliation of cash and cash equivalents to net borrowings
Net inflow of cash and cash equivalents
Decrease in finance leases
Decrease/(increase) 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
52 weeks ended
30 Mar 2019
£m
(42.7)
47.2
4.5
17.0
34.4
0.3
30.6
–
1.3
2.1
37.6
(1.4)
(14.4)
8.8
(40.6)
80.2
52 weeks ended
31 Mar 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
30 Mar 2019
£m
4.2
–
25.0
(2.7)
26.5
(496.4)
(469.9)
52 weeks ended
31 Mar 2018
£m
41.7
0.1
(13.0)
(2.0)
26.8
(523.2)
(496.4)
115
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Notes to the financial statements
23. Notes to the cash flow statement continued
Analysis of movement in borrowings
Cash and bank deposits
Net cash and cash equivalents
Borrowings - senior secured notes
Gross borrowings net of cash1
Debt issuance costs2
Total net borrowings1
As at
31 Mar 2018
£m
23.6
23.6
(535.0)
(511.4)
15.0
(496.4)
Cash flows
£m
4.2
4.2
25.0
29.2
–
29.2
Other non-cash
movements
£m
–
–
–
–
(2.7)
(2.7)
As at
30 Mar 2019
£m
27.8
27.8
(510.0)
(482.2)
12.3
(469.9)
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 30 Mar 2019
As at 31 Mar 2018
Offset asset
158.0
Offset liability
(130.2)
Net offset asset
27.8
Offset asset
121.1
Offset liability
(97.5)
Net offset asset
23.6
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 30 Mar 2019
As at 31 Mar 2018
Property
£m
1.8
6.3
6.0
14.1
Plant and
Equipment
£m
1.3
2.4
0.5
4.2
Property
£m
2.5
5.3
9.4
17.2
Plant and
Equipment
£m
1.8
1.9
–
3.7
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 (2017/18: £0.2m) 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 (2017/18: £0.2m).
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 30 March
2019 of £5.4m (2017/18: £2.1m).
26. Contingencies
There were no material contingent liabilities at 30 March 2019 (2017/18: none).
116
Premier Foods plc 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 44 to 61.
Short term employee benefits
Termination benefits
Share-based payments
Total
(b) Other related parties
The Group’s associates are considered to be related parties.
52 weeks ended
30 Mar 2019
£m
4.2
0.9
1.3
6.4
52 weeks ended
31 Mar 2018
£m
4.4
0.5
1.1
6.0
As at 30 March 2019 the following are also 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 19.47% (2017/18: 19.57%) equity
shareholding in Premier Foods plc and of its power to appoint a member to the Board of directors.
− Oasis Management Company Ltd (“Oasis”) is considered to be a related party to the Group by virtue of its 11.99% (2017/18: 9.01%) equity
shareholding in Premier Foods plc and of its power to appoint a member to the Board of directors.
− Paulson Investment Company LLC, (“Paulson”) is considered to be a related party to the Group by virtue of its 11.98% (2017/18: 7.39%) equity
shareholding in Premier Foods plc and of its power to appoint a member to the Board of directors.
Sale of goods:
– Hovis
Sale of services:
– Hovis
– Nissin
Total sales
Purchase of goods:
– Hovis
– Nissin
Total purchases
52 weeks ended
30 Mar 2019
£m
52 weeks ended
31 Mar 2018
£m
0.3
0.7
0.2
1.2
6.3
10.3
16.6
0.3
0.7
0.1
1.1
11.9
7.1
19.0
As at 30 March 2019 the Group had outstanding balances with Hovis. Total trade receivables was £0.9m (2017/18: £0.5m) and total trade payables was
£0.6m (2017/18: £2.5m).
28. Subsequent events
There were no reportable events after the balance sheet date.
117
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Company balance sheet
The following statements reflect the financial position of the Company, Premier Foods plc as at 30 March 2019 and 31 March 2018. 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.
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
30 Mar 2019
£m
As at
31 Mar 2018
£m
Note
3
4
6
5
7
14.2
12.8
1,314.6
2.2
3.5
1,334.5
(319.2)
1,001.1
1,015.3
84.5
1,408.6
(477.8)
1,015.3
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
The notes on pages 120 to 122 form an integral part of the financial statements.
The financial statements on pages 118 to 119 were approved by the Board of directors on 14 May 2019 and signed on its behalf by:
Alastair Murray
Acting Chief Executive Officer and Chief Financial Officer
118
Premier Foods plc Company statement of changes in equity
At 1 April 2017
Profit for the period
Share-based payments
Shares issued
At 31 March 2018
Profit for the period
Share-based payments
Shares issued
At 30 March 2019
The notes on pages 120 to 122 form an integral part of the financial statements.
Called up share
capital
£m
83.3
–
–
0.8
84.1
–
–
0.4
84.5
Share
premium account
£m
1,406.7
–
–
0.9
1,407.6
–
–
1.0
1,408.6
Profit and
loss account
£m
(513.2)
15.1
2.8
–
(495.3)
15.4
2.1
–
(477.8)
Total
£m
976.8
15.1
2.8
1.7
996.4
15.4
2.1
1.4
1,015.3
119
Annual report for the 52 weeks ended 30 March 2019 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”).
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.
Receivables
Receivables comprise intercompany loans, a recoverability assessment of
these balances has been performed and no impairment is needed.
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 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.
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 £15.4m (2017/18: £15.1m profit) is recorded in
the accounts of Premier Foods plc.
The Company has ensured that its assets and liabilities are measured in
compliance with FRS 101. The financial statements have been prepared
under the historical cost convention.
The preparation of the financial statements requires the directors to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, and the disclosure of contingent liabilities at the date of the
financial statements. The key estimates and assumptions are set out in the
accounting policies below, together with the related notes to the accounts.
The directors consider that the accounting policies set out below are the
most appropriate and have been consistently applied.
The Company is exempt as permitted under Financial Reporting Standard
101 from disclosing related party transactions with entities that are wholly
owned subsidiaries of the Premier Foods plc Group.
Investments
Investments are stated at cost less any provision for impairment in their value.
Taxation
Tax on the profit or loss for the period comprises current and deferred tax.
Tax is recognised in the profit and loss account except to the extent that
it relates to items recognised directly in equity or other comprehensive
income, in which case it is recognised directly in equity or other
comprehensive income.
120
Premier Foods plc 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.
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 (2017/18: £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 30 March 2019, the Company had one employee (2017/18: two). Directors’ emolument disclosures are provided in the Single Figure Table on page 52
of this annual report.
3. Investments in Group undertakings
Cost
At 1 April 2018/2 April 2017
Additions
At 30 March 2019/31 March 2018
Accumulated impairment
At 1 April 2018/2 April 2017
At 30 March 2019/31 March 2018
NBV at 30 March 2019/31 March 2018
2018/19
£m
1,772.1
1.4
1,773.5
(1,759.3)
(1,759.3)
14.2
2017/18
£m
1,770.0
2.1
1,772.1
(1,759.3)
(1,759.3)
12.8
In 2018/19 a capital contribution of £1.4m (2017/18: £2.1m) 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
30 Mar 2019
£m
1,314.6
As at
31 Mar 2018
£m
1,296.9
Amounts owed by Group undertakings are unsecured, have no fixed date of repayment and are not subject to interest rate risk as they are interest free,
with the exception of £414.5m (2017/18: £396.8m) which attracted interest at a rate of LIBOR plus 4.0% (2017/18: LIBOR plus 4.0%). The Group are
doing a review and expect the receivable to be settled in the next 12 months. Carrying value approximates fair value.
121
Annual report for the 52 weeks ended 30 March 2019 FINANCIAL STATEMENTS Notes to the Company financial statements
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
30 Mar 2019
£m
(299.2)
(20.0)
(319.2)
As at
31 Mar 2018
£m
(297.6)
(20.0)
(317.6)
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 £32.6m (2017/18: £31.0m) which attracted interest at a rate of LIBOR plus 4.0% (2017/8: LIBOR plus
4.0%). Carrying value approximates fair value.
6. Deferred Tax
At 1 April 2018/2 April 2017
Credited to the statement of profit and loss
At 30 March 2019/31 March 2018
The deferred tax asset relates to share-based payments.
7. Called up share capital and other reserves
(a) Called up share capital
Issued and fully paid
844,928,687 (2017/18: 840,622,217) ordinary shares of 10 pence each
2018/19
£m
2.2
–
2.2
2017/18
£m
2.1
0.1
2.2
As at
30 Mar 2019
£m
As at
31 Mar 2018
£m
84.5
84.1
(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 (2017/18: £0.8m). Further details of these schemes can be found in the Directors
Remuneration report on page 44 to 61.
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 30 March 2019 is £0.7bn (2017/18: £0.8bn).
9. Subsequent events
There were no reportable events after the balance sheet date.
122
Premier Foods plc 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
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
www.premierfoods.co.uk
Registered in England and Wales No. 5160050
P
R
E
M
I
E
R
F
O
O
D
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
f
o
r
t
h
e
5
2
w
e
e
k
s
e
n
d
e
d
3
0
M
a
r
c
h
2
0
1
9