Strategic Update 6th April

Strategic update
6 April 2016
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a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or
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2
WHY WE REJECTED McCORMICK’S LATEST APPROACH
1
In the areas where we have focused investment, our consumer focused growth strategy is showing results
We are now expanding our investments across the portfolio
2
New strategic initiatives will drive incremental growth to our base strategy
3
Our exciting collaboration with Nissin Foods provides further growth and upside
4
Together this will deliver an improved medium-term outlook
5
McCormick’s offer continues to undervalue the Premier Foods business and its prospects
6
We believe McCormick will benefit from significant synergies not reflected in their approach
3
CONTENTS
1
Our strategy is showing results
2
New strategic initiatives to accelerate growth
3
Cooperation opportunities with Nissin Foods
4
Outlook
4
IMPROVED MEDIUM-TERM OUTLOOK
Sales growth
Nissin
Cooperation
Potential
New
Strategic
Initiatives
2-4%
Existing
growth
momentum
Base Plans
1-2%
5
1
Our strategy is showing
results
6
PREMIER FOODS TODAY
One of the UK’s leading ambient grocery suppliers
With leading positions across our categories
In our core categories: Cooking Sauces & Accompaniments, Flavourings & Seasonings, Light Meals & Soups,
Ambient Desserts and Ambient Cake
Strengthening our position in Home Baking and building on our recent entry into Ice Cream
Built on a unique portfolio of brands deeply rooted in the hearts & minds of consumers
Strong brand equity built over a century of existence of our key brands
High household penetration
An industry-leader in EBITDA profitability
Unique portfolio of profitable, iconic UK brands trusted by customers
7
STRATEGY EXECUTION
1.
Drive sustainable growth over the medium term
•
Leveraging our great brands
•
Innovating to create incremental value
•
Creating category value for retailers
•
Renew Cadbury licence
2.
Supply chain excellence to create P&L space
•
Drive manufacturing efficiencies
•
Product cost engineering
•
Reduced stock holding
3.
Outstanding execution in store
•
Based on shopper understanding
•
Supporting retailers via category management expertise & shopper insight
4.
Partner with customers in areas of growth
•
Customer & channel portfolio prioritisation for investment & growth
•
Major supermarkets, convenience, on-line, discounters
5.
Optimise trade promotional investment
•
Use modelling capability to move funding to more efficient & effective promotions
6.
Invest in people development
•
Focus on our own development to ensure we can deliver the strategy
•
Personal development plans, career path planning, commercial graduate programme
8
INVESTMENTS FOCUSED ON REVENUE GENERATION
Consumer marketing % branded sales1
Consumer marketing (£m)
42-442
33
25
4.8%
36
5.6%
3.5%
H2
6-12%
H1
2013/14
2014/15 2015/16E 2016/17E
2013/14
2014/15
2015/16E
UK multinational
peers
Headcount
22.5%
(17.6%)
Revenue
Generating
Over the 12 months to 4 April 2015,
headcount increased in International,
Sales, Marketing and Innovation by over
22%
Support
Functions
1. Assumes 2015/16 consumer marketing of £36m (RNS as of 23 March 2016) and if Branded sales = FY14/15 of £684m
2. Including investment to support new strategic initiatives
9
RATE OF INNOVATION SIGNIFICANTLY INCREASED
SINCE 2014
Sales from innovation
17.5%
Key recent launches
20.0%
11.3%
6.9%
FY14
FY15
FY16
Target
Source: IRI, 52 w/e 23 January 2016
10
STRATEGY IS DELIVERING RESULTS WHERE WE HAVE
FOCUSED INVESTMENT

Category
Flavourings &
Seasonings
Cake

Household
penetration



Volume
Sales
Share
+0.2%
+1%
+1%
+0.1ppt
+0.1%
+2%
+3%
+0.3ppt
+1.8%
+7%
+4%
+0.2ppt
+1.4%
+8%
+10%
+0.5ppt
+0.8%
+2.5%
Source: Kantar Worldpanel, 52 w/e 3rd January 2016
11
OUR STRATEGY IS SHOWING RESULTS – BISTO
Bisto Retail Sales Value YoY % Growth in Total IRI Grocers
Launch of Bisto
Made Simple & TV
Support
6.0%
5.0%
4.0%
4.6%
3.5%
3.0%
2.0%
Strong Easter TV for
1st time in 6 years
4.8%
Strong Bisto
Chistmas share
(over 80% Gravy
share for 1st time)
but whole market
suppressed by
warm weather)
1.0%
1.0%
0.0%
Aug 13 - Jul 14
Aug 14 - Jul 15
Aug 15 - Mar 16
4 w/e 19 Mar, 16
Source: IRI Total Grocers w/e 19th March 2016
12
OUR STRATEGY IS SHOWING RESULTS – OXO
Oxo Retail Sales Value YoY % Growth in Total IRI Grocers
6.0%
4.5%
4.0%
2.0%
2.0%
0.0%
-0.4%
-2.0%
Launch of
Herbs & More
+ TV Support
-4.0%
-6.0%
Launch of
Stock Pots
+ TV Support
-8.0%
-10.0%
-9.5%
-12.0%
Aug 13 - Jul 14
Aug 14 - Jul 15
Aug 15 - Mar 16
4 w/e 19 Mar, 16
Source: IRI Total Grocers w/e 19th March 2016
13
OUR STRATEGY IS SHOWING RESULTS – Mr KIPLING
NPD launches from Sept
TV & aligned instore support in
Sep ‘14 and Feb
‘15
Media
spend in
period
£0.02m
£0.5m
£0.4m
£2.0m
Minimal media spend in
this period but with TV
on-line in Q1 16/17
£1.2m
£0.1m
Source: IRI Total Grocers w/e 20th February 2016
14
OUR STRATEGY IS SHOWING RESULTS – CADBURY
Optimised Price/Pack
Architecture May ‘14
Effective advertising
Market-leading
May ‘15 offsetting
NPD launched
impact of earlier Easter
Oct ‘15
vs ‘14
Source: IRI Total Grocers w/e 19th March 2016
15
IN 2016/17 WE INTEND TO INNOVATE AND INVEST
MORE BROADLY ACROSS THE PORTFOLIO
Initial Focus
What we’ve done


NPD, new TV
copy, CSR and
EPD
NPD, new pack
design, new TV
copy

New formats and
international (snack
pack)

New launches
(Amazing Bites, Mini
Rolls); New flavours
First TV ad in 8 years

To come
Timing / what’s next


NPD , new TV
campaign
NPD, new TV
campaign, new pack
design
2016/17 investment
priorities
Key brands representing >75% of Turnover
16
PROGRESS IN INTERNATIONAL STRATEGY: SALES UP
10%1 IN Q3
Australia strong growth; USA exciting cake trial; people investment
Australasia
+74%
H1 Sales
growth
USA
People
9 → 28
x
Increased
listings
1. Exciting new cake trial
with major retailer in USA
2. Apple, Fruit and
Mississippi Mud Pies in
250 stores
3. Sharwood’s double-digit
sales growth and market
share gains
Significant increase in
team since 2014
1. Constant currency, including Ireland
17
OUR STRATEGY IS SHOWING RESULTS
Unique portfolio of profitable iconic UK brands trusted by customers
We have strong customer relations and a high calibre team to lead the business
We continue to invest to drive growth and to improve efficiency
Our strategy is showing positive results where we have focused investment
In volume
In value
In market share and penetration
Will invest more broadly across portfolio
We believe we are on track to deliver the turnaround that underpins the
previous 1-2% medium term branded sales growth outlook
18
2
New strategic initiatives to
accelerate growth
19
NEW STRATEGIC INITIATIVES TO ACCELERATE GROWTH
INCREMENTAL TO BASE STRATEGY
We are undertaking a number of strategic growth initiatives across
Sweet Treats, Grocery and International
1
2
Sweet Treats
Build on the successful
performance of Sweet Treats
over the last 18 months by
investing further in our Cake
on the Go offering
3
Grocery
Leverage our brands and
retailer relationships to drive
growth outside ambient, into
chilled groceries
International
Accelerate International roll
out strategy which is already
demonstrating the potential to
deliver important growth for
the future
We will leverage our existing platform, infrastructure and brand presence to accelerate growth of
new formats (e.g. Ambrosia), channels (e.g. Cake on the Go) and markets (e.g. US and Middle
East)
20
International
Grocery
CONSUMER TRENDS INDICATE SIGNIFICANT GROWTH
HEADROOM FOR CAKE ON THE GO
Significant growth in “On the Go” food
consumption, where Cake Category is
underdeveloped.....
Food on the Go market is now worth £21.5bn
and is growing at 5% YoY1
& Premier undertrades in the
Convenience channels where Sweet
Treats “On the Go” purchase takes
place
Premier % Share of Branded Cake by Channel
Sweet Treats
Sweet Treats Categories
% Sales from On the Go Products
Source : IRI 52 weeks ending 20th February 2016
1. Kantar Worldpanel 52 w/e 9th November 2014
21
International
PHASE 1 – ‘CAKE ON THE GO’ CONCEPT SUPPORTED BY
A STORE TRIAL
 National 21 store trial in Convenience channel
Parasite Unit Sited in Store
 4 week period from 14th Sep to 9th October 2015
Grocery
 43% strike rate achieved on selling in Cake on the Go vs a
target of 40%
 Average Rate of Sale of 3.8 – outsold key competitor (McVities
flapjacks)*
Sweet Treats
 In 1 store Angel Slice twinpack outsold Snickers & Kit Kat
(Costcutter Manchester)*
Costcutter Manchester – Rate of Sale
*Source : Store level EPOS – Reach inform analytics, IRI Data
22
Grocery
International
PHASE 2 – FULL NATIONAL ROLLOUT UNDERWAY
Manufacturing Capability in Place
Investing in Route to Market Capability
 £20m Investment in new snack pack line in
Carlton provides capability to produce twin pack
format that will go into new channel
 Recruiting 10 strong dedicated Cake on the Go
team – pre-requisite is OTG channel experience
 Use existing capability to manufacture mini rolls
(Moreton) and cherry bakewells (Stoke)
 Innovation in both products and formats to
capture the opportunity
Sweet Treats
 Launch range ready to go
 Specific roles focussed on building customer
relationships to access new channels
 Key partners identified
progressing well
and
discussions
 Investing in 10 strong dedicated 3rd party store
calling field team
Launch Range
Angel Slice
Cranberry &
Orange Slice
Cherry Bakewells
Mini-Rolls
Lemon Slice
Choc Slice
We now have the capability to access a broad range of convenience markets
23
International
Grocery
Sweet Treats
CLEAR STRATEGIC INITIATIVES TO DELIVER GROWTH AT
ATTRACTIVE MARGINS
3 year Strategic
Initiatives
2016 Tactics
In-store Equipment
to drive Visibility
Build AWARENESS with
consumers
• Front of Store/Food To Go high
visibility
• Strong account launch plans
• Bespoke Consumer Marketing
support
Bespoke Marketing
Support
Grow share through NEW
CHANNELS
Key Year 1 Targets
 High Street – 1,132 stores
 Forecourts – 2,280 stores
 Foodservice – 1,066 stores
Trade Press Launch
14th April
Field Team Launch
25th April
24
EXPANDING GROCERY FROM AMBIENT TO CHILLED
International
Significant opportunities in several areas of Chilled
Chilled potentially doubles our market opportunity
Strategy to seize
1
Leverage strong brand equity
£9.2bn
Sweet Treats
Grocery
£5.5bn
2
£3.7bn
Groceries market Chilled areas where
where Premier
Premier could
currently operates 2 credibly play 1
Total potential
market
If we were to achieve even a small share of our chilled
target addressable market, this could result in significant
retail sales value
Continue to innovate through new formats and
products in various segments
Potential examples:
 Light meals
 Soups
 Chilled pies
 Chilled desserts
 Breakfast
1. Kantar GB Category Tracking Gold 52 w/e 8th November 2015
2. Kantar Worldpanel 52 w/e 27th March 2016
25
International
Grocery
EXPANSION IN CHILLED WILL BE DRIVEN BY CONSUMER
INSIGHTS
CONVENIENCE
FEELS LIKE I’M COOKING
REAL FOOD
Busy Lives
Increasing interest in food
& cooking (TV chefs)
Increased concerns about
‘what’s in it’
Time pressures / skill gaps
Wet feels fresher than dry
Emotional need to
‘feel like a hero mum’
“I made it myself”
Pressure on time to cook
& eat
Sweet Treats
On the Go eating
Key role for convenient
ingredients
Source: Kantar Worldpanel, Purchase Panel October 2013
26
International
CHILLED EXPANSION: AMBROSIA CROSS OVER EXAMPLE
DEEP CONSUMER
INSIGHT
Sweet Treats
Grocery
 Full desserts usage &
attitude study conducted
(source: Incite)
 7,500 on-line interviews &
2,000 diary studies
(source: Incite)
 Creating a ‘need state
model’
Crossing referencing
- Times of day
- Motivations
- Core needs states
 Highlighting major
opportunities across
Chilled, Frozen, & Ambient
Desserts
CHILLED OPPORTUNITIES
IDENTIFIED
AMBROSIA
BRAND
 ‘Simple Goodness’
- An everyday quick & tasty snack
- A healthy choice: natural & no
nasties
- Quick & easy to prepare
(individual eats)
 Already purchased by 49.1% of
UK HH’s (Source: 52 w/e
28.02.16 Kantar Worldpanel)
 ‘End of Day Reward’
- Indulgent & tasty
- Eaten on its own
- Delicious flavours
 ‘Good Start to the Day’
- Contains natural ingredients
- Helps me have a balanced diet
- Not artificial
- Kick-starts my day
PRODUCT
ROLL-OUT
•
Launched Feb ‘16 Ambrosia
Frozen Custard
A delicious range of indulgent
premium tier ice-cream
products, fulfilling ‘end of day
reward’ need state
•
Ambrosia Chilled Desserts
A tasty wholesome range of
chilled individual desserts, full
of Ambrosia’s famous Devon
creaminess delivering ‘simple
goodness’
•
Ambrosia Breakfast
An all natural range of health
dessert products, giving
energy to the start of the day,
in a tasty format
 Already bought 5.2 x a year by
HH’s (Source: 52 w/e 28.02.16
Kantar Worldpanel)
 Prompted awareness of 95%
(Source: Millward Brown Equity
Study, 15/16)
 Brand characteristics
- Delicious Devon creaminess,
from Ambrosia’s Devon
creamery
- 150 years of heritage
27
International
PROGRESSIVE ENTRY AIMS TO ACHIEVE RAPID BREAKEVEN AND PAYBACK
Investment &
development
Grocery
2016/17
• Development of first
categories
Initial launch
2017/18
Reach critical mass
2018/19
• Initial marketing
investment
• Second wave of
categories launched
• First launches &
revenue
• Divisional contribution
growth ahead of
turnover
• Rapid breakeven
2019/20
• Continuous innovation
to drive growth in all
categories
• Sustained marketing
investment
• Payback
Sweet Treats
• Development of second
wave of categories
Return on investment
Fast progress expected with incremental growth from year 2
28
International
INCREASING OUR REACH THROUGH EXPANSION INTO
NEW LARGE MARKETS
Accelerating roll-out of cake in the US after a successful trial
Strategy to seize
US market opportunity
+4.0%
+5.7%
YoY
YoY
Grocery
£7.6bn
Sweet Treats
White
space
Fresh Prepared cakes &
pies
£3.1bn

Leverage existing relationship in the
US

Rely on existing manufacturing
capability in the UK (unique snack
pack format)

Use unique product and format
packaging

Build on experience from 250 stores
trial
Ambient cakes and pies
Very long shelf life
Use Premier’s differentiated offering with unique
formats and packaging to access white space
Source: Mintel June 2014
29
International
INCREASING OUR REACH THROUGH DRIVING GROWTH
IN “ACCESSIBLE” MARKETS
Create excitement in cake category in Middle East with Cadbury
Middle East market opportunity
Grocery


Total Cake Market £120m (Nielsen Dec 15 MAT)
Modern trade largest sector and showing
category growth YOY
£120m
+1%
Sweet Treats
£76m
Total Cake KSA & UAE
Strategy to seize

Seek to extend existing Cadbury
licence agreement

Leverage Cadbury brand equity in
market

Use existing manufacturing capability
in UK

Link with preferred distribution
partner
Of Which Modern Trade
Typical Cadbury display in Geant, Dubai, Feb 2016
30
NEW STRATEGIC INITIATIVES TO ACCELERATE GROWTH
Drive cake business into attractive margin Cake on the Go impulse channels
Launch our strong existing brands into chilled
Accelerate roll-out of International initiatives where we have demonstrated concept
can work
New initiatives can deliver significant further growth for Premier, doubling
expected medium term sales growth from 1-2% to 2-4%
31
3
Cooperation opportunities with
Nissin Foods
32
OPPORTUNITIES TO DRIVE MUTUAL GROWTH
CO-BRANDED POT SNACKS
 Strategy: Enhance Premier Foods share within £160m
pot snacks category/drive category value
 Potential idea: Launch Nissin Soba Noodle/Cup
Noodle/Noodle bowl under co-branding arrangement
DISTRIBUTE NISSIN BRANDED PRODUCTS
 Strategy: Utilise
Premier sales,
category leadership
and resources to
launch Nissin branded
products
 Potential idea: Launch
Nissin Cup Noodle and
other products
BATCHELORS BRANDED PUCK NOODLES
 Strategy: Create value in
Noodle/Pasta segment via
innovative technology
 Potential idea: Launch Nissin
noodle innovation under
Batchelors brand
NISSIN BRANDED AUTHENTIC JAPANESE &
CHINESE
 Strategy: Drive category growth via extending premium
tier authentic pot snacks segment
 Potential idea: Launch range of authentic Japanese
snacks under Nissin brand
33
USE NISSIN’S INTERNATIONAL SCALE
Strategy and opportunities
Nissin has significant presence in large addressable markets
 Nissin Foods operates in 19 different
countries spanning Asia Pacific, the
US
Americas, Europe, Middle East and Africa
Factories
 Access to Nissin’s global scale could
3
Employees
c.1,200
Revenue (USD)
310m1
China
Factories
7
accelerate Premier Foods’ international
Employees
c.3,000
expansion strategy (Nissin aims to achieve
Revenue (USD)
300m2
more than 50% overseas sales ratio by
318.9m
1,364.3m
2026)
 The US is a key market for Nissin, whose
presence may facilitate Premier's roll-out
206.1m
of cake in the US following its successful
trial
 Premier Foods hopes to leverage Nissin’s
established manufacturing and distribution
capabilities, in other large addressable
markets including China and Brazil
Brazil
Factories
Employees
Revenue (USD)
2
c.1,700
192m3
Nissin countries of operation
Notes:
1.
Including Mexico and Columbia; 2015.03 figures; base rate
of USD/JPY 113.65
2.
2015.03 figures; base rate of USD/JPY 113.65
3.
2014.12 figures; base rate of USD/BRL 3.63
Source: World Bank, Nissin Foods Company information
34
PATENT TRANSFER / TECHNICAL KNOW-HOW
‘THE WAVE’ R&D TECHNICAL CENTRE - TOKYO
GLOBAL
INNOVATION
CENTRE

In March 2014 Nissin Foods invested c. US$60m to expand
its global research & development and food safety
capabilities. On opening, it doubled the size of Nissin’s
National Food Research Institute

It houses R&D for the noodle business, but also for its
frozen, beverage and confectionary operations

Employees: 300; Annual new products: 1,0001

Innovation centre: Fundamental research, applied
research, new packaging development, production
machinery development, intellectual property

Global Food Safety Inst: Quality control, development of
analysis system and inspection methods, ADME
(absorption, distribution, metabolism, excretion) food
research
GLOBAL FOOD SAFETY 
INSTITUTE
In the past 5 years Nissin Foods have registered over 200
patents in respect of Noodle technology alone
1. Including all new products developed at Nissin Group globally
35
POTENTIALLY RE-APPLICABLE PATENTS EXAMPLES
SEGMENT
Noodles
Non
Noodles
PATENT
POTENTIAL REAPPLICATION
Laminated multi-layered noodles, allowing
another flavour/texture of noodles to be
sandwiched between standard noodles
Batchelors Super
Noodles extension
Instant microwaveable noodles that do not
require draining
Batchelors Deli Box
refresh
Laser perforation technology that makes thicker
noodles hydrate quickly
Batchelors Super
Noodles XL launch
Rice that reconstitutes instantly in hot water
Batchelors Deli Box extension
Low-fat powdered soup with mouth-feel of
conventional soup
Batchelors CupaSoup
Upgrade
A method of freeze-drying meat so that it
reconstitutes to near fresh taste and texture in
hot water
Batchelors Deli Box
refresh/
PastaNSauce
Refresh
36
36
EUROPEAN MANUFACTURING CAPABILITY
Nissin Foods key European operations
 Most of Nissin’s products sold across Europe are produced in its
Hungary factory
 Products include: Top Ramen, Demae Ramen, Smack, Nissin Cup
Noodles and Soba
 Key statistics:
• Established in 1993
• Area of 30k sq. m
• Employees: c.200
• Revenue: USD40m1
• One pillow-type instant noodle production line
• One cup-type instant noodle production line
 Nissin are currently planning a new manufacturing site next door to
their existing one as part of their planned expansion in Europe
 Premier Foods and Nissin can mutually benefit from sharing of
engineering insight and manufacturing techniques especially Nissin’s
existing noodle manufacturing technology
1. Including all EMEA region; 2015.03 figures; base rate of USD/JPY 113.65
37
4
Outlook
38
IMPROVED MEDIUM-TERM OUTLOOK
Sales growth
Nissin
Cooperation
Potential
New
Strategic
Initiatives
2-4%
Existing
growth
momentum
Base Plans
1-2%
39
IMPROVED MEDIUM-TERM OUTLOOK
 Business momentum supports 1-2% sales growth guidance communicated previously
 New strategic initiatives to accelerate growth support raising our medium-term sales guidance
from 1-2% to 2-4%1 – a target that the board believes is highly deliverable
 To support the new strategic initiatives, we expect to incur initial up front investment of £2-4m in
FY2016/17
 Continued focus on trading profit and organic de-leveraging
 Further upside potential from cooperation with Nissin
1. As stated in our RNS from 23rd March 2016
40
WHY WE REJECTED McCORMICK’S LATEST APPROACH
1
In the areas where we have focused investment, our consumer focused growth strategy is showing results
We are now expanding our investments across the portfolio
2
New strategic initiatives will drive incremental growth to our base strategy
3
Our exciting collaboration with Nissin Foods provides further growth and upside
4
Together this will deliver an improved medium-term outlook
5
McCormick’s offer continues to undervalue the Premier Foods business and its prospects
6
We believe McCormick will benefit from significant synergies not reflected in their approach
41
APPENDIX
42
WE SEE BRANDS HOLDING STRONG MARKET SHARE
POSITIONS IN CHILLED DESSERTS
Desserts
Breakfast
Chilled Desserts £700m1
Total 36% branded2
Individual Pot Desserts £290m1
60% Branded (Est )3
Shared Desserts £100m1
20% Branded (Est)3
Yoghurt & Fromage Frais £1.7bn2
Total 78% branded2
Rice Pots £62m1
75% Branded (Est)3
Yoghurt Drinks & Juices £283m4
80 % Branded (Est)3
Sources:
1. Kantar worldpanel 52 w/e 4th January 2015
2. Data provided by Kantar April 2016
3. Management estimates
4. Kantar worldpanel 52 w/e 8th November 2015
43
SAVOURY CHILLED MARKET: BRANDS NOW DRIVING
DIFFERENTIATION AND PREMIUMISATION
Chilled Ready Meals £2.9bn1
5% branded (Est)2
Pies, Pasties & Savoury Snacks £968m1
40% branded (Est)2
Chilled Ready Meals consumed as an individual LIGHT
MEAL Est. £500m (4% of individual light meals in U&A
were coded as Ready Meals) (4% x £11.7bn universe3)
Chilled Soup £124m1
60% Branded (Est)2
Sources:
1. Kantar worldpanel 52 w/e 8th November 2015
2. Management estimates
3. Incite 18th December 2014
44