PREMIER FOODS PLC Premier Foods plc plc Foods Premier Premier House Annual report and accounts Centrium Business Park 2006 Griffiths Way St Albans Hertfordshire AL1 2RE Annual report and accounts 2006 and accounts Annual report T 01727 815850 F 01727 815982 www.premierfoods.co.uk Financial highlights TURNOVER £959.4m (2005: £789.7 million) TRADING PROFIT £132.5m (2005: £107.3 million) The cover of this report is printed on Think 4 white which is produced with 100% ECF (Elemental Chlorine Free) pulp that is fully recyclable OPERATING PROFIT and sourced from carefully managed and renewed commercial forests, certified in accordance with the FSC (Forest Stewardship £97.6m Council). This material contains 50% post consumer recycled fibre . (2005: £95.3 million) EARNINGS PER SHARE – CONTINUING Pages 1-8 and 35-114 are printed on Think 4 Bright and pages 9-34 are printed on Regency Satin which are produced with 100% ECF 12.7p (Elemental Chlorine Free) pulp that is fully recyclable and sourced (2005: 11.9 pence) from carefully managed and renewed commercial forests, certified in accordance with the FSC (Forest Stewardship Council). DIVIDENDS PER SHARE All manufactured within a mill which is registered under the British 12.0p quality standard of BS EN ISO 9001-2000 and the environmental (2005: 11.25 pence) standard of ISO 14001. Designed and produced by Carnegie Orr +44 (0)20 7610 6140 www.carnegieorr.co.uk MAKING GOOD PROGRESS We have acquired the UK and Irish businesses of Campbell Soup Company and announced the acquisition of the RHM Group transforming Premier Foods into the No.1 food producer in the UK. INSIDE THIS SECTION 02 CHAIRMAN’S STATEMENT 06 BOARD OF DIRECTORS 02 Premier Foods plc Annual Report and Accounts 2006 CHAIRMAN’S STATEMENT DAVID J KAPPLER 2006 was an exciting year for your CHAIRMAN company one that will be seen as transformational in the life of Premier Foods plc. 03 Premier Foods plc Annual Report and Accounts 2006 The year confirms the Group’s strengths: strong growth in branded sales of 5.6% despite the management, energetic brand and strategy unseasonably warm weather during the second development and sound financial management. half of last year. We have continued to invest in our brands with innovation and variation contributing Consequently, in tricky conditions, sales of our to sales growth. In our Spreads, Desserts and branded products (prior to acquisitions) increased Beverages product group, sales have been driven by more than 5%. Overlaying acquisitions, by innovation in Ambrosia snacking formats and underlying earnings per share rose by 6.7%. Hartley’s jams and jellies. Loyd Grossman continues to provide excitement at mealtimes with In August we acquired the UK and Irish businesses sales increasing by 25%, and we have extended of Campbell Soup Company ("Campbell’s"), the Loyd Grossman licence until 2026. We are bringing Oxo, Batchelor’s and Homepride into the particularly pleased with the performance of our Groups’ portfolio of products and will shortly Meat-free business, with exceptional sales and complete the acquisition of the RHM Group. The profit growth. The 13.2% growth in sales of Quorn acquisition of RHM will transform Premier Foods driving an overall increase in like-for-like sales of into the UK’s leading food supplier adding Hovis, 10.2%, whilst like-for-like trading profit in this Mr Kipling, Sharwoods and Bisto to the brand category rose by 25.0%. portfolio. It will broaden Premier’s category reach, adding No.1 positions in the bread and cakes In order to support these growth rates we categories and significantly enhance our chilled continue to invest in our infrastructure. We and frozen capabilities. acquired a new site at Methwold, Norfolk, where we have invested £9m in 2006, increasing the Shareholders strongly supported these deals capacity to manufacture Quorn & Cauldron meat- with a £458m rights issue last year and the share free products. We have also recently improved our issue to RHM shareholders this year, and we Lynn Road, Wisbech distribution facility, where we thank them for their support. have refurbished and extended the warehouse facilities. This investment will help to drive out There were other opportunities we investigated costs, improve manufacturing capability and but did not pursue when they failed to meet customer service. our strict financial criteria. Acquisitions now, however, take a much lower priority as As part of Premier’s future growth plans a major management drive for growth and achievement change programme was initiated. Following a of acquisition synergies. scoping and planning exercise in the last quarter of 2005, Project Fusion began in the first half of Organic development 2006. This project focuses on upgrading Premier Once again I am delighted to report on the success Foods’ core systems and processes and is based of our “drive” brands. Sales in these brands grew on the implementation of a new ERP software by 12.4% in 2006, following on from 10% growth suite. We have currently invested £13m, and are the previous year. This success led to an overall happy to report that the first modules were 04 Premier Foods plc Annual Report and Accounts 2006 Chairman’s statement continued successfully introduced at the end of the year. Other • A combined project team relaunched our modules will “go-live” during 2007 and 2008 and we Hayward’s and Branston pickles with new see- expect the project to be fully integrated across our through “transparent pressure sensitive” labelling, business by 2009. giving a modern, up to date, but traditional look to the products. Acquisitions and disposals Campbell’s is an • A cross-party group has worked to establish food excellent fit with Premier Foods occupying seven production at our Methwold site in the six months category leading positions and including the iconic to 31 December 2006. Full production of Quorn and British brands of Oxo, Batchelor’s, Fray Bentos Cauldron products will be phased in by the third and Homepride. With combined retail sales over quarter of 2007. £200m and over 100 years of history these brands provide us with platforms for category extension These are a few examples of the spirit of the people and exciting new product launches. who work in Premier Foods and the contribution they make to the success of the business, and I The acquisition will create a more efficient business would like to thank them for their efforts. and removing the overlap in manufacturing facilities and administrative functions will generate pre-tax Shareholder Return Premier Foods’ share price rose savings of £28m. Significant progress in integrating well ahead of other Food Producers in 2006 and the business has been made. We have already continued to offer good shareholder returns, with consolidated administrative functions and shareholder value doubling since our listing in 2004. announced the closure of two sites at King’s Lynn and Ashford and significant investment in three The directors are pleased to recommend the other sites. Management systems integration is payment of a final dividend, in respect of the year underway and remains on track for completion at ended 31 December 2006, of 2.55p per share. The the end of March 2007. first interim dividend of 5p per share was paid in January 2007 and the second interim dividend, of Employees As always we are indebted to all of our 5.5p, was paid in February 2007. The final dividend employees. The attitude they bring to challenges will be paid on 6 July 2007 to shareholders on the they are set is exemplary. Premier Foods competes register on 8 June 2007. in a fast moving environment and our culture allows the company to maintain its competitive edge: Our dividend policy is to ensure that Shareholders • Our Histon site has initiated two projects, to benefit from the successful growth and anticipated improve production efficiency and plant strong cash flow of the business whilst providing maintenance skills. This approach has also sufficient funds for investment purposes. Following benefited health and safety performance, with completion of the RHM acquisition, we shall seek a 50% reduction in accidents at this site. to maintain a progressive dividend policy, which • The extension at our Lynn Road site was put up in will reflect the effect of the anticipated synergies record time and added 200,000 square feet of floor arising from the transaction, as well as continuing space to the existing 400,000 square feet. organic growth. 05 Premier Foods plc Annual Report and Accounts 2006 250 210 170 130 90 TSR (rebased to 100 at July 2004) 100 at July to TSR (rebased 50 Jul 04 Jan 05 Jul 05 Dec 05 Jun 06 Dec 06 Premier Foods FTSE 250 (excluding investment trusts) FTSE Food Producers Index Source: DATASTREAM Board changes I would like to welcome Dr Louise The acquisition of RHM makes Premier Foods Makin to the Board as a non-executive Director. the No.1 Food Producer in the UK. We will have Dr Makin was appointed on 1 October 2006, and approximately 19,700 employees, with 10 Grocery will also sit on both the Remuneration and Category No.1 positions, and annual retail sales of Nomination Committees. £2.5bn. We will remain focused on maintaining our high standards of product quality and customer Dr Makin is currently Chief Executive Officer of service, and achieving our financial targets. BTG plc, an international medical innovations I am confident that the quality and strength of company and brings a wealth of scientific the combined management teams and employees knowledge and experience to the Board. will deliver a successful company and drive value for all our stakeholders. At the AGM on 10 May 2007, Mr Ian Ramsay will retire from the Board.