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Northern Foods plc Full year results 2007/08 27 May 2008

Northern Foods plc Full year results 2007/08 27 May 2008. See appendix for definitions. Northern Foods plc Stefan Barden – Chief Executive Introduction. 2007/08: Steady top and bottom line growth. 2007/10: Performance improvement plan update.

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Northern Foods plc Full year results 2007/08 27 May 2008

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  1. Northern Foods plcFull year results 2007/0827 May 2008 See appendix for definitions

  2. Northern Foods plcStefan Barden – Chief ExecutiveIntroduction

  3. 2007/08: Steady top and bottom line growth

  4. 2007/10: Performance improvement plan update • First year of our three year Performance Improvement Plan delivered 2007 2010 Key workstreams Instilling the basics • Continue to instil the basics • Recovery of inflation • Focus on talent/training • Problems being fixed • Chilled margin • Biscuits brand/cost base • Frozen Pastry/Meat Grills Fixing the problems • Building a better business • Margin improvement • Sorting unprofitable assets • Bolt on acquisitions Building a better business

  5. Northern Foods plcJez Maiden – Chief Finance OfficerFinancial Review

  6. Making good progress . . . Demonstrated by our KPIs

  7. FINANCIAL Continuing profit before taxation* +25.3% at £50.1m Adjusted EPS 20.9% ahead at 7.88p Strong cash management continues to drive low net debt4 at £200.2m Robust balance sheet – continuation of share buy-back programme in 2008/09 Proposed dividend up 5.9% at 4.50p OPERATING Good progress in first year of 3 year strategic plan Strong Chilled & Bakery performances; action plan initiated to address Frozen performance Continued focus on above average market growth & operational simplification, delivering revenue & profit improvements Bolt on acquisition strategy extending presence in attractive growth markets Significant commodity cost increases successfully recovered Highlights

  8. Full year results 2007/08

  9. Divisional performanceContinuing businesses • Underlying revenue5 +5.6% plus acquisition benefit • 51% increase in profit, across both business units • Significant further opportunity to drive returns • Underlying revenue broadly flat • Profit impacted by promotional activity (pizza & pastry) & poor summer for grills – being addressed • Strong Euro impacted profit by £1.2m • Underlying revenue +3.9%: good price recovery & lower promotional activity • Successfully reversed declining revenue & margin trend • Focused capital management driving strong returns

  10. Underlying revenue impacts

  11. Other financial items in 2007/08 • Income statement: • Net interest cost reduced by 23% • Net pensions financing credit up at £15.7m (2006/07: £12.5m) • Continued reduction in restructuring to £4.7m pre-tax • Tax rate up at 23.4% (2006/07: 20.3%), due to higher UK profit • Cash flow: • Using RONA as a KPI, cash management discipline embedded across Group • Gross capital expenditure continues at 52% of depreciation – includes expansion investment • Working capital6 tightly managed – negative £25.9m at year end

  12. Continued good free cash flow generation • Funding for 3 bolt-on acquisitions (£22.0m), rationalisation (£9.3m), special pension contribution (£22.0m), share purchases (£9.4m) and dividends (£21.0m) • Net debt remains low at £200.2m (2006/07: £174.2m)

  13. Funding level continues to improve Plans to reduce future volatility Significant historic pensions liability and asset Ongoing funding volatility Advanced stage in new strategy: Liability profile Asset allocation Liability driven approach: Minimise future deficit contribution Affordable ongoing contributions Managing post-retirement benefits £m 0 • IAS19 surplus £61.6m pre-tax • Benefit from contributions and bond yield • Impact from prudent mortality and lower equity values

  14. Key factors impacting 2008/09 • Pensions • Expected c£6.5m reduction in net pensions financing credit • Currency • £1.2m adverse impact to 2007/08 • At €1.26, estimated adverse exposure in 2008/09 of c£4m • Phasing • First half investments • Normal seasonal trading bias

  15. Northern Foods plcStefan Barden – Chief ExecutivePerformance Review

  16. A simple platform for growth • Our simple 3 year objective: ‘To sustain the Group’s steady top and bottom line growth’ • Our simple strategy: • Focus on attractive market segments • Partner with customers looking for quality and performance • Deliver through a low cost/high performance business model

  17. 1. Focused on attractive markets • 6 markets growing at a weighted average of 5.2% a TNS Worldpanel 52W/E 23/03/08 b ACN Scantrack MAT 15/03/08 c ACN Scantrack MAT 22/03/08 d Internal estimate

  18. 2. Customer partnerships: Delivering above average growth Ready meals 52 wk % share YoY growth From 19% of share, Northern Foods drives 47% of market growth Source: TNS Worldpanel: 52 w/e 20 Apr 08 vs prior year

  19. Why we come to work “To make great tasting food that consumers want to buy again and again … and again” How we will do this as a team “Profiting together through performance” Consumers Customers Employees Shareholders 3. A low cost business model:Building a performance culture

  20. Ready Meals

  21. Ready Meals • An attractive market with growth opportunities • £1.53bn • Market growth slowed (+£33m YoY) • Flat/negative in 2008/09, expected to return to growth in 2009/10 • But still on trend • NF continues to grow • Driving efficiency • Margin improvement • Tackling underperforming assets • Reaching new customers • 6 sites (inc. Grimsby soup site and Ethnic Cuisine) • Expand customer base • Delivering innovation • Product innovation – highest rate of sale • Highest levels of loyalty

  22. Ready Meals Delivering customer loyalty Italian ready meals retailer loyalty – March 08 % Source: TNS Worldpanel 23rd March 08

  23. Sandwiches & Salads

  24. Sandwiches & Salads • An attractive market with good growth opportunities • Salads and sandwiches £1.13bn • On trend: • Family & eating on the move • Health & convenience • NF well positioned • Focus on highest rate of sale products • Innovation with a point of difference • Corby salad factory completed (£20m extra sales capacity) • Continued steady expansion, where profitable

  25. Frozen

  26. Frozen: Pizza • Attractive market • Pizza market overall growing at 6.8% YoY • On trend: snacking, convenience, kid friendly, health • Frozen pizza growing 5%, chilled pizza growing by 8.4% • NF well positioned • Goodfella’s is UK’s No 1 pizza brand • Best quality frozen pizza in the UK, 30.5% share • Leverage our market and technology leadership (‘Friday Fever’) • Roll-out successful pilot of chilled brand (‘Signatore’) Source: ACN Scantrack MAT from 22 March 08

  27. Frozen: Performance problems being fixed

  28. Green Isle (frozen vegetables) Frozen: Irish brands: € market share • Donegal Catch (frozen fish) Green Isle Bird’s Eye Green Isle Bird’s Eye Source: March 04 to March 05 - TNS; March 06 to March 08 – ACN Scantrack

  29. Biscuits

  30. Biscuits • Competitive market with attractive sectors • Sweet biscuit market in growth +6.3% • NF manufacturing advantages include: • Moulded biscuits • Creams • Assortments and tins • FY 2007/08 and beyond: Leader in carefully rebuilt niche market • Lowest cost mind-set • Simpler structure (All year round, Seasonal, Retailer own brand) • Simpler product offering (28% of branded SKUs exited, new product hierarchy) • Refocused brand • Simpler shelf layout (new packaging design) • Simpler quirky marketing campaign (Vinnie)

  31. Biscuits: New £5m marketing campaign

  32. Puddings

  33. Christmas Puddings • Strong leadership in a stable market • £45m niche market • Experts in puddings since 1899 • Over 60% share (small increase vs FY2006/07) • NF well positioned to grow customer volumes and margins • Recognised unique production skills in specialist area • Deeply understand different retailers’ Christmas buying criteria • Full category solution to customers • ‘The Pudding’ – an excellent margining up solution • Will help reduce SKU complexity, giving further cost benefit

  34. Summary

  35. Outlook • Opportunities for revenue growth and improved performance • Mix of innovation and continued simplification • Chilled markets particularly attractive • Robust action on underperforming assets • Cautious economic outlook • Continuing commodity cost pressures – committed to recovering • Underlying business expected to continue good progress

  36. Northern Foods plcQ&A

  37. Definitions • Asterisk (*) – before restructuring items. • *   Throughout this statement, an asterisk denotes results for continuing operations (except where otherwise stated) and profit is stated before restructuring items. ‘Continuing’ operations exclude businesses which were sold (‘discontinued’) in 2006/07. ’Restructuring items’ which relate to significant restructuring events and the impact of the Fletchers fire in the 52 weeks ended 31 March 2007 are presented as a separate ‘Restructuring items’ column within their relevant Consolidated income statement category. Presentation of these items in a separate column helps to provide a better indication of the Group’s underlying business performance. ‘Restructuring items’ include costs or income associated with the restructuring of businesses, gains or losses on the disposal of businesses and assets and financial instrument gains and impairments arising from the group’s restructuring activities. • 1 Adjusted earnings per share (EPS) is basic EPS for continuing operations before restructuring items and is reconciled to earnings per share in the financial statements • 2 ROIC is profit from operations before restructuring items for continuing operations divided by a 13 month average invested capital (net equity adjusted to exclude retirement benefit obligations net of deferred tax, and net debt, together with accumulated goodwill previously written off). • 3 Free cash flow is net cash from operating activities, adjusted for special pension contributions, less net capital expenditure, plus net interest received. Net capital expenditure is purchase of property, plant & equipment (PPE) less grants received and proceeds from sale of PPE • 4 Net debt is defined as total borrowings (including both short and long term bank loans, bonds, loan notes and finance leases) less cash & cash equivalents and short term investments • 5 Underlying revenue excludes the impact of currency translation, product categories no longer manufactured, acquisitions and discontinued operations • 6 Working capital is defined as inventories plus trade and other receivables less trade and other payables  

  38. Forward looking statements • Forward looking statements are made throughout this document.  These forward looking statements are based on a number of assumptions concerning future events and information currently available.  The user should not rely unduly on these forward looking statements, which are not a guarantee of performance and which are subject to a number of uncertainties and other facts, many of which are outside of the Company’s control and could cause actual events to differ materially from those in these statements. • Although Northern Foods believes that the expectations reflected in those forward looking statements are reasonable, it cannot assure users that those expectations will prove to be fulfilled.  In addition other factors could cause actual results to differ materially from our expectation, including economic and political conditions, changes in laws, regulation and accounting standards, customer relationships and actions, effectiveness of spending and marketing programmes and unusual weather patterns.  No guarantee can be given of future results, levels of activity, performance or achievements.  

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