Premier Foods PLC
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Premier Foods PLC
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So good morning, everybody. Thank you for joining us, and welcome to Premier Foods half year results for the 26 weeks that ended on the 26th of September 2020. I am joined, as always, by our CFO, Duncan Leggett, and Duncan will take us through the numbers in a few moments time. But first of all, I'm just going to take us through some of the highlights. So clearly, the first half of the year has been one of exceptionally strong trading. And that's driven fundamentally by 2 things: one, the increased occasions of people eating at home as out-of-home eating is being restricted; and secondly, as I will come back to, the fact that we've continued to drive our branded growth model. And you can see how that translates through -- into turnover growth, so 15% turnover growth in the first half and with 8.1% growth in quarter 2. And then branded growth, stronger than that, 18.6% for the half and 11% in quarter 2. Trading profit at GBP 66 million is 28.7%, ahead of a year ago. And really, you've got 2 factors playing into that. You've got increased costs, particularly in our supply chain in taking action to deal with COVID; but secondly, and more than offsetting that, you've got operational leverage driven by that incremental volume that's flowing through the factories. Important number is GBP 88 million worth of net debt reduction compared to the same point a year ago. And that takes our net debt-to-EBITDA down to 2.33x, with significant progress versus where we were. I think it's fair to say that through the first half of year, the business has shown great resilience during the pandemic. But equally, we've continued to focus on that branded growth model, the branded growth model that's made the business successful over the last 2 or 3 years. And you can see that flowing through in some of the more commercial metrics on this slide. So over on the left-hand side, you can see that we've continued to outgrow the market in all the categories in which we operate. So that's obviously leading into market share growth. Half 1 share growth of 75 basis points and quarter 2 share growth, even higher at 95 basis points. And we've continued to grow well online. The online channel, of course, experiencing very high growth. But we've outgrown that channel growing by 260 basis points our share in the online channel. And we've continued to increase household penetration. So our Half 1 household penetration increased by 335 basis points, and I'll come back to that in a little bit more detail later. But first, I'll hand it to Duncan, and Duncan can take us through the numbers.
Thanks, Alex. Good morning, everyone. I'm going to take a few minutes to take you through the financial highlights for the first half. I'm going to start with the chart that shows our net debt progression over the last few half years. And what this shows is that from September 2016 to September 2020, we've managed to reduce net debt by over GBP 170 million, and the rate of that reduction is increasing, and over half of that has come over the last 12 months, which leaves net debt of GBP 383 million for the half year just gone and a net debt-to-EBITDA ratio of 2.33x. I think in terms of the GBP 88 million reduction, there's lots of that obviously made through down in H2 last year. But what has been pleasing is we've been able to further reduce net debt since the year-end. And it's this trajectory and progress as well as the Hovis announcement of the transaction last week that we're setting out today the medium-term net debt-to-EBITDA target of approximately 1.5x.So in terms of how the net debt has moved, on the next slide, from year end to half year. We started off with GBP 408 million. This has reduced by GBP 25 million to GBP 383 million. And you can see on the left-hand side, that EBITDA is a key driver of this net debt reduction, the benefit from the branded sales flowing through to profit and cash helping us reduce the net debt from year-end. The pensions and the interest continue to be the key outflows, interest in particular, we're expecting to cut down following the announcement of the GBP 40 million repayment that we're going to be making in a few weeks on top of the GBP 80 million repayment that we've already made. The Half 1 is our seasonal working capital build, and we have built stocks significantly as we approach our peak period. Offsetting that within working capital is a bit of a timing difference on debtors and creditors that we're expecting to unwind in the second half of the year. So GBP 383 million, on an excluding leases basis, translates to GBP 403 million of reported net debt with the adjustment added on. And then just a note, we're doing a mechanical capital reduction exercise across the group that provides flexibility for potential future distributions. So moving on to the P&L. So our total revenue, up for the first half is up 15%, and that's just over 8% for the second quarter. And for both half and the quarter, we're seeing branded revenue grow ahead of total revenue as we see the benefits from the increased elevated demand coming through to our branded business.Non-branded revenue is lower. That's primarily where we report our business to business and out-of-home sales, particularly in our Knighton Foods and our Charmwood businesses, and they have been seeing lower volumes during this period. [Bisto] contribution at the group level is up at GBP 88 million, that's 25% higher half year on half year. And that really is the benefit of the branded mix flowing through plus the benefits of the higher volumes through the sites helping with operational leverage, although that is offset by higher consumer marketing spend half year on half year. Group and corporate costs are a bit higher. That's largely due to an accrual for our management bonus scheme. This is a scheme that covers about 500 of our management employees and reflects the projected performance. And that leaves trading profit up at GBP 66 million. That's up nearly 30% half year on half year. And you can see both trading profit margin and EBITDA margin strongly up half year on half year as a benefit of the branded mix and the operational leverage flow through. From a cost saving perspective, so a reminder, we announced a GBP 5 million cost saving target this time last year. And at year-end, we said we are on track to beat that, and that remains the case sitting here now. So moving on to the 2 business units. So Grocery to start with. So again, this is where we report our International and our Knighton Foods businesses, and this is where we've seen the real benefit of the increased demand. So half year sales is up 20%. For the second quarter, it's up nearly 10%. And again, you can see branded sales growing quite strongly higher than the total sales as we really see benefits across all of our brands and categories from growth, and as Alex will touch on later, strong market share performance across all our categories. The not branded, I've touched on already, that's in the lower out-of-home and business-to-business volumes. International business has actually had a strong half. Sales were up 14%. There is some benefit from increased COVID-related demand in there, but also some encouraging early signs of our strategy working. Again, Alex will talk through that later. Digital contribution, up 30% to GBP 79 million. As for the whole group, we are seeing -- this is where we're seeing the benefits of the branded mix and the operational leverage flow through even after higher consumer marketing. To move on to the next slide on Sweet Treats. What we've seen through this half is that Sweet Treats hasn't responded the same as Grocery to the change in consumer demand. But we have seen total revenue up for the half of 2%, and for the second quarter, it was 3%. And I think particularly pleasing was the second quarter branded revenue performance, which is up 5.5% year-on-year, largely due to strong performance from Mr Kipling, it's benefited from more weeks on TV this year as well as strong performance for Cadbury and particularly in Mini Rolls within that. Digital contribution is slightly down half year on half year. That's the 2 reasons. One is the additional costs relating to COVID that we've had on our sites. So these are around hygiene, social distancing and higher temporary labor to cover absence; and also the higher consumer marketing spend on Mr Kipling having seen more weeks on TV. Moving on to the next slide and moving further down the P&L. Strong performance across all metrics. So on the left-hand side, we've got operating profit, statutory PBT and basic EPS, and they are all strongly up year-on-year, again, for 2 reasons. So one is the stronger trading performance that I've just touched on; and the second is a one-off gain of GBP 20 million that we have recognized, which is reversing previously taken impairment relating to the Hovis business. At the end of the half year, we had additional information around the value of that business, which led us to make this adjustment. On the right-hand side, we have our adjusted measures. So as a reminder, this is trading profit less net revenue interest. And both adjusted PBT and EPS are up 50%, and I'll cover that on the next slide. So you can see trading profit, up nearly 30%, combined with net regular interest which is about 7% lower combined to make adjusted PBT up 50%. After adjusting for tax and our average number of shares in issue, that leaves adjusted net earnings per share of 4.5p, up from 3p this time last year. So on the next slide, I wanted to touch on the EU exit. Clearly, the end of December isn't very far away. And we're preparing -- been preparing on a worst-case scenario for the last 3 years. Just a reminder of how we're set in terms of potential EU exit, I mean, we had relatively modest turnover with the EU, which is about GBP 20 million, and most of that is in Ireland. We do source some raw materials and packaging from the EU, but a relatively small amount, at 25%. And we do have, again, relatively modest foreign exchange exposure of about GBP 50 million on a net basis that we managed with 4 contracts. From a supply chain perspective, I think what's really encouraging is the COVID crisis has shown what resilient and robust supply chain that we have. And I think that stands us in good stead for any teething issues as we leave the EU. I think what's been really pleasing is how we've been able to support our customers during this period, generally being able to outperform the market during this difficult time. As you can expect, we're looking at routes in and out of the U.K. We're looking at levels of stock, both finished goods and raw materials, to make sure that we've got enough materials and stock on hand to continue supply. And we're particularly focused on making sure that what we're calling our golden SKUs, our highest-selling SKUS, we're able to prioritize manufacturing and distribution of these. On top of this, obviously a lot of regulatory changes. So that will cover our packaging, artwork, labeling, all of which we're making sure we're ready for come the 1st of January. So the next slide, just wanted to cover the pensions. This is the accounting valuation. So as a reminder, this is something we need to do every 6 months with our financial statements. It has no bearing on the cash contribution we pay to the schemes. That is done on at triennial basis, and there's no change to the contributions that we talked to you about earlier this year. What we've seen on the accounting basis is a reduction in the surplus from GBP 1.2 billion at the end of March to GBP 500 million at the end of September. And that's largely due to one factor, which is a reduction in the discount rate, which has reduced nearly 100 basis points to 1.55%. This mathematically increases the value of the liabilities, which reduces the surplus. It's worth remembering that actually, if we compare this to where we were a year ago, the combined surplus was a touch under GBP 590 million, so actually much more in line with where we were a year ago. It's actually a valuation spike at the year-end. So just the last chart for me. I just wanted to give a snapshot of our capital structure and where we are today versus 12 months ago. So at the top of the chart, you can see the reduction in our floating rate note. So that reflects the GBP 80 million repayment that we've made this year, plus the GBP 40 million repayment that we've announced and we will make in a few weeks time. The interest savings from this, combined with the reduction in the interest on our RCF, off the back of our half year leverage targets, brings down annualized interest by about GBP 7 million. And looking a bit further ahead. Delighted that S&P and Moody's have recognized the progress that the company has made with an upgrade from both of them over the last 2 months. And looking a bit further ahead, we are continuing to be focused on bringing interest costs down for the business. And obviously, the October 23 notes at 6.25% do feel expensive to us now. Obviously, they are subject to quite a hefty call premium now, but that does step down in the middle of next year. So that's all for me, and I'll pass over back to Alex.
Thank you very much, Duncan, and I'm going to start by taking us back to our business strategy, and in particular, to focus on those 3 core pillars. On the left-hand side, you've got sustainable and profitable revenue growth. So as you know, we have a leading brand positions. It's taking those leading brand positions and then innovating with new products based on our insight into how our consumers live and eat and cook. And then sustained marketing investment behind the brands in marketing and advertising to keep them front of mind and to keep them contemporary and relevant. Working closely with our key retailers. And then also, we showed you last time, our updated international market expansion strategy. I'll come back to that a little bit later on. The second pillar is cost control and efficiency. You will be aware that we operate a lean SG&A cost base, and we're focusing right now on operational excellence. So that's all about making our manufacturing and logistics chain as efficient as we possibly can. And then, of course, we invest in capital projects, in particular, where we can, again, make ourselves more efficient, take costs out of the business through investing in capital. And then from a cultural point of view, we operate with agility, with pace and with energy. And I will remind us, of course, that we do not have a big multinational matrix decision-making setup. We've got a very short line decision-making process. And then also from a manufacturing point of view, vast majority of all our products are made in our own factories in the U.K., and consequently, that gives us a lot of flexibility. And then final pillar over on the right-hand side is cash generation. So disciplined working capital management and that tight focus on CapEx. And all this now is starting to lead to a position where we can see options for cash deployment starting to open up at the short and in the medium term. And then if we move on to look at U.K. revenue growth by quarter. And I thought this would be interesting because it starts to show how some of the market dynamics have changed over the last few quarters. So if you look at our U.K. performance from the back end of '18, '19, all through '19, '20, you can see good, strong, solid growth from our U.K. business. Then when you get into quarter 4, at the back end of quarter 4, you'll remember, that's when we started to see consumers stocking up their kitchen cupboards ahead of what turned into lockdown 1. And you can see that drove the rate of growth up to 7.3%. And then in quarter 1, that 23% growth, clearly being driven by the fact that, that was the period of lockdown and everybody was eating all their meal occasions at home rather than some of them being out of home. We did say that quarter 2 would be a transitionary period, and so it turned out to be. The beginning of the quarter was very much like quarter 1. But in September, we then started to see things coming back to normal as out-of-home eating outlets opened up, and also particularly with the Eat Out To Help Out scheme. So that brought August closer but not quite back to normal. And then at the back end of September, as more regional restrictions started to come into play, we did start to see a bit of an uptick again. And that carried on through into October. I also said earlier that we have taken market share, and we've gone ahead of the market. And you can see that on this chart here. If you look at the pink bars, that's the growth of the individual categories that we play in. And you can see all the grocery categories in great growth, not cake though, cake doesn't respond to the current environment in the same way that the Grocery categories do. But then you can see Premier Foods brands, which is the blue bars growing significantly ahead in all of the categories. And therefore, that delivers the market share gains that you see in the green circles above. And I also said that we performed very well online. I think if you look on the left-hand side of this chart, the dynamics of online are really quite interesting at the moment. So what I'm talking about here is the sales that go through the online platforms of our retail partners. And you can see the market is represented by the pink line in the left-hand graph, and this is market growth. You can see how that market growth really started to pick up in April, in May, through June, and ultimately, into July, as more and more consumers wanted to do their shopping online rather than going to stores. And obviously, that also represents a period when retailers were ramping up their online capacity. What we're really pleased to see, of course, is the blue bars, which shows that our brands were growing online faster even than this rapid growth of this channel. And that ultimately leads to the market share growth, 260 basis points of share growth. And you can see that over on the right-hand side, we grew faster than the channel in all of the categories again in which we operate. And ultimately, for the whole of the first half, we grew by 112% in the online channel. This is particularly encouraging. We have spent a lot of effort on this over the last 3 years. We've increased our resource and focus. And in particular, what we've been doing is looking at how you translate the really well-proven success models we've got for operating in a physical store into an online environment, making sure that our brands appear and are promoted with the appropriate techniques online to replicate those success models. And clearly, the business has proven to be very resilient so far going through the pandemic, and this really spells out what we think are the key drivers of that resilience. And it all starts with the strength of our brands, of course. So you'll be very well aware of the strength of our brands. We're leaders in all the categories in which we play, brands that are well known and well loved by millions of consumers in the U.K. And we continue, of course, to invest behind building that brand equity with continued marketing campaigns and advertising, keeping those brands top of mind and relevant and contemporary. And one thing we know, of course, is in times of uncertainty, and consumers will tend to seek out brands that they know that they can trust and they can rely on. So clearly, that's very much the case with our brand portfolio. And we've talked before about how, generally speaking, consumers will tend to cook around 6, 7 different meal types in that as part of their repertoire. And I have to confess, we're no different. And as we've been unable to eat out to the same extent, to conquer that monotony, we've all been breaking out and looking for new meals that we can cook to, and really, as I say, conquer that monotony. And when consumers have done that, what's happened is, as often as not, then those meal occasions will include one of our products. And that ultimately has led to some of the increase in sales that we're seeing. What's also interesting is that we're, therefore, not just seeing the same households buying more. We're also seeing new households buying into our brands which didn't before, and that leads to that increase in household penetration that I talked about earlier. A key thing underpinning the performance has been the robust supply chain. So our supply chain is clearly being tested in the first half of the year and proven itself to be incredibly robust and managed to keep products flowing through to the shelves when consumers and shoppers wanted it the most. And so that's all the way from our procurement teams sourcing higher quantities of ingredients, through to our manufacturing operations and then through to warehousing and logistics, as I say, making sure it gets through to store. And then I often talk about the importance of retail partnerships in executing our brands in stores. But actually, over the last 6 months, the strength of those partnerships has been really important as we've all rolled our sleeves up together to take the appropriate decisions to make sure that we've managed to get the key products through to -- through to -- through all our logistics [ exchange ] and into the store and on shelf for shoppers to buy when they needed it. Now our overall approach to COVID-19 has not changed. Our key priority, our first priority is protecting our colleagues' health and wellbeing and also keeping our operations functional. And probably the only real change that we've made since those strong measures we've put in place earlier in the year has been to introduce our own version of track and trace. And this allows us to work with any of our colleagues who do display symptoms and help make sure they get tested and then make sure we can track any other colleagues who they may have had contact with. And that's particularly important when we're talking about contacts that have been made outside the work environment because we're very confident in the distancing measures and controls we've got in place inside the work environment, but it's outside the work environment that we have to then be very careful about. And then our second priority has been ensuring continuity of food supply. So as I said, our manufacturing and logistics operations have been fully open throughout the first half of the year, so fully operational. I have to say it's been a very impressive performance from all our operations colleagues during what has been a very challenging time for them. And then our third priority has been protecting and preparing the business for the next steps after COVID-19. And the heart of that really is about making sure that we keep focused on that core brand growth model strategy that served us so well over the last few years. So continuing to support our brands through marketing and advertising investment and continuing to innovate and bring new products to market. And if you look at some of that over the first half of the year. We continue to advertise some of our biggest brands, our 3 biggest brands, Kipling, Batchelors and Bisto. And Mr Kipling was on air for 12 weeks all through the first half of the year. So that's essentially a week-on, week-off media strategy. And then Batchelors are back on air. And then we started on Bisto winter campaign a little bit earlier in September this year, when normally we would have started in October. And clearly, we benefited from the lower media rates that we've seen in the first half of the year, and actually earlier in the year, with actually more people watching TV given that, obviously, we weren't all able to go out as often as we would otherwise have done. And we've taken the approach of continuing to invest the amount we were already planning to when we came into this year, which is significantly ahead of prior year, actually, and just getting more media spots for that investment. And then if we move on to innovation. That's the second big part of the branded growth model, of course. And we've continued to deploy our innovation strategy, focused on that deep consumer insight of how people's lives are changing in terms of how they cook and how they eat at home and using that to innovate and provide our consumers with better products that are more tailored to how their lives are evolving. And then working closely, again, with retailers to make sure that our brands get well represented and executed in store. The key macro consumer trends that we continue to work on are unchanged. That's the 5 big trends we've talked about a couple of times before, with health and nutrition remaining the most important one. And we will come back to that one a little bit later on. So if we look at some of the things that we've launched in the first half. This is just a snapshot, on the left-hand side, of some of the new products that we brought to market during the first part of the year. And actually, you can see a number of those are healthier options. And over on the right-hand side, this is a graph that shows the percentage of our sales that we derive from new products that have been launched in the last 3 years, and you can see that steady year-on-year increase back from 2014, '15, when we first put this strategy in place, through to last year at 6.5%. And as that has increased, so has the overall performance of the business. There's very strong correlation there. Now you'll notice that the first half of the current year is actually slightly below where we finished last year. What I can tell you is the absolute cash sales from new products has actually increased, actually quite significantly, Half 1 versus Half 1 year ago, but the percentage has fallen back. And the reason why the percentage has fallen back is because of that incremental volume that we're seeing going through the core base business. And therefore, when you divide the 2 by each other, you get a slightly lower percentage. But we're quite happy that the absolute value of our innovation continues to increase. And we talked last time about our new approach to building our business overseas, and you can see here the new strategy that we talked about last time. And I'm pleased to say we're making really good progress. And we grew by 14% in the first half, as Duncan mentioned, but I do need to be clear that a fair amount of that was due to soft comparatives in quarter 1, particularly in Ireland and -- where we'd have a previous stock build for -- in preparation for an earlier Brexit. And then we've seen a benefit in cooking sources in a number of markets where, like the U.K., people have been cooking and eating more of their meals at home. But nevertheless, we've made good progress on implementing the strategy. And I think there's some nice little proof points starting to come through. We've moved a lot of our leadership resource now out of the U.K. and replaced that functional resource with market resource embedded and based in the market with their sleeves rolled up and focusing on that 4P execution model. So making sure we've got the right products in the right stores at the right price and with the right promotional plan, and fine-tuning it as necessary to local market conditions to make sure that it works. And then optimizing our route to market. And there's a few examples here of how that's working. I think in Ireland, we already got a strong head of market in place. What we've been focusing on in Ireland is replicating the U.K. branded growth model success. Great example of that is with Mr Kipling. So we've taken the Kipling advertising from the U.K. Following through the innovation at a faster rate, we fine-tuned the promotional campaign, and that's resulted in a 21% revenue growth and a 390 basis points market share gain in Ireland. And that's, I think, a really nice example of where we've taken the success from the U.K., and we've been able to implant it and take those learnings into one of our overseas markets. We've also launched into an entirely new category in Ireland with our Cadbury and Mr Kipling baking mixes, so we weren't present with baking mixes before, and that's now rolled out across all the major retailers in Ireland. And in quick meals and snacks, we're rolling out the Nissin Soba Noodles and Nissin Cup Noodles to all the major retailers now with pace. And a good progress in Australia, where we've appointed a market head and also a small locally based teams that are all recruited from within the market and with strong sector backgrounds. And they're focused right now on continuing to build our category leadership position in cake. And so we've taken an extra 100 basis points of market share in cake over the last 12 months, extending our cooking [ sauces ] from Indian into oriental [ sauces]. And that's important because in Australia, the oriental [ sauce] segment is 4x bigger actually than the Indian [sauce] market. And now we're at the point where we're starting to evaluate what that third category we might expand into is after cake and cooking [ sauce].But then in North America, I've said that's much more a test and learn for us at the moment. I'm pleased to say that we've got our Mr Kipling test off to a good start in Canada. We're In 300 stores, and we're really pleased how we've landed that in terms of product range and pricing and promotional plans. And so we'll continue to monitor that. We'll make adjustments as need be. And as I say, see what we can learn from that before a potential rollout. And in the United States, and we're on the brink of appointing a new distribution partner, and that should lead to a similar test market taking place in the U.S., probably at the back end of this financial year. So overall, really pleased with the progress that we're making with the new international growth strategy. If we now start to look forward into the second half. And we'll continue to drive that branded growth model in the U.K. You can see we've got 6 of our biggest brands on TV in the second half of the year with increased investment versus a year ago. We're all really excited about the new Ambrosia advertising that starts on air from December. You may remember that Ambrosia has not been advertised for a few years in the U.K., and so really pleased to be doing that. And it's a campaign called Devon Knows, and takes us back to Ambrosia's roots in Devon. And then there is, of course, that sixth brand, which we're currently -- the marketing team working like crazy on. And we'll tell you more about that sixth brand and which one it's going to be when we get a little bit closer. We will, of course, continue to innovate and bring new products to market in the second half of the year. What I'm going to pull out, this is only a few, actually, examples, but the one I'm going to pull out is, over in the top left there, Cape Herb & Spice. This is actually a new brand to the U.K. We came across this when we were doing our usual scouring of the world for new exciting cooking and eating trends. And we came across this fantastic brand called Cape Herb & Spice. It's from South Africa. The quality of the product is just fantastic. The packaging is also really impactful, really exciting. So really pleased that we've now become the sole U.K. distributor of Cape Herb & Spice, and we'll be rolling that out over the next few months. And now, of course, I've said that healthier choices are core to our innovation agenda. And by 2025, we said that all of our core ranges will include a better for you option. But I thought it would be helpful if I just pointed out what our 3-pillar strategy is to health credentials within food. So the first one is really shifting our existing products and making them more healthy by stealth. So it's not something we claim to the consumer. We, over time, sort of move down the levels of salt, the levels of sugar and the calories in a number of our products. And by doing that, we've recently just got to the point where we've moved 1,100 tonnes of sugar across our cake and desserts category. That's exceeding our 1,000 tonnes target. And previously, we've completed a very similar exercise with salt. In addition, as I say, we've committed that every core range will have at least 1 better-for-you option by 2025. And that's currently at 74%. So we're making really good progress. And that would be, for example, a reduced salt version of Bisto. That would be a good example. And we've also said, of course, that from 2019, we'll introduce at least one new range each year that enables consumers to improve their diets. So that's not within our existing ranges. So a good example of that would have been the Plantastic launch last year -- or this year, which is bringing to market a range of vegan bolognese sauce under the Lloyd Grossman brand to allow people to make a high-quality tasty vegan bolognese at home. And then we're big believers in consumer choice, and we think we've got an important responsibility to provide the information that consumers need in order to make an educated choice at point of purchase. So almost all our products have on them the traffic light symbols that you see on the bottom right there, which very clearly indicates the levels of energy facts, such at sugar and salt, between the individual products. And so you can then make your own choice based on the provision of that information. And these are just some of the examples of some of the better for you healthier options that we brought to market this year. I won't go through all of them. But just looking at Sharwood's, and we've been very successful with a range of 30% less fat cooking sources and new cooking sources, so much so that we've extended the range. And then we've also brought to market now low fat versions of our naan breads. And then a new format for us is stir-fried sauces in sachets that you can see there. And we're launching into that straight away with a 30% less sugar versions. And that essentially is measured against the average of the existing category. And then the only other one I'm going to pull out on here, mainly because it's been so difficult and so we're so pleased with it, is to have arrived at 30% less sugar of Mr Kipling Viennese Whirl. And that's off the back of the range of reduced sugar of Mr Kipling slices that we've launched. So you'll remember Angel Slice, the Chocolate Slice, and now laterally, the 30% less sugar Lemon Slice. So we're really pleased to be able to extend that beyond slices that reduced sugar range into now Viennese Whirls. So plenty of good examples there. And that fits really neatly into, actually, our ESG strategy. So we have a 5-pillar ESG strategy, which fits with the UN Sustainable Development Goals. And they are encouraging healthier choices, realizing people's potential, supporting our communities, driving ethical sourcing and then reducing our environmental footprint. And I'll just go through a few examples of some of the things we've been doing on those. Healthier choices, I think we've already covered. But if we go to realizing people's potential, a big focus area for us at the moment is inclusion and diversity. And in particular, we've rolled out a very impactful and experiential training program to all our business leaders. That's a population of almost 500 people. And we will roll a version of that out to all our population of almost 4,000 colleagues by the end of 2021. And we've also got a strong focus on mental health. We already have now mental health first status in place in all our sites. And by the end of 2021, we will have rolled out mental health training for all our leadership population. And again, that's one of those programs that the rollout is slowed down by the fact that we can't get lots of people together in a room at the same time. So that's why that's 2021 rather than any earlier. Driving ethical sourcing. Obviously, it's really important that we can trace all the ingredients that we use in our products and ensure we've got high ethical and compliance standards across our supply chain. Pull out a couple of examples here. We don't use a lot of palm oil and we use even less soya. But we -- since 2015 have sourced all our palm oil from 100% certified sustainable sources, and now we're setting the same target for that smaller amount of soya that we purchase by signing up to the Roundtable on Responsible Soya. I'm pleased to say that we're already at 89% on that, and therefore, not very far further to go to get to 100%. Obviously, during the first half of the year, supporting our communities has been a really important topic. We've donated the equivalent of 440,000 meals to those in need via the Fair Share Food Redistribution Charity. And then we've also worked with the 28 NHS hospitals, which are close to our different sites, and we've donated 196,000 products to the NHS staff to help support them through the pandemic as well. And then we raised GBP 200,000 for our previous corporate charity, which was Mind U.K. And then finally, moving on to our environmental footprint and how we reduce that. We're really pleased to have reduced our CO2 emissions by a further 5% last year, and that brings the total to 40% percent reduction since 2008. And we've maintained our 0 waste to landfill record. And we've now met and, in fact, exceeded the 25% water reduction target that we've set to achieve by the end of 2020. We continue to focus on reducing food waste, reducing the creation of food waste in the first place, bringing 0 food waste to landfill and now partnering with the company shop. And in 2020, we will redistribute 1.5 million units, that way, keeping them high up in the human part of food chain. And then packaging, obviously, a very important topic. But I would remind us that 93% of our packaging by weight is already recyclable, and only 13% of our packaging is plastics. And of that 13% at 63% of the plastics are recyclable. And as a Founding member of the U.K. Plastics Pact, we are committed to getting that 63% up to 100% by the time we get to 2025. And one of the big steps forward we made last year was removing 500 tonnes of black plastic packaging, which was mainly the trays that some of the Kipling and Cadbury cakes come in. So overall, good progress on the ESG agenda. So in summary, Half 1, clearly accelerated volumes due to consumers eating more of those meal occasions at home. But at the same time, we've continued to drive the underlying branded growth model strategy. And as a result, we've grown faster than the market, including in the high-growth online channel. The household penetration gains we made in quarter 1 we've largely [ capped those ] off as we've gone through quarter 2. So we're very pleased about that. And ultimately, all this, of course, has led to very strong trading profit progress, adjusted PBT and adjusted earnings. Our net debt-to-EBITDA is now down at 2.3x, which is our lowest ever level of leverage. That's before we count any benefits from the Hovis disposal, which we announced last week. By the 1st of December, we'll have redeemed GBP 120 million of the floating rate notes year-to-date. And that, on an annualized basis, will reduce our interest costs by approximately GBP 6 million. And as Duncan mentioned, we've received credit rating upgrades from S&P and from Moody's, which, I think, recognizes the strong recent progress of the business. If we move on to outlook. We will continue to focus on our branded growth model. So you've seen that we've got plenty of new insightful product innovation for the second half of the year and that we're going to continue to support 6 of our biggest brands on TV in the second half. So no let up in the branded growth model. And as a result of that, we would expect any way to grow in the second half of the year very well. Although we do have, of course, those tougher comps in the latter part of Q4 as we start to anniversary when people were stocking up their kitchen cupboards. In addition, of course, we've got the impact of the recent increased restrictions on eating out that we've come into in November and then whatever comes after that in December. So when we take all of those factors into account, it's become clear to us that our trading profit for the full year is now likely to be ahead of market expectations. And then looking a little bit further out. We're setting today a new net debt-to-EBITDA target of approximately 1.5x over the medium term. That reflects the recent accelerated a deleveraging process and also the impact of the Hovis disposal proceeds. And so with that, I think we're ready to go to Q&A. So thank you.
[Operator Instructions] And the first question comes from the line of Martin Deboo calling from Jefferies.
Can you hear me? Hello?
Yes, we can hear you well.
Okay. A question I'd like to ask is around capital allocation and cash flow going forward. There's been a stream of positive surprises and good news. And I think you've probably had GBP 5 million to GBP 10 million incremental EBITDA as a result of COVID over the last sort of few trading periods. And you've got the GBP 37 million windfall of the new medium-term leverage target. I just welcome thoughts on how you're thinking about the various priorities of organic investments, but then also the sort of possible acquisitions and return to dividends. Just how are you thinking about that.
So I'll kick off with that, Martin. And then, well, I'm sure Duncan can add to it. So yes, clearly, we are getting into a much stronger position and that accelerated rate of deleveraging, and then helped, of course, by that Hovis transaction, as you mentioned. So yes, definitely getting into a stronger position. I think the target that we're setting today is really to put a stake in the ground that says we're going to continue in the immediate term to focus on that debt reduction. But you're absolutely right. It does start to open up quite quickly other opportunities for cash deployment. And they may well include investing back into the business. You'll be aware that we do have opportunities, for example, to reinvest back in our factories with payback periods that are still relatively short, investing in the brands. And then ultimately, I mean, one starts to see on the horizon the possibility of small bolt-on M&A. But the short-term focus, I would suggest, is still on net debt reduction, but that doesn't preclude us from doing anything that might come along in the medium-term before we get to that 1.5x. I don't if you want to add anything to that, Duncan?
No, I don't think so, Alex. I mean, Martin knows that those are the sort of choices that start coming into the play. And clearly, we are delighted that these have become -- start to become choices for the group. But I think the way to see the target is that we have continued to -- committed to bringing leverage down further. But as I said, it doesn't necessarily mean that we're waiting until we get to 1.5x before we start thinking about some other things. And as Alex said, a lot more we can do at the sites that continue to make sense. And as we know, we're no not prohibited from paying a dividend. That's not something -- that's something the Board will continue to consider. And if a bolt-on acquisition or something interesting came up in the right area at the right time for the right price, then it would certainly be something that we'd have a think about.
I mean, to push you a bit harder and just specifically on internal CapEx and marketing investment. Do you sort of feel that you can now approve all the meritorious projects that bubble up from operations and marketing? Or is there a case that GBP 10 million somewhere would make a huge difference? You're sort of having those sort of debates? Or do you generally feel that the sort of -- what's available to you is adequate for the needs of the business.
I think where we already are, Martin, is adequate. We're not feeling as those are some great urgent need to start reallocating cash within the business. We've been steadily increasing our marketing investment behind the brands over the last few years as the performance of the business has strengthened, and I think we'll continue to do that. And I think we have sufficient capital and to do what we need to do in our operations. I think where we eventually just get to is a point where actually one could go further than what we're currently doing, and it's going to be a question of balance.
The next question comes from the line of Clive Black calling from Shore Capital Markets.
Well done on the H1 delivery. It has to be said. First of all, could you just give your thoughts around the Sweet Treats market? I mean, we've seen you've delivered market share growth. But is this -- is the performance in the first half something that would lead you to reprioritize your thinking around that? Secondly, you're quite right. I think, to be -- we think to be cautious around letting future forecasts necessarily run ahead of themselves. But what sort of output would you be anticipating from what we would imagine to be an increase in marketing expenditure beyond the current financial year? What would good look like? And then finally for me, please. What do you think are the conditioning factors around Christmas 2020 from a retail demand perspective for Premier Foods?
So let's just pick those up in order. I think the Sweet Treats market is certainly experiencing some different short-term dynamics to our Grocery brands. And this doesn't really change anything for us strategically, but it's certainly a short-term effect. And what we think is happening is that, more broadly, in that cake market if you think about it, many of the occasions when cake is consumed is when you've got a celebration of some sort and people congregating together, either at home or in the office or whatever, to celebrate somebody's birthday or whatever it might be. And clearly, those larger gatherings are no longer happening, and we think that, that's depressing the cake market. You particularly see it in celebration cake, so sort of big celebration cakes, which, to be fair, is not an area that we particularly play in very strongly. But you can see some significant declines in celebration cakes. In addition, if you look a bit further, you also see -- you also see the -- so that lunchtime lunchbox occasion for cake, so putting an individual cake in the lunch box that you take to work, that's also not happening to the same extent. So those 2 factors really are meaning that cake is not responding over the last few months in the same way that grocery is to lots of people eating at home. But I think the important thing in your question is, does it change our strategic focus? No, it doesn't because this is a short-term temporary effect. And as life eventually gets back to normal, we would expect the Sweet Treats market to get back to normal. So does that answer that question?
Yes. Yes. It'd be interesting to see what new normal is.
Yes, yes, that's very true as well. And then I think moving on to the marketing investment question. I think probably the best guidance I can give you is really what we've been seeing over the last few years. Over the last 2 or 3 years, as our business performance has improved, and it's thrown off cash margin, we've been taking some of that cash margin and putting it back into greater support for our brands. And we will continue to do that. So you can expect that to continue over the next few years. Christmas 2020, goodness, now that's a big question. And I think there's a lot of -- we're going to have to wait and see in that, isn't it? What I can tell you is that we have prepared very well. Christmas is always a big time of year for us, as you will know. It's on our product portfolio. So we've prepared extremely well for that. We took the opportunity during the quieter summer months to keep our production running full tilt, stock up the warehouse. And so we're all ready to go, if you like, however Christmas then plays out. I mean, what we do know from our regular consumer dialogue and research is that people are saying that they're going to be spending -- there were going to be less big gatherings. That's what they're expecting from a restrictions point of view as we get into December, and therefore, expecting to have more frequent smaller gatherings of friends and family. And then the other thing that we think is going to happen is without the ability to have a large gathering for Christmas lunch, and we're also -- people are expecting that some of them are going to have to attempt to cook Christmas dinner themselves for the first time, which could be interesting. So that's certainly what our consumer panels are telling us anyway.
Okay. Can I just come back on the marketing investment? It was just to sort of get a feel Alex, strategically what would be -- I know it's a nebulous question to some degree through history, but what would be a good economic return from what we anticipate would be a step-up on an ongoing basis and marketing for you or by you.
Yes, you're right. It's difficult to be precise. I mean, we look at the return of our marketing investment essentially in 2 ways, and we look at the short-term ROI. So by that, I mean, the amount of sales and profit we get back from our marketing investment essentially within the financial year that we do it. And that's something we measure very, very closely and very, very tightly. And that's how we also make priority decisions based on that as well. So for example, you wouldn't continue to run a piece of advertising if it didn't have a strong ROI, to put it in context. And then in a slightly more nebulous element of it is we know that over time, cumulative investment behind brands build strong brands, doesn't it? Strong brands have pricing leverage and they have strong consumer appeal. And that's the difference between a brand and just a product. So that's all rather difficult to measure and difficult to pin down. There are many papers have been written on the topic over the years, and I'll leave you to make your own judgment. But we think that's a very important part, continuing to maintain and build the equity of our of our brands. And ultimately, we're working towards getting the majority of our medium and large-sized brands supported on an ongoing basis. That's the sort of medium-term goal.
The next question comes from the line of Charles Hall calling from Peel Hunt.
My question, firstly, on the market share gains, you obviously got a really strong improvement. And it's interesting to see that, that gathered pace in Q2. Can you just comment on the makeup of that share gain? Is it because you're getting greater sell-through of each individual SKU? Or are you taking shelf space? Are you seeing own label being retrenched or some of the mid-tier brands unable to compete? So just to get a feel of what drove that in the first half. And so thinking about the sustainability of that improvement. And secondly, Alex, can you just give a bit more color on the cake test in Canada as to the initial feedback you've had so far? And what potential rollout you'll have in Canada as a result?
Yes, of course. Thank you, Charles. So I think on the market share gains, I think probably the way to think about this is that essentially what we've seen this year is a continuation of last year. So we increased our market share in all the categories we play in through the entire year last year as well. So that's carried on. It's difficult to put it down to any one precise thing. We put it down to our overall brand building approach. So it's that combination of bringing new products to market, executing them well in store, coming out of the customer range reviews well and then the media and marketing support that we put behind the brands. It's rather difficult to deconstruct it because it's a cumulative impact of all the elements that we put in place to grow the brands. And I think that's why you get a pretty consistent share gain across all the different brands. And of course, one other element that plays into that is if you are bringing new products to market that actually grow the market, that, of course, increases your market share without you necessarily having stolen it from somebody else. You're not necessarily stealing shoppers from another brand if you're expanding the market. Does that answer that, Charles?
Yes. Yes, that's perfect. Actually, before we go onto Canada, can you just comment on Plantastic. It's not an easy market to be launching that product into. How have you seen the sell-through and the shelf space in quarter 2?
Yes. So obviously, a brand-new brand and really early days for it. We were really pleased with how it was performing prior to the current situation we find ourselves in. But you'll remember that we launched first into essentially a food-on-the-go format. And as we know, food on the go is not an area that's been doing particularly well over the last few months. But we would expect that to pick up again as food on the go picks up and we come out of restricted measures and people start going back to work, et cetera. But what you will see, as we roll forward into next year, we'll start to bring new Plantastic products to market, which are not necessarily focused on food to go because you remember, I said that Plantastic is designed to be a multicategory, multi-format plant-based eating brand over time. Coming on to the Canada cake test. So what we were very keen to do was to get a test into market in North America. And we started, obviously, with Canada, which allows us to have very strong control over the 4Ps, so over which stores we're in, over where we're positioned in-store, how we're priced and how we're promoting, and then to allow us to fine-tune in those 4Ps as necessary in order to build a success model, if you like, that's right for that market. So the good news so far is that we're very pleased with which stores we've landed in, where we are, the pricing is what we intended to get to based on our research. And the promotional programs are just kicking off now. It's really early days, but I'd say we're very encouraged by the rate of sale, but there's still a ways to go. We need to read that. We need to see how it plays out. And we need to, if necessary, as I say, tweak the metrics until we've defined a success model for Canada in the same way that we've clearly got a very well tuned success model for the U.K.
And does that imply that you're moving from test phase to roll up in Canada?
Not yet. I still would say we were very much in the test phase. But obviously, if a test is successful, then, yes. And clearly, that will be the next step. But we would -- we want to make sure we've got the model right first. We wouldn't want to roll out something that we haven't validated. I think that's probably the way to think about that.
The next question comes from the line of Nicola Mallard calling from Investec.
A couple of questions, if I may. You obviously talked about Cape Herb & Spice, which is a new range that you're doing a partnership with, and you've got the Soba Noodles [ Moodles ] partnership as well with Nissin. I just wondered, is this going to be part of the mix going forward, that you can add to your own portfolio without buying these products, but you're willing to invest and market them in our markets where they've proved successful overseas? That's one. And I'll come back with another one on pensions.
Well, I'll definitely take the first one. And then I suspect the pension one is going Duncan's way. So yes, I think, clearly, with the Nissin-branded products, Soba and Nissin Cup Noodles, that's very much working hand-in-hand with our partners, Nissin. And then it's not a core strategic platform for us, Nicola, to start becoming the distributor of lots of different things. It's more a case of when and if we do come across something that's just perfect as it is and that's really exciting, then we'll look to see if we can bring it to the U.K. And that's exactly what happened with Cape Herb & Spice. I mean, a similar but different example is we came across a really great quality single-person noodle and sauce kit in Thailand actually a year or so ago. And we brought that to the U.K., but we did that under our Sharwood's brand. So essentially, the business in Thailand is acting as a co-packer on our behalf. So there we have a strong brand that was the right brand for that product. So it just became part of our overall brand innovation plan. But this was different. And we thought this is perfectly formed as it is, and why not bring it straight into the U.K.
Okay. Perfect. And just on the pensions, I mean, obviously, what you give us here is an accounting valuation and it's a snapshot in time. I just wondered is there any update on the timing of a likely RHM buyout and whether that's changed, given, clearly, markets are different at the moment in terms of the sort of the liabilities have gone up. But as I said, it's an accounting argument there rather than perhaps what would be necessary for the buyout.
Yes, sure, Nicola. So you're absolutely right. The accounting surplus jumps around quarter to quarter, and we have seen that as part of September 2020 versus March, and the surplus has come down quite a bit. But it is worth remembering, it is a line or in line with where it was this time last year. It was more that had a big spike up as part of the year-end valuation. I guess you are right. Clearly, it doesn't impact cash contributions. It doesn't drive cash contributions. That is related to the triennial valuation, the results of which we shared earlier this year. And I think [that having said that, that [the RSN] is pretty insulated to movements in gilts in particular because they're quite sophisticated from a hedging perspective. So there's nothing really that changes the views that we've previously shared with you in terms of targeted buyout and potential benefits of the scheme merger going forward. And now the scheme is implemented, we're busy working with the trustees to make sure that we got out the benefits and improve the positions in the schemes.
The next question comes from the line of Ronan Clarke calling from Deutsche Bank.
I'm just wondering, on the new leverage target, does it imply maybe some aspiration for further credit rating improvements over the next sort of 12 to 18 months? And could that also be a factor in your thinking regarding the timing of the refinancing of the bonds? Or is that purely about the step down in the call price of the fixed notes?
Do you want to take that one?
Yes, sure. Ronan, so I think, clearly, we're delighted to have had upgrades from both S&P and Moody's over the last couple of months, and clearly, recognition of some of the progress that we've been making. But I think what we're saying with the target is clearly, we're still committed to bringing leverage down further, which I think should be positive from a ratings perspective. And you've probably seen some of the guidance in terms of potential up-weighting factors from those, which would all be about somewhere around capital allocation, getting leverage down further, looking at pensions, et cetera. So obviously, these are things that we're working on anyway, continue to be really committed to getting the cost of interest down, building on the progress that we've made so far. I think, as you say, I think the credit ratings upgrade is really helpful. We are looking at the 6.25% October 23 bonds. They feel [ a bit sensitive ] to be honest, sitting here today versus where we were 2 or 3 years ago. And that's something that I expect we are thinking about. But the call premium is pretty significant at the moment, but that does step down in the middle of next year. It might be that, that's about the right time when we start thinking about it.
[Operator Instructions] The final question comes from the line of Martin Deboo calling from Jefferies.
You've obviously had a lot of questions this morning on marketing return on investments, and you've quite rightly said it's difficult to calibrate it long term. But I think maybe a question I could reasonably ask on that. What has happened to your share of voice of categories? To make it easy for you, if you are on Slide 19 in the pack where the green blobs were share of voice rather than share of market, how has that trended over time and by category? Just where is your sort of competitive level of investment?
Yes. I mean, I think [ I have that to hand that ] actually, Martin, it varies obviously by category and even by subcategory. And as you'll be aware, in a number of our categories, we don't really have any branded competitors that advertise at all really in any meaningful way. So what that means in practical terms is that really what we're working with is what are the optimum levels to generate the level of awareness, the level of engagement we want with our consumer base. And that generates those returns rather than necessarily benchmarking ourselves to somebody else. But the figures, we could dig out if needed, but it's not always our primary consideration.
We have no further questions coming through on the phone lines. So I'd like to hand the call back over to your host for any concluding remarks.
So thank you for dialing in, everybody. I hope that was useful and informative. As you can see, we've had a strong half to the year. That's been clearly helped by having people eating more of their meals at home, but also, I think, you'll see in the market share gains that have continued all through last year and now through the first half of this year and the fact that we're outgrowing the market in all the categories we operate in, that branded growth model continues to work really well for us. And we'll continue to deploy that in the second half of the year, and at the same time, deal with whatever restrictions that we have to deal with and make sure we do our bit to keep food flowing to the supermarket shelves. So thank you very much for dialing in.