Premier Foods PLC

LSE:PFD

Earnings Call Transcript 2019-Q3

[Operator]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Premier Foods Q3 Trading Update Conference Call. [Operator Instructions] I also must advise you, this conference is being recorded today, on Thursday, the 17th of January 2019.And now I would like to hand the conference over to your speaker today, Gavin Darby. Please go ahead.

[Gavin John Darby, CEO & Executive Director]

Thank you very much, and welcome to you all. This is our quarter 3 trading results for the 13 weeks after the 20th of December. I'm joined today by Alastair Murray, our CFO.Now our headline revenue numbers were minus 2.2%. And I think the important thing, and this is the way I will share my analysis is to get behind those numbers because they were made up of Branded sales in the U. K., which is in the circa 85% of all business, which grew well, I would say, certainly well, grew at 2.7%. So that by Branded sales, I mean, our Grocery Branded sales in the U. K. and our Sweet Treats or cake branded sales. So our sales for that quarter were up 2.7%. And on the other side, the balance that's approximately 15% of the business, we had 2 significantly negative issues, our private label or Non-branded U.K. cake business was minus 20%. And our International business was minus 27%. So when you hear those headlines, you realize there needs to be some understanding both of what drove our U.K. business, frankly, ahead of what were the reported numbers for most of the retailers or the food industry last year. So we see that there's a disproportionately good performance, as I say, reflecting the vast majority of our portfolio and where we make our money. And that was underpinned, I may say, by good market share gains. So on the one hand, I will take you through the details of the strengths there, but obviously, you need to understand the 2 drags -- important drags on our business, both the International sales and the Non-branded U.K. sales -- cake sales, which led to that overall headline revenue number.So if I turn to the U.K. business first, which, as I said grew, in Branded, 2.7% for the quarter. The important fact underneath that was all 5 of our top brands, which to remind you are Mr. Kipling, Bisto, Batchelors, Cadbury cake and Ambrosia, gained share, but they gained shared both in terms of volume share and value share. And Alastair, Rich and I cannot think of a quarter where we've had the top 5 brands all grew market share or grew both volume and value. So that was a strong performance in these brands on their own. Just those top 5 accounts for high 50% of the total group sales.So when you get behind those brands. Mr. Kipling, as you know, our biggest brand, continued its momentum. From the first part of the year, it grew its revenue for 5 -- by 5% in this quarter, and we'll come back to logistics and cake logistics later. The numbers could have been stronger still without a track, particularly at the beginning of the quarter, which did affect Mr. Kipling to some proportion. But the net result is after 3 quarters. Mr. Kipling is up 10%, and that's a very strong performance for the company's biggest brand. It is benefiting from the relaunch we did, and that is supporting both our seasonal cake and our 52 year-round non-seasonal lines as well. Cadbury cake, our second brand, was up 7%, had a great quarter as well, also gained both volume share and value share. And there's particularly strong set of new products coming in, in the fourth quarter and in 2019 January. Cadbury Caramel Mini Rolls coming in the fourth quarter and for Easter. A new range of cupcakes. Cadbury Crème Egg cupcakes kind further run into Easter. So a good brand for us from the 2 big brands in cake. Equally, in Grocery, Batchelors grew, again, driven by the pots and the convenience range launch that we've discussed. It was actually Super Rice, which did disproportionately well. And so whilst a series of years when Batchelors declined significantly, we've now had a quarter of consistent growth. And the Nissin noodle products continue to grow as well, up 40% in the quarter, and a brand like Soba really doing quite material in its sector. Ambrosia was also back into growth. And you recall that we had a negative revenue picture on Ambrosia while we raised our promotional prices significant and changed our promotional strategy back 6 and 12 months ago. So we saw strong kind of single-digit revenue growth and share gains as well, and Angel Delight continue to grow in the same kind of passion. And Loyd Grossman, also back in good single-digit revenue growth, and we are taking Loyd Grossman into pots -- convenient pots for the first time in this fourth quarter with the launch of Pasta Italia Pots, which you'll see in the marketplace for the first time in this fourth quarter. Loyd Grossman therefore in growth with good, new product.Now let's turn to the 2 drags on the numbers that I trailed at the beginning. The first one really was issues we had with our logistics transformation. You recall the first 2 phases of Grocery. We completed on the second phase of Grocery successfully in the summer of '18. The third phase, which was moving our cake business, Sweet Treats business, into our single distribution center was very difficult. We talked about it at the half year at the interim. It impacted our sales in September, which, obviously, was the last month of H1, but also significantly in October and the first month of this quarter, and disproportionately affected our Non-branded or private label business. We can talk about the composition of that in Q&A if you're interested. Importantly, the brands, although affected in October, did, as you've heard, very strongly, very well and recovered well in November and December. And of course, it's the brands when you think about margin and profit in the Sweet Treats business that are material. And private label is significantly less profitable in the average of the overall Premier business. As I say, it was very much a September and October issue. We began to recover as we went through the quarter. And crucially, as we got into the peak, I mean, our customer service levels have continued to get back in towards the territory that we would expect the ongoing levels of service that we would expect and our customers would expect. But that really marched up October to November, November to December. And we did incur some incremental costs, which we can touch on later, associated with that . Because the seasonal peak, the Christmas peak for cake is so critical. We made a decision in October that we would add some contingency, extra satellite warehouse space to our cake business to be absolutely sure we could deliver Christmas cake, Christmas mince pie, et cetera. And that was a good decision because it made sure we could meet our obligations in November, December, but would obviously cost us incrementally as we can touch on a few ones in more detail. And the second headwind was really International, really 2 issues within International. Firstly, as we've discussed before, the final effects of overstocking of Cadbury cake in Australia, we touched on them in the interim, we think the latter part of that issue impacting quarter 3, and I'm pleased say that the Australian retail has now probably both mini rolls and cake rolls Cadbury Mini Rolls. But that issue was a drag, and particularly on the front end of quarter 3, for the International business. Meantime, Mr. Kipling, in particular, grows from strength-to-strength with market share in Australia. And the second issue in International, with regard to international exporters, I mean, these, within the total context of Premier and even within the total context of International, are relatively modest. But these companies export wholesale and export product to parts of the world where Premier doesn't work directly into Africa or into the Middle East in particular, kind of expat land, and the costs of those, et cetera, et cetera. We made a material change in our pricing to these export wholesalers back at the beginning of the financial year. We did that to make sure that their pricing was more in line with other markets, in particular the U.K., because we've seen an unsatisfactory proportion of that business come back to the U.K. and indeed affect U.K. pricing. And so we made some important changes there, which, again, I can discuss more on the Q&A. That has materially reduced that business, but to the benefit, in particular, of the U.K. in terms of margin, there is absolutely no sense in an -- in a business that sells growth in multiple markets as Premier does today for the U.K. to be competing with international exporters in its home market. So those changes are smart changes for the company, particularly at the margin of the financial level. We've made them -- they've had a big impact on that channel and impacting quarter 3 and an impact that will continue in quarter 4.Now before I sum up, I do need to touch on our Brexit plans. We shared them with you at the interim. It's 10 million -- a potential 0.10 million impact in working capital. We have gone, for obvious reasons, as the political process has spread out the way it has from contingency into full plans, initially raising stocks of imported raw materials. And then more recently, since the start of January, we have started converting those rate stocks of raw materials into finished goods. And that is a smart thing to do on our core skews, what we call the golden skew, that we'll have higher inventory of both raw materials and particularly finished goods. And you'll understand, that has the impact on working capital that we discussed at the interim in the order of GBP 10 million . Most importantly, although that is obviously going to affect the pace of our net debt pay down, that moves in the wrong direction, it is an impact that unwinds as soon as you sell that stock by definition. So it is a short-term impact, but it is the prudent thing to do and looks more and more prudent, given the chaos that we are all observing when it comes to Brexit, which is not, in theory, very far away. And so my other comment would be, in terms of our goal to get below the 3x net debt-to-EBITDA by March next year, which is only March next year now, March 20. We are actually on track to deliver that.So in summary, the core business, more than 80% of the business -- 85% of the business, which is Branded and U.K., continue to grow healthily. We think the 2.7% we grew, which might have been even better if we haven't had or would have been better for some issues at the beginning with cake and logistics, which affected the Branded. But 2.7% is a good performance and is ahead of the market. And that -- we can see that with our market share growth. We expect quarter 4 to reflect the strength of that trajectory. We said in the outlook statement that our expectations for both trading profit and adjusted PBT and EPS are unchanged. And you might argue all, well, why would that be the case given some of the shortfall in revenue I talked about? But I think I would just point to the brand strength, which is where Premier makes its money, and good margin -- year-on-year margin trends that you saw in H1. So mix and margin means that we are confident about our full year numbers.Final thing before I sign off and clearly, this is my last quarter numbers. And I feel very privileged having run the company in the last 6 years, and I'd like to thank many of you for the number of kind of incoming messages of thanks. And I guess, compliments to the team in terms the progress we've made. They tend to -- when I look at them, center on 2 things, and the big reduction in leverage, we were more than 6x net debt when we started, and the pension deficit was more than half. And I think the second thing that people talk about is the brands. I mean, it's great to have historic brands, which many people worried about when we started and described sometimes as legacy or even heritage. I think now, as this quarter has demonstrated, we've started, and the business will continue to show the brands -- big brands that have been around for a long time that can be rejuvenated and grow.I will hand over to Alastair at the end of the month. And the board is in the process of doing what the board should do in terms of good governance, which is look at seriously substantially outside the marketplace in terms of succession. And that process is underway. In the meantime, Alastair will step up on the 1st of -- or step in, I would say, to the role of interim CEO in the 1st of February. You know Alastair very well, and I know -- I can guarantee, and you know Alastair well, that he will be a very competent interim CEO. So the business will not miss a beat in this interim period.So with that, let's turn back to you and Q&A.

[Operator]

[Operator Instructions] And your first question comes from the line of Karine Elias.

[Karine Elias, Managing Director]

I just had a couple, please, to follow up on your point on the logistics issues. So just trying to understand why it had a higher impact on the Non-branded versus the Branded. And again, if you can walk us through a little bit of what we should expect in terms of the shape of Q4, I think, there. And then my second question was, going back to the International performance, how should we think about International performance going forward? Obviously, the wholesale issue will continue, but should we expect the pickup as far as the Australian market is concerned?

[Gavin John Darby, CEO & Executive Director]

Yes. Karine, Non-branded, well, the weakness of the 20% reduction in Non-branded is actually made up of 2 few things. Some contract losses, frankly, that had occurred, that we knew about in kind of the first half of the year. As you'll be aware, private label contracts are annual. They are -- it is something of a low-value business. And you bid and you choose not to bid and dependent on the economics. So we -- the first component of our Non-branded business weakness in the quarter was expected and understood, but there's some places we're just not going to go in terms of pricing. The other piece, which is the piece you're referring to, was really a function of a couple of our retail customers. As we struggled in the beginning of the quarter to serve them with their private label brands, this is not -- they chose to go to other suppliers. And that's not unusual. Some of the biggest, particularly one of the hard discounters comes to mind, retailers tend to do a supply for very big skews, very big areas of their business, and they dial up and can dial down as they did the source between the 2 suppliers. So we had a couple of customers, in particular, who chose to go elsewhere in quarter 3 for their own private label. And that's why the numbers were disproportionately bad or weak for quarter -- for the quarter. And then I can easily say, "Well, what would impact beyond quarter 4?" Well, one of those customers has started coming back, as we've got back more and more. And those were really the 2 components of why Non-branded was cake, was -- or Non-branded cake was so much weaker and while the brand, frankly, did really rather strongly in the quarter. To your second question, International, well, the components associated with U.K. wholesalers, as you said, I mean, I forecast that they will remain weak in the fourth quarter. That's the decision or a forecast we've moved to in the last few weeks. I mean, clearly, that business has come very quiet, and we are not forecasting it to be -- to recover very significantly in U.K. -- in U. S. -- I'm sorry, in U.K. wholesaler, exports wholesalers. And we're really very relaxed with that because we're gaining the benefit in terms of some extra sales in the U.K., but more importantly a good margin benefit in the U.K. business. It's not only to compete with them. I will say, which is probably the question -- underlying your question that we expect the International business in quarter 4 to return, despite that, to double-digit growth. And that's really the important thing. So International business in quarter 4 should be in double-digit growth despite the fact that I don't expect to see much U.K. or export business in that quarter. And that, in itself, will be a track on the headline of international in the quarter. Despite that, we'll be double digit. Hopefully, that's helpful.

[Operator]

And your next question comes from the line of Martin Deboo.

[Martin John Deboo, Equity Analyst]

Martin Deboo at Jefferies. Gavin, let me start. I was picking at what you said. I wish you the very best for the future and wish you a great success. But regrettably, down to business on the conference call. I've got similar questions to Karine. I think it's worth so just sort of reiterating it in every direction, which really goes around where momentum is in International. Let me try and sort of differentiate what I've got sort of actually from what Karine has already asked you. But like her, I'm trying to establish just where this business is going medium term in the context of you've generally led us to believe it's going to be accretive to the group growth rate because that isn't really what we saw at 9 months, where you're showing that the underlying growth is 5%. So it's only marginally accretive at the moment. You've just said that you expect it to be double digit in Q4. Let me ask 2 questions. First of all, how are you working out that underlying growth rate that you're giving? How meaningful is it? And then secondly, just to try and work out what's happening in Australia on a sellout basis. You said to us at the Analyst Day that you're actually just under 10% market share of cake in Australia. Where do you think that's tracking now? And what is Nielsen or whatever it is telling you about sellout growth in Australia rather than what's happening on the sell-in line? Those are the questions.

[Gavin John Darby, CEO & Executive Director]

Okay. Fair enough. Well, we start by reiterating what I just said, which is probably the big point, which is underlying growth for International in Q4. We expect to be in double digit, I mean, that is really the key point. And I wouldn't say that unless I understood that, where you're coming from. The question of how do we work out the underlying number, the 5% we -- that you referred to. Well, essentially, we can see, when it comes to the U.K. wholesalers. That's a very simple calculation. We know precisely what we sell to them or what we've sold to them in the past. So that's a kind of very simple mathematical calculation. As I implied strongly, there is a net economic benefit in the U.K. there. That sometimes is harder to work out, but you're asking about revenue. Then I think in terms of the balance of that underlying number, the 5%, that comes back to Australia cake. I mean, that's not that it would work out either, candidly. It's charismatically that we knew what -- it soaks on Cadbury. It soaks predominantly on one customer. So it's a pretty simple calculation. We know that was how we can surpass them at that from the ongoing business, and that's how you get back to an underlying growth number. So I think the underlying growth number is very easy to calculate the 2 binary and arithmetic calculations. And there's not a lot of -- there's no need for any smoke and mirrors or judgment to get to those numbers. And then your final question, which is obviously a very good one. So what's actually happening in terms of market in Australia, well, we buy and invest quite strongly in market share data and upgrade to in the U. K. now. And we can see our cake market share is where it needs to be. We're getting more Kipling and a little less Cadbury in the last few weeks, a little less Cadbury because we had to discount our Cadbury business to get rid of. They will get moved through some of those Cadbury overstocks. There was a risk for shelf life. Cadbury cake has a shelf life. So we had to promote harder than we would normally do as we move those over stocks through. So that the -- with the Australian retailers that we were left with a write-off. And they were left with big write-offs. So that helps the Cadbury share a little bit. And as we've come through that, the Cadbury share is down a little bit, which is fine, frankly. And most encouragingly, the Kipling share has kind of picked up the slack. So we are very comfortable with our Australian market share. And when I look at the plans going forward, we have the team there in Australia again last week, agreeing the next range of views and our new products and right architecture. I mean, the Australian retail is a very -- the 2 big retailer's very supportive of our cake business. We transformed it. It comes from nowhere to more than 10%. And we're coming in at Branded prices, not private label prices, which is very private label Non-brand business. So this is kind of category-accretive to them. And we've got a good business, and we should go very comfortable in that going forward.

[Martin John Deboo, Equity Analyst]

Gavin, can I get a follow-up for...

[Gavin John Darby, CEO & Executive Director]

Yes, yes.

[Alastair S. N. Murray, CFO & Executive Director]

Martin, just before we go there, it might be useful, in fact, if I just gave you a bit of color on that Q4 forecast that Gavin was giving you just in terms of sort of where that is geographically...

[Martin John Deboo, Equity Analyst]

Yes, please do. Yes.

[Alastair S. N. Murray, CFO & Executive Director]

And I think just to put that in perspective. We are now expecting to see very good growth in Australia in Q4. So that would be our biggest single-growth area. We've also got growth in the U.S., and particularly the Irish business, where we're getting -- that's doing well as well. We will continue to have a negative in the U.K. and direct in Q4. That's pretty close to the upside in Australia mathematically as it happens, and then some sort of smaller markets like Canada and Africa, a very small amount of sales that are gaining positive. I think the point that's important to make is that we will cycle that reduction in the sale into the U.K. and direct. And broadly speaking by the beginning of the new financial year, we will have started cycling that. At that point, and obviously, the drag on growth disappears and the good work being done on the market starts to flow through in the numbers.

[Martin John Deboo, Equity Analyst]

You've taken me up perfectly for a follow-up. Because I just listen to what you said, you said you've grown International underlying 5% in the 9M. I'm not going to ask you to make a forecast, but if you, again, grow double digit in the Q4, then for the full year, you're going to have underlying growth of, let's say, 6%, 7%. Just getting away from the quarter and just thinking about full year momentum, that's still, obviously, a long way below the momentum you were delivering in '17 and '18. So how do I think about that sort of full year momentum. Are you suggesting that the adjustment in the U. K. I is part of that and that cycle down next year? Or is it that -- is there something else going on? I can't quite sort of see why the full year momentum has slowed as much as it has.

[Alastair S. N. Murray, CFO & Executive Director]

Well, I think one of the difficulties has been projecting from a set of quarterly numbers, which have been distorted by this overstocking impact in Australia. And we've really been living with that for a period of time. And there are 2 components of that, as you and I discussed a bit earlier on. One is when we make the shipments. And we sell effectively better the U.K. ports. So we record for sale pretty much when it goes on the ship. And of course, it takes a long time for the ship to get down to Australia. It's a sellout. So you get -- what happens is if there's too much stock out there, and then you get quite a distortion in the relationship between retail sales and the sales that we book, obviously, that we report to you. And then the second part of that is, as part of helping our customers in Australia deal with this overstock situation. We have -- some actually supported promotional activity to clear that stock through because that's what needed to happen. In the way we account that, that comes off the term underlying, because that's how we treat promotional costs. So I think all of that makes it, candidly, quite hard from sort of published turnover numbers to do what you're trying to do. And I suppose the best way you can look at this is to try and look at somewhat longer periods and sort of look more like an average. And then I think if you look at that, then I think we'll find that still consistent with the sort of underlying message that you're just getting from Gavin about growth rates.

[Operator]

And your next question comes from the line of Nicola Mallard.

[Nicola Victoria Mallard, Consumer Analyst]

A couple of questions, if I may. Obviously, it's disappointing to see another sort of cash exceptional charge increase in the period, but I can understand the reasons why. Can we have some assurance that we're still looking at a sort of a 0 number for 2020, at least, as we stand today? We're already 3 months out, but hopefully, you'd know about anything that might be coming in that year. And secondly, just on the cake Sweet Treats performance, I think you gave us a number that Kipling was up 5% and Cadbury was up 7%. And then the division was up 2.7% on Branded. Such I just wondered what the balance was.

[Gavin John Darby, CEO & Executive Director]

Alastair, why don't you do the first one, and I'll do the second?

[Alastair S. N. Murray, CFO & Executive Director]

Okay. Well, the first one's a pretty short answer, Nicola. There's nothing significant that I'm expecting to come through. I mean, there might be. I suppose, conceivably, there might be a small bit on -- binding on for the logistics. So I can't think that, that could be a number of any significance.

[Gavin John Darby, CEO & Executive Director]

And then the answer might surprise you, the answer to your second question or your first question was Lyons is a brand that -- and which we are kind of pulling away from and was massively down, and partly because it's not for the long-range -- long-term future or anything, partly because it was affected as we disproportionately supported our -- to the logistics difficulties our big brand. We -- smaller things like Lyons. And you heard some of that private labels up partly affected. So I'm looking at the math, and the math work. The might, you'd be surprised to hear. Lyons, I can't think of the difference.

[Operator]

And your next question comes from the line of Roland French.

[Roland French, Food Analyst]

I have a couple of questions, and I think most of my many questions were answered. Looks like it's maybe ticked down the list. And just firstly, a little bit of color, perhaps, on the performance of the brand below the top 5. I know you alluded to some of them, but -- and to those that you haven't referenced, just a little bit more color on that. And secondly, are you seeing or are you expecting to see any changes in order patterns in terms of your -- the retail customers ahead of Brexit, both the U.K. and the international channel? And then finally, just a little bit, kind of digging into your comment on the international exporters. I understand the change in pricing. Just want to get -- do you have a sense as to what the volumes that were returning back into the U.K. are or were and potentially kind of sales and margin benefit, if you could push a little bit of your guidance around that?

[Gavin John Darby, CEO & Executive Director]

Roland, yes, I'll do those 3. Below the top 5, and the top 5 account for maybe 60% of the -- of our overall business, brands like OXO where, I mean, we're kind of in the range -- slight -- fractionally up. So there's no big issues. And if you look below the top 5, they were up a little bit. And Angel Delight was plus 7%; and McDougalls flour, which I believe was up middle-single digits. So there's a number of other brands. And in fact, if you look at the profile, if you think about Premier 4 or 5 years ago, we used to have a huge tail of brands in serious decline, and some of those brands like McDougalls and Angel Delight were a part of that. So they're kind of more either flat or up now. In the spirit of our usual transparency, the hardest category that we operate in is the cooking sauce category. We've talked about that a lot, Roland, as you know. So that category is a challenge category for everybody. If you look at the Dolmio, the brand leader of Mars, if you look at all the branded players and even the private label players. So that's where we've still got more work to do. In terms of all the patterns, you're thinking Brexit's not due in the next few weeks. Well, one of the reasons -- I mean, I -- there may be some upsize in the Republic And I wouldn't be surprised if as we go step into the white, if some of our customers, we haven't called that, by the way, in our plans. We've called it the manufacturing. But -- so there may be some upsize within -- with one of the biggest retailers with the CEO in Dublin just last week. So we're all ready for that. There's a lot of planning there. And we've taken some of the investments in to some warehousing space in the Republic doing that -- to facilitate that if we -- if that happens in February and March. So we haven't called it. We haven't seen it to be care -- to be clear, but we're planning for it. The U.K. retailers were in kind of very significant levels of dialogue about this. I haven't actually seen and I've not actually heard from the rest of the industry evidence yet that U.K. retailers are pulling stock off their supplies. I think the position that most of the U K. retailers are taking for Branded stock is they expect the companies like Premier to be in good shape and raise their stocks. And the retailers probably don't have the warehousing capacity in February and March if plan to take it anyway. So we -- I wouldn't expect to see significant increases in orders partly because of space and logistics. But the message from the U.K. retailers to that industry is you guys better build your stocks up and be ready and yield the ones that will hold it. And I think that's broadly the way it will play out. In terms of the last question on the U K. Exporters or the international wholesale exporters, as I kind of implied to Martin's question, that is the one area that is quite hard to quantify in terms of volume. I mean, there was some -- I'm very clear that the volume that we used to sell and revenue to those -- to that channel has gone down very materially and more materially than we've ever expected, to be candid, which is interesting. Quite how much of it comes back is harder to evaluate because it comes back into the -- you recover it in the U.K. cash and carries and the wholesaler sector in the U.K. in convenience and in the heart --in the Branded discount bargain stores and a bit and piece of it in U. K. multiples. But I would expect that the biggest benefit is actually a margin one, and that's even harder rather than to calculate. But it obviously makes no sense of my -- our U.K. business to be competing with international exporters. And if prices are more silent, and it grew that way, then they won't have to, and then we won't have to. So there is the benefit of this strategy I show you to the company. While it looks very painful for international, for one more quarter, as Alastair said, only this quarter because we kicked off the strategy in April last year. While it looks at least painful for our International business, it is net at the margin level, an important benefit to the company, quite how we -- it's challenging to quantify precisely, but I assure you, it is a net benefit.

[Operator]

And the next question comes from the line of [ Thomas Durain ].

[Unknown Analyst]

First of all, coming back on the International. If it wasn't for the International business, it seems like the group, overall, will be flat year-on-year. And you've tried to quantify the impact of the 2 effects. Instead of a minus 15% year-to-date for International, you will be more or less a plus 5%. So you already tried to do this exercise of quantifying how much those 2 would have. So I appreciate it's hard, but how much would come from the extra stock versus the price rise for the U.K. exporters out of this 20% impact?

[Gavin John Darby, CEO & Executive Director]

Well, as I think I've just said, the number that is actually crystal clear is the underlying number that you just picked up. If it wasn't for the 2 issues of Cadbury cake in the U.S. and the issue you just touched on, which is the exporters, the underlying number would be plus 5%. I think it's very -- it's difficult because I've just had to roll it to be absolutely precise about net, how much of that you recover in volume and disproportionately in margin in the U K. But I assure you, economically, net, the change in pricing strategy we've taken with those exporters is positive to the company. We wouldn't do it in the fashion we had if it wasn't the case.

[Alastair S. N. Murray, CFO & Executive Director]

And Gavin, if I could just jump in. I think maybe if the question was the relative importance of those 2 factors that we've pulled out, the -- they're both significant, but the big issue, the Australian cake issue was more significant in terms of the component of the miss out in the U.K. and direct wholesalers. It's probably sort of 2/3, 1/3, something like that.

[Unknown Analyst]

Okay. And then if I go back to the last financial year, where you posted 25% to 30% year-on-year growth in every quarter for international, if I try to restate those numbers, assuming some of the revenues were probably recognized too early, what will be that growth?

[Gavin John Darby, CEO & Executive Director]

Yes. We -- we're honest with those numbers. I mean, for the last 2 years, '16-'17 and '17-'18, the growth would have been in the mid-20s. So very significant. I mean, this is one of the questions that Martin was underlying -- I mean, Martin's questions. So '16, '17 and '17, '18. If you struck -- if you took out the U.K. wholesalers, the growth that came from them, all their contributions, just took it all out, and you would still have the Premier International revenue growth in the mid-20s. Mid-20%. Very strong growth. There's no -- and I think that's kind of where Martin was going earlier in his question, is when you get to these 2 issues, the Cadbury cake overstocks and the issue you've just come back to, it's crystal clear to us that there is good growth in international. And they are both one-time issues. And in terms of the way we cycle them, as I've said earlier, the wholesale, the price change was the 1st of April '18. So we get through that in the fourth quarter, 2 more months of it to go, and the Australia cake overstock is the same. We are now getting cake orders for Cadbury cake in the back end of the third quarter and into fourth quarter. So they're one-time events that we either have or are very close to cycling.

[Unknown Analyst]

Okay. And so on the Q4, you're expecting, obviously, strong growth. Sequentially, between Q3 and Q4, do you see growth? Or do you see -- Q3 is typically a very important quarter. So do you see growth? Or do you see stable numbers? Or what do you see then, Q4 going to Q3, like quarter-on-quarter?

[Alastair S. N. Murray, CFO & Executive Director]

Yes. Give me a minute, and I'll -- if you go and ask something else, I'll look up the answer to that, and I'll get back to you.

[Unknown Analyst]

Okay. Because, obviously, from my end, actually, Q4 last year being plus 34%. And so I try to understand, could we have a better Q4 than Q3, which would be a first? And...

[Gavin John Darby, CEO & Executive Director]

Yes, that was really the answer I gave earlier. I mean, International in Q4, we expect to be in double digits, and that will be double-digit growth. And that's, again, the strong Q4 that you rightly pointed out we had a year ago.

[Unknown Analyst]

And then last question on the logistics side. So how much extra cost was added to deliver the U.K. pies during Christmas?

[Gavin John Darby, CEO & Executive Director]

Alastair, why don't you go to that one?

[Alastair S. N. Murray, CFO & Executive Director]

Yes. So what -- I mean, the answer to that is, effectively, it is the extra cash exceptional costs that we've identified. So the kind of GBP 6 million to GBP 7 million. And that was to put in -- was to sort of support the challenges that we had in the logistics part of transformation. To go back to your previous question, in absolute terms, total international sales, Q4-on-Q3, as opposed to Q4-on-Q4, Q4-on-Q3 are substantially up, particularly in International -- the -- what we call the overseas business, i.e. excluding Ireland. And within that, the biggest downturn by a country, minus Australia, actually. And Q4 for Australia will be substantially ahead of any of the previous 3 quarters this financial year.

[Operator]

And your next question comes from the line of Ronan Clarke.

[Ronan Bernard Clarke, Research Analyst]

Likewise, you've answered most of my main questions, but I just want to go back to the logistics issue. Firstly, I guess, it's worth asking, any lessons to be learned? And in particular, I guess, if you're doing it again, would it not be better in January than for the closer to peak, in August or September? And then on the customer impact, those customers that pulled away, was it purely to do with logistics? Or could it have been maybe quid pro quo related to your pulling back from lower-value business before that?

[Gavin John Darby, CEO & Executive Director]

There are always lessons to be learned, Ronan, whenever you make a big change. I don't think really a lesson about timing, by the way, because we treated this on the 1st of September, which is, by definition, 4 months before Christmas. Easter is a huge peak for the cake business as well. So January would be only 3 months before the Easter peak. So I think timing, for various reasons, we didn't do it in August. We actually delayed it from the 1st of August to 1st of September to mitigate some issues that we were concerned about. So there are always lessons. I think the underlying course was to do with labor, and that is a broader U.K. economic issue. I mean, we -- the provider at XBL are the provider who now run this warehouse that saw -- had significant problems recruiting in that period and significant problems in terms of retention and of the new workforce in the new warehouse. And that is an issue across the whole logistics supply chain, and it's an issue across the U.K. economy in terms sentry labor and all those good things that you know about. So -- and quite a large proportion of the workforce out from the -- for Brexit and the European Union, particularly from Hungary, Ireland, Romania. And those colleagues are, for other reasons, rolled up Brexit-related issues much more mobile. So that was a root cause of it. That led to -- we were behind -- well, they were behind on recruitment. They were behind on retention. And that led to issues of productivity because if you haven't got people as trained as they need to be, and they're not staying in the fashion that they would normally do, then you get some productivity -- big hits in productivity. So that's where all the learnings were. In terms of why people pulled away on private label, now I mean -- to be restatedly clear, there was an underlying -- there were some underlying, nothing to do with logistics, commercial decisions we made before on customers. We gave customers our time in September and October. We made some underlying decisions about private label -- some private label cake contracts. They were well in advancing to logistics, as -- which you've pointed out to me yesterday, our private label cake business was up nearly 20% by 17%, I think, a year ago. So these tend to be a very contractual line of contracts and tend to kind of ebb and flow as they are a kind of economically quite tough piece of business. So one component is the fact that we've pulled away for some business. And that's the right thing to do because we've got very strict, more Branded business predominantly, very strict financial growth criteria for the private part that we do. And then the second component, as I've described earlier, was when we were struggling in, particularly in October and November, 2 of the retailers due sourced for that period. And that was absolutely related to our service levels from the new warehouse for that period.

[Ronan Bernard Clarke, Research Analyst]

Okay. All right. And also, just to add as well, Gavin, best wishes to the future, and many thanks for all your help and your time.

[Gavin John Darby, CEO & Executive Director]

Thank you for that. Good. Any other questions as we're coming up towards the top of the hour? One more and...

[Operator]

Yes, we do have one more question, and it comes from the line of [ Connor Lovell ].

[Unknown Analyst]

Yes, just a quick question about the potential Ambrosia sale. How important -- how was that going? And also, how important is that towards hitting your net debt target?

[Gavin John Darby, CEO & Executive Director]

It's not part of pushing our net debt target at all. So the ongoing existing business is the business that will deliver our net debt to the ratio of below 3 by March 20. So no impact at all. So it happened. We'd just be on top of that. We're looking at one of the -- and on the deal, it would obviously step that ratio down even faster than we have forecast. In terms of where we are, I mean, it's ongoing. We really have no comment. It's -- the process is under way. They're fully engaged with some third parties, as you would hope. And we'll, as we said, write back to you in November when we shared it with you, which is very early in the process, I may think, in November. Very early in the process. We'll update you when we have news.

[Operator]

There are no further questions. Please continue.

[Gavin John Darby, CEO & Executive Director]

Very good. So I think that's 55 minutes. Thank you all. And if you have any follow-up questions, you know where we are, and have a good day.

[Operator]

Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you all for participating. You may now disconnect. Have a good day.