Well, good morning, everybody, and welcome to Premier Foods half- year results, and that's for the 26 weeks that ended on 1 October this year. As always, I'm joined by our CFO, Duncan Leggett. In a moment, Duncan will take us through the numbers, and then I'll walk us through the progress against our five-pillar growth strategy. Before that, I'll just walk through a few of the highlights of the first half of the year. I'm pleased to say that quarter two continued the momentum that we had from quarter one. In fact, if anything, quarter two was slightly stronger than quarter one, and we finished the half with top line growth of 6.2%.
The brands grew strongly at 3.9%, and I think what we're seeing here is that our consumer proposition and our strong brands are particularly relevant in the current environment. Trading profit was up 6.2%, so you can see that's in line with revenue growth and obviously therefore we've managed to recover input cost pressures through a combination of cost savings and also through price increases. Adjusted PBT at +11.9% is obviously the flow through of trading profit into adjusted PBT, plus of course a lot lower interest payments since we refinanced the business about a year or so ago. Net debt to EBITDA fell by 0.1 times, but bear in mind that is after paying for the Spice Tailor.
Another way to think about that is that we've essentially paid for The Spice Tailor with one year's cash generation. With that strong quarter and good momentum going into the second half, we're saying today that we remain on track for delivering full year expectations. Now, as well as that strong financial performance, we've also made good progress against all 5 of the pillars of our strategic growth plan. On that first pillar of growing the U.K. core business, and we've now got an average three-year branded growth of 5%. We've continued to invest in infrastructure and that's with the intent of improving automation and efficiency, and there's a couple of examples of that I'll go through a little later.
We've continued to expand our brands outside of their core categories into adjacent categories. They're admittedly from a small base, but we've more than doubled our revenue generated from new categories compared to a year ago. Then our international business has continued to perform very well with again, double-digit growth, 11% growth in the first half of the year and continuing to build those international overseas businesses to critical mass. Then the fifth growth pillar, so inorganic opportunities where we've talked about this theoretically before, you know, for the first time now, we've got a real example having acquired The Spice Tailor in the last six months. We've also continued to make good progress delivering on our ESG strategy, and I'll come back to that in more detail in a little while.
Before I do that, I'm just gonna hand over to Duncan, who will take us through the numbers.
Thank you very much, Alex, and good morning, everyone. I'm gonna spend the next few minutes talking through the financial highlights of the first half, and I'll start with the group headline results. Just as a reminder, these exclude Spice Tailor results. Obviously, we've only owned it for one month. At total revenue perspective, Alex has just mentioned, strong growth up at 6.2%, and really good to see good contribution from our branded business at growing just under 4% at 3.9%. This is really the benefits of the branded growth model flowing through. Non-branded business has performed strongly. That's up 22.8%. There's a number of factors actually contributing to this, and I'll come onto these shortly.
Moving further down the P&L, you can see our strategy of dealing with input cost inflation, so that being cost savings and efficiency programs to offset what we can and then using pricing where we need to. You can see that playing through pretty well. Gross margins are flat to prior year and divisional contribution is up 8.4% to GBP 83 million. Group and corporate costs are a bit higher this year. We've obviously got inflation in there. We continue to invest behind strategic roles and there's a prior year credit in the base. Where does that leave trading profit? At GBP 57 million, that's 6.2% higher year-on-year and trading profit margins flat. How does this look at a divisional basis? Well, I'll start with grocery.
As a reminder, this includes our international business, which has grown 11% in the half. That continues yet another period of double-digit growth. Total revenue is up 6.7% and again, particularly pleasing branded growth of 4.6%. As well as pricing, we've got strong growth from a number of our brands, including cooking sauces. Looking at non-branded, that's up nearly 20% and again, as a reminder, in our grocery business, particularly, a lot of our non-branded business is out of home and business to business. What we're seeing here really are volumes recovering back to more pre-pandemic levels. A lot of that is driving the growth, plus an additional bit of pricing on our existing contracts. Further down the P&L, divisional contribution is up 9.2%.
That's after investing a bit more in marketing half year on half year and what's been a particularly good half in terms of our cost savings and efficiency programs, particularly in our grocery supply chain. A similar overall picture with Sweet Treats. Total revenue is up 5.1% and again, the brands are in growth up just over 2%. As well as pricing in there, we have seen lower promotional volumes during the half, but really pleased to have launched a range of Deliciously Good cakes, which is our first full range of non-HFSS cakes and Alex will talk about those shortly. Non-branded again has performed well. That's up 35.8%. Now, there is a bit of pricing on existing contracts there, but the vast majority of this growth is coming from new contract wins into the group.
Once again, at profit level, margins holding pretty flat and divisional contribution is up 4.7% to GBP 13 million. Moving further down the P&L, interest is again down half year on half year. This continues to see the benefit of our refinancing that we did last year. As a reminder, we did the refinancing in June, so we had three months of last year at the higher rate of interest, and that's really driving the reduction half year on half year. That leaves adjusted PBT up 11.9% at GBP 47 million and adjusted earnings per share up 11.4% to 4.4p. Looking at net debt, as a reminder, our half year is the peak of our working capital cycle as we build stock for our all-important Christmas period.
You can see that in the working capital outflow there. CapEx of GBP 6 million, that very much continues to be H2-weighted. We paid our second consecutive dividend in the half. That was a 20% increase year-on-year. It was paid as a final dividend, and we intend to continue on a final dividend basis for the time being. That leaves on a like-for-like basis at net debt, just a touch higher than year-end and net debt to EBITDA in line. As Alex will talk about later, we're delighted to report The Spice Tailor in the period. Even after the acquisition of The Spice Tailor, net debt is only 2x, and importantly, lower than this time last year. I wanted to spend a couple of minutes on our financial resilience.
We've been talking about a medium-term leverage target of 1.5x for some time now. Actually at year-end, we're at 1.7x, so making good progress towards that target. We continue to be cash generative. Operating cash flow conversion remains strong. If you look at our capital structure, following our refinancing last year, not only do we have a substantially fixed rate of interest with our bonds at 3.5%, but we've got a good runway before we need to refinance. Our bonds have got another four years to run before they mature, and our RCF about another three years with another one year extension. Now, with currency movements quite topical over the last few months, just wanted to remind that we've got no direct exposure to the US dollar.
We have a modest net euro purchases of about EUR 50 million, and we continue to manage those in the way we always have, particularly utilizing forward contracts. We have no other material currency exposure. Pensions, you might remember that we're due an actuarial valuation dated March 2022. We hope to have that and be able to share that with you early next year. In terms of the progress that we have made, just a reminder that last year's Premier Foods actuarial valuation showed a significant reduction in the deficit of GBP 125 million, and that's about GBP 60 million on a net present value basis. The RHM scheme continues to perform really well, actually. We think it's probably about buyout level. We expect it to push through the buyout valuation level and continue to build a surplus.
We've got the Premier Foods scheme, which is making good progress by itself, and we'd expect that deficit to reduce. Quite a few things working in the right direction at the moment. I'm pleased to also be able to share there's been no adverse impact from the recent volatility and any LDI collateral calls. That's all been managed really well by the scheme. Of course, where we end up now is in a position where gilts are higher now than they were a few months ago, and all else being equal, that tends to be positive for our pension schemes. Final slide for me, just on guidance. Guiding to a working capital outflow, that very much relates to the impact of inflation, particularly on the value of our stock held.
Capital expenditure continues to be a very key area of our strategy. Alex will touch on this a bit more later regarding to CapEx of about GBP 13 million. As I said before, expect it to be very much H2-weighted, and it continues to be important that we invest in more year on year behind what are still remain to be very good payback projects. On that note, I will pass over to Alex.
Thank you very much, Duncan. What I'd like to do now is just remind us of that five pillar growth strategy, and then what we'll do is we'll go through each one in turn and look at progress. Over on the left-hand side, the first pillar of the growth strategy is continuing to build the U.K. core business, and that's obviously where our center of gravity is right now. Therefore, it's important that we continue to build that business, and that essentially provides the foundations for the rest of the growth pillars. The second growth pillar is investing back into our supply chain. We've obviously got a little bit more room for maneuver in terms of cash now in this respect, and that allows us to do two things, really.
Invest behind the capability to manufacture the new products that we bring to market. You'll be aware from our growth model that we rely quite heavily on new products to generate growth. The other thing is to invest behind new pieces of equipment that improve our efficiency, improve automation, and therefore that flows through into margins, which we can then invest back into generating growth behind the brands. The third growth pillar is about expanding into new categories. We're lucky to have these really well-known market leading brands, and they clearly have got potential to participate in categories outside of where they've historically been.
We've got a number of experiments currently underway that I'll give you some updates on in a few moments time. The fourth pillar is building our international businesses to critical mass. You'll remember we've got five focus geographies, and we now have three focus brands. The third brand now being The Spice Tailor. We've continued to make good progress there as well in the first half of the year. That fifth pillar is inorganic opportunities. Obviously, we've now bought The Spice Tailor, so from my mind, that's a perfect example of what we meant by bolt-on brand inorganic opportunities. We will continue to look for additional ideas that are similar to The Spice Tailor as we go forward.
Now, when we look across these five pillars, we see significant growth, and significant growth opportunities for the business over the forthcoming years, that goes way beyond what we can deliver from our existing brands in their existing categories in the U.K. Lots of future opportunity there. This is all guided by our purpose, enriching lives through food, together with our ESG strategy. What I'll do now is I'll go through the progress we've made against our ESG strategy, and then we'll come back and we'll walk through those, growth pillars and the progress we've made in the first half of the year. Starting then with ESG, you might remember we relaunched our ESG strategy just over a year ago and now has three pillars to it, products, planet, and people.
There's lots of progress that we've made over the year, but I've just pulled out a few examples to share here. Starting with products on the left-hand side, we're particularly pleased with the Deliciously Good range from Mr. Kipling. This is a new range of cakes that are not classified as HFSS under the government's nutritional profiling model. That's high fat, salt, and sugar. These cakes are lower in sugar, lower in fat, higher in fiber, and with more real fruit in them. These are performing really strongly since we brought them to market. They're part of an overall target, of course, to double the sales that we generate from products that meet high nutritional standards. The graph on the bottom left shows our progress on the percentage of plastics in our packaging that are recyclable.
It was at 48% in 2019, and we're now over 80%, and we've got a clear roadmap that gets us to 100%, by our target date of 2025. Looking at the planet pillar, for the first time in our annual report, we've calculated and published our full greenhouse gas emissions, and we've now submitted our targets for their reduction to the Science Based Targets initiative, pending their validation. Moving down, another thing we're very proud of, actually, is to be promoted to the top tier with the business benchmark on farm animal welfare. There are only three other companies in that top tier, so obviously we feel really pleased of what that says about our standards in that respect.
Then over on the right, in the people pillar, there's a lot of internal focus in the business now on mental health awareness, and we've completed training for almost all of the management population. Then the other thing we announced very recently was our new five-year partnership with our new corporate charity partner, which is FareShare. There's a very strong overlap between what FareShare wants to achieve and what we want to achieve through our ESG strategy in terms of fighting hunger and tackling food waste. One of the things that we've committed to do there, you might remember, is to donate 1 million meals a year to those in food poverty by the time we get to 2030.
In terms of external ratings, we're really pleased with the progress from Sustainalytics, who've just awarded us a four-point improvement versus our prior year standing. Overall, I think really good progress there and just a few examples of all the things that are happening in the business at the moment. With that, I'll move on to talk us through progress against each of the five growth pillars. The first growth pillar, which you'll remember, is about building and growing our U.K. business. You might remember that the heart of that is our branded growth model. There's four key elements to this. The first is the fact that we are lucky, as I say, to start with such strong brands. They're leaders in their categories. They've got high household penetration.
We also know that consumers have a really strong level of affection for the brands, which is really important. That on its own won't give us growth. The way we drive growth is by really understanding what our consumers are doing in terms of how they're cooking, how they're eating at home, and therefore what we can do to help them with that. That gives rise to our new product development pipeline. There's a key pillar of the way in which we drive growth within the business is that new products based on consumer understanding. The third element is supporting the brands through sustained marketing investment. We'll be increasing the level of marketing that we put behind the brands this year.
That's continuing to advertise them, continuing to put marketing campaigns behind them, which builds the brands, maintains awareness, and keeps them contemporary, and relevant to the consumer. Then the fourth but very important pillar of working closely with our retail partners. What we've realized over time here is that given that our brands have got such strong positions in their categories, by working closely in partnership with the retailers, in order to help them build their categories, we tend to benefit disproportionately and get great in-store execution. That remains an important pillar. When you put all four of those together, we've been able to deliver consistent, strong performance from the brands in the U.K.
In fact, if we look at that by looking at revenue generated in the first half of each of the last five years, you can see there's consistent progress there from bottom left to top right of that left-hand chart, with that very obvious peak in the middle, of course, during the pandemic, when we were all cooking and eating everything at home. In fact, if you look at the growth over the last three years, we actually have generated on average 5% growth from our brands in the U.K.
Another way to look at that would be that the brands are around 15% bigger than they were pre-pandemic. The majority of brands have continued to increase their market share as we've gone through the first half of the year, particularly in grocery, where we've seen particularly strong share gains from Ambrosia and Batchelors, Nissin and OXO. In Sweet Treats, we have lost a bit of share, and we see that as being temporary, given that that's linked to lower promotional volumes. Moving over to the chart on the right-hand side, it's also good that yet again, we're increasing the average number of products that we've got in distribution. What this is looking at is the number of products we've got and the number of stores that they're present in on a weighted basis.
A 92 basis points improvement in grocery just tells us we've got more products in more stores than we had a year ago. That big leap in Sweet Treats is really a reflection of the rollout of that Mr. Kipling Deliciously Good range, which is now going out to more and more retailers. Overall, continued good progress in increasing our distribution levels. Now, of course, given the brand and growth model that I've just talked you through, we of course brought a number of new products to market in the first half of the year. I've just put a few examples of them here, and I'll not go through them all other than to highlight some examples of that Deliciously Good range.
As you can see, from the images, you know, they might be not classified as high fat, salt and sugar, but they certainly look like Mr. Kipling tea cakes as you would expect them, and I can tell you they taste like Mr. Kipling cakes. The one I'd pull out as an example in grocery is the Batchelors Pasta and Sauce Chef Specials. This is really targeted on what we're seeing. We're seeing a lot of growth from Batchelors at the moment, which we believe is coming from two things. You know, people hybrid working and having more lunchtime occasions at home, and also, people using Batchelors to help put a decent but low-cost meal on the table for the family. This product is targeted against those occasions.
This year, we're continuing to support with TV and digital campaigns around those six major brands that we did in the prior year. Now, obviously, all that's been achieved against the background of a very difficult macroeconomic environment. If we start on the left-hand side, looking at input cost inflation, the input cost inflation that we've seen so far this year, we have covered by cost savings and price increases that have already been implemented, and you can see that in the steady margins that we've got versus year ago, so holding onto the same margins that we had last year.
We are seeing further inflation in half two, and we will continue to address that using a combination of measures, which includes forward contracts for commodities and energy where they exist, working really hard on cost efficiencies to minimize the overall impact and then increasing pricing where we need to. Just as a reminder, the group has no sales to or neither do we buy anything from either Russia or Ukraine. I also thought it would be useful if we talked about consumer behavior, particularly in the current environment. The one thing we're really seeing is that consumer budgets are increasingly stretched. At the same time, we're also looking at what we've got as a broad and affordable range of products in the store.
We're certainly at the lower end of cost of what you'll find in your average store. What we're also seeing is that consumers are using these products to put an affordable meal on the table for the family. I think the Homepride Pasta Bake I've got there is a perfect example where pasta might be more expensive than it was, but it's not in absolute terms, particularly expensive. With whatever leftovers you've got in your fridge, you can transform that into something really tasty and affordable with a Homepride Pasta Bake. I think that's one of the reasons why we're seeing such strong sales of Homepride at the moment.
We've actually also created a digital advertising campaign, which is designed to help consumers with recipes, just like that, which you can pull together, and make an affordable meal for less than GBP 1 per serving. We think in that context, we've got a brand portfolio that's well-placed to perform well. The other thing we're starting to see now is early evidence of people starting to eat out less. Earlier in the year, we were seeing a lot of consumers when we were doing our market research telling us that that was one of the ways they were intending to save money, as pressures on the purse increased. What we've seen over the last 6 to 8 weeks, we think is that that trend is actually now starting to become reality.
I think when you take those two key things into account, I think that's one of the key reasons why we're starting to see that our brands are still able to gain share in the current environment. Now, the second pillar is investing in our our manufacturing infrastructure to drive growth and efficiency. Along the left-hand side, you can see this little virtuous circle we've got, which is as we invest cash into our manufacturing operations, it makes us more efficient, it generates more margin. We invest that into the brands, which drives more growth and consequently, more cash generation. There's two nice examples here of things that we've installed in the first half of the year. The first one on the left is an automatic case packer at the end of one of the lines in our Stoke cake factory.
What that's doing is that automatically, you know, packing the products into the case at the end of the production line, so very quick and very efficient. Then the yellow robotic arm that you can see in the picture on the right-hand side is at the end of the Mr. Kipling French Fancies line in Carlton. What that's doing is it's stacking cases into a predetermined pattern onto a pallet. Again, very quick, very efficient, and then those pallets all get whisked off to the warehouse. I've used those two examples because I think that's where we see significant opportunity over the next few years in terms of making ourselves more efficient and increasing productivity, particularly within those cake factories. Now, the third growth pillar is new category launches.
Taking our well-known and well-loved brands into new categories where we historically don't derive any revenue. There's about five or six experiments happening here at the moment, and I've pulled out three, just as examples. On the left-hand side there, you've got OXO. This is OXO going into rubs and marinades, and we really like this because it's targeted at the summer season and targeted at barbecues, when if you think about it, the rest of the OXO range tends to be used in products largely that we'll eat when it's cooler. This helps to de-seasonalize the brand. We launched this in one customer two summers ago, and it did very well. We've worked again with that customer to expand the range for the last summer.
As you can see, that's delivered more than double the sales that it delivered in the summer before. Then over time, we'll look at how we then start to roll that out into other customers. In the middle there, you've got ice cream. You might remember we developed this ice cream range with Iceland, and these products are exclusively in Iceland at the moment. Mr. Kipling, Ambrosia, and Angel Delight ice cream tubs. I have to say, this has gone significantly better than we anticipated, and we now have a 16% market share of ice cream tubs in Iceland, and we're now their second-largest branded supplier of ice cream tubs.
We will continue to work closely with Iceland to develop that range and expand the performance further before at some point in the future looking at taking that out to other retailers. On the right-hand side, Ambrosia porridge, that's something that we've launched more broadly right from the get-go. This is really interesting because this takes us into a part of the day, into a meal occasion where we really have no other presence. If you think about it, our entire portfolio of products are really all eaten from lunchtime onwards, maybe mid-morning if you have a Mr. Kipling cake with your coffee. This takes us right into breakfast first thing in the morning. We've got a really super differentiated product. It's ready to eat. You don't have to add any water or any milk.
The reason we did that is because all the consumer feedback we were getting was telling us that we were able to deliver a much creamier, a much more delicious product. You can see on the bottom right-hand side there in that green circle the high levels of reviews we're getting online. That's 4.6 stars out of 5. I mean, in the first retailer we launched in, we've now achieved already an 11% market share. As I say, that's rolling out across most retailers now. If I move on to the fourth pillar, that's our international business and building our international sales. 11% growth in the first half of the year.
Standout performance, I would say, was Australia, which was up 22% and with a record-breaking market share for our cake business, extending our market leadership position in that category in Australia. Now with the acquisition of The Spice Tailor and also now the leading manufacturer in Indian cooking sauces in Australia as well. In Ireland, we've continued to grow strongly in the major retailers and standout performance has been Soba noodles. You'll remember, Soba noodles we launched into the quick meals and snacks category and is now growing by 80%. If we move across to Europe, the focus there, of course, is about expanding the distribution of Sharwood's. I'm very pleased to say that we've just gained distribution of Sharwood's in Jumbo, which is Netherlands' number two retailer and also in Carrefour, Spain.
In the United States, we've had really good performance from Sharwood's, growing by more than 50% in the first half, and that's really been around improved distribution and also the introduction of the healthier range. As you might remember, a couple of years ago, we launched a low-fat range into the U.K., where we've now rolled that out into the U.S. In parallel, we're running our test of Mr. Kipling in Target stores, in just over 200 Target stores. That's performing well, in line with our expectations at this stage. Moving on to Canada, of course, we finished our test of Mr. Kipling in Canada last year. We've made the changes to the proposition that we learned during the test, and we're also rolling out to more stores.
That's delivered 30% growth from Mr. Kipling in Canada in the first half. We're also really pleased to have delivered 30 listings of 30 new SKUs of both Sharwood's and The Spice Tailor into Walmart Canada. Obviously a major retailer in that market. Which brings me onto the fifth growth pillar, and that's the inorganic growth opportunities. Of course, since we last spoke, we've acquired The Spice Tailor. Why did we do that? Well, it's a great brand. It's got high growth. It's delivered 20% CAGR growth over the last 4 years. It's closely aligned to consumer trends of foodiness and convenience. You particularly see this. It's such a high-quality product. What we see is incredibly high levels of repeat purchase.
The number of people who try the brand enjoy it so much that they come back and buy it again and again. We always see that as a really good indication of a brand's potential. It's got an uncannily strong geographical fit with our business. The Spice Tailor’s biggest market is the U.K., and its second biggest is Australia, so exactly the same as us. It’s got an early presence in Canada and Ireland, which obviously we will now look to develop further. The brand's highly complementary to both Sharwood's and to Loyd Grossman being bought by different consumers with different consumer needs. Ultimately, what we see here is an opportunity for significant growth.
When I say significant growth, I'm not talking about making the brand another 20% or 30% bigger, but I'm talking about making it several times the size that it is now. How are we going to do that? Well, of course, we're going to do it through our branded growth model, so we will significantly accelerate the innovation rate using our NPD and R&D resources, and we'll increase investment, so marketing investment behind the brand, building awareness, household penetration, and trial. Then we'll work closely with our retail partners on distribution. Because if you look at the rate of sale in the U.K. and how well the brand sells, it in principle would warrant deeper distribution than it currently has.
Of course, we'll be working overseas to expand the brand within our focus overseas markets as well. Overall, we see potential here to make the brand significantly bigger than it is now. We'll increase some marketing investment behind the brand, but the underlying fixed costs of running the business will not change, or certainly not change significantly. Consequently, as the top line expands so dramatically, you can work out what will happen to overall profit delivery. It's an asset-light model. It's all co-manufactured in India, hence the authenticity of the product. The commercial team is currently being fully integrated into our established business model. That integration is fully on track. Moving on to look at H2.
Of course, given our model, we've got a great basket of new products that we're bringing to market. I won't run through all the examples that I've put on here, but probably just to pull out the Mr. Kipling Gooey Brownie Bites at the top left-hand corner, which by the way, absolutely delicious if you get a chance to try those. This is really a response to a trend we've seen post-pandemic, which is a trend towards small pieces of cake that people can share and that they can, you know, maybe sit and eat while on the sofa watching a movie or something. That's Mr. Kipling now gaining a presence in that growing subsegment of the cake category.
Over on the right, as I say, we'll continue to support with both TV and digital activation, those six core brands. Our plan is to increase investment versus what we spent a year ago. To wrap up from me, I think, you know, a strong H1 performance in a difficult environment, both in terms of revenue and in profit. I think that again tells us of the relevance of our consumer proposition within this current difficult market environment. We've made good progress on all five of our growth strategy levers. As you can see, we're navigating that difficult inflationary environment. As Duncan said, from a financial resilience point of view, we're working towards that 1.5 times leverage target.
We're financed largely by 3.5% fixed notes that are fixed all the way out to October 2026. They're giving us some protection from the current interest rate environment. I think, look, you know, we've got that strong half one under our belt. We've got good momentum going into half two. Obviously, we're now halfway through our quarter three, and I can tell you that we're having a good quarter three as well. With all that in mind, that's why we're able today to say that our expectations for the full year remain on track. Thank you very much for listening, and we'd now be very happy to take your questions. Thank you.
like to ask a question, please press star one on your telephone keypad. To withdraw your question from the queue, please press star two. Again, please press star one to ask a question. We will take the first question from Charles Hall from Peel Hunt.
Everyone, could we just start on the Sweet Treats, and obviously there's been a shift from brands to private label. Do you want to just more about your brand and how you're performing against brands compared to the overall market?
I'm really sorry, Charles, but we can't hear you.
Is that better?
Oh, that's dramatically better.
Excellent. Start again. I'm just asking about brand against private label and the overall category, and then commenting about your performance and so your branded market share. Just if you could comment about how you've seen whether you've seen any shift in the brand private label over the period and going into Q3, which obviously you said you started well.
Yeah. Thanks, Charles. Yes, it's a good question. Yeah, I mean, the good news is through the first half of the year, as I said before, our brands have continued to increase their market share. Obviously, there's been quite a lot written about people moving to private label. What's quite interesting, when we drill down into a number of our categories, we see that we're taking market share, but so are private label, which inevitably means there are other players in there that are clearly giving up some market share for that to happen. We think that's due to the strength of our brands, of course, the fact that we're continuing to support them with advertising and marketing.
We're continuing to innovate, and we're continuing to execute well in stores. I think that's all playing into that. Yes, you know, good start to quarter three. We've continued. If anything, grocery market share has strengthened during Q3. In fact, you know, the latest data we're looking at, the latest four-week data that we've just seen for partway through October, is about 100 basis points improvement on grocery. So, you know, it's an improving trend, if anything.
The area that you picked out that you'd seen a decline in market share was Sweet Treats, you'd mentioned that that was down to promotional activity. Is there any risk that private label takes more share in that market? Or the reality is that your increase in distribution points plus more promotional activity will counteract that in H2?
I don't think there's any more risk than any of our other categories, to be honest with you, Charles. You know, there is some shifts in promotional phasing. There's also some bedding in of new promotional price points. I think what's also encouraging, again, looking at the latest data we've got now over the last few weeks, the latest four-week data, Mr. Kipling's taking market share, again. That's all going in the right direction.
That's great. Thanks very much.
The next question comes from Nicola Mallard from Investec. Please go ahead.
Morning. Thank you very much. Could I just ask a question on the pension, Duncan, you mentioned about the RHM scheme was approaching a sort of a buyout level, but then you wanted to sort of take it further into surplus. Can you give us a sort of a, any guide as to where the buy or when the buyout might happen, at what point, you know? Are we two years down the road, or three years or four years? Thank you.
Sure. Morning, Nicola. Thanks very much for the question. Yeah, look, I think, you know, as I mentioned, we're waiting for the actuarial evaluation. So that's, we sort of need to see what comes out of that, and hopefully be able to share that, earlier in the new year. I think where we think the RHM scheme is, it's probably about buyout level, which is obviously where we want it to get to. Obviously the benefits of the merger that we announced a couple of years ago were all around increasing the surplus in the RHM scheme to help fund the Premier Foods scheme.
Clearly, the Premier Foods scheme is performing pretty well by itself, so we've got a bit of a reducing deficit on one side and an increasing surplus on the other side. Look, I think we need to see where the valuation ends up. This is our best view at the moment, but we obviously need to let valuation play through. Clearly, the longer we can all feel comfortable running the RHM scheme on, the bigger the surplus is and the bigger the potential for the reduction in the deficit contribution. I think that will very much be a sort of balancing act as we move forward.
Okay, great. Thank you.
The next question comes from Martin Deboo from Jefferies.
Yeah. Morning, guys. I had a similar question to Nicola, actually. Let me just push it a bit further. The answer you've just given on the pension would suggest you still see yourselves on course for the sort of buyout the RHM scheme model and inject the proceeds into the Premier deficit. I just wanna push you a bit further. Is there not an alternative option now in a climate of rising gilt yields to just let the deficit solve itself rather than pay a premium to an insurance company to buy out? Just where is the thinking of yourselves and the trustees on that? I have a second completely different question, which is, clearly some of the inflation has been covered by cost savings.
Are you quantifying the level of year-on-year cost savings the business is realizing? Those are the two questions.
Okay. Morning, Martin. Thanks very much for the questions. I mean, I'll take the pension one, and start off the cost savings one and then pass over to Alex, if there's anything that he wants to add. I mean, look, I think on pensions, the way we're thinking about it is yes, in the rising gilt environment, that's generally positive for the scheme, and in particular the Premier Foods scheme. But I think when we talk about buyout, clearly what we're trying to do, the longer we can keep running on the scheme, to your point, Martin, without physically buying out, then the bigger the surplus is.
The idea is that at a point in time in the future when you know when the surplus is big enough, there will be a buyout and the surplus will move to the Premier Foods scheme. Certainly not looking to you know buy out immediately. That would be what would happen in the absence of the merger. I think the beauty of the merger is that the RHM scheme continue to build a surplus without buying out and without paying that premium. Obviously that will benefit in improving Premier Foods's situation as well.
Cost savings?
Yeah, I mean, it isn't something that we're quantifying, Martin, but in terms of our overall approach to input costs, input cost recovery, as you heard us talk about earlier, the cost savings and efficiency programs are a really important part of it. Obviously we then use those to offset as much as we can before using pricing to offset any remainder. I think what we have done and what we have seen is a really good cost saving and efficiency program, particularly in our grocery supply chain in the half. That's definitely contributed to the performance of the grocery segment, and that's really around a number of areas.
To be honest, Martin, it's around sort of smart energy, so how can we reduce our energy usage, which is particularly important given the way prices are. Increasing line efficiencies, increasing labor utilization, which helps reduce waste as well on the line. There's a number of opportunities that we're looking at, but we're not splitting out costs.
Okay, thank you.
As a reminder, to ask a question, please press star one. We'll now take the next question from Clive Black from Shore Capital.
Yeah. Good morning, guys. Thanks for the presentation. Following on a little bit from Martin's question on your cost base, could you maybe just give us some color on how you see your labor process at the moment?
In terms of the availability of labor and maybe turnover also, you know, to what extent is automation a strategic desire of the business over the next three years in terms of labor participation? Then just secondly, it's nice to hear that The Spice Tailor’s all that it seems. But is that a particularly distinctive acquisition for Premier, or is it indicative of the sort of possibilities that are down the line on the acquisition front? Thank you.
Morning, Clive. Yeah, I'll pick those up. In terms of labor, I think, if you look at where the majority of our labor sits, of course, in our manufacturing sites, we have tended to have colleagues with quite long tenures in the business.
Mm.
They're fairly skilled jobs, particularly on the grocery side, where we are pretty automated. That's given us some protection, if you like, from the current labor market challenges. The fact that people have been there a long time, they tend to stay there. The fact that, you know, we're not fishing in that pool of very low-skilled labor 'cause these are actually quite technical jobs these days. It's certainly been more challenging than historically, but it's not been a major problem, I think is probably the way to think about it. In terms of further automation, I would say yes, and particularly therefore on the cake sides because the grocery sides are fairly automated already.
On the Sweet Treats side of things, there are remaining opportunities over the next few years where we can invest in more modern kit, in automating things which are currently manual, like the examples I gave earlier, putting automatic case packers on the end of lines and things like that. There's definitely opportunity in that area that we're pursuing quite aggressively. If I move on to The Spice Tailor, yeah, I think it's indicative actually. You know, when we were talking hypothetically about the sorts of things we might be interested in, and we talked about bolt-on acquisitions of brands which could offer high growth, and where our branded growth model would work in our view very well.
I think Spice Tailor is a perfect example of that, and it even gives us some geographical expansion as well into our focus market, so it was almost a perfect fit. I would say-
Mm.
On that basis, it's indicative.
Thank you, Alex. Just to come back on labor, do you see automation running at a reasonably constant level or recent level as part of your capital expenditure? What sort of payback do you tend to get on that automation?
Yeah, I mean, it's something we, you know, we expect to continue to drive over the next few years if anything possibly increased. You know, some of the challenges being availability and lead times on the equipment right now, which is a challenge in many things at the moment, isn't it? But yes, and still really good payback periods. You might remember, you know, when we were more capital constrained, we would have a shopping list for each of the manufacturing sites of things we'd like to do with really quite nice paybacks.
Yeah.
We could only go so far down the list.
Mm.
I think, you know, our cash position now allows us to go a bit further down the list, and so we're still looking at, you know, many projects with paybacks, you know, around three years. Still pretty healthy.
Cool. Really helpful. Thank you, guys. Welcome.
Thanks. Thanks, guys.
We will now take a follow-up question from Martin Deboo from Jefferies. Please go ahead.
Hello again, gents. I've got another one. I'm following up again, this time on Clive on M&A. I just wanted to try and understand how this looks going forward using Spice Tailor as the sort of the analogy. What's in my mind is you seem to me to be quite sensibly buying in high-growth, innovative assets that, you know, would be difficult to create in-house. The challenge that Unilever and others have struggled with when they do that is keeping the entrepreneurial spirit alive when it comes into the big corporate. You mentioned on Spice Tailor, I heard that the outsourced manufacturing in India has stayed, and you brought the commercial team into the business. I'd imagine the founders, I don't know, tell me, may have gone.
Just how, given that there's gonna be more of this going forward, how do you find the balance between capturing the synergy but keeping the talent, I think is the question.
No, yeah. Thanks for that. It's a really good question actually, 'cause it's something we spent a lot of time thinking about before we went ahead with this. How do you keep the magic that got the brand to where it is?
Yeah, very good phrase, Alex. Yeah. Yeah.
Yeah. We see you know and we go into this you know humbly without arrogance because you know we don't want to break what's something that's working really well. I think a lot of the magic here is actually in the product. It goes back to what I said earlier is that there is a really fantastic repeat purchase rate that comes from the fact that the products are just absolutely amazing. For that reason, we still have Anjum, the original developer of the products as almost like a consultant chef in the development of the NPD pipeline because we felt that was really important to keep that magic.
Now, on the commercial side, we think we can bring a lot to the party because there were lots of opportunities that the Spice Tailor had as a brand and has, but which didn't have the scale to unlock. I think we can bring faster geographical expansion. We can bring a more intensive NPD program. We've got, obviously, a much bigger sales organization that we can interface with the retailers with. I think we've got higher levels of sophistication in the way in which we analyze promotional activity and use that to plan promotional plans. I think there's a lot we can bring to the table commercially here. The magic is in retaining the recipe quality. Yeah, we've given it a lot of thought.
Okay, thank you.
We will now take a follow-up question from Charles Hall from Peel Hunt.
Thanks. Can I just ask about the international side where the momentum continues to be really good and particularly in Europe what seems to be getting critical mass in a number of countries. Is this just a culmination of the strategy coming through? Are you putting more effort into it? Is there now an opportunity for international to be an even bigger contributor to overall growth in the business?
Yeah, thanks, Charles. I think absolutely, yes. This is the strategy playing out. You might remember, I mean, if we go back to when Duncan and I both came into our roles, we had a big question as to whether the international business we've got was a distraction or not. You might remember, you know, we did the review of that and decided that actually it could be quite an interesting growth driver. The strategy that we put in place at the time has really played through. I think, you know, the international business now is about 40% bigger than when we first started re-looking at it.
If you look at what's driven the growth, it is purely the delivery of that strategy, which you might remember at the beginning, I said a lot of this is just getting the basics right. Have I got the right products in the right stores, on the right shelf, at the right price with the right promotional activity? Which, you know, not the most exciting stuff in the world, but it's the nuts and bolts that make it work. If I, for example, look at the great performance that we're getting on cake in Australia, literally just a case of getting the execution spot on and focusing, you know, focusing on a limited number of markets, focusing on a limited number of brands. You know, we're very happy. This is the strategy playing through.
I think, you know, can it play a bigger role in terms of growth? It depends what you mean bigger than what. I mean, it's certainly bigger than it's playing now, yes, as it gains more critical mass and the growth rates continue. Actually, you know, this is in line with what we always anticipated.
You've got more SKUs now across a broader range of customers. Are you getting to a stage where you can have much more of a Premier conversation with the retailers, or is it still product by product?
We're getting there. I think, I mean, if we park Ireland for a minute, because obviously we've got a full range there and have been there for a long time. I think with the acquisition of The Spice Tailor in Australia, it starts to become more of a premier conversation, because we then have overall leadership of, if you like, of Indian sauces, and we've got leadership of cake. That starts to become a more premier conversation. Not yet at that stage in North America.
That's great. Thanks.
That's a final reminder. To ask a question, please press star one.
Well, thank you, everybody, for listening, and thank you very much for all the questions. As you can see, I think, you know, we're in pretty good shape. Good quarter, a good H1 under the belt, and a nice start to Q3. You know, feeling pretty positive about the full year. Thanks very much. Thanks, all.