b) Evaluate how Premier foods working capital management impact on its operating cash flow, using examples from the 2020/2019 financial statements. (6 marks)

Operating and financial review CONTINUED 2019/20 2018/19 Free cash flow m Statutory cash flow statement Cash generated from operating activities Cash used in investing activities Cash generated from/(used in) financing activities Net increase in cash & cash equivalents 85.9 (18.0) 57.7 (17.7) 82.2 150.1 (35.8) 4.2 On a statutory basis, cash generated from operations was 121.5m compared to 80.2m in 2018/19. Cash generated from operating activities was 85.9m after deducting net interest paid of 35.6m. Cash generated from financing activities was 82.2m in 2019/20 versus (35.8m) cash used in the prior year. This was largely due to the prudent decision by the Group to draw down 85m of its 176.6m committed revolving credit facility in light of events associated with COVID-19. The Group reported an inflow of Free cash in the period of 65.1m. Trading profit of 132.6m was ahead of the prior year for the reasons outlined above, while depreciation of 19.9m was 2.6m higher as operating leases are now treated as an asset following the adoption of IFRS 16. Other non-cash items of 1.7m was predominantly due to share based payments. Net interest paid of 35.6m was 5.5m higher than the prior year, but this was due to the later timing of the first interest payment on the Group's 300m fixed rate notes, which were issued in the first half of last year. As with the prior year period, no taxation was paid in the period due to the availability of brought forward losses and capital allowances Capital expenditure was 18.Om in the period, slightly higher than the prior year. One of the key projects in the year was the completion of a line at its Stoke cake manufacturing site which will provide enhanced and varied product innovation capabilities. In 2020/21, the Group expects to increase its capital expenditure to circa 25m to fund investment in both growth projects supporting the Group's innovation strategy and cost release projects to deliver efficiency savings. A working capital inflow of 14.6m in the year compared to an outflow of 7.7m in 2018/19. This reflected lower stock holding levels at the year end as the Group experienced higher than expected demand from its retail customers in the final three weeks of the financial year due to impacts associated with COVID-19. Non-trading items of 6.6m were paid in the year and reflect the cash impact of the final tranche of the Group's logistics transformation programme costs, costs associated with the Group's strategic review and cash outflows relating to the departure of previous senior management. In the prior year the Group received a partial repayment of its loan note and associated interest from Hovis of 7.6m. Net debt and sources of finance Net debt at 28 March 2020 was 429.6m, a reduction of 40.3m compared to the previous year, and after including the impact of reflecting IFRS 16 which included 21.5m in reported Net debt which is not in the comparative year. On a pre-IFRS 16 basis, Net debt was 408.1m which represents a reduction of 61.8m compared to the prior year. Free cash inflow in the period was 65.1m and the movement in debt issuance costs was 3.3m. its loan note and associated interest from HOVIS OT E7.bm. Net debt and sources of finance Net debt at 28 March 2020 was 429.6m, a reduction of 40.3m compared to the previous year, and after including the impact of reflecting IFRS 16 which included 21.5m in reported Net debt which is not in the comparative year. On a pre-IFRS 16 basis, Net debt was 408.1m which represents a reduction of 61.8m compared to the prior year. Free cash inflow in the period was 65.1m and the movement in debt issuance costs was 3.3m. m outlined above, while depreciation of 19.9m was 2.6m higher as operating leases are now treated as an asset following the adoption of IFRS 16. Other non-cash items of 1.7m was predominantly due to share based payments. Net interest paid of 35.6m was 5.5m higher than the prior year, but this was due to the later timing of the first interest payment on the Group's 300m fixed rate notes, which were issued in the first half of last year. As with the prior year period, no taxation was paid in the period due to the availability of brought forward losses and capital allowances. 2019/20 2018/19 Trading profit 132.6 128.5 Depreciation 19.9 17.0 Other non-cash items 1.7 2.4 Interest (35.6) (30.1) Pension contributions (44.7) Capital expenditure (18.0) (17.7) Working capital & other 14.6 (7.7) Non-trading items (6.6) (18.1) Proceeds from share issue 1.1 1.4. Sale of property, plant & equipment 0.1 Hovis repayment of loan note 7.6 Financing fees (12.2) Free cash flow 10 65.1 29.2 There were no changes to the Group's lending facilities or its issued Senior Secured Notes in the period. At 28 March 2020, the Group held cash and bank deposits of 177.9m. This included 85m of drawings against the Group's 176.6m committed revolving credit facility. (41.9) Net debt at 30 March 2019 Free cash inflow in year Movement in debt issuance costs Net debt pre-IFRS 16 Leases IFRS 16 Leases Net debt at 28 March 2020 Adjusted EBITDA Net debt / EBITDA Adjusted EBITDA (pre-IFRS 16) Net debt/EBITDA (pre-IFRS 16) m 469.9 (65.1) 3.3 408.1 21.5 429.6 152.5 2.82x 149.9 2.72x Pension contributions in the period were 44.7m; 2.8m higher than 2018/19 due to the previously agreed planned increases in deficit contribution payments to the Premier Foods pension scheme. Pension deficit contributions payments made to the Premier Foods pension schemes of 38.2m were the largest component of cash paid in the year; the balance being expenses connected to administering both the RHM and Premier Foods schemes and government levies. As previously announced, pensions administrative costs in 2020/21 are expected to reduce by 4m to 4-6m. On a pre-IFRS 16 Leases basis, Net debt / EBITDA was 2.72x, which was comfortably ahead of the Group's target of 3.0x by March 2020. On a reported basis, Net debt / EBITDA was 2.82x. Under the Group's financing documents with its bank lending group, the Company is restricted from making a distribution to shareholders until its Net debt / EBITDA ratio is less than 3.0x. The definition of this ratio is slightly different to the reported ratio, the main difference includes adding back the Group's invoice discounting facility of 30m to Net debt