Download Half Year Sept 07 £`m

DAIRY CREST GROUP PLC
INTERIM RESULTS
For the period ended 30 September 2007
1
Key Highlights
• Successful first half as reshaped business continues to grow:
- good growth from key pillar brands including Cathedral City,
Utterly Butterly, Country Life Spreadable, St Hubert Omega 3 and
Petits Filous
- new healthier variants of key brands performing well
- encouraging early results from trials of our new internet based
doorstep delivery service ‘milk&more’
• Strong performance from St Hubert, as first step into Europe, with
market share gains in France
• Clover performance improving following product recall in May
• Price increases being implemented to reflect rising raw milk costs
• Investment in new, highly automated, cheese packing facility at
Nuneaton
2
Financial Review
Alastair Murray
3
Financial Highlights
• Group Revenue up 29% to £761.4m (2006: £588.6m)
• Adjusted profit before tax* up 21% to £37.1m (2006: £30.6m)
• Adjusted earnings per share* up 22% to 22.2p (2006: 18.2p)
• Interim dividend up 6% to 7.1p (2006: 6.7p)
• Net debt £458.5m (2006: £329.0m)
* Before exceptional items and amortisation of acquired intangibles
4
Income Statement
Year £’m
Mar 07
80.0
(19.2)
Profit on operations*
Finance costs
Half year
Sept 07
Half Year
Sept 06
42.2
32.0
(13.0)
(9.0)
9.5
Other finance income: pensions
4.8
4.7
7.1
Share of JV net profit
3.1
2.9
77.4
Adjusted profit before tax*
37.1
30.6
(10.1)
Exceptional items
(2.4)
(0.2)
(2.7)
Amortisation of acquired intangibles
(4.1)
(0.6)
64.6
Profit before tax
30.6
29.8
(11.3)
Taxation
(3.7)
(7.5)
(4.1)
Discontinued operations
-
(2.9)
49.2
Group profit after tax
26.9
19.4
* Before exceptional items and amortisation of acquired intangibles
5
Exceptional Items
£’m
Half Year Sep 07
Cash
Non Cash
Total
Express integration
(5.0)
-
(5.0)
Totnes Closure
(2.4)
(1.7)
(4.1)
6.7
-
6.7
(0.7)
(1.7)
(2.4)
Westway property profit
6
Earnings and Dividends
Year
Mar 07
Pence per share
Half Year Half Year
Sept 07
Sept 06
Change
48.7
Adjusted basic EPS
22.2
18.2
+22%
41.7
Basic EPS
20.3
17.8
+14%
22.9
Dividend declared
7.1
6.7
+6%
127.2
Shares in issue: m
132.2
124.8
7
Segmental Analysis
Year
Mar 07
£’m
Half Year
Sept 07
Half Year
Sept 06
Revenue
381.3
Foods excl JV
248.8
165.9
68.5
Share of JV
34.9
34.0
449.8
Foods
283.7
199.9
928.0
Dairies
512.6
422.7
Total
796.3
622.6
1,377.8
Profit on operations *
52.9
Foods excl JV
28.7
24.7
7.1
Share of JV (post tax)
3.1
2.9
60.0
Foods
31.8
27.6
27.1
Dairies
13.5
7.3
87.1
Total
45.3
34.9
* Before exceptional items and amortisation of acquired intangibles
8
Operating Margin*
Year
Mar 07
%
Half year
Sept 07
Half Year
Sept 06
13.9%
Foods excl JV
11.5%
14.9%
13.3%
Foods incl JV (post tax)
11.2%
13.8%
2.9%
Dairies
2.6%
1.7%
6.3%
Group
5.7%
5.6%
* Before exceptional items and amortisation of acquired intangibles
9
Balance Sheet
Year
Mar 07
£’m
879.2
(85.1)
Half Year
Sept 07
Half Year
Sept 06
Net operating assets
873.2
605.8
Tax
(79.2)
(23.4)
794.0
582.4
(458.5)
(329.0)
794.1
(451.0)
Net debt
343.1
Net assets employed
335.5
253.4
131%
Gearing
137%
130%
10
Operating Cash Flow
Year
Mar 07
£’m
Half Year
Sept 07
Half Year
Sept 06
80.0
Adjusted profit on operations*
42.2
32.0
40.2
Depreciation and amortisation**
19.6
19.5
(3.1)
Exceptional items
(7.4)
(0.2)
(15.2)
Pensions
(4.9)
(1.8)
(4.9)
Other ***
(2.7)
(4.0)
(2.8)
Working capital
(10.0)
(21.1)
94.2
Operating cash flow
36.8
24.4
* Before exceptional items and amortisation of acquired intangibles
** Net of grant amortisation
*** Operating property profits and share based payments charges
11
Cash Flow
Year
Mar 07
94.2
£’m
Operating cash flow
Half Year
Sept 07
Half Year
Sept 06
36.8
24.4
(36.3)
Capital expenditure (net of grants)
(14.2)
(18.8)
(49.1)
Interest, tax and dividends
(35.7)
(26.1)
8.9
Dividends received from JV
2.4
2.8
(0.6)
(37.5)
(293.3)
Acquisitions
58.3
Disposal of business
-
-
9.7
Disposals of assets
11.3
5.9
36.8
Equity placing, exchange & other
(7.5)
0.5
Movement in net debt
(7.5)
(48.8)
(170.8)
Net debt at 31 March 2007
(451.0)
Net debt at 30 September 2007
(458.5)
12
Pensions Summary
• Full actuarial valuation as at 31 March 2007 progressing to plan
- actuarial assumptions agreed and reflected in Sept 2007 valuation
- future funding discussions ongoing
• IAS19 gross deficit at 30 September 2007 of £11.1m
- £10.7m increase since March 2007
- based on more prudent life expectancy assumptions
• Additional cash contributions of £12.0m committed in 2007/08
13
Business Review
Mark Allen
14
Milk Price Increases
• Unprecedented upward movement in milk prices in 2007/08
- worldwide demand for dairy products increasing
- shortages in UK milk production
• Significant impact on cost base
- other input costs are also rising (e.g. vegetable oil and HDPE)
Contract
2007
Liquid
Cheese
Per litre
Cum
Change
Per litre
Cum
Change
November
25.0
+ 6.5p
25.3p
+6.6p
October
25.0
+6.5p
24.6p
September
21.5
+3.0p
21.7p
+3.0p
August
19.5p
+1.0p
19.7p
+1.0p
July
18.9p
+0.4p
19.1p
+0.4p
April
18.5p
35%
Source: Milkprices.com, cheese prices are based on Davidstow contract
35%
+5.9p
18.7p
15
Price Increases
• Higher ingredients realisations
- SMP, cream, butter and whey
• Dairy Crest has achieved or is implementing significant price
increases across most categories to reflect uplift in input costs
- Fresh milk: retail milk, middle ground and doorstep
- Potted cream
- Cheese: Cathedral City and retailer branded cheddar
- Packet Butter: Country Life and retailer brand butter
- Spreads
16
UK Spreads
• Strong growth from Utterly Butterly with sales up 18% by value
- Omega 3 launched in August 2007
- increased overall market share in dairy spreads with volumes up 9%
• Clover impacted by product recall in May with sales down 17% by value
- factory improvements have constrained promotional activity
- materially impacted performance of UK spreads
• Country Life Spreadable performing well with sales up 25% by value
- early performance of Lighter variant has been encouraging
- offset by Country Life packet butter with sales down 10% by value
• Price increases on packet butter and spreads
to offset higher cream and vegetable oil costs
• Focus on delivering improved performance
for 2008/09
17
St Hubert
• Overall performance in line with our expectations
- sales up 4% over six months to September 2006
- increased market share of French spreads to 35%
• Continued strong growth from Omega 3 up 16% by value
- number one brand variant in French spreads
• Stabilised position of St Hubert 41
- increase in marketing and promotional activity
• Vallé performing well in Italy with sales up 3% by value
18
St Hubert Omega 3: No.1 brand
France – spreads market share evolution
20.0
18.0
18.2
16.0
15.3
14.0
%
14.0
11.8
12.0
9.7
10.0
8.3
8.0
6.0
6.0
4.0
Sep-04
Jan-05
May-05
SH Omega 3
Source: IRI (by value)
Sep-05
Fr D'Or Pro Activ
Jan-06
Primevere
May-06
Fr D'Or
Sep-06
Jan-07
Planta Fin
May-07
SH 41
Sep-07
Le Fleurier
19
Cheese
• Strong growth from Cathedral City with sales up 23% by value
- £148m brand at retail sales price
• Cathedral City Lighter (launched February 2007) performing well
- Mild and Lighter - over 10% of Cathedral City sales in H1
• Strong Davidstow growth with sales up 22% by value
• Whey market has declined since summer
• H2 performance expected to benefit from price increases
- tighter industry stock levels
• Investment in Nuneaton cheese packing site
- project cost c. £25 million
- initial packing capacity c. 33,000 tonnes
- first commercial production early 2009
20
Yoplait Dairy Crest
• Maintains leading position in children's sector with
market share back over 50%
• Overall Yoplait brand sales up 7% by value
• Petits Filous and Frubes returned to strong growth
- Petits Filous up 24% by value
- Frubes up 16% by value
- increased promotional and marketing activity with
emphasis on Vitamin D and Calcium
• Yop up 14% by value
• Weight Watchers and Wildlife down slightly against
strong comparators last year
21
Liquid Products and Ingredients
• Retail milk volumes up 6% by value and 2% by volume
- retained as key supplier to Morrisons
• Continued focus on operational cost base
- Totnes closed in September 2007
• Frijj margins enhanced through price increases and
lower promotional activity
- sales down 1% by value
• Flavoured milk sales up 43% by value and potted cream
sales up 18% by value
• Strong realisations in dairy ingredients
- lower than expected milk volumes processed
through ingredients
22
Household
• Overall household volumes up 38% year on year
-
benefit of inclusion of Express Dairies in H1
• Non-milk product sales up by 20%
• Underlying doorstep net decline improved to below 7%
• On track with Express Dairies integration
-
Leicester head office now effectively closed
• Significant price increases achieved in the middle ground
• Doorstep price increase of 4 pence per pint successfully
implemented in September
23
milk&more
• Trials now running in five depots:
-
Surbiton, Epsom, Richmond, Hanworth and Wimbledon
• Modernised service based on internet ordering
-
order online by 10pm for delivery the following morning
-
online payment by debit and credit cards
• Focus on non milk products including locally sourced and organic
-
organic fruit and vegetable boxes
-
free range eggs
-
organic orange juice
-
smoothies
24
milk&more
• Early indications are encouraging with significant uplift in average
spend per week per customer on both milk and non milk products
• Customers’ feedback has been generally very positive
- like online ordering environment and product range
• Online payment working well
• The visibility of customer orders and trading history is of significant
benefit
• Considering options for rolling out service next year
25
Summary and Outlook
• Good first half performance
• Most key pillar brands are continuing to make good progress
- healthier variants performing well
• Clover performance improving following product recall in May
• Continuing trials of milk&more
• Price increases being implemented to reflect rising raw milk costs
• The Group’s expectations for the full year remain unchanged
26
DAIRY CREST GROUP PLC
INTERIM RESULTS
For the period ended 30 September 2007
27