Download Half year ended 30 September 2009

6 November 2014
Dairy Crest Group plc (“Dairy Crest”)
Interim Results Announcement
Half year ended 30 September
Financial Highlights:
2014
2013
Change
Revenue :
£682.1m
£672.2m
+1%
Adjusted profit before tax 1, 2 :
£21.3m
£21.9m
-3%
Profit before tax 1 :
£0.9m
£19.7m
-95%
13.0p
13.1p
-1%
0.5p
13.1p
-96%
£209.6m
£192.3m
+9%
6.0p
5.9p
+2%
1
Adjusted basic earnings per share1, 2 :
1
Basic earnings per share :
Half year net debt:
Interim dividend:
1
2
From continuing operations
Before exceptional items, amortisation of acquired intangibles and pension interest
First half profitability maintained despite challenging trading environment
-
All four key brands grow retail market share
-
Annual cost reductions on target to deliver £20 million
-
Strong contributions from Spreads and Cheese and lower interest charges
offset Dairies losses
-
Whey investment on track to boost profits in 2015/16
-
Interim dividend up 2%
Disposal of Dairies operations also announced
-
Cash consideration of £80 million on completion
-
Conditional on the approval of shareholders, relevant competition
authorities and employee consultation
Mark Allen, Chief Executive, said:
“Dairy Crest has delivered adjusted first half profits broadly in line with last year and
we have continued to grow our key brands and reduce our cost base.
In an
environment which remains particularly difficult to predict our immediate focus is on
delivering the second half.
“The investments we are making to add value to whey are on track to grow future
profits. In addition the proposed disposal of our Dairies operations, which we are
also announcing today, is another positive development for Dairy Crest and the wider
UK dairy industry.”
For further information:
Dairy Crest Group plc
Arthur Reeves
01372 472236
Brunswick
Tim Danaher / Max McGahan
020 7404 5959
A video interview with Mark Allen will be available from 07:00 (UK time) from the
investor section of the Group’s website investor.dairycrest.co.uk. There will be an
analyst and investor meeting at 8.30 (UK time) today at The Lincoln Centre, 18
Lincoln’s Inn Fields, London, WC2A 3ED. An audiocast of the presentation will be
available from the investor section of the Group’s website investor.dairycrest.co.uk
later today.
Operating review
In line with our well-established strategy, Dairy Crest continues to focus on growing
added value sales and reducing our cost base.
Key brand sales up
In aggregate, sales of our four key brands (Cathedral City, Country Life, Clover and
FRijj) were up 2% compared to the first half of 2013/14.
Brand
Market
Dairy Crest
Retail market statistics**
sales growth*
Brand growth
Market growth
Cathedral City
Cheese
+2%
+3%
-
Country Life
Butter
+4%
+6%
+3%
Clover
Spreads
-12%
-4%
-8%
FRijj
Ready to drink
flavoured milk
+27%
+12%
+6%
+2%
+3%
Total
* Dairy Crest value sales 6 months to 30 September 2014 v 6 months to 30 September 2013
** IRI data 26 weeks to 11 October 2014
We use IRI data to monitor the performance of our brands in retail markets and
monitor their share of these markets. Differences between our sales and IRI data
can be explained by sales we make to non-retail markets that are not reflected in IRI
data and changes in the relationship of our selling prices to retail prices. There are
also timing differences because the IRI data is for 26 weeks to 11 October 2014
rather than to the end of our accounting period.
IRI data for the 26 weeks ended 11 October 2014 show that our four key brands
grew their retail sales by 3% compared to the same period last year. They further
indicate that all four brands grew their market shares. This is a strong performance
in an environment where consumer expenditure on food is falling and reflects
ongoing support for these brands in the form of advertising and innovation.
Investing in innovation
Looking to the future, we have recently confirmed that we will be investing £4 million
to build a dedicated Food Innovation Centre on the Harper Adams University
campus. Planning permission has been granted and building will start imminently.
The partnership between Dairy Crest and Harper Adams provides us with a link into
leading research within the agriculture and food sectors and demonstrates Dairy
Crest’s continuing support for British agriculture.
Annual cost reductions on target to deliver £20 million
Cost reduction remains an important part of our strategy and we are on track to meet
our annual £20 million target.
We have also previously proposals to close two
dairies, at Hanworth in West London and Chard in Somerset and the savings arising
from these will contribute towards our annual £20 million target in future years.
Another strong performance from Cheese, with Cathedral City again
outperforming
Sales of Cathedral City, the UK’s leading cheese brand, grew by 2% compared to the
six months ended 30 September 2013. However Cheese product group profits fell
slightly as a result of the higher cheese costs arising from last year’s high milk
purchase prices and lower whey realisations.
Cathedral City strongly outperformed the market, both private label and competitor
brands, and increased its overall market leadership. Behind this is a continuous
programme of innovation. New products introduced in recent years include Chedds,
Selections and Spreadable Cathedral City, all of which have contributed to Cathedral
City’s overall outperformance. In the first half we have launched easy open
packaging and this will be followed in the second half by a new range of Cathedral
City flavoured cheeses comprising caramelised onion, sweet chilli and smoked
varieties. We will also introduce different cheese types into our Selections packs.
Increased profits from Butters and Spreads
Butters and Spreads product group profits increased in the six months ended 30
September 2014 compared to the same period last year when profits were adversely
impacted by high cream input costs. This year input costs have fallen and margins
have improved.
IRI data indicates that both of our key brands in this product group, Country Life
(butter) and Clover (spread) have increased their respective market share. Their
performance reflects consumers’ increasing preference for butter. Country Life sales
grew by 4% in the period compared to the first half of 2013/14 on the back of strong
Spreadable sales. Clover sales fell by 12% in the same period.
We are completing the consolidation of butter and spreads production onto our site at
Kirkby in the second half and this will reduce our manufacturing costs in future years.
Dairies records a first-half loss in volatile environment
Despite the strong growth of our flavoured milk brand, FRijj, increased property sales
and cost reductions, lower commodity realisations and a significant divergence
between cream revenues and farmgate milk prices have resulted in losses in our
Dairies operations in the six months ended 30 September 2014.
The lower commodity realisations have now led to difficult milk price cuts for British
dairy farmers. Although dairy markets remain volatile and unpredictable we expect a
stronger second half.
In the first half of 2013/14 we scaled back FRijj promotions while we increased our
production capacity and capability. These improvements are now complete. FRijj
had a strong first half and sales grew by 27% compared to the first half of last year.
Cost savings included the benefit from lighter plastic bottles and reduced distribution
costs.
Whey
Our demineralised whey and galacto-oligosaccharide projects, which will enable us
to manufacture products for the growing, global infant formula market for the first
time, are on track to contribute to profits in the year ending 31 March 2016. We
currently process our whey into whey powder and, although whey powder
realisations have fallen in the first half, the premium that we expect to receive for our
new products over the price of whey powder and the resultant paybacks on these
projects remain broadly unchanged.
In total we expect to invest £65 million in these projects. £8 million was spent last
year and a further £16 million in the first half of this year. The balance will be spent
mainly in the second half of the year.
We announced in July that we had chosen to partner with Fonterra to maximise
returns from our investment in these projects and we are pleased with the way our
relationship with Fonterra is developing.
Financial review
Group revenue of £682.1 million represents a 1% increase from last year. Higher
cheese and milk sales have been offset by lower spreads sales.
Total product group profit from continuing operations fell 8% to £25.0 million (2013:
£27.3 million). Improved Spreads product group profits and broadly maintained
Cheese product group profits were outweighed by a deterioration in Dairies
profitability despite an increase in property profits, arising from an ongoing
programme of sales of delivery depots that we no longer require, to £7.5 million in the
six months ended 30 September 2014 (2013: £2.5 million).
Product group analysis consistent with prior periods can be found in note 4 to the
interim financial statements.
Finance costs of £3.7 million are lower than last year and reflect lower interest
charges since the repayment and maturity of loan notes in April 2013 and some
capitalised interest on major capital projects at Davidstow and Kirkby.
Group adjusted profit before tax (before exceptional items, amortisation of acquired
intangibles and pension interest) was £21.3 million, down 3% versus £21.9 million in
2013.
Exceptional costs of £19.3 million were incurred during the six months ended 30
September 2014, including £9.3 million associated with the closure of Hanworth and
Chard dairies announced in September 2014, £8.8 million in relation to the
consolidation of spreads and butter manufacturing onto one site, and £1.1 million
associated with the significant investment on whey projects at Davidstow.
The total cash cost of exceptional items in the first half was £7.1 million including
£0.6 million associated with the closure of Hanworth dairy, £4.9 million in relation to
the consolidation of spreads and butter manufacturing, and £1.0 million associated
with the Davidstow whey projects.
Further exceptional charges of approximately £6 million are expected in the second
half associated with the consolidation of spreads and butter manufacturing, the
Davidstow whey projects and the future closure of Hanworth and Chard.
The pension interest charge of £0.9 million was £0.7 million higher than last year.
The pre-exceptional tax expense of £3.3 million represents an effective tax rate of
16.3% based on expectations for the full year. This effective tax rate benefits from
property profits which do not attract tax due to rollover relief and significant brought
forward capital losses. The equivalent full year effective tax rate for 2013/14 was
14.6%.
Basic earnings per share on continuing operations are 0.5 pence, down from 13.1
pence in 2013. Adjusted basic earnings per share of 13.0 pence represents a 1%
decrease in the half, consistent with the decrease in adjusted profit before tax and
the slightly lower normalised effective tax rate.
The directors have declared an increased interim dividend of 6.0 pence per share,
(2013: 5.9 pence per share). We remain committed to a progressive dividend policy
with a target cover range of between 1.5 and 2.5 times.
Group net debt amounted to £209.6 million at 30 September 2014, an increase of
£67.4 million since 31 March 2014. This reflects capital expenditure of £33.3 million
(2013: £29.8 million) and the normal working capital increase in the first half of the
year.
As usual we expect year end net debt to be lower than at 30 September, although it
will be higher than at 31 March 2014, reflecting the significant investment we are
making on the whey projects at Davidstow.
Looking further forward we continue to expect net debt reductions in future years as
a result of lower capital expenditure and reduced stock holdings as milk prices fall.
The defined benefit pension scheme deficit reported under IAS 19 increased in the
first half to £68.7 million (31 March 2014: £57.7 million), as corporate bond yields
(being the benchmark used to discount scheme liabilities) fell to 3.8% at 30
September 2014 from 4.3% at 31 March 2014.
The principal risks and uncertainties affecting the Group are set out below the
statement of directors’ responsibilities and further details are disclosed on pages 14
and 15 of the 2014 Annual Report and Accounts. Related party transactions are
given in note 12 to the interim financial statements.
Summary and outlook
Dairy Crest has delivered adjusted first half profits broadly in line with last year and
we have continued to grow our key brands and reduce our cost base.
In an
environment which remains particularly difficult to predict our immediate focus is on
delivering the second half.
Mark Allen
Chief Executive
6 November 2014