DAIRY CREST GROUP PLC INTERIM RESULTS For the period ended 30 September 09.
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DAIRY CREST GROUP PLC
INTERIM RESULTS
For the period ended 30 September 09
DAIRY CREST GROUP PLC
INTERIM RESULTS 2009/10
Agenda
H1 2009/10 Mark Allen, Chief Executive
Financial Review Alastair Murray, Finance Director
Current Trading & Outlook Mark Allen, Chief Executive
Mark Allen
Chief Executive
H1 2009/10
4
Delivering on a clear and consistent strategy…
Build market leading positions in branded and added value markets
Invest in advertising and promotions
Focus on Innovation
Focus on cost reduction and efficiency improvements
Continue to drive efficiencies to finance marketing investment and grow profits
Build on decisive action last year
Reduce commodity risk to improve quality of earnings
Minimise exposure to dairy commodity markets
Reduce risk associated with pension scheme
Business acquisitions and disposals to generate growth and focus on the business
Short term focus on cash generation
Medium term return to acquisitions
5
A strong first half with good cash generation - adjusted profit before tax up 9% to £38 million- debt down 22% to £380 million
Brand Growth5 key brands grew by 10%
Cathedral City retail sales through £200 million
Other GrowthMilk sales to major retailers up 10% v last year
Over 125,000 registered milk&more customers
New ProductsKey areas of focus health and environment
Lighter brands and 1% fat milk growing strongly
Cost ReductionContracted out Davidstow milk collection
In consultation to close glass bottling operations at Fenstanton
Cash Generation Operating cash flow improved by £45 million
Half year debt lowest for 3 years
Risk Reduction Closing defined benefit pension scheme
Reduced milk volumes into Ingredients
6
Benefiting from being a broadly based business
Dairies profits rebound after difficult 2008/09
UK cheese market challenging
H1 Operating Profits by Segment
1425 27
18 8
15
13
3 14
4246 49
0
10
20
30
40
50
60
07/08 08/09 09/10
£m
Spreads Cheese Dairies Group (excl JVs)
7
Brands continue to outperform market
* DC value sales 6 months to 30 September 2009 v 6 months to 30 September 2008** ACN, IRI, TNS data 24 weeks to 4 October 2009 v 24 weeks to 5 October 2008*** DC value sales 6 months to 30 September 2009 v 6 months to 30 September 2006
8%
13%
4%
14%
21%
4%
-2%
-2%
-4%
19%
74%
29%
63%
48%
41%
Core Brand MarketBrand Growth
H1 v H1*
Market Growth
H1 v H1**
Brand Growth
3 Year***
UK Cheese
UK Butter, Spreads,
Margarine
UK Butter, Spreads, Margarine
French non-butter spread
Flavoured Milk
8
Sales to major retailers up 10% v last year
Strong sales of conventional milk to existing and new customers
New customers for organic milk
New customers and strong market growth for retailer own-label fresh flavoured milk – up 50%
milk&more customer base growing strongly
125,000 customers now registered
Good progress in Dairies
9
Healthy innovation high on our agenda
Key focus on lower fat variants of brands
Cathedral City Lighter
Country Life Lighter Combined sales +41%
Clover Lighter
Developing French spreads brands recipes to improve health credentials
1% fat milk sales growing strongly
Now 8% of Sainsbury’s total milk sales
Plans to launch with milk&more in H2
Gluten Free bakery and Equilibrium
Through Fayrefield FoodTec subsidiary
10
Looking after the environment
Jugit™ - milk in a recyclable bag, which reduces plastic milk bottle packaging waste by 75%
1.6 million bags sold since launch
New improved jug ready
Recycled milk bottles Development of UK’s first polybottle containing 10% recycled material, saving up to 13,000 tonnes of virgin HDPE plastic
Working to increase percentage of recycledmaterial to deliver even greater savings
11
Ongoing focus on cost and risk reduction
Driving efficiency to finance marketing investment and grow profits
Contracted out Davidstow milk collection
Changed media buying agency
In consultation to close glass bottling operation at Fenstanton (30 jobs)
Reduced milk volumes into Ingredients
H1 2009/10 volumes down 49% v H1 2008/09
Defined benefit contribution scheme to be closed to future accrual from 31 March 2010
Closed to new entrants in 2006
Insurance policies in place for most pensions in payment
12
Cash Generation
Operating cash flow* £59 million v £13 million 2008
£110 million repaid in year
Half year net debt lowest for 3 years
0
50
100
150
200
250
300
350
400
450
500
Sep 2006 Mar 2007 Sep 2007 Mar 2008 Sep 2008 Mar 2009 Sep 2009
£ m
illi
on
* Cash generated from operation less capital expenditure
Alastair Murray
Finance Director
Financial Review
14
Group Revenue down 1% to £803.7m (2008: £808.2m)
Adjusted profit before tax* up 9% to £38.1m (2008: £35.1m)
Adjusted earnings per share* up 2% to 20.1p (2008: 19.7p)
Interim dividend rebased as previously announced – 5.3 pence (2008: 7.1 pence)
Net debt £380.4m (2008: £490.6m)
* Before exceptional items, amortisation of acquired intangibles and pension interest costs/income
Financial Highlights
15
Income Statement
Year £'m Half Year Half YearMarch 09 Sept 09 Sept 08 % Change
101.7 Profit on operations* 49.2 46.4 6%
(29.5) Finance costs (11.2) (14.3) -22%
7.3 Share of JV net profit 0.1 3.0
79.5 Adjusted profit before tax* 38.1 35.1 9%
6.9 Other finance (expense)/income - pensions (0.2) 3.4
26.4 Exceptional items 0.8 (5.5)
(9.6) Amortisation of acquired intangibles (4.7) (4.6)
103.2 Profit before tax 34.0 28.4 20%
(28.9) Taxation (incl. exceptional tax) (9.1) (21.9)
74.3 Group profit after tax 24.9 6.5
16
Segmental Analysis - Cheese
Higher cost of sales following milk price increases in 2007 and 2008
UK cheese market highly competitive – increased import penetration and higher levels of promotion
Continue to invest in promotional activity and marketing – Cathedral City re-launch in second half
Year
March 09
£’m Half Year
Sept 09
Half Year
Sept 08
244.2 Revenue 131.8 127.1
34.3 Profit 7.9 18.4
14.0% Margin 6.0% 14.5%
17
Includes UK Spreads and St Hubert
Strong performance from 3 key brands – Clover, St Hubert Omega 3 & Country Life – offset by lower sales of non-branded & other brands which have not been advertised and promoted as heavily
Translation benefit on St Hubert profits (approx £1.5m)
Year
March 09
£’m Half Year
Sept 09
Half Year
Sept 08
284.2 Revenue 137.9 135.1
59.5 Profit 27.0 25.3
20.9% Margin 19.6% 18.7%
Segmental Analysis - Spreads
18
Segmental Analysis - Dairies
Good progress in our retail milk business – volumes up 10%
Strong performance by FRijj
Improved operating efficiencies, lower raw milk costs and lower balancing volumes
Doorstep sales have declined
Decline rate of 8.5% lower than last year
aggressive milk&more customer acquisition target in H2
Year
March 09
£’m Half Year
Sept 09
Half Year
Sept 08
1,108.2 Revenue 528.7 540.4
7.9 Profit 14.3 2.7
0.7% Margin 2.7% 0.5%
19
Exceptional Items
£m P&L Cash
Nuneaton prepack (1.5) (1.5)Onerous contract - (0.6)
(1.5) (2.1)Nottingham property sale 1.0 2.5 *YDC disposal 1.3 0.3 *
0.8
* Included in acquisition / disposal of business & assets
20
Balance Sheet
£m Sep 09 Mar 09 Change
Fixed assets, goodwill &intangibles 812.7 834.2 (21.5)
Stocks 195.8 197.8 (2.0)Debtors less creditors (99.1) (91.6) (7.5)
Pension deficit (178.0) (63.3) (114.7)Deferred tax (58.4) (90.8) 32.4 Net debt (380.4) (415.8) 35.4 Other (18.1) (13.5) (4.6)
Net assets 274.5 357.0 (82.5)
Pension and related deferred tax (128.2) (46.1) (82.1)
21
Operating Cash Flow
Year £m Half Year Half YearMar 09 Sep 09 Sep 08101.7 Adjusted profit on operations * 49.2 46.4 40.6 Depreciation & amortisation ** 19.7 19.8
(12.8) Exceptional items (2.1) (1.9)(16.0) Pensions (8.1) (5.5)(3.5) Other *** (1.3) (2.4)19.1 Working capital 13.1 (16.8)
129.1 Cash generated from operations 70.5 39.6 (49.3) Capital expenditure (11.9) (26.3)79.8 Operating cash flow 58.6 13.3
* Before exceptional items and amortisation of acquired intangibles
** Net of grant amortisation
*** 0perating property profits and share based payment charges
22
Net Cash Flow
Year £m Half Year Half YearMar 09 Sep 09 Sep 08
79.8 Operating cash flow 58.6 13.3 (30.3) Interest (11.7) (15.7)(9.2) Tax (3.8) (3.2)
(32.3) Dividends paid (17.3) (22.9)2.9 Dividends received from JVs 0.1 2.9
Acquisition / disposal of businesses84.2 and assets 7.8 6.1 95.1 Net cash flow 33.7 (19.5)
(36.1) Foreign exchange movements 1.7 3.7 59.0 Movement in net debt 35.4 (15.8)
(474.8) Opening net debt (415.8) (474.8)(415.8) Closing net debt (380.4) (490.6)
23
Pensions Summary
Reported deficit under IAS19 £178.0m at September 2009
Significant increase from March 2009 (£63.3m deficit) due to declines in credit spreads and impact on liability discount rate
Partly offset by strong equity returns in the half
IAS19 deficit more reflective of actuarial (funding) deficit
24
Pensions Summary
Range of actions taken to de-risk the scheme:
2nd tranche of insurance taken out in June 2009 – almost all retired members hedged through insurance contracts
Scheme closing to future service accrual in 2nd half – will be effective from April 2010
£20m per annum agreed as additional scheme contributions going forward
Equity exposure reduced since September 2009 following strong returns
Mark Allen
Chief Executive
Current Trading and Outlook
26
Challenging but relatively stable
Consumers continue to look for “value”
Some signs of consumer confidence returning, but fragile
Own label share of cheese and butter, spreads, margarine markets falling as brands continue to promote strongly
Signs that dairy commodity markets are improving but recovery not yet conclusive
Trading environment
27
Responding effectively to the challenges
Consumers are at the heart of our business – we understand their needs and align ourselves with them
Advertising and innovation are fundamental to ensure we continue to drive our key brands forward
In addition the current environment requires a powerful promotional programme
An ongoing focus on cost reduction is essential to fund marketing expenditure and grow profits
28
Consumers needs – at the heart of our business
Reassurance of familiar brands
Help navigating the healthy eating agenda
Products that help create simple, wholesome meals and snacks
Affordable indulgences and little luxuries
To support British products for emotional and ethical reasons
The reassurance of heritage and tradition
And a growing number are starting to recognise the importance of sustainable production and packaging
Source: Opinion Leader/Dragon Rouge/Haygarth
29
Our products meet consumer needs
Heritage & Tradition
Sustainable Health
Pleasure ConvenienceBritish
30
Cathedral City: The Nation’s Favourite Cheese Brand
N°1 brand in UK retail Cheese
Annual retail sales : £201 million
New pack designs, new media strategy, new advert – on television now
Cathedral City
TV 60 and 30 secs 48 & 96 Sheet National Posters
31
Clover, churned like butter with only half the saturated fat.
No1 brand in Dairy Spreads
Retail sales: £81 million
New advert –”in the middle” positioning Clover as
healthy and tasty – on television now
Clover
32
Source: Nielsen 52 week-ending 4th October 2009
Country Life: The only leading British butter brand
N°3 butter brand – but fastest growing
Annual retail sales £63 million
John Lydon TV and radio campaign resumed in
November 2009 – on television now
Country Life
33
St Hubert Oméga3, Good for heart, Good for life!
N°1 brand in French retail non butter spreads market
Retail sales : € 78 million
New advert “thank you” - on television now
St Hubert Oméga 3
34
FRijj – the thicker, the slower, the better
•FRijj is unashamed satisfaction. The thickest, tastiest milkshake in the UK and the treat to be seen with by 16 – 24 yr old men!
‘The thicker, the slower, the better’.
•FRijj is the no.1 flavoured milk in the UK
•Value sales of £43.7 million (+21%), total market share 28%.
•Latest activity
•£2 million sponsorship of Soccer AM with new ‘swamp football creative’
•New packaging now in-store.
35
Continuing with a powerful promotional programme
Consumers remain heavily focussed on value
This strategy is growing brand sales at the expense of own label
We continue to promote more heavily than our competitors providing good growth
Although there are some sign of improving consumer confidence we anticipate that we will continue to promote our brands into next year
Sept 08 Sept 09 Clover Country Life Cathedral City
Butter & Spreads
Brand Volume on deal
Own label share
30%
22%
45%
19%
52% 60%
Cheddar
Brand Volume on deal
Own label share
61%
63%
65%
57%
72%
36
Over the past 6 months dairy commodity prices have increased and are now higher than last year
Fonterra and NI milk auctions have also risen, reflecting this trend
However there are significant volumes of commodity stocks in Europe and US and these may make it difficult for higher prices to be sustained
Source: DairyCo
0
0.5
1
1.5
2
2.5
3
A M J J A S O
SMP (German) Butter (France)
2009 2009
Dairy commodity prices increasing
37
Milk production has increased in Great Britain over the first half of 2009/10 milk year
More cows in pipeline and some signs that farmer confidence is improving
Although there are environmental and financial challenges in the near future, the medium-long term outlook is positive
Some pressure for liquid milk price increases, but overall direction unclear
We have agreed to a “floor” for our suppliers through to February 2010 and continue to monitor the situation with them
Stability valued by milk market
38
milk&more
Progressing to plan
Customer numbers growing towards our target of 250,000 registered customers by 31 March 2010
New customers are spending in line with our estimates (weekly spend £6.20 v traditional £4.50)
Direct mailshot and door drop to 3 million potential new customers planned before Christmas
Customers are notified of attractive promotionsvia a weekly email
39
Summary and outlook
Successful first half
Adjusted profit before tax up 9%
Net debt down £110 million from September 2008
Sales of key brands up 10%
Strategy remains appropriate given challenging economic environment
Continue to make progress with the same focus in H2
Cash management
Development of key brands
Cost reduction
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