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
H1 2009/10
Mark Allen
Chief Executive
Delivering on a clear and consistent strategy…
Build market leading positions in
branded and added value markets
Focus on cost reduction and
efficiency improvements
Reduce commodity risk to
improve quality of earnings
Invest in advertising and promotions
Focus on Innovation
Continue to drive efficiencies to finance
marketing investment and grow profits
Build on decisive action last year
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
4
A strong first half with good cash generation
- adjusted profit before tax up 9% to £38 million
- debt down 22% to £380 million
Brand Growth
Other Growth
New Products
5 key brands grew by 10%
Cathedral City retail sales through £200 million
Milk sales to major retailers up 10% v last year
Over 125,000 registered milk&more customers
Key areas of focus health and environment
Lighter brands and 1% fat milk growing strongly
Contracted out Davidstow milk collection
Cost Reduction
Risk Reduction
Cash Generation
In consultation to close glass bottling operations at
Fenstanton
Closing defined benefit pension scheme
Reduced milk volumes into Ingredients
Operating cash flow improved by £45 million
Half year debt lowest for 3 years
5
Benefiting from being a broadly based business
Dairies profits rebound after difficult 2008/09
UK cheese market challenging
H1 Operating Profits by Segment
£m
60
50
40
46
42
13
30
20
15
10
14
49
3
14
18
8
25
27
08/09
09/10
0
07/08
Spreads
Cheese
Dairies
Group (excl JVs)
6
Brands continue to outperform market
Core Brand
Brand Growth
Market Growth
Brand Growth
H1 v H1*
H1 v H1**
3 Year***
UK Cheese
8%
4%
74%
UK Butter,
Spreads,
13%
-2%
29%
UK Butter,
Spreads,
Margarine
4%
-2%
63%
French non-butter
spread
14%
-4%
48%
Flavoured Milk
21%
19%
41%
Market
Margarine
* 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
7
Good progress in Dairies
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
8
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
9
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 recycled
material to deliver even greater savings
10
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
11
Cash Generation
Operating cash flow* £59 million v £13 million 2008
£110 million repaid in year
Half year net debt lowest for 3 years
500
450
400
350
£ million
300
250
200
150
100
50
0
Sep 2006
Mar 2007
Sep 2007
Mar 2008
Sep 2008
* Cash generated from operation less capital expenditure
Mar 2009
Sep 2009
12
Financial Review
Alastair Murray
Finance Director
Financial Highlights
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
14
Income Statement
Year
March 09
£'m
101.7
Profit on operations*
(29.5)
Finance costs
Half Year
Sept 09
Half Year
Sept 08 % Change
49.2
46.4
(11.2)
(14.3)
7.3
Share of JV net profit
0.1
3.0
79.5
Adjusted profit before tax*
38.1
35.1
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
(28.9)
Taxation (incl. exceptional tax)
(9.1)
(21.9)
Group profit after tax
24.9
6.5
74.3
6%
-22%
9%
20%
15
Segmental Analysis - Cheese
£’m
Year
March 09
244.2 Revenue
34.3 Profit
14.0% Margin
Half Year Half Year
Sept 09
Sept 08
131.8
127.1
7.9
18.4
6.0%
14.5%
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 relaunch in second half
16
Segmental Analysis - Spreads
£’m
Year
March 09
284.2 Revenue
59.5 Profit
20.9% Margin
Half Year
Half Year
Sept 09
Sept 08
137.9
135.1
27.0
25.3
19.6%
18.7%
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)
17
Segmental Analysis - Dairies
£’m
Year
March 09
Half Year
Half Year
Sept 09
Sept 08
1,108.2 Revenue
528.7
540.4
7.9 Profit
14.3
2.7
0.7% Margin
2.7%
0.5%
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
18
Exceptional Items
£m
P&L
Nuneaton prepack
Onerous contract
(1.5)
(1.5)
1.0
1.3
0.8
Nottingham property sale
YDC disposal
Cash
(1.5)
(0.6)
(2.1)
2.5 *
0.3 *
* Included in acquisition / disposal of business & assets
19
Balance Sheet
£m
Sep 09
Mar 09
Fixed assets, goodwill &
intangibles
812.7
834.2
(21.5)
Stocks
Debtors less creditors
195.8
(99.1)
197.8
(91.6)
(2.0)
(7.5)
(178.0)
(58.4)
(380.4)
(18.1)
(63.3)
(90.8)
(415.8)
(13.5)
(114.7)
32.4
35.4
(4.6)
274.5
357.0
(82.5)
(128.2)
(46.1)
(82.1)
Pension deficit
Deferred tax
Net debt
Other
Net assets
Pension and related deferred tax
Change
20
Operating Cash Flow
Year
Mar 09
101.7
40.6
(12.8)
(16.0)
(3.5)
19.1
129.1
(49.3)
79.8
£m
Adjusted profit on operations *
Depreciation & amortisation **
Exceptional items
Pensions
Other ***
Working capital
Cash generated from operations
Capital expenditure
Operating cash flow
Half Year
Sep 09
49.2
19.7
(2.1)
(8.1)
(1.3)
13.1
70.5
(11.9)
58.6
Half Year
Sep 08
46.4
19.8
(1.9)
(5.5)
(2.4)
(16.8)
39.6
(26.3)
13.3
* Before exceptional items and amortisation of acquired intangibles
** Net of grant amortisation
*** 0perating property profits and share based payment charges
21
Net Cash Flow
Year
Mar 09
79.8
(30.3)
(9.2)
(32.3)
2.9
84.2
95.1
(36.1)
59.0
(474.8)
(415.8)
£m
Operating cash flow
Interest
Tax
Dividends paid
Dividends received from JVs
Acquisition / disposal of businesses
and assets
Net cash flow
Foreign exchange movements
Movement in net debt
Opening net debt
Closing net debt
Half Year
Sep 09
58.6
(11.7)
(3.8)
(17.3)
0.1
Half Year
Sep 08
13.3
(15.7)
(3.2)
(22.9)
2.9
7.8
33.7
1.7
35.4
(415.8)
(380.4)
6.1
(19.5)
3.7
(15.8)
(474.8)
(490.6)
22
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
23
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
24
Current Trading and Outlook
Mark Allen
Chief Executive
Trading environment
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
26
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
27
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
28
Our products meet consumer needs
British
Pleasure
Convenience
Heritage &
Tradition
Sustainable
Health
29
Cathedral City
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
TV 60 and 30 secs
48 & 96 Sheet National Posters
30
Clover
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
31
32
33
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.
34
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
Sept 08
Sept 09
Clover
Country Life
Butter & Spreads
30%
45%
52%
60%
Brand Volume on deal
22%
19%
Brand Volume on deal
61%
65%
Own label share
63%
57%
Cathedral City
Own label share
Cheddar
72%
Although there are some sign of improving consumer
confidence we anticipate that we will continue to promote our
brands into next year
35
Dairy commodity prices increasing
Over the past 6 months dairy commodity prices have increased and are
now higher than last year
3
2.5
2
1.5
1
0.5
0
2009
A
M
SMP (German)
J
J
Butter (France)
A
S
O 2009
Source: DairyCo
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
36
Stability valued by milk market
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
37
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 promotions
via a weekly email
38
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
39