DAIRY CREST GROUP PLC
Interim results
For the period ended 30 September 2010
DAIRY CREST GROUP PLC
INTERIM RESULTS 2010/11
Agenda
H1 2010/11
Mark Allen, Chief Executive
Financial Review
Alastair Murray, Finance Director
Current Trading & Outlook
Mark Allen, Chief Executive
H1 2010/11
Mark Allen
Chief Executive
Continuing Progress in H1
Benefiting from our broad base
Adjusted profit before tax up 5% at £40.1 million
Half year debt down 12% from September 2009 to £335 million
Confident that we can continue to deliver profits in line with our
expectations
Build market leading positions in
branded and added value markets
5% increase in sales of key brands
Focus on cost reduction and
efficiency improvements
Efficiency projects set to deliver £20 million
Improve quality of earnings and
reduce commodity risk
Balanced customer base
Generate growth and focus the
business through acquisition
& disposals
New fresh milk contract with Tesco
Investment in liquid dairies on track
Balanced product portfolio
As suitable value-enhancing opportunities
arise
4% increase in interim dividend
4
Benefiting from being a broadly
based business
Another half year of growth
Cheese profits rebound to more normal levels
Challenging middle-ground dairies market
£m
60
50
40
30
20
10
42
13
46
49
51
3
14
18
8
13
25
27
27
08/09
09/10
10/11
11
15
14
0
07/08
Spreads
Cheese
Dairies
H1 10/11 Property Profits £nil million (09/10: £2.3 million)
5
Brands continue to outperform market
Core
Brand
Brand
Growth
Market
Growth
Brand
Growth
H1 v H1*
H1 v H1**
3 Year***
UK Cheese
4%
1%
46%
UK Butter,
Spreads,
10%
5%
70%
UK Butter,
Spreads,
Margarine
2%
5%
69%
French nonbutter spreads
7%
0%
32%
Flavoured Milk
-1%
2%
10%
Market
Margarine
-1%
* DC value sales 6 months to 30 September 2010 v 6 months to 30 September 2009
6
** ACN, TNS data 26 weeks to 2 October 2010 v 26 weeks to 3 October 2009, IRI data 26 weeks to 17 October 2010 v 26 weeks to 17 October 2009
*** DC value sales 6 months to 30 September 2010 v 6 months to 30 September 2007
Continuing good progress in Foods
- in addition to ongoing key brand growth
Cheese profits rebounding
Cheese supply chain becoming increasingly efficient as volumes grow
Strong performance in prestigious cheese shows during summer
Spreads businesses dealing successfully with higher input costs
Cost saving projects at Spreads plants progressing to plan
7
Continuing good progress in Dairies
Profitability (excluding property profits) in line with last year
Replacing middle-ground business with high quality retail sales
Improving milk&more systems to prepare for further growth
Building direct milk supply and leading milk purchasing innovation
Driving efficiencies in factories and depots
Delivering innovation such as JUGIT
8
Acting responsibly
Increasingly recognised as leading the dairy industry
First dairy business to be named in prestigious Carbon Disclosure
Leadership Index
Growing reduced fat brands and 1% fat milk sales
Raising money for Macmillan cancer support, now >£550k
Member of the The Prince’s Rural Action Programme
Biomass boilers at Davidstow will reduce carbon emissions
significantly next year
9
Financial Review
Alastair Murray
Finance Director
Financial Highlights
Group revenue down 3% to £776.9m (2009: £803.7m)
Adjusted profit before tax* up 5% to £40.1m (2009: £38.1m)
Adjusted earnings per share* up 6% to 21.4 pence (2009: 20.1 pence)
Interim dividend up 4% to 5.5 pence (2009: 5.3 pence)
Net debt down 12% to £335.5m (September 2009: £380.4m)
* Before exceptional items, amortisation of acquired intangibles and pension interest
costs/income
11
Income Statement
Year
March 10
£'m
105.8
Profit on operations
(22.4)
Finance costs
0.1
Share of Associate net profit
83.5
Adjusted profit before tax
(0.5)
Other finance (expense)/income - pensions
4.0
Exceptional items
Half Year
Sept 10
Half Year
Sept 09 % Change
50.6
49.2
3%
(10.5)
(11.2)
-6%
-
0.1
40.1
38.1
-
(0.2)
0.3
0.8
(9.2)
Amortisation of acquired intangibles
(4.3)
(4.7)
77.8
Profit before tax
36.1
34.0
Taxation (incl. exceptional tax)
(9.8)
(9.1)
Profit after tax
26.3
24.9
(25.3)
52.5
5%
6%
12
Segmental Analysis – Cheese
£’m
Year
March 10
260.0 Revenue
16.9 Profit
6.5% Margin
Half Year Half Year
Sept 10
Sept 09
108.9
131.8
12.5
7.9
11.5%
6.0%
Revenue down due to disposal of Wexford in the half
Improved whey returns as commodity markets remain strong
Continue to invest in Cathedral City and re-launched Davidstow
13
Segmental Analysis – Spreads
£’m
Year
March 10
277.7 Revenue
54.0 Profit
19.5% Margin
Half Year
Half Year
Sept 10
Sept 09
134.7
137.9
27.2
27.0
20.2%
19.6%
Good performance from key brands offset by weaker Utterly Butterly
volumes
Clover and St Hubert Omega 3 brand performance very strong
Margins maintained in a competitive environment, helped by
renewed focus on UK cost base
14
Segmental Analysis – Dairies
£’m
Year
March 10
Half Year
Half Year
Sept 10
Sept 09
1,081.2 Revenue
529.7
528.7
34.9 Profit
10.9
14.3
3.2% Margin
2.1%
2.7%
Strong volumes in retail milk and successful renewal of key contracts
Improved operating efficiencies
Doorstep decline continues – improvement to milk&more infrastructure
and service will underpin future growth
Middle ground remains highly competitive
15
Balance Sheet
£m
Sep 10
Mar 10
Change
781.4
794.4
(13.0)
Stocks
Debtors less creditors
167.1
(107.8)
153.7
(94.8)
13.4
(13.0)
Pension deficit
Deferred tax
Net debt
Other
(137.2)
(65.9)
(335.5)
(13.7)
(142.4)
(65.8)
(337.2)
(18.1)
5.2
(0.1)
1.7
4.4
288.4
289.8
(1.4)
Fixed assets, goodwill &
intangibles
Net assets
16
Operating Cash Flow
Year
Mar 10
105.8
38.1
(2.6)
(20.1)
(1.0)
25.7
145.9
(26.9)
119.0
£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 10
50.6
16.8
(1.8)
(11.4)
0.7
(3.1)
51.8
(21.5)
30.3
Half Year
Sep 09
49.2
19.7
(2.1)
(8.1)
(1.3)
13.1
70.5
(11.9)
58.6
* Before exceptional items and amortisation of acquired intangibles
** Net of grant amortisation
*** Operating property profits and share based payment charges
17
Net Cash Flow
Year
Mar 10
119.0
(22.1)
(10.5)
(24.3)
0.1
10.7
72.9
5.7
78.6
(415.8)
(337.2)
£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 10
30.3
(9.9)
(8.9)
(18.1)
-
Half Year
Sep 09
58.6
(11.7)
(3.8)
(17.3)
0.1
4.1
(2.5)
4.2
1.7
(337.2)
(335.5)
7.8
33.7
1.7
35.4
(415.8)
(380.4)
18
Pensions Summary
Reported deficit under IAS19 £137.2m at September 2010
Small decrease from March 2010 (£142.4m deficit) due to ongoing
funding payments of £20m per annum
Falls in discount rate broadly offset by lower inflation assumptions
Full triennial valuation for March 2010 ongoing
19
Continuing to reduce net debt
Net debt £335 million, down £155 million v September 2008
500
450
400
350
£ million
300
Net debt
250
200
150
100
50
0
Sep 2006
Mar 2007
Sep 2007
Mar 2008
Sep 2008
Mar 2009
Sep 2009
Net debt: EBITDA below 2.4x
Mar 2010
Sep-10
20
Operating Review and Outlook
Mark Allen
Chief Executive
Trading environment
Stable environment for our British and French Foods businesses
Dairy Crest produces everyday groceries – less susceptible to
downtrading
Promotional levels remain historically high but slightly below last year
Food inflation, particularly vegetable oil, building but manageable
After challenging few months retail milk supply now settled
Pressure on middle ground selling prices from increased production
and low barriers to entry
Dairy commodity markets remain strong and stable
22
Foods – a stable environment
Butters and Spreads percentage sales on promotion are below last
year but still high
Promotions October 2008 – September 2010
Volume Sales (Tonnes)
Share %
Non Promoted vs Promoted Volume - 12 wkly
100,000
Non Promoted
Promoted
100
Promoted %
90,000
90
80,000
80
70,000
70
60,000
60
50,000
43
40
40,000
31
32
34
33
32
44
42
43
44
46
48
46
44 50
44
39
33
38
38
40
39
40
40
41
41
41
40
30,000
30
20,000
20
10,000
10
0
October 2008
0
October 2009
September 2010
Source: Nielsen
23
Foods – a stable environment
And it is a similar story for branded cheddar
Branded Cheddar Promotions October 2008 – September 2010
Volume Sales (Tonnes)
Share %
Non Promoted vs Promoted Volume - 12 wkly
20,000
Non Promoted
Promoted
100
Promoted %
18,000
90
16,000
80
69
14,000
12,000
58
60
59
60
62
58
58
57
63
63
64
69
67
69
65
63
60
59
65
66
65
65
64
63
70
63
60
60
10,000
50
8,000
40
6,000
30
4,000
20
2,000
10
0
October 2008
0
October 2009
September 2010
Source: Nielsen
24
Foods – a stable environment
Input price increases are manageable
Raw milk prices have increased but are relatively stable
Vegetable oil prices are increasing but in a manageable way
We have obtained selling price increases to help offset higher milk
costs
Power and packaging prices broadly stable
25
Foods – responding effectively to
the challenges
Ongoing commitment to our key brands (media spend up yoy)
Selling price increases obtained to help offset cost increases
Strong pipeline of innovation with several new launches planned for H2
57
52
24
44
46
Ideas or concepts
Projects
being
scoped
Projects under
development
Products in
scale-up
Products
launched
Gate 0
Resource Approval
Gate 1
Development
Gate 2
Scale up
Gate 3
Launch
St Hubert continues to grow market share
Cheese & Spreads businesses well positioned
26
Dairies environment has been much
more volatile
‘Clone-derived milk claim prompts food agency inquiry’
3 August 2010
‘Milk is the new beer as price war erupts’
31 July 2010
‘Kendall accuses supermarkets of ‘bully boy’ tactics over milk prices’
27 August 2010
‘Milk price war sours Wiseman’
17 September 2010
‘Spectre of Britain’s first cattle factory’
6 August 2010
27
But our Dairies business remains strong
We have a differentiated Dairies business which has advanced
strongly over recent years
Improvements to quality, service and cost provide a solid foundation
Actions taken to reduce risk have increased stability
Strong commitment to and increased investment in this business is
allowing experienced management team to continue the
improvement process
28
Our Dairies business
Reducing risk
self-balancing
seasonal milk supply,
cream used for
Country Life butter
A robust, diverse and
sustainable
business model
Leading position in
flavoured milk
FRijj, own label flavoured milk
Strong innovation
JUGIT, milk&more, added
value milk supply pools
Supply 6 major retailers
with fresh milk
Co-op, Marks & Spencer,
Morrisons, Sainsbury’s,
Tesco and Waitrose
29
A clear plan for Dairies
Build on broad retail customer base
Continuous programme of product innovation
- FRijj
- JUGIT
Ongoing investment and focus on cost to drive efficiencies
Leverage lead in milk purchasing
Convert milk&more opportunity
Balanced customer base and product portfolio provides
stability and opportunities for profitable growth
30
Milk Purchasing strategies add value to
our relationship with suppliers and customers
Dairy Crest drives innovation in retail milk pools
- 1999 M&S and Waitrose groups
- 2007 Sainsbury’s launched SDDG: First joint supply pool
(DC & Wiseman)
- December 2010 Tesco Sustainable Dairy Group
Ambition to ensure all our supplying dairy farmers are aligned
either to a customer or a Dairy Crest brand
Increased recruitment facilitated by ability to
balance seasonal milk supply
31
milk&more can make a real difference
Meeting consumers’ needs with planned top-ups and emergencies
Weekly sales averaged £800k during September 2010
12 depots now in sales growth
A further 20 depots have sales decline < 2%
Systems improvements will increase customer capacity and tell us
more about our consumers
The convenience of this service is attracting new customers which
leads to higher average spend per customer
32
And growing volumes with major
retailers allow us to reduce sales to middle ground
% of total volumes by market
Over the past 2 years we have increased conventional milk volumes to
major retailers and reduced middle ground volumes
Dairy Crest conventional milk sales
(excluding doorstep)
53
52
51
50
49
48
47
46
2008/09
2009/10
Retail
2010/11
Middle ground
Major retailers now account for over half of total volumes
We will be increasingly selective in middle ground to improve profitability
33
Well positioned through our strong,
broadly based business
Ongoing investment puts our Foods business in great shape to
prosper
Differentiated Dairies business has proved resilient in an
eventful six months
We have a clear plan for future success
34
Summary and outlook
Successful first half
– Adjusted profit before tax up 5%
– Net debt down 12% from September 2009
– Sales of key brands up 5%
– Secured new fresh milk contracts with major retailers
Confidence demonstrated by interim dividend increase
Well placed for future with brand growth, operational efficiencies and
selling price increases providing resilience
35
Questions?