1
DAIRY CREST GROUP plc
Preliminary Results
For the year ended 31 March 2011
19 May 2011
2
DAIRY CREST GROUP plc
Agenda
20010/11
Mark Allen, Chief Executive
Financial Review
Alastair Murray, Finance Director
Innovation
Mark Allen, Chief Executive
Looking Forward
Mark Allen, Chief Executive
2010/11
Mark Allen
Chief Executive
Another year of delivery against strategy
Adjusted profit before tax up 5% to £87.6 million
Year end net debt down £25 million to £312 million
Build market leading positions in
branded and added value markets
7% increase in sales of key brands
9% increase in milk sales to major retailers
milk&more weekly sales > £1 million
Focus on cost reduction and
efficiency improvements
Efficiency projects set to deliver £20 million
Improve quality of earnings and
reduce commodity risk
Resumed liquid milk sales to Tesco
Generate growth and focus the
business through acquisition
& disposals
Investment in liquid dairies on track
Balanced product portfolio
As suitable value-enhancing opportunities
arise
4% dividend increase
5
Benefiting from being a broadly based business
e r ating Pr ofits by Se gm
Strong performance from Cheese
Ongoing delivery from Spreads
Tougher trading in Dairies
Operating Profit by Segment
£m
8 120
105
100
34 80
60
32
60
8
106
35
17
35
35
27
27
28
Cheese
17Spreads
60
54
53
08/09
09/10
10/11
38
0
07/08
108
Dairies
34
40
20
102
54
6
Key brands continue to outperform the market
Core Brand
Market
UK Cheese
Brand Growth
10/11*
Market Growth
10/11**
4 Year Brand
Growth 10/11 v
06/07***
6%
2%
79%
UK Butter
Spreads
Margarine
9%
1%
8%
1%
38%
UK Butter
Spreads
Margarine
9%
8%
57%
10%
0%
0%
54%
3%
8%
26%
French NonButter Spread
Fresh
Flavoured Milk
* DC value sales 12 months to 31 March 2011 v 12 months to 31 March 2010
** ACN, IRI, TNS data 52 weeks to 19 March 2011
*** DC value sales 12 months to 31 March 2011 v 12 months to 31 March 2007
7
Improving quality of earnings
Strong growth in 5 key brands
(sales up 57% over 4 years)
Innovative new products & services
(9% turnover from products and services < 3 years old)
Milk sales to major retailers increase
% of total volumes by
market
Dairy Crest conventional milk sales
54
53
52
51
50
49
48
47
46
45
44
2008/09
2009/10
Ha l f
Retail
2010/11
1
Middle ground
8
Improving quality of earnings (continued)
Wexford Creamery stake reduced to 30% from June 2010
Ongoing reduction in retailer brand cheese
Reduced exposure to commodity markets
- restrict volumes
- match stocks with sales
- longer term selling contracts
Increasingly selective regarding middle ground customers
9
Acting responsibly
Dairy Crest is a responsible business
We aim to align corporate responsibility with commercial strategies
Workplace
Reduced accidents in the workplace by 16%
£900k raised for Macmillan Cancer Support over 2 years
Community
New local community programme launched helping around 100
good causes
70% of solid waste recycled in 2010/11 up from 10% in 2009/10
Environment
Davidstow biomass boilers now operational
On target for polybottles to be made with 30% recycled material
by 2015
Introduced an Ethical Supply Chain Policy
Marketplace
Lower fat/healthier variants growing strongly, supported by
advertising
Paying market leading milk prices
10
Financial Review
Alastair Murray
Finance Director
Financial highlights
Adjusted profit before tax* up 5% to £87.6m (2010: £83.5m)
Adjusted earnings per share* up 6% to 47.1p (2010: 44.5p)
Final dividend up 4% to 14.2p (2010:13.6p)
Net debt reduced by £25.6m to £311.6m (2010: £337.2m)
* Before exceptional items, amortisation of acquired intangibles and pension interest costs/income
12
Income Statement
£’m
Mar-11
Mar-10
Profit on operations*
108.4
105.8
Finance costs
(20.6)
(22.4)
Share of associate/JV net (loss)/profit
(0.2)
0.1
Adjusted profit before tax*
87.6
83.5
-
(0.5)
Exceptional items
(1.1)
4.0
Amortisation of acquired intangibles
(8.7)
(9.2)
Profit before tax
77.8
77.8
(20.3)
(25.3)
57.5
52.5
Other finance expenses - pensions
Taxation
Profit after tax
* Before exceptional items and amortisation of acquired intangibles
13
Segmental analysis - Cheese
£’m
Year to
Year to
Mar-11
Mar-10
Revenue
223.1
260.0
Profit
28.0
16.9
12.6%
6.5%
Margin
Revenue down due to disposal of Wexford in June 2010
Cathedral City has 9% share of total retail cheese market – still
larger than next 3 cheddar brands combined
Improved whey returns as commodity markets remained strong
14
Segmental analysis - Spreads
£’m
Year to
Year to
Mar-11
Mar-10
Revenue
285.5
277.7
Profit
53.3
54.0
18.7%
19.5%
Margin
Good performance from key brands
Significant increases in input costs – vegetable oils and cream
Margins broadly maintained
Small adverse exchange impact arising from translation
of St Hubert results of circa £1m
15
Segmental analysis - Dairies
£’m
Year to
Year to
Mar-11
Mar-10
1,089.8
1,081.2
Profit
27.1
34.9
Margin
2.5%
3.2%
Revenue
Strong volumes in retail milk and successful renewal of key agreements
Improved ingredients realisations
Margins in retail milk lower in second half
Doorstep volume declined although milk&more continues to grow
A competitive year in the middle ground
16
Balance Sheet
£m
Mar-11
Mar-10
Change
Fixed assets, goodwill & intangibles
799.6
794.4
5.2
Inventories
164.5
153.7
10.8
Debtors less creditors
(124.2)
(94.8)
(29.4)
Pension deficit
(60.1)
(142.4)
82.3
Deferred tax
(86.3)
(65.8)
(20.5)
Net debt
(311.6)
(337.2)
25.6
Other
(16.4)
(15.1)
(1.3)
Net assets
365.5
292.8
72.7
17
Pensions
Actuarial valuation as of March 2010 resulted in funding deficit
of £137 million
Annual contributions of £20m agreed for 2010-2013
IAS-19 deficit as of March 2011 - £60.1m (before tax)
Further risk mitigation projects in hand
18
Operating Cash Flow
£’m
Mar-11
Mar-10
Adjusted profit on operations*
108.4
105.8
Depreciation & amortisation
33.9
38.1
Exceptional Items
(3.7)
(2.6)
Pensions
(21.7)
(20.1)
Other**
(0.5)
(1.0)
Working capital
11.7
25.7
Cash generated from operations
128.1
145.9
Capital expenditure (net of grants)
(48.5)
(26.9)
79.6
119.0
Operating cashflow
* Before exceptional items and amortisation of acquired intangibles
** Share based payments and property profits
19
Net Cash Flow
£’m
Mar-11
Mar-10
79.6
119.0
Interest
(19.8)
(22.1)
Tax
(16.1)
(10.5)
43.7
86.4
(25.4)
(24.3)
-
0.1
6.4
10.7
Other
(0.1)
-
Net cash flow
24.6
72.9
Foreign exchange movements
1.0
5.7
Movement in net debt
25.6
78.6
Opening net debt
(337.2)
(415.8)
Closing net debt
(311.6)
(337.2)
Operating cash flow
Dividends paid
Dividends received from associates/JV’s
Acquisition/disposal of businesses and assets
20
Net Debt history
£m
Net debt
Net Debt / EBITDA
550
3.3
500
3.1
450
2.9
400
2.7
350
451
300
459
475
491
2.5
416
380
337
336
250
312
200
2.3
2.1
Mar 07 Sep 07 Mar 08 Sep 08 Mar 09 Sep 09 Mar 10 Sep 10 Mar 11
Covenant – net debt / EBITDA < 3.5 x
21
Innovation
Mark Allen
Chief Executive
Innovation – core to Dairy Crest
Building added value sales
-
Lighter variants of key brands
-
1% fat milk
-
milk&more
-
Jugit
Target 10 % of sales from innovation < 3 years old
-
2009/10 - 7%
-
20010/11 – 9%
Driving efficiencies
-
Packaging
-
Biomass boilers
-
Milk purchasing contracts
Strong pipeline for 2011/12
23
Innovation
Example 1 – lighter products
Our research shows that consumers want to cut down on saturated
fat without compromising on taste
This has created a strong market for low fat brands
Over the past 5 years we have launched ‘lighter’ variants of our
3 key UK Foods brands
24
Our ‘lighter’ brands are performing
well and contributing to total brand strength
% of
Total brand
Growth
2010/11
Cathedral City Lighter
13%
27%
Clover Lighter
15%
26%
Country Life Lighter
11%
7%
In France consumers believe in Omega 3 for better heart health and
St Hubert Omega 3 sales up 54% in 4 years
Our sales of 1% fat milk have grown 35% year on year
25
Innovation
Example 2 - milk&more
The only top up shop delivery service – ‘Little Store at your Door’
Compliments rather than competes with main store shopping missions
Planned top up, emergency top up, bulky and heavy items
Breakfast and lunch box meal occasions as well as bulky or
“hassle” items such as bottled water, soft drinks and garden supplies
Unique features of milk&more online:
- Free delivery every delivery with no minimum order
- Order on line up to 9pm the evening before delivery
- No booking a slot and no need to sign for the order
- Environmentally friendly – fewer car trips, electric vehicles, glass bottles
- Personalised service – your own milk&more milkman
Strong customer numbers
Active customers
Source: DC estimates
180k
350k
Unknown
120k
100k
unknown
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Comparing customers
Offline
Switchers
New Customers
(1million active customers)
(125k active customers)
(55k customers)
My milkman is my milkman
My milkman is now more than
I buy what I need when
just milk
I need it
Average weekly basket £4.69
Average weekly basket £5.70
Average weekly basket £10.30
Milk
£4.13
Milk
£4.60
Milk
£3.66
Products
£0.56
Products
£1.10
Products
£6.47
Switch to Online
Drive Product Penetration
Retain and drive
Regular Order
New customers are greatest incremental value potential
to milk&more buying 81% more than Switchers
Source: Average weekly trading, April 2011
27
milk&more advert will run
28
milk&more - looking forward
Starting from a good base…………
Critical mass of customers and weekly turnover above £1 million
milk&more on television for the first time
New customers are buying into the proposition of the top-up shop shopping
across the product range and spending 80% more than a customer switching
from the offline service
But more opportunities…………
To recruit new customers faster
To switch offline customers to milk&more
To drive basket size through targeted promotions
To stabilise residential margins
In summary our forecasts show milk&more has the potential to stabilise
residential margins and milk&more will account for 40% of total residential
margin by H2 2012/13
29
Looking Forward
Mark Allen
Chief Executive
Dairy Crest today
Dairy Crest is a UK based dairy food company with a
significant profit stream from continental Europe
Reduced exposure to commodities
Strong and growing brands, a world class cheese supply
chain, cost-efficient dairies, sound finances
Benefits from being broadly based
31
Looking forward
…we will continue to pursue the same strategy
Build market leading positions in branded and added value markets
Focus on cost reduction and efficiency improvements
Improve quality of earnings and reduce commodity risk
Generate growth and focus the business through acquisitions
and disposals
32
Key priorities
Keep driving cheese sales
- Increase market share of Cathedral City
(currently 9% of total retail cheese)
- Launch relevant new products
Drive efficiencies in Spreads
Continue to grow milk sales to major retailers and
reduce exposure to middle ground
Grow milk&more sales
Deal with inflation
Acquisitions to accelerate growth and bring synergies
33
Dealing with inflation
Broadly based business
- Cheese benefits when milk prices increase
- Customer Direct benefits when milk prices fall
Milk price increases of around £40 million offset by
‘pass through’ and cheese delay
Other commodity cost + 10% (£25 million)
Offset by ongoing cost reduction programme (£20 million pa)
Strong relationship with retailers
34
A real ongoing focus on costs
Cost savings are essential to deliver value to customers
and consumers
£800 million cost base (excluding milk and commodity ingredients)
Target £20 million (2½%) each year
£million
09/10
10/11
11/12
Production efficiencies
10
5

Overheads
5
5

Purchasing
4
5

Distribution
2
5

Total
21
20
35
Current year outlook
Markets are tough and consumers are under increasing pressure
Commodity input costs have increased – we have a track record
of being able to deal with this
We will continue doing the things that have contributed to
recent success
innovation
-
investment in brands
-
strong promotional programme
-
further efficiency improvements
Trading at start of the year is in line with expectations and we are
soundly positioned for the year as a whole
36
Questions
A video interview with Mark Allen, Group Chief Executive is available at www.dairycrest.co.uk & www.cantos.com