Dairy Crest Group plc
Annual Results 2012
24 May 2012
1
DAIRY CREST GROUP plc
Preliminary Results
For the year ended 31 March 2012
24 May 2012
DAIRY CREST GROUP plc
Agenda
20011/12
Mark Allen, Chief Executive
Financial Review
Alastair Murray, Finance Director
Looking Forward
Mark Allen, Chief Executive
2011/12
Mark Allen
Chief Executive
Good performance in challenging
trading conditions
Sales up – adjusted profits stable – dividend up
Strong growth in Foods, continuing progress with key brands –
Revenue +10%
Decisive action in Dairies – restore profitability in medium term –
Revenue -2%
Adjusted profit before tax maintained at £87.4m (2011: £87.6m)
Increased shareholder returns – dividend up 4% to 20.4p per share
5
Our broadly based business
provides stability
Strong performances from Spreads and Cheese have compensated
for a difficult year in Dairies
Operating Profit by Segment
120
100
102
8
106
27
36
34
17
60
109
10
35
80
108
Dairies
28
Cheese
Spreads
40
60
54
53
08/09
09/10
10/11
20
63
0
11/12
6
Despite an even more challenging year for
consumers, retailers and dairy processors alike
For consumers
Who faced real increases in food prices
FOOD
INFLATION
+5%
For retailers
RETAIL MILK PRICE
April 2011 £1.25 / 4 pts
March 2012 £1.18 / 4 pts
Intense competition
Falling consumption
PRICE WARS
BULK CREAM PRICES
March 2011: £1.55/litre
June 2011: £1.85/litre
March 2012: £1.08/litre
For dairy processors
Increasing commodity costs
Falling returns from dairy commodity markets
DAIRY CREST:
COMMODITY COSTS
+£80 MILLION YOY
7
Against this background Dairy Crest
maintained adjusted profit at £87.4 million
Our consistent strategy proves its worth
Build market leading positions in
branded and added value markets
Focus on cost reduction and
efficiency improvements
11% increase in sales of key brands
10% increase Foods revenues
milk&more weekly sales > £1.2 million
Efficiency projects have delivered £22 million
Further £20 million in pipeline for 2012/13
Plans to close two non-core Dairies
Foods Revenues up to 34% of Group
Improve quality of earnings and
reduce commodity risk
Generate growth and focus the
business through acquisition
& disposals
(2007: 29%)
Successful innovation: 10% of sales from
products and services <3 years old
Strategic Review of St Hubert
Purchase of MH Foods
8
Key brands: another year of strong growth
Core
Brand
Market
Brand Growth
11/12*
Market Size
(£bn)
Market
Growth
11/12**
5 Year Brand
Growth
11/12 v
06/07 ***
UK Cheese
12%
2.5
4%
100%
UK Butter
Spreads
Margarine
16%
1.3
1%
12%
1%
60%
-1%
1.3
12%
54%
French NonButter
Spread
19%
0%
0%
6%
0.3
0%
0%
6%
84%
Fresh
Flavoured
Milk
7%
0.1
27%
35%
UK Butter
Spreads
Margarine
* DC value sales 12 months to 31 March 2012v 12 months to 31 March 2011
** Nielsen, IRI data 52 weeks to 31 March 2012
*** DC value sales 12 months to 31 March 2012 v 12 months to 31 March 2007
9
Innovation: delivering for consumers
and retailers
Achieved target to have 10% of sales from products and
services launched within the last three years
Recent innovation: milk&more, Jugit and ‘lighter’ products have
provided a strong base…
…that exciting new products launched in 2011/12 have built on
10
Cost reduction – an essential part of the mix
Ongoing focus on cost reduction has contributed to a solid year
and allowed increased marketing investment
£million
10/11
11/12
12/13
Production efficiencies
5
7

Overheads
5
3

Purchasing
5
9

Distribution
5
3

Total
20
22
20 (minimum)
£75 million three year investment programme for liquid dairies on track
Consultations on closures of Aintree and Fenstanton underway
11
St Hubert – review progressing to plan
Strategic review of French spreads business progressing to plan
- A successful business but Dairy Crest was unable to make further
synergistic acquisitions as envisaged in 2007
Strength of St Hubert confirmed during the year ended 31 March 2012
- Record high profits
- Record market share
Disposal would reduce debt and provide alternatives
- Releasing some proceeds to shareholders
- Investing in core business
- Making strategic UK branded chilled and dairy acquisitions
12
Acting responsibly across the supply chain
Continue to make progress with Corporate Responsibility
- 40 pledges developed during the year to add transparency
and aid reporting
- Highlights include a reduction in workplace accidents and a
significant reduction in carbon footprint
Take practical approach and align with commercial strategy
- Environmental savings improve profits
- Increase number of women by targeting return to work after
maternity leave
BITC – Gold Award – highest new entry in BITC Index 2012
13
Working with dairy farmers
Increasing amount of milk bought direct
Introducing flexible new contracts
-
Fixed price
-
‘Farm business’
Paying fair, market-related milk prices
-
Milk prices have increased steadily during the last two years
-
Recent cuts disappointing but unavoidable given weak markets since year-end
Strengthened support package
-
Water conservation
-
Herd health improvements
14
Financial Review
Alastair Murray
Finance Director
Financial highlights
Adjusted profit before tax* maintained at £87.4m (2011: £87.6m)
Adjusted earnings per share* up 5% to 49.4p (2011: 47.1p)
Exceptional non-cash impairment charges in Dairies lead to reported
loss
Final dividend up 4% to 14.7p (2011: 14.2p) – total dividend 20.4p
(2011: 19.7p)
Net debt increased by £24.8m to £336.4m (2011: £311.6m)
* Before exceptional items, amortisation of acquired intangibles and pension interest.
16
Income Statement
£m
2011/12
2010/11
Profit on operations*
108.7
108.4
Finance costs
(21.0)
(20.6)
Share of associate net loss
(0.3)
(0.2)
Adjusted profit before tax*
87.4
87.6
Other finance income - pensions
5.5
-
Exceptional items
(93.9)
(1.1)
Amortisation of acquired intangibles
(9.1)
(8.7)
(Loss)/Profit before tax
(10.1)
77.8
Taxation
(7.0)
(20.3)
(Loss)/Profit after tax
(17.1)
57.5
* Before exceptional items and amortisation of acquired intangibles
17
Segmental analysis – Cheese
£m
2011/12
2010/11
Revenue
229.6
223.1
Profit
35.5
28.0
15.5%
12.6%
Margin
Volume growth despite pack size reduction
Revenues up - comparative includes three months of Wexford
Cathedral City clear leader in the branded everyday cheese category
New Davidstow cheddar brand growing
Chedds launch and strong NPD pipeline
Improved efficiencies at Davidstow and Nuneaton
18
Segmental analysis – Spreads
£m
2011/12
2010/11
Revenue
328.7
285.5
Profit
63.0
53.3
19.2%
18.7%
Margin
Strong sales growth for St Hubert Omega 3 and Clover
Successful launch of two new products in France
Continued efficiency improvements delivered with more to come
Strong profit delivery and increased A&P
19
Segmental analysis – Dairies
£m
2011/12
2010/11
Revenue
1,069.0
1,089.8
Profit
10.2
27.1
Margin
1.0%
2.5%
Tough trading conditions exacerbated in H2 by falling cream realisations
Continue to focus on cost, quality and service
Increased sales of new products – milk&more, FRijj The Incredible and
1%milk
Action taken to restore Dairies’ margins by increasing efficiency and
capacity utilisation
Significant exceptional impairment of fixed assets and goodwill
20
Exceptional Items
£m
P&L Charge
Cash Impact
Depot rationalisation costs
(5.3)
(5.3)
Impairment of Dairies assets and goodwill
(81.7)
-
Clover rationalisation costs
(2.6)
(0.2)
Bad debt provision
(4.3)
-
OFT settlement (incl costs)
-
(7.3)
Wexford onerous contract costs
-
(0.9)
(93.9)
(13.7)
Total
21
Balance Sheet
£m
Mar-12
Mar-11
Change
Fixed assets, goodwill & intangibles
713.4
799.6
(86.2)
Inventories
187.8
164.5
23.3
Debtors less creditors
(134.9)
(124.2)
(10.7)
Pension deficit
(79.8)
(60.1)
(19.7)
Deferred tax
(69.4)
(86.3)
16.9
Net debt
(336.4)
(311.6)
(24.8)
Other
(6.4)
(16.4)
10.0
Net assets
274.3
365.5
(91.2)
22
Pensions
IAS-19 deficit as of March 2012 - £79.8m (2011: £60.1m)
Annual contributions of £20m agreed for 2010-2013
Benefits from asset outperformance and cash contributions offset by
reduced discount rate for calculating liabilities
Continued work on de-risking the Scheme
- ETV exercise removed £14.6m of liabilities
23
Operating Cash Flow
£m
2011/12
2010/11
Adjusted profit on operations*
108.7
108.4
Depreciation & amortisation**
33.5
33.9
Exceptional Items
(13.7)
(3.7)
Pensions
(21.0)
(21.7)
Other***
(2.4)
(0.5)
Working capital
(20.6)
11.7
84.5
128.1
(53.1)
(48.5)
31.4
79.6
Cash generated from operations
Capital expenditure (net of grants)
Operating cash flow
* Before exceptional items, amortisation of acquired intangibles and share of associates
** Including amortisation of grants
*** Share based payments and profits on asset disposals
24
Net Cash Flow
£m
2011/12
2010/11
31.4
79.6
Interest
(23.6)
(19.8)
Tax
(14.1)
(16.1)
(6.3)
43.7
(26.5)
(25.4)
Proceeds from disposal of assets
12.6
2.5
Acquisition/disposal of businesses
(12.3)
3.9
0.1
(0.1)
(32.4)
24.6
7.6
1.0
Movement in net debt
(24.8)
25.6
Opening net debt
(311.6)
(337.2)
Closing net debt
(336.4)
(311.6)
Operating cash flow
Dividends paid
Other
Net cash flow
Foreign exchange movements
25
Net Debt history
£m
Net debt history
550
3.2
Net debt
491
500
3
475
Net debt / EBITDA
450
2.8
416
400
380
365
350
337
2.6
336
335
312
2.4
300
2.2
250
200
2
Mar 08
Sep 08
Mar 09
Sep 09
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
26
Summary
Adjusted profit before tax maintained in a tough year
Pre-tax loss mainly caused by non-cash goodwill impairment
Small increase in IAS-19 pension deficit
Good year-end net debt position despite cash outflows for
-
2nd year of Dairies investment
- Acquisition of MH Foods
- Additional cheese stock to allow further growth
- OFT fine
Business has renewed long term facilities and has 1.3 turns of
headroom in important net debt: EBITDA covenant
27
Looking Forward
- Restoring Dairies
- Building on UK Foods
Mark Allen
Chief Executive
Looking forward
We will continue with consistent 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
We plan to restore our Dairies business to a satisfactory level
of profitability in the medium term
And build on the strength of our Foods business
29
Restoring Dairies – a clear plan
in a market with potential
UK liquid milk – a large, complex, cyclical market that Dairy Crest can benefit from
- 6 billion litres of milk consumed each year
- Annual retail milk sales alone over £3 billion
- A multi-layered supply chain where expertise counts
Dairy Crest has around 25% market share
Dairy Crest has a clear vision of success
- Strategy driven by profitability
- Right volumes at right price
Decisive action since year end to build on ongoing operational improvements
- Two dairies to close (subject to consultation)
- Depot closures
- Head Office reorganisation
- Reduced milk purchase prices
30
A clear vision of where we want to go
Focused well invested dairies supplying major retailers, residential
customers and selective ‘middle ground’ customers
Efficient distribution from the right dairy and depot network
Leaders in flavoured milk – FRijj and retailer own brand
Grow milk&more
With a strong, profitable farmer supply base
And what we have to do to get there
Ongoing drive for efficiencies
Complete our three year, £75 million investment programme
Use depot network to minimise distribution costs
Grow our brands and innovation
Focus on key customers
31
Operational Improvements
We have driven significant improvements in our Dairies operations
over recent years
Dairies efficiencies (OEE)
Accident rates
(per 100,000 employees)
4,675
64.40%
61.60%
65.50%
62.60%
2,575
1,452
08/09
09/10
10/11
11/12
Milk processed per
employee (‘000 litres)
331
08/09
09/10
10/11
1,035
11/12
Depot costs (ppl)
332
15.8
297
263
15.0
15.2
13.9
08/09
09/10
10/11
11/12
08/09
09/10
10/11
11/12
32
Dairies processing
– a balanced footprint….
Our focus is on 3 core wellpositioned, well invested
liquid dairies
Processing milk with the
same equipment operated
by our competitors
Backed up by specialist
cream and glass bottling
dairies
We compete on cost, quality and service
33
With market-leading distribution….
Focus and transparency improved by organisational changes
Annual cost of milk collection and distribution > £120 million
Projects underway to implement advanced planning tools
Collaboration with key customers to tackle higher costs
Extensive depot network makes Dairy Crest different
Ongoing projects to reduce cost of operating depots
34
And with 2 strong branded propositions….
FRijj
 The UK’s leading flavoured milk brand with retail sales
c. £50 million
 In strong growth after investment in capacity
 With more innovation coming soon
milk&more
 Continuing to grow despite challenging economic environment
 >200,000 active customers generating weekly sales consistently
over £1.2 million
 Focus on customer service
35
Restoring Dairies – summary
This business operates in a large market with potential
It has a good market share and brings critical mass to Dairy Crest
We have a well-invested solid base and strong brands to build on
With a track record of driving operational improvements
Short-term market weakness has resulted in unsatisfactory profits
We have a clear plan to remedy this
We will continue to manage the business to make progress in
challenging markets
Our target is to be able to restore Dairies to a satisfactory
level of profits in the medium term
Aiming to achieve 3% on sales
36
Building on UK Foods
We have created the UK’s leading portfolio of dairy brands in large,
mature markets
37
Our focus is on the consumer
Investment in consumer understanding leads our decision making
-
Promotional background
-
Smaller packs v higher prices
Ongoing communication with consumers
-
TV advertising core
-
Supplemented by other media
-
Promotions
“We want to earn consumers’
loyalty by providing healthy
enjoyable, convenient products.
We aim to meet consumers’ needs
and go where this takes us”
Dairy Crest Vision
Continuous new product development
-
Cathedral City big slice
-
Clover seedburst
-
Selections
38
Supported by a well invested
strong supply chain
It is not just about marketing ..... success requires continuous
investment in supply chain
- Consistent quality
- Record packing speeds and efficiencies at Nuneaton
- Increased flexibility at Frome
- Investment in modern tools to help sales force
- Packaging innovation – for example single spreads tubs
39
Resulting in strong growth in sales
of key brands
Retail sales of Dairy Crest’s 3 key UK foods brands have increased by 51%
From £266 million to £401 million in 4 years of unbroken growth
401
400
Value Sales (£m)
350
300
266
250
200
150
100
50
0
MAT WE 19.04.08
MAT WE 18.04.09
MAT WE 17.04.10
Cathederal City
Source: Nielsen. 31 March 2012
Clover
MAT WE 02.04.11
MAT WE 31.03.12
Country Life
40
We will keep building
on our UK Foods success
• Virtuous circle of growth and investment
• Skillful execution of a well-established strategy
• Strong key brands
• Wide customer base
Our proven ability to develop brands in mature markets leaves
us well set for further profitable growth in our foods businesses
• We expect to achieve market leading growth and long term
margin improvement
41
Summary and current year outlook
Summary
Sales up – adjusted profits stable – dividend up
Strategic review of French spreads business
Clear plan for Dairies
Build on UK Foods
Current year outlook
Continued cost discipline
Strong momentum in our branded Foods businesses
Expect Dairies to benefit from decisive actions
42
Questions
A video interview with Mark Allen, Group Chief Executive is available at www.dairycrest.co.uk & www.cantos.com