23 May 2013
Dairy Crest Group plc (“Dairy Crest”)
Final results for year ended 31 March 2013
2012/13
2011/12
Change
Revenue #
£1,382m
£1,515m
(9)%
Adjusted profit before tax* #
£50.6m
£47.5m
+7%
Profit / (loss) for the year
£54.5m
£(17.1)m
Adjusted basic earnings per share* #
29.9p
28.9p
Basic earnings / (loss) per share #
0.0p
(29.1)p
Year-end net debt
£60m
£336m
(82)%
Proposed final dividend
15.0p
14.7p
+2%
+3%
* Before exceptional items, amortisation of acquired intangibles and pension interest.
# From continuing operations – excluding the discontinued St Hubert business, sold in August 2012.
Financial Highlights

Adjusted profit before tax is up 7% to £50.6 million

Year-end net debt is down 82% to £60 million

Post year-end restructuring of balance sheet reduces future interest charges

Post year-end additional £40 million cash contribution to the pension fund reduces exposure

Proposed final dividend is up 2%
Strategic highlights

Successful sale of St Hubert has refocused the business on the UK

Process is underway to move to one business structure focusing on consumer driven growth and
an integrated supply chain

Innovative new milk price formula introduced to help farmers and sustain milk supply
Operating Highlights

Ongoing growth for Cathedral City ahead of market

Clover and Country Life both gained market share

Innovation driving added value sales: 5% of total revenue and 9% of key brand revenue
generated from products introduced in the last three years

Continued focus on costs: £23 million annualised cost savings delivered in 2012/13, with a further
£20 million identified for 2013/14
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
BITC Platinum Big Tick Award reflects ongoing strong Corporate Responsibility commitment
Commenting on the results, Mark Allen, Chief Executive, Dairy Crest Group plc said:
"This has been an important year in the history of Dairy Crest. The sale of our French spreads business
and subsequent restructuring of our balance sheet has strengthened our financial position and leaves us
well placed to invest for growth in the UK, either internally or through acquisitions.
In line with our long term strategy we have continued to manage proactively the business and remain
focused on driving efficiencies. Taken together, our four key brands have increased their market share in
the face of falling UK consumption. We have also started to restore profits in our Dairies business.
Dairy Crest is today a more streamlined business, and all three of our product categories have
encouraging medium-term profit growth prospects. Whilst we expect the consumer environment to
remain subdued, we have strong foundations in place and trading in the current financial year has started
in line with our expectations.”
For further information:
Dairy Crest
Arthur Reeves
01372 472236
Brunswick
Simon Sporborg
020 7404 5959
A video interview with Mark Allen will be available from 07:00 (UK time) from the investor section of the
Group’s website investor.dairycrest.co.uk. There will be an analyst and investor meeting at 10:30 (UK
time) today at The Lincoln Centre, 18 Lincoln’s Inn Fields, and London, WC2A 3ED. An audiocast of the
presentation will be available from the investor section of the Group’s website investor.dairycrest.co.uk
later today.
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Chairman’s statement
Against the background of a trading environment which remained extremely challenging, this was a
transformational year for Dairy Crest. The Board has overseen the sale of our French spreads business,
St Hubert; a rationalisation of our Dairies business; a reorganisation of our head office and support
functions; and the introduction of a ground-breaking milk supply contract which initiated a new
relationship between the business and its supplying dairy farmers.
At the same time, in line with our established long-term strategy, we have continued to support our key
brands and drive costs out of the business.
We finish the year in a much improved financial position and with a clear plan for growth which will benefit
everyone associated with the business.
Well-established Vision and Values
The Group’s well-established Vision and Values continue to provide the Board with a framework in which
to operate. They reflect the fact that consumers come first for Dairy Crest and that we are well aware of
our links to rural Britain and the responsibility we have to our farmers, our employees, our franchisees
and the communities in which we operate. Balancing these groups’ different interests is never easy,
especially at times when the need to make change is at its greatest, but the clarity provided by our Vision
and Values helps us make the right decisions.
Corporate responsibility
Dairy Crest is a responsible business and has demonstrated its commitment to corporate responsibility
by improving its Business in the Community rating from Gold to Platinum Big Tick in the year, the only
food business to achieve this prestigious ranking. We are also delighted to have been shortlisted to be
Business in the Community’s Company of the Year 2013. During the year we have focused our
corporate responsibility commitments on 40 pledges, making it easier to align our corporate responsibility
and commercial strategies.
Employee, Board and other senior management changes
The transformation overseen by the Board has resulted in a smaller workforce which has reduced by
around 20% over the year. As a responsible employer, we have endeavoured to support people who
have left the business as best we can. On behalf of the Board I would like to thank all of them and all of
the people who continue to work for Dairy Crest directly or indirectly for the contribution they have made
to the success of the Group.
On 23 May 2013, after nearly ten years as Finance Director, Alastair Murray will leave to pursue other
business interests. In his time with Dairy Crest Alastair has been a Finance Director of the highest quality
with an excellent reputation both within the business and outside. He leaves Dairy Crest with our very
best wishes for the future.
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Alastair’s successor as Finance Director is Tom Atherton who has been Dairy Crest’s Director of
Financial Control for the past four years and has worked for Dairy Crest for over seven years in total.
In addition Toby Brinsmead who was Managing Director of the Dairies business before we reorganised
into a unified structure left the business earlier this month. I thank him for all he has done, in particular
for his important work in creating a more focused Dairies business.
Increased dividend recommended
The Board is recommending a final dividend of 15.0 pence per share, making a full year dividend of 20.7
pence, up 1.5% from last year. This dividend is covered 1.4 times by adjusted basic earnings per share.
The reorganisation of our balance sheet since the year end will lower interest charges and result in an
improved dividend cover in the future. The Board has reviewed its dividend policy and, given the Group’s
improved cash position, is of the view that, going forward, the current progressive dividend policy should
be maintained and the target cover range should be 1.5 to 2.5 times.
Summary
We have made significant progress this year through disciplined execution of our strategy. Dairy Crest is
now a simpler, more focused business which is well positioned to generate growth and good returns for
shareholders.
Anthony Fry
Chairman
22 May 2013
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Chief Executive’s review
Summary
This has been an important year in the history of Dairy Crest. The transformational sale of our French
spreads business, St Hubert, resulted in proceeds of £341 million and generated a post-tax profit of £47.7
million. This sale and subsequent reorganisation of our balance sheet leaves us well placed to meet the
challenges of the tough consumer environment and to invest in growth in the UK.
Taken together our four key brands have increased their value market share. This is a solid performance
and reflects our consistent strategic focus on brand equity and innovation.
A sustainable supply of milk is of vital importance to Dairy Crest. In the face of some of the most
challenging weather ever experienced by our farmers, and higher feed costs that have put pressure on
their businesses, we were first to adopt a government-sponsored voluntary code of practice. In addition,
we increased the milk prices we paid to farmers and introduced a ground-breaking contract which
allowed them to opt for a formulaic milk price mechanism that provides greater transparency and reduces
volatility.
Higher farmgate milk prices have put pressure on our Dairies business. Nevertheless we have made
progress in rebuilding profitability. We have completed our three-year £75 million investment programme;
closed two dairies; driven down costs; extended our major liquid milk contract with Sainsbury’s through to
2017 and reduced our exposure to less profitable contracts.
Last year we set a medium-term target of a 3% return on sales for this business. Despite the additional
support we provided to our farmers in the year, we have made some progress towards our target.
Second half margins, which are usually higher than those in the first half, rose to 1.7%.
St Hubert
It was not an easy decision to sell St Hubert. This was a strong business that had performed extremely
well under Dairy Crest’s ownership and had made a significant contribution to the profitability of the
business. However it did not provide the platform for further expansion into continental Europe that we
anticipated.
The successful disposal of St. Hubert has reduced significantly the Group’s gearing. Following the sale
our year-end net debt is at its lowest level since 2000. This strong position has allowed us to reduce our
exposure to the pension fund by making a one-off contribution of £40 million subsequent to the year end
and provides us with exciting opportunities to invest for growth.
Market background
The year has seen generally lower food consumption reflecting fragile consumer confidence.
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Changes elsewhere in the market place have left us as the largest UK-owned dairy foods company. We
are proud to be in this position and recognise the onus it places on us to provide leadership to the UK
dairy sector. We have fulfilled this role by being the first major milk buyer to fully implement the
Government’s voluntary code of practice for milk supply contracts and by introducing a formula based
milk purchasing contract. We are also taking the lead in calling for clearer country of origin labelling for
dairy products so that British consumers can support British farmers.
Looking forward we are hoping for a more benign climate for farming. However we expect consumers to
remain cautious and demand to remain subdued.
Long-term strategy
We remain clear that our long-term strategy to grow branded and added value sales, become more
efficient, reduce risk and improve the quality of our earnings and make value-enhancing acquisitions and
disposals is the right one for the business. We have made good progress with the execution of this
strategy during the last year.
The rationalisation of our Dairies business, which has involved a three year programme of investment in
three key dairies and the closure of the Fenstanton and Aintree dairies as well as 28 distribution depots,
demonstrates our determination to create a sustainable business. We retained our contract to supply
liquid milk to Sainsbury’s through to 2017 in the face of fierce competition and new processing capacity
coming on stream elsewhere in the dairy sector. This was a good result and vindicates the difficult
decisions we have made in this part of our business.
The work we have done over recent years to focus the business and remove complexity has allowed us
to initiate a reorganisation into one management and operating structure. The new structure is focused
on consumer-driven growth with an integrated supply chain and is consistent with our long-term strategy
to build added value sales and drive efficiencies.
Cutting costs is an embedded part of our strategy and cost reductions have been important in achieving
our targets this year. We maintained our record of implementing cost saving initiatives of at least £20
million per annum, achieving £23 million in the year. Our employees, including Board members and
senior management, have contributed by accepting below-inflation pay increases.
In addition to the initiatives in our Dairies business and our reorganisation into one structure, we are also
consolidating our two British spreads manufacturing facilities onto one site as we target a further £20
million of savings in the new financial year. These efficiency measures help us to support our key
brands, meet profit expectations and pay our farmers more.
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Trading performance and financial summary
A solid performance from our four key brands, Cathedral City, Clover, Country Life and FRijj, particularly
in the first half of the year, coupled with an accelerated programme of efficiency measures, resulted in a
strong trading performance and we delivered results for the year in line with our expectations.
As the table below shows, total revenue from our four key brands is flat year on year with Cathedral City
and FRijj growth being offset by lower Clover and Country Life sales. Retail sales of these brands as
measured by Nielsen have grown in total by 3% and Cathedral City, Clover and Country Life have all
grown market share. Although FRijj has lost market share in the face of strong competition from new
brands introduced by competitors, its own growth reflects the expansion of the overall market.
We continue to invest behind our key brands and are committed to their ongoing success. Our marketleading cheddar brand, Cathedral City, goes from strength to strength and has become one of the UK’s
major food brands. In 2012 it was the only food brand voted into the top ten of YouGov's Brand Index,
alongside BBC iPlayer, John Lewis and Amazon.
Brand
Market
Dairy Crest
Market Statistics**
sales growth*
Brand growth
Market growth
Cathedral City
UK cheese
+3%
+5%
+2%
Clover
UK butter,
(5)%
(1)%
(3)%
(3)%
+1%
(3)%
+5%
+5%
+10%
-%
+3%
spreads,
margarine
Country Life
UK butter,
spreads,
margarine
FRijj
Flavoured
milk
Total
* Dairy Crest sales 12 months to 31 March 2013 v 12 months to 31 March 2012
** Nielsen data 52 weeks to 30 March 2013
New products launched in the last few years such as FRijj The Incredible, Chedds and Cathedral City
Selections contributed to this performance and we continue to focus on bringing new products to the
market. This year around 5% of our total revenue and 9% of our key brand revenue has come from
products introduced in the last three years. We have an ambitious target of 10% for such sales which we
achieved last year but have missed this year as new products introduced three years ago dropped out of
the calculation.
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Adjusted Group profit before tax increased by 7% to £50.6 million (2012: £47.5 million). Adjusted basic
earnings per share increased by 3% to 29.9 pence (2012: 28.9 pence).
Group net debt at 31 March 2013 was £60 million (2012: £336 million), principally reflecting the proceeds
from the sale of St Hubert.
Future prospects
We believe that we can generate profit growth in all three of our product categories over the medium
term. We believe we can continue to grow sales and profits in our cheese business; that the
consolidation of our spreads manufacturing footprint onto one site will improve the profitability of that
business; and that our dairies business will continue to benefit from the work we are doing to move
towards our medium-term target of 3% return on sales.
In addition, the post year-end debt restructure will result in lower interest charges in the future.
We are focused on generating cash from the business as well as growing profits, albeit we expect net
debt to rise in the year ending 31 March 2014 as a result of our one off cash contribution to the pension
fund and investment in our new Spreads manufacturing facility.
Once the Spreads project is completed we will have well-invested, modern facilities across our business
and we would expect capital expenditure in the existing business to fall back towards the level of annual
depreciation. We will also continue to sell properties we no longer require and, in the absence of
acquisitions or internal investment in new growth opportunities, would expect net debt to fall after
2013/14.
Our strong financial position and our confidence that we can generate cash from our existing product
categories means we have the capability to invest in attractive growth opportunities, either internally or
through acquisition.
We are excited about an opportunity to increase profits from whey, a by-product of the cheese
manufacturing process. At present we manufacture whey powder which is mainly sold to food
manufacturers, but we believe there now may be an opportunity to add greater value to our high quality
whey stream and enter other, more attractive markets. A project is underway to scope the opportunity.
Current trading
The current financial year has started in line with our expectations. We have announced higher milk
prices for our farmers but have demonstrated in the past that we can do this without damaging
profitability. Key to achieving this is the ongoing implementation of our strategy to reduce controllable
costs and we are again on track to meet our targeted £20 million saving during the year.
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Operating Review
Spreads
We make and sell butter and spreads at two locations in the UK, but are currently in the process
of consolidating manufacturing onto one of our existing sites at Kirkby, Merseyside.
The UK butter and spreads market declined during the year with values around 3% lower and
volumes around 2% lower overall. Clover and Country Life, our two key brands in this sector,
both increased value and volume share. Promotions are at a historically high level across the
category but are not driving category growth.
Looking forward we expect the trading environment for butter and spreads to remain challenging.
The work we are doing to rationalise our manufacturing capability will make us more efficient and
allow us to continue to compete strongly.
Reported revenue for the year ended 31 March 2013 fell by 8% to £194.5 million. Segment profits
increased 11% to £25.7 million, resulting in a segment margin of 13% (2012: profit £23.2 million,
margin 11%).
Two of Dairy Crest’s four key brands operate in the butter and spreads product category.
Clover, our main spreads brand, saw a small increase in volume but a 5% reduction in value sales. It
remains the UK’s leading dairy spread. Previously introduced innovation such as Clover Lighter
continues to boost the brand’s performance. Towards the end of the year we introduced a brand new
product, Clover Seedburst, into the market. This is a spread containing a blend of seven healthy seeds
and whole grains and is targeted at more health-focused consumers. We have more innovation planned
for the Clover brand.
Country Life is the leading British butter brand. Sales volumes remained broadly flat year on year,
although a reduction in price, reflecting lower input costs, primarily cream, resulted in sales values falling
by 3%.
Our other spreads brands, Utterly Butterly, Vitalite and Willow, experienced small reductions in volume
and value shares.
Our Spreads business is also home to MH Foods which we purchased in 2011. This business
manufactures and markets ‘one-spray’ cooking oils. Under our ownership the business has rationalised
its product range and improved manufacturing efficiencies and is making good progress. MH Foods
demonstrates the contribution that small acquisitions can make over time to the profitability and growth of
the Group.
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During the year we moved production of Clover from our factory in Crudgington, Shropshire to Kirkby,
Merseyside and also commenced a project that will see Crudgington close completely in 2014 with all
production being moved to Kirkby. This £38 million project has attracted a £5 million grant from the
Regional Growth Fund.
Looking forward we expect the profits of this business to benefit from the cost savings that will arise from
a more efficient supply chain.
Cheese
Dairy Crest produces and markets the UK’s leading cheese brand, Cathedral City. Named in an
independent survey as one of the UK’s top ten positively viewed brands, the only food brand to
achieve this standing, Cathedral City is made at our Davidstow creamery in Cornwall from milk
supplied by around 450 local dairy farmers before being matured in Nuneaton and cut and
wrapped at either our state of the art facility there or our highly flexible site in Frome.
We also make and sell the premium Davidstow brand cheddar, which can justifiably claim to be
the best cheddar in the UK after it again won the Danisco Grand Prix trophy for consistently
topping the judges’ lists at cheese shows around the country.
Consumer-led marketing, including innovation in the form of new products and range extensions
has led to significant growth in our branded cheese sales in recent years.
Reported revenue for the year ended 31 March 2013 grew by 1% to £ 231.3 million. Segment
profits fell 6% to £33.3 million (as stock profits recorded last year were not repeated), resulting in
a segment margin of 14% (2012: profit £35.5 million, margin 15%).
UK retail cheese market volumes fell by 2% in the year with values increasing by 2% to £2.6 billion.
Cathedral City sales grew by 3%, with volumes up 1%. It has again increased its market share and
remains by far the largest brand in the total everyday cheese sector, although its sales account for only
16% of this sector, reflecting the dominance of retailer own label.
Over recent years we have widened the appeal of Cathedral City and now have four taste variants (mild,
mature, extra mature and vintage) as well as Lighter (reduced fat) Cathedral City, and Chedds, a snack
brand for children. Chedds was launched in 2011 and has made a significant impact in the children’s
cheese market.
Innovative packaging continues to be important to the brand’s growth and the launch of Cathedral City
Selections, packs containing bite-sized pieces of cheese, has been extremely successful, bringing new
10
consumers to the cheese market, boosting sales in its own right and giving consumers an opportunity to
sample the range of taste variants.
The long-established mature variant accounted for 57% of total Cathedral City sales, down from 65% last
year, reflecting the progress we have made in broadening the range.
We have continued to advertise and promote Cathedral City strongly and have worked with key retailers
to increase the brand’s in-store presence. For example, working with Tesco, we set up a trial in 36 of
their stores. A whole bay of the cheese fixture was dedicated to Cathedral City, ensuring the full range
was on offer to consumers and allowing increased in-store branding. The trial was successful and
Cathedral City bays will be rolled out to more Tesco stores in the year ending 31 March 2014.
The strong performance of Cathedral City has been acknowledged externally. The Grocer has placed it
as Britain’s 15th biggest grocery brand (up from 21st last year) and in a recent YouGov poll Cathedral City
was ranked as Britain’s tenth most positively viewed brand and was the only food brand in the top ten.
In addition to the performance of Cathedral City we have made good progress with our premium
Davidstow brand. We continue to widen distribution, replacing Davidstow products that have carried the
name of specific retailers. This has encouraged us to increase the investment behind this brand and we
expect to see further progress going forward.
We also continue to achieve increased efficiencies throughout the supply chain and have reduced
packing costs during the year.
The growth in our cheese sales has encouraged us to expand Davidstow’s production capacity in the
year and we have further plans for expansion in the future.
Profits in this business have been supported by strong returns from whey – the by-product of cheese
manufacture. The whey stream at Davidstow is particularly valuable because of its size and quality and
because it contains no colouring. We are excited about an opportunity to increase whey profits by
extending manufacturing into higher value products which are in demand world-wide and have initiated a
project to scope this opportunity.
The farmers supplying their milk to our cheese business have shared in its improved performance
through higher milk prices. We are happy to continue to pay a premium for our milk at Davidstow to
ensure we get a top-quality supply and since the year end have announced a further increase in the price
we pay.
Looking forward we are well positioned to increase market share and profits from cheese sales. The
opportunity to boost returns from whey only adds to the future prospects of this product category.
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Dairies
The Dairies business processes and delivers fresh conventional, organic and flavoured milk to
major retailers, ‘middle ground’ customers (including, for example, smaller retailers, coffee shops
and hospitals) and residential customers.
We also manufacture and sell FRijj, the leading fresh flavoured milk brand, cream and milk
powders.
Reported revenue fell by 11% to £951.6 million (2012: £1,069 million). Segment profit rose slightly
to £10.3 million (2012: £10.2 million), resulting in a margin of 1.1% (2012: 1.0%).
A clear plan to restore Dairies profitability
2012/13 was another tough year for the Dairies business. Following the drop in profits in 2011/12 we
have created and started to implement a plan to restore the returns from our Dairies business to an
acceptable level. We believe this business can deliver a 3% return on sales and have set this as a
medium-term target.
Returns in the second half of the year increased to 1.7% compared to 0.4% in the first half reflecting both
the usual seasonal factors and initial results from the actions we have taken.
Profits will be increased by a combination of higher FRijj and other added-value sales, reduced costs and
a greater willingness to only supply those customers who will pay a fair price.
We expect that our actions will lead to higher margins to offset cost inflation and lower residential sales
that command an above average margin.
At the same time we will continue to pay a fair milk price to the farmers who supply their milk to us and
provide high quality products and cost efficient services to our customers.
FRijj – one of the drivers behind the plan
FRijj operates in the flavoured milk product category. This comprises fresh flavoured milk and long-life
flavoured milk. FRijj is predominately in the fresh category but we have developed a new long life
product which will allow us to push the brand into convenience and other outlets where refrigerated
storage is less available.
The flavoured milk category is growing strongly. Total sales are up 5% in volume and 10% in value.
Fresh flavoured milk sales are up 8% in volume and 16% in value as new brands introduced by
competitors have proved popular.
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FRijj sales grew by 5% in value in the year, boosted by the innovative FRijj The Incredible premium range
of flavours but declined 2% in volume.
We advertised FRijj on television with encouraging results, although we expect to continue to use social
media and other alternative forms of marketing to support this brand going forward, reflecting the age of
its target consumer.
We expect to see further material growth in this brand in the future and are continuing to invest at our
Severnside production facility to ensure there is sufficient headroom to allow unfettered growth.
Efficiency improvements and cost reductions are also key
During the year we have completed the three year £75 million investment programme. As anticipated,
the investment has allowed us to pack milk more efficiently and has provided an opportunity to focus
polybottle production at three sites and glass bottling on one site. As a result we closed the Aintree and
Fenstanton dairies during the year with the regrettable loss of 450 jobs. We expect the resultant full-year
cost savings to contribute to future profit growth.
We have made further efficiencies including introducing a new design of polybottle in partnership with our
supplier Nampak. This uses up to 15% less plastic – good for costs and good for the environment.
Our Dairies business also benefits from our ongoing company-wide cost saving projects. As the largest
of our businesses it covers the highest proportion of central overheads and the decision to move to one
business, which is anticipated to save over £5 million annually, will contribute to the restoration of
profitability in this area.
Getting the right customer mix
During the year we retained our contract to supply liquid milk to Sainsbury’s - one of our largest
customers - and now have an agreement to supply them through to 2017.
We also strengthened our offering to retailers by buying Proper Welsh Milk, a small dairy business that
packs Welsh milk in Wales. Several key retailers are customers of this business which we will look to
expand.
We had to negotiate higher milk prices with customers so that we could pay our farmers more and
compensate them for the difficulties they faced from the poor weather and higher animal feed costs. We
also need to make an acceptable return for ourselves. Many of our customers were willing to pay higher
but fair prices. However we chose to stop supplying some smaller customers who were not prepared to
do so. Going forward we will continue to review our customer mix, particularly in the middle ground.
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Residential sales still important
Delivering milk to customers’ doorsteps remains a key part of our business. We have 850,000 residential
customers and have a network of 1,800 milkmen delivering to them. However sales in this area continue
to fall as financial pressures lead to customers choosing to buy their milk from shops rather than have it
delivered. The rate of decline was lower amongst customers who use our internet doorstep delivery
proposition, milk&more, where we have maintained over 200,000 customers who use the service every
week. However overall residential volume sales of milk fell 12% compared to last year. As a result we
closed 28 local depots, finishing the year with 92. We also closed our residential delivery product
distribution centre in Sunbury during the year, moving this operation to our National Distribution Centre in
Nuneaton.
Profits from the sale of depots closed in earlier years as well as 2012/13 were £7.7 million. We anticipate
that property profits from the sales of depots will continue into the future and contribute to our mediumterm target of 3% margin.
Ingredients
Our ingredients operation continues to provide us with a valuable balancing solution for seasonal raw
milk supplies and cream.
We aim to minimise throughput in this business to reduce our exposure as far as possible to dairy
commodity markets. However our Dairies business generates more cream than that required by our
Spreads business. Prices for dairy ingredients were low during the early months of the year then rose
towards the middle of the range seen in recent years. Since the year end they have increased further.
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Financial review
Overview
The successful sale of St Hubert in August 2012 has significantly strengthened the company’s financial
position. The Group received cash consideration of £341.1 million and net debt at 31 March 2013 of
£59.7 million is the lowest since 2000. Since 31 March 2013, the Group has restructured its debt facilities,
repaying £100 million of loan notes early and has also made a one-off cash contribution to the pension
fund of £40 million.
These actions leave the Group well placed to fund growth in its core UK market. Key projects for 2013/14
include the ongoing major £38 million investment in consolidating UK spreads production onto one site in
Kirkby, Merseyside.
Segment Revenue
2013
2012
Change
Change
£m
£m
£m
%
Cheese
231.3
229.6
1.7
0.7
Spreads
194.5
211.3
(16.8)
(8.0)
Dairies
951.6
1,069.0
(117.4)
(11.0)
Other
4.2
4.8
(0.6)
(12.5)
Total segment revenue
1,381.6
1,514.7
(133.1)
(8.8)
Group revenue excluding St Hubert decreased by 8.8% to £1,381.6 million, predominantly as a result of
lower revenues in the Dairies business. These lower revenues reflect the decision to reduce sales in the
middle ground following the closure of the Fenstanton and Liverpool dairies, and also the on-going
reduction in residential sales. Spreads revenue also decreased by £16.8 million due to lower average
realisations on Clover and butter (following a reduction in vegetable oil and cream costs) and reduced
sales of Utterly Butterly. Cheese revenues increased slightly.
Segment Operating Profit
2013
2012
Change
Change
£m
£m
£m
%
Cheese
33.3
35.5
(2.2)
(6.2)
Spreads
25.7
23.2
2.5
10.8
Dairies
10.3
10.2
0.1
1.0
Share of associates
-
(0.3)
0.3
n/a
Total segment profit
69.3
68.6
0.7
1.0
Remove share of associates
-
0.3
(0.3)
n/a
Acquired intangible amortisation
(0.4)
(0.8)
0.4
50.0
Group profit on operations (pre-exceptionals)
68.9
68.1
0.8
1.2
15
Segment profit excluding St Hubert increased by £0.7 million to £69.3 million. Cheese profits recorded a
small decrease to £33.3 million, reflecting increased costs of milk in 2011/12 translating into higher cost
of sales in 2012/13. Spreads profits increased by £2.5 million to £25.7 million due to the benefit of cost
savings initiatives and lower vegetable oil costs. Dairies profits of £10.3 million were effectively flat yearon-year, with the benefit of on-going cost savings being offset by the impact of residential decline and the
higher cost of raw milk. Within Dairies, property profits were £7.7 million (2012: £4.6 million).
Sale of St Hubert
In August 2012 the St Hubert business was sold for cash consideration of £341.1 million, resulting in a
profit on disposal of £47.7 million after fees and estimated tax costs. This profit has been classified within
discontinued operations as exceptional. The results of St Hubert until the date of sale have also been
disclosed as discontinued operations and prior year comparatives have been restated accordingly.
The sale of St Hubert has resulted in a UK-focused business which has subsequently been reinforced by
a reorganisation resulting in the removal of divisional operating and management structures. The cash
proceeds have allowed the Group to restructure its debt after the year end and make a one-off
contribution to the pension fund as well as retain capacity for future investment in the UK business.
Exceptional Items
Pre-tax exceptional charges of £56.5 million have been recorded in the year (2012: £93.9 million).
In September 2012 we announced the potential closure of the Crudgington site with production moving to
Kirkby. This project, now confirmed, will give significant savings in future years. Exceptional costs of
£13.8 million have been recorded in the year, the majority of which are non-cash asset write-downs.
Cash expenditure in the year was £2.6 million.
In April 2012 we also announced a major restructuring of Dairies manufacturing, which ultimately led to
closure of the Fenstanton and Aintree dairies. An exceptional cost of £21.3 million has been recorded
against this project, of which £9.0 million represents redundancy costs. Cash expenditure in the year was
£17.8 million and the project is now complete.
During the year we completed the restructuring of depot administration activities in the Dairies division.
This project has delivered more streamlined and centralised back-office support functions and generated
significant cost savings. Exceptional costs in the period were £9.2 million (predominantly redundancy)
with a cash expenditure in the year of £8.5 million.
In February 2013 the company announced a management restructure, leading to a unified business.
Exceptional costs of £3.5 million have been charged in the year being accruals for redundancy costs.
Some further exceptional costs will be incurred in 2013/14 as the reorganisation is completed.
16
On 18 April 2013 the company repaid £100 million of loan notes ahead of their normal maturity date and
reduced its revolving credit facility (“RCF”) by €60 million. The associated costs (primarily make-whole
premium payable to note holders) resulted in an exceptional charge of £8.7 million in the year to 31
March 2013 and the cash impact will be reflected in 2013/14. These costs are considered exceptional
due to their size and nature, and were charged in 2012/13 because having given notice of repayment to
noteholders in March 2013, the Group was irrevocably committed to repaying the loan notes at the year
end.
Finance costs
Finance costs have reduced by £2.4 million to £18.7 million. This primarily reflects the reduction in net
debt following the sale of St Hubert in August 2012 at which point all borrowings under the revolving
credit facility were repaid. The balance of the St Hubert proceeds were largely held on short-term cash
deposit prior to the loan note repayments noted in the “Borrowing Facilities” section below. The quantum
of the interest reduction during the year was limited due to the very low interest rates available on sterling
and euro deposits.
Other finance income of £5.9 million (2012: £5.5 million) comprises the net expected return on pension
scheme assets after deducting the interest cost on the defined benefit obligation. This is based on
assumptions made at the start of the financial year. This amount can be highly volatile year on year as it
comprises the net of expected returns and interest costs, both of which are dependent upon financial
market conditions at 31 March each year. We therefore exclude this item from headline adjusted profit
before tax.
Interest cover excluding pension interest, calculated on total segment profit, remains comfortable, at 3.7
times (2012: 3.3 times).
Profit before tax
2013
2012
Change
Change
£m
£m
£m
%
Total segment profit
69.3
68.6
0.7
1.0
Finance costs
(18.7)
(21.1)
2.4
11.4
Adjusted profit before tax
50.6
47.5
3.1
6.5
Amortisation of acquired tangibles
(0.4)
(0.8)
0.4
50.0
Exceptional items
(56.5)
(93.9)
37.4
39.8
Other finance income – pensions
5.9
5.5
0.4
7.3
Reported loss before tax
(0.4)
(41.7)
41.3
n/a
Adjusted profit before tax (before exceptional items and amortisation of acquired goodwill) increased by
6.5% to £50.6 million. This is management’s key Group profit measure. The reported profit before tax
was a loss of £0.4 million as a result of exceptional items. However, this measure excludes the
17
exceptional pre-tax profit of £51.4 million recorded on the sale of St Hubert, and the pre-tax profits from
St Hubert up to the date of its disposal (£11.3 million).
Taxation
The Group’s effective tax rate on profits from continuing operations (excluding exceptional items) was
20.7% (2012: 19.5%). The effective tax rate continues to be kept below the corporation tax rate by profits
from property disposals, on which the tax charges are sheltered by brought forward capital losses or roll
over relief. We expect the effective tax rate to decrease next year in line with the reduction in the rate of
UK corporation tax.
Group result for year
The reported Group profit for the year amounted to £54.5 million (2012: £17.1 million loss) reflecting the
profit on sale of St Hubert.
Earnings per share
The Group’s adjusted basic earnings per share increased by 3% to 29.9 pence per share (2012: 28.9
pence per share).
Basic earnings per share from continuing operations, which includes the impact of exceptional items,
pension interest income and the amortisation of acquired intangibles, amounted to nil pence per share
(2012: 29.1 pence loss per share).
Dividends
The proposed final dividend of 15.0 pence per share represents a 0.3 pence per share increase
compared to last year. Together with the interim dividend of 5.7 pence per share this brings the total
dividend to 20.7 pence per share for the full year, 1.5% higher than last year (2012: 20.4 pence per
share). The final dividend will be paid on 1 August 2013 to shareholders on the register on 28 June
2013.
Pensions
During the year, the Group paid £20 million into the (closed) defined benefit scheme in line with the
schedule of contributions agreed in June 2011. Contributions at this rate will continue until a new
agreement is reached following the actuarial valuation due as of 31 March 2013.
Following the sale of St Hubert, the Group entered into discussions with the Pension Fund Trustee about
the impact of this transaction on the employer covenant. Consequently, on 18 April 2013 the Group
made an additional one-off contribution to the Fund of £40 million. At the same time the Group granted
the Trustee a floating charge over maturing cheese inventories, with a maximum realisable value of £60
million. This charge was put in place to protect the Fund in the unlikely event of an insolvency of Dairy
Crest Limited.
18
The reported IAS19 pension liability at 31 March 2013 was £67.2 million comprising an IAS 19 deficit of
£56.3 million and a £10.9 million additional liability reflecting an unrecoverable notional surplus. The
reported deficit at 31 March 2012 was £79.8 million. Asset returns were strong during the year; however
bond yields declined again increasing the discounted level of pension liabilities.
Cash Flow
Cash generated from operations was £19.1 million in the year (2012: £84.5 million). This includes a
working capital outflow of £40.0 million (2012: £20.6 million outflow) due mainly to the higher value of
cheese stocks compared to March 2012 - £155.5 million in March 2013 versus £129.8 million last year.
Stock value increases are a result of increased manufacturing to support future volume growth and milk
cost increases during 2012. As was the case last year, we received some early settlement of invoices
from customers at March 2013.
Capital expenditure of £50.9 million was £2.4 million below last year (2012: £53.3 million). Significant
investment continued across our core milk processing sites, Severnside, Chadwell Heath and Foston.
The investment has allowed these sites to absorb volume from the Liverpool and Fenstanton dairies,
which have now closed. We now operate as a smaller, well invested Dairies manufacturing base with
improved efficiencies and higher levels of capacity utilisation. In February 2013, we received a grant of
£5.3 million from The Department for Communities and Local Government to be applied towards capacity
expansion at our spreads site at Kirkby. Proceeds from the sale of closed depots amounted to £10.1
million.
Cash interest and tax payments amounted to £18.0 million and £4.7 million respectively. (2012: £23.6
million and £14.1 million). Interest payments are £5.6 million lower as net debt reduced following the sale
of St Hubert in August 2012, at which point, all borrowings under the revolving credit facility were repaid.
Furthermore, upfront fees in relation to the renewal of the revolving credit facility were paid in the prior
year.
Net Debt
Following the sale of St Hubert, net debt decreased by £276.7 million to £59.7 million at the end of the
year. Net debt as defined includes the fixed Sterling equivalent of foreign currency loan notes subject to
swaps and excludes unamortised facility fees. At 31 March 2013, gearing (being the ratio of net debt to
shareholders’ funds) was 19% (2012: 123%).
Borrowing Facilities
At the start of the financial year, the group’s borrowing facilities comprised: £337 million of loan notes (at
the effective swapped exchange rate) maturing between April 2013 and November 2021, and a £170
million plus €150 million revolving credit facility expiring in October 2016.
19
In November 2012, £7.5 million of notes were voluntarily redeemed at par by investors. Facilities at 31
March 2013 therefore comprised £330 million of loan notes and a £170 million plus €150 million revolving
credit facility.
On 4 April 2013, £60 million of notes from the 2006 series which had reached their maturity were repaid.
On 18 April 2013, a further £100 million of loan notes were repaid from the 2007 series. Of these notes,
the majority (£69 million) were due for repayment in April 2014 with the balance due in April 2017. This
will reduce the Group’s interest payments going forward. The repayment was effected by exercising the
Group’s right to early redemption on payment of a make-whole premium.
Following these repayments, the Group has £170 million of notes outstanding which mature between
2014 and 2021.
On 18 April 2013 the Group also reduced its revolving credit facility by €60 million to £170 million plus
€90 million (approximately £246 million).
Borrowing facilities are subject to covenants which specify a maximum ratio of net debt to EBITDA of 3.5
times and a minimum interest cover ratio of 3.0 times. The Group remains very comfortably within its
covenants with a net debt to EBITDA ratio of 0.6 times as of 31 March 2013 (March 2012: 2.2 times)
Treasury Policies
The Group operates a centralised treasury function, which controls cash management and borrowings
and the Group’s financial risks. The main treasury risks faced by the Group are liquidity, interest rates
and foreign currency. The Group only uses derivatives to manage its foreign currency and interest rate
risks arising from underlying business and financing activities. Transactions of a speculative nature are
prohibited. The Group’s treasury activities are governed by policies approved and monitored by the
Board.
Going concern
The financial statements have been prepared on a going concern basis as the Directors are satisfied that
the Group has adequate financial resources to continue its operations for the foreseeable future. In
making this statement, the Group’s Directors have: reviewed the Group budget, strategic plans and
available facilities; have made such other enquiries as they considered appropriate; and have taken into
account ‘Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009’ published by
the Financial Reporting Council in October 2009.
Alastair Murray, Finance Director
22 May 2013
20
Consolidated income statement
Year ended 31 March 2013
2013
2012
Before
Before
exceptional
Exceptional
exceptional
Exceptional
items
items
Total
items
items
Note
£m
£m
£m
£m
£m
£m
Group revenue
2
1,381.6
-
1,381.6
1,514.7
-
1,514.7
Operating costs
3,5
(1,320.4)
(47.8)
(1,368.2)
(1,451.2)
(93.9)
(1,545.1)
4
7.7
-
7.7
4.6
-
4.6
68.9
(47.8)
21.1
68.1
(93.9)
(25.8)
(21.1)
Other income - property
Profit / (loss) on operations
Total
Finance costs
6
(18.7)
(8.7)
(27.4)
(21.1)
-
Other finance income - pensions
6
5.9
-
5.9
5.5
-
5.5
-
-
-
(0.3)
-
(0.3)
(41.7)
Share of associate's net loss
Profit / (loss) before tax
Tax (expense) / credit
7
56.1
(56.5)
(0.4)
52.2
(93.9)
(11.6)
12.0
0.4
(10.2)
13.1
2.9
44.5
(44.5)
-
42.0
(80.8)
(38.8)
6.8
47.7
54.5
21.7
-
21.7
51.3
3.2
54.5
63.7
(80.8)
(17.1)
Profit / (loss) from continuing operations
Profit from discontinued operations
16
Profit / (loss) for the year attributable to equity shareholders
As a result of its disposal in August 2012, the results of the St Hubert business have been classified as discontinued operations and prior period
comparatives have been restated accordingly. The post-tax profit relating to discontinued activities is further analysed in Note 16.
2013
2012
Earnings per share
Basic earnings / (loss) per share from continuing operations (pence)
9
-
(29.1)
Diluted earnings / (loss) per share from continuing operations (pence)
9
-
(29.1)
Adjusted basic earnings per share from continuing operations (pence)*
9
29.9
28.9
Adjusted diluted earnings per share from continuing operations (pence)*
9
29.5
28.4
Basic earnings per share from discontinued operations (pence)
9
40.5
16.3
Diluted earnings per share from discontinued operations (pence)
9
39.9
16.0
Basic earnings / (loss) per share on profit / (loss) for the year
9
40.5
(12.8)
Diluted earnings / (loss) per share on profit / (loss) for the year
9
39.9
(12.8)
2013
2012
19.6
Dividends
Proposed final dividend (£m)
8
20.5
Interim dividend paid (£m)
8
7.8
7.6
Proposed final dividend (pence)
8
15.0
14.7
Interim dividend paid (pence)
8
5.7
5.7
* Adjusted earnings per share calculations are presented to give an indication of the underlying operational performance of the Group. The
calculations exclude exceptional items, amortisation of acquired intangibles and pension interest in relation to the Group's defined benefit
pension scheme, the latter being highly dependent upon market assumptions at 31 March each year.
Consolidated statement of comprehensive income
Year ended 31 March 2013
Note
Profit / (loss) for the year
Net investment hedges:
Exchange differences on foreign currency net investments
Exchange differences on foreign currency borrowings designated as net investment hedges
Exchange differences reclassified to income statement on sale of subsidiary
Actuarial losses and recognition of liabilities for unrecoverable notional surpluses
Cash flow hedges - reclassification adjustment for gains in income statement
Cash flow hedges - gains / (losses) recognised in other comprehensive income
Exchange difference on investment in associate
Tax relating to components of other comprehensive income
Other comprehensive loss for the year, net of tax
Total comprehensive gain / (loss) for the year, net of tax
All amounts are attributable to owners of the parent
21
14
7
2013
£m
54.5
2012
£m
(17.1)
(15.3)
6.0
(9.3)
11.4
(13.5)
(9.5)
10.0
7.6
(3.3)
51.2
(19.3)
7.7
(11.6)
(46.2)
4.3
(8.3)
(0.2)
11.9
(50.1)
(67.2)
Consolidated balance sheet
At 31 March 2013
Consolidated
2013
£m
2012
£m
270.3
74.3
30.5
0.3
0.5
1.4
14.5
391.8
282.9
260.0
170.5
0.5
1.3
16.6
731.8
208.2
98.8
9.6
276.1
592.7
984.5
187.8
131.5
0.3
79.4
399.0
1,130.8
(184.3)
(3.9)
(67.2)
(14.6)
(9.6)
(279.6)
(419.7)
(8.7)
(79.8)
(69.4)
(6.9)
(584.5)
Total liabilities
(221.8)
(167.5)
(2.3)
(2.6)
(1.6)
(1.7)
(397.5)
(677.1)
(266.4)
(2.0)
(0.7)
(0.6)
(2.3)
(272.0)
(856.5)
Shareholders' equity
Ordinary shares
Share premium
Interest in ESOP
Other reserves
Retained earnings
Total shareholders' equity
Total equity and liabilities
(34.1)
(77.5)
0.6
(51.4)
(145.0)
(307.4)
(984.5)
(33.3)
(70.9)
0.6
(49.0)
(121.7)
(274.3)
(1,130.8)
Note
Assets
Non-current assets
Property, plant and equipment
Goodwill
Intangible assets
Investments
Investment in associate using equity method
Deferred consideration
Financial assets - Derivative financial instruments
10
11
12
Current assets
Inventories
Trade and other receivables
Financial assets - Derivative financial instruments
Cash and short-term deposits
Total assets
2
Equity and Liabilities
Non-current liabilities
Financial liabilities
- Long-term borrowings
- Derivative financial instruments
Retirement benefit obligations
Deferred tax liability
Deferred income
Current liabilities
Trade and other payables
Financial liabilities
13
13
14
7
- Short-term borrowings
- Derivative financial instruments
13
13
Current tax liability
Deferred income
Provisions
15
22
Consolidated statement of changes in equity
Year ended 31 March 2013
Attributable to owners of the parent
Ordinary
Share
Interest
Other
Retained
Total
shares
premium
in ESOP
reserves
earnings
Equity
2013
At 31 March 2012
Profit for the year
Other comprehensive gain / (loss):
Net investment hedges
Amounts reclassified to income statement
on sale of subsidiary
Cash flow hedges
Actuarial losses
Tax on components of other
comprehensive income
Other comprehensive gain / (loss)
Total comprehensive gain
Issue of share capital
Share based payments
Equity dividends
At 31 March 2013
2012
At 31 March 2011
Loss for the year
Other comprehensive gain / (loss):
Net investment hedges
Cash flow hedges
Actuarial losses
Exchange difference on investment
in associate
Tax on components of other
comprehensive income
Other comprehensive loss
Total comprehensive loss
Issue of share capital
Share based payments
Equity dividends
At 31 March 2012
23
£m
£m
£m
£m
£m
£m
33.3
-
70.9
-
(0.6)
-
49.0
-
121.7
54.5
274.3
54.5
-
-
-
(9.3)
-
(9.3)
-
-
-
11.4
0.5
-
(13.5)
11.4
0.5
(13.5)
0.8
34.1
6.6
77.5
(0.6)
(0.2)
2.4
2.4
51.4
7.8
(5.7)
48.8
1.9
(27.4)
145.0
7.6
(3.3)
51.2
7.4
1.9
(27.4)
307.4
33.3
-
70.8
-
(0.6)
-
64.1
-
197.9
(17.1)
365.5
(17.1)
-
-
-
(11.6)
(4.0)
-
(46.2)
(11.6)
(4.0)
(46.2)
-
-
-
(0.2)
-
(0.2)
33.3
0.1
70.9
(0.6)
0.7
(15.1)
(15.1)
49.0
11.2
(35.0)
(52.1)
2.4
(26.5)
121.7
11.9
(50.1)
(67.2)
0.1
2.4
(26.5)
274.3
Consolidated statement of cash flows
Year ended 31 March 2013
Consolidated
2013
£m
19.1
(18.0)
(4.7)
(3.6)
2012
£m
84.5
(23.6)
(14.1)
46.8
(50.9)
5.3
(0.4)
10.1
(0.6)
330.8
(53.3)
0.2
12.6
(12.3)
-
294.3
(52.8)
18
18
18
(7.5)
(68.7)
(27.4)
7.4
(1.7)
(97.9)
192.8
79.4
3.9
276.1
(155.2)
165.2
54.5
(0.1)
(26.5)
0.1
(2.4)
35.6
29.6
49.9
(0.1)
79.4
18
(59.7)
(336.4)
Note
17
Cash generated from operations
Interest paid
Taxation paid
Net cash (outflow) / inflow from operating activities
Cash flow from investing activities
Capital expenditure
Grants received
Grants repaid
Proceeds from disposal of property, plant and equipment
Purchase of businesses and investments
Sale of discontinued operation (net of cash disposed of and fees)
16
16
Net cash generated from / (used in) investing activities
Cash flow from financing activities
Repayment and cancellation of bank facilities and loan notes
New bank facilities advanced
Proceeds from issuance of loan notes
Net repayment of borrowings under revolving credit facilities
Dividends paid
Proceeds from issue of shares
Finance lease repayments
Net cash (used in) / generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange impact on cash and cash equivalents
Cash and cash equivalents at end of year
8
18
Memo: Net debt at end of year
24
Notes to the preliminary announcement
1 Basis of preparation
The consolidated financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the UK Financial
Services Authority, International Financial Reporting Standards (“IFRS”) and International Financial reporting Interpretation Committee (“IFRIC”)
interpretations as endorsed by the European Union, and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31
March 2012, as described in those financial statements.
The following accounting standards and interpretations became effective for the current reporting period:
IFRS 7 – Amendments to IFRS 7: Disclosures – Transfers of Financial Assets
IAS 12 – Amendments to IAS 12 ‘Income Taxes’ – deferred tax: recovery of underlying assets
The application of these standards and interpretations has had no impact on the net assets, result and disclosures of the Group in the year
ended 31 March 2013.
The financial information set out in this document does not constitute the statutory accounts of the Group for the years ended 31 March 2013 or
31 March 2012 but is derived from the 2013 Group Annual Report and Financial Statements. The Group Annual Report and Financial
Statements for 2013 will be delivered to the Registrar of Companies in due course. The auditors have reported on those accounts and have
given an unqualified report, which does not contain a statement under Section 498 of the Companies Act 2006.
2 Segmental analysis
IFRS 8 requires operating segments to be determined based on the Group’s internal reporting to the Chief Operating Decision Maker (“CODM”).
The CODM has been determined to be the Company's Board members as they are primarily responsible for the allocation of resources to
segments and the assessment of performance of the segments.
The CODM uses trading profit, as reviewed at monthly business review meetings, as the key measure of the segment's results as it reflects the
segment's underlying trading performance for the period under evaluation. Trading profit is a consistent measure within the Group and the
reporting of this measure at the monthly business review meetings, which are organised according to the product types, has been used to
identify and determine the Group’s operating segments. Trading profit is defined as profit on operations before exceptional items and
amortisation of acquired intangible assets, but includes the Group share of post-tax results of associates.
The Group’s operating segments at 31 March 2013 were ‘Cheese’, ‘Spreads’, 'MH Foods', ‘Dairies', 'Share of Associates' and ‘Other’.Certain of
these operating segments have been aggregated and the Group reports on five continuing segments within the business: ‘Cheese’, 'Spreads',
'Dairies', 'Share of Associates' and 'Other'. At 31 March 2012 'St Hubert' was an operating segment which was aggregated into the Spreads
segment. St Hubert was sold in August 2012 and therefore St Hubert has now been disclosed as a Discontinued Operation for 2012 and 2013.
In years up to 2011, the Liquid Products and Customer Direct segments were aggregated into one reportable segment being Dairies. During the
year ended 31 March 2012, these two businesses were merged with one senior management team responsible for the whole of the Dairies
segment. Since the restructuring, discrete financial information for the former Liquid Products and Customer Direct divisions is no longer
available or reviewed by either the Dairies senior management team or the CODM (in the past, segment information was based on allocations of
the combined cost base which is not now necessary). The Dairies segment principally comprises the sale of non-branded fresh milk in the UK to
a number of customers including major retail, foodservice and residential customers. The segment is managed on a combined basis including
milk sourcing, production volumes, demand planning, technical, quality and distribution. The factories process and pack milk for a mix of
customers which varies depending on customer and demand mix. Having considered these factors, management has judged that this business
now comprises one operating segment under IFRS 8.
The Spreads segment incorporates the MH Foods business acquired in June 2011. This business is branded, has similar end-customers as
Spreads and shares the same input cost risks. Therefore management judges that this meets the IFRS 8 aggregation criteria. Furthermore, its
revenue, result and assets do not represent more than 10% of the Group so the quantitative criteria for a reportable segment are not met.
The Cheese segment has not been aggregated with any other segment. This business manufactures predominantly branded cheese in the UK
and sells mainly to retail customers.
Share of Associates forms a separate segment whose results are reviewed on a post-tax basis.
The Other segment comprises revenue earned from distributing product for third parties and certain central costs net of recharges to the
operating segments. Generally, all central costs less external other revenue are recharged to the operating segments such that their result
reflects the total cost base of the Group. Other segment profit therefore is nil.
The segment results for the year ended 31 March 2013 and for the year ended 31 March 2012 and the reconciliation of segment measures to the
respective statutory items included in the financial statements are as follows:
25
Notes to the preliminary announcement
2 Segmental analysis (continued)
Note
Segment external revenue
Cheese
Spreads
Dairies
Other
Total segment external revenue
Year ended 31 March
2013
2012
£m
£m
231.3
194.5
951.6
4.2
1,381.6
229.6
211.3
1,069.0
4.8
1,514.7
33.3
25.7
10.3
69.3
(18.7)
50.6
(0.4)
(56.5)
5.9
(0.4)
35.5
23.2
10.2
(0.3)
68.6
(21.1)
47.5
(0.8)
(93.9)
5.5
(41.7)
Discontinued operations
Unsegmented assets
Total assets
237.7
138.0
268.1
2.2
38.3
684.3
300.2
984.5
216.2
136.5
279.0
1.8
39.5
673.0
361.5
96.3
1,130.8
Inter-segment revenue
Cheese
Spreads
Elimination
Total
11.3
2.8
(14.1)
-
9.9
4.7
(14.6)
-
6.7
3.2
17.2
4.5
31.6
0.8
32.4
6.0
4.2
19.4
2.5
32.1
2.0
34.1
6.9
12.5
23.7
4.8
47.9
1.1
49.0
5.5
25.5
30.5
3.1
64.6
3.3
67.9
(13.8)
(30.5)
(3.5)
(47.8)
(2.6)
(91.3)
(93.9)
Segment profit
Cheese
Spreads
Dairies
Share of associate’s net loss
Total segment profit
Finance costs
Adjusted profit before tax
Acquired intangible amortisation
Exceptional items
Other finance income - pensions
Group loss before tax
6
12
5
6
Segment total assets
Cheese
Spreads
Dairies
Investments and share of associate
Other
Segment depreciation and amortisation (excluding amortisation of acquired intangible assets)
Cheese
Spreads
Dairies
Other
Continuing operations
Discontinued operations
Total
Segment additions to non-current assets
Cheese
Spreads
Dairies
Other
Discontinued operations
Total
Segment exceptional items
Cheese
Spreads
Dairies
Unsegmented
Total exceptional operating costs
5
26
Notes to the preliminary announcement
2 Segmental analysis (continued)
Interest income and expense are not included in the measure of segment profit reviewed by the CODM. Group treasury is centrally managed and
external interest income and expense is all incurred in the UK following the sale of St Hubert and is not allocated to segments. Where interest is
reviewed by the CODM it is done so on a net basis. Further analysis of the Group interest expense is provided in Note 6.
Tax costs are not included in the measure of segment profit reviewed by the CODM. Tax is centrally managed and the group effective tax rate,
not individual segment tax rates, is reported.
Segment assets comprise property, plant and equipment, goodwill, intangible assets, inventories, receivables, assets in disposal group held for
sale and investments in associates and joint ventures using the equity method and deferred consideration but exclude cash and cash
equivalents, derivative financial assets and deferred tax assets as these items are managed on a Group basis. Other segment assets comprise
certain property, plant and equipment that is not reported in the segments. Total segment liabilities have not been presented as this measure is
not regularly reviewed by or provided to the CODM.
Inter-segment revenue comprises the sale of finished Cheese and Spreads products to the Dairies segment on a cost plus basis and is included
in the segment result. Other inter-segment transactions principally comprise sales of cream from the Dairies segment to the Spreads segment for
the manufacture of butters. Cream sold into Spreads is priced by reference to external commodity markets and is adjusted regularly so as to
reflect the costs that the Spreads segment would incur if it were a standalone entity. Revenue from inter-segment cream sales is not reported as
revenue to the CODM but as a reduction to the Dairies segment's input costs.
Segment depreciation and amortisation excludes amortisation of acquired intangible assets of £0.4 million (2012: £0.8 million) as these costs are
not charged in the segment result.
Segment additions to non-current assets comprise additions to goodwill, intangible assets and property, plant and equipment through capital
expenditure and acquisition of businesses.
Geographical information - continuing operations
Year ended 31 March
2013
2012
£m
£m
1,336.3
1,450.1
45.3
64.6
1,381.6
1,514.7
External revenue attributed on basis of customer location
UK
Rest of world
Total segment revenue (excluding joint ventures)
Non-current assets* based on location
UK
France
Rest of world
Total
375.1
0.8
375.9
370.5
338.0
5.4
713.9
* Comprises property, plant and equipment, goodwill, intangible assets and investments in associate.
The Group has two customers which individually represent more than 10% of revenue from continuing operations in the year ended 31March
2013 (2012: one). These customers account for £327.1 million (2012: £175.7 million) of revenue from continuing operations being 23.7% (2012:
11.6%).
The business segmentation above is based upon similar product groupings, namely Cheese, Spreads and Dairies, and therefore the analysis of
Group revenue by product and services is consistent with the revenue analysis presented above with the exception of non-milk product sales in
the Dairies segment, which amounted to £81.3 million (2012: £100.1 million).
3 Operating costs – continuing operations
Cost of sales
Distribution costs
Administrative expenses
Year ended 31 March 2013
Before
exceptional
Exceptional
items
items
Total
£m
£m
£m
1,008.2
44.3
1,052.5
229.1
229.1
83.1
3.5
86.6
1,320.4
47.8
1,368.2
Year ended 31 March 2012
Before
exceptional
Exceptional
items
items
£m
£m
1,106.5
13.6
259.0
85.7
80.3
1,451.2
93.9
Total
£m
1,120.1
259.0
166.0
1,545.1
4 Other income – property
Profit on disposal of depots
Year ended 31 March 2013
Before
exceptional
Exceptional
items
items
£m
£m
7.7
-
Total
£m
7.7
Year ended 31 March 2012
Before
exceptional
Exceptional
items
items
£m
£m
4.6
-
Total
£m
4.6
The Group continues to rationalise its Dairies operations as a result of the ongoing decline in doorstep volumes. This rationalisation includes the
closure of certain depots (the profit on which is shown above) and rationalisation of the ongoing Dairies operations. These activities represent a
fundamental part of the ongoing ordinary activities of the Dairies operations.
27
Notes to the preliminary announcement
5 Exceptional items
Exceptional items comprise those items that are material and one-off in nature that the Group believes should be separately disclosed to assist
in the understanding of the underlying financial performance of the Group.
Operating costs
Depot administration restructuring costs (Dairies)
Costs associated with closure of Dairy processing sites (Dairies)
Spreads restructuring costs (Spreads)
Business reorganisation
Impairment of goodwill, property, plant and equipment (Dairies)
Provision for bad debts (Dairies)
Finance costs
Repayment of loan notes and associated costs (Note 6)
Tax relief on exceptional items
Post-tax gain on disposal of St Hubert (Discontinued operations - Note 16)
Year ended
31 March 2013
£m
(9.2)
(21.3)
(13.8)
(3.5)
(47.8)
Year ended
31 March 2012
£m
(5.3)
(2.6)
(81.7)
(4.3)
(93.9)
(8.7)
(56.5)
12.0
(44.5)
47.7
3.2
(93.9)
13.1
(80.8)
(80.8)
Exceptional items in the year ended 31 March 2013 comprise:
-
£9.2 million of costs associated with the rationalisation of administrative activities and other structural changes in the Dairies depot
network. This restructuring results in centralisation of back office activities supporting the depot network. These costs relate to
redundancies (£7.4 million), incremental operating costs associated with delivery of the project (£1.1 million) and write downs of
property, plant and equipment (£0.7 million). The project has now completed.
-
During the year the Group has closed two processing sites at Aintree in Liverpool and Fenstanton in Cambridgeshire. The closure of
the sites and resultant changes in the supply chain, volume requirements and customer channels has resulted in exceptional costs of
£21.3 million. These costs relate to redundancies (£9.0 million), duplicate running costs (£6.2 million), asset write downs (£0.7 million)
and other costs (£5.4 million), including stock write-offs and duplicate running costs.
-
In September 2012 the Group announced that it was to consult with employees on plans to consolidate spreads production into a
single UK location at its site in Kirkby, Liverpool. As a result of this consolidation the site at Crudgington, Shropshire will close in 2014.
Following the transfer of Clover manufacture to Kirkby in the first half of 2012, the Crudgington cash generating unit ("CGU") does not
generate material cash flows from the remaining site production. Subsequent to this decision, value in use calculations have been
prepared to 2014 rather than in perpetuity using a discount rate of 8.7%. As a result we have impaired the carrying value of property,
plant and equipment by £12.3 million. This impairment has resulted in a carrying value of nil for plant and equipment and £1.0 million
for land and buildings. The relevant CGU for goodwill testing purposes is Spreads which encompases both the Crudgington and Kirkby
sites. This restructure will result in a more efficient Spreads supply chain and Spreads goodwill has not been impaired.
In addition to the impairment of property, plant and equipment, £1.5 million of costs were incurred during the year both to complete the
transfer of Clover manufacture from Crudgington to Kirkby and to commence the project that will result in the closure of the
Crudgington site.
-
In February 2013 the Group announced plans to reorganise the business into a single management and operational structure from 1
April 2013. This is replacing the divisional structures that previously existed and will lead to a more efficient and simplified organisation.
This reorganisation has resulted in exceptional costs in the year ended 31 March 2013 of £3.5 million comprising predominantly
redundancy costs. Further costs will be incurred in 2013/14 as the project is completed.
-
In March 2013 the Group gave notice to the holders of its 2007 private placement loan notes that it would repay £100 million of
principal in April 2013. The costs of early repayment have been accrued at 31 March 2013 as the Group was irrevocably committed to
the repayment at that date. Costs of £8.7 million predominantly comprise make whole penalties which are calculated based on the
discounted future coupons between repayment date and original note maturity.
Exceptional items in the year ended 31 March 2012 comprise:
-
£5.3 million of costs associated with the rationalisation of administrative activities and other structural changes in the Dairies depot
network. This restructuring results in centralisation of back office activities supporting the depot network. The majority of costs relate to
redundancies (£2.2 million) and other incremental operating costs associated with delivery of the project (£3.1 million).
-
Trading in the Dairies segment was adversely impacted in 2011/12 by increased costs of milk, the ongoing level of competition in the
sector and in the second half by significant falls in the value of cream. Furthermore, volume declines in doorstep deliveries continue
despite the growth of our milk&more business. A range of actions was taken in order to restore margins within Dairies to an acceptable
level in the medium term and create a cost-efficient, sustainable dairies business. These include the expected closure of sites referred
to below (subject to consultation). However, the outlook for Dairies was weaker and more uncertain than it was in 2011. This,
combined with the volatility of assumptions in forecasting future cash flows due to the commoditised nature of the business and the
competitive environment, has led management to conclude that the total carrying amount of Dairies goodwill of £70.7 million should
be impaired as it could not be supported on a value in use basis. This impairment reduced the carrying value of goodwill in this
segment to nil. Further details are provided in Note 11.
28
Notes to the preliminary announcement
5 Exceptional items (continued)
Exceptional items in the year ended 31 March 2012 comprise (continued):
Furthermore, the Group has announced a major restructuring of its Dairies operations with the expected closure of two processing
sites at Aintree in Liverpool and Fenstanton in Cambridgeshire subject to consultation. These closures are expected to be completed
in 2012/13. As a result of the anticipated closures, the carrying value of property, plant and equipment at these sites could no longer
be supported by a value in use calculation based upon future cash flows generated by these assets. Consequently, the carrying value
of property, plant and equipment was impaired by £9.8 million at 31 March 2012. Further details are provided in Note 10. In addition,
an impairment of £0.4 million has been recorded against intangible assets (see Note 12) and £0.8 million of inventories of engineering
spares and packaging was written off.
At 31 March 2012, following the impairments of goodwill, property, plant and equipment and intangibles, there remains property, plant
and equipment and intangibles with a carrying value of £161.6 million in the Dairies segment.
-
On 13 February 2012, the Group announced that a customer, Quadra Foods Limited ("Quadra") had gone into administration. As a
result, a bad debt provision of £4.3 million was charged representing the entire amount owing from this customer. Bad debt write-offs
of this size are extremely rare and management considered this a one-off incident which, due to its material size, was classified as
exceptional. The Group previously purchased fresh milk from Farmright Limited ("Farmright"), a member of the same group as Quadra,
which went into administration. In the opinion of management, set-off arrangements were agreed and in place between Dairy Crest
Limited and Quadra / Farmright at the date of them going into administration, however this is being challenged in the administration
process. Under IFRS, the recognition criterion threshold for a contingent asset is higher than that required for a contingent liability and
therefore, although a provision has been recorded against amounts due from Quadra, no exceptional gain was recognised in the year
ended 31 March 2012 in relation to amounts owed to Farmright as the outcome was not yet virtually certain.
-
On 17 May 2011, the Group announced that, subject to a consultation process, production of its leading dairy spread brand, Clover,
would be consolidated into its site in Kirkby, Liverpool. The Clover manufacturing process was split between Kirkby, Liverpool and
Crudgington, Shropshire. This consolidation would result in approximately 90 redundancies at Crudgington and the creation of
approximately 45 jobs at Kirkby. The consolidation would be completed in 2012/13, however exceptional costs of £2.6 million were
incurred in the year ending 31 March 2012. These predominantly comprise redundancy costs (£1.2 million) and the impairment of
property, plant and equipment impacted by the restructured operations (£1.0 million). This impairment reduced the carrying value of
equipment made redundant by this processing change to management's best estimate of its fair value less costs to sell (see Note 10).
In addition, inventories of engineering spares of £0.2 million were written off and other project costs of £0.2 million were incurred.
6 Finance costs and other finance income
Finance costs
Bank loans and overdrafts (at amortised cost)
Unwind of discount on provisions (Note 15)
Finance charges on finance leases
Pre-exceptional finance costs - continuing operations
Finance income on cash balances (financial assets not at fair value through profit and loss)
Pre-exceptional net finance costs - continuing operations
Exceptional cost of repayment of loan notes (Note 5)
Total net finance costs - continuing operations
Other finance income - pensions
Expected return on defined benefit plan assets (Note 14)
Interest cost on defined benefit obligation (Note 14)
29
Year ended
31 March 2013
£m
(19.6)
(0.2)
(0.3)
(20.1)
1.4
(18.7)
(8.7)
(27.4)
Year ended
31 March 2012
£m
(20.5)
(0.2)
(0.5)
(21.2)
0.1
(21.1)
(21.1)
Year ended
31 March 2013
£m
47.4
(41.5)
5.9
Year ended
31 March 2012
£m
49.0
(43.5)
5.5
Notes to the preliminary announcement
7 Tax expense
The major components of income tax expense for the years ended 31 March 2013 and 2012 are:
Consolidated income statement
Current income tax
Current income tax charge at 24% (2012: 26%)
Adjustments in respect of previous years
- current tax
- transfer from deferred tax
Deferred income tax
Relating to origination and reversal of temporary differences
Adjustment in respect of previous years
- deferred tax
- transfer to current tax
Analysed:
Before exceptional items
Exceptional items
2013
£m
2012
£m
(2.8)
(2.8)
(1.1)
(1.1)
(2.2)
(1.8)
1.4
2.8
(0.4)
11.6
(12.0)
(0.4)
(1.4)
(0.4)
1.1
(2.9)
10.2
(13.1)
(2.9)
2013
£m
(0.4)
2012
£m
(41.7)
(0.1)
1.4
(0.9)
1.5
(2.3)
(0.4)
(10.8)
(1.5)
0.1
(2.6)
14.3
(2.4)
(2.9)
Reconciliation between tax credit and the loss before tax multiplied by the standard rate of corporation tax in the UK:
Loss before tax
Tax at UK statutory corporation tax rate of 24% (2012: 26%)
Adjustments in respect of previous years
Adjustment in respect of associate's losses
Deferred tax adjustment for change in UK corporation tax rate (24% to 23%; 2012: 26% to 24%)
Non-deductible expenses
Profits offset by available tax relief
The effective pre-exceptional rate of tax on Group profit before tax is 20.7% (2012: 19.5%).
The UK corporation tax rate reduced to 23% from April 2013. A further 2% reduction was proposed in the December 2012 Autumn Statement,
taking the rate to 21% by April 2014. An additional 1% reduction was then proposed in the March 2013 Budget, taking the rate to 20% by April
2015.
At the balance sheet date, only the 23% rate had been substantively enacted and therefore it is only the impact of this reduction that has been
reflected in the Group’s financial statements as at 31 March 2013. We estimate the effect of the reduction in the tax rate to 20% to be a reduction
in the deferred tax liability of £2.2million.
The effect on the Group of the further proposed reductions in the UK corporation tax rate will be reflected in the Group’s financial statements in
future years, as appropriate, once the proposals have been substantively enacted.
Consolidated other comprehensive income
Deferred income tax related to items charged to other comprehensive income
Tax relief on actuarial losses
Valuation of financial instruments
Tax credit
2013
£m
2012
£m
(7.8)
0.2
(7.6)
(11.2)
(0.7)
(11.9)
There were no income tax or deferred tax amounts charged to changes in equity in the year ended 31 March 2013 (2012: nil).
30
Notes to the preliminary announcement
7 Tax expense (continued)
Deferred income tax
Deferred income tax at 31 March 2013 and 2012 relates to the following:
2013
£m
(31.7)
(9.2)
(40.9)
2012
£m
(37.4)
(55.4)
(92.8)
3.0
0.1
17.1
0.2
5.9
26.3
1.8
0.4
15.8
0.3
5.1
23.4
Net deferred tax liability
(14.6)
(69.4)
The movement on the net deferred tax balance is shown below:
2013
£m
(69.4)
(2.4)
7.6
47.3
2.3
(14.6)
2012
£m
(86.3)
3.3
11.9
(1.6)
3.3
(69.4)
Deferred tax liability
Accelerated depreciation for tax purposes
Goodwill and intangible assets
Deferred tax asset
Government grants
Share based payments
Pensions
Financial instruments valuation
Other
Opening net deferred tax liability
(Charge) / credit to income statement
Credit to other comprehensive income
Disposal / (acquisition) of businesses
Exchange impact
Closing net deferred tax liability
The Group has capital losses which arose in the UK of £56.3 million (2012: £63.8 million) that are available indefinitely for offset against future
taxable gains. Deferred tax has not been recognised in respect of these losses as there is no foreseeable prospect of their being utilised. The
Group has realised capital gains amounting to £36.9 million (2012: £39.7 million) for which rollover relief claims have been or are intended to be
made.
8 Dividends paid and proposed
Declared and paid during the year
Equity dividends on ordinary shares:
Final dividend for 2012: 14.7 pence (2011: 14.2 pence)
Interim dividend for 2013: 5.7 pence (2012: 5.7 pence)
Proposed for approval at AGM (not recognised as a liability at 31 March)
Equity dividends on ordinary shares:
Final dividend for 2013: 15.0 pence (2012: 14.7 pence)
31
2013
£m
2012
£m
19.6
7.8
27.4
18.9
7.6
26.5
20.5
19.6
Notes to the preliminary announcement
9 Earnings per share
Basic earnings / losses per share (‘EPS’) on profit / (loss) for the year from continuing operations is calculated by dividing profit / (loss) from
continuing operations by the weighted average number of ordinary shares outstanding during the year.
Diluted EPS is calculated by dividing the profit / (loss) from continuing operations by the weighted average number of ordinary shares
outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive
potential ordinary shares into ordinary shares. Note that in the circumstances where there is a basic loss per share, share options are antidilutive and therefore are not included in the calculation of diluted losses per share.
The shares held by the Dairy Crest Employees’ Share Ownership Plan Trust (‘ESOP’) are excluded from the weighted average number of shares
in issue used in the calculation of earnings and diluted earnings per share.
To show earnings per share on a consistent basis, which in the Directors’ opinion reflects the ongoing performance of the business more
appropriately, adjusted earnings per share has been calculated. The computation for basic and diluted earnings per share (including adjusted
earnings per share) is as follows:
Year ended 31 March 2013
Year ended 31 March 2012
Weighted
Weighted
average
Per share
average
Per share
Earnings
no of shares
amount
Earnings
no of shares
amount
£m
million
pence
£m
million
pence
-
134.7
-
(38.8)
133.2
(29.1)
-
1.9
136.6
-
(38.8)
133.2
(29.1)
44.5
134.7
-
33.0
(38.8)
80.8
133.2
-
(29.1)
60.7
Amortisation of acquired intangible assets (net of tax)
Pension interest income (net of tax)
Adjusted basic EPS from continuing operations
Effect of dilutive securities:
Share options
Adjusted diluted EPS from continuing operations
0.3
(4.5)
40.3
134.7
0.2
(3.3)
29.9
0.6
(4.1)
38.5
133.2
0.4
(3.1)
28.9
40.3
1.9
136.6
(0.4)
29.5
38.5
2.5
135.7
(0.5)
28.4
Basic EPS from discontinued operations
Effect of dilutive securities:
Share options
Diluted EPS from discontinued operations
54.5
134.7
40.5
21.7
133.2
16.3
54.5
1.9
136.6
(0.6)
39.9
21.7
2.5
135.7
(0.3)
16.0
Basic EPS on profit / (loss) for the year
Effect of dilutive securities:
Share options
Diluted EPS on profit / (loss) for the year
54.5
134.7
40.5
(17.1)
133.2
(12.8)
54.5
1.9
136.6
(0.6)
39.9
(17.1)
133.2
(12.8)
Basic EPS from continuing operations
Effect of dilutive securities:
Share options
Diluted EPS from continuing operations
Adjusted EPS from continuing operations
Profit / (loss) from continuing operations
Exceptional items net of tax
There have been no transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of signing of
these financial statements.
32
Notes to the preliminary announcement
10 Property, plant and equipment
Consolidated 2013
Cost
At 1 April 2012
Additions
Acquisition of businesses
Disposals
Disposal of St Hubert
Transfers and reclassifications
Exchange
At 31 March 2013
Accumulated depreciation
At 1 April 2012
Charge for the year
Asset impairments
Disposals
Disposal of St Hubert
Exchange
At 31 March 2013
Net book amount at 31 March 2013
Land and
buildings
£m
Vehicles,
plant and
equipment
£m
Assets in
the course of
construction
£m
Total
£m
192.6
3.5
(4.2)
(8.7)
0.6
(0.4)
183.4
303.0
18.0
0.5
(22.8)
(15.7)
24.3
(0.8)
306.5
29.0
21.3
(0.5)
(1.2)
(24.9)
(0.1)
23.6
524.6
42.8
0.5
(27.5)
(25.6)
(1.3)
513.5
64.8
5.9
1.4
(2.3)
(5.2)
(0.2)
64.4
119.0
176.9
23.1
12.3
(22.8)
(10.1)
(0.6)
178.8
127.7
23.6
241.7
29.0
13.7
(25.1)
(15.3)
(0.8)
243.2
270.3
187.9
4.6
0.1
(2.5)
3.1
(0.6)
192.6
285.3
16.0
0.4
(10.5)
12.6
(0.8)
303.0
22.2
27.5
(5.0)
(15.7)
29.0
495.4
48.1
0.5
(18.0)
(1.4)
524.6
57.8
6.9
2.1
(1.7)
(0.3)
64.8
127.8
153.3
24.0
8.7
(8.5)
(0.6)
176.9
126.1
29.0
211.1
30.9
10.8
(10.2)
(0.9)
241.7
282.9
Consolidated 2012
Cost
At 1 April 2011
Additions
Acquisition of businesses
Disposals
Transfers and reclassifications
Exchange
At 31 March 2012
Accumulated depreciation
At 1 April 2011
Charge for the year
Asset impairments
Disposals
Exchange
At 31 March 2012
Net book amount at 31 March 2012
Depreciation of property, plant and equipment relating to the discontinued St Hubert business, included in the table above amounted to £0.8
million in the year ended 31 March 2013 (2012: £1.7 million).
2012/13
Following the decision in 2011 to transfer all Clover manufacture from Crudgington, Shropshire to Kirkby, Liverpool, in September 2012 the
Group announced plans to consolidate all spreads production into a single UK location at its site in Kirkby. Subject to consultation, this decision
will result in the closure of the site at Crudgington in 2014. As a result of this decision £11.4 million of plant and equipment at the sites have been
impaired to nil net book value (representing management's best estimate of resale value net of costs of sale). In addition, the land and buildings
at Crudgington were impaired by £0.9 million. See Note 5.
The culmination of the centralisation of administrative activity in the Dairies depot network along with the closures of milk processing sites at
Fenstanton, Cambridgeshire and Aintree, Liverpool resulted in impairments of £0.5 million to land and buildings and £0.9 million to plant and
equipment. See Note 5.
The carrying value of property, plant and equipment within each cash generating unit ("CGU") is reviewed for impairment when events or
changes in circumstances indicate that the carrying value may not be recoverable. With regard to the Dairies CGU, goodwill was fully impaired in
2011/12, however given the low margins in this business and large movements in milk input costs during 2012/13, the carrying value of property,
plant and equipment within this CGU has been reviewed along with its value in use. The impairment methodology and key inputs are as set out
in Note 11. The discount rate applied to the value in use calculation was 8.7% and cash flows are forecast to year five with no growth assumed
thereafter. The impairment review has not indicated any required write down of the carrying value of property, plant and equipment in the year
ended 31 March 2013, however, management believes that there are changes in key assumptions that could result in impairments. The key
assumptions are discount rates and margins. A 1.0% increase in the discount rate applied, with all other assumptions unchanged, would result in
a carrying amount equal to value in use. A margin of 2% versus the assumption of 2.5% in perpetuity from year five with all other assumptions
unchanged, would result in a carrying value equal to value in use.
33
Notes to the preliminary announcement
10 Property, plant and equipment (continued)
2011/12
Following the decision to close, subject to consultation, two Dairies processing sites at Fenstanton, Cambridgeshire and Aintree, Liverpool in
2012/13, the assets within these cash generating units and other assets in the Dairies supply chain were reviewed for evidence of impairment.
The carrying value of property, plant and equipment at these sites and certain plant and equipment at our site in Foston, Derbyshire could no
longer be supported by value in use and an impairment was recorded to reduce the carrying value to management's best estimate of fair value
less costs to sell. Land and buildings at Aintree and Fenstanton were impaired by £2.1 million resulting in a carrying value of £4.5 million
reflecting the best estimate of resale value of these sites, both of which were owned. Plant and equipment at Aintree, Fenstanton and Foston
were impaired by £7.7 million resulting in a carrying value of £0.2 million reflecting the best estimate of resale value less costs of sale or disposal
at that time. All of these impairments were recorded as exceptional items in the Dairies segment (see Note 5). At 31 March 2012, there remained
property, plant and equipment with a carrying value of £142.1 million in the Dairies segment after these impairments.
Following the decision in 2011 to transfer all Clover manufacture from Crudgington, Shropshire to Kirkby, Liverpool certain assets at Kirkby
became obsolete as future plans for the utilisation of these assets had changed. Obsolete assets with a carrying value of £1.0 million were
identified and these assets were impaired to nil value reflecting management's best view as to their fair value less costs of removal and sale.
This impairment was recorded as an exceptional item in the Spreads segment (see Note 5).
11 Goodwill
£m
Cost
At 31 March 2011
Additions (Note 16)
Exchange
At 31 March 2012
Disposal (Note 16)
Exchange
At 31 March 2013
Accumulated impairment
At 31 March 2011
Impairments in year ended 31 March 2012 (Dairies)
At 31 March 2012
At 31 March 2013
Net book amount at 31 March 2013
Net book amount at 31 March 2012
337.8
6.7
(11.5)
333.0
(176.4)
(9.3)
147.3
(2.3)
(70.7)
(73.0)
(73.0)
74.3
260.0
Impairment testing of goodwill
Acquired goodwill has been allocated for impairment testing purposes to four groups of cash generating units (‘CGUs’): Dairies, Spreads, MH
Foods and Cheese. At March 2012 goodwill in relation to the Dairies CGU was fully impaired and the carrying value of goodwill for this CGU at
31 March 2013 is nil.
All groups of CGUs with goodwill are tested for impairment annually by comparing the carrying amount of that CGU with its recoverable amount.
Recoverable amount is determined based on a value-in-use calculation using cash flow projections based on financial budgets and strategic
plans approved by senior management covering a three-year period and appropriate growth rates beyond that other than for Dairies where a
five-year period is forecast with appropriate growth rates beyond that. The discount rate applied to the projections is 8.7% for Spreads, MH
Foods and Cheese (2012: 8.4% and Dairies 9.4%).
Discount rates are pre-tax and calculated by reference to average industry gearing levels, the cost of debt and the cost of equity based on the
capital asset pricing model and CGU-specific risk factors. Discount rates have not changed significantly since March 2012.
The growth rate used to extrapolate cash flows beyond the three-year period for Spreads, MH Foods and Cheese is 2.0% per annum (being the
estimated UK long-term growth rate adjusted for industry growth rates and extrapolation risks) (2012: 2.0% per annum beyond year three). The
growth rate used to extrapolate cash flows beyond a five-year period for the Dairies CGU was 0% at March 2012 with cash flows in the first five
years being based on extended strategic plans for that business.
The carrying amount of goodwill allocated to groups of CGUs at 31 March 2013 is:
Dairies
MH Foods
Spreads
St Hubert
Cheese
Nil
£6.7 million
£65.5 million
n/a
£2.1 million
(2012: nil)
(2012: £6.7 million)
(2012: £65.5 million)
(2012: £185.7 million)
(2012: £2.1 million)
Gross margin – budgeted gross margins are based initially on actual margins achieved in the preceding year further adjusted for projected input
and output price changes, volume changes, initiatives implemented and associated efficiency improvements. The budgeted margins form the
basis for strategic plans, which incorporate longer-term market trends.
34
Notes to the preliminary announcement
11 Goodwill (continued)
Impairment testing of Goodwill (continued)
Discount rates – reflect management’s estimate of the risk-adjusted weighted average cost of capital for each CGU.
Raw materials prices – budgets are prepared using the most up to date price and forecast price data available. This is based on forward prices
in the market place adjusted for any contracted prices at the time of forecast. The key resources are milk, vegetable oils, fuel oil, diesel, gas and
electricity and packaging costs.
Growth rate estimates – for periods beyond the length of the strategic plans, growth estimates are based upon published industry research
adjusted downwards to reflect the risk of extrapolating growth beyond a three year time frame. For the residential business, long-term rates of
market decline as seen over recent years have been extrapolated forward offset by growth assumptions for milk&more, FRijj and the liquid milk
business.
The Directors consider the assumptions used to be consistent with the historical performance of each CGU where appropriate and to be
realistically achievable in the light of economic and industry measures and forecasts.
2012/13
Sensitivity to changes in assumptions
With regard to the assessment of value in use of the Spreads, MH Foods and Cheese CGUs, management believes that no reasonably possible
change in the above key assumptions would cause the carrying value of those units to exceed their recoverable amount.
2011/12
Dairies CGU - impairment of goodwill
Dairies margins were impacted in 2011/12 by a number of factors including higher input costs, falling realisations for cream (a by-product of milk
production), the ongoing decline of residential sales and high levels of competition in the sector. Furthermore, weak UK consumer demand and a
very competitive landscape had adversely impacted the Group's expectations regarding the speed of recovery in future Dairies margins. In 2011
we highlighted that changes in key assumptions could cause the carrying value of the then Liquid Products and Customer Direct CGUs to
exceed their recoverable amount. As described in Note 5, management has taken action to close certain sites in order to underpin factory
utilisation and improve operating efficiencies. This combined with other activities will, in the opinion of management, restore margins to an
acceptable level in the medium term. However, the outlook is significantly weaker than it was in 2011 and margin recovery will take longer than
previously anticipated. Given the inherent uncertainties of cash flow forecasts in what is a predominantly commodity business in a competitive
sector especially given the sensitivity of low absolute margins, management has concluded that it is appropriate to fully impair the carrying
amount of Dairies goodwill as there is no assurance that it can be supported on a value in use basis, excluding the impact of restructuring
activities.
Therefore, management has concluded that it was appropriate to fully impair the carrying value of Dairies goodwill resulting in an exceptional
charge of £70.7 million recorded in the year ended 31 March 2012. After fully impairing goodwill and impairing certain other property, plant,
equipment and intangible assets, the remaining carrying value of these items at 31 March 2012 was £161.6 million. As goodwill has been fully
impaired, there is no headroom and any future adverse change in key assumptions would lead to further impairment against these assets. There
are changes in key assumptions in the calculation of Dairies CGU value in use that could result in further impairments. The key assumptions are
discount rates and annual cash flows. A 1% increase in the discount rate applied, with all other assumptions unchanged, would result in a further
impairment of approximately £20 million. A reduction in cash flows of £2 million per annum in perpetuity, representing approximately 2% margin,
with all other assumptions unchanged, would result in a further impairment of £22 million.
Other CGUs - Sensitivity to changes in assumptions
With regard to the assessment of value in use of the UK Spreads, St Hubert, MH Foods and Cheese CGUs, management believes that no
reasonably possible change in the above key assumptions would cause the carrying value of the unit to exceed its recoverable amount.
35
Notes to the preliminary announcement
12 Intangible assets
Assets in
the course
of construction
£m
Internally
generated
£m
Acquired
intangibles
£m
Total
£m
5.4
6.4
(2.0)
9.8
5.7
(7.2)
8.3
24.5
0.2
2.0
26.7
(7.2)
7.2
(0.4)
26.3
197.0
6.0
(11.8)
191.2
(173.5)
(9.0)
8.7
226.9
6.6
6.0
(11.8)
227.7
5.7
(180.7)
(9.4)
43.3
8.3
9.8
9.8
0.4
3.2
13.4
(6.8)
3.4
(0.3)
9.7
16.6
13.3
37.3
9.1
(2.6)
43.8
(42.4)
3.4
0.2
(1.9)
3.1
5.6
147.4
47.1
0.4
12.3
(2.6)
57.2
(49.2)
6.8
0.2
(2.2)
12.8
30.5
170.5
Cost
At 31 March 2011
Additions
Acquisitions
Transfers and reclassifications
Exchange
At 31 March 2012
Additions
Disposal
Transfers and reclassifications
Exchange
At 31 March 2013
Accumulated amortisation
At 31 March 2011
Impairments
Amortisation for the year
Exchange
At 31 March 2012
Disposal
Amortisation for the year
Impairments
Exchange
At 31 March 2013
Net book amount at 31 March 2013
Net book amount at 31 March 2012
Amortisation of acquired intangible assets relating to the discontinued St Hubert business, included in the table above amounted to £3.0 million
in the year ended 31 March 2013 (2012: £8.3 million).
Internally generated intangible assets comprise software development and implementation costs across manufacturing sites, the milk&more
business and Head Office. Acquired intangibles comprise predominantly brands acquired with the acquisition of businesses. The largest
component within acquired intangibles is the "Frylight "brand acquired with the acquisition of Morehands Limited (MH Foods) in June 2011. A
useful life of 15 years has been assumed for this brand.
The remaining useful lives at 31 March 2013 for significant intangible assets are as follows:
Acquired Frylight brand
13 years
The carrying value of the Frylight brand at 31 March 2013 is £5.3 million (2012: £5.7 million).
2013
Disposal in the year relates to the sale of St Hubert - see Note 16.
2012
Additions in the year relate to the acquisition of Morehands Limited (see above and Note 16) and computer software development for the UK
Group.
Following the decision to close, subject to consultation, two Dairies sites, certain capitalised software development costs have been impaired by
£0.4 million (see also Note 5 and Note 10).
36
Notes to the preliminary announcement
13 Financial liabilities
Current
Obligations under finance leases
Loan notes (at amortised cost)
Debt issuance costs
Financial liabilities - Borrowings
Cross currency swaps (cash flow hedges)
Forward currency contracts (at fair value: cash flow hedge)
Financial liabilities - Derivative financial instruments
Current financial liabilities
Non-current
Obligations under finance leases
Loan notes (at amortised cost)
Bank loans (at amortised cost)
Debt issuance costs
Financial liabilities - Borrowings
Cross currency swaps (cash flow hedges)
Financial liabilities - Derivative financial instruments
Non-current financial liabilities
2013
£m
2012
£m
2.4
165.7
(0.6)
167.5
2.2
0.1
2.3
169.8
2.7
(0.7)
2.0
2.0
3.1
182.4
(1.2)
184.3
3.9
3.9
188.2
4.5
345.5
71.7
(2.0)
419.7
8.7
8.7
428.4
All derivative financial instruments are fair valued at each balance sheet date and all comprise Level 2 valuations under IFRS 7: Financial
Instruments - Disclosures, namely, that they are based on inputs observable directly (from prices) or indirectly (derived from prices).
Interest bearing loans and borrowings
The effective interest rates on loans and borrowings at the balance sheet date were as follows:
Maturity
Current
Loan notes
US$ swapped into £
Euro
Euro
Euro swapped into £
Sterling
April 2013
April 2014 (repaid April 2013)
April 2017 (repaid April 2013)
April 2014 (repaid April 2013)
April 2017 (repaid April 2013)
Finance leases
Debt issuance costs
Non-current
Multi-currency revolving credit facilities:
Euro floating
Sterling floating
Loan notes:
US$ swapped into £
US$ swapped into £
Sterling
Euro
Euro
Euro swapped into £
Sterling
US$ swapped into £
US$ swapped into £
Finance Leases
Debt issuance costs
2013
£m
68.7
21.0
23.2
45.6
7.2
2.4
(0.6)
167.5
81.0
10.0
8.2
9.0
17.8
2.8
16.5
37.1
3.1
(1.2)
184.3
October 2016
October 2016
April 2013
April 2016
April 2016
April 2014
April 2017
April 2014
April 2017
November 2018
November 2021
Effective
Interest rate
at March 2013
5.32%
4.74%
4.85%
5.04%
5.84%
5.18%
.
5.31%
5.27%
4.74%
4.85%
5.04%
5.84%
3.87%
4.52%
5.18%
Effective
Interest rate
at March 2012
2012
£m
2.7
(0.7)
2.0
61.7
10.0
68.1
78.8
10.0
29.8
32.7
62.5
10.0
15.8
37.8
4.5
(2.0)
419.7
5.18%
.
EURIBOR + 135bps
LIBOR + 135bps
5.32%
5.31%
5.27%
4.74%
4.85%
5.04%
5.84%
3.87%
4.52%
5.18%
On 2 November 2012, following the disposal of St Hubert, the Group repaid £7.5 million of loan notes at par comprising:
$5.6 million (£3.2 million) of 2006 notes, €2.4 million (£2.0 million) of 2007 notes and $3.7 million (£2.3 million) of 2011 notes.
In March 2013, the Group gave irrevocable notice to holders of the loan notes maturing in 2014 and 2017, that 72% of the principal plus any
make whole penalties would be repaid in April 2013. Those notes repaid in April have therefore been classified as current liabilities at 31 March
2013, along with any cross currency swaps that were designated as cash flow hedges against those notes. Furthermore, in March 2013, £0.3
million of unamortised debt issuance costs were written off representing approximately one sixth of the unamortised amount. This write down
resulted from a proportionate reduction in the revolving credit facility that was completed in April 2013. See Note 19.
37
Notes to the preliminary announcement
13 Financial Liabilities (continued)
On 12 October 2011, the Group entered into a new five year revolving credit facility of £170 million plus €150 million with a syndicate of five
banks. The existing £100 million and £85 million plus €175 million revolving credit facilities (maturing in November 2011 and July 2013
respectively) were cancelled and repaid on 19 October 2011 using funds drawn under the new facility. Upfront debt issuance costs amounted to
£3.0 million and these are charged to the consolidated income statement over four years being the expected life of the new facility before it is
replaced. Unamortised debt issuance costs at 31 March 2013 amounted to £1.8 million (2012: £2.7 million) of which £0.6 million (2012: £0.7
million) will amortise within 12 months. The Group raised $85 million (£54.5 million) by way of a debt private placement with US investors on 30
November 2011. These notes were a mix of seven-year ($25 million) and ten-year ($60 million) maturities. All principal and interest cash flows
have been swapped into Sterling at an exchange rate of 1.56 and interest rates of 3.87% and 4.52% on the seven and ten year notes
respectively. The Group is subject to a number of covenants in relation to its borrowing facilities which, if contravened, would result in its loans
becoming immediately repayable. These covenants specify a maximum net debt to EBITDA ratio of 3.5 times, and minimum interest cover ratio
of 3.0 times. No covenants were contravened in the year ended 31 March 2013 (2012: None). Key covenants under the 2011 revolving credit
facility and debt private placement were unchanged from existing covenants.
14 Retirement benefit obligations
The Group has one defined benefit pension scheme in the UK which was closed to future service accrual from 1 April 2010. This pension
scheme is a final salary scheme that had previously been closed to new employees joining after 30 June 2006. Employees joining after this date
and those members of the defined benefit pension scheme on its closure to future service accrual were invited to join the Dairy Crest Group
defined contribution plan.
The most recent full actuarial valuation of the Dairy Crest Group Pension Fund was carried out as at 31 March 2010 by the fund’s independent
actuary using the projected unit credit method. Full actuarial valuations are carried out triennially. This valuation resulted in a deficit of £137
million compared to the IAS19 deficit of £142.4 million reported at that date. The next full actuarial valuation will be carried out in 2013/14 on the
31 March 2013 position.
The following tables summarise the components of net benefit expense recognised in the consolidated income statement and the funded status
and amounts recognised in the consolidated balance sheet for the defined benefit pension scheme.
Net benefit income recognised in the consolidated income statement
Gain on settlement (see below)
Interest cost on benefit obligation
Expected return on scheme assets
Net benefit income
Net actuarial loss recognised in other comprehensive income
Actual return less expected return on pension scheme assets
Experience gains / (losses) arising on scheme liabilities
Loss arising from changes in assumptions underlying the present value of scheme liabilities
Net actuarial loss
Recognition of liability for unrecoverable notional surplus
Recognised in other comprehensive income
Related tax
Net actuarial loss recognised in other comprehensive income
Actual returns on plan assets were £116.8 million (2012: £70.9 million).
Defined benefit obligation
Fair value of scheme assets:
Defined benefit obligation:
- Equities
- Bonds and cash
- Equity return swaps valuation
- Property and other
- Insured retirement obligations
- Uninsured retirement obligations
- Insured retirement obligations
Total defined benefit obligation
Recognition of liability for unrecoverable notional surplus
Net liability recognised in the balance sheet
Related deferred tax asset
Net pension liability
2013
£m
41.5
(47.4)
(5.9)
Dairy Crest Group
Pension Fund
2012
£m
(0.3)
43.5
(49.0)
(5.8)
69.4
0.8
(72.8)
(2.6)
(10.9)
(13.5)
7.8
(5.7)
21.9
(6.5)
(61.6)
(46.2)
(46.2)
11.2
(35.0)
84.3
393.4
42.9
62.5
286.3
869.4
(639.4)
(286.3)
(925.7)
(10.9)
(936.6)
(67.2)
17.1
(50.1)
72.7
293.2
61.8
58.8
279.6
766.1
(566.3)
(279.6)
(845.9)
(845.9)
(79.8)
15.8
(64.0)
From October 2009, the Group has been making additional funding contributions to the scheme of £20 million per annum. The level of cash
contributions will continue at this level until March 2018 based on the latest schedule of contributions which was signed in June 2011. However a
new schedule of contributions will be agreed with the Trustee following the next full actuarial review at 31 March 2013. The £20 million per
annum amount includes £2.8 million per annum of rental payments for land and buildings that are subject to a sale and leaseback agreement
between the Group and the scheme as part of the final schedule of contributions. The land and buildings included in these arrangements are
subject to long term leases and the Group will continue to benefit from substantially all of the risks and rewards of ownership. On this basis,
38
Notes to the preliminary announcement
14 Retirement benefit obligations (continued)
under IFRS, these land and buildings continue to be recognised in property, plant and equipment and rental payments of £2.8 million per annum
are treated as cash contributions, reflecting the substance of the arrangements.
The Group is entitled to any surplus on winding up of the pension scheme albeit refunds are subject to tax deductions of 35% at source. Based
on the present value of committed cash contributions at 31 March 2013 and the IAS 19 valuation at that date of £56.3 million, £10.9 million would
be deducted from any notional surplus returned to the Group and this has been recognised as an additional liability in accordance with IFRIC 14.
However, it should be noted that cash contributions are determined by reference to the triennial actuarial valuation, not the IAS 19 valuation. The
actuarial deficit is greater than that recognised under IAS 19 since liabilities are discounted at gilt yields rather than high quality corporate bond
yields.
In December 2008, certain obligations relating to retired members were hedged by the purchase of an insurance contract. A further insurance
contract for retired members was purchased in June 2009 resulting in coverage for all members who retired up to August 2008. These contracts
are included within scheme assets and their value will always be equal to the obligation as calculated under IAS 19 for those members covered.
The purchase of the second insurance contract in June 2009 was funded by the sale of equities. Subsequently, in order to re-establish an
appropriate equity weighting of scheme assets, the Fund purchased equity total return swaps (synthetic equity). These instruments comprise an
asset leg and a liability leg. The asset leg generates a return based on UK and overseas equity indices and the liability leg incurs a cost based
on LIBOR plus margin. Credit risk is minimised since collateral is provided by the counterparties to the benefit of the Fund when the instruments
are in the money. At 31 March 2013, the valuation of the above comprises a positive equity exposure of £276.8 million and a negative LIBOR
exposure of £233.9 million (2012: equity exposure of £226.4 million and LIBOR exposure of £164.6 million).
An Enhanced Transfer Value ("ETV") exercise took place during the year ended 31 March 2012 which resulted in approximately 220 members
transferring a total of £14.3 million in ETVs out of the Fund. The net gain as a result of this settlement of £0.3 million represents the difference
between the £14.3 million transferred out and the corresponding liabilities, measured on an IAS 19 basis, at the date that the settlement became
binding.
Scheme assets are stated at their market values at the respective balance sheet dates with the exception of the insured retirement obligations
which equal the IAS 19 valuation of obligations which they cover. The Group will adopt amendments to IAS 19 R in the year ending 31 March
2014. These amendments will result in the return on assets being calculated by reference to the discount rate assumption and not return
assumptions for individual asset classes. Had IAS 19 R been adopted in the year ended 31 March 2013, the expected return on scheme assets
in the table above would have amounted to £38.0 million, resulting in an overall net cost of £3.5 million being charged to the consolidated income
statement. Under the revised IAS 19, the net pension liability of £56.3 million would be unchanged. Furthermore under changes to IAS 19, future
scheme administrative expenses will be charged as operating costs in the consolidated income statement. Had this been effective for the year
ended 31 March 2013, the Group would have charged £0.7 million to operating costs.
The average duration of scheme liabilities is approximately 18 years (2012: 19 years). Discount rate assumptions for each reporting period are
based upon quoted AA-rated corporate bond indices, excluding collateralised bonds, with maturities matching the scheme's expected benefit
payments.
The RPI inflation assumptions are determined by adopting a yield curve approach, based on the break-even rate of inflation implied by fixed
interest gilt yields and index-linked yields. Applying this approach to the Scheme's projected benefit payments gives an average break-even
inflation assumption of 3.5% (2012: 3.4%). The CPI inflation assumption is determined by reference to adjusted RPI rather than by reference to
CPI-linked investments where the market is small and illiquid. The principal differences between RPI and CPI are (i) the formula effect due to RPI
using arithmetic means and CPI geometric means, and (ii) the bundles of goods considered - CPI excludes mortgage payments and other
housing costs. The assumption used at 31 March 2013 is that CPI inflation will track 1.0% points below RPI inflation in the long term (2012: 1%)
and is therefore set at 2.5% (2012: 2.4%). Pension increase assumptions are based on RPI with an adjustment to reflect caps within the Scheme
rules.
Mortality assumptions were updated in the year ended 31 March 2011 based on analysis of the membership data performed as part of the March
2010 full actuarial valuation. The result was an increase in life expectancy assumptions of approximately 1.7 years. Broadly the same mortality
input assumptions have been used for March 2012 and 2013 with no material resultant change in life expectancies.
The scheme deficit is highly dependent upon these input assumptions which are set at the reporting period end dates. A 0.1% decrease in the
discount rate assumption would increase the scheme obligation by approximately £19 million (2012: £17 million). A 0.1% increase in the inflation
assumption would increase the scheme obligation by approximately £14 million (2012: £16 million). An increase in life expectancy across all
members of one year would increase the scheme obligation by approximately £37 million (2012: £43 million).
Movement in the present value of the defined benefit obligations are as follows:
Opening defined benefit obligation
Settlement gains
Interest cost
Actuarial losses
Benefits paid
Closing defined benefit obligation
Movement in the fair value of plan assets are as follows:
Opening fair value of scheme assets
Expected return
Actual less expected return
Contributions by employer
Benefits paid
Closing fair value of plan assets
39
2013
£m
(845.9)
(41.5)
(72.0)
33.7
(925.7)
Dairy Crest Group
Pension Fund
2012
£m
(778.7)
0.3
(43.5)
(68.1)
44.1
(845.9)
766.1
47.4
69.4
20.2
(33.7)
869.4
718.6
49.0
21.9
20.7
(44.1)
766.1
Notes to the preliminary announcement
14 Retirement benefit obligations (continued)
The principal assumptions used in determining retirement benefit obligations for the Dairy Crest Group Pension Fund are shown below:
2013
%
Key assumptions:
3.5
Price inflation (RPI)
2.5
Price inflation (CPI)
22.6
Average expected remaining life of a 65 year old non-retired male (years)
21.7
Average expected remaining life of a 65 year old retired male (years)
25.3
Average expected remaining life of a 65 year old non-retired female (years)
24.1
Average expected remaining life of a 65 year old retired female (years)
4.6
Discount rate
8.0
Expected return:
- Equities
4.3
- Gilts and bonds
8.0
- Synthetic equity exposure on equity swap contracts
3.2
- LIBOR exposure on equity swap contracts
7.0
- Property and other
4.6
- Insured retirement obligations
2012
%
3.4
2.4
22.5
21.6
25.2
24.0
5.0
8.0
4.3
8.0
3.3
7.0
5.0
15 Provisions
OFT
provision
(including
legal fees)
£m
7.3
(7.3)
-
At 31 March 2011 - current
Utilised
Discount unwind
At 31 March 2012 - current
Utilised
Discount unwind
At 31 March 2013 - current
Onerous
contracts
£m
3.0
(0.9)
0.2
2.3
(0.8)
0.2
1.7
Total
£m
10.3
(8.2)
0.2
2.3
(0.8)
0.2
1.7
Office of Fair Trading ('OFT')
An exceptional provision was charged in 2007/08 in relation to the settlement of the OFT investigation into milk price initiatives (including legal
costs). The amount of the fine provided was £9.4 million plus legal fees and reflected the early resolution agreement that was reached with the
OFT in December 2007. In April 2010, the OFT announced that parties to the 2007 Statement of Objections will get a penalty reduction provided
each company continues to co-operate with the OFT. Accordingly, the provision was reduced to reflect our best estimate of the penalty ultimately
payable (£7.1 million) plus legal fees expected to be incurred (£0.2 million). The penalty was settled on 11 October 2011.
Onerous contract
In June 2010, the Group disposed of 50% of the share capital of Wexford Creamery Limited ('WCL'). As part of the disposal, the Group entered
into an agreement to purchase guaranteed minimum volumes of cheese from WCL for a period of five years from the date of disposal. The price
paid by the Group for that cheese is determined by reference to cost plus margin. Realisations for commodity cheese fluctuate and at the date of
disposal a provision of £3.6 million was charged in order to provide for the cost of the cheese purchase arrangements. At 31 March 2013 the
provision amounted to £1.7 million (2012: £2.3 million).
40
Notes to the preliminary announcement
16 Business combinations and disposals
Year ended 31 March 2013
Disposal of Discontinued Operation
Following a strategic review of the Group's overseas operations in the light of the inability to undertake synergistic acquisitions, on 28 August
2012 the Group completed the disposal of St Hubert SAS ("St Hubert") for a cash consideration of £341.1 million (€430.5 million). St Hubert
formed part of the Spreads reportable segment. Cash held in the disposed business at that date amounted to £4.1 million, resulting in a net cash
inflow to the Group of £337.0 million. This amount has been reduced by fees of £6.2 million. The disposal resulted in a post-tax profit of £47.7
million which can be analysed as follows:
£m
£m
341.1
Sales proceeds - cash consideration
Book value of assets disposed of:
Property, plant and equipment
Goodwill
Intangible assets
Inventories
Trade and other receivables
Cash and short-term deposits
Trade and other payables
Current tax
Deferred tax
Gain on disposal before fees and recycling of exchange differences
Fees
Amounts reclassified to profit and loss
Pre-tax gain on disposal
Expected tax charge
Post-tax gain on disposal of Discontinued Operation
10.3
176.4
131.5
3.3
14.9
4.1
(18.4)
(5.5)
(44.5)
(272.1)
69.0
(6.2)
(11.4)
51.4
(3.7)
47.7
The expected tax charge principally comprises capital gains taxes resulting from the disposal as well as expected taxation on €74 million of
dividends paid in the period up to the date of disposal. These taxes were crystallised as a result of the divestment and as a consequence the
breaking of the St Hubert tax group. An estimate has been made of the likely tax costs resulting from these transactions, however, the final
assessment has yet to be agreed with the French tax authorities which may result in a change to the level of tax provisioning.
As a result of the disposal, the St Hubert business has been classified as a discontinued operation and prior period comparatives have been
adjusted accordingly. The post-tax profit of discontinued operations can be analysed as follows:
Year ended
31 March 2013
£m
41.7
(27.5)
14.2
(3.0)
11.2
0.1
11.3
(4.5)
6.8
Revenue
Operating costs before amortisation of acquired intangibles
Trading profit
Amortisation of acquired intangibles
Profit on operations
Finance income
Profit before tax
Tax expense
Profit for the year from Discontinued Operation
Year ended
31 March 2012
£m
117.4
(77.6)
39.8
(8.3)
31.5
0.1
31.6
(9.9)
21.7
The cash flows of the St Hubert business in the period to the date of disposal and in the prior year can be analysed as follows:
0.3
(0.6)
0.1
(0.2)
Cash flow from operating activities
Cash used in investing activities
Cash generated from financing activities
Net movement in cash and cash equivalents
32.2
(2.3)
0.1
30.0
Acquisitions
On 1 March 2013, the Group acquired the business and certain assets of Proper Welsh Milk Company Limited from the administrators BDO LLP
for £0.3 million. The fair value of the net assets acquired was £0.3 million, comprising property, plant and equipment of £0.5 million less statutory
and other liabilities taken over of £0.2 million, resulting in goodwill on acquisition of nil.
During the year ended 31 March 2013, the Group acquired 7% of the share capital of HIECO Limited for a consideration of £0.3 million.
41
Notes to the preliminary announcement
16 Business combinations and disposals (continued)
Year ended 31 March 2012
Acquisition
On 30 June 2011, the Group acquired 100% of the issued share capital of Morehands Limited (trading as MH Foods Limited), a manufacturer of
branded low calorie spray oils and salad dressings. Initial cash consideration was £11.9 million, with further consideration of £1.6 million paid in
October 2011. The final fair value of the identifiable assets and liabilities of the business at the date of acquisition was:
Fair value
to Group
£m
0.5
6.0
0.6
1.5
1.2
(0.9)
(0.5)
(1.6)
6.8
6.7
13.5
Property, plant and equipment
Intangible asset - Frylight brand
Inventories
Receivables
Cash
Payables
Current tax
Deferred tax
Net assets
Goodwill
Comprising:
Cash consideration
Book
value
£m
0.5
0.6
1.5
1.2
(0.9)
(0.5)
(0.1)
2.3
13.5
The Frylight brand is estimated to have a useful economic life of 15 years and the amount capitalised as an intangible asset and related deferred
tax will be amortised over this period. This life is consistent with the 15-25 year useful economic lives assumed on the acquisition of St Hubert.
Goodwill, representing the cost of acquisition less net identifiable assets and liabilities assumed on acquisition, arises on consolidation only and
there is no amortisation or related tax deduction in the accounts of Dairy Crest Limited, the acquiring entity. Group reported revenue and result
would not be materially different had the acquisition occurred on 1 April 2011. Revenue and profit from the date of acquisition to 31 March 2012
were £5.8 million and £1.3 million respectively. The Group incurred fees of £0.3 million in relation to this acquisition which have been charged to
administrative expenses in the income statement in the year ended 31 March 2012.
Goodwill of £6.7 million comprises certain intangible benefits of the acquisition that could not be individually separated and reliably measured
due to their nature. These include the synergistic benefits resulting from access to the wider group's sales channels, marketing expertise and
product development pipeline.
42
Notes to the preliminary announcement
17 Cash flow from operating activities
Loss before taxation - continuing operations
Profit before taxation - discontinued operations
Remove pre-tax profit on disposal of business
Finance costs and other finance income - continuing operations
Finance costs and other finance income - discontinued operations
Share of associate's net loss
Profit on operations
Depreciation
Amortisation of internally generated intangible assets
Amortisation of acquired intangible assets
Exceptional items
Release of grants
Share based payments
Profit on disposal of depots
Profit on disposal of plant and equipment
Difference between pension contributions paid and amounts recognised in the income statement
Increase in inventories
Decrease in receivables
Decrease in payables
Cash generated from operations
Year ended
31 March 2013
£m
(0.4)
62.7
(51.4)
21.5
(0.1)
32.3
29.0
3.4
3.4
17.9
(0.9)
1.9
(7.7)
(20.2)
(25.0)
18.7
(33.7)
19.1
Year ended
31 March 2012
£m
(41.7)
31.6
15.6
(0.1)
0.3
5.7
30.9
3.2
9.1
80.2
(0.6)
2.4
(4.6)
(0.2)
(21.0)
(23.9)
9.4
(6.1)
84.5
18 Analysis of net debt
Cash and cash equivalents
Borrowings (current)
Borrowings (non-current)
Finance leases
Debt issuance costs
Debt issuance costs excluded
Impact of cross-currency swaps *
Net debt
Cash and cash equivalents
Borrowings (current)
Borrowings (non-current)
Finance leases
Debt issuance costs
Debt issuance costs excluded
Impact of cross-currency swaps *
Net debt
At 1 April
2012
£m
79.4
(417.2)
(7.2)
2.7
(342.3)
(2.7)
8.6
(336.4)
Cash
flow
£m
192.8
76.2
1.7
270.7
270.7
Non-cash
movement
£m
(165.7)
165.7
(0.9)
(0.9)
0.9
-
Exchange
movement
£m
3.9
(7.1)
(3.2)
9.2
6.0
At 31 March
2013
£m
276.1
(165.7)
(182.4)
(5.5)
1.8
(75.7)
(1.8)
17.8
(59.7)
At 1 April
2011
£m
49.9
(65.5)
(298.2)
(9.6)
(323.4)
11.8
(311.6)
Cash
flow
£m
29.6
63.7
(128.1)
2.4
3.0
(29.4)
(3.0)
(32.4)
Non-cash
movement
£m
(0.3)
(0.3)
0.3
-
Exchange
movement
£m
(0.1)
1.8
9.1
10.8
(3.2)
7.6
At 31 March
2012
£m
79.4
(417.2)
(7.2)
2.7
(342.3)
(2.7)
8.6
(336.4)
* The Group has $308.2 million and €75 million of loan notes against which cross-currency swaps have been put in place to fix interest and
principal repayments in Sterling (2012: $318 million and €75 million). Under IFRS, currency borrowings are retranslated into Sterling at year end
exchange rates. The cross-currency swaps are recorded at fair value and incorporate movements in both market exchange rates and interest
rates. The Group defines net debt so as to include the effective Sterling liability where cross-currency swaps have been used to convert foreign
currency borrowings into Sterling. The £17.8 million adjustment included above (2012: £8.6 million) converts the Sterling equivalent of Dollar and
Euro loan notes from year end exchange rates (£266.7 million (2012: £263.1 million)) to the fixed Sterling liability (£248.9 million (2012: £254.5
million)).
43
Notes to the preliminary announcement
19 Post balance sheet events
On 18 April 2013 the Group repaid €106.9 million (£92.7 million) and £7.2 million of 2007 notes at a premium of £8.7 million. £69.2 million of
these notes were due for repayment in April 2014 and £30.7 million were due for repayment in April 2017. On this date the Group paid £40.0
million to the Dairy Crest Group Pension Fund and it granted the Trustee of the Fund a floating charge over maturing cheese inventories with a
maximum realisable value of £60 million. Furthermore the five-year multi-currency revolving credit facility dated October 2011 was reduced by
€60 million (£51 million).
44