DAIRY CREST GROUP PLC
PRELIMINARY RESULTS
For the year ended 31 March 2006
1
Highlights
Building value through brand development
• Group Revenue (including share of jvs) £1.42bn (2005: £1.35bn)
• Adjusted profit before tax* £67.7m (2005: £75.7m)
• Adjusted earnings per share* 40.3 pence (2005: 43.9 pence)
• Full year dividend up 6.4% to 21.5 pence (2005: 20.2 pence)
• Net debt £280.2m (2005: £227.5m)
* Including share of joint ventures and before exceptional items and amortisation of acquired intangibles
2
Highlights
Building value through brand development
• We continue to make good progress with our brand portfolio:
- strong performances from Cathedral City, Clover, Country Life
Spreadable and the Yoplait brands
- active programme of new product launches with emphasis on
functional foods
- recent launch of Cathedral City Mild
• We have strengthened the Dairies division:
- integration of Midlands Co-op Dairies and Foston completed on
time and to plan
- successful implementation of additional Morrisons fresh milk
- better balance of industry supply and demand in fresh milk
- good performance by household business
3
Financial Review
Alastair Murray
4
Income Statement
£’m
Year
March 06
Year
March 05
82.0
91.9
(14.3)
(16.2)
67.7
75.7
Exceptional items
(22.2)
(4.4)
Intangible amortisation
(1.0)
-
Profit before tax
44.5
71.3
Taxation
(9.7)
(19.7)
Profit after tax
34.8
51.6
Profit on operations**
Net finance costs
Profit after interest**
* All items include share of joint ventures
** Before exceptional items and amortisation of acquired intangibles
5
Exceptional Items
£’m
Year March 06
Cash
Non Cash
Total
Midlands Co-op Dairies
(11.7)
(1.0)
(12.7)
Arla London Foodservice
(2.6)
-
(2.6)
1.4
-
1.4
-
(9.3)
(9.3)
(12.9)
(10.3)
(23.2)
1.0
-
1.0
(11.9)
(10.3)
(22.2)
Sale of Newport IOW Dairy
Impairment of assets
Share of JV sale of Enfield*
Total
* Profit on sale before tax
6
Earnings and Dividends
Pence per share
Year
March 06
Year
March 05
Change
%
Adjusted EPS
40.3
43.9
- 8.2
Basic EPS
27.1
41.4
- 34.5
Dividend declared
21.5
20.2
+ 6.4
Shares in issue: m
124.8
123.4
7
Segmental Analysis
£’m
Year
March 06
Year
March 05
Foods excl jvs
539
518
Joint ventures
69
88
Foods
608
606
Dairies
816
743
1,424
1,349
Foods excl jvs
54.9
49.2
Joint ventures
9.3
7.5
Foods
64.2
56.7
Dairies
16.8
35.2
Total
81.0
91.9
Revenue
Total
Profit on operations *
* Including pre tax and interest share of jvs and before exceptional items
8
Operating Margin*
%
Year
March 06
Year
March 05
Foods excl jvs
10.2
9.5
Joint ventures
13.5
8.5
Foods
10.6
9.4
Dairies
2.1
4.7
Total
5.7
6.8
* Including share of joint ventures and before exceptional items
9
Balance Sheet
£’m
Year
March 06
Year
March 05
Net operating assets
558.6
466.4
Tax
(20.4)
(18.3)
538.2
448.1
(280.2)
(227.5)
Net assets employed
258.0
220.6
Gearing
109%
103%
Net debt
10
Operating Cash Flow
£’m
Year
March 06
Year
March 05
Adjusted profit on operations*
81.0
91.9
Depreciation and amortisation**
38.6
33.1
Exceptional items
(14.3)
(1.3)
Pensions
(1.3)
7.4
Joint ventures and other
(14.3)
(10.5)
Working capital
(16.3)
22.4
73.4
143.0
Operating cash flow
* Including share of joint ventures and before exceptional items
** Net of grants
11
Cash Flow
£’m
Year
March 06
Year
March 05
73.4
143.0
Capital expenditure (net of grants)
(44.0)
(37.7)
Interest, tax and dividends
(57.5)
(54.2)
Dividends received from jvs
9.0
-
(43.7)
(9.9)
Disposals
9.4
8.4
Other
0.7
2.6
Movement in net debt
(52.7)
52.2
Net debt at 31 March 2005
227.5
Net debt at 31 March 2006
280.2
Operating cash flow
Acquisitions
12
Pensions Summary
• IAS19 gross deficit at 31 March 2006 of £62.0m (2005:£102.7m)
- highly volatile measure
- increased asset valuations and discount rate
• Scheme to close to new entrants from July 2006
• Additional cash contribution of £6.0m in 2005/06
• Employer contributions to increase by £11.0m to c.£28.3m from 2006/07
- additional cash contribution of £12.0m
- basic contribution increased from £11.3m to c.£16.3m
• Committed to maintain additional cash contribution of £12.0m in 2007/08
• Next full actuarial valuation as at 31 March 2007
13
Business Review
Drummond Hall
14
Total Shareholder Return since IPO
• TSR = Share price + dividends
600.0
500.0
400.0
300.0
200.0
100.0
0.0
Aug-96 Aug-97 Aug-98 Aug-99 Aug-00 Aug-01 Aug-02 Aug-03 Aug-04 Aug-05
Dairy Crest (TSR)
Source: Datastream (May 2006)
FTSE 250 (TSR)
15
Our brands are getting bigger
+ 248%
1996/97
Cathedral City
2005/06
1996/97
+ 36%
Clover
2005/06
0
100
200
300
400
1996/97
+ 210%
Petits Filous
2005/06
1996/97
Country Life
2005/06
0
100
200
300
+ 317%
400
Source: Dairy Crest Annual Sales Volumes (Country Life 100% since Sept 2004) – 1996/97 indexed to 100
16
Our brands are getting bigger
£106m
bigger than
£66m
bigger than
£52m
bigger than
£41m
bigger than
Source: TNS / AC Nielsen / IRI 52 week ended March 2006
17
We’ve been active with new
product development
18
Spreads
• Spreads business continues to be biggest profit contributor
• Marketing continues to focus on four key brands
- simplified portfolio with fewer brands and sku’s
• Good performance from Clover
- sales value growth of 5%
- lower proportion of sales on promotion
- price increases achieved in Sept 2005 and Jan 2006
• Utterly Butterly continues to make progress against competition
- increased share of dairy spreads sector
- sales up 7% by volume and down 2% by value
19
Clover and UB outperform ICBINB
DC acquired UB
MAT Value: £000’s
70,000
65,000
60,000
55,000
50,000
45,000
40,000
35,000
30,000
Clover
Source: AC Nielsen (MAT) 26 March 2006
ICBINB
06
ar
-
5
M
ec
-0
D
Ju
l-0
5
O
ct
-0
5
05
pr
A
Ju
n03
Se
p03
N
ov
-0
3
Fe
b04
M
ay
-0
4
A
ug
-0
4
N
ov
-0
4
Ja
n05
03
M
ar
-
2
ec
-0
D
Ju
l-0
2
O
ct
-0
2
Ja
n02
A
pr
-0
2
25,000
Utterly Butterly
20
Country Life
• Good growth in Country Life
- packet sales up 9% by value
- spreadable sales up 23% by value
• Successful marketing campaign launched in summer 2005
- first national TV advertising for 20 years
• Lightly salted version of Country Life Spreadable launched in
January 2006
• New packaging for Country Life range
introduced
• Opportunities to stretch the Country Life
brand into new areas
21
St. Ivel Gold
• St. Ivel Gold volume and share under pressure
- sales down 17% by value
- strong competitor performance
• St. Ivel Gold relaunched in January 2006
- new packaging
- new television advertising campaign
- new Omega-3 variant launched
• St. Ivel Gold will be the platform for
functional spreads
22
Cathedral City
• Strong performance from Cathedral City
- sales up 17% by value and 11% by volume
- lower proportion of sales on promotion
• New packaging launched
• Successful TV advertising campaign
• Cathedral City Mild launched May 2006
• Final phase of Davidstow redevelopment
completed
23
ay
-0
Au 1
gN 01
ov
-0
Ja 1
n0
Ap 2
r-0
Ju 2
lSe 02
pD 02
ec
-0
Fe 2
bM 03
ay
-0
Au 3
g0
O 3
ct
-0
Ja 3
n0
Ap 4
r-0
Ju 4
nSe 04
pN 04
ov
Fe 0 4
bM 05
ay
-0
Ju 5
l-0
O 5
ct
-0
Ja 5
n0
M 6
ar
-0
6
M
Cathedral City Growth
£120m
£100m
£80m
£60m
£40m
£20m
£0m
Cathedral City
Source: TNS (MAT) 26 March 2006
Seriously Strong
Pilgrims Choice
24
Cheese
• Strong overall performance from our cheese business
- Cathedral City growth
- cost related price increases achieved in summer 2005
• Davidstow brand performed strongly with sales up 19%
• Successful implementation of new own label supply arrangements
with ASDA and Morrisons
• Stilton business continues to be challenging
- impairment charge on value of assets of £9.3m
- launch of new speciality cheese brand ‘Over the Moon’
• Strong market for whey products
• Industry cheese stocks have risen in second half
- pressure on pricing in commodity cheese in 2006/07
25
De
c01
M
ar
-0
Ju 2
n0
Se 2
p0
De 2
c02
M
ar
-0
3
Ju
n0
Se 3
p0
De 3
c03
M
ar
-0
4
Ju
n0
Se 4
p0
De 4
c04
M
ar
-0
Ju 5
n0
Se 5
p0
De 5
c05
M
ar
-0
6
Cheese Stocks
K tonnes
British Cheese Board cheddar stocks
12 month moving average
115.0
110.0
105.0
100.0
95.0
90.0
85.0
26
Yoplait Dairy Crest
• Continued good growth in chilled yogurts and desserts market
• Brands continue to perform strongly with overall sales value up 11%
- Petits Filous up 25%
- Frubes up 34%
- Wildlife up 6%
- YOP up 13%
• Weight Watchers down 4% by value but held market share in ‘Light’
• New product development in functional foods
- Petits Filous Plus: probiotic yogurt drink for kids
• Closure of own label operations in June 2005
27
Liquid Products
• Retail milk volumes down 17% year on year
- Tesco volume ceased in April 2005
• Morrisons additional volume successfully implemented at end of
October 2005
• Acquisitions of Midland Co-op Dairies and Foston dairy in May 2005
- integration completed on schedule and to plan
- MCD Birmingham dairy closed February 2006
- Foston now fully operational
• Better balance of supply and demand in fresh milk industry
• Price increases achieved from March 2005 and further increases
achieved in January 2006 to offset higher input costs
28
Other Liquid Products
• Strong growth in organic milk
- own label milk sales up 49% by value
- Rachel’s brand sales up 47% by value
• FRijj maintained market leading position
- value down 5% due to lower promotional volumes
- addressing capacity constraints for 2006/07
• Potted cream sales up 15% by value
- M&S sole supply position from August 2006
• St. Ivel advance encouraging performance so far
- good levels of trade distribution
- annualised retail sales of approximately £13m
29
Household
• Overall household volumes up 31% year on year
- volume gained in middle ground
- Midlands Co-op Dairies acquisition May 2005
- Arla’s London foodservice business October 2005
- ongoing infill acquisitions
• Uplift in Midlands Co-op performance
- Average milk per round: 322 to 450 gallons pw
- Non-milk products per round: £55 to £206 pw
• Underlying doorstep decline maintained at around 8%
- investment in canvassing
- first class service initiatives
• Non-milk product sales up by 30%
• Doorstep price increase from September 2005 of 2 pence per pint
30
Milk Procurement
• Strong working relationship with Dairy Crest Direct
-
over 70% of raw milk sourced from Dairy Crest Direct
• Dairy Crest continues to pay market leading prices
-
Waitrose and Marks & Spencer
-
Davidstow
• Price reductions on cheese contracts following 0.8 ppl increase in
summer 2005:
-
0.5ppl from March 2006 (excluding Davidstow)
-
Announced 0.5ppl from June 2006 (0.25ppl for Davidstow)
• Price reduction on liquids contracts of 0.5ppl from April 2006 reflecting
lower commodity cream prices
31
Outlook
• Our brand portfolio continues to make good progress
- further new product launches
• Markets for own label and commodity products continue to be
challenging
• Improved performance from Dairies division
• Trading at the start of the new financial year is on track
32
DAIRY CREST GROUP PLC
PRELIMINARY RESULTS
For the year ended 31 March 2006
33