RNS Number:1152M
Dairy Crest Group PLC
10 June 2003
Dairy Crest Group plc ("Dairy Crest")
2003 Preliminary Results
10 June 2003
Strong brand growth with improving quality of earnings
Dairy Crest, the UK's leading chilled dairy foods company, today announces its
audited results for the twelve months to 31 March 2003:
Highlights
2003 2002 % change
Turnover #1,326 m #1,367 m -3 %
Adjusted profit before tax* #76.8 m #73.7 m +4 %
Adjusted earnings per share* 46.4 p 45.2 p +3 %
Total dividend for the year 16.4 p 15.2 p +8 %
* Continued strong growth of key brands: Clover, Cathedral City,
Frijj and the Yoplait brands
* Strategic acquisition of St Ivel Spreads and strong performance to
date
* Completion of #54 million investment programme in super dairies
with Severnside fully operational
* Reduction of exposure to commodities with planned closure of butter
and powder facility at Chard
* Quality of earnings improving and the Group is moving into a period
of strong cash generation
* before exceptional items and goodwill amortisation
Drummond Hall, Chief Executive, Dairy Crest Group plc, said:
"I believe the business is in a strong competitive position and is well placed
to deliver shareholder value. Our brands have started the year well. The
planned closure of the butter and powder facility at Chard is expected to have a
broadly neutral impact on the current year. Industry cheese stocks have reduced
but there are still some excess stocks of mature cheddar which will continue to
affect margins in the first half. However margins are expected to improve
progressively through the year and the Group's performance is again likely to be
weighted towards the second half. Overall we expect profits for the year,
including the full year benefit of the St Ivel Spreads acquisition, to show good
progress and the Group to be strongly cash generative."
For further information:
Dairy Crest Group plc Tel: 01372 472 200
Drummond Hall, Chief Executive
Ian Laurie, Finance Director
Sinead Noble, Corporate Communications Manager
Citigate Dewe Rogerson Tel: 020 7638 9571
Andy Cornelius, Alexandra Scrimgeour
Chairman's Statement
The Group has delivered good growth in the year to March 2003. Our strategy of
adding value, building brands and investing for lowest cost position continues
to prove successful, despite the particularly difficult trading conditions in
our commodity markets. The Group reported adjusted profit before taxation of
#76.8 million on turnover of #1.33 billion, with adjusted earnings per share
increased to 46.4 pence. In line with the Board's policy of progressive dividend
increases, the directors recommend a final dividend of 11.3 pence per share,
making a total dividend for the year of 16.4 pence, an increase of 8%.
In addition, we have taken major steps to improve the quality of earnings. In
November we completed the acquisition of St Ivel Spreads for #86.5 million and
we have announced plans to close our butter and powder facility at Chard, which
will reduce our exposure to the commodity ingredients market.
During the year we also completed the capital investment programme in our two
super dairies at Severnside and Chadwell Heath. This has created a sound
platform for our liquid products business, as well as ensuring that we are well
placed to benefit from any industry consolidation.
We continue to place great emphasis on close working relationships with dairy
farmers and have developed initiatives to improve their returns. Dairy Crest
has taken a leading role, not only in terms of returning market leading milk
prices to supplying producers, but also in reducing cost in the supply chain and
working with the major retailers to implement a milk price supplement across our
retail dairy product range last autumn.
Board Changes
The Board has been significantly restructured over the last year to reflect the
developing needs of the business.
In July 2002, Drummond Hall was appointed Chief Executive and Mark Allen was
appointed to the Board with responsibility for our cheese and household
businesses. In April 2003, Peter Thornton was appointed to the Board with
responsibility for our spreads and liquid products businesses. Both Mark and
Peter have successful records of achievement at Dairy Crest. In March 2003,
Chris Roberts, who had been with Unigate and latterly Dairy Crest for over 25
years, stood down from the Board.
Howard Mann, President and Chief Executive of McCain Foods, joined the Board as
a non-executive director, replacing Tom Jones, in May 2003.
Ian Laurie, who helped steer the Company through flotation and has been a key
contributor in developing Dairy Crest over the last eight years, will step down
as Group Finance Director and leave in August. Ian will be replaced by Alastair
Murray, who will join Dairy Crest from The Body Shop International plc in
September.
I would like to thank Chris, Tom and Ian for their considerable contributions to
Dairy Crest and to welcome Howard and Alastair to the Group.
One of Dairy Crest's strengths is the quality and professionalism of our people
at every level throughout the business. I would like to take this opportunity to
recognise their hard work and commitment, which, despite difficult trading
conditions, have once again enabled the Group to deliver a successful year.
S M D Oliver, Chairman
9 June 2003
Chief Executive's Review
Overview
I was pleased to be appointed Chief Executive in July 2002, following 11 years
developing our Consumer Foods division. During the year, Dairy Crest has
continued to make good progress, despite testing conditions in the commodity
cheese market, where prices were at ten year lows. The key driver of the Group's
performance has been its portfolio of brands, including Clover, Cathedral City,
Frijj and the Yoplait brands, all of which have demonstrated continued strong
volume growth and increased market share. The acquisition of the St Ivel
Spreads business is proving to be a sound strategic and financial fit. This,
together with the downsizing of our ingredients business through the planned
closure of our butter and powder facility at Chard, will improve the quality of
our earnings.
The business is well placed to continue to grow through further development of
its branded and added value products and to compete effectively in commodity
areas from well-invested facilities. During the year we completed the
integration of the Unigate dairy and cheese business, delivering the synergies
forecast at the time of the acquisition. Our super dairy at Severnside became
fully operational towards the end of 2002. Very importantly, our major capital
investment programme will be completed in the current year and the business will
therefore generate increasingly strong cash flows.
Financial results
Group turnover (including the share of the joint ventures' turnover and the
benefit of the St Ivel Spreads acquisition in November 2002) was slightly down
at #1.33 billion, which principally reflected the impact of our strategic
withdrawal from less profitable retail milk business in the first half of last
year, together with lower volumes and realisations in commodity cheese. Group
operating profit, including St Ivel Spreads but before operating exceptional
items and goodwill amortisation, increased by 5% to #97.5 million, with a strong
improvement in the second half as expected. Adjusted profit before tax was
#76.8 million, compared with #73.7 million last year. After taking account of
goodwill amortisation and #21.5 million of net exceptional charges associated
with the restructuring of the Group, reported profit before tax was #47.8
million, up 65% from last year. Adjusted earnings per share increased to 46.4
pence from 45.2 pence per share.
Strategic developments
In November we completed the acquisition of the St Ivel Spreads business. This
comprised the leading brands Utterly Butterly, St Ivel Gold and Vitalite,
together with the UK licence for the Carapelli brand, and a well-invested
manufacturing facility in Kirkby. The integration with our existing spreads
business is largely complete and the combined spreads business has performed
ahead of our original expectations.
We also acquired an exclusive licence to use the St Ivel brand in perpetuity
across spreads, juice and dairy products, excluding cottage cheese, yogurts and
desserts. We believe this brand will add value across our business.
We are downsizing our ingredients business with the planned closure of our
butter and powder manufacturing facility at Chard and the consolidation of these
operations at Severnside. During the year significant new industry butter and
powder capacity came on stream, which has made it increasingly difficult to
source the required level of milk for our business. By retaining the facility
at Severnside, we will continue to have the ability to balance our milk supply
efficiently and to supply our major ingredients customers. This will reduce our
exposure to the commodity markets.
These important strategic moves underline our commitment to improving the
quality of our earnings.
Investment programme
Dairy Crest's second super dairy at Severnside became fully operational towards
the end of 2002. This, together with the closure of our dairy at Kidlington,
represented the final step of the restructuring and capital investment programme
following the acquisition of Unigate's dairy and cheese business in July 2000.
The Group is now well placed to develop its position in supplying fresh milk to
retailers and to benefit from any industry consolidation. Our net investment of
#41 million in our creamery at Davidstow is progressing well and is on track to
be completed in spring 2004. This will support the continuing strong growth of
our brands Cathedral City and Davidstow.
The completion of these major projects means that future capital investment
should return to levels broadly in line with depreciation.
Customer focus
We place great emphasis on developing strong relationships with our major
customers across all our businesses. We are investing in further improving
service levels and a major programme of category development. This programme has
involved extensive consumer research, insights from which are driving our
business development plans in both brand and retailer brand sectors with our
customers.
People
Dairy Crest recognises the key role our people play in improving business
performance and therefore the Company's success. We are increasing investment in
our people and, in particular, focusing on management development of key
personnel to ensure that all our businesses will continue to compete
effectively. Two of our businesses - household and cheese - achieved the
Investors in People standard and it is our intention that the other businesses
in the Group will follow over the next couple of years. We have benefited from
our move in September 2002 to our new Head Office at Claygate, which has enabled
us to consolidate our principal management activities on one site.
Our final salary pension scheme is increasingly recognised as an important
benefit and one that we plan to continue to support.
Outlook
I believe the business is in a strong competitive position and is well placed to
deliver shareholder value. Our brands have started the year well. The planned
closure of the butter and powder facility at Chard is expected to have a broadly
neutral impact on the current year. Industry cheese stocks have reduced but
there are still some excess stocks of mature cheddar which will continue to
affect margins in the first half. However, margins are expected to improve
progressively through the year and the Group's performance is again likely to be
weighted towards the second half. Overall we expect profits for the year,
including the full year benefit of the St Ivel Spreads acquisition, to show good
progress and the Group to be strongly cash generative.
JWD Hall, Chief Executive
9 June 2003
Operational review
Consumer Foods
The Consumer Foods division reflects Dairy Crest's business with retailers,
including our share of the Yoplait Dairy Crest joint venture. Turnover
decreased by 3% from #841.6 million to #814.8 million. Operating profit fell by
1% to #62.4 million, although operating margin increased slightly from 7.5% to
7.7%. This performance reflected margin pressure in commodity cheese, offset by
ongoing brand growth, together with the benefits from the St Ivel Spreads
acquisition.
Spreads
Dairy Crest's existing spreads business benefited from the continued strength of
Clover's performance. Clover's sales volumes increased by 9%, compared with the
spreads and butter market where sales volumes declined by 2%. This strong
growth, combined with the brand's premium position, has helped maintain Clover
as the clear brand leader in the dairy spreads sector. We are continuing to
invest in appropriate levels of marketing support to further strengthen its
consumer appeal, as evidenced by the new TV campaign that commenced in May.
Dairy Crest is the leading manufacturer of Country Life in the UK. Both Country
Life butter and Country Life Spreadable have shown good volume growth during the
year. Argento was launched in June 2002, giving Dairy Crest a presence in olive
oil based spreads, subsequently added to by the Carapelli brand.
In line with its strategy of building brands, Dairy Crest acquired the St Ivel
Spreads business from the Uniq Group for a consideration of #86.5 million in
November 2002. The combined spreads business has performed ahead of our
expectations during our period of ownership. Following the acquisition, Dairy
Crest has a presence in all sectors of the spreads and butter market and is now
the market leader, by volume, in the growing taste sector, as well as the number
two player in health. As expected, the acquisition has enhanced adjusted
earnings and is generating a return on investment in excess of Dairy Crest's
cost of capital. The combined spreads business is highly cash generative.
We now have a broad portfolio of brands, each with a clearly defined role within
the category. The management of this portfolio as a whole will strengthen the
position of each individual brand. The combined spreads business is expected to
be the biggest contributor to Group profits and should continue to make progress
in the current year, due to brand growth and the synergy benefits of the
acquisition. These synergy benefits are being delivered in line with plan but
will be offset in the current year by the planned increases in marketing spend
to support the St Ivel brands and recent increases in the cost of vegetable oil.
A new advertising campaign for Utterly Butterly is being implemented and
relaunches of St Ivel Gold and Vitalite are planned for the summer.
Cheese
The underlying performance of the cheese business reflects the benefits of our
sustained marketing and capital investment over a number of years to build a
strong added value and brand position. We have had yet another year of
outstanding progress in Cathedral City, with sales volumes ahead by 23%,
compared to the mature cheddar market, where volume grew by just 2%. Cathedral
City is the clear market leader in mature cheddar and this growth underpins our
strong belief in future opportunities for Cathedral City, since it currently
only has a market share of around 9% of the retail cheddar sector. We therefore
continue to invest in an active programme of brand development with appropriate
new product development and packaging innovation. Davidstow has also performed
well, with significant volume uplift of 18%.
Notwithstanding the strong performance of Cathedral City and Davidstow, the
profitability of the cheese business was significantly impacted by adverse
market conditions in commodity cheddar. As noted in November 2002, realisations
in commodity cheddar reduced to a ten year low in the summer of 2002, with
industry stocks reaching an unsustainably high level, peaking in August 2002.
Based on industry estimates, stock levels at the year end were down
approximately 13% from their peak. We therefore believe that commodity mild
cheddar cheese stocks are now in balance and prices are starting to rise.
However, prices and margins for commodity mature cheddar will be under pressure
over the next few months, as the final excess mature stocks work their way
through the system. A progressive firming in cheese pricing is therefore
expected throughout the year as this position resolves itself. We do not expect
the particularly difficult trading conditions experienced in commodity cheddar
in 2002/03 to be repeated in the medium term.
Our Stilton and specialist cheese business has made progress over the previous
year, capitalising on the investment in our manufacturing facility at
Hartington, which was completed in 2001.
Our net investment of #41 million to enhance and upgrade Dairy Crest's creamery
at Davidstow is progressing well and is on track to be completed in spring 2004.
The investment will increase capacity by approximately two thirds over the
next ten years and will support the continuing growth of Cathedral City and
Davidstow. We are also investing in further automation at Maelor to enhance its
position as the leading cheese prepack site in the UK.
We believe that the long-term fundamentals of our cheese business are good, as
we continue to develop our added value and branded offering. We expect
Cathedral City to continue to make good progress in the current year. This
should be assisted by the introduction of new easy open/resealable packaging for
Cathedral City this summer and the extension of the range.
Fresh dairy products
The Yoplait brands performed strongly in the second half of the year to March
2003 and delivered branded volume growth for the full year of 15%. This followed
a flat performance in the first half, which reflected industrial action at
Yoplait's plants in France. Petits Filous enjoyed another good year, which,
combined with continued growth on the Wildlife range, helped Yoplait Dairy Crest
to enhance its position as the leading supplier to the children's sector. The
Weight Watchers range, Yop and Yoplait Best There Is all performed well over the
year, resulting in the Yoplait brands achieving their highest ever market share.
Retailer own brand volumes showed a mixed picture in demanding market
conditions. However, margins benefited from the management actions taken last
year to reduce the cost base, including the closure of the Basildon plant, with
production transferred to other facilities. The desserts and ice cream operation
at Yeovil has shown good growth.
Following completion of the purchase of 50% of the Yoplait business by Paribas
Affaires Industrielles, the Yoplait Dairy Crest joint venture agreement has been
extended until at least 2012, reinforcing the success of the venture.
Yoplait Dairy Crest recently entered into an arrangement with Horizon Organic
Dairies to develop, manufacture and distribute new organic yogurt products in
the UK under the Rachel's organic brand. The first product, an organic yogurt
multipack, has just been launched and other innovative organic fresh dairy
products are expected to follow. This new relationship is in addition to the
agreement between Horizon and Dairy Crest to manufacture and develop organic
milk products in the UK.
We anticipate that continued strong volume growth from the Yoplait brands will
enable Yoplait Dairy Crest to achieve steady performance improvement in the
current year.
Liquid products
The year to March 2003 saw the final steps in the restructuring of our liquid
products business, following the acquisition of Unigate's dairy and cheese
business in July 2000. The #54 million investment programme to create two super
dairies at Chadwell Heath and Severnside was completed when Severnside became
fully operational towards the end of 2002.
The Severnside facility is unique in the UK dairy industry. It provides both
scale for low cost production and the flexibility, through milk segregation, to
produce tailored propositions for our customers. The plant has a processing
capacity of 500 million litres per annum with a highly automated retail liquid
milk processing operation. There is an efficient potted cream processing plant,
as well as dedicated facilities for added value products, including organic milk
and McDonalds' milkshake base and sundae mix. In addition, Severnside
manufactures Frijj, our market leading fresh flavoured milk drink. There is also
a balancing butter and skimmed milk powder manufacturing operation.
Dairy Crest's investment at Severnside and Chadwell Heath has created two of the
UK's largest retail milk dairies, processing milk previously manufactured at six
smaller sites. The Group also has two well-invested regional dairies at Totnes
in Devon and Fenstanton in East Anglia. This has resulted in considerable
operating efficiencies and flexibility without adding to overall industry
capacity. Dairy Crest is now well positioned to capitalise on the latest round
of industry consolidation.
Trading conditions in the retail liquid milk market remained competitive during
the year. In fresh milk, the Group's sales volumes with the main multiple
retailers in March 2003 were in line with those at the end of the previous year.
Pressures in the retailer own brand sector impacted the organic fresh milk
business. Management action has been taken which is now bringing supply more
into balance with anticipated demand. The Rachel's brand (under licence from
Horizon Organic Dairies) has shown strong sales growth. During the year the
juice business was affected by an increase in concentrate prices, which we have
been recovering progressively in a competitive market place.
Frijj enjoyed another year of strong growth with volumes increasing by 13%.
Frijj continues to be the market leader in the fresh flavoured milk drinks
market and it is a key priority to continue to drive Frijj volume and to develop
the brand. We have also made business gains in fresh cream and with McDonalds in
our milk shake base business. Overall profits in our liquid products business
have made good progress on the prior year.
We are now capitalising on our investment to develop strong customer
relationships, together with further increases in operational efficiencies.
While trading conditions will continue to be competitive, financial returns from
our liquid products business are expected to improve and importantly the
business will start to generate significant cash flows now that the period of
major capital investment has ended.
Food Services
The Food Services division includes Dairy Crest's household milk business and
dairy ingredients operations. It is managed to deliver the profits and cash to
invest in the added value and branded elements of the Consumer Foods division.
Turnover decreased by 3% from #525.1 million to #511.3 million. Operating profit
increased by 17% to #35.1 million, reflecting a good performance by our
household business and improved trading conditions in our ingredients operations
over last year. The Food Services margin increased from 5.7% to 6.9%.
Household
The household business has performed well during the year and has made a strong
contribution to the Group's profit and cash flows, despite doorstep volumes
continuing to decline at an annual rate of around 12%. The acquisition of small
infill dairy businesses has enabled the business to mitigate the impact of the
overall market decline, with the result that volumes in our household business
have declined by around 6%. The business has also benefited from the completion
of the Unigate integration.
The business continues to be managed to reduce cost to counteract the effect of
falling volumes. First class service initiatives are aimed at minimising this
decline and Dairy Crest will continue to seek acquisition opportunities. The
business will again be a major contributor to Group profitability in the current
year and continue to be highly cash generative.
Ingredients
The performance of the ingredients business was, as expected, ahead of last
year, despite commodity prices for skimmed milk powder being at their lowest
level for over ten years in the first half of the year. Results were also
adversely impacted in the last quarter of the year by the appreciation of the
Euro against Sterling and reductions in the milk supply to this business.
Following the planned closure of our facility at Chard, the manufacture of bulk
butter and skimmed milk powder will be consolidated at Severnside, where we will
continue to have the ability to balance our milk supply efficiently and to
supply our major ingredients customers. The business will continue to produce
added value propositions for leading food manufacturers. The downsizing of the
ingredients business will increase the quality and predictability of the Group's
future earnings.
Financial review
Turnover
Group turnover, including our share of joint ventures' turnover, decreased by 3%
to #1,326 million principally reflecting the impact of our strategic withdrawal
from less profitable retail milk business in the first half of last year,
together with lower volumes and realisations in commodity cheese partially
offset by the inclusion of St Ivel Spreads turnover of #27.9 million from
November 2002.
Operating profit
Operating profit, including St Ivel Spreads, increased by 5% to #97.5 million.
After operating exceptional items and goodwill amortisation, operating profit
increased by 26% to #58.6 million reflecting the reduction in business
integration costs. In this review, except where otherwise referred to, operating
profit is stated before exceptional items and goodwill amortisation.
Consumer Foods operating profit decreased by 1% to #62.4 million reflecting the
contribution from St Ivel Spreads, ongoing growth in brands and good progress in
liquid products offset by margin pressure in commodity cheese. Consumer Foods
margins increased from 7.5% to 7.7%. Food Services operating profit has
increased by 17% to #35.1 million reflecting a good performance in the household
business and the improved trading conditions in commodity ingredients during the
year. The Food Services margin increased from 5.7% to 6.9%.
Exceptional items and goodwill amortisation
During the year we completed the integration of the Unigate dairy and cheese
business with the closure of the Kidlington dairy in October 2002 and the
Severnside super dairy coming fully on stream towards the end of 2002. This has
resulted in one-off costs of #29.8 million, #15.5 million of which related to
redundancy and business integration costs and #14.3 million to non-cash asset
write-offs mainly at Kidlington.
In addition to the costs of integrating the Unigate dairy and cheese business
into the Group, there is a charge of #0.6 million on the integration of the St
Ivel Spreads business. A charge of #1.0 million has also been recognised as our
share of Yoplait Dairy Crest's costs in completing the closure of its Basildon
site and reorganisation of its activities.
Goodwill amortisation amounts to #7.5 million, #2.8 million of which relates to
the acquisition of the St Ivel Spreads business. We have reduced the
amortisation period for goodwill arising on acquisitions since 1 April 1998 from
20 years to 10 years as the reduced period is considered to more closely reflect
the useful life of the goodwill. The change has increased the goodwill
amortisation charge in 2002/03 by #4.2 million. From 1 April 2002 goodwill
amortisation on business acquisitions is tax deductible. The tax benefit in 2002
/03 is #0.8 million. This amendment reduces basic earnings per share by 3p per
share, however this change in accounting estimate does not impact prior years.
In 2003/04 the goodwill amortisation charge is currently estimated to be around
#12.0 million with a tax credit of #2.1 million.
We have also recognised non-operating exceptional credits of #9.9 million
representing profits on disposal of our sites at Westway, London, Marshfield and
Carmarthen combined with our share of Yoplait Dairy Crest's profit on disposal
of a property. Further consideration may be received in relation to the Westway
disposal depending on final planning permission.
Interest
The Group's interest charge has increased by 7% to #20.7 million. This increase
reflects the impact of financing the St Ivel Spreads acquisition, offset by the
benefit of interest rate reductions. This interest charge includes #0.5 million
(2002 - #0.6 million) in respect of our share of Yoplait Dairy Crest's interest
and is stated after capitalising interest of #1.4 million (2002 - #1.1 million)
on major projects. Interest cover calculated before operating exceptional items
and goodwill amortisation was 4.7 times (2002 - 4.8 times).
Taxation
The Group's effective tax rate on profits excluding exceptional items and
goodwill amortisation was 26.8% (2002 - 27.0%). This reflects a benefit of 2.8%
(2002 - 1.6%) from adjustments to tax liabilities in respect of prior years. The
tax credit on the operating exceptional items of #31.4 million was #9.0 million,
a rate of 28.7% and the tax charge on the non-operating exceptional item of #9.9
million was #0.4 million. Overall, excluding goodwill amortisation, the Group's
effective tax rate was 21.7% (2002 - 23.4%).
Earnings per share
The Group's adjusted earnings per share increased by 3% to 46.4p per share.
Basic earnings per share, which incorporates the impact of acquisitions,
exceptional items and goodwill amortisation, increased by 68% to 30.2p per
share.
The weighted average number of shares increased by approximately 2.4 million to
120.7 million, following the exercise of share options in the last two years.
Dividends
The proposed final dividend of 11.3p per share, together with the interim
dividend of 5.1p per share, gives a total dividend of 16.4p per share for the
full year. This represents an increase of 8% on the dividend declared for 2001/
02. The final dividend will be paid on 11 August 2003 to shareholders on the
register on 11 July 2003.
Dividend cover, calculated as profit for the year after minority interests,
excluding exceptional items and goodwill amortisation, divided by dividends
payable, was 2.8 times (2002 - 2.9 times).
Pensions
The Accounting Standards Board has delayed the implementation of the standard on
retirement benefits FRS 17 with the result that it is unlikely to be implemented
by Dairy Crest until its financial year ending 31 March 2006.
As noted last year FRS 17 will result in a major change to the way pension costs
are charged in the accounts. The current service cost will be charged against
operating profit with the benefit due to the investment return on assets being
higher than the discount rate applied to liabilities together with interest on
any surplus/deficit in the fund being credited to interest.
The actuary has estimated that on an FRS 17 basis the deficit in the fund at 31
March 2003 was #125.1 million compared with a surplus of #54.7 million at 31
March 2002. For reference the FTSE 100 at 31 March 2003 was 3,613, 31% below the
level at 31 March 2002. The movement reflects a loss of #142.6 million as a
result of the actual return on investments being less than the expected return
and an increase in the present value of liabilities of #34.3 million principally
due to a reduction in the discount rate from 6.2% at 31 March 2002 to 5.5% at 31
March 2003 reflecting lower bond yields. We estimate that an increase of 500
points in the FTSE 100, using it as a proxy for our equity investments, reduces
the deficit by circa #37 million and a 0.5% increase in real bond yields reduces
the deficit by circa #47 million. At 31 March 2003 the fund was invested in
equities (71%) and Index Linked Gilts (29%).
The Company believes that a defined benefit scheme is an important benefit to
employees. It has proposed to employees that their pension contributions should
rise by an average 2.8% of pensionable salaries over the next three years from
July 2003 to reflect the increased cost of funding pensions. Employers' pension
contributions are expected to be increased from 1 April 2004 by 3% of
pensionable salaries (equivalent to circa #3 million), to circa 7% subject to
the advice of the actuary following completion of his actuarial valuation as at
31 March 2004.
Cash flow
The cash inflow from operating activities was #104.9 million (2002 - #48.5
million). This included a working capital outflow of #6.1 million (2002 - #52.1
million). Stocks decreased by #18.6 million principally reflecting reductions in
maturing cheese and ingredients stocks. Creditors reduced by #27.6 million
reflecting lower milk creditors, the timing of payments and the settlement of
liabilities in respect of sites closed during the year.
Depreciation amounted to #35.8 million (2002 - #37.0 million) and goodwill
amortisation amounted to #7.5 million (2002 - #2.3 million).
Interest payments amounted to #22.0 million. The Group borrows at a margin of
90-100 basis points over the relevant interbank rate.
Tax payments were #4.1 million (2002 - #5.3 million) and reflect the benefit of
increased capital allowances on capital expenditure.
Capital expenditure, net of grants of #5.6 million, was #61.6 million with
significant amounts being invested at the Severnside super dairy and the
creamery at Davidstow, Cornwall.
The Group's cash flow benefited by #34.6 million resulting from the disposal of
fixed assets. This included consideration of #18 million from the disposal of
our site at Westway, London and #9.5 million relating to the disposal of the
site at Marshfield.
Purchase of businesses include the acquisition of St Ivel Spreads for #88.5
million (including fees of #2.0 million) and a number of household infill
acquisitions which amounted to #5.8 million. The Group also received the final
consideration of #0.9 million on 2 April 2002 in regards to the sale of 20% of
its interest in Haverfordwest Cheese Limited in 2001/02.
Net borrowings
Net debt increased by #60.3 million to #345.2 million at the end of the year
which reflects the acquisition of St Ivel Spreads and significant capital
expenditure during the year at Severnside and Davidstow. At March 2003, gearing
was 147% (2002 - 132%). We expect the Group to be increasingly cash generative
following completion of its major capital investment programme in the current
year.
Shareholders' funds
Shareholders' funds at 31 March 2003 were #226.2 million including goodwill of
#107.8 million, #23.1 million of which related to the Unigate dairy and cheese
acquisition and #67.4 million to the St Ivel Spreads acquisition. The Group's
balance sheet is strong with stocks of #210.5 million and tangible fixed assets
of #345.1 million.
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 uses derivatives only to manage its foreign currency and interest rate
risks arising from underlying business activities. Transactions of a speculative
nature are prohibited. The Group's treasury activities are governed by policies
approved and monitored by the Board. These policies are summarised below.
Liquidity risk
The Group's objective is to ensure that forecast net borrowings plus a
reasonable operating headroom are covered by committed facilities which mature
at least 12 months after the year end. In November 2002, in conjunction with the
acquisition of the St Ivel Spreads business, the Group extended its #425 million
credit facility arranged in May 2000 by #120 million. At 31 March 2003 the
Group's total credit facilities amounted to #505 million. The facility consists
of a five year term loan facility of #200 million repayable in seven semi-annual
instalments from May 2002 to May 2005 (#40 million of this facility was repaid
during the year), a #225 million five year multi-currency revolving credit
facility repayable at maturity in May 2005 and a five year term loan facility of
#120 million repayable in four semi-annual instalments from March 2006 to
September 2007.
Where interest rates are favourable short-term funding requirements are met
through uncommitted overdraft and short-term facilities amounting to over #20
million.
All borrowings are through banks with AA long-term credit ratings or better.
Funds temporarily surplus to business requirements are invested overnight
through deposit accounts with commercial banks with a credit rating of AA or
better. The Group currently has no requirement to place deposits for a longer
period, accordingly counterparty risk is considered to be low.
Foreign currency risk
Translation exposures arise on the earnings and net assets of our overseas
subsidiary, Wexford Creamery Limited. Our policy is to hedge the net asset
exposure through borrowings in the relevant foreign currency. At present, our
only translation exposure is in euros.
The majority of the Group's transactions is carried out in sterling and so
transaction exposures are limited. The Group trades skimmed milk products and
bulk butter mainly to customers in Europe and Central and South America. The
Group also exports its own skimmed milk products, bulk butter, Stilton and other
branded products. The Group's policy requires traded foreign currency sales and
purchases to be hedged by foreign exchange contracts once the transaction is
committed so that the margin on the transaction can be fixed. In addition a
substantial part of Yoplait Dairy Crest's purchases are denominated in Euros.
Currency exposures on other transactions, such as capital expenditure
denominated in a foreign currency, are hedged following approval of the project
using forward foreign exchange contracts.
Interest rate risk
The Group's policy is to reduce the exposure of the business to changes in
interest rates. The Group borrows at floating rates of interest and uses
interest rate swaps or forward rate agreements to limit the exposure to
movements in sterling LIBOR, although interest rate caps may also be used. The
policy is to fix or cap up to three quarters of floating rate borrowings,
although a higher percentage may be fixed within a 12 month horizon. #275
million, 77%, was fixed at 31 March 2003 for terms of up to five years.
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 directors have reviewed the Group's budget and available facilities and have
made such other enquiries as they considered appropriate.
Post balance sheet event
On 28 May 2003 the Group announced plans to close part of its dairy ingredients
operations at Chard, Somerset. The closure is expected to result in exceptional
cash costs of circa #4.0 million and exceptional non-cash asset write downs of
circa #15.5 million. Net of tax, the total exceptional cost is estimated at
circa #14.0 million.
As announced on 30 May 2003, I will be leaving the business by mutual agreement
in August 2003. I have thoroughly enjoyed my eight years at Dairy Crest during
which time the business has been listed on the London Stock Exchange and has
grown significantly in profitability and cash generation. Strong growth in
branded products, together with the benefits from St Ivel Spreads and the
downsizing of our ingredients business will improve the quality of earnings. I
believe that the business is well positioned and has a strong team to continue
its development over the coming years.
I C Laurie, Finance Director
9 June 2003
Consolidated profit and loss account
Year ended 31 March 2003
Year ended 31 March 2003 Year ended
31 March
2002
Note #m #m #m #m
Before Exceptional Total Total
exceptional items and
items and goodwill
goodwill amortisation
amortisation
Turnover
Group and share of joint ventures 3 1,326.1 - 1,326.1 1,366.7
Continuing operations
- Ongoing 1,298.2 - 1,298.2 1,366.7
- Acquisition 27.9 - 27.9 -
Less:
Share of joint ventures - ongoing 3 (79.6) - (79.6) (80.4)
Group turnover 2, 3 1,246.5 - 1,246.5 1,286.3
Operating costs before exceptional items and 4 (1,154.1) - (1,154.1) (1,197.3)
goodwill amortisation
Operating exceptional items 5 - (30.4) (30.4) (41.6)
Goodwill amortisation - (7.5) (7.5) (2.3)
Operating costs (1,154.1) (37.9) (1,192.0) (1,241.2)
Group operating profit 92.4 (37.9) 54.5 45.1
Share of profits in joint ventures - ongoing 3, 5 5.1 (1.0) 4.1 1.4
Total operating profit
Group and share of joint ventures 3 97.5 (38.9) 58.6 46.5
Continuing operations
- Ongoing 92.7 (38.3) 54.4 46.5
- Acquisition 4.8 (0.6) 4.2 -
Profits on disposal of properties 5 - 9.9 9.9 1.7
Net interest payable
- Group (20.2) - (20.2) (18.7)
- Share of joint ventures (0.5) - (0.5) (0.6)
Profit on ordinary activities before taxation 76.8 (29.0) 47.8 28.9
Tax on profit on ordinary activities 6 (20.6) 9.4 (11.2) (7.3)
Profit for the year before minority interests 56.2 (19.6) 36.6 21.6
Equity minority interests (0.2) - (0.2) (0.3)
Profit for the year after minority interests 56.0 (19.6) 36.4 21.3
Dividends 7 (19.8) - (19.8) (18.2)
Transfer to reserves 10 36.2 (19.6) 16.6 3.1
Basic earnings per share (p) 8 30.2 18.0
Adjusted earnings per share (p) 8 46.4 45.2
Diluted earnings per share (p) 8 29.6 17.3
Statement of Group total recognised gains and losses
Year ended Year ended
31 March 31 March
2003 2002
#m #m
Profit for the year after minority interests 36.4 21.3
Translation differences on foreign currency 0.9 0.1
investments
Total recognised gains for the year 37.3 21.4
Consolidated balance sheet
as at 31 March 2003
Note 2003 2002
#m #m
Fixed assets
Intangible assets 107.8 39.3
Tangible assets 345.1 323.7
Investments 8.5 7.5
Investments in joint ventures
Share of gross assets 25.7 23.5
Share of gross liabilities (22.2) (22.0)
Reclassification to provisions - 0.1
3.5 1.6
464.9 372.1
Current assets
Stocks 210.5 224.5
Debtors 139.8 143.1
Cash at bank and in hand 9.8 2.6
360.1 370.2
Creditors: amounts falling due within one year
Borrowings (23.8) (7.0)
Other creditors (194.4) (208.8)
(218.2) (215.8)
Net current assets 141.9 154.4
Total assets less current liabilities 606.8 526.5
Creditors: amounts falling due after more than one year
Borrowings (331.2) (280.5)
Other creditors (9.2) (4.5)
Provisions for liabilities and charges (31.1) (26.2)
Net assets 235.3 215.3
Capital and reserves
Called up equity share capital 9 31.0 30.9
Equity reserves
Share premium account 10 24.2 23.3
Merger reserve 10 55.9 55.9
Profit and loss account 10 115.1 96.6
Equity shareholders' funds 11 226.2 206.7
Equity minority interests 9.1 8.6
235.3 215.3
Consolidated cash flow statement
Year ended 31 March 2003
Year ended Year ended
31 March 2003 31 March 2002
Note #m #m
Net cash inflow from operating activities 12(a) 104.9 48.5
Dividends from joint ventures 1.2 1.1
Returns on investments and servicing of finance
Interest paid (22.0) (18.7)
Net cash outflow from returns on investments and servicing of finance (22.0) (18.7)
Taxation paid (4.1) (5.3)
Capital expenditure
Payments to acquire fixed assets (net of grants) (61.6) (60.2)
Purchase of shares by Dairy Crest ESOP (3.3) (2.7)
Proceeds from disposals of shares 3.3 2.0
Proceeds from disposals of fixed assets 34.6 7.9
Net cash outflow for capital expenditure (27.0) (53.0)
Acquisitions and disposals
Purchase of businesses 13 (94.3) (3.2)
Receipt from sale of investment in subsidiary undertaking 12(c) 0.9 5.0
Net cash (outflow)/inflow from acquisitions and disposals (93.4) 1.8
Equity dividends paid (18.6) (17.0)
Net cash outflow before financing (59.0) (42.6)
Financing
Increase in long-term borrowings 48.9 33.8
Increase in short-term borrowings 17.0 2.7
Decrease in loan notes (0.3) (0.4)
Issue of ordinary share capital 1.0 4.4
Finance lease repayments (0.4) (0.2)
Net cash inflow from financing 66.2 40.3
Increase/(decrease) in cash in the year 7.2 (2.3)
Reconciliation of net cash flow to movement in net debt
Net debt at beginning of the year (284.9) (246.3)
Increase/(decrease) in cash in the year 7.2 (2.3)
Increase in short-term borrowings (17.0) (2.7)
Increase in long-term borrowings (48.9) (33.8)
Decrease in loan notes 0.3 0.4
Exchange differences on long-term borrowings (1.7) -
Finance leases incepted (0.6) (0.4)
Cash outflow from decrease in lease financing 0.4 0.2
Net debt at end of the year 12(b) (345.2) (284.9)
Notes to the Consolidated Financial Information
1 Basis of preparation
The financial statements have been prepared under the historical cost
convention and in accordance with applicable accounting standards.
2 Turnover
Turnover originates principally in the United Kingdom. Analysis of
turnover by destination:
Continuing operations
Ongoing Acquisition Year ended Year ended
#m #m 31 March 2003 31 March 2002
#m #m
United Kingdom 1,130.5 26.5 1,157.0 1,209.2
Other EU countries 27.6 0.6 28.2 37.4
Rest of the world 60.5 0.8 61.3 39.7
Group 1,218.6 27.9 1,246.5 1,286.3
3 Segmental information
Analysis of turnover, operating profit and net operating assets of
continuing operations by business segment:
Year ended Year ended
31 March 2003 31 March 2002
#m #m
Turnover
Consumer Foods 814.8 841.6
Continuing operations
- Ongoing 786.9 841.6
- Acquisition 27.9 -
Food Services 511.3 525.1
Group and share of joint ventures 1,326.1 1,366.7
Less: Share of joint ventures - ongoing (79.6) (80.4)
Group turnover 1,246.5 1,286.3
Year ended 31 March 2003 Year ended 31 March 2002
#m #m #m #m #m #m
Before Operating Total Before Operating Total
operating exceptional operating exceptional
exceptional items and exceptional items and
items and goodwill items and goodwill
goodwill amortisation goodwill amortisation
amortisation amortisation
Operating profit
Consumer Foods 62.4 (34.4) 28.0 63.0 (39.2) 23.8
Continuing operations
- Ongoing 52.5 (30.0) 22.5 59.0 (36.6) 22.4
- Acquisition 4.8 (3.4) 1.4 - - -
- Share of joint ventures 5.1 (1.0) 4.1 4.0 (2.6) 1.4
Food Services 35.1 (4.5) 30.6 30.0 (7.3) 22.7
Group and share of joint ventures 97.5 (38.9) 58.6 93.0 (46.5) 46.5
At At
31 March 2003 31 March
2002
#m #m
Net operating assets
Consumer Foods 548.4 440.3
Food Services 90.3 111.7
Group and share of joint ventures 638.7 552.0
Net operating assets comprise net assets excluding cash, borrowings, tax
and dividend creditors.
Consumer Foods include net operating assets relating to St Ivel Spreads
of #85.3 million.
4 Operating costs
Year ended 31 March 2003 Year ended 31 March 2002
#m #m #m #m #m #m #m #m
Before Operating Goodwill Total Before Operating Goodwill Total
operating operating
exceptional exceptional amortisation exceptional exceptional amortisation
items and items and
goodwill items goodwill Items
amortisation amortisation
Cost of sales 933.5 26.9 - 960.4 972.4 32.6 - 1,005.0
Distribution costs 175.6 - - 175.6 175.9 0.6 - 176.5
Administration 45.0 3.5 7.5 56.0 49.0 8.4 2.3 59.7
costs
1,154.1 30.4 7.5 1,192.0 1,197.3 41.6 2.3 1,241.2
The total figures for 2003 include the following amounts relating to the St Ivel
Spreads acquisition. Cost of sales #17.4 million; Distribution costs #2.8
million; Administration costs #6.3 million (including operating exceptional
items #0.6 million and goodwill amortisation #2.8 million).
5 Exceptional items
Year ended Year ended
31 March 2003 31 March 2002
#m #m
Operating exceptional items
Redundancy costs 4.7 14.6
Fixed asset write-downs 13.7 14.6
Consumable and engineering stock write-offs 0.6 1.8
Business integration costs 10.8 10.6
St Ivel Spreads integration costs 0.6 -
30.4 41.6
Share of joint venture's net loss on closure of site and reorganisation costs 1.0 2.6
31.4 44.2
Non-operating exceptional items
Profit on disposal of properties 8.6 -
Share of joint venture's profit on disposal of property 1.3 1.7
9.9 1.7
Operating exceptional items in 2003 principally relate to the
integration of the Unigate dairy and cheese business which was completed in
December 2002. They also include #0.6 million of costs relating to integration
of the St Ivel Spreads business acquired in November 2002.
6 Taxation
Year ended Year ended
31 March 2003 31 March
2002
#m #m
The taxation charge comprises:
Corporation tax at 30% (2002 - 30%) 7.4 8.4
Adjustments in respect of prior years
Current tax (2.2) (1.2)
Transfer to deferred tax (0.6) (1.9)
Share of joint ventures 1.6 0.6
6.2 5.9
Deferred tax
Origination and reversal of timing differences 4.4 (0.5)
Transfer from current tax 0.6 1.9
11.2 7.3
The taxation credit in respect of operating exceptional items is #9.0
million (2002 - #13.1 million). The tax credit in respect of goodwill
amortisation is #0.8 million (2002 - Nil). The tax charge in respect of
non-operating exceptional items is #0.4 million (2002 - #0.5 million).
6 Taxation (Continued)
The tax rate for the year is lower (2002 - lower) than the standard rate
of corporation tax in the UK (30%). The differences are explained below:
Year ended Year ended
31 March 2003 31 March 2002
#m #m
Profit on ordinary activities before tax 47.8 28.9
Profit on ordinary activities multiplied by standard rate of corporation tax
in the UK of
30% (2002- 30%) 14.3 8.7
Effects of:
Adjustments to tax in respect of prior years
Current tax (2.2) (1.2)
Transfer to deferred tax (0.6) (1.9)
Adjustments in respect of joint ventures 0.1 (0.2)
Profits offset by available tax relief (3.6) (1.4)
Expenses not deductible for tax purposes 2.6 1.4
Deferred tax timing differences (4.4) 0.5
6.2 5.9
7 Dividends
Year ended Year ended
31 March 2003 31 March
2002
#m #m
Interim dividend paid of 5.1p (2002 - 4.8p) per share 6.2 5.8
Proposed final dividend of 11.3p (2002 - 10.4p) per share 13.6 12.4
19.8 18.2
The proposed final dividend will be paid on 11 August 2003 to
shareholders on the register on 11 July 2003.
8 Earnings per share
Earnings per share for the year ended 31 March 2003 have been calculated
on the basis of the profit for the year of #36.4 million (2002 - #21.3 million)
and the weighted average number of shares in issue, totalling 120,709,731 (2002
- 118,285,716).
The shares held by the Dairy Crest Employees' Share Ownership Plan Trust
("ESOP") and the Dairy Crest Qualifying Employee Share Ownership Trust ("QUEST")
are excluded from the weighted average number of shares in issue used in the
calculation of earnings per share in accordance with FRS 14.
To show earnings per share on a consistent basis, adjusted earnings per
share have been calculated as follows:
Year Year
ended ended
31 March 2003 31 March
2002
#m #m
Profit for the year 36.4 21.3
Goodwill amortisation (net of taxation) 6.7 2.3
Operating exceptional items (net of taxation) 22.4 31.1
Profit on disposal of properties (net of taxation) (9.5) (1.2)
Adjusted earnings 56.0 53.5
Adjusted earnings per share 46.4p 45.2p
Diluted earnings per share have been calculated on the basis of earnings
for the year of #36.4 million (2002 - #21.3 million) and an average number of
shares of 122,779,337 (2002 - 122,784,000) representing the weighted average
number of shares totalling 120,709,731 (2002 - 118,285,716) and the dilutive
effect of options amounting to 2,069,606 shares (2002 - 4,498,284).
9 Share capital
The Company has an authorised share capital of 240,000,000 ordinary
shares of 25 pence each (2002 - 240,000,000), of which 123,976,163 are issued
and fully paid (2002 - 123,424,993).
During the year ended 31 March 2003, 551,170 shares of 25 pence each
were issued at a premium of #0.9 million for an aggregate consideration of #1.0
million as a result of the exercise of options under the Dairy Crest Executive
Share Option Scheme ("ESOS").
10 Equity reserves
Share Merger Profit and
premium reserve loss
#m #m account
#m
At 1 April 2002 23.3 55.9 96.6
Issue of shares for cash 0.9 - -
Retained profit for the year - - 16.6
QUEST options exercised - - 1.0
Exchange differences - - 0.9
At 31 March 2003 24.2 55.9 115.1
The cumulative amount of goodwill charged against the merger reserve is
#86.8 million (2002 - #86.8 million).
Shares issued to the QUEST, which have not been issued to parties
outside the Group, have been deducted from the profit and loss reserve account
in the prior year. Subsequent exercises of these shares are credited to the
profit and loss reserve account.
11 Reconciliation of movements in Group shareholders' funds
Year ended Year ended
31 March 2003 31 March 2002
#m #m
Profit for the year 36.4 21.3
Dividends (19.8) (18.2)
Retained profit for the year 16.6 3.1
Issue of shares for cash 1.0 4.4
QUEST options exercised 1.0 (0.6)
Exchange differences 0.9 0.1
Movement in the year 19.5 7.0
At beginning of the year 206.7 199.7
At end of the year 226.2 206.7
12 Cash flow statement
Year ended Year ended
31 March 2003 31 March 2002
#m #m
(a) Reconciliation of operating profit to net cash inflow from operating
activities
Operating profit for Group and share of joint ventures 58.6 46.5
Non-cash items:
Pensions (0.1) -
Operating exceptional items 14.3 17.2
Depreciation 35.8 37.0
Goodwill amortisation 7.5 2.3
Release of grants (1.0) (1.0)
Share of profits of joint ventures (4.1) (1.4)
Decrease/(increase) in stocks 18.6 (33.8)
Decrease in debtors 2.9 2.5
Decrease in creditors (27.6) (20.8)
Net cash inflow from operating activities 104.9 48.5
Cash flows on operating exceptional items amounted to #16.1 million (2002 -
#24.4 million) and relate principally to the integration of acquisitions.
12 Cash flow statement (Continued)
Finance Exchange
At 1 leases
April Cash flow incepted movement At
2002 #m 31 March
#m #m #m 2003
#m
(b) Analysis of net debt
Cash at bank and in hand 2.6 7.2 - - 9.8
Short-term bank borrowings (5.1) (17.0) - - (22.1)
Loan notes (1.7) 0.3 - - (1.4)
Long-term bank borrowings (280.2) (48.9) - (1.7) (330.8)
Finance leases (0.5) 0.4 (0.6) - (0.7)
Total (284.9) (58.0) (0.6) (1.7) (345.2)
(c) Disposals
Outstanding consideration of #0.9 million was received on 2 April 2002
in relation to the disposal of 20% of the issued share capital of Haverfordwest
Cheese Limited on 1 January 2002 for #5.9 million.
13 Purchase of businesses
During the year ended 31 March 2003, business acquisitions and
consideration comprised:
St Ivel Spreads acquisition (a) Other
acquisitions
(b)
Book value Revaluations Other fair Fair value Book value
on #m value #m on
acquisition adjustments acquisition
#m #m #m
Tangible fixed assets 22.3 (0.9) - 21.4 -
Stocks 2.6 - - 2.6 -
Other current assets 0.2 - - 0.2 -
Current liabilities (3.1) - (2.8) (5.9) -
22.0 (0.9) (2.8) 18.3 -
Consideration:
Cash (including fees of #2.0 88.5 5.8
million)
Goodwill 70.2 5.8
(a) On 1 November 2002 the Group acquired the St Ivel Spreads business from
Uniq Group for consideration (including fees) of #88.5 million. The book values
of the assets and liabilities acquired have been taken from the Sale and
Purchase agreement which were derived from the management accounts of the
underlying business at 1 November 2002. Revaluations relate to adjustments to
the net book value of plant and equipment to reflect their fair values. Other
fair value adjustments relate to a provision for an onerous contract.
For the year ended 31 March 2002, St Ivel Spreads reported profit before tax of
#12.6 million. For the seven months ended 31 October 2002 the profit before tax
was #4.8 million under applicable accounting policies.
(b) During the year the Group acquired the goodwill of a number of bottled
milk buyers for consideration of #5.8 million.
14 Pensions
At 31 March 2003 permanent staff of Dairy Crest Group plc and its
subsidiary undertakings were eligible for membership of the Dairy Crest Group
Pension Fund ("the Dairy Crest Fund").
The Dairy Crest Fund, which is of the defined benefits type, is funded
by contributions from employees and the Group.
The Group has continued to account for pensions in accordance with SSAP 24.
An actuarial assessment of the Dairy Crest Fund was carried out as at 31
March 2001 by the Fund's actuary using the projected unit method. The principal
actuarial assumptions adopted for the assessment were that, over the long term,
the annual rate of return on the investments would be 2.5% higher than the
increase in pensionable pay, 4.1% higher than the annual increase in present and
future pensions in payment and 4.75% higher than the normal level of annual net
dividend yield receivable.
At the date of the assessment, the market value of the Dairy Crest Fund
assets amounted to #515.9 million. The actuarial value of the assets was
sufficient to cover 123% of the value of the members' accrued benefits
representing an actuarial surplus of #86.8 million. The surplus is amortised
over the service lives of Fund members (on average 11.5 years) as an even
percentage of payroll resulting in a credit to the profit and loss account of
#8.6 million. The next actuarial valuation will be carried out at 31 March
2004.
14 Pensions (Continued)
The net pension debtor at 31 March 2003 was #4.3 million (2002 - #4.2
million).
The Group has charged #0.8 million in respect of unfunded pensions for
directors whose benefits are restricted by Inland Revenue limits. Group
contributions paid to the Dairy Crest Fund amounted to #3.8 million.
FRS 17 was issued in November 2000. However, it is not mandatory until
the financial year ending 31 March 2006, pending the introduction of
International Accounting Standards which are expected to be introduced for the
year to 31 March 2006. Under this standard certain disclosures are required as
to the potential impact on the balance sheet, profit and loss account and the
statement of total recognised gains and losses as if FRS 17 was adopted.
The calculation used for FRS 17 disclosures has been based on the most
recent actuarial valuation at 31 March 2001 and updated by Aon Consulting to
take account of the requirements of FRS 17 in order to assess the liabilities of
the scheme at 31 March 2002 and 31 March 2003. This update does not represent a
formal valuation. Scheme assets are stated at their market values at the
respective balance sheet dates.
The following assumptions are used for FRS 17 purposes:
Group Group
2003 2003 2002 2002
Annual rates Value Annual rates Value
% #m % #m
Rate of increase in salaries 4.0 - 4.4 -
Rate of increase in pensions in payment (and price 2.5 - 2.9 -
inflation)
Discount rate 5.5 - 6.2 -
Equities 7.8 264.6 7.8 389.0
Bonds and other investments 4.5 107.9 5.3 105.2
372.5 494.2
For FRS 17 purposes the net pension liability as at 31 March 2003 was
#87.6 million. This is derived as follows:
Group
2003 2002
#m #m
Total market value of assets 372.5 494.2
Present value of scheme liabilities (497.6) (439.5)
(Deficit)/surplus in the scheme (125.1) 54.7
Related deferred tax asset/(liability) 37.5 (16.4)
Net pension (liability)/asset (87.6) 38.3
An analysis of the defined benefit cost under FRS 17 assumptions for the
year ended 31 March 2003 is as follows:
Group
#m
Current service cost 14.8
Past cost -
Total operating charge 14.8
Expected return on pension scheme assets 35.2
Interest on pension scheme liabilities (27.0)
Total other finance income 8.2
Actual return less expected return on pension scheme assets (142.6)
Experience losses arising on scheme liabilities (0.1)
Loss arising from changes in assumptions underlying the present value of scheme liabilities (34.3)
Actual loss recognised in the statement of total recognised gains and losses on an FRS 17 (177.0)
basis
14 Pensions (Continued)
Analysis of movements in surplus/(deficit) during the year:
Group
#m
At 1 April 2002 54.7
Total operating charge (14.8)
Total other finance income 8.2
Actual loss (177.0)
Contributions 3.8
At 31 March 2003 (125.1)
History of experience gains and losses:
Group
2003
Difference between expected return and actual return on pension scheme assets:
- amount (#m) (142.6)
- % of scheme assets 38%
Experience losses arising on scheme liabilities:
- amount (#m) (0.1)
- % of present value of scheme liabilities -
Total actuarial loss recognised in the statement of total recognised gains and losses
- amount (#m) (177.0)
- % of the present value of scheme liabilities 36%
Reconciliation of net assets and reserves under FRS 17:
Group
2003 2002
#m #m
Net assets
Net assets less minority interests 226.2 206.7
FRS 17 net pension (liability)/asset (87.6) 38.3
Less SSAP 24 pension asset net of deferred tax in accounts (3.0) (2.9)
Net assets including FRS 17 net pension (liability)/asset 135.6 242.1
Reserves
Profit and loss reserve 115.1 96.6
FRS 17 net pension (liability)/asset (87.6) 38.3
Less SSAP 24 pension asset net of deferred tax in accounts (3.0) (2.9)
Profit and loss reserve including FRS 17 net pension (liability)/asset 24.5 132.0
15 Post balance sheet event
On 28 May 2003 the Group announced plans to close part of its dairy
ingredients operations at Chard, Somerset. The closure is expected to result in
exceptional cash costs of circa #4.0 million and exceptional non-cash asset
write downs of circa #15.5 million. Net of tax, the total exceptional cost is
estimated at circa #14.0 million.
16 Consolidated Financial Information
The consolidated financial information has been extracted from the
statutory accounts for the years ended 31 March 2003 and 31 March 2002. It does
not constitute statutory accounts within the meaning of Section 240 of the
Companies Act 1985.
Statutory accounts for the year ended 31 March 2003, which were approved
by the directors on 9 June 2003, will be delivered to the Registrar of Companies
following the Company's Annual General Meeting on 17 July 2003. Statutory
accounts for the year ended 31 March 2002 have been delivered to the Registrar
of Companies.
The auditors have made a report under Section 235 of the Companies Act
1985 on the accounts for the year ended 31 March 2003 and 31 March 2002. The
reports were unqualified and did not contain a statement under Section 237 (2)
or (3) of the Companies Act 1985.
The Annual Report and Accounts for 31 March 2003 will be sent to
shareholders on 16 June 2003.
This information is provided by RNS
The company news service from the London Stock Exchange
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