Interim Results
November 12 2003 - 2:00AM
UK Regulatory
RNS Number:9602R
Dairy Crest Group PLC
12 November 2003
12 November 2003
Dairy Crest Group plc ("Dairy Crest")
Unaudited Interim Results Announcement
Dairy Crest today announces its unaudited results for the six months ended 30
September 2003. Highlights include:
Financial
* Adjusted profit before tax up 12% to #35.4 million (2002: #31.6 million)
* Adjusted earnings per share up 9% to 20.6 pence (2002: 18.9 pence)
* Interim dividend up 8% to 5.5 pence (2002: 5.1 pence)
Operational
* Strong performance from spreads business - now Dairy Crest's biggest profit
centre
* Other key brands Cathedral City, Frijj and the Yoplait brands have
increased market share with double digit volume growth
* Super dairies delivering improvement in liquid products business
* Improving quality of earnings through closure of butter and powder
facility at Chard and disposal of chilled juice business
* Group moving into a period of strong cash generation
Drummond Hall, Chief Executive, Dairy Crest Group plc, said:
"On the back of a strong performance by our portfolio of brands we have made an
encouraging start to the year with first half results in line with market
expectations. Our enlarged spreads business, now Dairy Crest's biggest profit
centre, performed strongly and all of our leading brands grew market share, with
most achieving double digit volume growth. We expect performance for the full
year, including the benefit of St Ivel Spreads, to show continuing good
progress."
For further information, please contact:
Dairy Crest Group plc 01372 472200
Drummond Hall, Chief Executive
Alastair Murray, Finance Director
Will Shaw, Investor Relations
Greg McNeill, Corporate Communications
Citigate Dewe Rogerson 020 7638 9571
Martin Jackson / Alexandra Scrimgeour
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Operating and financial review
Dairy Crest made good progress in the first half in line with market
expectations reflecting a strong performance from our key brands, the benefit of
the St Ivel Spreads business which we acquired in November 2002 and an improved
performance from our liquid products business. Adjusted Group profit before tax
(before goodwill amortisation and exceptional items) is #35.4 million up by 12%
on #31.6 million last year.
Dairy Crest's main strategic focus is the development of our branded and added
value businesses. Our strong portfolio of brands differentiates us from the
majority of other UK chilled foods companies and continues to deliver strong
results. All of Dairy Crest's leading brands - Clover, Utterly Butterly,
Cathedral City, Frijj and the Yoplait brands - have grown market share in the
six months to 30 September 2003 with most achieving double digit volume growth.
Whilst the Group has continued to benefit from being a broadly based dairy
business, the spreads business has performed particularly strongly. A year on
from the St Ivel Spreads acquisition we have now fully integrated this business
and are on track to deliver the forecast synergies. We are developing our
strong market position by applying brand management skills progressively across
the portfolio of brands. Early signs of success of this approach are evident in
the performance of our two leading dairy spreads brands Clover and Utterly
Butterly.
As well as driving growth through brands and added value activity we have
continued to invest to achieve lowest cost operator status in each of our
markets. The Group has undertaken a period of major capital development which
will end with the completion of the investment in our cheese creamery at
Davidstow which is on track to come on stream in Spring 2004.
This has been an important period for the liquid products business with a strong
improvement in performance. The business is benefiting from the completion of
the rationalisation programme which consolidated production at our two super
dairies. The completion of the merger between Express Dairies and Arla Foods
should lead to greater stability in the industry and provide further
opportunities to develop our liquid products business.
During the period we have continued to make good progress in improving the
quality of the Group's earnings. In July the butter and powder manufacturing
facility at Chard was closed, which significantly reduced our exposure to the
commodity ingredients market, and in September our chilled juice business was
sold for approximately #11 million. This business was largely customer own
brand with historically low returns on capital. The Group continues to look at
ways of further reducing the volatility of the remaining commodity areas of the
business.
As anticipated cheddar prices have started to rise reflecting market
fundamentals. This will result in higher prices to farmers supplying milk used
in cheese production and we expect gross margins on cheese to improve towards
more normal sustainable levels. Whilst we have reached agreement on milk prices
with our direct producers, who supply approximately 60% of our milk, we have not
yet concluded negotiations with our co-operative suppliers. We hope to reach
agreement shortly on this important matter.
Financial review
The Group achieved half year turnover of #676 million compared with #638 million
last year. This rise reflected the inclusion of St Ivel Spreads (acquired in
November 2002) and a better performance from the liquid products business offset
by the continued decline in the doorstep business and by lower ingredients
volumes following the closure of the facility at Chard in July.
Adjusted operating profit (before operating exceptional items and goodwill
amortisation) was #45.9 million up 12% on #41.0 million last year. Exceptional
costs of #20.3 million have been charged against operating profit of which #17.3
million represents non-cash items. These costs mainly relate to the closure of
the facility at Chard and the disposal of the chilled juice business. Both of
these actions are expected to have a broadly neutral impact on Group profits
before exceptional items in the current financial year.
The interest charge of #10.5 million (2002: #9.4 million) reflects the impact of
financing the St Ivel Spreads acquisition offset by the benefit of good cash
generation and interest rate reductions. Interest of #1.1 million has been
capitalised mainly on the investment at Davidstow.
As noted previously, the Group's adjusted profit before tax was #35.4 million
(2002: #31.6 million). The tax charge of #2.8 million includes tax credits of
#5.7 million on the operating exceptional items and #1.1 million on goodwill
amortisation and represents an effective tax rate of 27.0% on adjusted profit
before taxation. Basic earnings per share, calculated after charging operating
exceptional items and goodwill amortisation, were 4.7 pence (2002: 3.8 pence).
Adjusted earnings per share were 20.6 pence compared to 18.9 pence last year.
The directors have declared an interim dividend of 5.5 pence per share, which
represents an increase of 8% over the dividend of 5.1 pence per share last year.
The dividend will be paid on 29 January 2004 to shareholders on the register
at 21 November 2003.
Group net debt amounted to #340.6 million at September 2003, reflecting a net
cash inflow of #4.6 million. Capital expenditure in the first half amounted to
#21.8 million and included #9.6 million net investment at the Davidstow
creamery. There was a net working capital outflow of #18.0 million reflecting
the normal seasonal trends of milk flows particularly in Ireland and the timing
of payment of insurance premia in the first half. We expect a significant
working capital inflow in the second half of this financial year.
Business operations
Consumer Foods achieved an operating profit of #30.0 million (2002: #23.0
million) on turnover of #434 million (2002: #378 million) producing an operating
margin of 6.9% (2002: 6.1%).
The spreads business has again performed strongly and is now the biggest profit
centre of the Group. Dairy Crest is now the market leader, by volume, in the
growing taste sector of the spreads and butter market, as well as the number two
player in the health sector. This enables us to work with many of our customers
in category management activities. We are seeing a clear benefit from brand
portfolio management activity, which is being applied progressively across the
business starting with our two leading brands Clover and Utterly Butterly both
of which were supported by new TV advertising campaigns. These brands have
increased market share and achieved combined volume growth of 15% over the first
half of last year. In addition, St Ivel Gold has recently been relaunched
supported by a new TV commercial from October.
In cheese, Cathedral City has had another good six months, with sales volumes
ahead by 11% over the same period last year. We continue to look at ways of
developing this major brand, which still only accounts for around 9% of the
cheddar market, and have launched both diced and sliced formats as well as
innovative easy open and resealable packaging in June, a first for the industry.
As anticipated, despite challenging market conditions in cheese in the first
half, progress is now being seen in the tightening of industry stocks of cheddar
with prices of cheddar starting to firm towards more normal levels from historic
lows. This will result in higher prices to farmers supplying milk used in
cheese production and we expect gross margins on cheese to improve towards more
normal sustainable levels. Whilst we have reached agreement on milk prices with
our direct producers, who supply approximately 60% of our milk, we have not yet
concluded negotiations with our co-operative suppliers. We hope to reach
agreement shortly on this important matter.
The liquid products business showed improved performance principally reflecting
operational improvements at our Severnside site. Liquid milk volumes to major
multiples remained in line with last year. There has been an improving
performance from retailer brand organic milk together with strong growth from
the Rachel's brand. The potted cream business has grown volume and market share
in the period. Frijj continued to benefit from our marketing efforts which
together with the hot weather led to another good half year, with sales volumes
increasing by 19%. Overall, profits for the liquid products business for the
first half were well above last year.
The Yoplait brands performed particularly well in the first six months with
volumes rising by 36%. Whilst this partly reflects a difficult first half last
year when there was industrial action at Yoplait's plants in France, the
underlying trend is positive.
Food Services achieved an operating profit of #15.9 million (2002: #18.0
million) on turnover of #242 million (2002: #260 million) giving an operating
margin of 6.6% (2002: 6.9%).
The household business continues to make a strong contribution to the Group's
profit and cash flows despite doorstep volumes continuing to decline at an
annual rate of approximately 11%. The service initiatives put in place together
with canvassing have led to improved customer retention levels over the
important summer holiday period and we have continued to make small infill
acquisitions of dairy businesses which help to mitigate the impact of the
decline in the doorstep market. The business has industry leading productivity
ratios with the cost base continuously managed down to counteract the effect of
falling volumes.
The butter and powder facility at Chard was closed in July which has
significantly reduced the size of our commodity ingredients business. Remaining
ingredients operations have now been consolidated at the Severnside super dairy
where we will continue to have the ability to balance our milk supply
efficiently and to service leading food manufacturers with added value
propositions. Overall the ingredients business performed well in the first half
and will exhibit reduced volatility going forwards.
Board changes
In April Peter Thornton was appointed to the Board as executive director with
responsibility for our spreads and liquid products businesses. In May Howard
Mann, president and Chief Executive of McCain Foods, joined the Board as a
non-executive director replacing Tom Jones and in September Alastair Murray
joined the Board as Group Finance Director replacing Ian Laurie.
Outlook
On the back of a strong performance by our portfolio of brands we have made an
encouraging start to the year with first half results in line with market
expectations. We expect performance for the full year, including the benefit of
St Ivel Spreads, to show continuing good progress.
J. W. D. Hall, Chief Executive 11 November 2003
Consolidated profit and loss account
(unaudited)
Half year ended 30 September
Year ended
31 March
2003 Note 2003 2002
#m #m #m
Turnover
814.8 Consumer Foods 434.3 378.1
511.3 Food Services 241.6 259.6
1,326.1 Group and share of joint ventures 675.9 637.7
(79.6) Less share of joint ventures (45.7) (38.8)
1,246.5 630.2 598.9
Operating profit
57.3 Consumer Foods - Group 27.6 21.1
5.1 - share of joint ventures 2.4 1.9
62.4 30.0 23.0
35.1 Food Services 15.9 18.0
97.5 45.9 41.0
(7.5) Goodwill amortisation (6.0) (1.2)
Operating exceptional items
(26.3) Consumer Foods - Group (4.1) (21.2)
(1.0) - share of joint ventures - (1.0)
(27.3) (4.1) (22.2)
(4.1) Food Services (16.2) (1.6)
(31.4) Total operating exceptional items 2 (20.3) (23.8)
58.6 Total operating profit 19.6 16.0
9.9 Profits on disposal of properties - -
Net interest payable
(20.2) Group 3 (10.3) (9.2)
(0.5) Share of joint ventures (0.2) (0.2)
(20.7) (10.5) (9.4)
47.8 Profit on ordinary activities before taxation 9.1 6.6
(11.2) Taxation on ordinary activities 4 (2.8) (1.9)
36.6 Profit for the period before minority interests 6.3 4.7
(0.2) Equity minority interests (0.5) (0.1)
36.4 Profit for the period after minority interests 5.8 4.6
(19.8) Dividends 5 (6.9) (6.2)
16.6 Transfer (from)/to reserves (1.1) (1.6)
30.2 Basic earnings per share (p) 6 4.7 3.8
46.4 Adjusted earnings per share (p) 6 20.6 18.9
29.6 Diluted earnings per share (p) 6 4.7 3.7
The consolidated statement of total recognised gains and losses
is shown in Note 10.
Consolidated balance sheet
(unaudited)
30 September
31 March
2003
2003 2002
#m Note #m #m
Fixed assets
107.8 Intangible assets 104.7 40.4
345.1 Tangible assets 326.2 328.4
12.0 Investments 8.5 9.6
464.9 439.4 378.4
Current assets
210.5 Stocks 221.1 234.7
139.8 Debtors 137.2 147.3
9.8 Cash at bank and in hand 9.8 5.6
360.1 368.1 387.6
Creditors: amounts falling due within one year
(23.8) Borrowings (31.8) (29.1)
(194.4) Other creditors (183.2) (183.5)
(218.2) (215.0) (212.6)
141.9 Net current assets 153.1 175.0
606.8 Total assets less current liabilities 592.5 553.4
Creditors: amounts falling due after more than one year
(331.2) Borrowings (318.6) (308.0)
(9.2) Other creditors (11.3) (4.4)
(31.1) Provisions for liabilities and charges (27.4) (26.1)
235.3 Net assets 235.2 214.9
Capital and reserves
31.0 Called up equity share capital 7 31.0 31.0
195.2 Equity reserves 7 194.6 175.2
226.2 Shareholders' funds 9 225.6 206.2
9.1 Equity minority interests 9.6 8.7
235.3 235.2 214.9
The interim financial statements were approved by the
directors on 11 November 2003.
Segmental net operating assets comprise:
548.4 Consumer Foods 548.6 483.0
90.3 Food Services 78.1 109.1
638.7 626.7 592.1
Net operating assets comprise net assets excluding cash,
borrowings, tax and dividend creditors.
Consolidated cash flow statement
(unaudited)
Year ended Half year ended 30 September
31 March
2003 2003 2002
#m Note #m #m
104.9 Net cash inflow from operating activities 8 40.8 11.2
1.2 Dividends from joint ventures 0.6 0.6
Returns on investments and servicing of finance
(22.0) Net interest paid (10.9) (10.0)
Net cash outflow from returns on investments and
(22.0) servicing of finance (10.9) (10.0)
(4.1) Taxation paid (2.6) (1.4)
Capital expenditure
(61.6) Payments to acquire fixed assets (net of grants) (21.8) (35.6)
(3.3) Purchase of shares by Dairy Crest ESOP - (3.0)
3.3 Proceeds from disposal of shares 0.2 2.2
34.6 Proceeds from disposal of fixed assets 4.1 3.3
(27.0) Net cash outflow for capital expenditure (17.5) (33.1)
Acquisitions and disposals
(94.3) Purchase of businesses (2.5) (2.4)
- Receipt from sale of business 10.3 -
0.9 Receipt from sale of investment in subsidiary undertaking - 0.9
(93.4) Net cash inflow/(outflow) from acquisitions and disposals 7.8 (1.5)
(18.6) Equity dividends paid (13.8) (12.4)
(59.0) Net cash inflow/(outflow) before financing 4.4 (46.6)
Financing
17.0 Increase in short-term borrowings 9.2 22.1
48.9 (Decrease)/increase in long-term borrowings (12.0) 27.0
(0.3) Decrease in loan notes (1.4) (0.2)
1.0 Issue of ordinary share capital - 0.8
(0.4) Finance lease repayments (0.2) (0.1)
66.2 Net cash (outflow)/inflow from financing (4.4) 49.6
7.2 Increase in cash in the period - 3.0
Reconciliation of net cash flow to movement in net debt
(284.9) Net debt at beginning of the period (345.2) (284.9)
7.2 Increase in cash in the period - 3.0
(17.0) Increase in short-term borrowings (9.2) (22.1)
(48.9) Decrease/(increase) in long-term borrowings 12.0 (27.0)
0.3 Decrease in loan notes 1.4 0.2
(1.7) Exchange differences on long-term borrowings 0.2 (0.3)
(0.6) Finance leases incepted - (0.5)
0.4 Cash outflow from decrease in lease financing 0.2 0.1
(345.2) Net debt at end of the period (340.6) (331.5)
Notes to the interim financial statements
(unaudited)
1 Basis of preparation
The interim financial statements have been prepared under the historical cost
convention in accordance with applicable accounting standards using accounting
policies consistent with those set out in the 31 March 2003 Annual Report of
Dairy Crest Group plc.
2 Operating exceptional items
Year ended Half year ended 30 September
31 March
2003 2003 2002
#m #m #m
14.3 Fixed asset and stock write-downs 14.7 12.6
4.7 Redundancy costs 1.5 3.1
10.8 Other rationalisation costs 0.7 7.1
0.6 St Ivel Spreads integration costs 0.4 -
- Loss on disposal of juice business 3.0 -
30.4 20.3 22.8
1.0 Share of net loss on closure of sites and rationalisation - 1.0
by joint venture
31.4 20.3 23.8
In July Dairy Crest closed its butter and powder manufacturing facility at Chard
which resulted in closure costs of #16.2 million. These exceptional costs
relate to fixed asset write downs of #13.9 million, engineering stock write offs
of #0.3 million and redundancy and other costs of #2.0 million.
On 27 September 2003 Dairy Crest sold its chilled juice business based at
Kidlington, Oxfordshire to Princes Limited for cash consideration of
c.#11 million (subject to adjustment for working capital), #10.3 million of
which was paid on completion. The sale resulted in a loss on disposal of #3.0
million.
3 Net interest payable (Group)
Net interest payable is stated after capitalising #1.1 million of interest on
expenditure on capital projects (2002 - #0.7 million).
4 Taxation
The tax charge for the half year ended 30 September 2003 has been calculated on
the basis of the estimated effective tax rate on profit for the full year. The
tax credit on the operating exceptional items for the half year ended
30 September 2003 was #5.7 million (2002 - #6.8 million).
5 Dividends
The interim dividend of 5.5p per share (2002 - 5.1p) will be payable on
29 January 2004 to shareholders on the register on 21 November 2003.
6 Earnings per share
Earnings per share for the half year ended 30 September 2003 has been calculated
on the basis of profit on ordinary activities after taxation and minority
interests of #5.8 million (2002 - #4.6 million) and the weighted average number
of shares in issue, totalling 122.555 million (2002 - 120.583 million).
Notes to the interim financial statements continued
(unaudited)
6 Earnings per share continued
The shares held by the Dairy Crest ESOP and Dairy Crest QUEST amounting to
1.34 million and 0.45 million respectively (2002 - 2.74 million and 0.89
million) have been excluded from the weighted average number of shares in issue
in accordance with FRS 14.
To show earnings per share before operating exceptional items and goodwill
amortisation, adjusted earnings per share has been calculated as follows:
Year ended Half year ended 30 September
31 March
2003 2003 2002
#m #m #m
36.4 Profit for the period after minority interests 5.8 4.6
6.7 Goodwill amortisation (net of taxation) 4.9 1.2
22.4 Operating exceptional items (net of taxation) 14.6 17.0
(9.5) Profits on disposal of properties (net of taxation) - -
56.0 Adjusted earnings 25.3 22.8
46.4p Adjusted earnings per share 20.6p 18.9p
Diluted earnings per share has been calculated on the basis of earnings for the
half year of #5.8 million (2002 - #4.6 million) and diluted number of shares of
124.391 million (2002 - 123.709 million).
7 Share capital and equity reserves
Share Share Merger Profit and
capital premium reserve loss account
#m #m #m #m
At 1 April 2003 31.0 24.2 55.9 115.1
Issue of shares to QUEST - 0.5 - (0.5)
Retained loss for the period - - - (1.1)
QUEST options exercised - - - 0.2
Exchange differences - - - 0.3
At 30 September 2003 31.0 24.7 55.9 114.0
Notes to the interim financial statements continued
(unaudited)
8 Cash flow statement
Year ended Half year ended 30 September
31 March
2003 2003 2002
#m #m #m
Reconciliation of operating profit to net cash inflow
from operating activities
58.6 Operating profit for Group and share of joint ventures 19.6 16.0
Non-cash items
(0.1) Pensions (0.1) -
14.3 Operating exceptional items 17.3 13.7
7.5 Amortisation of goodwill 6.0 1.2
35.8 Depreciation 18.8 17.8
(1.0) Release of grants (0.4) (0.5)
(4.1) Share of profit of joint ventures (2.4) (0.9)
(6.1) Increase in working capital (18.0) (36.1)
104.9 Net cash inflow from operating activities 40.8 11.2
9 Reconciliation of movements in Group shareholders' funds
Half year ended
30 September
2003
#m
Profit for the period after minority interests 5.8
Dividends (6.9)
Transfer from reserves (1.1)
Issue of shares 0.5
Writedown of shares owned by QUEST (0.5)
QUEST options exercised 0.2
Exchange differences 0.3
Movement in the period (0.6)
At 1 April 2003 226.2
At 30 September 2003 225.6
10 Consolidated statement of total recognised gains and losses
Year ended Half year ended 30 September
31 March
2003 2003 2002
#m #m #m
16.6 Transferred (from)/to reserves (1.1) (1.6)
0.9 Currency translation differences on foreign currency 0.3 0.3
investments
17.5 Total recognised (losses)/gains (0.8) (1.3)
Notes to the interim financial statements continued
(unaudited)
11 Consolidated interim financial statements
The consolidated interim financial statements do not constitute statutory
accounts within the meaning of Section 240 of the Companies Act 1985. The
figures for the year ended 31 March 2003 have been extracted from the statutory
accounts which have been delivered to the Registrar of Companies. The auditors
have made a report under Section 235 of the Companies Act 1985 on the statutory
accounts which was unqualified and did not contain a statement under Section
237(2) or (3) of the Companies Act 1985.
Report of the auditors to Dairy Crest Group plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 September 2003 which comprises the Consolidated Profit
and Loss Account, Consolidated Balance Sheet, Consolidated Cash Flow Statement,
Consolidated Statement of Total Recognised Gains and Losses, Reconciliation of
Consolidated Shareholders' Funds and the related notes 1 to 11. We have read
the other information contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.
This report is made solely to the company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' issued by the
Auditing Practices Board. To the fullest extent permitted by the law, we do not
accept or assume responsibility to anyone other than the company, for our work,
for this report, or for the conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved, by the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of interim financial information' issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data, and based thereon,
assessing whether the accounting policies and presentation have been
consistently applied, unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with United Kingdom Auditing Standards and therefore provides a lower
level of assurance than an audit. Accordingly we do not express an audit
opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2003.
Ernst & Young LLP 11 November 2003
London
This information is provided by RNS
The company news service from the London Stock Exchange
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