10th Nov 2008 07:00
10 November 2008
Dairy Crest Group plc ("Dairy Crest")
Interim Results Announcement
Dairy Crest today announces its unaudited results for the six months ended 30 September 2008:
|
Half year ended 30 September |
|||
|
Financial Highlights: |
2008 |
2007 |
Change |
|
Revenue: |
£808.2m |
£761.4m |
+6% |
|
Profit before tax: |
£28.4m |
£30.6m |
-7% |
|
Adjusted profit before tax*: |
£38.5m |
£37.1m |
+4% |
|
Earnings per share: |
4.7p |
20.3p |
-77% |
|
Adjusted earnings per share*: |
21.6p |
22.2p |
-3% |
|
Half year net debt: |
£490.6m |
£458.5m |
+7% |
|
Interim dividend: |
7.1p |
7.1p |
unchanged |
* before exceptional items and amortisation of acquired intangibles.
Business Highlights and Recent Developments:
Robust first half performance as key brands continue to make excellent progress
Increased share of dairy spreads category
Double digit volume growth for Cathedral City and Country Life
Healthier variants performing strongly - launch of Clover Lighter
First half profit and cash flow in line with our expectations
Price increases implemented to mitigate higher input costs
Cost savings programme implemented to reduce overheads and improve efficiency
Successful renegotiation of syndicated debt facilities
Good progress for 'milk&more' online grocery ordering service - rolled out to a further 25 depots across the UK
Looking forward to the second half, the economic environment is becoming increasingly tough and more difficult to predict. We expect business performance to be impacted by the current downturn, weaker returns from dairy ingredients and lower realisations from the sale of surplus properties (see outlook section for more detail). As a result the Board expects adjusted profit before tax for the year to 31 March 2009 to be approximately 10% below last year.
Mark Allen, Chief Executive, said:
"We are pleased to have delivered a robust performance in the first half despite the challenging external conditions. This has been driven by the continuing growth of our leading brands, achievement of price increases and a focus on cost reduction.
Looking forward to the second half, the economic environment is becoming increasingly tough and more difficult to predict. The Board now expects adjusted profit before tax for the year to 31 March 2009 to be approximately 10% below last year. However we are actively addressing these difficulties by continuing to invest in our business, particularly in the form of marketing spend and in the development of our operating facilities. We will also maintain the ongoing focus on operating efficiencies and cost control. We believe that these initiatives will leave us well positioned for the future."
For further information:
Dairy Crest Group plc
Arthur Reeves 01372 472236
Brunswick
Simon Sporborg / Jayne Rosefield 020 7404 5959
There will be a presentation for analysts at 10.00 am today (10th November 2008) at The Lincoln Centre, 18 Lincoln's Inn Fields, London WC2A 3ED.
Operating and Financial Review
Overall the Group performed in line with its expectations over the first six months of the year. Adjusted profit before tax (before exceptional items and amortisation of acquired intangibles) was up 4% to £38.5 million and reported profit before tax was £28.4 million.
The Group's portfolio of brands has continued to make strong progress. In the six months to 30 September 2008 all of the Group's key brands grew in volume and value terms. Cathedral City, Clover, Country Life Spreadable and Frubes all achieved double-digit sales growth by volume and value compared to the 6 months to 30 September 2007.
Markets became more difficult towards the end of the first half as general economic conditions worsened. We have experienced upward pressure on input costs, notably raw milk, and lower realisations from ingredients markets. To counteract these pressures we have focussed on delivering significant cost savings in two principal areas. Firstly we continue to drive costs out of both distribution and manufacturing in the Dairies division. Further details of this are set out below. Secondly we have implemented a reorganisation of our Head Office and other supporting functions that will deliver significant cost savings next year. As well as reducing our cost base we have implemented price increases where possible.
Financial Review
The Group achieved half-year revenue of £808.2 million, up 6% on £761.4 million in the comparable period last year. This increase results from price increases achieved across the range of our products that were required to recover unprecedented higher input costs, as well as brand growth offsetting lower sales of ingredients.
Profit on operations (before exceptional items and amortisation of acquired intangibles) was up 10% to £46.4 million (2007: £42.2 million). Exceptional items of £5.5 million represented the previously announced loss on disposal of our Stilton and speciality cheese business (£4.4 million) and an impairment of certain plant and equipment at our Nottingham dairy as a result of our previous announcement that the closure of the site was under consideration (£1.1 million). Reported profit on operations was up 2% at £36.3 million.
Gross finance costs of £14.3 million were up 10% on the comparable period last year. This principally reflects higher costs of borrowing and the impact of weaker Sterling on our Euro-denominated interest costs. Other finance income from the Group's pension schemes under IAS19 was £3.4 million (2007: £4.8 million) reflecting the position of the schemes and assumptions at the beginning of the financial year. Consequently, overall net finance costs were £2.7 million higher at £10.9 million (2007: £8.2 million).
The Group's share of joint ventures' net profit (after taxation) was £3.0 million (2007: £3.1 million).
The Group's adjusted profit before tax (before exceptional items and amortisation of acquired intangibles) was £38.5 million (2007: £37.1 million). The income tax expense was £8.1 million (before exceptional tax) and represents an effective underlying tax rate of approximately 26.5% on profit before tax and exceptional items (after adjusting for joint venture's tax) (2007: 22.5%). Tax relief on exceptional items amounted to £0.5 million. In addition, as previously highlighted, there is a £14.3 million deferred tax charge resulting from the withdrawal of industrial buildings allowances ('IBAs') that was enacted in the first half. This charge creates a deferred tax provision that will unwind in future years, offsetting the cash impact of the cessation of IBAs on our effective tax rate.
Basic earnings per share were down 77% at 4.7 pence (2007: 20.3 pence), reflecting the increase in the deferred tax charge referred to above. Adjusted earnings per share were down 3% at 21.6 pence compared to 22.2 pence last year.
The directors have declared an interim dividend of 7.1 pence per share, which is unchanged from the dividend of 7.1 pence per share last year. The dividend will be paid on 29 January 2009 to shareholders on the register as at 9 January 2009.
Group net debt amounted to £490.6 million as at 30 September 2008, representing a net increase of £15.8 million from 31 March 2008. Operating cash flow in the first half amounted to £39.6 million (2007: £36.8 million). Capital expenditure amounted to £26.3 million (2007: £14.2 million) principally driven by expenditure on the new cheese packing facility at the Group's national distribution centre and cheese maturation store at Nuneaton. There was a net working capital outflow of £16.8 million reflecting higher milk costs and the normal seasonal trends of milk flows on cheese stocks (2007: £10.0 million). Stock value at the period end was £208.3 million including cheese stock of £146.7 million and stock in the ingredients business of £20.5 million.
The pension deficit under IAS19 at the end of the first half was £32.4 million compared to a surplus at 31 March 2008 of £31.6 million. Pension scheme assets have declined markedly in the six months to September 2008 reflecting weakness in global equity markets and this has only been partially offset by an increased discount rate assumption as high quality corporate bond yields have increased.
In July 2008 the Group successfully agreed a new 5-year revolving credit facility of £85 million and €175 million to replace the facility due to expire in June 2009. Despite difficult credit markets the Group succeeded in agreeing unchanged financial covenants in the new facility with good support from its existing syndicate of banks. The Group remains comfortably within its covenants.
Business Operations
Foods
Our Foods division (including share of joint ventures net of tax) achieved a 47% increase in adjusted profit from continuing operations (before exceptional items and amortisation of acquired intangibles) to £46.7 million (2007: £31.8 million) on revenue of £304.0 million (2007: £283.7 million). Operating margin rose to 15.4% (2007: 11.2%). This performance reflects the strong progress made by our brands, improved cheese margins and a significant improvement by the UK butter and spreads business over the comparable period last year.
The UK butter and spreads market as a whole is showing value growth of 17% and a small volume decline of 1%. This reflects the impact of price increases across the sector over the last year to cover input cost inflation. However, we are very pleased to have continued to strengthen our market share in the dairy spreads category, up to 67% compared to 64% a year ago.
As expected, Clover is recovering well. Sales were up 21% by volume and 36% by value in the first half compared to the first half last year. Clover Lighter was launched in August with very high levels of retail distribution for a new product. Early sales are encouraging and in line with forecast. Utterly Butterly has continued to perform well following on from its strong performance last year with sales up 6% by volume and 35% by value.
During the first half we increased the promotional and marketing support behind the Country Life brand. This has led to an uplift in performance by both Country Life packet butter and spreadable. Sales of Country Life packet butter were up 9% by volume and 34% by value despite the overall packet butter category continuing to show volume decline. Our spreadable sales growth was particularly strong, up 104% by volume and 82% by value. We continue to be optimistic about the Country Life brand and have recently launched an exciting new marketing campaign including new packaging and a TV advertisement focussing on the brand's British heritage.
St Hubert, our French and Italian spreads business, continues to make solid progress. While the overall French retail market is under pressure resulting from the economic downturn, our business has maintained its market share at approximately 36%. St Hubert Omega 3 has continued to grow with sales up 3% by volume and 10% by value. This is despite a fall in volumes in the French spreads market over the first half of the year. In line with the Group's focus on offering consumers choice around its most popular brands we are launching St Hubert Lighter with Omega 3 this autumn. In Italy the Vallé brand has grown strongly with sales up 6% by volume and 20% by value.
The UK cheese market value has grown by 12% year on year. UK cheese market volumes are flat over the last year, although branded cheddar volumes are up by 10%.
Cathedral City, our market leading cheese brand, has again performed strongly. Sales have grown 11% by volume and 31% by value. The brand is now worth over £180 million at retail sales value. Cathedral City Lighter, with a new pack design and television advertising, is performing well. In August we extended the brand further with the launch of Cathedral City Vintage, a premium quality cheddar matured for over 20 months. However sales of our retailer-branded Davidstow cheddar have declined 34% by volume and 12% by value, reflecting a significant reduction in promotions compared to last year.
As previously announced, in August we sold our loss making Stilton and speciality cheese business to Long Clawson Dairy Limited for total cash proceeds of £3.8 million (of which the final £1.4 million was received in October 2008). This transaction resulted in a loss on disposal of £4.4 million.
We are making good progress on the new cheese packing facility at our national distribution centre and cheese maturation store at Nuneaton. We remain on track to begin commercial production in early 2009.
This investment, which follows the new Davidstow creamery in 2004; the sale of our commodity cheese business in 2006; and, as noted above, the sale of our Stilton business this year; will give our UK cheese operation a supply chain which is both simple and well-invested. Cheese will be manufactured at Davidstow in Cornwall and then moved to Nuneaton for maturation, packing and despatch to retail customers. This will provide benefits in both efficiency and environmental impact.
The chilled yogurt and desserts market is growing at 8% by value with volumes up 1%. Yoplait Dairy Crest ('YDC') has performed satisfactorily. Overall branded sales have grown 9% by value and volume. Our strongest performing brand in the half has been Frubes that grew 24% by volume and 27% by value.
Dairies
The Dairies division achieved an adjusted profit on operations (before exceptional items and amortisation of acquired intangibles) of £2.7 million (2007: £13.5 million) on revenue of £541.5 million (2007: £512.6 million) giving an operating margin of 0.5% (2007: 2.6%). This principally reflects the impact of the dairy ingredients markets, which are significantly down from the very high levels seen last year, and the effect of higher input costs.
We continue to focus on taking significant costs out of manufacturing and distribution in the Dairies division. We have recently opened a new regional distribution centre ('RDC') at Aldridge in the West Midlands. We are also progressing well with a new distribution solution in the South East. This project reduces distribution costs, allows the dairy sites to improve efficiency and increases overall production capacity.
As a result of the RDC project we are now in a position to take further costs out of our manufacturing footprint in Dairies. This will improve our overall efficiency. We announced in September that we were considering the closure of the Nottingham dairy (a predominantly glass bottling operation which we acquired in 2006 as part of the Express Dairies acquisition). A 90-day consultation process with employees and unions is ongoing. Currently the Nottingham site employs 215 people and processes approximately 90 million litres of milk per annum. If ultimately decided upon, the closure of the Nottingham site would take place in January 2009. The closure of the site and associated restructuring in Dairies would result in an exceptional charge of approximately £7 million in the year ending March 2009 including approximately £5 million of cash costs.
Our retail milk business has continued to make progress in developing long-term partnerships with our major customers. Overall volumes to major retailers are slightly up on the first half of last year. As previously announced over the last twelve months we have been successful in securing our positions as key long-term suppliers of fresh milk to both Sainsbury's and Morrisons. We also recently won further business with Lidl UK. From September 2008 Dairy Crest has been supplying fresh milk exclusively to five of Lidl's six distribution centres in England and Wales.
Frijj, our market leading fresh flavoured milk drink, has delivered good growth with sales up 5% by volume and 12% by value. During the half we launched a new innovative internet-based marketing campaign "Four Ridges" and sponsored the Frijj Film Festival.
In Household, we implemented further price increases on both the doorstep and in the middle ground to recover substantial increases in milk, packaging and distribution costs. This has had some impact on sales volumes of milk during the first half. Following the May price increase, the underlying milk volume decline on the doorstep has increased to around 10%. The doorstep business is running a number of promotions during the autumn, aimed at improving this performance.
Good progress is being made with the roll out of the 'milk&more' online service, which enables customers to order and pay over the Internet. As planned, a further 25 depots went live on the service in August. Early results from these depots are encouraging and we are now working on improving the underlying computer systems ahead of a wider roll out in the new year.
Milk supply
UK raw milk production continues to decline. In addition farmers have faced further rises in on-farm costs. This has been putting upward pressure on milk prices despite prices falling elsewhere in Europe. We have continued to support our supplying farmers and have increased prices on both liquid and cheese contracts during the half. The latest price increases were 1 pence per litre to our Davidstow farmers with effect from the beginning of September and 0.5 pence per litre to our general liquid suppliers from 1 November.
Other Information
The principal risks and uncertainties affecting the Group are set out below the statement of directors' responsibilities and further details are disclosed on pages 41 and 42 of the 2008 Annual Report and Accounts. Related party disclosures are given in note 11 to the consolidated financial information.
Summary and Outlook
We are pleased to have delivered a robust performance in the first half despite the challenging external conditions. This has been driven by the continuing growth of our leading brands, achievement of price increases and a continued focus on cost reduction.
Looking forward to the second half the tough economic climate is affecting consumers' purchasing decisions, in particular making them more value driven. However the Board believes that it is essential to continue to invest in its strong brands through media campaigns designed to build long-term shareholder value. We will also continue to invest in our operating facilities.
In the second half we also expect to continue to be adversely affected by weaker returns from dairy ingredients. Markets have fallen faster than anticipated in recent weeks without a compensating reduction in farmgate milk prices.
During the first half we have successfully disposed of a number of surplus properties. However we are now expecting lower realisations from the sale of surplus properties in the second half and we are likely to delay some transactions until market conditions improve.
The factors noted above are expected to continue for some time, and as a result the Board is expecting adjusted profits before tax for the year to March 2009 to be approximately 10% below last year.
Mark Allen, Chief Executive
9 November 2008
Non-GAAP profit before tax measure
(unaudited)
In order to provide a trend measure of underlying performance, profit before tax is adjusted for items which management consider will distort comparability.
|
Half year ended 30 September 2008 |
Half year ended 30 September 2007 |
|||||||||||||||
|
Before |
Before |
|||||||||||||||
|
Year ended |
exceptional |
Exceptional |
exceptional |
Exceptional |
||||||||||||
|
31 March 2008 |
items |
items |
Total |
items |
items |
Total |
||||||||||
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
||||||||||
|
Adjusted Group profit before tax: |
||||||||||||||||
|
66.0 |
Profit from continuing operations before tax |
33.9 |
(5.5) |
28.4 |
33.0 |
(2.4) |
30.6 |
|||||||||
|
9.0 |
Amortisation of acquired intangibles |
4.6 |
- |
4.6 |
4.1 |
- |
4.1 |
|||||||||
|
75.0 |
Adjusted Group profit before tax |
38.5 |
(5.5) |
33.0 |
37.1 |
(2.4) |
34.7 |
|||||||||
Consolidated income statement
(unaudited)
|
Half year ended 30 September 2008 |
Half year ended 30 September 2007 |
|||||||||||||||||
|
Year ended |
Before |
Before |
||||||||||||||||
|
31 March |
exceptional |
Exceptional |
exceptional |
Exceptional |
||||||||||||||
|
2008 |
items |
items |
Total |
items |
items |
Total |
||||||||||||
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
||||||||||||
|
1,569.7 |
Group revenue from continuing operations |
|
808.2 |
- |
808.2 |
761.4 |
- |
761.4 |
||||||||||
|
(1,508.6) |
Operating costs |
(769.6) |
(5.5) |
(775.1) |
(727.0) |
(9.1) |
(736.1) |
|||||||||||
|
13.3 |
Other income |
3.2 |
- |
3.2 |
3.7 |
6.7 |
10.4 |
|||||||||||
|
74.4 |
Profit on operations from continuing operations |
41.8 |
(5.5) |
36.3 |
38.1 |
(2.4) |
35.7 |
|||||||||||
|
(26.2) |
Finance costs |
(14.3) |
- |
(14.3) |
(13.0) |
- |
(13.0) |
|||||||||||
|
10.1 |
Other finance income - pensions |
3.4 |
- |
3.4 |
4.8 |
- |
4.8 |
|||||||||||
|
7.7 |
Share of joint ventures' net profit |
3.0 |
- |
3.0 |
3.1 |
- |
3.1 |
|||||||||||
|
66.0 |
Profit from continuing operations before tax |
33.9 |
(5.5) |
28.4 |
33.0 |
(2.4) |
30.6 |
|||||||||||
|
(12.5) |
Tax expense |
(8.1) |
(13.8) |
(21.9) |
(6.4) |
2.7 |
(3.7) |
|||||||||||
|
53.5 |
Group profit for the period from continuing operations |
25.8 |
(19.3) |
6.5 |
26.6 |
0.3 |
26.9 |
|||||||||||
|
1.2 |
Profit for the period from discontinued operations |
- |
- |
- |
- |
- |
- |
|||||||||||
|
54.7 |
Group profit for the period |
25.8 |
(19.3) |
6.5 |
26.6 |
0.3 |
26.9 |
|||||||||||
|
54.4 |
Profit attributable to equity shareholders |
25.6 |
(19.3) |
6.3 |
26.6 |
0.3 |
26.9 |
|||||||||||
|
0.3 |
Profit attributable to minority interests |
0.2 |
- |
0.2 |
- |
- |
- |
|||||||||||
|
54.7 |
Group profit for the period |
25.8 |
(19.3) |
6.5 |
26.6 |
0.3 |
26.9 |
|||||||||||
|
Earnings per share - continuing operations |
||||||||||||
|
40.2 |
Basic earnings per share from continuing operations (p) |
4.7 |
20.3 |
|||||||||
|
39.9 |
Diluted earnings per share from continuing operations (p) |
4.7 |
20.2 |
|||||||||
|
57.1 |
Adjusted basic earnings per share from continuing operations (p)* |
21.6 |
22.2 |
|||||||||
|
56.7 |
Adjusted diluted earnings per share from continuing operations (p)* |
21.4 |
22.0 |
|||||||||
|
Earnings per share |
||||||||||||
|
41.1 |
Basic earnings per share on profit for the period (p) |
4.7 |
20.3 |
|||||||||
|
40.8 |
Diluted earnings per share on profit for the period (p) |
4.7 |
20.2 |
|||||||||
*Adjusted earnings per share calculations exclude exceptional items and amortisation of acquired intangibles.
A final dividend of £22.9 million (17.3 pence per share) was paid in the period to 30 September 2008 (2007: £21.4 million; 16.2 pence per share). A dividend of £9.4 million (7.1 pence per share) was approved by the Board on 9 November 2008 for payment on 29 January 2009 (2007: £9.4 million and 7.1 pence per share). See Note 4.
Consolidated balance sheet
(unaudited)
|
31 March |
30 September |
|||||||||
|
2008 |
2008 |
2007 |
||||||||
|
£m |
Note |
£m |
£m |
|||||||
|
Assets |
||||||||||
|
Non-current assets |
||||||||||
|
327.3 |
Property, plant and equipment |
322.7 |
321.9 |
|||||||
|
313.8 |
Goodwill |
312.0 |
286.1 |
|||||||
|
171.4 |
Intangible assets |
165.0 |
152.1 |
|||||||
|
5.3 |
Investment in joint ventures using equity method |
3.0 |
0.7 |
|||||||
|
33.6 |
Retirement benefit surplus |
9 |
- |
- |
||||||
|
0.2 |
Deferred tax asset |
- |
2.1 |
|||||||
|
- |
Financial assets - Derivative financial instruments |
6.8 |
0.6 |
|||||||
|
851.6 |
809.5 |
763.5 |
||||||||
|
Current assets |
||||||||||
|
159.5 |
Inventories |
208.3 |
153.1 |
|||||||
|
186.1 |
Trade and other receivables |
172.2 |
189.5 |
|||||||
|
1.1 |
Financial assets - Derivative financial instruments |
0.1 |
0.3 |
|||||||
|
40.3 |
Cash and short-term deposits |
23.2 |
30.0 |
|||||||
|
387.0 |
403.8 |
372.9 |
||||||||
|
- |
Assets in disposal group held for sale |
- |
3.0 |
|||||||
|
1,238.6 |
Total assets |
1,213.3 |
1,139.4 |
|||||||
|
Equity and liabilities |
||||||||||
|
Non-current liabilities |
||||||||||
|
(470.4) |
Financial liabilities |
- Long-term borrowings |
(501.6) |
(424.6) |
||||||
|
(4.0) |
- Derivative financial instruments |
- |
(13.1) |
|||||||
|
(2.0) |
Retirement benefit obligations |
9 |
(32.4) |
(11.1) |
||||||
|
(96.3) |
Deferred tax liability |
(90.4) |
(79.4) |
|||||||
|
(9.3) |
Deferred income |
(8.9) |
(9.2) |
|||||||
|
(582.0) |
(633.3) |
(537.4) |
||||||||
|
Current liabilities |
||||||||||
|
(224.8) |
Trade and other payables |
(240.5) |
(217.7) |
|||||||
|
(28.9) |
Financial liabilities |
- Short-term borrowings |
(9.9) |
(46.2) |
||||||
|
(0.4) |
- Derivative financial instruments |
(0.1) |
- |
|||||||
|
(1.5) |
Current tax liability |
(3.9) |
(1.9) |
|||||||
|
(0.7) |
Deferred income |
(0.7) |
(0.7) |
|||||||
|
(12.6) |
Provisions |
(10.8) |
- |
|||||||
|
(268.9) |
(265.9) |
(266.5) |
||||||||
|
(850.9) |
Total liabilities |
(899.2) |
(803.9) |
|||||||
|
Shareholders' equity |
||||||||||
|
(33.3) |
Ordinary shares |
7 |
(33.3) |
(33.1) |
||||||
|
(70.2) |
Share premium |
7 |
(70.2) |
(67.0) |
||||||
|
3.7 |
Interest in ESOP |
7 |
1.7 |
0.5 |
||||||
|
(67.0) |
Other reserves |
7 |
(64.6) |
(60.7) |
||||||
|
(215.8) |
Retained earnings |
7 |
(142.4) |
(171.0) |
||||||
|
(382.6) |
Total shareholders' equity |
(308.8) |
(331.3) |
|||||||
|
(5.1) |
Minority interests |
7 |
(5.3) |
(4.2) |
||||||
|
(387.7) |
Total equity |
(314.1) |
(335.5) |
|||||||
|
(1,238.6) |
Total equity and liabilities |
(1,213.3) |
(1,139.4) |
|||||||
The interim results were approved by the Board of Directors on 9 November 2008.
Consolidated cash flow statement
(unaudited)
|
Year ended |
Half year ended |
|||||||||
|
31 March |
30 September |
|||||||||
|
2008 |
2008 |
2007 |
||||||||
|
£m |
Note |
£m |
£m |
|||||||
|
Cash flow from operating activities |
||||||||||
|
66.0 |
Profit from continuing operations before tax |
28.4 |
30.6 |
|||||||
|
16.1 |
Finance costs and other finance income |
10.9 |
8.2 |
|||||||
|
(7.7) |
Share of joint ventures' net profit |
(3.0) |
(3.1) |
|||||||
|
74.4 |
Profit from continuing operations before net finance costs and taxation |
36.3 |
35.7 |
|||||||
|
39.5 |
Depreciation |
19.8 |
19.8 |
|||||||
|
9.5 |
Amortisation of intangible assets |
5.0 |
4.3 |
|||||||
|
0.6 |
Impairment of investment in joint venture |
- |
- |
|||||||
|
7.5 |
Exceptional items |
3.6 |
(5.0) |
|||||||
|
(0.8) |
Release of grants |
(0.4) |
(0.4) |
|||||||
|
3.2 |
Share based payments |
0.8 |
1.0 |
|||||||
|
(6.6) |
Profit on disposal of household depots |
(3.2) |
(3.7) |
|||||||
|
Difference between pension contributions paid and current service cost |
||||||||||
|
(11.5) |
recognised in income statement |
(5.5) |
(4.9) |
|||||||
|
(7.4) |
Increase in working capital |
(16.8) |
(10.0) |
|||||||
|
108.4 |
Cash generated from operations |
39.6 |
36.8 |
|||||||
|
7.3 |
Dividends received from joint ventures |
2.9 |
2.4 |
|||||||
|
(22.9) |
Interest paid |
(15.7) |
(10.3) |
|||||||
|
(6.7) |
Tax paid |
(3.2) |
(4.0) |
|||||||
|
86.1 |
Net cash flow from operating activities |
23.6 |
24.9 |
|||||||
|
Cash flow from investing activities |
||||||||||
|
(34.5) |
Payments to acquire property, plant and equipment |
(26.3) |
(14.2) |
|||||||
|
0.5 |
Grants received |
- |
- |
|||||||
|
13.2 |
Proceeds from disposal of property, plant and equipment |
5.3 |
11.3 |
|||||||
|
(5.7) |
Purchase of businesses (net of cash and debt acquired) |
(1.2) |
(0.6) |
|||||||
|
- |
Sale of business (net of fees and costs) |
2.0 |
- |
|||||||
|
(2.1) |
Purchase of investment in joint venture |
- |
- |
|||||||
|
3.0 |
Sale of investment in joint venture |
- |
- |
|||||||
|
(25.6) |
Net cash used in investing activities |
(20.2) |
(3.5) |
|||||||
|
Cash flow from financing activities |
||||||||||
|
(120.1) |
Repayment and cancellation of term loans / facilities |
(146.3) |
(100.1) |
|||||||
|
(0.1) |
Net drawdown / (repayment) under credit facilities |
10.7 |
(10.7) |
|||||||
|
111.9 |
New facilities advanced |
132.9 |
111.9 |
|||||||
|
(7.8) |
Payment on termination of currency swap |
- |
- |
|||||||
|
(30.8) |
Dividends paid |
(22.9) |
(21.4) |
|||||||
|
(0.2) |
Redemption of preference shares |
- |
- |
|||||||
|
0.5 |
Proceeds from issue of shares (net of issue costs) |
- |
0.3 |
|||||||
|
(0.8) |
Finance lease repayments |
(0.8) |
(0.1) |
|||||||
|
(47.4) |
Net cash used in financing activities |
(26.4) |
(20.1) |
|||||||
|
13.1 |
Net (decrease)/increase in cash and cash equivalents |
(23.0) |
1.3 |
|||||||
|
24.9 |
Cash and cash equivalents at beginning of period |
38.9 |
24.9 |
|||||||
|
0.9 |
Exchange impact on cash and cash equivalents |
- |
- |
|||||||
|
38.9 |
Cash and cash equivalents at end of period |
8 |
15.9 |
26.2 |
||||||
|
(474.8) |
Memo: Net debt at end of period |
8 |
(490.6) |
(458.5) |
||||||
Consolidated statement of recognised income and expense
(unaudited)
|
Year ended |
Half year ended |
|||||||||||||
|
31 March |
30 September |
|||||||||||||
|
2008 |
2008 |
2007 |
||||||||||||
|
£m |
£m |
£m |
||||||||||||
|
Net investment hedges: |
||||||||||||||
|
49.2 |
Exchange differences on foreign currency net investments |
(3.9) |
8.0 |
|||||||||||
|
Exchange differences on foreign currency borrowings designated as net |
||||||||||||||
|
(47.1) |
investment hedge |
3.7 |
(7.9) |
|||||||||||
|
(7.8) |
Loss on financial instruments designated as net investment hedges |
- |
(1.4) |
|||||||||||
|
7.8 |
Tax on portion of losses designated as post-tax net investment hedges |
- |
1.4 |
|||||||||||
|
2.1 |
(0.2) |
0.1 |
||||||||||||
|
10.7 |
Actuarial (losses) / gains |
(73.4) |
(20.4) |
|||||||||||
|
1.5 |
Cash flow hedges - transferred to income statement |
(13.5) |
3.6 |
|||||||||||
|
4.5 |
Cash flow hedges - gains / (losses) deferred in equity |
10.2 |
(3.2) |
|||||||||||
|
2.7 |
Share of joint ventures' (expense)/income recognised in equity |
(2.3) |
(0.3) |
|||||||||||
|
(4.5) |
Tax on items taken directly to equity |
21.2 |
5.8 |
|||||||||||
|
17.0 |
Net (expense) / income recognised directly in equity |
(58.0) |
(14.4) |
|||||||||||
|
54.7 |
Profit for the period |
6.5 |
26.9 |
|||||||||||
|
71.7 |
Total recognised income and expense for the period |
(51.5) |
12.5 |
|||||||||||
|
70.6 |
Attributable to equity shareholders |
(51.7) |
12.3 |
|||||||||||
|
1.1 |
Attributable to minority interests |
0.2 |
0.2 |
|||||||||||
Segmental analysis - continuing operations
(unaudited)
|
Half year ended |
Half year ended |
|||||||||||||||
|
Year ended 31 March 2008 |
30 September 2008 |
30 September 2007 |
||||||||||||||
|
Foods |
Dairies |
Total |
Foods |
Dairies |
Total |
Foods |
Dairies |
Total |
||||||||
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
||||||||
|
499.6 |
1,070.1 |
1,569.7 |
Group revenue |
266.7 |
541.5 |
808.2 |
248.8 |
512.6 |
761.4 |
|||||||
|
64.8 |
30.7 |
95.5 |
Pre-exceptional profit on operations |
39.7 |
2.1 |
41.8 |
25.1 |
13.0 |
38.1 |
|||||||
|
(3.6) |
(17.5) |
(21.1) |
Exceptional items |
(4.4) |
(1.1) |
(5.5) |
- |
(2.4) |
(2.4) |
|||||||
|
61.2 |
13.2 |
74.4 |
Profit on operations (segment result) |
35.3 |
1.0 |
36.3 |
25.1 |
10.6 |
35.7 |
|||||||
|
(16.1) |
Finance costs & other finance income |
(10.9) |
(8.2) |
|||||||||||||
|
7.7 |
Share of joint ventures' net profit (Foods) |
3.0 |
3.1 |
|||||||||||||
|
66.0 |
Profit before tax |
28.4 |
30.6 |
|||||||||||||
All amounts relate to continuing operations.
|
Year ended |
Half year ended |
Half year ended |
||||||||||||||||
|
31 March 2008 |
30 September 2008 |
30 September 2007 |
||||||||||||||||
|
Adjusted profit on |
Adjusted profit on |
Adjusted profit on |
||||||||||||||||
|
Revenue |
operations * |
Revenue |
Operations * |
Revenue |
operations * |
|||||||||||||
|
£m |
£m |
Foods |
£m |
£m |
£m |
£m |
||||||||||||
|
499.6 |
64.8 |
Segmental analysis |
266.7 |
39.7 |
248.8 |
25.1 |
||||||||||||
|
- |
8.1 |
Add - Amortisation of acquired intangibles |
- |
4.0 |
- |
3.6 |
||||||||||||
|
499.6 |
72.9 |
Before share of joint ventures |
266.7 |
43.7 |
248.8 |
28.7 |
||||||||||||
|
66.9 |
7.7 |
Add - Share of joint ventures (post-tax) |
37.3 |
3.0 |
34.9 |
3.1 |
||||||||||||
|
566.5 |
80.6 |
Adjusted Foods |
304.0 |
46.7 |
283.7 |
31.8 |
||||||||||||
|
Dairies |
||||||||||||||||||
|
1,070.1 |
30.7 |
Segmental analysis |
541.5 |
2.1 |
512.6 |
13.0 |
||||||||||||
|
- |
0.9 |
Add - Amortisation of acquired intangibles |
- |
0.6 |
- |
0.5 |
||||||||||||
|
1,070.1 |
31.6 |
Adjusted Dairies |
541.5 |
2.7 |
512.6 |
13.5 |
||||||||||||
|
1,636.6 |
112.2 |
Adjusted Group and share of joint ventures |
845.5 |
49.4 |
796.3 |
45.3 |
||||||||||||
|
1,569.7 |
104.5 |
Memo: Adjusted Group before share of joint ventures |
808.2 |
46.4 |
761.4 |
42.2 |
||||||||||||
* All amounts are stated before exceptional items.
The segmentation of the Group has been analysed on a basis consistent with that used in the 2008 statutory accounts and the half yearly report for the six months ended 30 September 2007. In the adjusted segmental analysis, profit on operations from share of joint ventures is now reported net of tax. There has been no material change in segment assets since 31 March 2008.
Notes to the interim financial statements
(unaudited)
1. Basis of preparation
The half yearly report for the six months ended 30 September 2008 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 'Interim Financial Reporting' as adopted by the European Union. This report should be read in conjunction with the annual financial statements for the year ended 31 March 2008, which were prepared in accordance with IFRSs as adopted by the European Union. These accounts have been prepared using the accounting policies set out in the Group's 2008 statutory accounts.
This interim consolidated financial information is not audited and does not constitute statutory financial statements as defined in section 240 of the Companies Act 1985. Comparative figures for the year ended 31 March 2008 have been extracted from the Group's 2008 statutory accounts, on which the auditors gave an unqualified opinion, did not include an emphasis of matter reference and did not include a statement under section 237(2) or (3) of the Companies Act 1985. The Group Financial Statements for the year ended 31 March 2008 have been filed with the Registrar of Companies.
2. Exceptional items
Exceptional items comprise those items that are material and one-off in nature that the Group believes should be separately disclosed to assist in the understanding of the underlying financial performance of the Group.
|
Year ended |
Half year ended |
||||||||||||||
|
31 March |
30 September |
||||||||||||||
|
2008 |
2008 |
2007 |
|||||||||||||
|
£m |
£m |
£m |
|||||||||||||
|
(1.7) |
Impairment of plant and equipment resulting from restructuring |
(1.1) |
(1.7) |
||||||||||||
|
(5.1) |
Redundancy costs |
- |
(4.4) |
||||||||||||
|
(3.9) |
Duplicate running costs |
- |
(1.4) |
||||||||||||
|
(2.7) |
Other rationalisation costs |
- |
(1.6) |
||||||||||||
|
(13.4) |
Restructuring costs |
(1.1) |
(9.1) |
||||||||||||
|
(10.0) |
Office of Fair Trading ('OFT') settlement including related costs |
- |
- |
||||||||||||
|
(4.4) |
Provision for onerous contract |
- |
- |
||||||||||||
|
- |
Loss on disposal of Stilton and speciality cheese business |
(4.4) |
- |
||||||||||||
|
6.7 |
Overage profit on previously sold site |
- |
6.7 |
||||||||||||
|
(21.1) |
(5.5) |
(2.4) |
|||||||||||||
|
5.2 |
Tax relief on exceptional items |
0.5 |
2.7 |
||||||||||||
|
- |
Deferred tax provision in relation to cessation of Industrial Buildings Allowances |
(14.3) |
- |
||||||||||||
|
1.2 |
Discontinued exceptional item (after tax) |
- |
- |
||||||||||||
|
(14.7) |
(19.3) |
0.3 |
|||||||||||||
Exceptional items in the six months ended 30 September 2008 comprise:
- Impairment of plant and equipment resulting from the announcement made on 30 September 2008, to consider the closure of the Nottingham dairy processing plant in the second half of the year. Should the closure occur, further redundancy and other costs relating to the rationalisation of the Dairies manufacturing base will be incurred in the second half of the year and the estimated total exceptional cost in the year ending 31 March 2009 is approximately £7 million.
- On 23 August 2008, the Group disposed of the property, plant and equipment and the stock of its Stilton and speciality cheese business based in Hartington, Derbyshire to Long Clawson Dairy Limited. The results of this business have not been classified as discontinued operations since it is not considered a major line of business in the context of Group revenue and profit. The loss on disposal amounted to £4.4 million and comprises:
|
2008 |
||||||
|
£m |
||||||
|
Initial sale proceeds - August 2008 |
2.4 |
|||||
|
Final completion proceeds - October 2008 |
1.4 |
|||||
|
Total consideration |
3.8 |
|||||
|
Book value of property, plant and equipment disposed |
(4.5) |
|||||
|
Book value of intangible assets disposed |
(0.5) |
|||||
|
Book value of inventories disposed |
(3.3) |
|||||
|
Other fees and costs |
(0.4) |
|||||
|
Loss on disposal |
(4.9) |
|||||
|
Associated pension curtailment gain |
0.5 |
|||||
|
Exceptional charge (before tax) |
(4.4) |
|||||
- The cessation of Industrial Buildings Allowances ('IBAs') was enacted during the six months ended 30 September 2008. Under IFRS the Group has created an increased deferred tax provision in respect to IBAs as the tax written down value has decreased significantly. This provision has been charged as exceptional due to its one-off nature and material amount. The provision will unwind in future periods offsetting the cash impact of the cessation of IBAs on our effective rate.
Exceptional items in 2007/08 comprised:
£4.1 million charge in relation to the closure of a Dairy at Totnes (£4.8 million in the year to 31 March 2008).
£5.0 million charge for restructuring expenditure with respect to the rationalisation of the Express Dairies depot operations and the Liverpool and Nottingham dairies of Arla Foods UK Limited, which were acquired on 19 August 2006 (£8.6 million in the year to 31 March 2008).
£6.7 million profit on a site in west London originally sold in October 2002. The site was sold with a potential future overage receipt from the purchasers should certain planning permissions be obtained. A cash amount of £6.7 million was received in the period in full and final settlement of this overage clause.
In the second half of 2007/08 a £4.4 million provision was charged for an onerous long-term milk supply contract. This contract became onerous as a result of the unprecedented increases in milk costs during the year ended 31 March 2008.
In the second half of 2007/08 a £10.0 million provision was charged in relation to the early resolution agreement reached with the OFT in relation to its investigation into pricing in the dairy produce sector. This fine has not yet been paid.
In the second half of 2007/08 there was a £1.2 million final tax adjustment on the disposal of our retailer branded cheese business to First Milk in October 2006.
3. Tax expense
The tax expense for the half year ended 30 September 2008 has been calculated on the basis of the estimated effective tax rate on profit for the full year of 26.4% (including tax on share of joint venture profit) (September 2007: 22.5%; March 2008: 23.2%). Tax relief on exceptional costs for the half year ended 30 September 2008 was £0.5 million (September 2007: £2.7 million, year ended 31 March 2008: £5.2 million). Furthermore a £14.3 million deferred tax provision has been charged in respect of the cessation of industrial buildings allowances (see Note 2).
4. Dividends
A dividend of £9.4 million (7.1 pence per share) (2007: £9.4 million; 7.1 pence per share) will be payable on 29 January 2009 to shareholders on the register on 9 January 2009. This dividend is not recorded in the balance sheet as a liability at 30 September 2008.
5. Earnings per share
Basic earnings per share on profit for the period has been calculated on the basis of profit attributable to equity shareholders of £6.3 million (March 2008: £54.4 million; September 2007: £26.9 million) and the weighted average number of shares in issue during the period, excluding those held by the Dairy Crest Employees' Share Ownership Plan Trust and held as treasury shares which are treated as cancelled, totalling 132.664 million (September 2007: 132.232 million, March 2008: 132.283 million).
Basic earnings per share on continuing operations has been calculated on the basis of Group profit for the period from continuing operations less profit attributable to minority interests of £6.3 million (March 2008: £53.2 million; September 2007: £26.9 million) and the weighted average number of shares of 132.664 million (September 2007: 132.232 million, March 2008: 132.283 million).
To show earnings per share on a consistent basis, which in the directors' opinion reflects the underlying performance of the Group more appropriately, adjusted earnings per share have been calculated as follows:
|
Year ended |
Half year ended |
|||||||||||
|
31 March |
30 September |
|||||||||||
|
2008 |
2008 |
2007 |
||||||||||
|
£m |
£m |
£m |
||||||||||
|
53.5 |
Group profit for the period from continuing operations |
6.5 |
26.9 |
|||||||||
|
(0.3) |
Minority interests |
(0.2) |
- |
|||||||||
|
53.2 |
Profit from continuing operations attributable to equity shareholders |
6.3 |
26.9 |
|||||||||
|
15.9 |
Exceptional items on continuing operations (net of tax) |
19.3 |
(0.3) |
|||||||||
|
6.5 |
Amortisation of acquired intangible assets (net of tax) |
3.1 |
2.7 |
|||||||||
|
75.6 |
Adjusted earnings |
28.7 |
29.3 |
|||||||||
|
57.1 |
Adjusted earnings per share (pence) |
21.6 |
22.2 |
|||||||||
Diluted earnings per share has been calculated on the basis of a diluted number of shares of 133.868 million (September 2007: 133.425 million, March 2008: 133.237 million). This reflects the dilutive impact of share options exercisable under the Dairy Crest Long Term Incentive Share Plan.
6. Business combinations
2008/09
During the period, the Group acquired the goodwill of a number of bottled milk buyers for cash consideration of £0.2 million resulting in goodwill of £0.2 million (September 2007: £0.6 million, March 2008: £1.6 million).
Final consideration was paid for the assets and goodwill of the dairy business of the East of England Co-operative Society amounting to
£1.0 million.
In August 2008, the Group completed the sale of its Stilton and speciality cheese business to Long Clawson Dairy Limited. The loss on disposal is analysed in Note 2.
2007/08
On 17 February 2008 the Group acquired the assets and goodwill of the dairy business of the East of England Co-operative Society for total consideration of £5.3 million (including professional fees).The fair value of the identifiable assets and liabilities of the business at the date of acquisition was £2.7 million giving rise to goodwill of £2.6 million.
|
Fair value |
Book |
||||||||||
|
to Group |
value |
||||||||||
|
£m |
£m |
||||||||||
|
Property, plant and equipment |
0.4 |
0.5 |
|||||||||
|
Intangible assets |
2.0 |
- |
|||||||||
|
Deferred tax |
(0.7) |
- |
|||||||||
|
Inventories |
0.2 |
0.2 |
|||||||||
|
Receivables |
0.9 |
0.9 |
|||||||||
|
Payables |
(0.1) |
(0.1) |
|||||||||
|
Net assets |
2.7 |
1.5 |
|||||||||
|
Goodwill |
2.6 |
||||||||||
|
Consideration |
5.3 |
||||||||||
|
Comprising: |
Cash consideration |
4.0 |
|||||||||
|
Deferred working capital consideration adjustment |
1.0 |
||||||||||
|
Professional fees |
0.3 |
||||||||||
Fair value adjustments principally comprised the recognition of two supply contracts as intangible assets along with the related deferred tax liabilities.
During the year ended 31 March 2008, the Group acquired the goodwill of a number of bottled milk buyers for cash consideration of £1.6 million (six months to September 2007: £0.6 million) resulting in goodwill of £1.6 million (September 2007: £0.6 million).
7. Share capital and equity reserves
|
Ordinary |
Share |
Interest |
Other |
Retained |
Minority |
||||||||||
|
shares |
premium |
in ESOP |
reserves |
earnings |
interests |
||||||||||
|
£m |
£m |
£m |
£m |
£m |
£m |
||||||||||
|
At 31 March 2008 |
33.3 |
70.2 |
(3.7) |
67.0 |
215.8 |
5.1 |
|||||||||
|
Total recognised income |
|||||||||||||||
|
and expense in the period |
- |
- |
- |
(2.4) |
(49.3) |
0.2 |
|||||||||
|
Exercise of options |
- |
- |
2.0 |
- |
(2.0) |
- |
|||||||||
|
Share based payments |
- |
- |
- |
- |
0.8 |
- |
|||||||||
|
Equity dividends |
- |
- |
- |
- |
(22.9) |
- |
|||||||||
|
At 30 September 2008 |
33.3 |
70.2 |
(1.7) |
64.6 |
142.4 |
5.3 |
|||||||||
|
At 31 March 2007 |
33.1 |
66.7 |
(1.2) |
60.4 |
180.1 |
4.0 |
|||||||||
|
Total recognised income |
|||||||||||||||
|
and expense in the period |
- |
- |
- |
0.3 |
12.0 |
0.2 |
|||||||||
|
Issue of share capital |
- |
0.3 |
- |
- |
- |
- |
|||||||||
|
Exercise of options |
- |
- |
0.7 |
- |
(0.7) |
- |
|||||||||
|
Share based payments |
- |
- |
- |
- |
1.0 |
- |
|||||||||
|
Equity dividends |
- |
- |
- |
- |
(21.4) |
- |
|||||||||
|
At 30 September 2007 |
33.1 |
67.0 |
(0.5) |
60.7 |
171.0 |
4.2 |
|||||||||
|
At 31 March 2007 |
33.1 |
66.7 |
(1.2) |
60.4 |
180.1 |
4.0 |
|||||||||
|
Total recognised income |
|||||||||||||||
|
and expense in the period |
- |
- |
- |
6.6 |
64.0 |
1.1 |
|||||||||
|
Issue of share capital |
0.2 |
3.5 |
(3.2) |
- |
- |
- |
|||||||||
|
Exercise of options |
- |
- |
0.7 |
- |
(0.7) |
- |
|||||||||
|
Share based payments |
- |
- |
- |
- |
3.2 |
- |
|||||||||
|
Equity dividends |
- |
- |
- |
- |
(30.8) |
- |
|||||||||
|
At 31 March 2008 |
33.3 |
70.2 |
(3.7) |
67.0 |
215.8 |
5.1 |
|||||||||
Notes to the interim financial statements - continued
(unaudited)
8. Analysis of net debt
|
Year ended
|
|
Movement in net debt
|
|
|
|
Half year ended
|
||||||
|
31 March
|
|
|
|
|
|
|
|
|
30 September
|
|||
|
2008
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
£m
|
|
|
|
|
|
|
|
|
£m
|
|
£m
|
|
|
13.1
|
|
Net (decrease)/increase in cash and cash equivalents
|
|
(23.0)
|
|
1.3
|
||||||
|
120.1
|
|
Repayment and cancellation of term loans / facilities
|
|
146.3
|
|
100.1
|
||||||
|
0.1
|
|
Net (drawdown) / repayment under credit facilities
|
|
(10.7)
|
|
10.7
|
||||||
|
0.2
|
|
Preference shares redeemed
|
|
|
|
-
|
|
-
|
||||
|
0.8
|
|
Finance lease repayments
|
|
|
|
0.8
|
|
0.1
|
||||
|
(111.9)
|
|
New facilities advanced
|
|
|
|
|
(132.9)
|
|
(111.9)
|
|||
|
(46.2)
|
|
Exchange movement
|
|
|
|
|
3.7
|
|
(7.8)
|
|||
|
(23.8)
|
|
Increase in net debt
|
|
|
|
|
(15.8)
|
|
(7.5)
|
|||
|
(451.0)
|
|
Opening net debt
|
|
|
|
|
(474.8)
|
|
(451.0)
|
|||
|
(474.8)
|
|
Closing net debt
|
|
|
|
|
(490.6)
|
|
(458.5)
|
|||
|
Year ended |
Analysis of net debt |
Half year ended |
||||||||||
|
31 March |
30 September |
|||||||||||
|
2008 |
2008 |
2007 |
||||||||||
|
£m |
£m |
£m |
||||||||||
|
1.4 |
Overdrafts |
7.3 |
3.8 |
|||||||||
|
25.0 |
Loans repayable within one year |
- |
40.0 |
|||||||||
|
2.5 |
Finance leases repayable within one year |
2.6 |
2.4 |
|||||||||
|
28.9 |
Short-term borrowings |
9.9 |
46.2 |
|||||||||
|
456.6 |
Loans repayable in greater than one year |
488.7 |
409.9 |
|||||||||
|
13.8 |
Finance leases repayable in greater than one year |
12.9 |
14.7 |
|||||||||
|
470.4 |
Long-term borrowings |
501.6 |
424.6 |
|||||||||
|
(40.3) |
Cash and short-term deposits |
(23.2) |
(30.0) |
|||||||||
|
459.0 |
Borrowings and cash - before impact of cross-currency swaps |
488.3 |
440.8 |
|||||||||
|
15.8 |
Borrowings - impact of cross-currency swaps * |
2.3 |
17.7 |
|||||||||
|
474.8 |
Net Debt |
490.6 |
458.5 |
|||||||||
|
(38.9) |
Memo: cash and cash equivalents (including overdrafts) |
(15.9) |
(26.2) |
|||||||||
\* The Group has $233 million of loan notes (in all reported periods) against which cross-currency swaps have been put in place to fix interest and principal repayments in Sterling. Under IFRS, Dollar long-term borrowings are retranslated into Sterling at year end exchange rates. The cross-currency swaps are recorded at fair value and incorporate movements in both market exchange rates and interest rates. The Group defines net debt so as to include the effective Sterling liability where cross-currency swaps have been used to convert foreign currency borrowings into Sterling. The £2.3 million (March 2008: £15.8 million; September 2007: £17.7 million) adjustment included above converts the Sterling equivalent of Dollar loan notes from period-end exchange rates (£130.7 million (March 2008: £117.2 million; September 2007: £115.3 million)) to the fixed Sterling liability of £133.0 million.
In July 2008, the Group agreed a new five year multi-currency revolving credit facility of £225 million Sterling equivalent. On 17 July 2008 all amounts outstanding under the 2004 facility were repaid and the facility cancelled. The new facility has the same financial covenants as the 2004 and 2006 facilities and includes a maximum net debt / EBITDA ratio of 3.5 times.
9. Retirement benefit obligations
The Group's defined benefit pension schemes are accounted for in accordance with the requirements of IAS 19 'Employee Benefits'. The net pension liability of the Group pension schemes at 30 September 2008 can be analysed as follows:
|
Year ended |
Half year ended |
||||||||||||
|
31 March |
30 September |
||||||||||||
|
2008 |
2008 |
2007 |
|||||||||||
|
£m |
£m |
£m |
|||||||||||
|
389.6 |
Equities |
338.0 |
427.6 |
||||||||||
|
266.3 |
Bonds and cash |
259.9 |
247.1 |
||||||||||
|
28.9 |
Property and other |
27.5 |
35.7 |
||||||||||
|
684.8 |
Total market value of assets |
625.4 |
710.4 |
||||||||||
|
(653.2) |
Defined benefit obligation |
(657.8) |
(721.5) |
||||||||||
|
31.6 |
Net (liability) / surplus recognised in the balance sheet |
(32.4) |
(11.1) |
||||||||||
|
(8.7) |
Related deferred tax asset / (liability) |
9.0 |
3.8 |
||||||||||
|
22.9 |
Net pension (liability) / asset |
(23.4) |
(7.3) |
||||||||||
|
Analysis of movements in the Group pension deficit during the period: |
|||||||||||||
|
(0.4) |
Opening surplus / (deficit) |
31.6 |
(0.4) |
||||||||||
|
(17.2) |
Current service costs |
(6.5) |
(8.8) |
||||||||||
|
- |
Curtailment gains |
0.5 |
- |
||||||||||
|
10.1 |
Net finance income |
3.4 |
4.8 |
||||||||||
|
10.7 |
Actuarial (loss) / gain |
(73.4) |
(20.4) |
||||||||||
|
(0.3) |
Exchange impact |
- |
- |
||||||||||
|
28.7 |
Contributions |
12.0 |
13.7 |
||||||||||
|
31.6 |
Closing (liability) / surplus |
(32.4) |
(11.1) |
||||||||||
The closing deficit incorporates the Dairy Crest Group Pension Fund and the Wexford Creamery Limited Defined Benefit Scheme.
The principal assumptions used in determining retirement benefit obligations for the Group's pension fund are as follows:
|
Mar 2008 |
Sep 2008 |
Sep 2007 |
|||||||||||||
|
4.8 |
Rate of increase in salaries (%) |
4.9 |
4.9 |
||||||||||||
|
3.3 |
Price inflation (%) |
3.4 |
3.4 |
||||||||||||
|
20.9 |
Average expected remaining life expectancy for a non-retired 65 year old male (years) |
20.9 |
20.9 |
||||||||||||
|
19.8 |
Average expected remaining life expectancy for a retired 65 year old male (years) |
19.8 |
19.8 |
||||||||||||
|
6.5 |
Discount rate (%) |
6.7 |
5.9 |
||||||||||||
|
8.0 |
Expected return (%) |
- Equities |
8.0 |
8.0 |
|||||||||||
|
6.1 |
- Bonds and cash |
6.1 |
5.3 |
||||||||||||
|
7.0 |
- Property and other |
7.0 |
7.0 |
||||||||||||
After the last triennial actuarial review based on March 2007, the Group agreed to make cash contributions of 18.3% of pensionable salary into the UK defined benefit pension scheme for three years. Furthermore, additional contributions of £12 million per annum were agreed for the period to March 2009.
10 Capital commitments
Future capital expenditure contracted on property, plant and equipment as at 30 September 2008 was £20.0 million (March 2008: £26.8 million, September 2007: £6.3 million).
11 Related party transactions
The Group's only significant related party is its joint venture, Yoplait Dairy Crest Limited, as disclosed in the Annual Report and Accounts for the year ended 31 March 2008 (Note 29, page 89). Yoplait Dairy Crest Limited incurred recharges of £3.4 million from the Group in the period (September 2007: £4.1 million; March 2008: £7.5 million) for sales and distribution activities carried out on its behalf. Details of dividends received from Yoplait Dairy Crest Limited are set out in the consolidated cash flow statement. There were no other material related party transactions in the period or the prior half year period.
12 Post balance sheet event
On 22 October 2008 the Group received £1.4 million from Long Clawson Dairy Limited as final consideration on the sale of the Stilton and speciality cheese business. Completion of this transaction was not conditional upon Office of Fair Trading approval.
Statement of directors' responsibilities
The directors confirm that this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report herein includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R of the Disclosure and Transparency Rules. The Board of Directors that served during the six months to 30 September 2008, and their respective responsibilities, can be found on page 25 of the 2008 Annual Report and Accounts.
By order of the Board
M Allen A S N Murray
Chief Executive Finance Director
9 November 2008 9 November 2008
Principal risks and uncertainties
The Board considers risk assessment, identification of mitigating actions and internal controls to be fundamental to achieving Dairy Crest's
strategic corporate objectives. The principal factors considered when assessing Dairy Crest's ability to achieve its short-term and long-term objectives are:
Economic, cultural and market conditions which influence consumer and customer behaviour and in particular the current weakening economic conditions resulting from the global financial crisis;
Relationships with dairy farmers and future milk sourcing;
The impact of increased milk costs and the volatility of ingredients and other commodity markets;
Investing in our brand portfolio and innovative new product development;
Attracting and retaining the best people;
Maintaining high levels of food safety standards and operational performance across the manufacturing base;
Sufficiency of financial resources and minimisation of counterparty risk in current turbulent financial markets;
Impact of financial market turmoil on pension scheme assets and future funding requirements;
Regulatory and legal risks; and
Environmental trends and risks.
The processes by which the Board safeguards shareholder value and the assets of the Group and risks and uncertainties that would have a significant impact on long- term value generation are set out in the 2008 Annual Report and Accounts on pages 41 and 42.
Related Shares:
Dairy Crest