8th Nov 2007 07:02
Dairy Crest Group PLC08 November 2007 8 November 2007 Dairy Crest Group plc ("Dairy Crest")Interim Results Announcement Dairy Crest today announces its unaudited results for the six months ended 30September 2007: Half year ended 30 SeptemberFinancial Highlights: 2007 2006 Change Revenue: £761.4m £588.6m +29%Profit before tax: £30.6m £29.8m +3%Adjusted profit before tax*: £37.1m £30.6m +21%Earnings per share: 20.3p 17.8p +14%Adjusted earnings per share*: 22.2p 18.2p +22%Half year net debt: £458.5m £329.0m +39%Interim dividend: 7.1p 6.7p +6% * before exceptional items and amortisation of acquired intangibles. Business Highlights and Recent Developments: • Successful first half as reshaped business continues to grow: - Good growth from key pillar brands including Cathedral City, Utterly Butterly, Country Life Spreadable, St Hubert Omega 3 and Petits Filous - New healthier variants of key brands performing well - Encouraging early results from trials of our internet based doorstep delivery service 'milk&more' • Strong performance from St Hubert, as first step into Europe, with market share gains in France • Clover performance improving following product recall in May • Price increases being implemented to reflect rising raw milk costs • Investment in new, highly automated, cheese packing facility at Nuneaton Mark Allen, Chief Executive, said: "Dairy Crest has delivered a good first half performance. Most of our keypillar brands including Cathedral City, Country Life Spreadable, UtterlyButterly, St Hubert Omega 3 and Petits Filous are performing strongly. Inaddition we are making good progress with healthier variants of some of thesebrands. We are particularly pleased with the strong performance from St Hubert in Franceand the early encouraging results from the 'milk&more' trials in our doorstepbusiness. Whilst market conditions are challenging, we are implementing priceincreases across most dairy categories to reflect higher raw milk costs. TheGroup's expectations for the full year remain unchanged." For further information: Dairy Crest Group plcWill Shaw, Investors 01372 472477Nicole Lander, Media 01372 472419BrunswickSimon Sporborg / Laura Cummings 020 7404 5959 Operating and Financial Review Overall the Group has performed well in the first half. This is against abackground of unprecedented market conditions. Adjusted profit before tax(before exceptional items and amortisation of acquired intangibles) was up 21%to £37.1 million and reported profit before tax increased to £30.6 million.This improvement principally reflects the benefit of the acquisitions of ExpressDairies and St Hubert last year. At the divisional level Dairies has achieved asignificant uplift in profitability. However, in Foods good progress by StHubert and the cheese business has been offset by a weaker performance from UKspreads. As previously reported there has been considerable upward pressure during thefirst half on raw milk prices caused by strong worldwide markets for dairyingredients and shortages in UK milk production. Dairy Crest itself hasincreased its raw milk prices on both liquid and cheese contracts by over 35%since June. We have also achieved, or are implementing, price increases toour customers across the market on cheese, fresh milk, potted cream and packetbutter which reflect these higher input costs. Financial Review The Group achieved half-year revenue of £761.4 million up 29% on £588.6 millionin the comparable period last year. This significant increase principallyresults from the acquisitions of Express Dairies and St Hubert in the lastfinancial year. Profit on operations (before exceptional items and amortisation of acquiredintangibles) was up 32% to £42.2 million (2006: £32.0 million). Exceptionalitems of £2.4 million represent further integration costs relating to theExpress Dairies acquisition (£5.0 million) and costs associated with the closureof the Totnes site in September (£4.1 million). These were offset by a propertyprofit of £6.7 million resulting from a final overage payment from the developerof the Westway site which was originally sold in 2002. Reported profit onoperations increased by 14% to £35.7 million. Gross finance costs of £13.0 million are £4.0 million higher than in the firsthalf last year. This reflects the additional borrowings to finance theacquisition of St Hubert in January 2007. Other finance income from the Group'spension schemes under IAS19 was £4.8 million (2006: £4.7 million) reflecting theposition of the financial markets at the beginning of the financial year.Consequently, overall net finance costs were higher at £8.2 million (2006: £4.3million). The Group's share of joint ventures' net profit (after taxation), which grew by7% to £3.1 million (2006: £2.9 million), benefited from a good performance bysome of the key Yoplait brands including Petits Filous. The Group's adjusted profit before tax (before exceptional items andamortisation of acquired intangibles) was £37.1 million (2006: £30.6 million).The income tax expense was £6.4 million (before tax on exceptional items) andrepresents an effective tax rate of approximately 22.5% on pre-exceptionalprofit before tax (after adjusting for joint venture tax). Basic earnings pershare were up 14% at 20.3 pence (2006: 17.8 pence). Adjusted earnings per sharewere up 22% at 22.2 pence compared to 18.2 pence last year. The directors have declared an interim dividend of 7.1 pence per share, whichrepresents an increase of 6% over the dividend of 6.7 pence per share last year.The dividend will be paid on 31 January 2008 to shareholders on the registeras at 4 January 2008. Group net debt amounted to £458.5 million as at 30 September 2007, reflecting anet increase of £7.5 million from 31 March 2007. Operating cash flow in thefirst half amounted to £36.8 million (2006: £24.4 million). Capital expenditureamounted to £14.2 million (net of grants) (2006: £18.8 million). There was anet working capital outflow of £10.0 million reflecting the normal seasonaltrends of milk flows on cheese stocks (2006: £21.1 million). The pension deficit under IAS19 at the end of the first half was £11.1 millioncompared to a deficit at 31 March 2007 of £0.4 million. Increased bond yieldshad a beneficial impact on the pension position in the first half. However, aspart of the full actuarial valuation for March 2007, the Company has agreed arevised set of demographic assumptions with the Pension Trustee. These revisedassumptions, including longer life expectancies, have been incorporated into thehalf-year pension valuation update and more than offset the beneficial impact ofhigher bond yields. The full March 2007 valuation and resultant funding planare on track to be agreed with the Trustee in the second half. Business Operations Foods Our Foods division (including share of joint ventures net of tax) achieved a 15%increase in adjusted profit from continuing operations (before exceptional itemsand amortisation of acquired intangibles) to £31.8 million (2006: £27.6 million)on revenue of £283.7 million (2006: £199.9 million) producing an operatingmargin of 11.2% (2006: 13.8%). The UK butter and spreads market (excluding cooking fats) is showing valuegrowth of 4% mainly resulting from price increases. In dairy spreads, Utterly Butterly has performed strongly with sales up 18% byvalue and 34% by volume. This reflects increased levels of marketing andpromotional activity and the launch, in August, of a new variant with addedOmega-3. Clover sales were down 17% by value and 18% by volume in the firsthalf reflecting very limited promotional activity following the product recallin May. Whilst base levels of sales have returned towards normal levels,promotions have been constrained due to the impact on production volumes ofimprovement activities at the factory. As previously stated the associatedcosts, together with higher cream costs, will materially impact the performanceof UK spreads this year. Despite this Dairy Crest improved its share of thedairy spreads sector with combined Utterly Butterly and Clover volumes up 9%. Country Life Spreadable continued to grow strongly and early performance of thelighter variant has been encouraging. Overall Country Life Spreadable saleswere up 25% by value. This was offset by a weaker performance from Country Lifepacket butter where sales were down 10% by value. The St Hubert business, which was acquired in January, continues to make goodprogress. Whilst the French spreads market is showing slight decline, down 2%by value, St Hubert's French brands grew by 4%. This has increased St Hubert'smarket share in France to 35%. This performance has been driven principally bythe continued strong growth of St Hubert Omega 3. Sales were up 16% by valueand this is now the number one brand variant in the French spreads market.Additional marketing support behind St Hubert 41 has stabilised sales. TheValle brand has performed well in Italy with sales up 3% by value. The UK cheese market continues to grow, with value and volume growth of 1% and2% respectively. Despite this overall modest growth, the branded cheddar sectorcontinues to grow strongly, up around 10% year on year. Cathedral City has had another exceptional period of performance with sales up23% by value. The brand is now worth approximately £148 million at retailprices. In line with our core objective to promote healthier products CathedralCity Lighter, which was launched in February, is performing well. It is nowachieving good levels of distribution across the retail trade. The Davidstowsub-brand has also had a strong period of growth with sales up 22% by valuereflecting a significant uplift in promotional activity over the comparableperiod last year. We have recently confirmed the decision to invest in a new cheese packingfacility at our national distribution centre and cheese maturation store inNuneaton. This project is expected to cost approximately £25 million togetherwith one off exceptional costs of £5 million. This new, highly automated,facility is expected to begin commercial production in early 2009. It isplanned to have initial packing capacity of 33,000 tonnes per annum and willcreate approximately 65 new jobs. Our current packing agreement with the FirstMilk Cheese Company at Maelor expires in October 2009. We expect the cheese business to benefit in the second half from continuedstrong performance from the brands and from increased prices reflecting bothhigher raw milk costs and tighter industry stock levels. The market for wheypowder was strong for much of the half but has fallen back in recent months. The chilled yogurt and desserts market is growing 4% by value with volumes flat.Overall the Yoplait brands are outperforming the market with sales up 7% byvalue in the first half. As expected Petits Filous and Frubes have returned tostrong growth with sales up 24% and 16% by value respectively. This reflects anincrease in promotional and marketing activity. Of the other brands Yopperformed well with sales up 14% by value. Wildlife and Weight Watchers bothdeclined slightly against strong comparators. Dairies The Dairies division achieved an adjusted profit on operations (beforeexceptional items and amortisation of acquired intangibles) of £13.5 million(2006: £7.3 million) on revenue of £512.6 million (2006: £422.7 million) givingan operating margin of 2.6% (2006: 1.7%). This reflects good progress in retailmilk, the benefit of the Express Dairies acquisition in August 2006 and a strongmarket for dairy ingredients. The retail milk market continues to grow with sales up 6% by value and 3% byvolume. Our fresh milk sales to major retailers were also up 6% by value onthe first half of last year with volumes up 2%. We are pleased to haverecently been retained as a key supplier of fresh milk to Morrisons following asupplier review and will benefit from a small uplift in store allocations fromFebruary 2008. We continue to focus on taking costs out of our operations and have made goodprogress at most of our manufacturing sites. As planned we ceased productionat Totnes in September 2007 and processing has been moved to other dairies. Frijj, our market leading fresh flavoured milk brand, has improved itsprofitability despite sales being broadly flat. This performance reflects aprice increase and a lower level of promotional activity. Elsewhere we haveseen good sales growth in both retailer brand flavoured milk and potted creamwhich were up 44% and 18% by value respectively. Our dairies ingredients operations have benefited from the strong markets fordairy products. However the amount of milk processed into ingredients has beenimpacted by lower than expected milk volumes from our suppliers particularlyover the summer months. World ingredients markets continue to be relativelystrong. In Household we have been implementing price increases in both the middle groundand doorstep sectors to reflect the higher cost of raw milk. In our doorstepbusiness the underlying net decline rate has improved to below 7%. OverallHousehold milk volumes were up 38% and non-milk product sales were up 20% on thefirst half of last year principally reflecting the impact of the Express Dairiesacquisition in August 2006. The integration of Express Dairies remains on trackand the administration office in Leicester has now effectively closed. Trials in five depots of 'milk&more', our new internet-based service deliverymodel, are progressing well. The new services involve internet ordering andpayment and offers customers an increased range of products, including organicand locally sourced produce. Uniquely customers can increase or change theirorder on the internet up until 10 pm for delivery the following morning. Earlyfeedback shows that registered customers are very positive about the greaterflexibility and choice provided by the new service. This is resulting in asignificant increase in average spend per week on both milk and non-milkproducts over the traditional service. We are considering the opportunity forextending this service across the rest of our depot network next year. Office of Fair Trading Investigation On 20 September 2007, the Office of Fair Trading ('OFT') issued a detailedStatement of Objections to certain retailers and dairy processors in itsinvestigation into pricing in the dairy produce sector. Dairy Crest iscurrently reviewing the Statement of Objections with its legal advisors and, dueto the nature of this process, we are unable to comment further at this time. Other Information The principal risks and uncertainties affecting the Group are set out below thestatement of directors' responsibilities and further details are disclosed onpages 36 and 37 of the 2007 Annual Report and Accounts. Related partydisclosures are given in note 11 to the consolidated financial information. Board Changes As previously announced Carole Piwnica, Anthony Fry and Neil Monnery joined theBoard as new non-executive directors with effect from 1 August 2007 followingthe retirements of Gerry Grimstone and David Dugdale. They bring with them awealth of experience and knowledge from their varied business backgrounds. Summary and Outlook Dairy Crest has delivered a good first half performance. Most of our key pillarbrands including Cathedral City, Country Life Spreadable, Utterly Butterly, StHubert Omega 3 and Petits Filous are performing strongly. In addition we aremaking good progress with healthier variants of some of these brands. We are particularly pleased with the strong performance from St Hubert in Franceand the early encouraging results from the 'milk&more' trials in our doorstepbusiness. Whilst market conditions are challenging, we are implementing priceincreases across most dairy categories to reflect higher raw milk costs. TheGroup's expectations for the full year remain unchanged. Mark Allen, Chief Executive7 November 2007 Consolidated income statement(unaudited) ___________________________________________________________________________ Half year ended 30 September 2007 Half year ended 30 September 2006 Before Before Year ended exceptional Exceptional exceptional Exceptional 31 March items items Total items items Total 2007 £m £m £m £m £m £m £m________________________________________________________________________________________________________________________ Group revenue from continuing 1,309.3 operations 761.4 - 761.4 588.6 - 588.6 (1,249.2) Operating costs (727.0) (9.1) (736.1) (562.0) (0.2) (562.2) 6.8 Other income 3.7 6.7 10.4 4.8 - 4.8________________________________________________________________________________________________________________________ Profit on operations from 66.9 continuing operations 38.1 (2.4) 35.7 31.4 (0.2) 31.2 (19.2) Finance costs (13.0) - (13.0) (9.0) - (9.0) 9.5 Other finance income - pensions 4.8 - 4.8 4.7 - 4.7 Share of joint ventures' net 7.4 profit 3.1 - 3.1 2.9 - 2.9________________________________________________________________________________________________________________________ Profit from continuing 64.6 operations before tax 33.0 (2.4) 30.6 30.0 (0.2) 29.8 (11.3) Tax expense (6.4) 2.7 (3.7) (7.6) 0.1 (7.5)________________________________________________________________________________________________________________________ Group profit for the period from 53.3 continuing operations 26.6 0.3 26.9 22.4 (0.1) 22.3 Loss for the period from (4.1) discontinued operations - - - (0.1) (2.8) (2.9)________________________________________________________________________________________________________________________ 49.2 Group profit for the period 26.6 0.3 26.9 22.3 (2.9) 19.4________________________________________________________________________________________________________________________ Profit attributable to equity 49.0 shareholders 26.6 0.3 26.9 22.2 (2.9) 19.3 Profit attributable to minority 0.2 interests - - - 0.1 - 0.1________________________________________________________________________________________________________________________ 49.2 Group profit for the period 26.6 0.3 26.9 22.3 (2.9) 19.4________________________________________________________________________________________________________________________ Earnings per share - continuing operations Basic earnings per share from 41.7 continuing operations (p) 20.3 17.8 Diluted earnings per share from 41.4 continuing operations (p) 20.2 17.6 Adjusted basic earnings per 48.7 share from continuing operations(p) * 22.2 18.2 Adjusted diluted earnings per 48.2 share from continuing operations (p) * 22.0 18.0 Earnings per share Basic earnings per share on 38.5 profit for the period (p) 20.3 15.5 Diluted earnings per share on 38.2 profit for the period (p) 20.2 15.3 * Adjusted earnings per share calculations exclude exceptional items andamortisation of acquired intangibles. A final dividend of £21.4 million (16.2 pence per share) was paid in the periodto 30 September 2007 (2006: £19.0 million; 15.2 pence per share). A dividend of£9.4 million (7.1 pence per share) was approved by the Board on 7 November 2007for payment on 31 January 2008 (2006: £8.8 million and 6.7 pence per share). SeeNote 4. In order to provide a trend measure of underlying performance, profit before taxis adjusted for items which management consider will distort comparability. Thisanalysis no longer adjusts for share of joint ventures' tax charge as theanalysis of joint venture income net of tax in the income statement is nowfirmly established under IFRS. Adjusted Group profit before tax: Profit from continuing 64.6 operations before tax 33.0 (2.4) 30.6 30.0 (0.2) 29.8 Amortisation of acquired 2.7 intangibles 4.1 - 4.1 0.6 - 0.6________________________________________________________________________________________________________________________ 67.3 Adjusted Group profit before tax 37.1 (2.4) 34.7 30.6 (0.2) 30.4________________________________________________________________________________________________________________________ Consolidated balance sheet(unaudited) 31 March 30 September ___________________________________ 2007 2007 2006 £m Note £m £m_____________ ________________________________________________________________________________________________ Assets Non-current assets 329.4 Property, plant and equipment 321.9 336.4 283.2 Goodwill 286.1 131.3 151.5 Intangible assets 152.1 3.8 3.7 Investment in joint ventures using equity method 0.7 4.0 1.8 Deferred tax asset 2.1 - 0.1 Financial assets - Derivative financial instruments 0.6 -_____________ ________________________________________________________________________________________________ 769.7 763.5 475.5_____________ ________________________________________________________________________________________________ Current assets 147.5 Inventories 153.1 159.8 158.0 Trade and other receivables 189.5 171.9 0.3 Financial assets - Derivative financial instruments 0.3 0.3 24.9 Cash and short-term deposits 30.0 11.1_____________ ________________________________________________________________________________________________ 330.7 372.9 343.1_____________ ________________________________________________________________________________________________ - Assets in disposal group held for sale 12 3.0 71.1_____________ ________________________________________________________________________________________________ 1,100.4 Total assets 1,139.4 889.7_____________ ________________________________________________________________________________________________ Equity and liabilities Non-current liabilities (339.9) Financial liabilities - Long-term borrowings (424.6) (339.3) (7.9) - Derivative financial instruments (13.1) (0.1) (0.4) Retirement benefit obligations 9 (11.1) (54.2) (82.4) Deferred tax liability (79.4) (14.6) (9.6) Deferred income (9.2) (10.0)_____________ ________________________________________________________________________________________________ (440.2) (537.4) (418.2)_____________ ________________________________________________________________________________________________ Current liabilities (189.9) Trade and other payables (217.7) (200.2) (121.7) Financial liabilities - Short-term borrowings (46.2) (0.8) (0.3) - Derivative financial instruments - (6.1) (4.5) Current tax liability (1.9) (8.8) (0.7) Deferred income (0.7) (0.6)_____________ ________________________________________________________________________________________________ (317.1) (266.5) (216.5)_____________ ________________________________________________________________________________________________ - Liabilities in disposal group held for sale - (1.6)_____________ ________________________________________________________________________________________________ (757.3) Total liabilities (803.9) (636.3)_____________ ________________________________________________________________________________________________ Shareholders' equity (33.1) Ordinary shares 7 (33.1) (31.5) (66.7) Share premium 7 (67.0) (28.8) 1.2 Interest in ESOP 7 0.5 1.5 (60.4) Other reserves 7 (60.7) (49.8) (180.1) Retained earnings 7 (171.0) (133.8)_____________ ________________________________________________________________________________________________ (339.1) Total shareholders' equity (331.3) (242.4) (4.0) Minority interests (4.2) (4.1) - Minority interests in disposal group held for sale - (6.9)_____________ ________________________________________________________________________________________________ (4.0) Minority interests 7 (4.2) (11.0)_____________ ________________________________________________________________________________________________ (343.1) Total equity (335.5) (253.4)_____________ ________________________________________________________________________________________________ (1,100.4) Total equity and liabilities (1,139.4) (889.7)_____________ ________________________________________________________________________________________________ The interim results were approved by the Board of Directors on 7 November 2007. Consolidated cash flow statement(unaudited) Year ended Half year ended 31 March 30 September ___________________________________ 2007 2007 2006 £m Note £m £m_____________ ________________________________________________________________________________________________ Cash flow from operating activities 64.6 Profit from continuing operations before tax 30.6 29.8 9.7 Finance costs and other finance income 8.2 4.3 (7.4) Share of joint ventures' net profit (3.1) (2.9)_____________ ________________________________________________________________________________________________ Profit from continuing operations before net finance 66.9 costs and taxation 35.7 31.2 Loss from discontinued operations before net finance (4.5) costs and taxation 6 - (4.1) 40.6 Depreciation 19.8 19.8 3.1 Amortisation of intangible assets 4.3 0.7 11.8 Exceptional items (5.0) 4.0 (0.8) Release of grants (0.4) (0.4) 1.9 Share based payments 1.0 0.9 (6.8) Profit on disposal of household depots (3.7) (4.8) Difference between pension contributions paid and (15.2) amounts recognised in income statement (4.9) (1.8) (2.8) Increase in working capital (10.0) (21.1)_____________ ________________________________________________________________________________________________ 94.2 Cash generated from operations 36.8 24.4 (15.3) Interest paid (10.3) (6.2) (6.1) Tax paid (4.0) (0.9)_____________ ________________________________________________________________________________________________ 72.8 Net cash flow from operating activities 22.5 17.3_____________ ________________________________________________________________________________________________ Cash flow from investing activities (37.4) Payments to acquire property, plant and equipment (14.2) (19.9) 1.1 Grants received - 1.1 9.7 Proceeds from disposal of property, plant and equipment 11.3 5.9 8.9 Dividends received from joint ventures 2.4 2.8 58.3 Sale of business - - (293.3) Purchase of businesses (net of cash and debt acquired) (0.6) (37.5)_____________ ________________________________________________________________________________________________ (252.7) Net cash used in investing activities (1.1) (47.6)_____________ ________________________________________________________________________________________________ Cash flow from financing activities (90.0) Repayment of term loans / facilities (100.1) (90.0) (73.8) Net repayment under credit facilities (10.7) (6.9) 343.0 New facilities advanced 111.9 143.0 (27.7) Dividends paid (21.4) (19.0) 39.7 Proceeds from issue of shares (net of issue costs) 0.3 - (0.8) Finance lease repayments (0.1) (0.1)_____________ ________________________________________________________________________________________________ 190.4 Net cash used in financing activities (20.1) 27.0_____________ ________________________________________________________________________________________________ 10.5 Net increase / (decrease) in cash and cash equivalents 1.3 (3.3)_____________ ________________________________________________________________________________________________ 14.4 Cash and cash equivalents at beginning of period 24.9 14.4_____________ ________________________________________________________________________________________________ 24.9 Cash and cash equivalents at end of period 8 26.2 11.1_____________ ________________________________________________________________________________________________ (451.0) Memo: Net debt at end of period 8 (458.5) (329.0)_____________ ________________________________________________________________________________________________ Consolidated statement of recognised income and expense(unaudited) Half year Year ended ended 31 March 30 September ___________________________ 2007 2007 2006 £m £m £m 32.8 Actuarial (losses) / gains (20.4) (1.9) 2.7 Exchange differences on foreign currency net investments 8.0 (0.5) (2.7) Exchange differences on foreign currency borrowings (7.9) 0.4 14.3 Cash flow hedges - transferred to income statement 3.6 (0.2) (7.8) Cash flow hedges - losses deferred in equity (3.2) (5.8) 0.6 Share of joint ventures' income recognised in equity (0.3) (0.5) (11.0) Tax on items taken directly to equity 5.8 2.4_____________ ________________________________________________________________________________________________ 28.9 Net (expense) / income recognised directly in equity (14.4) (6.1) 49.2 Profit for the period 26.9 19.4_____________ ________________________________________________________________________________________________ 78.1 Total recognised income and expense for the period 12.5 13.3_____________ ________________________________________________________________________________________________ 78.0 Attributable to equity shareholders 12.3 13.1 0.1 Attributable to minority interests 0.2 0.2_____________ ________________________________________________________________________________________________ Segmental analysis - continuing operations(unaudited) Half year ended Half year endedYear ended 31 March 2007 30 September 2007 30 September 2006__________________________ ___________________________________________________________ Foods Dairies Total Foods Dairies Total Foods Dairies Total £m £m £m £m £m £m £m £m £m_____________________________________________________________________________________________________________________ 381.3 928.0 1,309.3 Group revenue 248.8 512.6 761.4 165.9 422.7 588.6_____________________________________________________________________________________________________________________ Pre-exceptional profit on 51.8 25.5 77.3 operations 25.1 13.0 38.1 24.7 6.7 31.4 (7.0) (3.4) (10.4) Exceptional items - (2.4) (2.4) - (0.2) (0.2)_____________________________________________________________________________________________________________________ Post-exceptional profit on 44.8 22.1 66.9 operations 25.1 10.6 35.7 24.7 6.5 31.2_________________ __________________ _______________ Finance costs & other finance (9.7) income (8.2) (4.3) Share of joint ventures' net 7.4 profit (Foods) 3.1 2.9 ______________________________________ _______ _______ 64.6 Profit before tax 30.6 29.8 ______________________________________ _______ _______ Discontinued operations all relate to the Foods segment Half year ended Half year ended Year ended 31 March 2007 30 September 2007 30 September 2006____________________________ _______________________________________________________ Adjusted Adjusted profit Adjusted profit profit on Revenue operations* Revenue on operations* Revenue on operations* £m £m Foods £m £m £m £m________________________________________________________________________________________________________________ 381.3 51.8 Segmental analysis 248.8 25.1 165.9 24.7 Add - Amortisation of acquired - 1.1 intangibles - 3.6 - -________________________________________________________________________________________________________________ 381.3 52.9 Before share of joint ventures 248.8 28.7 165.9 24.7________________________________________________________________________________________________________________ Add - Share of joint ventures 68.5 7.1 (post-tax) 34.9 3.1 34.0 2.9________________________________________________________________________________________________________________ 449.8 60.0 Adjusted Foods 283.7 31.8 199.9 27.6________________________________________________________________________________________________________________ Dairies________________________________________________________________________________________________________________ 928.0 25.5 Segmental analysis 512.6 13.0 422.7 6.7 Add - Amortisation of acquired - 1.6 intangibles - 0.5 - 0.6________________________________________________________________________________________________________________ 928.0 27.1 Adjusted Dairies 512.6 13.5 422.7 7.3________________________________________________________________________________________________________________ Adjusted Group and share of joint 1,377.8 87.1 ventures 796.3 45.3 622.6 34.9________________________________________________________________________________________________________________ Memo: Adjusted Group before share 1,309.3 80.0 of JVs 761.4 42.2 588.6 32.0________________________________________________________________________________________________________________ * All amounts are stated before exceptional items The segmentation of the Group has been analysed on a basis consistent with thatused in the 2007 statutory accounts. In the adjusted segmental analysis,profit on operations from share of joint ventures is now reported net of tax(previously pre-tax). Prior year comparatives have been adjusted accordingly.The impact has been to reduce the adjusted profit on operations beforeexceptional items in the six months ended 30 September 2006 by £1.2 million(in the year to 31 March 2007 by £2.9 million). There has been no materialchange in segment assets since 31 March 2007. Notes to the interim financial statements(unaudited) 1 Basis of preparation The half yearly report for the six months ended 30 September 2007 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 2007, 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 2007 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 2007 have been extracted from the Group Financial Statements, 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 2007 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. Half year Year ended ended 31 March 30 September __________________________ 2007 2007 2006 £m £m £m_________________________________________________________________________________________________ _____________ - Impairment of plant and equipment (1.7) - (1.2) Redundancy costs (4.4) - (0.4) Duplicate running costs (1.4) - (1.8) Other rationalisation costs (1.6) (0.2)_________________________________________________________________________________________________ _____________ (3.4) Restructuring costs (9.1) (0.2) (7.0) Impairment of assets - - - Profit on disposal of closed sites 6.7 -_________________________________________________________________________________________________ _____________ (10.4) (2.4) (0.2) 0.3 Share of joint ventures' exceptional items (after tax) - - 3.2 Tax on exceptional items 2.7 0.1 (4.1) Discontinued exceptional item (after tax) - (2.8)_________________________________________________________________________________________________ _____________ (11.0) 0.3 (2.9)_________________________________________________________________________________________________ _____________ Exceptional items in 2007/08 all relate to the Dairies segment and comprise: - £4.1 million charge in relation to the closure of a Dairy at Totnes.This charge includes cash costs of £2.4 million principally in respect ofredundancies and a non-cash asset impairment of £1.7 million for plant andequipment. - £5.0 million cash charge of restructuring expenditure with respect tothe rationalisation of the Express Dairies depot operations and the Liverpooland Nottingham dairies of Arla Foods UK Limited, which were acquired on 19August 2006. These restructuring costs comprised £2.6 million of redundancycosts, £1.4 million of duplicate running costs and £1.0 million of otherrationalisation costs. - £6.7 million profit on a site in west London originally sold in October2002. The site was sold with a potential future overage receipt from thepurchasers 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. Restructuring costs in 2006/07 all related to the Dairies segment and comprisedinitial restructuring expenditure with respect to the rationalisation of theExpress Dairies depot operations and the Liverpool and Nottingham dairies ofArla Foods UK Limited. The asset impairment in 2006/07 related to the Foodssegment and related to property, plant and equipment in the speciality cheesebusiness. Discontinued exceptional items in 2006/07 related to the Foods segment andcomprised the post-tax loss on the disposal of the majority of our retailerbrand cheese operations to First Milk Limited which completed on 14 October2006. At 30 September 2006, the assets subsequently disposed were classified as'assets in disposal group held for sale'. The estimated loss on disposal at 30September 2006 and final loss on disposal in the year ended 31 March 2007 can beanalysed as follows: Half year Year ended ended 30 31 March September 2006 2007 £m £m_______________________________________________________________________________________Proceeds 68.9 67.5Book value of net assets disposed (74.2) (72.3)_______________________________________________________________________________________ (5.3) (4.8)Curtailment gain on pension scheme 3.0 4.1Other separation costs and fees (1.7) (3.8)_______________________________________________________________________________________ Loss on disposal before tax (4.0) (4.5)Tax relief on exceptional item 1.2 0.4_______________________________________________________________________________________ (2.8) (4.1)_______________________________________________________________________________________ 3 Tax expense The tax expense for the half year ended 30 September 2007 has been calculated on the basis of the estimated effective tax rate on profit for the full year. Tax relief on exceptional costs on continuing operations for the half year ended 30 September 2007 was £2.7 million (September 2006: £0.1 million, year ended 31 March 2007: £3.2 million). No tax charge has been recognised on the exceptional property profit of £6.7 million as the Group has significant capital losses against which this profit can be offset. 4 Dividends A dividend of £9.4 million (7.1 pence per share) (2006: £8.8 million; 6.7 pence per share) will be payable on 31 January 2008 to shareholders on the register on 4 January 2008. This dividend is not recorded in the balance sheet as a liability at 30 September 2007. 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 £26.9 million (2006: £19.3 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 132.232 million (September 2006: 124.846 million, March 2007: 127.198 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 £26.9 million (2006: £22.2 million) and the weighted average number of shares of 132.232 million (September 2006: 124.846 million, March 2007: 127.198 million). To show earnings per share on a consistent basis, which in the directors' opinion reflects the underlying performance of the business more appropriately, adjusted earnings per share have been calculated as follows: Year ended Half year ended 31 March 30 September __________________________ 2007 2007 2006 £m £m £m____________________________________________________________________________________________________________________ 53.3 Group profit for the period from continuing operations 26.9 22.3 (0.2) Minority interests - (0.1)____________________________________________________________________________________________________________________ 53.1 Profit from continuing operations attributable to equity shareholders 26.9 22.2 7.2 Exceptional items on continuing operations (net of tax) (0.3) 0.1 1.9 Amortisation of acquired intangible assets (net of tax) 2.7 0.4 (0.3) Joint ventures' exceptional items (net of tax) - -____________________________________________________________________________________________________________________ 61.9 Adjusted earnings 29.3 22.7____________________________________________________________________________________________________________________ 48.7 Adjusted earnings per share (pence) 22.2 18.2____________________________________________________________________________________________________________________ Diluted earnings per share has been calculated on the basis of a diluted number of shares of 133.425 million (September 2006: 125.944 million, March 2007: 128.315 million). 6 Business combinations During the period, the Group acquired the goodwill of a number of bottled milk buyers for cash consideration of £0.6 million resulting in goodwill of £0.6 million (September 2006: £0.5 million, March 2007: £0.7 million). On 16 January 2007 the Group acquired the entire share capital of St Hubert SAS, a branded French spreads company for a consideration of £250.2 million. The fair value of net assets acquired (excluding cash of £2.1 million) was £100.8 million resulting in goodwill of £149.4 million. The book value of net assets acquired (excluding cash) was £2.8 million. Fair value adjustments totalled £98.0 million principally comprising the recognition of acquired brands as intangible assets and the related deferred tax. On 19 August 2006, the Group acquired the business and assets of the Express Dairies depot operations and the Liverpool and Nottingham dairies from Arla Foods UK plc for a consideration of £41.3 million. The fair value of the assets acquired was £39.2 million resulting in goodwill of £2.1 million. The book value of net assets acquired was £32.2 million. Fair value adjustments totalled £7.0 million principally comprising a revaluation of land and buildings. On 14 October 2006, the Group completed the disposal of the majority of its retailer branded cheese business to First Milk Limited. The post-tax results of this business and the loss on disposal were disclosed as discontinued in the year ended 31 March 2007 (Foods segment). Post tax profits for 2006/07 can be analysed as follows: Half year Year ended ended 31 March 30 September ________________________ 2007 2007 2006 £m £m £m__________________________________________________________________________________________________ 104.3 Revenue - 97.8 (104.3) Operating costs - (97.9)__________________________________________________________________________________________________ - Profit on operations - (0.1) - Tax - -__________________________________________________________________________________________________ - Profit after tax - (0.1)__________________________________________________________________________________________________ - Pre-tax loss on operations - (0.1) (4.5) Pre-tax loss on disposal (Note 2) - (4.0)__________________________________________________________________________________________________ (4.5) Total pre-tax loss per cash flow statement - (4.1)__________________________________________________________________________________________________ 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 2007 33.1 66.7 (1.2) 60.4 180.1 4.0Total recognised income and expense in the period - - - 0.3 12.0 0.2Issue 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 2006 31.3 28.8 (1.5) 55.8 132.8 10.8Total recognised income and expense in the period - - - (6.0) 19.1 0.2Issue of share capital 0.2 - - - - -Share based payments - - - - 0.9 -Equity dividends - - - - (19.0) -________________________________________________________________________________________________________________At 30 September 2006 31.5 28.8 (1.5) 49.8 133.8 11.0________________________________________________________________________________________________________________At 31 March 2006 31.3 28.8 (1.5) 55.8 132.8 10.8Total recognised income and expense in the period - - - 4.6 73.4 0.1Issue of share capital 1.8 37.9 - - - -Exercise of options - - 0.3 - (0.3) -Minority dividends paid - - - - - (1.0)Purchase of minority interest - - - - - (5.9)Share based payments - - - - 1.9 -Equity dividends - - - - (27.7) -________________________________________________________________________________________________________________At 31 March 2007 33.1 66.7 (1.2) 60.4 180.1 4.0________________________________________________________________________________________________________________ 8 Analysis of net debt Half year Year ended Movement in net debt ended 31 March 30 September ___________________________ 2007 2007 2006 £m £m £m_______________________________________________________________________________________________________________ 10.5 Net increase / (decrease) in cash and cash equivalents 1.3 (3.3) 90.0 Repayment of term loans / facilities 100.1 90.0 73.8 Net repayment under credit facilities 10.7 6.9 (0.2) Preference shares issued - - 0.8 Finance lease repayments 0.1 0.1 (343.0) New facilities advanced (111.9) (143.0) (2.7) Exchange movement (7.8) 0.5_______________________________________________________________________________________________________________ (170.8) Increase in net debt (7.5) (48.8) (280.2) Opening net debt (451.0) (280.2)_______________________________________________________________________________________________________________ (451.0) Closing net debt (458.5) (329.0)_______________________________________________________________________________________________________________ Half year Year ended Analysis of net debt ended 31 March 30 September __________________________ 2007 2007 2006 £m £m £m_______________________________________________________________________________________________________________ - Overdrafts 3.8 - 120.1 Loans repayable within one year 40.0 - 1.6 Finance leases repayable within one year 2.4 0.8_______________________________________________________________________________________________________________ 121.7 Short-term borrowings 46.2 0.8_______________________________________________________________________________________________________________ 324.4 Loans repayable in greater than one year 409.9 322.2 15.5 Finance leases repayable in greater than one year 14.7 17.1_______________________________________________________________________________________________________________ 339.9 Long-term borrowings 424.6 339.3_______________________________________________________________________________________________________________ (24.9) Cash and short-term deposits (30.0) (11.1)_______________________________________________________________________________________________________________ 436.7 Borrowings and cash - before impact of cross-currency swaps 440.8 329.0 14.3 Borrowings - impact of cross-currency swaps * 17.7 -_______________________________________________________________________________________________________________ 451.0 Net Debt 458.5 329.0_______________________________________________________________________________________________________________ (24.9) Memo: cash and cash equivalents (including overdrafts) (26.2) (11.1)_______________________________________________________________________________________________________________ * The Group has $233m of loan notes (in all reported periods) against whichcross-currency swaps have been put in place to fix interest and principalrepayments in Sterling. Under IFRS, Dollar long-term borrowings are retranslatedinto Sterling at year end exchange rates. The cross-currency swaps are recordedat fair value and incorporate movements in both market exchange rates andinterest rates. The Group defines net debt so as to include the effectiveSterling liability where cross-currency swaps have been used to convert foreigncurrency borrowings into Sterling. The £17.7 million (March 2007: £14.3 million)adjustment included above converts the Sterling equivalent of Dollar loan notesfrom period-end exchange rates (£115.3 million (March 2007: £118.7m)) to thefixed Sterling liability of £133.0 million. On 4 April 2007, the Group completed a private debt placement in the US andraised €150 million in Euro loan notes and £10 million in Sterling loan notes. The loan notes mature in two tranches of 7 and 10 years. The effective interest rate on the combined issue is 4.9%. On completion of this transaction and subsequent repayment of certain revolving credit facilities of £100 million, Group long-term borrowing facilities, including finance leases, total £667 million. 9 Retirement benefit obligations The Group's defined benefit pension schemes are accounted for in accordance withthe requirements of IAS 19 'Employee Benefits'. The net pension deficit of the Group pension schemes at 30 September 2007 can beanalysed as follows: Year ended Half year ended 31 March 30 September _____________________________ 2007 2007 2006 £m £m £m____________________________________________________________________________________________________ 416.6 Equities 427.6 438.3 245.8 Bonds and cash 247.1 165.9 29.4 Property and other 35.7 28.1____________________________________________________________________________________________________ 691.8 Total market value of assets 710.4 632.3 (692.2) Defined benefit obligation (721.5) (686.5)____________________________________________________________________________________________________ (0.4) Net liability recognised in the balance sheet (11.1) (54.2) 0.8 Related deferred tax asset 3.8 16.3____________________________________________________________________________________________________ 0.4 Net pension (liability) / asset (7.3) (37.9)____________________________________________________________________________________________________ Analysis of movements in the Group pension deficit during the period: (62.0) Opening deficit (0.4) (62.0) (19.4) Current service costs (8.8) (9.7) 4.1 Curtailment gains - 3.0 9.5 Net finance income 4.8 4.7 32.8 Actuarial (loss) / gain (20.4) (1.9) 34.6 Contributions 13.7 11.7____________________________________________________________________________________________________ (0.4) Closing deficit (11.1) (54.2)____________________________________________________________________________________________________ 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 07 Sep 07 Sep 06____________________________________________________________________________________________________ 4.7 Rate of increase in salaries (%) 4.9 4.5 3.2 Price inflation (%) 3.4 3.0 19.6 Average expected remaining life expectancy for a 20.9 19.6 non-retired 65 year old male (years) 18.6 Average expected remaining life expectancy for a 19.8 18.6 retired 65 year old male (years) 5.5 Discount rate (%) 5.9 5.1 8.0 Expected return (%) - Equities 8.0 8.0 5.3 - Bonds and cash 5.3 4.9 7.0 - Property and other 7.0 7.0 10 Contingent liabilities On 20 September 2007 the Office of Fair Trading ('OFT') issued a detailed Statement of Objections to certain retailers and dairy processors in its investigation into pricing in the dairy produce sector. Dairy Crest is currently reviewing the Statement of Objections with its legal advisors. Due to the nature of this process, and in accordance with paragraph 92 of IAS 37 'Provisions, Contingent Liabilities and Contingent Assets', the disclosure requirements of paragraphs 86-89 of IAS 37 have not been presented. Future capital expenditure contracted on property, plant and equipment as at 30 September 2007 was £6.3 million (March 2007: £7.5 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 2007 (Note 28, page 72). Yoplait Dairy Crest Limited incurred costs of £4.1 million from the Group in the period (September 2006: £4.1 million; March 2007: £8.3 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 23 October 2007 the Group sold its 50% investment in Cotteswold Dairy Limited for cash consideration of £3.0m. The investment in Cotteswold Dairy Limited was previously disclosed as an 'investment in joint venture using equity method'. At 30 September 2007, the sale of the Group's share was at an advanced stage and the carrying value of the investment has been classified as 'asset held for sale' and is carried at its fair value. Statement of directors' responsibilities The directors confirm that this condensed set of financial statements has beenprepared in accordance with IAS 34 as adopted by the European Union and that theinterim management report herein includes a fair review of the informationrequired 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 2007,and their respective responsibilities, can be found on page 23 of the AnnualReport and Accounts 2007. Gerry Grimstone retired from the Board on 31 July 2007and David Dugdale did not seek re-election to the Board at the AGM on 19 July2007. Carole Piwnica, Anthony Fry and Neil Monnery joined the Group on 1 August2007 as Non-Executive Directors. By order of the Board M Allen A S N MurrayChief Executive Finance Director7 November 2007 7 November 2007 Risks The Board considers risk assessment, identification of mitigating actions andinternal controls to be fundamental to achieving Dairy Crest's strategiccorporate objectives. The principal factors considered when assessing DairyCrest's ability to achieve its short-term and long-term objectives are: - Economic, cultural and market conditions which influence consumer spending;- Relationships with dairy farmers and future milk sourcing;- The impact of recent and future milk and other commodity cost rises;- 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;- Regulatory and legal risks; and- Environmental trends and risks. The processes by which the Board safeguards shareholder value and the assets ofthe Group and risks and uncertainties that would have a significant impact onlong-term value generation are set out in the 2007 Annual Report and Accounts onpages 36 and 37. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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