Preliminary Results

22nd May 2007 07:03

Dairy Crest Group PLC22 May 2007 22 May 2007 Dairy Crest Group plc ("Dairy Crest") Preliminary Results Announcement Dairy Crest, the UK's leading branded dairy foods group, today announces itsaudited results for the year ended 31 March 2007. Financial Highlights: 2006/07 2005/06 ChangeRevenue (including JV's): £1,378m £1,230m + 12%Revenue £1,309m £1,161m + 13%Profit before tax: £64.6m £38.4m + 68%Adjusted profit before tax *: £80.5m £64.8m + 24%Earnings per share: 41.7p 25.5p + 64%Adjusted earnings per share *: 48.7p 38.7p + 26%Year-end net debt: £451.0m £280.2mTotal dividend for the year: 22.9p 21.5p +7% * Including share of joint ventures and before exceptional items andamortisation of acquired intangibles. All amounts are from continuing operations Business Highlights and Recent Developments: • Significantly reshaped Dairy Crest with move into Continental Europe through St Hubert acquisition and major realignment of UK businesses• New product development programme focused on healthier variants of core pillar brands including Cathedral City and Country Life• Good growth from key brands including Cathedral City, Country Life Spreadable, St Hubert Omega 3 and FRijj• Encouraging initial contribution from St Hubert with increasing market share in France• Good performance from the cheese business which is now focused on branded and added value markets• On track to deliver synergies from Express Dairies acquisition Mark Allen, Chief Executive, Dairy Crest Group plc said: "This financial year was an active one in which we significantly reshaped theGroup and continued to drive performance. We have a full programme of newproduct launches focused on healthier variants of our leading brands and weintend to support these with an increased level of marketing. Trading at thestart of the new financial year is in line with our expectations." For further information: Dairy Crest Group plcWill Shaw, Investors 01372 472477Nicole Lander, Media 01372 472419 Brunswick 020 7404 5959Simon SporborgLaura Cummings Chairman's statement Dairy Crest performed well in the year ended March 2007 and reported a 24%increase in adjusted profit before taxation to £80.5 million from £64.8 millionlast year, revenue of £1,377.8 million (including share of joint ventures) andadjusted earnings per share of 48.7 pence. Reported profit before taxation fromcontinuing operations was £64.6 million up 68% on last year. This financial year has been one of significant progress for the Group. Wecompleted three major transactions which have delivered a strong uplift inprofitability. In August 2006 we acquired Express Dairies to create the UK'sleading doorstep and middle ground business. In October 2006, as part of ourstrategy to focus on branded cheese, we sold the substantial majority of ourretailer brand cheese operations to First Milk and in January 2007 we made asignificant overseas move with the acquisition of St Hubert, the French andItalian spreads business, from Uniq plc. The Board is recommending an increase in the final dividend of 6.6% to 16.2pence per share. This together with the interim dividend of 6.7 pence makes atotal dividend for the year of 22.9 pence per share, an increase of 6.5%. TheBoard remains committed to a progressive dividend policy. We have continued to work closely this year with our milk suppliers and inparticular, Dairy Crest Direct, our direct milk supply association. We aresupportive of the continued trend towards dedicated milk pools for individualretailers. These provide the security of supply that producers require to makeinvestment choices for the future. Dairy Crest has been at the forefront of thedevelopment of segregated milk pools for Waitrose and Marks & Spencer which haveboth paid market leading prices to producers for many years. This year we haveworked closely with Sainsbury's to set up the Sainsbury's Dairy DevelopmentGroup whose Dairy Crest producers have recently received a 1.3 pence per litreincrease in their farmgate milk price. Board changes Drummond Hall retired as Chief Executive at the end of December 2006. I wouldlike to thank Drummond for his considerable contribution to Dairy Crest over thelast fifteen years. Throughout his time with Dairy Crest Drummond played a keyrole in developing the Group's successful strategy to grow the branded and addedvalue side of the business. As part of a planned succession process, Mark Allen,previously Executive Managing Director of the Dairies Division, was appointed asChief Executive with effect from 1 January 2007. Mark has been a key member of astrong management team for a number of years, has had major roles across boththe Dairies and Foods Divisions and has been on the Board since 2002. Martin Oakes was appointed as Executive Managing Director, Dairies Division andas a member of the PLC board, with effect from 1 February 2007. He joined thecompany after spending six years with Somerfield Stores where he was GroupLogistics and IT Director. Martin is already adding value to the development ofthe Group with his wide-ranging business, logistics and retail experience. David Dugdale has decided not to seek re-election as a non-executive director atthe Annual General Meeting in July and will retire from the Board after overfive years. Gerry Grimstone, who has been a non-executive director since 1999,has also indicated that he wishes to retire from the Board later this year dueto other business commitments. However Gerry has committed to stay on the Boarduntil a suitable replacement is found. We thank both David and Gerry for theirexceptional contributions to the Group and wish them well for the future. Our successful outcome this year is not only a reflection of the significantstrategic progress made but also a result of the dedication and hard work of allour employees. Simon Oliver, Chairman21 May 2007 Chief Executive's review Overview I was delighted to be appointed Chief Executive at the beginning of 2007 aftermore than fifteen years with the Group. This is a particularly exciting time tobe leading the Dairy Crest team as we have reshaped the Group during the yearthrough three important transactions - the acquisitions of St Hubert and ExpressDairies and the disposal of the substantial majority of our retailer brandcheese operations. These transactions are in line with Dairy Crest's strategy toinvest in branded and added-value activities, maintain its position as the UK'sleading doorstep delivery service and reduce the Group's exposure to commoditymarkets. Alongside these important transactions, which have delivered strong profitsgrowth, we have seen good sales growth from some of our key brands includingCathedral City, Country Life Spreadable, FRijj and St Hubert Omega 3. Financial results The Group achieved full year revenue from continuing operations (including ourshare of joint ventures' revenue) of £1,377.8 million (2006: £1,230.0 million).Adjusted profit before tax (on a continuing basis, including share of pre-taxprofits from joint ventures and before exceptional items and amortisation ofacquired intangibles) was up 24% at £80.5 million (2006: £64.8 million). Thisreflects the benefit of the acquisitions, a strong performance by the brandedcheese business and an increase in the pension interest credit of £7.3 millionto £9.5 million. After deducting £10.0 million of exceptional items, £2.7million of acquired intangible amortisation and £3.2 million of tax on jointventures, profit before tax was up 68% at £64.6 million (2006: £38.4 million).Exceptional items include a further £7.0 million non-cash impairment charge onthe assets of our stilton and speciality cheese business. Adjusted earnings pershare increased by 26% to 48.7 pence per share (2006: 38.7 pence). Group net debt as (as defined in the Financial Review) at 31 March 2007 was£170.8 million higher at £451.0 million (2006: £280.2 million) reflecting, inparticular, the net impact of the three major transactions. Delivering on strategy The Group's strategy continues to be focused on growing its branded businesstogether with the value added elements of its key retailer relationships. Inaddition we have continued to act as a consolidator in the doorstep deliverymarket where we have the industry leading business model. During 2006/07 we madeconsiderable moves to reshape the Group in line with this strategy: • In August 2006 we completed the acquisition of the Express Dairies business from Arla Foods UK plc for £33 million (before working capital adjustments). The acquisition included a substantial property portfolio comprising 76 distribution depots (freehold and leasehold) and dairies in Liverpool and Nottingham. As a result Dairy Crest is the UK's market leading doorstep and middle ground business with broad coverage across England and Wales. The benefits from this acquisition are being delivered to plan and we remain on track to deliver synergies which are expected to peak at £9.0 million in 2008/09. • In October 2006 we completed the disposal of the substantial majority of our retailer brand cheese operations to First Milk Limited for £58.3 million net cash consideration. The market for retailer brand and commodity cheese is competitive and this business has delivered cyclical returns for the Group. The sale of the business was consistent with our strategy to focus on branded and added value products and also with the industry trend for greater ownership of bulk processing assets by milk producers. The Group is now focused on developing its branded and added value cheese business which overall has made good progress this year. It has benefited from strong Cathedral City growth and improved returns from whey. • In January 2007 we made a significant move into Continental Europe with the acquisition of the St Hubert spreads business from Uniq plc for €370 million (approximately £248 million). St Hubert has strong brands and leading market positions in both France and Italy. The acquisition increases the proportion of Dairy Crest profits deriving from brands and hence, together with the cheese disposal, will significantly improve the Group's quality of earnings. The move into Continental Europe should provide a platform for future growth and as part of this, we are looking at operational and commercial opportunities between St Hubert and our existing UK spreads business. In the short period of time since the acquisition St Hubert has made good progress. In particular St Hubert Omega 3 continues to grow strongly which has driven an increase in overall market share in France. All these transactions are expected to be earnings accretive in 2007/08. New products focused on health At Dairy Crest we recognise the important relationship between a balanced diet,exercise, lifestyle and health. We are committed to helping consumers makeinformed choices about the food they eat. We also support the Department ofHealth's Food & Health Action Plan goals of reducing salt, fat and added sugarin products without compromising on food safety, nutrition, quality or taste. Accordingly much of our current research and new product development activitiesare focused on developing our health agenda. We have a pipeline of productlaunches of healthier variants of some of our most popular pillar brands. InFebruary we launched Cathedral City Lighter. While offering all the taste andversatility of standard mature cheddar it contains 30% less fat. In May 2007 wehave launched Country Life Spreadable Lighter. Later this year further healthierdevelopments are planned for both Utterly Butterly and Clover. Doorstep opportunity Following the acquisition of Express Dairies last summer Dairy Crest has adoorstep customer base of approaching 1.6 million households supplied via itsunique delivery network. We have been reviewing a number of new proposals tomaximise the opportunity that this customer base represents. To that effect, wewill shortly commence the trial of a number of new service initiatives inselected depots within our network. Environmental initiatives We have long recognised that a commitment to protecting the environment is anintegral part of managing the business. As well as initiatives to reduce thecarbon emissions from our manufacturing sites, Dairy Crest is at the forefrontof dairy industry developments to reduce packaging waste. In line with all ofour major customers we have recently signed up to the Courtauld Commitment whichaims to work with WRAP (Waste and Resources Action Programme) to deliverabsolute reductions in packaging waste by 2010 and identify ways to tackle theproblem of food waste. For example we have recently been involved in the launchof the world's first plastic milk bottle using recycled material for Marks &Spencer. We were particularly pleased that this won a Gold award at the recentpackaging industry awards. People The business continues to be supported by a talented, dedicated and loyalworkforce whose skills and efforts have been instrumental in achieving ourresults this year. During the year we were also pleased to welcome our newcolleagues from Express Dairies and St Hubert taking our total workforce toapproximately 8,500 together with 1,600 franchisees. We endeavour to support ourworkforce with a strong commitment to training and development at all levels. Weare also in the process of establishing a set of formal corporate values, whichwill underpin the way we work in the future. Our employees have also found the energy and enthusiasm to raise significantfunds for the corporate charity partner, Leukaemia Research. We are particularlyproud that we reached our target for the charity of £1 million in April 2007raised by superb teamwork and individual endeavour. Now looking to the future,and hopefully building on the success of the past, I am delighted to announcethat our new charity partner for 2007 onwards will be Make-A-Wish Foundation(R)UK which grants wishes to children and young people fighting life-threateningillnesses. Outlook This financial year was an active one in which we significantly reshaped theGroup and continued to drive performance. We have a full programme of newproduct launches focused on healthier variants of our leading brands and weintend to support these with an increased level of marketing. Trading at thestart of the new financial year is in line with our expectations. Mark AllenChief Executive21 May 2007 Operating review Foods Division The Foods Division comprises the spreads and cheese businesses together with ourshare of the Yoplait Dairy Crest joint venture. +-----------------+-----------------+-----------------+-----------------+|£ million | 2006/07 | 2005/06 | Change |+-----------------+-----------------+-----------------+-----------------+|Revenue | 449.8 | 414.3 | + 8.6% |+-----------------+-----------------+-----------------+-----------------+|Profit on | | | ||operations | 62.9 | 61.3 | + 2.6% |+-----------------+-----------------+-----------------+-----------------+|Margin | 14.0% | 14.8% | |+-----------------+-----------------+-----------------+-----------------+ Revenue is up 9% reflecting growth in the cheese business and the inclusion ofeleven weeks revenue of St Hubert offset by lower volumes in our UK spreadsbusiness. Similarly profit on operations is up 3% reflecting the strongperformances from cheese and St Hubert offsetting a weaker performance from UKspreads. Overall margins are slightly down year on year in the Foods division. UK Spreads The UK butter and spreads market (excluding cooking fats) grew in the year toMarch 2007 by 3% in value to £887 million and by 1% in volume. The highestgrowth segment was again spreadable butter, which grew 11% by value. Thespecific health segment which has been growing over recent years declined overthe last twelve months by 8% by value. Country Life Spreadable performed very strongly in the important spreadablebutter segment with value and volume growth both over 30%. Clover, ourmarket-leading dairy spread brand, performed well with sales growth of 2%.However, weaker performances from the other brands have impacted the overallperformance of UK spreads with total branded sales down 5% by value. CountryLife packet butter had a weaker second half, as the packet butter marketcontinues to decline, and sales for the full year were down 11%. St. Ivel Goldfaced challenging market conditions throughout the year, as competitors in thehealth sector increased marketing activity, and sales were down 26%. UtterlyButterly was also impacted by increased competition and sales were down by 12%by value and 13% by volume in the year having grown by 26% by volume over theprevious three years. The Group is still strongly committed to capitalising on the opportunitiespresented by the growing trend towards healthy eating. Consequently the focus ofproduct development in UK spreads has been on lighter variants of our mostpopular brands. In May we have launched Country Life Spreadable Lighter andlater in the year we have further healthier developments planned for bothUtterly Butterly and Clover. Marketing expenditure in the UK Spreads business will be significantly increasedduring 2007/08 to support new product launches and to reinforce the position ofthe key brands. St Hubert We acquired the St Hubert spreads business on 16 January 2007. St Hubert hasleading market positions in France and Italy. The acquisition included anexperienced and capable management team, a manufacturing site in Ludres, nearNancy in northeast France, and an administrative office in Rungis, Paris. StHubert is making good progress and results to date have been in line with ourexpectations. The total non-butter French spreads market has declined by 2% by value over thelast year to €384 million. Within this the Classic segment is down 9% by valueand the Health segment is up 6% by value. Against this market background St Hubert Omega 3 continues to grow strongly withsales up 22% by value year on year. It has recently become the number one brandvariant in the French spreads market. The brands St Hubert 41 and Le Fleurierhave declined in line with the Classic segment and are down 8% and 5%respectively by value. St Hubert Cholegram, the cholesterol reducing spread, isdown 7% by value. However overall brand sales in France are up by 7% by valueover the last twelve months and St Hubert has increased its share of the Frenchspreads market to 34% reinforcing its strong number two position. During theyear St Hubert also launched a new variant St Hubert 100% Vegetal. Sales in Italy under the Valle brand have shown slight growth during the yearand we have recently launched the Valle brand in Greece. Cheese The UK cheese market was up 1% by value during the year and is now worth almost£1.9 billion. Whilst the cheddar market has also only shown slight growth,branded cheddar has grown by 8% to £394 million. This represents 40% of thetotal cheddar market up from 38% last year. The Group is focused on developing its branded and added value cheese businesswhich has made good progress this year benefiting from Cathedral City'scontinued strong growth and improved returns from whey. We sold the substantial majority of the retailer brand cheese operations toFirst Milk Limited in October 2006. The sale included the cheddar creameries atHaverfordwest (in which First Milk already had a 20% interest) and Aspatria, aswell as the Group's prepacking and whey processing facilities at Maelor. As partof the transaction we also entered into a number of transitional arrangementswith First Milk including an agreement for First Milk to pack Dairy Crest'scheese brands at Maelor. The Group is continuing to develop plans for a newcheese prepacking facility which is likely to be located at our NuneatonNational Distribution Centre, where the majority of the Group's maturing cheesestocks are stored. Cathedral City sales were up by over 20% by value and volume, further improvingits market leading position. Cathedral City is now worth approximately £128million at retail prices and has a 13% share of the total cheddar market and a32% share of branded cheddar. We have continued to extend the range with newproduct development. In May 2006 we launched Cathedral City Mild which hasperformed well. More recently in February 2007 we launched Cathedral CityLighter. This has 30% less fat than standard cheddar but still delivers theusual Cathedral City premium taste, quality and consistency. Whilst at a veryearly stage of development distribution levels and initial sales areencouraging. Sales of the Davidstow sub-brand were down 16% by value reflectinga lower level of promotions than last year. Pricing in the Stilton market has continued to be challenging and we have takena further impairment charge of £7.0 million on the book value of the assets ofour speciality cheese business. Fresh Dairy Products The chilled yogurts and desserts market is today worth £1.85 billion up 5% byvalue and 2% by volume. Within this market the highest growth categories havebeen functional health and organic which are both in double-digit growth. Thechildren's category, where Yoplait Dairy Crest has a market-leading share of48%, has grown well with sales up 3% by value. The Children's category is nowworth approximately £250 million. Yoplait Dairy Crest has continued to make good progress with the brands overalldelivering sales growth of 2% by value. Of the brands Wildlife, YOP and WeightWatchers performed well each with sales up 10% by value. This good performanceoffset a weaker performance from Petits Filous (down 10% by value) and Frubes(down 5% by value) which reflected a lower level of promotions and increasedcompetitor activity throughout the year. Petits Filous remains a strong brandand in 2007/08 it will be supported with increased promotional and marketingactivity with particular emphasis on the benefits of Vitamin D and Calcium. Dairies The Dairies division comprises Dairy Crest's liquid products, ingredients andhousehold operations. +-----------------+-----------------+-----------------+-----------------+|£ million | 2006/07 | 2005/06 | Change |+-----------------+-----------------+-----------------+-----------------+|Revenue | 928.0 | 815.7 | + 13.8% |+-----------------+-----------------+-----------------+-----------------+|Profit on | | | ||operations | 27.1 | 17.8 | + 52.2% |+-----------------+-----------------+-----------------+-----------------+|Margin | 2.9% | 2.2% | |+-----------------+-----------------+-----------------+-----------------+ Revenue is up 14% reflecting the impact of the Express Dairies acquisition andhigher volumes to major retailers offsetting lower ingredients volumes. Profiton operations is up over 50% principally reflecting the benefit of theacquisition. Overall margins have improved year on year to 2.9%. Liquid Products and Ingredients The retail fresh milk market continues to grow modestly with sales up 3% byvalue to £2.4 billion. The biggest growth segment remains organic milk althoughthe market growth has slowed to 27% by value year on year from the exceptionallyhigh levels seen a year ago. Fresh milk sales to major retailers were up 6% by volume and 10% by value yearon year due to some small business gains and the underlying growth of our keycustomers. During the year we were pleased to be retained as a key supplier offresh milk to Sainsbury's following a supplier review. The Group obtained sales price increases on fresh milk from our major retailcustomers this spring following increases in retail prices. The Group has passedon this increase to our producers by an increase of 0.25 pence per litre on ourmain liquid contract with effect from April 2007 and 1.3 pence per litre tothose suppliers in the Sainsbury's Dairy Development Group with effect fromMarch 2007. In addition prices have risen significantly for both the Marks &Spencer and Waitrose dedicated milk pools. Whilst there has been some good progress this year we continue to focus onimproving operating margins in our major retail milk business. This is through acombination of cost reduction programmes, operational efficiency projects andinvesting further in developing added value products in this market. Following astrategic review of our non-returnable container ("NRC") operations we recentlyannounced the possible closure of our Totnes dairy. We have commenced aconsultation process with employees and unions, which will last 90 days.Existing production volumes at Totnes are proposed to be moved to our NRCdairies at Severnside and Foston and our glass bottling dairy at Hanworth. As expected FRijj, our market leading fresh flavoured milk drink, has returnedto strong growth this year with sales up 23% by value. This performance reflectsincreased promotional activity and the benefits of increased production capacityat Severnside. Potted cream sales were up 3% by value and retailer brandflavoured milk sales were up 53% reflecting a number of business wins. St. Ivel advance, our branded milk enriched with Omega 3 launched last year, hasmade progress with sales up 83% year on year although volumes have levelled offin recent months. To capitalise on the strong growth in the organic milk marketwe launched Country Life organic milk in July 2006. This was a strategicdecision to develop our own brand in the organic milk sector and accordingly weterminated, with effect from the end of December 2006, the existing licenceagreement for the Rachel's brand where we had a contract packing arrangement.Early performance from Country Life organic milk has been encouraging and we arecontinuing to grow distribution. The Group now principally uses its ingredients business to balance a seasonalmilk supply with flat demand and year-end stocks of milk powders and butterswere 57% lower than the previous year. Despite the continued implementation ofCAP reform, UK and European ingredients markets have been particularly strongover recent months reflecting the high world demand for dairy products. Household The household business has performed well with a significant increase in volumesand turnover following the acquisition of Express Dairies in August 2006 andalso reflecting the impact of acquisitions made in 2005/06. Overall Householdvolumes were up 31% year on year. We acquired Express Dairies from Arla Foods UK plc in August 2006 for aconsideration of £33 million (before working capital adjustments). Thiscomprised 76 distribution depots, dairies in Liverpool and Nottingham and 1,850employees. The acquisition created the UK's market leading doorstep and middleground business with broad coverage across England and Wales. The benefits fromthis acquisition are being delivered to plan and we remain on track to deliversynergies which are expected to peak at £9.0 million in 2008/09. Nineoverlapping depots have been closed to date and the administration office atLeicester is expected to close in the autumn. This acquisition is consistentwith our successful infill strategy for our Dairies division, at a price whichwill deliver significant value for shareholders and backed by a substantialproperty portfolio. Our continued marketing and canvassing activity has helped reduce the underlyingannual decline rate in doorstep to below 8%. Operationally the businesscontinues to deliver industry leading productivity ratios. We have continued tofocus on increasing sales of non-milk products such as juice and othergroceries, which grew by 33% year on year. We again had a successful Christmas,which is a key trading period for non-milk products. The middle ground market,which includes smaller retailers, schools, hotels and hospitals, remains verycompetitive. Following the Express Dairies transaction Dairy Crest has a doorstep customerbase of approaching 1.6 million households supplied via its unique deliverynetwork. We have been reviewing a number of new proposals to maximise theopportunity that this customer base represents. To that effect, in the next fewweeks we expect to commence the trial of a number of new service initiatives inselected depots within our network. Financial review Overview This has been a year of significant change for the Group driven by strategiccorporate activity. The Group's quality of earnings have been improved by theacquisition of St Hubert, a 100% branded spreads business in France, and thesale of our retailer-branded cheese business. The size of our household businesshas increased significantly following the acquisition of Express Dairies inAugust 2006. This gives the Group a doorstep base approaching 1.6 million homesand allows significant synergy savings to be realised. Revenue Reported Group revenue from continuing activities increased by 12.8% to £1,309million, principally reflecting the acquisitions of Express Dairies in August2006 and St Hubert in January 2007. Revenue from continuing activities excludesrevenue from the retailer-branded cheese business disposed of in October 2006.Group revenue, including our share of joint ventures, increased by 12.0% to£1,378 million as revenue from Yoplait Dairy Crest, our principal joint venture,was broadly flat during the year. Profit on operations In this review, except where otherwise indicated, profit on operations is fromcontinuing operations, includes our share of joint ventures' pre-exceptionaloperating profit and is stated before exceptional items and amortisation ofacquired intangibles. On this basis, Group profit on operations increased by13.8% to £90.0 million, generating an operating margin of 6.5%. Reported profiton operations from continuing operations after exceptional items was £66.9million (2006: £45.6 million) an increase of 46.7%. The Dairies division has increased profit on operations by 52% to £27.1 millionprimarily due to the impact of the acquisition of Express Dairies on ourHousehold business and an ongoing improvement in liquid milk profits throughcontinued volume growth with major retailers and efficiency and cost savings.Dairies margins of 2.9% compare with 2.2% in 2005/06. The Foods division'sprofit on operations of £62.9 million, an increase of 2.6%, reflects a strongperformance from our branded cheese business and the impact of St Hubert in thefinal quarter, partly offset by a weaker UK spreads result. Operating margins inthe Foods division decreased from 14.8% to 14.0%. Exceptional items Exceptional items of £10.1 million represent acquisition integration costs forthe Express Dairies businesses acquired of £3.4 million, an impairment chargeagainst the carrying value of the assets of our speciality cheese business of£7.0 million and a post-tax profit of £0.3 million on our share of a disposal ofa Yoplait Dairy Crest closed production site. Integration costs of £3.4 million were incurred in relation to the acquisitionof the Express Dairies businesses in August 2006. This charge includes £1.2million of redundancy costs and £2.2 million of other rationalisation costs. Theintegration of Express Dairies into our existing household business isprogressing in line with our original timetable. Total costs of integrating thebusiness across 2006/07 and 2007/08 are expected to be approximately £10million. Significant synergy benefits have been realised and the full yearimpact of these in 2007/08 is in line with our original estimates. A recovery plan for our speciality cheese business is ongoing, however, themarket remains challenging and the impact of cost saving measures and newproduct development is below expectations. Following the annual review of cashgenerating units' value in use, a further impairment of £7.0 million has beenrecorded against the carrying value of property, plant and equipment of thisbusiness. We continue to take actions to improve the efficiency andprofitability of our speciality cheese business but the Stilton market inparticular continues to be challenging. These market pressures inevitably impactthe cash generating capacity of this business. The carrying value of theseassets will continue to be reviewed annually although no further impairment isexpected. A profit of £0.3million has been recognised as the Group's share of the post-taxprofit on disposal of a closed Yoplait Dairy Crest production site in Yeovil. Discontinued operations The results of our retailer branded cheese business, sold on 14 October 2006,have been disclosed as discontinued. This business was break-even in the periodto disposal. In addition, the post-tax loss of £4.1 million on the disposal ofthis business has been included as an exceptional item in discontinuedoperations. Disposal consideration amounted to £58.3 million after acquiring theminority interest in Haverfordwest Cheese Limited pre-completion. The reportedpre-tax loss on disposal of £8.6 million is after certain disposal-related costsand a goodwill write-down of £2.0 million. In addition, a pension curtailmentgain of £4.1 million was recognised on disposal. This disposal increases theproportion of branded profit and revenue for the Group and improves the qualityof earnings going forward. Interest Finance charges have increased by 15.0% to £19.2 million as a result ofincreased levels of net debt during the year predominantly due to the cost ofacquisitions. Other finance income comprises the net expected return on pension scheme assetsafter deducting the interest cost of the defined benefit obligation. Thisresulted in a credit of £9.5 million in the year ended 31 March 2007, anincrease of £7.3m compared to the previous year. Interest cover excluding the pension interest credit, calculated on adjustedprofit from operations, remains comfortable, at 4.7 times (2006: 4.7 times). Adjusted profit before tax The Group's adjusted profit before tax (calculated on continuing operations,before exceptional items, amortisation of acquired intangibles and taxattributable to joint ventures) was £80.5 million (2006: £64.8 million). Profitbefore tax from continuing operations after exceptional items, reported underIFRS, was £64.6 million (2006: £38.4 million). Taxation The Group's effective tax rate on profits excluding exceptional items andincluding joint ventures' tax was 22.6% (2006: 23.8%). The effective tax rate isbelow the UK statutory rate of corporation tax largely due to the profit ondepot disposals being sheltered by brought forward capital losses and therelease of certain tax provisions that were previously held pending thefinalisation of a number of open prior year assessments. Earnings per share The Group's adjusted basic earnings per share increased by 25.8% to 48.7 penceper share (2006: 38.7 pence per share). Basic earnings per share from continuingoperations, which includes the impact of exceptional items and the amortisationof acquired intangibles, increased by 63.5% to 41.7 pence per share (2006: 25.5pence per share). The weighted average number of shares increased by approximately 2.4 million to127.2 million, primarily due to the issue of 6.25 million shares in November2006 in order to part-fund the acquisition of St Hubert. A diluted earnings pershare calculation, which reflects the impact of potential ordinary shares fromunvested share option schemes, is presented for both the basic and adjustedearnings per share amounts. Dividends The proposed final dividend of 16.2 pence per share, together with the interimdividend of 6.7 pence per share gives a total dividend of 22.9 pence per sharefor the full year. This represents an increase of 6.5% on the dividend declaredfor 2005/06. Under IFRS, proposed final dividends are not provided for at the year end and assuch, have been included as a memorandum item only below the consolidated incomestatement. Pensions The total pension deficit at 31 March 2007 was £0.4 million compared to £62.0million at 31 March 2006. The reduced deficit reflects strong performance fromthe fund's investments, which, due to the 60% equity weighting and strongworldwide equity returns, increased by £65.9 million during the year. Inaddition corporate bond yields are higher than last year which has offset anyincrease in scheme liabilities due to additional service liabilities.Furthermore, the Group made additional contributions of £17 million to thepension scheme during the year ended 31 March 2007 comprising an agreedcontribution of £1 million per month and a one-off payment upon completion ofthe retailer-branded cheese disposal of £5 million. The Group has committed tomake a further £12 million of additional pension contributions in 2007/08. The reported pension deficit is extremely sensitive to changes in underlyingassumptions and will, inevitably, be volatile from year to year. Increasing bondyields along with the continued strong UK equity performance have reduced thepension deficit significantly during the last quarter. The actuarial gainreported in equity for the year is £32.8 million (2006: £37.2 million). In July 2005 the Group announced that it would be closing its final salarypension scheme to new employees joining after 1 April 2006. Followingdiscussions with employees representatives, the date was amended to 1 July 2006. The Dairy Crest defined benefit scheme is subject to a full actuarial valuationat 31 March 2007. Work has commenced and the results are expected during theyear ended 31 March 2008. Cash flow Cash inflow from operating activities was £94.2 million in the year (2006: £73.4million). This includes a working capital outflow of £2.8 million (2006: £16.3million outflow). The lower working capital outflow in 2006/07 is principallydue to the build up in cheese inventories that occurred during 2005/06. Cash interest and tax payments amounted to £15.3 million and £6.1 millionrespectively. Interest payments are £1.1 million lower than last year despiteincreased levels of net debt. This reflects the fact that interest payments onthe US loan notes issued in April 2006 are payable every six months andtherefore only one cash interest payment was made in the year ended 31 March2007. Tax payments are £9.4 million lower than last year due principally to lowpayments on account in the first half of the year in relation to 2005/06 and thesettlement of certain outstanding items with HMRC resulting in a cash receipt. Capital expenditure, net of grants of £1.1 million, was £36.3 million (2006:£44.0 million) with significant investment undertaken at Crudgington to improvefacilities and support new product development, at Foston to further develop thesite post the 2005/06 acquisition and on the implementation of new manufacturingand order management software across the Group. Cash receipts from the disposalof fixed assets amounted to £9.7 million (2006: £9.4 million). Cash outflows from purchase of businesses amounted to £293.3 million in the year(2006: £43.7 million). In August 2006, the Group acquired the Express Dairiesdepot operations and factories at Liverpool and Nottingham from Arla Foods plcfor net consideration of £41.3 million. In January 2007 the Group purchased StHubert SAS and its wholly owned Italian subsidiary from Uniq plc for netconsideration of £250.2 million (net of cash acquired). In addition, the Groupacquired the goodwill of a small number of bottled milk buyers during the year. The Group received £8.9 million in dividends from Yoplait Dairy Crest in theyear (2006: £9.0million) and paid dividends to shareholders of £27.7 million(2006: £25.6 million). Net borrowings Net debt increased by £170.8 million to £451.0 million at the end of the yeardue to the cost of acquisitions. The impact of these acquisitions was offset bythe disposal of the substantial majority of our retailer brand cheese operationsfor £58.3 million and robust cash flow from operations. Net debt is defined suchthat, where cross currency swaps are used as cash flow hedges to fix theinterest and principal payments on foreign currency debt, the swapped Sterlingliability is included rather than the retranslated foreign currency debt. In November 2006 the Group signed a new £200 million multi-currency revolvingcredit facility in order to fund the acquisition of St Hubert. This facility wassplit into a £100 million 5 year facility and a £100 million 364-day facilitywith term-out options. The 364-day facility was repaid on 5 April 2007 out ofproceeds from a further issue of loan notes in the US. At 31 March 2007, gearing(being the ratio of net debt to shareholders' funds) was 131% (2006: 109%). Borrowing facilities Group borrowing facilities at 31 March 2007 amounted to £655 million andcomprised term loans of £45 million, multi-currency revolving credit facilitiesof £450 million, loan notes of £143 million and finance lease debt of £17million. During the year all amounts outstanding on the September 2002 term loanwere repaid. 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 interestrate on the combined issue is 4.9%. On completion of this transaction andsubsequent repayment of certain revolving credit facilities of £100 million,Group long-term borrowing facilities, including finance leases, total £667million. Treasury policies The Group operates a centralised treasury function, which controls cashmanagement and borrowings and the Group's financial risks. The main treasuryrisks faced by the Group are liquidity, interest rates and foreign currency. TheGroup uses derivatives only to manage its foreign currency and interest raterisks arising from underlying business and financing activities. Transactions ofa speculative nature are prohibited. The Group's treasury activities aregoverned by policies approved and monitored by the Board. Net Assets Group net assets total £343.1 million (2006: £258.0 million). Goodwill,intangible assets and property, plant and equipment total £764.1 million (2006:£465.8 million). Stocks of £147.5 million are £45.1 million lower than prioryear reflecting the disposal of our retailer-branded cheese business. Going concern The financial statements have been prepared on a going concern basis as thedirectors are satisfied that the Group has adequate financial resources tocontinue its operations for the foreseeable future. In making this statement,the Group's directors have reviewed the Group budget and available facilitiesand have made such other enquiries as they considered appropriate. Alastair MurrayFinance Director21 May 2007 Consolidated income statementYear ended 31 March 2007 Year ended 31 March 2007 Year ended 31 March 2006 _______________________________________ _______________________________________ Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total Note £m £m £m £m £m £m_______________________________________ _______________________________________ _______________________________________Group revenue from continuing operations 2 1,309.3 - 1,309.3 1,161.0 - 1,161.0 Operating costs 3 (1,238.8) (10.4) (1,249.2) (1,098.3) (24.6) (1,122.9) Other income 4 6.8 - 6.8 6.1 1.4 7.5_______________________________________ _______________________________________ _______________________________________Profit on operations from continuing operations 2 77.3 (10.4) 66.9 68.8 (23.2) 45.6 Finance costs 6 (19.2) - (19.2) (16.7) - (16.7) Other finance income - pensions 6 9.5 - 9.5 2.2 - 2.2 Share of joint ventures' net profit 7.1 0.3 7.4 6.5 0.8 7.3_______________________________________ _______________________________________ _______________________________________Profit from continuing operations before tax 74.7 (10.1) 64.6 60.8 (22.4) 38.4 Tax expense 7 (14.5) 3.2 (11.3) (12.2) 6.6 (5.6)_______________________________________ _______________________________________ _______________________________________Group profit for the year fromcontinuing operations 60.2 (6.9) 53.3 48.6 (15.8) 32.8(Loss) / profit for the year fromdiscontinued operations 9 - (4.1) (4.1) 2.0 - 2.0_______________________________________ _______________________________________ _______________________________________Group profit for the year 60.2 (11.0) 49.2 50.6 (15.8) 34.8_______________________________________ _______________________________________ _______________________________________ Profit attributable to equity shareholders 60.0 (11.0) 49.0 49.6 (15.8) 33.8 Profit attributable to minority interests 0.2 - 0.2 1.0 - 1.0_______________________________________ _______________________________________ _______________________________________ Group profit for the year 60.2 (11.0) 49.2 50.6 (15.8) 34.8_______________________________________ _______________________________________ _______________________________________ _______________________________________________________________________________________________________________________Earnings per share - continuing operationsBasic earnings per share from continuing operations (p) 10 41.7 25.5Diluted earnings per share from continuing operations (p) 10 41.4 25.4Adjusted basic earnings per share from continuing operations (p) * 10 48.7 38.7Adjusted diluted earnings per share from continuing operations (p) * 10 48.2 38.6Earnings per shareBasic earnings per share on profit for the year (p) 10 38.5 27.1Diluted earnings per share on profit for the period (p) 10 38.2 27.0_______________________________________________________________________________________________________________________ _______________________________________________________________________________________________________________________ DividendsProposed final dividend (£m) 8 21.4 19.0Interim dividend paid (£m) 8 8.8 7.9Proposed final dividend (p) 8 16.2 15.2Interim dividend paid (p) 8 6.7 6.3_______________________________________________________________________________________________________________________ * Adjusted earnings per share calculations are based on continuing operations and exclude exceptional items and amortisation of acquired intangibles (see Note 10). In order to provide a trend measure of underlying performance, profit before tax is adjusted for items which management consider will distort comparability as a result of specific accounting treatments. _______________________________________________________________________________________________________________________ Adjusted Group profit before tax:Profit from continuing operations before tax 74.7 (10.1) 64.6 60.8 (22.4) 38.4Amortisation of acquired intangibles 12 2.7 - 2.7 1.0 - 1.0Share of joint ventures' tax charge 3.1 0.1 3.2 3.0 0.2 3.2_______________________________________ _______________________________________ _______________________________________Adjusted Group profit before tax 80.5 (10.0) 70.5 64.8 (22.2) 42.6_______________________________________ _______________________________________ _______________________________________ Consolidated balance sheetAs at 31 March 2007 Consolidated _____________________ 2007 2006 Note £m £m__________________________________________________________________________ _________ _________ASSETSNon-current assetsProperty, plant and equipment 329.4 330.2Goodwill 11 283.2 131.1Intangible assets 12 151.5 4.5Investment in joint ventures using equity method 3.7 4.3Deferred tax asset 7 1.8 -Financial assets - Derivative financial instruments 0.1 -__________________________________________________________________________ _________ _________ 769.7 470.1__________________________________________________________________________ _________ _________ Current assetsInventories 147.5 192.6Trade and other receivables 158.0 142.8Financial assets - Derivative financial instruments 0.3 0.3Cash and cash equivalents 18 24.9 14.4__________________________________________________________________________ _________ _________ 330.7 350.1__________________________________________________________________________ _________ _________Total assets 2 1,100.4 820.2__________________________________________________________________________ _________ _________ EQUITY AND LIABILITIESNon-current liabilitiesFinancial liabilities - Long-term borrowings (339.9) (253.8) - Derivative financial instruments (7.9) (0.1)Retirement benefit obligations 14 (0.4) (62.0)Deferred tax liability 7 (82.4) (13.6)Deferred income (9.6) (10.4)__________________________________________________________________________ _________ _________ (440.2) (339.9)__________________________________________________________________________ _________ _________ Current liabilitiesTrade and other payables (189.9) (173.3)Financial liabilities - Short-term borrowings (121.7) (40.8) - Derivative financial instruments (0.3) (0.2)Current tax liability (4.5) (6.8)Deferred income (0.7) (1.2)__________________________________________________________________________ _________ _________ (317.1) (222.3)__________________________________________________________________________ _________ _________Total liabilities 2 (757.3) (562.2)__________________________________________________________________________ _________ _________ Shareholders' equityOrdinary shares 15 (33.1) (31.3)Share premium 16 (66.7) (28.8)Interest in ESOP 16 1.2 1.5Other reserves 16 (60.4) (55.8)Retained earnings 16 (180.1) (132.8)__________________________________________________________________________ _________ _________Total shareholders' equity (339.1) (247.2)Minority interests 16 (4.0) (10.8)__________________________________________________________________________ _________ _________Total equity (343.1) (258.0)__________________________________________________________________________ _________ _________Total equity and liabilities (1,100.4) (820.2)__________________________________________________________________________ _________ _________ Consolidated statement of recognised income and expenseYear ended 31 March 2007 2007 2006 Note £m £m______________________________________________________________________________________ _________ _________Income and expense recognised directly inequityActuarial gains 14 32.8 37.2Exchange differences on foreign currency net investments 2.7 -Exchange differences on foreign currency borrowings (2.7) -Cash flow hedges - transferred to income statement 14.3 (0.1)Cash flow hedges - losses deferred in equity (7.8) (0.2)Share of joint ventures' income recognised in equity 0.6 0.3Tax on items taken directly to equity 7 (11.0) (11.1)______________________________________________________________________________________ _________ _________Net income recognised directly in equity 28.9 26.1Profit for the year 49.2 34.8______________________________________________________________________________________ _________ _________Total recognised income and expense for the year 16 78.1 60.9______________________________________________________________________________________ _________ _________ Attributable to equity shareholders 16 78.0 59.9Attributable to minority interests 16 0.1 1.0______________________________________________________________________________________ _________ _________ The net gain on cash flow hedges on first-time adoption of IAS 39 was £0.3m with no impact onminority interests. Consolidated cash flow statementYear ended 31 March 2007 Consolidated ___________________________ Year ended Year ended 31 March 31 March 2007 2006 Note £m £m_______________________________________________________________________________________ _____________ ___________Cash generated from operations 17 94.2 73.4Interest paid (15.3) (16.4)Taxation paid (6.1) (15.5)_______________________________________________________________________________________ _____________ ___________Net cash flow from operating activities 72.8 41.5_______________________________________________________________________________________ _____________ ___________Cash flow from investing activitiesPayments to acquire property, plant and equipment (37.4) (44.3)Grants received 1.1 0.3Proceeds from disposal of property, plant and equipment 9.7 9.4Purchase of businesses (net of cash and debt acquired) 13 (293.3) (43.7)Sale of business 9 58.3 -Dividends received from joint ventures 8.9 9.0_______________________________________________________________________________________ _____________ ___________Net cash used in investing activities (252.7) (69.3)_______________________________________________________________________________________ _____________ ___________Cash flow from financing activitiesRepayment of term loans (90.0) (65.0)New facilities advanced 343.0 -Net (repayment) / advance under credit facilities (73.8) 105.1Dividends paid 8 (27.7) (25.6)Proceeds from issue of shares (net of issue costs) 16 39.7 0.7Finance lease repayments (0.8) (0.2)_______________________________________________________________________________________ _____________ ___________Net cash used in financing activities 190.4 15.0_______________________________________________________________________________________ _____________ ___________Net increase / (decrease) in cash and cash equivalents 10.5 (12.8)_______________________________________________________________________________________ _____________ ___________Cash and cash equivalents at beginning of year 18 14.4 27.2_______________________________________________________________________________________ _____________ ___________Cash and cash equivalents at end of year 18 24.9 14.4_______________________________________________________________________________________ _____________ ___________Memo: Net debt at end of year 18 (451.0) (280.2) The Preliminary Report for the year ended 31 March 2007 was approved by theDirectors on 21 May 2007. 1 Basis of preparation The consolidated financial statements have been prepared in accordance withInternational Financial Reporting Standards ('IFRS') and International FinancialReporting Interpretation Committee ('IFRIC') interpretations as endorsed by theEuropean Union, and those parts of the Companies Act 1985 applicable tocompanies reporting under IFRS. The financial information set out in this document does not constitute thestatutory accounts of the Group for the year ended 31 March 2007 but is derivedfrom the 2007 Annual Report and Financial Statements. The Group Annual Reportand Financial Statements for 2007 will be delivered to the Registrar ofCompanies in due course. The auditors have reported on those accounts and havegiven an unqualified report which does not contain a statement under Section 237(2) or (3) of the Companies Act 1985. 2 Segmental information The primary segment reporting format is determined to be business segments asthe Group's risks and rates of return are affected predominantly by differencesin the products produced. The Group is segmented into two divisions, Foods andDairies according to the nature of the products sold and markets serviced. TheFoods segment comprises predominantly branded cheese and spreads sold throughmajor retailers. It includes both the UK Spreads business and the St Hubertbusiness acquired in January 2007 since both supply similar product to similarmarkets using the same production and distribution methods. The Dairies segmentcomprises predominantly liquid milk sales through major retailers, middle groundor doorstep. The Household business is included within the Dairies segment asits operations are mutually interdependent with the liquid milk business.Inter-segment sales are not material. All revenue is derived from the sale ofgoods. The Group's geographical segments are based on the location of the Group'sassets. The Group has two geographical segments being 'UK and Ireland' and 'Restof world'. The Wexford business, based in Ireland, generates the majority of itsrevenue from sales into the UK and operates under similar economic and politicalconditions to the UK. As a result, the UK and Ireland businesses have beencombined into one geographical segment. Sales to 'Rest of world' disclosed ingeographical segments are based on the geographical location of customers. TheRest of world category comprises the St Hubert business and ingredients andfinished goods exports from the UK. Primary segment analysis: Business 2007 2006 Continuing Discontinued Continuing Discontinued ___________________________ ______________ ___________________________ _____________ Foods Dairies Total Foods Foods Dairies Total Foods £m £m £m £m £m £m £m £m________________________________ ___________________________ ______________ ___________________________ _____________Revenue and resultsSegmental revenue -continuing operations 381.3 928.0 1,309.3 104.3 345.3 815.7 1,161.0 194.2________________________________ ___________________________ ______________ ___________________________ _____________Segmental results (beforeexceptional items) 51.8 25.5 77.3 - 52.0 16.8 68.8 2.9Exceptional items (7.0) (3.4) (10.4) (4.5) (9.3) (13.9) (23.2) -________________________________ ___________________________ ______________ ___________________________ _____________Segmental result 44.8 22.1 66.9 (4.5) 42.7 2.9 45.6 2.9 _________________ _________________Finance costs (19.2) - (16.7) -Other finance income - pensions 9.5 - 2.2 -Share of joint ventures' net profit (Foods) 7.4 - 7.3 -________________________________ _________ ______________ _________ _____________Profit before tax 64.6 (4.5) 38.4 2.9Tax (expense) / relief (11.3) 0.4 (5.6) (0.9)________________________________ _________ ______________ _________ _____________Profit for the year 53.3 (4.1) 32.8 2.0________________________________ _________ ______________ _________ _____________Assets and liabilitiesSegment assets 666.0 403.6 1,069.6 362.4 364.9 727.3 73.9Investment in joint ventures 3.7 - 3.7 4.3 - 4.3 - ___________________________ ___________________________ _____________ 669.7 403.6 1,073.3 366.7 364.9 731.6 73.9 _________________ _________________Unallocated assets 27.1 14.7 -________________________________ _________ _________ _____________Total assets 1,100.4 746.3 73.9________________________________ _________ _________ _____________ Segment liabilities (75.4) (124.8) (200.2) (67.7) (115.6) (183.3) (1.6) _________________ _________________Unallocated liabilities (557.1) (377.3) -________________________________ _________ _________ _____________Total liabilities (757.3) (560.6) (1.6)________________________________ _________ _________ _____________ Segment assets consist primarily of property, plant and equipment, goodwill,intangible assets, inventories and receivables. They exclude deferred taxation,cash and cash equivalents and derivatives held as hedges of borrowings. Segmentliabilities comprise operating liabilities. They exclude taxation, retirementbenefit obligations, borrowings and related hedges. 2007 2006 Foods Dairies Total Foods Dairies Total £m £m £m £m £m £m_______________________________________ _______ _________ ________ ________ _________ ________Other segment informationCapital expenditure:Property, plant and equipment 17.5 19.1 36.6 16.6 25.3 41.9Intangible assets - - - 1.0 1.1 2.1Acquisition of property, plant & equipment 4.8 31.9 36.7 - 18.8 18.8Acquisition of intangible assets 148.3 - 148.3 - 3.6 3.6Depreciation 14.2 26.4 40.6 16.5 21.8 38.3Amortisation of intangible assets 1.3 1.8 3.1 0.1 1.1 1.2Impairment of non-current assets 7.4 - 7.4 10.3 - 10.3_______________________________________ _______ _________ ________ ________ _________ ________ Year ended 31 March 2007 Year ended 31 March 2006 ______________________________ _______________________________Additional analysis Foods Dairies Total Foods Dairies Total £m £m £m £m £m £m_____________________________________ ______________________________ _______________________________Adjusted revenue *Group 381.3 928.0 1,309.3 345.3 815.7 1,161.0Share of joint ventures 68.5 - 68.5 69.0 - 69.0_____________________________________ ______________________________ _______________________________Including share of joint ventures 449.8 928.0 1,377.8 414.3 815.7 1,230.0_____________________________________ ______________________________ _______________________________ Adjusted profit on operations *Profit on operations (beforeexceptional items) 51.8 25.5 77.3 52.0 16.8 68.8Share of joint ventures (beforeexceptional items) 10.0 - 10.0 9.3 - 9.3Acquired intangible amortisation 1.1 1.6 2.7 - 1.0 1.0_____________________________________ ______________________________ _______________________________Including share of joint ventures 62.9 27.1 90.0 61.3 17.8 79.1_____________________________________ ______________________________ _______________________________ * From continuing operations, including share of joint ventures and before exceptional items andamortisation of acquired intangibles. Secondary segment analysis: Geographical(i) Analysis of Group revenue from continuing operations by destination Year Year ended ended 31 March 31 March 2007 2006 £m £m___________________________________________________________________ __________ __________UK and Ireland 1,229.3 1,084.6Rest of world 80.0 76.4___________________________________________________________________ __________ __________Group revenue 1,309.3 1,161.0___________________________________________________________________ __________ __________ (ii) Analysis of assets and capital expenditure Year Year ended ended 31 March 31 March 2007 2006 £m £m___________________________________________________________________ __________ __________Segment assets (based on location of assets)UK and Ireland 752.7 801.2Rest of world 316.9 -___________________________________________________________________ __________ __________ 1,069.6 801.2Investment in joint ventures 3.7 4.3Unallocated assets 27.1 14.7___________________________________________________________________ __________ __________ 1,100.4 820.2 Segment capital expenditure (based on location of assets)UK and Ireland 36.4 44.0Rest of world 0.2 -___________________________________________________________________ __________ __________ 36.6 44.0___________________________________________________________________ __________ __________ 3 Operating costs Year ended 31 March 2007 Year ended 31 March 2006 _______________________________________ _______________________________________ Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total £m £m £m £m £m £m_______________________________ _______________________________________ _______________________________________Cost of sales 898.3 10.4 908.7 820.4 22.3 842.7Distribution costs 257.8 - 257.8 215.7 - 215.7Administrative expenses 82.7 - 82.7 62.2 2.3 64.5_______________________________ _______________________________________ _______________________________________Continuing operations 1,238.8 10.4 1,249.2 1,098.3 24.6 1,122.9Discontinued operations 104.3 - 104.3 191.3 - 191.3_______________________________ _______________________________________ _______________________________________Group 1,343.1 10.4 1,353.5 1,289.6 24.6 1,314.2_______________________________ _______________________________________ _______________________________________ 4 Other income - continuing operations Year ended 31 March 2007 Year ended 31 March 2006 _______________________________________ _______________________________________ Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total £m £m £m £m £m £m_______________________________ _______________________________________ _______________________________________Profit on disposal of household depots 6.8 - 6.8 6.1 - 6.1Profit on disposal of closed sites (Note 5) - - - - 1.4 1.4_______________________________ _______________________________________ _______________________________________ 6.8 - 6.8 6.1 1.4 7.5_______________________________ _______________________________________ _______________________________________ The Group continues to rationalise its household operations as a result of theongoing decline in doorstep volumes. This rationalisation includes the closureof certain depots (the profit on which is shown above), acquisition of smallinfill dairy businesses and rationalisation of the ongoing household operations.These activities represent a fundamental part of the ongoing ordinary activitiesof the household operations. 5 Exceptional items Year Year ended ended 31 March 31 March 2007 2006 £m £m_________________________________________________________________________ __________ __________Fixed asset write-downs - (1.0)Redundancy costs (1.2) (5.1)Duplicate running costs (0.4) (4.5)Other rationalisation costs (1.8) (4.7)_________________________________________________________________________ __________ __________Restructuring costs (3.4) (15.3)Impairment of assets (7.0) (9.3)Profit on disposal of closed sites - 1.4_________________________________________________________________________ __________ __________ (10.4) (23.2)Share of joint ventures' exceptional items (after tax) 0.3 0.8Tax on exceptional items 3.2 6.6Discontinued exceptional item (after tax) (4.1) -_________________________________________________________________________ __________ __________ (11.0) (15.8)_________________________________________________________________________ __________ __________ 2007 Restructuring costs in the year ended 31 March 2007 related to the Dairiessegment and represented costs of restructuring the Express Dairies depotoperations and the Liverpool and Nottingham dairies of Arla Foods UK Limited,which were acquired on 19 August 2006. These costs principally related toclosing the acquired business' head office in Leicester (due to be completed byDecember 2007) and duplicate running costs while those operations aretransferred to Aldershot, the head office of the Household business. Furtherrestructuring costs of approximately £7m are expected to be incurred in the yearending 31 March 2008. Cash costs incurred in the year ended 31 March 2007amounted to £3.1m. A review of the value in use of the assets of the speciality cheese business(part of the Foods segment) has resulted in an impairment of property, plant andequipment of £7.0m. The Group's share of joint ventures' exceptional items, after tax, amounted to£0.3m in the year ended 31 March 2007 and related to a profit on disposal of theclosed factory site in Yeovil. Discontinued exceptional items in the year ended 31 March 2007 comprise thepost-tax loss on the disposal of the retailer brand cheese operations to FirstMilk Limited (see Note 9). This is analysed as follows: Year ended 31 March 2007 £m________________________________________________________________________________ ____________Proceeds from sale 67.5 Book value of assets disposed: goodwill (2.0) property, plant and equipment (23.2) inventories (49.9) grants 1.6 other working capital 1.2____________________________________________________________________________________________________________ (4.8)Other separation costs and fees (3.8)________________________________________________________________________________ ____________Loss on disposal before tax (8.6)Curtailment gain on pension scheme 4.1 Tax relief on exceptional item 0.4________________________________________________________________________________ ____________ (4.1)________________________________________________________________________________ ____________ 2006 Restructuring costs in the year ended 31 March 2006 related to the Dairies segment and represented costs of: (i) integrating the acquisition of the dairy business of the Midlands Co-Operative Society into the Group. The integration resulted in an exceptional cost of £12.7m, being £3.5m of redundancy costs, £1.0m of asset write-downs, £4.5m of duplicate running costs (as volume was transferred from the Birmingham dairy to other parts of the Group up to its closure in February 2006) and £3.7m of other rationalisation costs. (ii) integrating the Arla London Foodservice business into the Group which amounted to £2.6m, of which £1.6m related to redundancy costs and £1.0m related to other rationalisation costs. The cash cost of the exceptional items described above amounted to £14.3m in theyear ended 31 March 2006. These were all incurred in the Dairies segment. An impairment was recognised with respect to the carrying value of goodwill(£2.3m) and property, plant and equipment (£7.0m) of the Speciality Cheesebusiness. The profit on disposal of closed sites related to a surplus dairy in Newportwhich was sold in March 2006 for a consideration of £1.7m resulting in a profiton disposal of £1.4m. The Group's share of joint ventures' exceptional items, after tax, amounted to£0.8m in the year ended 31 March 2006 and related to a profit on disposal of aclosed factory in Enfield. 6 Finance costs and other finance income Finance costs Year Year ended ended 31 March 31 March 2007 2006 £m £m_________________________________________________________________________ __________ __________Bank loans and overdrafts (18.3) (15.8)Finance charges on finance leases (0.9) (0.9)_________________________________________________________________________ __________ __________Total finance costs (19.2) (16.7)_________________________________________________________________________ __________ __________ Other finance income - pensions Year Year ended ended 31 March 31 March 2007 2006 £m £m_________________________________________________________________________ __________ __________Expected return on plan assets 44.7 35.3Interest cost on defined benefit obligation (35.2) (33.1)_________________________________________________________________________ __________ __________ 9.5 2.2_________________________________________________________________________ __________ __________ Other finance income comprises the expected return on assets of funded definedbenefit pension schemes less the interest cost on pension scheme liabilities(see Note 14). 7 Taxation The major components of income tax expense for the years ended 31 March 2007 and 2006are: Year Year ended ended 31 March 31 March 2007 2006Consolidated income statement £m £m_________________________________________________________________________ __________ __________Current income taxCurrent income tax charge 5.5 7.9Adjustments in respect of previous years - current tax (3.4) (3.0) - transfer from / (to) deferred tax 1.0 (1.3)_________________________________________________________________________ __________ __________ 3.1 3.6Deferred income taxRelating to origination and reversal of temporary differences 8.8 1.6Transfer (to) / from current tax (1.0) 1.3_________________________________________________________________________ __________ __________ 10.9 6.5_________________________________________________________________________ __________ __________Analysed:From continuing operationsBefore exceptional items 14.5 12.2Exceptional items (3.2) (6.6)_________________________________________________________________________ __________ __________ 11.3 5.6_________________________________________________________________________ __________ __________From discontinued operationsBefore exceptional items - 0.9Exceptional items (0.4) -_________________________________________________________________________ __________ __________ (0.4) 0.9_________________________________________________________________________ __________ __________ 10.9 6.5_________________________________________________________________________ __________ __________ Reconciliation between tax expense and the profit before tax multiplied by the standard rate of corporation taxin the UK: Year Year ended ended 31 March 31 March 2007 2006 £m £m_________________________________________________________________________ __________ __________Profit before tax (including discontinued operations) 60.1 41.3Tax at UK statutory income tax rate of 30% (2006: 30%) 18.0 12.4Adjustments in respect of previous years (3.4) (3.0)Adjustment for overseas profits taxed at different rates (0.7) (0.3)Adjustment in respect of joint ventures' profits (2.4) (2.2)Non-deductible expenses 3.1 1.4Profits offset by available tax relief (3.7) (1.8)_________________________________________________________________________ __________ __________At the effective rate of 18.1% (2006: 15.7%) 10.9 6.5_________________________________________________________________________ __________ __________ The effective pre-exceptional rate of tax on Group profit before tax after adjusting for joint ventures' tax is22.6% (2006 - 23.8%). 2007 2006Consolidated statement of recognised income and expense £m £m_________________________________________________________________________ __________ __________Deferred income tax related to items charged / (credited) directly toequityShare based payments (0.6) (0.1)Tax on actuarial gains 9.7 11.2Valuation of financial instruments 1.9 -Income tax expense reported in equity - -_________________________________________________________________________ __________ __________ 11.0 11.1_________________________________________________________________________ __________ __________ Deferred income taxDeferred income tax at 31 March 2007 and 2006 relates to the following: 2007 2006Deferred tax liability £m £m_________________________________________________________________________ __________ __________Accelerated depreciation for tax purposes (33.2) (34.4)Goodwill and intangible assets (53.8) (2.9)Financial instrument valuation (2.0) -_________________________________________________________________________ __________ __________ (89.0) (37.3)_________________________________________________________________________ __________ __________ Deferred tax asset_________________________________________________________________________ __________ __________Pensions 0.8 18.6Government grants 3.0 3.3Share based payments 1.6 0.6Other 3.0 1.2_________________________________________________________________________ __________ __________ 8.4 23.7_________________________________________________________________________ __________ __________Net deferred tax liability (80.6) (13.6)_________________________________________________________________________ __________ __________Analysed: Net deferred tax assets (Ireland and France) 1.8 - Net deferred tax liabilities (UK) (82.4) (13.6)_________________________________________________________________________ __________ __________ The movement on the net deferred tax balance is shown below 2007 2006 £m £m_________________________________________________________________________ __________ __________Net deferred tax (liability) / asset (13.6) 0.4brought forwardCharge to income statement - continuing operations (8.1) (1.6) - discontinued operations (0.7) -Charge to equity (11.0) (11.1)Exchange impact (0.7) -Acquisition of businesses (47.5) -Adjustment to opening balances 1.0 (1.3)_________________________________________________________________________ __________ __________Closing net deferred tax liability (80.6) (13.6)_________________________________________________________________________ __________ __________ The gross movement on deferred tax assets and liabilities is shown below: Deferred Deferred tax liability tax asset _____________________________________ _____________ Accelerated Short-term Short-term tax timing timing depreciation differences Total differences £m £m £m £m____________________________________________________________ _____________________________________ _____________Balances at 31 March 2006 (34.4) (2.9) (37.3) 23.7Charge to income statement: - continuing operations 0.5 (1.3) (0.8) (7.3) - discontinued operations 0.5 - 0.5 (1.2)Charge to equity - (2.0) (2.0) (9.0)Exchange impact - (0.6) (0.6) -Acquisition of businesses * - (48.9) (48.9) 1.4Adjustment to opening balances 0.2 (0.1) 0.1 0.8 ____________________________________________________________ _____________________________________ _____________Balances at 31 March 2007 (33.2) (55.8) (89.0) 8.4____________________________________________________________ _____________________________________ _____________ * Adjusted for fair value movements as required by IFRS 3 Deferred Deferred tax liability tax asset _____________________________________ _____________ Accelerated Short-term Short-term tax timing timing depreciation differences Total differences £m £m £m £m____________________________________________________________ _____________________________________ _____________Balances at 31 March 2005 (33.7) - (33.7) 34.1Charge to income statement 0.4 (2.7) (2.3) 0.7Charge to equity - - - (11.1)Adjustment to opening balances (1.1) (0.2) (1.3) -____________________________________________________________ _____________________________________ _____________Balances at 31 March 2006 (34.4) (2.9) (37.3) 23.7____________________________________________________________ _____________________________________ _____________ 8 Dividends paid and proposed 2007 2006Declared and paid during the year £m £m_____________________________________________________________________________ ________ ________Equity dividends on ordinaryshares:Final dividend for 2006: 15.2 pence (2005: 14.3 pence) 18.9 17.7Interim dividend for 2007: 6.7 pence (2006: 6.3 pence) 8.8 7.9_____________________________________________________________________________ ________ ________ 27.7 25.6_____________________________________________________________________________ ________ ________ Proposed for approval at AGM (not recognised as a liability at 31 March)_____________________________________________________________________________ ________ ________Equity dividends on ordinaryshares:Final dividend for 2007: 16.2 pence (2006: 15.2 pence) 21.4 19.0_____________________________________________________________________________ ________ ________ 9 Discontinued operations On 14 October 2006, the Group completed the disposal of its retailer brandedcheese business to First Milk Limited. The disposal was announced on 26September 2006 and at the time of the interim accounts the assets to be disposedwere classified as 'disposal group held for sale' and the business wasdiscontinued. The disposal comprised a sale of assets and the Group's 20%minority interest in Haverfordwest Cheese Limited was purchased prior todisposal as part of the transaction. The post-tax results of this business andthe estimated loss on disposal have been disclosed as discontinued operations inthe consolidated income statement. Post tax result can be analysed as follows: Year Year ended ended 31 March 31 March 2007 2006 £m £m_________________________________________________________________________ __________ __________Revenue 104.3 194.2Operating costs (104.3) (191.3)_________________________________________________________________________ __________ __________Profit on operations - 2.9Tax at effective rate of 30% - (0.9)_________________________________________________________________________ __________ __________Profit after tax - 2.0_________________________________________________________________________ __________ __________ The loss on disposal is analysed in Note 5: Exceptional items. The cash flow on disposal can be analysed as follows: Year ended 31 March 2007 £m__________________________________________________________________________ _________Proceeds from disposal 67.5Acquisition of minority interest in Haverfordwest Cheese Limited prior to disposal (5.9)Dividend paid by Haverfordwest Cheese Limited prior to disposal (1.0)Professional fees and other separation costs (2.3)__________________________________________________________________________ _________ 58.3__________________________________________________________________________ _________ There were no significant cash flows from operating or financing activities in the period to 14 October 2006(2006: cash flow from operating activities £2.0m, cash flow from financing nil). 10 Earnings per share Basic earnings per share ('EPS') on profit for the year is calculated bydividing profit attributable to equity shareholders of the parent company by theweighted average number of ordinary shares outstanding during the year. Basic EPS on continuing operations is calculated on the basis of Group profitfor the year from continuing operations less profit attributable to minorityinterests divided by the weighted average number of ordinary shares outstandingduring the year. Diluted earnings per share amounts are calculated by dividing the profitattributable to equity shareholders of the parent company by the weightedaverage number of ordinary shares outstanding during the year plus the weightedaverage number of ordinary shares that would be issued on the conversion of allthe dilutive potential ordinary shares into ordinary shares. The shares held by the Dairy Crest Employees' Share Ownership Plan Trust('ESOP') are excluded from the weighted average number of shares in issue usedin the calculation of earnings per share. To show earnings per share on a consistent basis, which in the Directors'opinion reflects the ongoing performance of the business more appropriately,adjusted earnings per share have been calculated. The computation for basic anddiluted earnings per share (including adjusted earnings per share) are asfollows: Year ended 31 March 2007 Year ended 31 March 2006 ____________________________________ _________________________________ Weighted Weighted average Per average Per no of share no of share Earnings shares amount Earnings shares amount £m million pence £m million pence_________________________________________ ____________________________________ _________________________________Basic EPS on profit for the yearNet profit attributable to equity shareholders 49.0 127.2 38.5 33.8 124.8 27.1Effect of dilutive securities:Share options - 1.1 (0.3) - 0.4 (0.1)_________________________________________ ____________________________________ _________________________________Diluted EPS on profit for the year 49.0 128.3 38.2 33.8 125.2 27.0_________________________________________ ____________________________________ _________________________________Basic EPS from continuing operationsProfit from continuing operationsattributable to equity shareholders 53.1 127.2 41.7 31.8 124.8 25.5Effect of dilutive securities:Share options - 1.1 (0.3) - 0.4 (0.1)_________________________________________ ____________________________________ _________________________________Diluted EPS from continuing operations 53.1 128.3 41.4 31.8 125.2 25.4_________________________________________ ____________________________________ _________________________________Adjusted EPS from continuing operationsBasic EPS from continuing operations 53.1 127.2 41.7 31.8 124.8 25.5Exceptional items (net of tax) 7.2 - 5.7 16.6 - 13.3Amortisation of acquired intangible assets (net of tax) 1.9 - 1.5 0.7 - 0.5Joint ventures' exceptional items (net of tax) (0.3) - (0.2) (0.8) - (0.6)_________________________________________ ____________________________________ _________________________________Adjusted basic EPS from continuing operations 61.9 127.2 48.7 48.3 124.8 38.7_________________________________________ ____________________________________ _________________________________Effect of dilutive securities:Share options - 1.1 (0.5) - 0.4 (0.1)_________________________________________ ____________________________________ _________________________________Adjusted diluted EPS from continuing operations 61.9 128.3 48.2 48.3 125.2 38.6_________________________________________ ____________________________________ _________________________________ Basic and diluted losses per share from discontinued operations amount to 3.2pence (2006: 1.6 pence earnings). There have been no transactions involving ordinary shares or potential ordinaryshares between the reporting date and the date of completion of these financialstatements. 11 Goodwill Consolidated £m______________________________________________________________________ __________CostAt 1 April 2005 110.4Additions (Note 13) 23.0______________________________________________________________________ __________At 31 March 2006 133.4Additions (Note 13) 152.2Business disposal (Note 5) (2.0)Exchange 1.9______________________________________________________________________ __________At 31 March 2007 285.5______________________________________________________________________ __________ Accumulated impairmentAt 1 April 2005 -Impairment for the year ended 31 March 2006 (2.3)______________________________________________________________________ __________At 31 March 2006 and 2007 (2.3)______________________________________________________________________ __________Net book amount at 31 March 2007 283.2______________________________________________________________________ __________Net book amount at 31 March 2006 131.1______________________________________________________________________ __________ Impairment testing of goodwill Acquired goodwill has been allocated for impairment testing purposes to fivegroups of cash generating units ('CGUs'): Dairies, UK Spreads, St Hubert,Speciality Cheese and Cheese excluding Speciality Cheese. All CGUs are testedfor impairment annually by comparing the carrying amount of that CGU with itsrecoverable amount. Recoverable amount is determined based on a value-in-usecalculation using cash flow projections based on financial budgets and strategicplans approved by senior management covering a three-year period. The discountrate applied to the projections is 9.3% (2005: 8%) with the exception of StHubert which is 10.1%. The growth rate used to extrapolate cash flows beyond thethree-year period for 'UK Spreads', 'St Hubert' and 'Cheese excluding specialitycheese' is 2.5% pa (being the Euro-zone long-term growth rate). The growth rateused to extrapolate cash flows beyond the three-year period for the 'Dairies'CGU is 0%. The extrapolated growth rate for Dairies reflects the underlyingdecline in the doorstep business within the wider Dairies CGU. The carrying amount of goodwill allocated to CGUs at 31 March 2007 is: Dairies £64.3m (2006: £61.5m)UK Spreads £65.5m (2006: £65.5m)St Hubert £151.3m (2006: £Nil)Speciality cheese Nil (2006: £Nil)Cheese excluding speciality cheese £2.1m (2006: £4.1m) The key assumptions used in value-in-use calculations: Gross margin - budgeted gross margins are based initially on actual marginsachieved in the preceding year further adjusted for projected input and outputprice changes, volume changes, new initiatives and anticipated efficiencyimprovements. The budgeted margins form the basis for strategic plans, whichincorporate longer-term market trends. Gross margin percentages beyond threeyears are assumed to be constant. Discount rates - reflect management's estimate of the risk-adjusted weightedaverage cost of capital (WACC) for the Group. This is the benchmark usedinternally by management to assess operating performance and to evaluate futurecapital investment proposals. Raw materials prices - budgets are prepared using the most up to date marketprices and forecast price data available. The key resources are milk, vegetableoils, gas and electricity and packaging costs. Growth rate estimates - for periods beyond the length of the strategic plans,growth estimates are based upon published industry research adjusted downwardsto reflect the risk of extrapolating growth beyond a three year time frame. Forthe Household business within Dairies, long-term rates of market decline as seenover recent years have been extrapolated forward. The Directors consider the assumptions used to be consistent with the historicalperformance of each cash generating unit and to be realistically achievable inthe light of economic and industry measures and forecasts. Sensitivity to changes in assumptions With regard to the assessment of value in use of the 'Spreads', 'St Hubert' and'Cheese excluding Speciality Cheese' CGUs, management believes that noreasonably possible change in the above key assumptions would cause the carryingvalue of the unit to exceed its recoverable amount. For the Dairies CGU, there are reasonably possible changes in key assumptionswhich could cause the carrying value of the unit to exceed its recoverableamount. These are discussed as follows: Future growth rates: Management has assumed no growth after year five in thevalue in use calculation. Should any decline in the household business more thanoffset growth in the liquid products business, resulting in an overall rate ofdecline beyond year three, value in use for the CGU could be reduced to a valueapproximately equal to its carrying amount. Gross margins: Management has assumed stable gross margins after year three inthe value in use calculation. Should the margin percentage deteriorate, value inuse could be reduced towards a value approximately equal to its carrying amount. 12 Intangible assets Internally Acquired generated intangibles TotalConsolidated £m £m £m_________________________________________________________ ____________ ____________CostAt 1 April 2005 - - -Additions 2.1 - 2.1Acquisitions - 3.6 3.6_________________________________________________________ ____________ ____________At 31 March 2006 2.1 3.6 5.7Acquisitions - 148.3 148.3Exchange - 1.8 1.8_________________________________________________________ ____________ ____________At 31 March 2007 2.1 153.7 155.8_________________________________________________________ ____________ ____________Accumulated amortisationAt 1 April 2005 - - -Amortisation for the year 0.2 1.0 1.2_________________________________________________________ ____________ ____________At 31 March 2006 0.2 1.0 1.2Amortisation for the year 0.4 2.7 3.1Exchange - - -_________________________________________________________ ____________ ____________At 31 March 2007 0.6 3.7 4.3_________________________________________________________ ____________ ____________Net book amount at 31 March 2007 1.5 150.0 151.5_________________________________________________________ ____________ ____________Net book amount at 31 March 2006 1.9 2.6 4.5_________________________________________________________ ____________ ____________ The following useful lives have been determined for the intangible assetsacquired during the year: Computer software (internally generated) 5 years Acquired customer contracts (average duration) 3 years Acquired St Hubert brand 25 years Acquired Le Fleurier brand 15 years Acquired Valle brand 15 years On 16 January 2007 the Group acquired the entire share capital of St Hubert SAS.External valuers have analysed the intangible assets acquired and identified the 'St Hubert', 'Le Fleurier' and 'Valle' brands as having values of £127.5m, £12.7m and £6.7m respectively. On 1 October 2006 the Group acquired a three year cheese supply contract for atotal consideration of £1.4m. Customer contracts were acquired with the acquisition of the dairy business andassets of the Midland Co-operative Society in May 2005. Computer software represents expenditure incurred on a new financials softwarepackage implemented across the Group in the year ended 31 March 2006. The remaining amortisation life for computer software is 3.5 years and for acquired contracts is 1 - 3 years. 13 Business combinations On 16 January 2007 the Group acquired the entire share capital of St Hubert SAS,a branded French spreads company and its 100% owned subsidiary Uniq Foods ItaliaSrl for a consideration of £250.2m (net of cash on acquisition of £2.1m). Theprovisional fair value of the identifiable assets and liabilities of thebusiness at the date of acquisition was: Fair value Book to Group value £m £m_______________________________________________________________________ _________ _________Property, plant and equipment 4.8 4.8Intangible assets 146.9 -Deferred tax (47.5) 1.4Inventories 5.0 5.0Receivables 10.8 10.8Cash 2.1 2.1Payables (19.2) (19.2)_______________________________________________________________________ _________ _________Net assets 102.9 4.9 _________Goodwill 149.4_______________________________________________________________________ _________ Consideration 252.3_______________________________________________________________________ _________ Comprising: Cash consideration (Eur 370.4m) 248.5 Professional fees 3.8_______________________________________________________________________ _________ Provisional fair values for the assets and liabilities of St Hubert SAS havebeen used in order to calculate goodwill due to the proximity of the acquisitionto the 31 March 2007. Final valuation will take place during the period to 15January 2008. Fair value adjustments comprise the recognition of brands asintangible assets (see Note 12) and the related deferred tax liability. From the date of acquisition, St Hubert contributed £1.3m to Group profit forthe year. If the acquisition had occurred on 1 April 2006, the Group profit forthe year would have been £53.7m and revenue from continuing operations wouldhave been £1,359m. Included in the £149.4m of goodwill recognised above are certain intangibleassets that cannot be individually separated and reliably measured from theacquiree due to their nature. These items include customer loyalty, an assembledworkforce, technology, licence agreements and customer relationships. On 19 August 2006, the Group acquired the business and assets of the ExpressDairies depot operations and the Liverpool and Nottingham dairies from ArlaFoods UK plc for a total consideration of £41.3m (including working capital).The fair value of the assets acquired and the resulting goodwill can be analysedas follows: Fair value Book to Group value £m £m_______________________________________________________________________ _________ _________Property, plant and equipment 31.9 25.8Inventories 2.7 2.5Receivables 21.9 21.9Payables (17.3) (18.0)_______________________________________________________________________ _________ _________Net assets 39.2 32.2 _________Goodwill 2.1_______________________________________________________________________ _________ Consideration 41.3_______________________________________________________________________ _________ Comprising: Cash consideration 38.9 Issue of preference shares 0.2 Fees 2.2_______________________________________________________________________ _________ The trade and assets of the depot and dairies acquired from Arla Foods UK plcwere absorbed into the wider Household business within Dairy Crest Limited. As aresult, disclosure of the profit for the year to 31 March 2007 is impracticable.Similarly, it is impracticable to disclose what Group profit and revenue fromcontinuing operations would have been If the acquisition had occurred on 1 April2006. Fair value adjustments comprise an upward revaluation of land and buildingsbased on external valuations (£6.3m) a reclassification between property, plantand equipment and inventories (£0.2m) and an adjustment to accruals (£0.7m). During the year ended 31 March 2007, the Group acquired the goodwill of a numberof bottled milk buyers for cash consideration of £0.7m resulting in goodwill of£0.7m after accounting for the fair value of property, plant and equipmentacquired of nil (book value nil). During the year, the Group acquired cheese supply contracts for a considerationof £1.4m, of which £0.3m was deferred. No goodwill was recognised on thisacquisition (see Note 12). Included in goodwill for Express Dairies and the smaller bottled milk buyers arecertain intangible assets that cannot be separably identified and measured dueto their nature. These include acquired milk round lists and assembledworkforces. Management believes that goodwill represents value to the Group forwhich the recognition of a discrete intangible asset is not permitted. Themajority of the value was assessed to comprise of synergy benefits expected tobe achieved by merging the business acquired into the Group's existingoperations. During the year ended 31 March 2006, the Group acquired: The entire share capital of Starcross Foods Limited, a dairy in Foston,Derbyshire, for a consideration of £17.0m (including debt on acquisition of£9.1m). Goodwill arising on this acquisition amounted to £6.7m. The trade and assets of the Midlands Co-operative Society, for a cashconsideration of £20.3m. Goodwill arising on this acquisition amounted to£12.6m. The business and fixed assets of Arla's London Foodservice business, for a cashconsideration of £4.2m. Goodwill arising on this acquisition amounted to £1.6m. A number of bottled milk buyers for cash consideration of £2.2m resulting in goodwill of £2.1m. 14 Retirement benefit obligations The Group has two defined benefit pension plans, the Dairy Crest Group pensionfund and the Wexford Creamery pension fund, both of which require contributionsto be made to separately administered funds. The Dairy Crest Group pension fundwas closed for new employees joining after 1 Jujy 2006. Employees joining afterthis date are invited to join a Dairy Crest Group defined contribution plan.Yoplait Dairy Crest, a 49% owned joint venture, also has a defined benefitpension plan. The most recent full actuarial valuation of the Dairy Crest Grouppension fund was carried out as at 31 March 2004, by the fund's independentactuary, using the projected unit credit method. Full actuarial valuations arecarried out triennially and a full valuation is currently being undertaken for31 March 2007. The Group has charged Nil (2006 - £0.2m) in respect of a funded unapprovedretirement benefit scheme ('FURB') for a director whose benefits are restrictedby HMRC limits. Under this defined contribution scheme, 42.7% of salary wascontributed by the Group to his FURB in the year ended 31 March 2006. Total Group payments to defined contribution schemes in the year ended 31 March2007 were £0.4m (2006: nil). The following tables summarise the components of net benefit expense recognisedin the consolidated income statement and the funded status and amountsrecognised in the consolidated balance sheet for the defined benefit plans.These plans are all wholly or partly funded. Dairy Crest Group pension plans ______________________ 2007 2006Net benefit expense recognised in the consolidated income statement £m £m__________________________________________________________________________________ ________ ________Current service cost 19.4 16.7Curtailment gains (4.1) (0.7)Interest cost on benefit obligation 35.2 33.1Expected return on plan assets (44.7) (35.3)__________________________________________________________________________________ ________ ________Net benefit expense 5.8 13.8__________________________________________________________________________________ ________ ________ 2007 2006Net actuarial gain recognised in the statement of recognised income and expense £m £m__________________________________________________________________________________ ________ ________Actual return less expected return on pension scheme assets 2.7 86.9Experience gains arising on scheme liabilities 1.7 5.0Gain / (loss) arising from changes in assumptions underlying the present value of scheme liabilities 28.4 (54.7)__________________________________________________________________________________ ________ ________Net actuarial gain 32.8 37.2Related tax (9.7) (11.2)__________________________________________________________________________________ ________ ________Net actuarial gain recognised in the statement of recognised income and expense 23.1 26.0__________________________________________________________________________________ ________ ________Actual return on plan assets were £47.4m (2006: £122.2m) The cumulative amount of actuarial gains recognised in the statement ofrecognised income and expense since 1 April 2004 are £67.7m (2006: £34.9m, 2005:£2.3m). The directors are unable to determine how much of the pension schemedeficit recognised on transition to IFRS and taken directly to equity of £93.2mis attributable to actuarial gains and losses since inception of those pensionschemes. Consequently, the directors are unable to determine the amount ofactuarial gains and losses that would have been recognised in the Groupstatement of recognised income and expense before 1 April 2004. The experienceadjustment arising on pension scheme assets in the year ended 31 March 2005 was£21.0m gain and pension scheme liabilities was £2.3m loss. 2007 2006Defined benefit obligation £m £m__________________________________________________________________________ _________ _________Fair value of plan assets: - Equities 416.6 438.9 - Bonds and cash 245.8 160.3 - Property and other 29.4 26.7__________________________________________________________________________ _________ _________ 691.8 625.9Defined benefit obligation (692.2) (687.9)__________________________________________________________________________ _________ _________Net liability recognised in the balance sheet (0.4) (62.0)Related deferred tax asset 0.8 18.6__________________________________________________________________________ _________ _________Net pension liability 0.4 (43.4)__________________________________________________________________________ _________ _________ Scheme assets are stated at their market values at the respective balance sheetdates. The expected rate of return on equities of 8% reflects historic UK equityreturns and is within the range of assumptions typically used by companies of asimilar size. The expected rate of return on bonds of 5.3% is based upon thegross redemption yield available on a similar profile of gilts and corporatebonds. During the year ended 31 March 2007, in consultation with the Trustees,action was taken to reduce the allocation of equities and increase theallocation of bonds within overall plan assets. Included in the above analysis is the Wexford Creamery pension fund. The netbenefit expense in the year ended 31 March 2007 amounted to £0.3m (2006: £0.3m).The fair value of plan assets at 31 March 2007 was £8.1m (2006: £7.1m) and thedefined benefit obligation was £9.5m (2006: £9.4m) resulting in a scheme deficitof £1.4m (2006: £2.3m). Dairy Crest Group pension plans _________________________ 2007 2006Movement in the present value of the defined benefit obligation are as follows: £m £m__________________________________________________________________________________ ___________ ___________Opening defined benefit obligation (687.9) (602.2)Current service cost (19.4) (16.7)Curtailment gains 4.1 0.7Interest cost (35.2) (33.1)Contributions by plan participants (7.5) (7.1)Actuarial gains / (losses) 30.1 (49.7)Benefits paid 23.6 20.2__________________________________________________________________________________ ___________ ___________Closing defined benefit obligation (692.2) (687.9)__________________________________________________________________________________ ___________ ___________ Movement in the fair value of plan assets are as follows: Opening fair value of plan assets 625.9 499.5Expected return 44.7 35.3Actual less expected return 2.7 86.9Contributions by employer 34.6 17.3Contributions by employees 7.5 7.1Benefits paid (23.6) (20.2)__________________________________________________________________________________ ___________ ___________Closing fair value of plan assets 691.8 625.9__________________________________________________________________________________ ___________ ___________ The principal assumptions used in determining retirement benefit obligations for Dairy Crest Group's pensionfund are shown below: 2007 2006 % %__________________________________________________________________________________ ___________ ___________Key assumptions:Rate of increase in salaries 4.7 4.5Rate of increase in pensions in payment and deferred pensions (and price inflation) 3.2 3.0Average expected remaining life of a 65 year old non-retired male (years) 19.6 19.6Average expected remaining life of a 65 year old retired male (years) 18.6 18.6Average expected remaining life of a 65 year old non-retired female (years) 22.5 22.5Average expected remaining life of a 65 year old retired female (years) 21.5 21.5Discount rate 5.5 5.1Expected return: - Equities 8.0 8.0 - Bonds and cash 5.3 4.9 - Property and other 7.0 7.0__________________________________________________________________________________ ___________ ___________ The Group has charged £0.4m in respect of its defined contribution scheme in the year ended 31 March 2007 (2006:nil). 15 Share capital 2007 2006Authorised Thousands Thousands____________________________________________________________ __________ __________Ordinary shares of 25 pence each 240,000 240,000____________________________________________________________ __________ __________ Issued and fully paid Thousands £m____________________________________________________________ __________ __________At 1 April 2005 124,982 31.2Issued for cash on exercise of share options 205 0.1____________________________________________________________ __________ __________At 31 March 2006 125,187 31.3Equity placing in November 2006 6,250 1.6Issued for cash on exercise of share options 911 0.2____________________________________________________________ __________ __________At 31 March 2007 132,348 33.1____________________________________________________________ __________ __________ During the year, 7,161,239 shares were issued at a premium of £39.0m for an aggregate consideration of £40.8m (2006: 204,825 shares were issued at a premium of £0.6m for an aggregate consideration of £0.7m). 16 Reconciliation of movements in equity Consolidated Attributable to equity shareholders of the parent ___________________________________________________________ Ordinary Share Interest Other Retained Minority Total shares premium in ESOP reserves earnings Total interests equity £m £m £m £m £m £m £m £m _____________________________________________________________ _________ ________At 31 March 2006 31.3 28.8 (1.5) 55.8 132.8 247.2 10.8 258.0Total recognised income andexpense in the year - - - 4.6 73.4 78.0 0.1 78.1Issue of share capital 1.8 39.0 - - - 40.8 - 40.8Equity placing fees - (1.1) - - - (1.1) - (1.1)Exercise of options - - 0.3 - (0.3) - - -Minority dividends paid - - - - - - (1.0) (1.0)Purchase of minorityinterest - - - - - - (5.9) (5.9)Share based payments - - - - 1.9 1.9 - 1.9Equity dividends (Note8) - - - - (27.7) (27.7) - (27.7) _____________________________________________________________ _________ ________At 31 March 2007 33.1 66.7 (1.2) 60.4 180.1 339.1 4.0 343.1 _____________________________________________________________ _________ ________At 31 March 2005 31.2 28.2 (1.6) 55.8 97.2 210.8 9.8 220.6Financial instrumentsrecognition - - - 0.3 - 0.3 - 0.3 _____________________________________________________________ _________ ________At 1 April 2005 31.2 28.2 (1.6) 56.1 97.2 211.1 9.8 220.9Total recognised income and expensein the year - - - (0.3) 60.2 59.9 1.0 60.9Issue of share capital 0.1 0.6 - - - 0.7 - 0.7Exercise of options - - 0.1 - (0.1) - - -Share based payments - - - - 1.1 1.1 - 1.1Equity dividends (Note 8) - - - - (25.6) (25.6) - (25.6) _____________________________________________________________ _________ ________At 31 March 2006 31.3 28.8 (1.5) 55.8 132.8 247.2 10.8 258.0 _____________________________________________________________ _________ ________ Other reserves - Consolidated Merger Hedging Translation Other reserve reserve reserve reserves £m £m £m £m_____________________________________________________________ ________ _______ __________ ______At 31 March 2006 55.9 - (0.1) 55.8Total recognised income and expense in the period - 4.6 - 4.6_____________________________________________________________ ________ _______ __________ ______At 31 March 2007 55.9 4.6 (0.1) 60.4_____________________________________________________________ ________ _______ __________ ______At 31 March 2005 55.9 - (0.1) 55.8Financial instruments recognition - 0.3 - 0.3At 1 April 2005 55.9 0.3 (0.1) 56.1Total recognised income and expense in the period - (0.3) - (0.3)_____________________________________________________________ ________ _______ __________ ______At 31 March 2006 55.9 - (0.1) 55.8_____________________________________________________________ ________ _______ __________ ______ The merger reserve includes the premium on shares issued to satisfy the purchaseof Dairy Crest Limited in 1996. The cumulative amount of goodwill chargedagainst the merger reserve is £86.8m (2006: £86.8m). The reserve is notdistributable. The shares held by the Dairy Crest Employees' Share Ownership Plan Trust('ESOP') are available to satisfy awards under LTISP and ESOS. The QUEST wasterminated in April 2005 and held no shares at 31 March 2007 or 2006. At 31 March 2007 the ESOP held 401,673 shares (2006: 489,075 shares) in theCompany at a cost of £1.2m (2006: £1.5m). The ESOP was established in August1996 to purchase shares in the Company in order to hedge certain futureobligations of the Group including shares awarded under the LTISP and the ESOS.During the year the Trustee of the ESOP issued 87,402 (2006: 46,716) sharesfollowing exercises of LTISP options. The market value of the shares held by theESOP, which are listed on the London Stock Exchange, was £2.7m at 31 March 2007(2006: £2.3m). The hedging reserve records the movements on designated hedging items (net ofdeferred tax), offset by any movements recognised directly in equity onunderlying hedging items. The translation reserve records exchange differences arising from thetranslation of the accounts of foreign currency denominated subsidiaries offsetby the movements on loans and derivatives used to hedge the net investment inforeign subsidiaries. 17 Cash flow from operating activities Year Year ended ended 31 March 31 March 2007 2006 £m £m________________________________________________________________________________ _________ _________Profit from continuing operations before net finance costs and taxation 66.9 45.6Profit from discontinued operations before net finance costs and taxation (4.5) 2.9________________________________________________________________________________ _________ _________ 62.4 48.5Depreciation 40.6 38.3Amortisation of intangible assets 3.1 1.2Exceptional items 11.8 8.9Release of grants (0.8) (0.9)Share based payments 1.9 1.1Profit on disposal of household depots (6.8) (6.1)Difference between pension contributions paid and amounts recognised in the income statement (15.2) (1.3)Decrease / (Increase) in inventories 2.9 (17.9)Decrease / (Increase) in receivables 17.1 (20.0)(Decrease) / Increase in payables (22.8) 21.6________________________________________________________________________________ _________ _________Cash generated from operations 94.2 73.4________________________________________________________________________________ _________ _________ 18 Analysis of net debtGroup At 1 Preference At 31 April Cash shares Exchange March 2006 flow issued movement 2007 £m £m £m £m £m_____________________________________________________ _________ _________ _________ _________ _________Cash at bank and in hand 14.4 10.5 - - 24.9Borrowings (current) (40.0) (78.9) - (1.2) (120.1)Borrowings (non-current) (236.7) (100.3) (0.2) 12.8 (324.4)Finance leases (17.9) 0.8 - - (17.1)_____________________________________________________ _________ _________ _________ _________ _________ (280.2) (167.9) (0.2) 11.6 (436.7)Borrowings (non-current) - impact of cross-currency swaps * - - - (14.3) (14.3)_____________________________________________________ _________ _________ _________ _________ _________ (280.2) (167.9) (0.2) (2.7) (451.0)_____________________________________________________ _________ _________ _________ _________ _________ * The Group has $233m of loan notes against which cross-currency swaps have been put in place to fix interest andprincipal repayments in Sterling. Under IFRS, Dollar long-term borrowings are retranslated into Sterling at year endexchange rates. The cross-currency swaps are recorded at fair value and incorporate movements in both market exchangerates 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 £14.3m adjustment included above converts the Sterling equivalent of Dollar loan notes from year end exchange rates (£118.7m) to the fixed Sterling liability (£133.0m). This amount forms part of the overall swap fair value of £7.9m (2006: nil). At 1 At 31 April Cash Exchange March 2005 flow movement 2006 £m £m £m £m____________________________________________________________ ________ ________ ________ ________Cash at bank and in hand 27.2 (12.8) - 14.4Borrowings (current) (20.0) (20.0) - (40.0)Borrowings (non-current) (216.6) (20.1) - (236.7)Finance leases (18.1) 0.2 - (17.9)____________________________________________________________ ________ ________ ________ ________ (227.5) (52.7) - (280.2)____________________________________________________________ ________ ________ ________ ________ 19 Post balance sheet events 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 interestrate on the combined issue is 4.9%. On completion of this transaction andsubsequent repayment of certain revolving credit facilities of £100 million,Group long-term borrowing facilities, including finance leases, total £667million. On 14 May 2007 the Group announced that it was considering the potential closureof its Totnes site subject to a 90-day employee consultation process. Shouldthis process result in closure of the site in the second half of the year,exceptional costs of around £6m are anticipated. Approximately £3m of thesecosts would relate to the write-down of property, plant and equipment. Theircarrying value at 31 March 2007 was supported by their underlying value in useand therefore no impairment was recognised at that date. This information is provided by RNS The company news service from the London Stock Exchange

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Related Shares:

Dairy Crest