20th May 2008 07:00
20 May 2008
Dairy Crest Group plc ("Dairy Crest")
Preliminary Results Announcement
Dairy Crest, the UK's leading branded dairy foods group, today announces its audited results for the year ended 31 March 2008.
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Financial Highlights: |
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2007/08 |
2006/07 |
Change |
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Revenue |
£1,569.7m |
£1,309.3m |
+ 20% |
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Profit before tax: |
£66.0m |
£64.6m |
+ 2% |
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Adjusted profit before tax *: |
£96.1m |
£77.4m |
+ 24 % |
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Earnings per share: |
40.2p |
41.7p |
- 4% |
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Adjusted earnings per share *: |
57.1p |
48.7p |
+ 17% |
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Year-end net debt: |
£474.8m |
£451.0m |
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Total dividend for the year: |
24.4p |
22.9p |
+ 7% |
* Before exceptional items and amortisation of acquired intangibles
All amounts are from continuing operations
Business Highlights and Recent Developments:
Mark Allen, Chief Executive, Dairy Crest Group plc said:
"We have delivered a strong set of financial results. These have benefited from the strategic moves made over the last eighteen months. Most of our key brands in the UK and France, including Cathedral City, Country Life Spreadable, Utterly Butterly, St Hubert Omega 3, Petits Filous and Frubes have increased market share with double-digit sales growth. In addition Clover is on track to recover strongly this year. In our Dairies division we have made progress and improved manufacturing efficiencies.
We continue to actively manage our margins. We have implemented price increases and reduced our cost base to offset inflationary pressure on milk and commodities. Trading at the start of the year is in line with expectations and we remain confident that our business is well placed to meet the challenges of the year ahead."
For further information:
Dairy Crest Group plc
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Will Shaw, Investors
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01372 472477
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Nicole Lander, Media
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01372 472419
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Brunswick
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020 7404 5959
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Simon Sporborg
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Laura Cummings
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Chairman's Statement
Overall Dairy Crest performed well in the year ended 31 March 2008 and reported a 24% increase in adjusted profit before taxation to £96.1 million, revenue up 20% to £1,569.7 million and adjusted earnings per share up 17% to 57.1 pence. Reported profit before taxation was £66.0 million.
The Board is recommending an increase in the final dividend of 6.8% to 17.3 pence per share. This together with the interim dividend of 7.1 pence makes a total dividend for the year of 24.4 pence per share, an increase of 6.6%. The Board remains committed to a progressive dividend policy.
The Group's strategy continues to focus on growing its branded business together with the value added elements of its key customer relationships. The success of this strategy is evidenced by the strong performance of most of the Group's key brands. Cathedral City, Utterly Butterly, Country Life Spreadable, St Hubert Omega 3, Petit Filous and Frubes have all increased market share with strong double-digit sales growth. We are pleased with the progress made by the St Hubert French and Italian spreads business since we acquired it in January 2007. The hard work of the strong management team has delivered results in line with our expectations. Since acquisition, St Hubert has increased its market share in France to 36% and St Hubert Omega 3 has become the market leading brand variant. These factors have helped to deliver an overall uplift in profit on operations of 34% in our Foods division and grow margins in this division to over 14%.
The Dairies division has made steady progress despite substantial raw milk price inflation and volatility in the dairy ingredients markets. In our dairy operations we have reduced unit-operating costs and have improved manufacturing efficiencies through the closure of the Totnes dairy in September 2007. In Household we have completed the integration of the Express Dairies business and we have recently acquired the dairy distribution business of the East of England Co-operative Society in East Anglia.
We continue to value the strong relationship we have with our farmer suppliers and in particular, Dairy Crest Direct. We recognise the significant pressure that they have faced over higher on-farm costs particularly in respect of animal feed. Consequently we are pleased that we have been able to significantly increase prices paid to them over the year. Having a high quality milk supply is vital to the prospects of the Group in the future and we have increased milk prices further since the year-end.
As previously announced Anthony Fry, Neil Monnery and Carole Piwnica, joined the Board as non-executive directors on 1 August 2007 following the retirements of Gerry Grimstone and David Dugdale. They have brought with them a wealth of experience and knowledge from their varied international business backgrounds.
Martyn Wilks joined the Board as Executive Managing Director of the Foods Division with effect from 7 January 2008. Martyn has a proven track record at a senior level having worked for Mars Inc for over 20 years, where he held a variety of senior management positions including President of the Snackfood Division of Masterfoods USA and Managing Director of Mars France. This experience will be invaluable as we continue to develop our strong brand portfolio and build our market position in France following the acquisition of St Hubert.
Peter Thornton, the previous Executive Managing Director of the Foods Division, left the Board by mutual agreement in November 2007 having decided that it was the right time to pursue other career opportunities away from Dairy Crest. We thank Peter for the significant contribution he made to Dairy Crest during his fourteen years with the Group.
Our good performance this year is not only a result of the Group's long term strategy to invest in branded and added value areas but also a reflection of the significant contribution and effort made by all of our employees, for which I would like to thank them. I believe that the Group is well positioned to meet the challenges of the year ahead.
Simon Oliver, Chairman
19 May 2008
Chief Executive's Review
Overview
The Group has performed well during the year and has again delivered a significant uplift in both revenue and pre-exceptional profits. These results reflect the benefits of the strategic moves we made in 2006/07 - notably the acquisition of St Hubert - and the strong performance of our branded business. Most of our key brands have increased market share with double-digit sales growth. This performance has been delivered despite a challenging market background where we have seen unprecedented raw milk price rises, other commodity cost inflation and significant operational disruption to Clover during the year.
Financial results
The Group achieved revenue of £1,569.7 million (2007: £1,309.3 million). This significant increase of 20% principally results from the acquisitions of St Hubert and Express Dairies last year. We also saw benefits from price increases achieved across the range of our products during the year. Adjusted profit before tax (including share of profits from joint ventures, net of tax, and before exceptional items and amortisation of acquired intangibles) was up 24% at £96.1 million (2007: £77.4 million). This again reflects the benefit of the St Hubert acquisition and strong performances by the cheese and dairy ingredients businesses partly offset by the impact of the Clover operational issues in UK spreads. After deducting £21.1 million of exceptional items (2007: £10.1 million) and £9.0 million of acquired intangible amortisation (2007: £2.7 million), profit before tax was up 2% at £66.0 million (2007: £64.6 million). Basic earnings per share were 40.2 pence (2007: 41.7 pence). Adjusted earnings per share increased by 17% to 57.1 pence per share (2007: 48.7 pence).
Group net debt at 31 March 2008 was £23.8 million higher than 31 March 2007 at £474.8 million (2007: £451.0 million). This reflects the adverse impact of the appreciation of the Euro versus Sterling on our Euro denominated debt. This increased net debt, by £46.2 million. Assuming no further significant exchange rate movements, net debt at 31 March 2009 is expected to be at about the same level. This will result from higher cheese stocks, capital expenditure on the new cheese packing plant at Nuneaton and the final year of additional cash contributions to the pension fund. Net debt should reduce beyond 2008/09 as capital expenditure is expected to return to normal levels.
Strong branded performance
Our portfolio of brands, supported by increased marketing investment, has delivered a particularly strong performance this year. Against the well documented challenging environment most of the key brands delivered double-digit sales growth as we continued to evolve our portfolio to meet consumer lifestyles. Whilst this strong sales performance is, in part, the result of price inflation across the dairy category, many of these brands have also delivered strong volume growth and increased market share.
In our cheese business, Cathedral City has reinforced its position as the UK's most popular cheese brand. Sales have grown 23% and the brand is now worth over £160 million at retail prices. The brand was recently placed 36th in Nielsen's top 100 UK grocery brands.
In UK spreads, Utterly Butterly and Country Life Spreadable both grew strongly with sales up 29% and 25% respectively. In France St Hubert Omega 3, the market leading French spreads brand, has continued to be the star performer with sales up 16%.
The Yoplait brands as a whole have delivered double digit sales growth. In particular Petits Filous and Frubes have reinforced their leading position in the children's category with sales up 25% and 34% respectively year on year. Finally in the Dairies division Frijj, our market leading fresh flavoured milk drink, and Country Life organic milk grew by 11% and 15% respectively by value.
Sales of Clover were down 11% on last year. This was the result of very limited promotional activity following the product recall in May 2007. We are confident that Clover is on track to recover strongly this year. To this end sales volumes of Clover in April 2008 have already returned to pre-recall levels. We launched a new television advertising campaign for Clover in March 2008 and will be actively promoting the brand again this year.
Looking forward we will continue to meet changing consumer lifestyles and demands with our plans for healthier variants of these brands. We have already launched a number of such products over the last two years. These include Cathedral City Lighter, with 30% less fat than standard mature cheddar, Country Life Spreadable Lighter and Utterly Butterly with Omega 3. This will continue to be a key area of focus in our new product development activities with the intention this year to launch a lighter variant of Clover.
Managing Cost inflation
Industry raw milk prices rose sharply in the autumn of 2007 as a result of increased commodity prices, higher on-farm costs and national volume shortages. As previously reported we were successful in recovering these higher milk costs by implementing price increases across the range of our products during the second half. Our farmer suppliers are continuing to face higher on-farm costs particularly in respect of animal feed. Consequently we supported our farmer suppliers in the last quarter of the year by maintaining raw milk prices despite falling prices in dairy ingredients. Since the year end we have further supported our milk suppliers by announcing increases on milk prices paid on both our cheese contracts (0.75 pence per litre on our Davidstow contracts from May 2008) and liquids contracts (0.5 pence per litre from June).
In addition to milk cost inflation, like all other food producers we are facing inflationary pressures in a number of areas. These include resin, diesel, vegetable oil and energy. To date we have been successful in implementing price increases to our customers to recover these costs. These upward pressures on both milk and oil related costs continue.
Our responsibilities
Our aim is to always consider the long-term implications of our actions on the environment and to take active steps to act responsibly.
One of the ways we are doing this is by reducing waste and recycling more. As part of our membership of the Courtauld Commitment we are working with 'WRAP', the Government's Waste Recycling Action Programme, to find ways of reducing packaging and improve recycling rates. One area of current focus is recycling polybottles where we are collaborating with a number of partners. Most recently we have been working with Dairy UK and the Department for Environment, Food and Rural Affairs on the Milk Roadmap. This has the target that half of all milk packaging will come from recycled material by 2020.
Dairy Crest is committed to reducing its carbon footprint and is currently developing a carbon management plan with the Carbon Trust. We have been working to reduce the amount of energy we use and have achieved a year on year reduction of 8% in CO2 manufacturing emissions.
We have reduced the amount of water we use for manufacturing processes and have signed up to the Environwise Federation House commitment to make a 20% reduction from our current water usage levels by 2010.
Excellent People
Our success is fundamentally linked to the skills, energy, initiative and commitment of our people who now number approximately 10,000 (including franchisees). This year saw the arrival of many new colleagues to the Dairy Crest team including staff who have joined us with the dairy business of the East of England Co-operative Society.
We continue to invest in our staff and make available a significant number of development and skills courses. This year the first four members of staff have graduated from our bespoke Operational Excellence MSc, which is accredited by the University of Birmingham. We are also introducing a new leadership development programme for our management team. The course will be designed to give all of our managers the confidence and ability to lead from the front, and to deal with the growing demands of an ever-changing business environment.
Make-A-Wish, our charity of the year, raises money so that magical wishes can be granted to children and young people fighting life-threatening diseases. Our staff have generously supported this and, through their considerable efforts, we are on course to raise an impressive £500,000.
Office of Fair Trading Investigation
In common with a number of other processors and retailers, we announced on 7 December 2007 that Dairy Crest had reached an early resolution agreement with the Office of Fair Trading concerning its investigation into the "milk price initiatives" of 2002 and 2003. Under this agreement Dairy Crest expects to pay a significantly reduced fine of £9.4 million provided that it continues to cooperate fully with the OFT's investigation.
Compliance with competition law is a high priority for the Group and we have updated our processes and implemented new training for all our commercial teams, senior management and other relevant employees to ensure that competition law is fully complied with across the Group.
Outlook
We have delivered a strong set of financial results. These have benefited from the strategic moves made over the last eighteen months. Most of our key brands in the UK and France, including Cathedral City, Country Life Spreadable, Utterly Butterly, St Hubert Omega 3, Petits Filous and Frubes have increased market share with double-digit sales growth. In addition Clover is on track to recover strongly this year. In our Dairies division we have made progress and improved manufacturing efficiencies.
We continue to actively manage our margins. We have implemented price increases and reduced our cost base to offset inflationary pressure on milk and commodities. Trading at the start of the year is in line with expectations and we remain confident that our business is well placed to meet the challenges of the year ahead.
Mark Allen
Chief Executive
19 May 2008
Operating Review
Foods Division
The Foods Division comprises the UK spreads and cheese businesses, our French and Italian spreads business St Hubert and our share of the Yoplait Dairy Crest joint venture.
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£ million |
2007/08 |
2006/07 |
Change |
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Revenue |
566.5 |
449.8 |
+26% |
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Profit on operations |
80.6 |
60.0 |
+34% |
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Margin |
14.2% |
13.3% |
Revenue is up 26% reflecting the first full year's inclusion of St Hubert together with strong growth by our cheese business. Similarly profit on operations is up 34% reflecting the strong performances from cheese and St Hubert. This was partly offset by the impact of the Clover operational issues in UK spreads. Overall these factors have delivered a good improvement in operating margin in the Foods division to over 14%.
UK Spreads
The UK butter and spreads market (excluding cooking fats) grew in the year to March 2008 by 10% in value to £975 million. This principally reflects price increases in the sector on both butter and spreads products. Volumes were marginally up year on year. The highest growth segment continues to be spreadable butter, which grew 21% by value and 9% by volume.
Over the last year we have seen significant input cost inflation on both cream and vegetable oils. The business has been successful in achieving price increases across its range of products from its customers to offset these increased costs. This has not had any adverse impact on volumes.
In dairy spreads, the Group has increased its market share with combined Clover and Utterly Butterly growth of 8% by volume. Utterly Butterly performed particularly strongly this year with sales up 29% by value and 38% by volume. This reflects increased levels of marketing and promotional activity and the launch, in August 2007, of a new health focused variant of Utterly Butterly with added Omega 3. Utterly Butterly's performance also reflects the limited promotional activity on Clover that resulted from the product recall in May and subsequent operational improvement activity. Clover sales were down 11% by value and 22% by volume over the year. The operational issues were resolved. We launched a new television advertising campaign for Clover in March 2008 and we will be actively promoting the brand again this year. We believe that Clover is well positioned to recover strongly in the current year with sales volumes in April 2008 back at pre-recall levels.
Country Life Spreadable continued to grow strongly, outperforming the spreadable market, with sales up 12% by volume and 25% by value. This has been driven by good progress from the lighter variant, which was launched last year. Country Life packet butter performed better in the second half of the year and benefited from increased prices. Its sales for the year were up 5% by value but down 7% by volume.
We have continued to focus on developing healthier variants of our most popular brands. Early performances from Utterly Butterly Omega 3 and Country Life Spreadable Lighter have been encouraging. In the current year we have plans to launch a lighter variant of the Clover brand, which will assist the expected return to growth of the brand.
St Hubert
St Hubert was acquired in January 2007 and has now been part of the Group for over a year. During this time it has strengthened its leading market positions in France and Italy and its performance has been in line with our expectations.
The total non-butter French spreads market has declined by 1% by volume and remained flat by value at €389 million. The strongest performing segment is "Preventive" which is up 16% by value and 12% by volume. St Hubert Omega 3 is the market leader in this segment.
St Hubert Omega 3 has performed slightly ahead of the "preventive segment" with sales up 17% by value and 14% by volume year on year. It has strengthened its position as the number one brand variant in the French spreads market. Performance of the brands St Hubert 41 and Le Fleurier has stabilised with a slight decline in sales down 3% and 2% respectively by value. However overall brand sales in France are up by 5% by value over the year and St Hubert has increased its share of the French spreads market to over 36% reinforcing its strong number two position.
The Vallé brand in Italy has performed well during the year with spreads sales up over 10% by value and overall Vallé sales including dough and chilled products up 12%. Vallé's share of the Italian spreads market has increased to 54% reinforcing its market leading position.
Cheese
The UK cheese market continues to grow and was up 2% by volume and 7% by value in the year reflecting the impact of retail price increases in the second half. The market is now worth over £2 billion. The cheddar category grew 3% by volume and 9% by value. Within this, branded cheddar continued to outperform and increased its market share growing 10% by volume and 15% by value to £415 million.
Cathedral City, our market leading cheddar brand, has again performed strongly. Whilst there were lower levels of promotional activity in the second half than in the first, sales were up 16% by volume and 23% by value year on year. Cathedral City is now worth over £160 million at retail prices and has a 15% share of the total cheddar market and a 39% share of branded cheddar. The brand was recently placed 36th in Nielsen's top 100 UK grocery brands making it the number one cheese brand. Cathedral City Lighter, launched in February 2007 with 30% lower fat than standard cheddar, has made good progress.
The Davidstow named creamery brand has also performed well reflecting a significant uplift in promotional activity weighted to the first half. Overall sales were up 13% by volume and 8% by value over last year.
The cheese business has benefited from stock profits resulting from price increases achieved in the second half of the year to recover raw milk cost inflation. However these stock profits were offset by a decline in whey contribution in the second half as market prices fell back significantly. Whey prices have begun to improve again since the year end.
Work on the new cheese packing facility at our national distribution centre and cheese maturation store at Nuneaton is well underway. We remain on track to begin full-scale production in early 2009. Capital expenditure on this project is expected to be approximately £25 million, most of which will fall into 2008/09. This new, highly automated, facility will have initial packing capacity of 33,000 tonnes per annum.
Yoplait Dairy Crest
In the year to March 2008 the chilled yogurts and desserts market declined 2% by volume but grew 4% by value and is now worth £1.93 billion. The children's category, where Yoplait Dairy Crest has a market leading position, was relatively flat.
Overall the Yoplait brands outperformed the market delivering sales growth of 11% by value and 9% by volume. As expected, Petits Filous and Frubes returned to strong growth with sales up 25% and 34% by value respectively year on year. This performance reflects a significant uplift in promotional and marketing activity over last year with particular emphasis on the benefits of Vitamin D and Calcium. We extended the range with the launch of Petits Filous Fromage Frais Mousse in September 2007. On Frubes, we have successfully used license characters to drive brand appeal with Dr Who, Spiderman and The Simpsons all appearing on tubes this year.
Wildlife sales were down 7% by value against a strong comparator last year. Yop continued to build on good progress made over the last couple of years with sales up 20%. This reinforces its market leading position in standard drinking yogurt. Weight Watchers performed steadily with sales up 2% by value.
Dairies Division
The Dairies division comprises Dairy Crest's liquid products, ingredients and household operations.
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£ million |
2007/08 |
2006/07 |
Change |
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Revenue |
1,070.1 |
928.0 |
+ 15% |
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Profit on operations |
31.6 |
27.1 |
+ 17% |
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Margin |
3.0% |
2.9% |
Revenue is up 15% reflecting the full year impact of the Express Dairies acquisition and the benefit of price increases. Profit on operations is up 17% reflecting the full year benefit of the acquisition and a strong market for dairy ingredients in the first half. Despite a more challenging market for ingredients and higher milk costs in the second half the overall margin improved slightly to 3%. The Group will continue to focus on improving margins in this division principally through further efficiency improvements and cost reduction programmes.
Liquid Products and Ingredients
The retail fresh milk market grew steadily with sales up 1% by volume. However the impact of significant retail price increases in the autumn meant that sales by value grew by over 12% to £2.73 billion. Organic milk growth has slowed to 5% by volume and 14% by value.
Dairy Crest's fresh milk sales to major retailers grew ahead of the market. Sales were up 3% by volume and 14% by value year on year reflecting the significant price increases achieved to offset higher milk costs. We were pleased to be retained as a long-term supplier of fresh milk to Morrisons following a supplier review. We also achieved a small uplift in store allocations with them from February 2008.
Cost reduction has been a prime focus in our manufacturing sites. Following a strategic review of our dairy operations we closed our Totnes dairy in September 2007. Existing production volumes were successfully moved to our dairies at Severnside, Foston and Hanworth. The benefits of this closure are now being delivered in full.
During 2008/09, as part of a wider review of our manufacturing efficiencies, we will invest approximately £7 million in two new regional distribution centres for the retail milk business. This project will reduce distribution costs, allow the dairy sites to improve efficiency and increase their overall production capacity.
Frijj, our market leading fresh flavoured milk drink, performed well. Sales were up 1% by volume and 11% by value year on year with an improved level of profitability. Elsewhere we continued to make good progress with our potted cream and flavoured milk activities. Potted cream sales were up 10% by volume and 20% by value. Retailer brand flavoured milk sales were up 20% by volume and 32% by value. This reflects the full year benefit of a number of business wins last year.
Overall organic milk sales were down 23% by volume and 1% by value. We took a decision to terminate the contract packing arrangements with Horizon last year. This move has improved the overall profitability of our organic milk operations. The Country Life organic milk brand continues to make steady progress with sales rising 10% by volume and 15% by value.
As previously reported our dairy ingredients operations benefited in the first half from strong worldwide markets for dairy products. In the second half higher production levels, particularly in the US, led to significant reductions in prices for most ingredients products. These reductions in the price of commodity products have not led to milk cost reductions due to concerns over long term UK milk supply. Milk volumes from our suppliers have continued to be relatively tight leading to lower than expected ingredients volumes.
In December 2007 we acquired a 50% interest in Fayrefield FoodTec Limited ("FoodTec") for £2.1 million. FoodTec is a Cheshire based business involved in developing, manufacturing and marketing a range of added value food ingredients and retail products for all areas of the food industry; especially for bakery ingredients, functional dairy ingredients, hot beverages and savoury ingredients. FoodTec has a strong focus on developing health-based products and benefits are already being obtained from using this know-how across the Dairy Crest range of products in both the Foods and Dairies divisions.
Household
The household business has made steady progress. Overall volumes were up 14% year on year reflecting the full year impact of the Express Dairies business, which we acquired in August 2006. The integration of Express Dairies has now been completed and the administration office in Leicester was closed at the end of 2007.
During the year we have continued to invest in marketing and canvassing to existing and potential doorstep customers. We relaunched our customer service offering under the 'Service and More' banner and focused, in particular, on improving our customer retention rates. These significant efforts have improved the underlying net annual decline rate in the doorstep business, which remains below 7% despite the significant autumn price rise. To offset further cost increases we have implemented a price increase to our doorstep customers with effect from the beginning of May 2008.
In the middle ground business we successfully implemented a number of cost related price increases during the second half. However, the unprecedented increases in raw milk costs during the year combined with recent weak cream prices resulted in one long-term supply contract with a middle ground customer becoming onerous for the Group. As previously announced an exceptional charge of £4.4 million has been taken in the year ending 31 March 2008, reflecting expected losses on this contract from October 2007 through to the end of its term, based on our current view of the market.
In February 2008, we completed the acquisition of the dairy distribution business of the East of England Co-operative Society for £4 million (before working capital adjustments). This business consisted of 10 depots operating foodservice and doorstep rounds in East Anglia. These are being integrated into our existing operations in that area.
Trials of 'milk&more', our internet-based doorstep ordering service, have continued to progress well. Average revenue per customer continues to be significantly above standard customers and retention rates in the trial areas are very strong. As we progress through 2008/09 we will extend the trials and will focus on improving the customer acquisition rate. In addition we are improving the systems within the business to enable us to roll out the ability to order and pay over the Internet to most of our doorstep customers nationwide.
Financial Review
Overview
The Group has performed well this year and has benefited from strategic corporate activity during 2006/07. The Group's focus on growing its branded business has resulted in strong performance from our key brands. The St Hubert business, acquired in January 2007, has performed in line with expectations and our liquid milk business has made steady progress through operational efficiencies despite significant market volatility and milk price inflation. In Household, we have completed the integration of the Express Dairies business acquired in 2006/07 and the focus is now on building on the significantly increased customer base arising from that acquisition.
Revenue
Reported Group revenue from continuing activities increased by 20% to £1,569.7 million, principally reflecting the full year impact of acquisitions last year and price increases achieved across our customer base resulting from higher milk and other input costs. Revenue from continuing activities excludes revenue from the retailer-branded cheese business disposed of in October 2006. Group revenue, including our share of joint ventures, increased by 19% to £1,636.6 million.
Profit on operations
In this review, except where otherwise indicated, profit on operations is from continuing operations, includes our share of joint ventures' pre-exceptional post-tax profit and is stated before exceptional items and amortisation of acquired intangibles. On this basis, Group profit on operations increased by 29% to £112.2 million, generating an operating margin of 6.9%. Reported profit on operations from continuing operations after exceptional items was £74.4 million (2007: £66.9 million) an increase of 11.2%.
The Foods division's profit on operations increased by 34% to £80.6 million reflecting the full year impact of the St Hubert acquisition and a strong performance from our branded cheese business partly offset by the Clover recall in May 2007. Operating margins in the Foods division increased from 13.3% to 14.2%.
The Dairies division has increased profit on operations by 17% to £31.6 million primarily due to the impact of the acquisition of Express Dairies on our Household business, strong ingredients margins in the first half (albeit these weakened in the second half) and improved operational efficiency in the liquid milk business as a result of the closure of our Totnes site in September 2007. Dairies margins increased from 2.9% to 3.0%.
Exceptional items
Exceptional items of £21.1 million represent a provision for the settlement with the Office of Fair Trading ('OFT') (and related legal costs) of £10.0 million, a provision for an onerous contract with one of our middle ground customers of £4.4 million, costs relating to the closure of our Totnes site of £4.8 million, final costs of integrating the Express Dairies businesses acquired in August 2006 of £8.6 million, offset by a property profit resulting from a final overage receipt from the developer of the Westway site in west London of £6.7 million.
In December 2007, the Group announced that an early resolution agreement had been reached with the OFT concerning its investigation into milk price initiatives in 2002 and 2003. A provision of £10.0 million, including related legal fees, has been charged as an exceptional item in 2007/08.
The unprecedented increase in milk costs in 2007/08, combined with recent weak cream prices, have resulted in a long-term supply contract with a middle ground customer becoming onerous. A provision of £4.4 million has been charged in the current year which represents the present value of future cash outflows estimated to result from this contract. In the current year £1.5 million has been utilised against this provision with the remainder expected to be utilised in the year to 31 March 2009.
In September 2007, we closed our Totnes site and an exceptional cost of £4.8 million has been charged in the year representing £3.1 million of cash costs, principally redundancies, and an impairment of property, plant and equipment of £1.7 million.
Final integration costs of £8.6 million were incurred in relation to the acquisition of the Express Dairies businesses in August 2006. This charge includes £3.1 million of redundancy costs, £3.5 million of duplicate running costs and £2.0 million of other rationalisation costs. The integration of Express Dairies into our existing Household business is now complete.
The Group received £6.7 million as an overage payment from the developer of the Westway site in west London. This site was originally sold in 2002.
Interest
Finance charges have increased by 36% to £26.2 million as a result of increased levels of net debt during the year due to the acquisitions made in 2006/07. In addition, a large proportion of our interest cost is denominated in Euros, and Sterling weakness has resulted in higher reported interest costs due to the translation effect. In April 2007 the Group raised €150 million and £10 million from the issue of loan notes in the US. Notes were issued for 7 and 10 years with an average effective interest rate of 4.77% (Euros) and 5.84% (Sterling).
Other finance income comprises the net expected return on pension scheme assets after deducting the interest cost of the defined benefit obligation. This resulted in a credit of £10.1 million in the year ended 31 March 2008, an increase of £0.6 million compared to the previous year. This is expected to reduce next year to approximately £6.5 million although at the profit before tax level this will be largely offset by reduced current service costs charged against operating profit.
Interest cover excluding the pension interest credit, calculated on adjusted profit from operations, remains comfortable, at over 4 times (2007: over 4 times).
Adjusted profit before tax
The Group's adjusted profit before tax (calculated on continuing operations, before exceptional items and amortisation of acquired intangibles) was £96.1 million (2007: £77.4 million). The reconciliation to reported profit before tax is as follows:
|
2008 |
2007 |
||||||
|
Before |
Before |
||||||
|
exceptional |
Exceptional |
exceptional |
Exceptional |
||||
|
items |
items |
Total |
items |
items |
Total |
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|
|
£m |
£m |
£m |
£m |
£m |
£m |
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|
Adjusted Group profit before tax: |
|||||||
|
Profit from continuing operations before tax |
87.1 |
(21.1) |
66.0 |
74.7 |
(10.1) |
64.6 |
|
|
Amortisation of acquired intangibles |
9.0 |
- |
9.0 |
2.7 |
- |
2.7 |
|
|
Adjusted Group profit before tax |
96.1 |
(21.1) |
75.0 |
77.4 |
(10.1) |
67.3 |
|
Profit before tax from continuing operations after exceptional items, reported under IFRS, was £66.0 million (2007: £64.6 million).
Taxation
The Group's effective tax rate on profits excluding exceptional items and including joint ventures' tax was 23.2% (2007: 22.6%). The effective tax rate is below the mixed UK / France statutory rate of corporation tax due to:
the profit on depot disposals (£6.6 million) being sheltered by rollover relief and brought forward capital losses;
the impact of the one-off reduction in UK corporation tax rate on deferred tax liabilities in the current year; and
the benefit of certain tax efficient financing structures that were implemented on the acquisition of St Hubert.
The effective rate is expected to increase next year to approximately 26% - 27% since the group will not benefit from any further deferred tax liability reductions resulting from decreases in the rate of UK corporation tax rates. In addition, the benefit from the tax efficient financing structures were removed in the March 2008 Budget.
Furthermore, next year will see the enactment of the cessation of industrial buildings allowances. Under IFRS the Group will recognise a deferred tax liability estimated at approximately £15 million. This will be charged to exceptional tax in the year ending 31 March 2009.
Group profit for the year
Reported Group profit for the year after discontinued operations increased by 11.2% to £54.7 million (2007: £49.2 million).
Earnings per share
The Group's adjusted basic earnings per share increased by 17% to 57.1 pence per share (2007: 48.7 pence per share). Basic earnings per share from continuing operations, which includes the impact of exceptional items and the amortisation of acquired intangibles, decreased by 4% to 40.2 pence per share (2007: 41.7 pence per share). This reflects the high exceptional charges incurred in the year ended 31 March 2008.
The weighted average number of shares increased by approximately 5 million to 132.3 million. This reflects the full year impact of the equity placing in November 2006. A diluted earnings per share calculation, which reflects the impact of potential ordinary shares from unvested share option schemes, is presented for both the basic and adjusted earnings per share amounts.
Dividends
The proposed final dividend of 17.3 pence per share, together with the interim dividend of 7.1 pence per share gives a total dividend of 24.4 pence per share for the full year. This represents an increase of 6.6% on the dividend declared for 2006/07. The final dividend will be paid on 7 August 2008 to shareholders on the register on 27 June 2008.
Pensions
The total pension surplus at 31 March 2008 was £31.6 million compared to a £0.4 million deficit at 31 March 2007. The improved position is predominantly due to the significant increase in AA corporate bond yields, which under IAS 19, are used to discount pension liabilities. In addition, as previously announced, the Group paid an additional £12 million into the main UK scheme during the year and has agreed to pay a further £12 million of additional contributions in 2008/09. The beneficial impact of these factors have been partially offset by weak equity returns over the last year and an increase of 1.2 years in the life expectancy assumptions used. The revised demographic assumptions are consistent with the assumptions used in the last triennial pension valuation which was performed at 31 March 2007.
The reported pension surplus is extremely sensitive to changes in underlying assumptions and will, inevitably, be volatile from year to year. Increasing bond yields have improved the pension position significantly during the last quarter. The actuarial gain reported in equity for the year is £10.7 million (2007: £32.8 million).
The triennial full actuarial valuation at 31 March 2007 was completed during the year and a future funding plan agreed with the Trustee. Company cash contributions in 2008/09 will amount to 18.3% of pensionable salaries; a marginal increase on 2007/08.
Cash flow
Cash generated from operations was £108.4 million in the year (2007: £94.2 million). This includes a working capital outflow of £7.4 million (2007: £2.8 million outflow). The increased working capital outflow in 2007/08 is principally due to increased cheese stocks resulting from higher milk prices in the current year. We expect a further working capital outflow in the first half of 2008/09 due to the impact of higher milk costs.
Cash interest and tax payments amounted to £22.9 million and £6.7 million respectively (2007: £15.3 million and £6.1 million). Interest payments are £7.6 million higher than last year reflecting increased debt levels following the St Hubert acquisition in January 2007. Tax payments are £0.6 million higher than last year due principally to the full year St Hubert taxes offset by low UK payments on account in the year.
Capital expenditure, net of grants of £34.0 million, was £2.3 million below last year (2007: £36.3 million). Significant investment was undertaken in systems implementation projects for manufacturing and order management, and investment commenced at Nuneaton for the new cheese packing facility. The investment at Nuneaton will continue during 2008/09 with total project capital expenditure expected to be approximately £25 million. Cash receipts from the disposal of fixed assets amounted to £13.2 million (2007: £9.7 million) and include £6.7 million from the Westway overage receipt described above.
Cash outflows from purchase of businesses and investments amounted to £7.8 million in the year (2007: £293.3 million). Acquisition expenditure amounted to £5.7 million and included the dairy distribution business of the East of England Co-operative Society (£4.3 million) and other smaller infill acquisitions in the Household business. In December 2007 we acquired a 50% investment in Fayrefield-Foodtec Limited, an ingredients manufacturer for £2.1 million. Prior year acquisitions included both the St Hubert and Express Dairies businesses.
The Group received £7.3 million in dividends from Yoplait Dairy Crest in the year (2007: £8.9 million) and paid dividends to shareholders of £30.8 million (2007: £27.7 million).
Net borrowings
Net debt increased by £23.8 million to £474.8 million at the end of the year due to the impact of Sterling weakness on our Euro-denominated borrowings. On a like-for-like basis, excluding the exchange impact, net debt decreased by £22.4 million. Net debt is defined such that, where cross currency swaps are used as cash flow hedges to fix the interest and principal payments on currency debt, the swapped Sterling liability is included rather than the retranslated foreign currency debt.
In April 2007 the Group issued €150 million and £10 million of loan notes to US investors. Proceeds were used to repay £100 million of the November 2006 facility that was put in place for the acquisition of St Hubert. This November 2006 facility now comprises a £100 million 5 year multi-currency revolving credit facility.
The Group currently has a 5-year, £250 million multi-currency, revolving credit facility that expires in June 2009. It is expected that this facility will be renegotiated during the first half of 2008/09. Net cash generation over 2008/09 will be broadly neutral due to the investment at our national distribution centre at Nuneaton, the payment of additional pension contributions and the expected payment of the OFT fine.
At 31 March 2008, gearing (being the ratio of net debt to shareholders' funds) was 122% (2007: 131%).
Borrowing Facilities
Group borrowing facilities comprise £256.8 million of loan notes maturing between April 2013 and April 2017, a £100 million multi-currency revolving credit facility expiring in November 2011, a £25 million Sterling term loan expiring by December 2008 and a £250 million multi-currency revolving credit facility expiring in June 2009. At 31 March 2008 there was £150 million headroom against committed facilities (2007: £179 million).
Borrowings facilities are subject to covenants which specify a maximum ratio of net debt to EBITDA of 3.5 times and a minimum interest cover ratio of 3.0 times. At 31 March 2008 the Group's net debt to EBITDA ratio was below 3.0 times despite the impact of Sterling weakness on reported net debt. As previously discussed, interest cover was over 4 times.
Treasury policies
The Group operates a centralised treasury function, which controls cash management and borrowings and the Group's financial risks. The main treasury risks faced by the Group are liquidity, interest rates and foreign currency. The Group uses derivatives only to manage its foreign currency and interest rate risks arising from underlying business and financing activities. Transactions of a speculative nature are prohibited. The Group's treasury activities are governed by policies approved and monitored by the Board.
Net Assets
The Group's balance sheet remains robust with net assets of £387.7 million (2007: £343.1 million). Goodwill, intangible assets and property, plant and equipment total £812.5 million (2007: £764.1 million). Inventories of £159.5 million are £12.0 million higher than prior year reflecting the increased cost of milk during the year.
Going concern
The financial statements have been prepared on a going concern basis as the directors are satisfied that the Group has adequate financial resources to continue its operations for the foreseeable future. In making this statement, the Group's directors have reviewed the Group budget and available facilities and have made such other enquiries as they considered appropriate.
Alastair Murray
Finance Director
19 May 2008
|
Consolidated income statement |
|||||||
|
Year ended 31 March 2008 |
|||||||
|
2008 |
2007 |
||||||
|
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 |
1,569.7 |
- |
1,569.7 |
1,309.3 |
- |
1,309.3 |
|
Operating costs |
3 |
(1,480.8) |
(27.8) |
(1,508.6) |
(1,238.8) |
(10.4) |
(1,249.2) |
|
Other income |
4 |
6.6 |
6.7 |
13.3 |
6.8 |
- |
6.8 |
|
Profit on operations from continuing operations |
2 |
95.5 |
(21.1) |
74.4 |
77.3 |
(10.4) |
66.9 |
|
Finance costs |
6 |
(26.2) |
- |
(26.2) |
(19.2) |
- |
(19.2) |
|
Other finance income - pensions |
6 |
10.1 |
- |
10.1 |
9.5 |
- |
9.5 |
|
Share of joint ventures' net profit |
|
7.7 |
- |
7.7 |
7.1 |
0.3 |
7.4 |
|
Profit from continuing operations before tax |
87.1 |
(21.1) |
66.0 |
74.7 |
(10.1) |
64.6 |
|
|
Tax expense |
7 |
(17.7) |
5.2 |
(12.5) |
(14.5) |
3.2 |
(11.3) |
|
Group profit for the year from |
|||||||
|
continuing operations |
69.4 |
(15.9) |
53.5 |
60.2 |
(6.9) |
53.3 |
|
|
Profit / (loss) for the year from discontinued operations |
|
- |
1.2 |
1.2 |
- |
(4.1) |
(4.1) |
|
Group profit for the year |
|
69.4 |
(14.7) |
54.7 |
60.2 |
(11.0) |
49.2 |
|
Profit attributable to equity shareholders |
69.1 |
(14.7) |
54.4 |
60.0 |
(11.0) |
49.0 |
|
|
Profit attributable to minority interests |
|
0.3 |
- |
0.3 |
0.2 |
- |
0.2 |
|
Group profit for the year |
|
69.4 |
(14.7) |
54.7 |
60.2 |
(11.0) |
49.2 |
|
Earnings per share - continuing operations |
|
|
|
|
|
|
|
|
Basic earnings per share from continuing operations (p) |
9 |
40.2 |
41.7 |
||||
|
Diluted earnings per share from continuing operations (p) |
9 |
39.9 |
41.4 |
||||
|
Adjusted basic earnings per share from |
|||||||
|
continuing operations (p) * |
9 |
57.1 |
48.7 |
||||
|
Adjusted diluted earnings per share from |
|||||||
|
continuing operations (p) * |
9 |
56.7 |
48.2 |
||||
|
Earnings per share |
|||||||
|
Basic earnings per share on profit for the year (p) |
9 |
41.1 |
38.5 |
||||
|
Diluted earnings per share on profit for the year (p) |
9 |
|
|
40.8 |
|
|
38.2 |
|
Dividends |
|
|
|
|
|
|
|
|
Proposed final dividend (£m) |
8 |
22.9 |
21.4 |
||||
|
Interim dividend paid (£m) |
8 |
9.4 |
8.8 |
||||
|
Proposed final dividend (pence) |
8 |
17.3 |
16.2 |
||||
|
Interim dividend paid (pence) |
8 |
|
|
7.1 |
|
|
6.7 |
|
* Adjusted earnings per share calculations are based on continuing operations and exclude exceptional items and amortisation of acquired intangibles. |
|||||||
|
Consolidated balance sheet |
||||
|
As at 31 March 2008 |
||||
|
2008 |
2007 |
|||
|
|
|
Note |
£m |
£m |
|
ASSETS |
||||
|
Non-current assets |
||||
|
Property, plant and equipment |
327.3 |
329.4 |
||
|
Goodwill |
10 |
313.8 |
283.2 |
|
|
Intangible assets |
11 |
171.4 |
151.5 |
|
|
Investment in joint ventures using equity method |
5.3 |
3.7 |
||
|
Retirement benefit surplus |
12 |
33.6 |
- |
|
|
Deferred tax asset |
0.2 |
1.8 |
||
|
Financial assets - Derivative financial instruments |
|
|
- |
0.1 |
|
|
|
|
851.6 |
769.7 |
|
Current assets |
||||
|
Inventories |
159.5 |
147.5 |
||
|
Trade and other receivables |
186.1 |
158.0 |
||
|
Financial assets - Derivative financial instruments |
1.1 |
0.3 |
||
|
Cash and cash equivalents |
|
17 |
40.3 |
24.9 |
|
|
|
|
387.0 |
330.7 |
|
Total assets |
|
|
1,238.6 |
1,100.4 |
|
EQUITY AND LIABILITIES |
||||
|
Non-current liabilities |
||||
|
Financial liabilities |
- Long-term borrowings |
(470.4) |
(339.9) |
|
|
- Derivative financial instruments |
(4.0) |
(7.9) |
||
|
Retirement benefit obligations |
12 |
(2.0) |
(0.4) |
|
|
Deferred tax liability |
(96.3) |
(82.4) |
||
|
Deferred income |
|
|
(9.3) |
(9.6) |
|
|
|
|
(582.0) |
(440.2) |
|
Current liabilities |
||||
|
Trade and other payables |
(224.8) |
(189.9) |
||
|
Financial liabilities |
- Short-term borrowings |
(28.9) |
(121.7) |
|
|
- Derivative financial instruments |
(0.4) |
(0.3) |
||
|
Current tax liability |
(1.5) |
(4.5) |
||
|
Deferred income |
(0.7) |
(0.7) |
||
|
Provisions |
|
13 |
(12.6) |
- |
|
|
|
|
(268.9) |
(317.1) |
|
Total liabilities |
|
|
(850.9) |
(757.3) |
|
Shareholders' equity |
||||
|
Ordinary shares |
14 |
(33.3) |
(33.1) |
|
|
Share premium |
14 |
(70.2) |
(66.7) |
|
|
Interest in ESOP |
14 |
3.7 |
1.2 |
|
|
Other reserves |
14 |
(67.0) |
(60.4) |
|
|
Retained earnings |
|
14 |
(215.8) |
(180.1) |
|
Total shareholders' equity |
(382.6) |
(339.1) |
||
|
Minority interests |
|
14 |
(5.1) |
(4.0) |
|
Total equity |
|
|
(387.7) |
(343.1) |
|
Total equity and liabilities |
|
|
(1,238.6) |
(1,100.4) |
|
Consolidated statement of recognised income and expense |
|||
|
Year ended 31 March 2008 |
|||
|
2008 |
2007 |
||
|
|
Note |
£m |
£m |
|
Income and expense recognised directly in equity |
|||
|
Net investment hedges: |
|||
|
Exchange differences on foreign currency net investments |
49.2 |
2.7 |
|
|
Exchange differences on foreign currency borrowings designated as net investment hedge |
(47.1) |
(2.7) |
|
|
Loss on financial instruments designated as net investment hedges |
(7.8) |
- |
|
|
Tax on portion of losses designated as post-tax net investment hedges |
7 |
7.8 |
- |
|
2.1 |
- |
||
|
Actuarial gains |
12 |
10.7 |
32.8 |
|
Cash flow hedges - transferred to income statement |
1.5 |
14.3 |
|
|
Cash flow hedges - gains / (losses) deferred in equity |
4.5 |
(7.8) |
|
|
Share of joint ventures' income recognised in equity |
2.7 |
0.6 |
|
|
Tax on items taken directly to equity |
7 |
(4.5) |
(11.0) |
|
Net income recognised directly in equity |
17.0 |
28.9 |
|
|
Profit for the year |
|
54.7 |
49.2 |
|
Total recognised income and expense for the year |
14 |
71.7 |
78.1 |
|
Attributable to equity shareholders |
14 |
70.6 |
78.0 |
|
Attributable to minority interests |
14 |
1.1 |
0.1 |
|
Consolidated cash flow statement |
|||
|
Year ended 31 March 2008 |
|||
|
2008 |
2007 |
||
|
|
Note |
£m |
£m |
|
Cash generated from operations |
16 |
108.4 |
94.2 |
|
Dividends received from joint ventures |
7.3 |
8.9 |
|
|
Interest paid |
(22.9) |
(15.3) |
|
|
Taxation paid |
|
(6.7) |
(6.1) |
|
Net cash flow from operating activities |
|
86.1 |
81.7 |
|
Cash flow from investing activities |
|||
|
Payments to acquire property, plant and equipment |
(34.5) |
(37.4) |
|
|
Grants received |
0.5 |
1.1 |
|
|
Proceeds from disposal of property, plant and equipment |
13.2 |
9.7 |
|
|
Purchase of businesses (net of cash and debt acquired) |
(5.7) |
(293.3) |
|
|
Purchase of investment in joint venture |
(2.1) |
- |
|
|
Sale of investment in joint venture |
3.0 |
- |
|
|
Sale of businesses |
- |
58.3 |
|
|
Net cash used in investing activities |
|
(25.6) |
(261.6) |
|
Cash flow from financing activities |
|||
|
Repayment of term loans |
(20.0) |
(90.0) |
|
|
New facilities advanced |
111.9 |
343.0 |
|
|
Repayment and cancellation of facilities |
(100.1) |
- |
|
|
Net repayment under revolving credit facilities |
(0.1) |
(73.8) |
|
|
Payment on termination of currency swap |
(7.8) |
- |
|
|
Dividends paid |
8 |
(30.8) |
(27.7) |
|
Redemption of preference shares |
(0.2) |
- |
|
|
Proceeds from issue of shares (net of issue costs) |
14 |
0.5 |
39.7 |
|
Finance lease repayments |
|
(0.8) |
(0.8) |
|
Net cash used in financing activities |
|
(47.4) |
190.4 |
|
Net (decrease) / increase in cash and cash equivalents |
|
13.1 |
10.5 |
|
Cash and cash equivalents at beginning of year |
17 |
24.9 |
14.4 |
|
Exchange impact on cash and cash equivalents |
17 |
0.9 |
- |
|
Cash and cash equivalents at end of year |
17 |
38.9 |
24.9 |
|
Memo: Net debt at end of year |
17 |
(474.8) |
(451.0) |
Notes to the financial statements
The Preliminary Report for the year ended 31 March 2008 was approved by the Directors on 19 May 2008.
1 Basis of preparation
The consolidated financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the UK Financial Services Authority, International Financial Reporting Standards ('IFRS') and International Financial Reporting Interpretation Committee ('IFRIC') interpretations as endorsed by the European Union, and those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The accounting policies applied are consistent with those described in the Annual Report and Financial Statements 2007.
The financial information set out in this document does not constitute the statutory accounts of the Group for the years ended 31 March 2008 or 31 March 2007 but is derived from the 2008 Annual Report and Financial Statements. The Group Annual Report and Financial Statements for 2008 will be delivered to the Registrar of Companies in due course. The auditors have reported on those accounts and have given 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 as the Group's risks and rates of return are affected predominantly by differences in the products produced. The Group is segmented into two divisions, Foods and Dairies according to the nature of the products sold and markets serviced. The Foods segment comprises predominantly branded cheese and spreads sold via the multiples. It includes both the UK Spreads business and the St Hubert business acquired in January 2007 since both supply similar product to similar markets using the same production and distribution methods. The Dairies segment comprises predominantly liquid milk sales via the multiples, middle ground or doorstep. The Household business is included within the Dairies segment as its operations are mutually interdependent with the liquid milk business. All revenue is derived from the sale of goods.
The Group's geographical segments are based on the location of the Group's assets. The Group has two geographical segments being 'UK and Ireland' and 'Rest of world'. The Wexford business, based in Ireland, generates the majority of its revenue from sales into the UK and operates under similar economic and political conditions to the UK. As a result, the UK and Ireland businesses have been combined into one geographical segment. Sales to 'Rest of world' disclosed in geographical segments are based on the geographical location of customers. The Rest of world category comprises the St Hubert business and ingredients and finished goods exports from the UK.
Notes to the financial statements
2 Segmental information (continued)
|
Primary segment analysis: Business |
||||||||
|
2008 |
2007 |
|||||||
|
|
|
Continuing |
Discontinued |
|
|
Continuing |
Discontinued |
|
|
Foods |
Dairies |
Total |
Foods |
Foods |
Dairies |
Total |
Foods |
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Revenue and results |
||||||||
|
Segmental revenue |
499.6 |
1070.1 |
1,569.7 |
- |
381.3 |
928.0 |
1,309.3 |
104.3 |
|
Segmental results (before |
||||||||
|
exceptional items) |
64.8 |
30.7 |
95.5 |
- |
51.8 |
25.5 |
77.3 |
- |
|
Exceptional items |
(3.6) |
(17.5) |
(21.1) |
- |
(7.0) |
(3.4) |
(10.4) |
(4.5) |
|
Segmental results |
61.2 |
13.2 |
74.4 |
- |
44.8 |
22.1 |
66.9 |
(4.5) |
|
Finance costs |
(26.2) |
- |
(19.2) |
- |
||||
|
Other finance income - pensions |
10.1 |
- |
9.5 |
- |
||||
|
Share of joint ventures' net profit (Foods) |
7.7 |
- |
7.4 |
- |
||||
|
Profit before tax |
66.0 |
- |
64.6 |
(4.5) |
||||
|
Tax (expense) / relief |
(12.5) |
1.2 |
(11.3) |
0.4 |
||||
|
Profit for the year |
53.5 |
1.2 |
53.3 |
(4.1) |
||||
|
Assets and liabilities |
||||||||
|
Segment assets |
739.6 |
418.5 |
1,158.1 |
666.0 |
403.6 |
1,069.6 |
||
|
Investment in joint ventures |
5.3 |
- |
5.3 |
3.7 |
- |
3.7 |
||
|
744.9 |
418.5 |
1,163.4 |
669.7 |
403.6 |
1,073.3 |
|||
|
Unallocated assets |
75.2 |
27.1 |
||||||
|
Total assets |
1,238.6 |
1,100.4 |
||||||
|
Segment liabilities |
(103.2) |
(144.2) |
(247.4) |
(75.4) |
(124.8) |
(200.2) |
||
|
Unallocated liabilities |
(603.5) |
(557.1) |
||||||
|
Total liabilities |
(850.9) |
(757.3) |
||||||
Segment assets consist primarily of property, plant and equipment, goodwill, intangible assets, investments in joint ventures, inventories and receivables. They exclude deferred taxation, cash and cash equivalents, derivatives held as hedges of borrowings and retirement benefit assets.
Segment liabilities comprise operating liabilities. They exclude taxation, retirement benefit obligations, borrowings and related hedges.
|
Notes to the financial statements |
||||||
|
2 Segmental information (continued) |
||||||
|
2008 |
2007 |
|||||
|
Foods |
Dairies |
Total |
Foods |
Dairies |
Total |
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|
Other segment information |
||||||
|
Capital expenditure: |
||||||
|
Property, plant and equipment |
18.7 |
18.1 |
36.8 |
17.5 |
19.1 |
36.6 |
|
Intangible assets |
0.3 |
0.9 |
1.2 |
- |
- |
- |
|
Acquisition of property, plant & equipment |
- |
0.4 |
0.4 |
4.8 |
31.9 |
36.7 |
|
Acquisition of intangible assets |
0.6 |
2.0 |
2.6 |
148.3 |
- |
148.3 |
|
Depreciation |
13.9 |
25.6 |
39.5 |
14.2 |
26.4 |
40.6 |
|
Total amortisation of intangible assets |
8.4 |
1.1 |
9.5 |
1.3 |
1.8 |
3.1 |
|
Impairment of property, plant and equipment |
- |
1.7 |
1.7 |
7.4 |
- |
7.4 |
|
Additional analysis |
2008 |
2007 |
||||
|
Foods |
Dairies |
Total |
Foods |
Dairies |
Total |
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|
Adjusted revenue * |
||||||
|
Group |
499.6 |
1,070.1 |
1,569.7 |
381.3 |
928.0 |
1,309.3 |
|
Share of joint ventures |
66.9 |
- |
66.9 |
68.5 |
- |
68.5 |
|
Including share of joint ventures |
566.5 |
1,070.1 |
1,636.6 |
449.8 |
928.0 |
1,377.8 |
|
Adjusted profit on operations * |
||||||
|
Profit on operations (before |
||||||
|
exceptional items) |
64.8 |
30.7 |
95.5 |
51.8 |
25.5 |
77.3 |
|
Share of joint ventures (before exceptional |
||||||
|
items and after tax) |
7.7 |
- |
7.7 |
7.1 |
- |
7.1 |
|
Acquired intangible amortisation |
8.1 |
0.9 |
9.0 |
1.1 |
1.6 |
2.7 |
|
Including share of joint ventures |
80.6 |
31.6 |
112.2 |
60.0 |
27.1 |
87.1 |
* From continuing operations, including share of joint ventures and before exceptional items and amortisation of acquired intangibles.
|
Secondary segment analysis: Geographical |
||
|
(i) Analysis of Group revenue from continuing operations by destination |
||
|
2008 |
2007 |
|
|
|
£m |
£m |
|
UK and Ireland |
1,434.7 |
1,229.3 |
|
Rest of world |
135.0 |
80.0 |
|
Group revenue |
1,569.7 |
1,309.3 |
|
(ii) Analysis of assets and capital expenditure |
||
|
2008 |
2007 |
|
|
|
£m |
£m |
|
Segment assets (based on location of assets) |
||
|
UK and Ireland |
794.7 |
752.7 |
|
Rest of world |
363.4 |
316.9 |
|
1,158.1 |
1,069.6 |
|
|
Investment in joint ventures |
5.3 |
3.7 |
|
Unallocated assets |
75.2 |
27.1 |
|
|
1,238.6 |
1,100.4 |
|
Segment capital expenditure (based on location of assets) |
||
|
Property, plant and equipment |
||
|
UK and Ireland |
34.8 |
36.4 |
|
Rest of world |
2.0 |
0.2 |
|
|
36.8 |
36.6 |
|
Intangibles |
||
|
UK and Ireland |
0.9 |
- |
|
Rest of world |
0.3 |
- |
|
|
1.2 |
- |
|
Notes to the financial statements |
||||||
|
3 Operating costs |
||||||
|
Year ended 31 March 2008 |
Year ended 31 March 2007 |
|||||
|
Before |
Before |
|||||
|
exceptional |
Exceptional |
exceptional |
Exceptional |
|||
|
items |
items |
Total |
items |
items |
Total |
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|
Cost of sales |
1,113.6 |
17.8 |
1,131.4 |
898.3 |
10.4 |
908.7 |
|
Distribution costs |
288.1 |
- |
288.1 |
257.8 |
- |
257.8 |
|
Administrative expenses |
79.1 |
10.0 |
89.1 |
82.7 |
- |
82.7 |
|
Continuing operations |
1,480.8 |
27.8 |
1,508.6 |
1,238.8 |
10.4 |
1,249.2 |
|
Discontinued operations |
- |
- |
- |
104.3 |
- |
104.3 |
|
|
1,480.8 |
27.8 |
1,508.6 |
1,343.1 |
10.4 |
1,353.5 |
|
4 Other income and expenses |
||||||
|
Year ended 31 March 2008 |
Year ended 31 March 2007 |
|||||
|
Before |
Before |
|||||
|
exceptional |
Exceptional |
exceptional |
Exceptional |
|||
|
items |
items |
Total |
items |
items |
Total |
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|
Profit on disposal of household depots |
6.6 |
- |
6.6 |
6.8 |
- |
6.8 |
|
Profit on disposal of closed sites (Note 5) |
- |
6.7 |
6.7 |
- |
- |
- |
|
|
6.6 |
6.7 |
13.3 |
6.8 |
- |
6.8 |
The Group continues to rationalise its household operations as a result of the ongoing decline in doorstep volumes. This rationalisation includes the closure of certain depots (the profit on which is shown above), acquisition of small infill dairy businesses and rationalisation of the ongoing household operations. These activities represent a fundamental part of the ongoing ordinary activities of the household operations.
|
5 Exceptional items |
||
|
Year ended |
Year ended |
|
|
31 March 2008 |
31 March 2007 |
|
|
|
£m |
£m |
|
Impairment of plant and equipment |
(1.7) |
- |
|
Redundancy costs |
(5.1) |
(1.2) |
|
Duplicate running costs |
(3.9) |
(0.4) |
|
Other rationalisation costs |
(2.7) |
(1.8) |
|
Restructuring costs |
(13.4) |
(3.4) |
|
Office of Fair Trading ('OFT') settlement including related costs |
(10.0) |
- |
|
Provision for onerous contract |
(4.4) |
- |
|
Impairment of property, plant and equipment |
- |
(7.0) |
|
Profit on disposal of closed sites |
6.7 |
- |
|
(21.1) |
(10.4) |
|
|
Share of joint ventures' exceptional items (after tax) |
- |
0.3 |
|
Tax relief on exceptional items |
5.2 |
3.2 |
|
Discontinued exceptional item (after tax) |
1.2 |
(4.1) |
|
|
(14.7) |
(11.0) |
2008
Exceptional items in 2007/08 comprise:
- £4.8 million charge in relation to the closure of a Dairy at Totnes. This charge includes cash costs of £3.1 million principally in respect of redundancies (£2.0 million) and a non-cash asset impairment of £1.7 million for plant and equipment.
- £8.6 million cash charge of restructuring expenditure with respect to the rationalisation of the Express Dairies depot operations and the Liverpool and Nottingham dairies of Arla Foods UK Limited, which were acquired on 19 August 2006. These restructuring costs comprised £3.1 million of redundancy costs, £3.5 million of duplicate running costs and £2.0 million of otherrationalisation costs.
- £10.0 million charge for penalties and associated legal fees in relation to settlement of the OFT investigation into 'milk price initiatives'.
On 20 September 2007 the Office of Fair Trading ('OFT') issued a detailed Statement of Objections to certain retailers and dairy processors in its investigation into pricing in the dairy produce sector. On 7 December the Group announced that it had reached an early resolution agreement with the OFT concerning this investigation. Under this agreement the Group expects to pay a significantly reduced fine of £9.4 million. In addition, legal fees of £0.6 million have been charged in relation to the investigation.
The exceptional cost has been allocated £3.6 million Foods and £6.4 million Dairies. Cash costs incurred in the year ended 31 March 2008 amounted to £0.4 million of legal fees.
- £4.4 million provision for an onerous long-term milk supply contract. This contract became onerous during the year ended 31 March 2008 as a result of unprecedented increases in milk costs combined with weaker cream prices in the second half. The provision comprises the present value of estimated cash outflows under this contract through to its term. Cash utilisation of this provision in the year to 31 March 2008 was £1.5 million. See Note 13.
- £6.7 million profit on a site in west London originally sold in October 2002. The site was sold with a potential future overage receipt from the purchasers should certain planning permissions be obtained. A cash amount of £6.7 million was received in the period in full and final settlement of this overage clause.
- £1.2 million final tax adjustment on the disposal of the majority of our retailer branded cheese business to First Milk in October 2006.
|
Notes to the financial statements |
||
|
6 Finance costs and other finance income |
||
|
Finance costs |
||
|
Year ended |
Year ended |
|
|
31 March 2008 |
31 March 2007 |
|
|
|
£m |
£m |
|
Bank loans and overdrafts (at amortised cost) |
(25.6) |
(18.7) |
|
Interest expense on financial liabilities not at fair value through profit and loss |
(25.6) |
(18.7) |
|
Unwind of discount for provisions (Note 13) |
(0.1) |
- |
|
Finance charges on finance leases |
(0.9) |
(0.9) |
|
Total finance costs |
(26.6) |
(19.6) |
|
Finance income on cash balances (financial assets not at fair value through profit and loss) |
0.4 |
0.4 |
|
Total net finance costs |
(26.2) |
(19.2) |
|
Other finance income - pensions |
Year ended |
Year ended |
|
31 March 2008 |
31 March 2007 |
|
|
|
£m |
£m |
|
Expected return on plan assets |
48.0 |
44.7 |
|
Interest cost on defined benefit obligation |
(37.9) |
(35.2) |
|
|
10.1 |
9.5 |
Other finance income comprises the expected return on assets of funded defined benefit pension schemes less the interest cost
on defined benefit pension scheme liabilities (see Note 12).
|
Notes to the financial statements |
|||
|
7 Tax expense |
|||
|
The major components of income tax expense for the years ended 31 March 2008 and 2007 are: |
|||
|
2008 |
2007 |
||
|
Consolidated income statement |
£m |
£m |
|
|
Current income tax |
|||
|
Current income tax charge at 30% (2007: 30%) |
13.0 |
5.5 |
|
|
Adjustments in respect of previous years - current tax |
(0.4) |
(3.4) |
|
|
- transfer to deferred tax |
(0.6) |
1.0 |
|
|
12.0 |
3.1 |
||
|
Deferred income tax |
|||
|
Relating to origination and reversal of temporary differences |
1.1 |
8.8 |
|
|
Transfer from / to current tax |
0.6 |
(1.0) |
|
|
Adjustment for reduction in UK corporation tax rate |
(2.4) |
- |
|
|
|
11.3 |
10.9 |
|
|
Analysed |
|
|
|
|
From continuing operations: |
|||
|
Before exceptional items |
17.7 |
14.5 |
|
|
Exceptional items |
(5.2) |
(3.2) |
|
|
|
12.5 |
11.3 |
|
|
From discontinued operations: |
|||
|
Before exceptional items |
- |
- |
|
|
Exceptional items |
(1.2) |
(0.4) |
|
|
|
(1.2) |
(0.4) |
|
|
|
11.3 |
10.9 |
|
|
Reconciliation between tax expense and the profit before tax multiplied by the standard rate of corporation tax in the UK: |
|||
|
2008 |
2007 |
||
|
|
£m |
£m |
|
|
Profit before tax (including discontinued operations) |
65.7 |
60.1 |
|
|
Tax at UK statutory income tax rate of 30% (2007: 30%) |
19.7 |
18.0 |
|
|
Adjustments in respect of previous years |
(0.4) |
(3.4) |
|
|
Adjustment for overseas profits taxed at different rates |
0.7 |
(0.7) |
|
|
Adjustment in respect of joint ventures' profits |
(2.3) |
(2.4) |
|
|
Deferred tax adjustment for reduction in UK corporation tax rate |
(2.4) |
- |
|
|
Non-deductible expenses |
4.0 |
3.1 |
|
|
Profits offset by available tax relief |
(8.0) |
(3.7) |
|
|
At the effective rate of 17.2% (2007: 18.1%) |
11.3 |
10.9 |
|
|
The effective pre-exceptional rate of tax on Group profit before tax after adjusting for joint ventures' tax is 23.2% (2007: 22.6%). |
|||
|
2008 |
2007 |
||
|
Consolidated statement of changes in equity |
£m |
£m |
|
|
Deferred income tax related to items charged / (credited) directly to equity |
|||
|
Share based payments |
0.4 |
(0.6) |
|
|
Tax on actuarial gains |
3.0 |
9.7 |
|
|
Valuation of financial instruments |
1.5 |
1.9 |
|
|
Income tax reported in equity |
|||
|
Share based payments |
(0.4) |
- |
|
|
Tax on exchange losses designated as net investment hedges post-tax |
(7.8) |
- |
|
|
|
(3.3) |
11.0 |
|
|
Notes to the financial statements |
|||
|
7 Tax expense (continued) |
|||
|
Deferred income tax |
|||
|
Deferred income tax at 31 March 2008 and 2007 relates to the following: |
|||
|
2008 |
2007 |
||
|
Deferred tax liability |
|
£m |
£m |
|
Accelerated depreciation for tax purposes |
(26.9) |
(33.2) |
|
|
Goodwill and intangible assets |
(61.8) |
(53.8) |
|
|
Pensions |
(8.7) |
- |
|
|
Financial instrument valuation |
|
(3.5) |
(2.0) |
|
|
|
(100.9) |
(89.0) |
|
Deferred tax asset |
|
|
|
|
Pensions |
- |
0.8 |
|
|
Government grants |
2.6 |
3.0 |
|
|
Share based payments |
1.2 |
1.6 |
|
|
Other |
1.0 |
3.0 |
|
|
|
|
4.8 |
8.4 |
|
Net deferred tax liability |
|
(96.1) |
(80.6) |
|
Analysed: Net deferred tax assets (2008: Ireland; 2007: Ireland and France) |
0.2 |
1.8 |
|
|
Net deferred tax liabilities (2008: UK and France; 2007: UK) |
(96.3) |
(82.4) |
|
8 Dividends paid and proposed |
||
|
2008 |
2007 |
|
|
Declared and paid during the year |
£m |
£m |
|
Equity dividends on ordinary shares: |
||
|
Final dividend for 2007: 16.2 pence (2006: 15.2 pence) |
21.4 |
18.9 |
|
Interim dividend for 2008: 7.1 pence (2007: 6.7 pence) |
9.4 |
8.8 |
|
|
30.8 |
27.7 |
|
Proposed for approval at AGM (not recognised as a liability at 31 March) |
|
|
|
Equity dividends on ordinary shares: |
||
|
Final dividend for 2008: 17.3 pence (2007: 16.2 pence) |
22.9 |
21.4 |
Notes to the financial statements
9 Earnings per share
Basic earnings per share ('EPS') on profit for the year is calculated by dividing profit attributable to equity shareholders of the parent company by the weighted average number of ordinary shares outstanding during the year.
Basic EPS on continuing operations is calculated on the basis of Group profit for the year from continuing operations less profit attributable to minority interests divided by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the profit attributable to equity shareholders of the parent company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the 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 used in 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 and diluted earnings per share (including adjusted earnings per share) are as follows:
|
Year ended 31 March 2008 |
Year ended 31 March 2007 |
|||||
|
Weighted |
Weighted |
|||||
|
average |
Per share |
average |
Per share |
|||
|
Earnings |
no of shares |
amount |
Earnings |
no of shares |
amount |
|
|
£m |
million |
pence |
£m |
million |
pence |
|
|
|
|
|
|
|
|
|
|
Basic EPS on profit for the year |
||||||
|
Net profit attributable to equity shareholders |
54.4 |
132.3 |
41.1 |
49.0 |
127.2 |
38.5 |
|
Effect of dilutive securities: |
||||||
|
Share options |
- |
1.0 |
(0.3) |
- |
1.1 |
(0.3) |
|
Diluted EPS on profit for the year |
54.4 |
133.3 |
40.8 |
49.0 |
128.3 |
38.2 |
|
Basic EPS from continuing operations |
||||||
|
Profit from continuing operations attributable |
||||||
|
to equity shareholders |
53.2 |
132.3 |
40.2 |
53.1 |
127.2 |
41.7 |
|
Effect of dilutive securities: |
||||||
|
Share options |
- |
1.0 |
(0.3) |
- |
1.1 |
(0.3) |
|
Diluted EPS from continuing operations |
53.2 |
133.3 |
39.9 |
53.1 |
128.3 |
41.4 |
|
Adjusted EPS from continuing operations |
||||||
|
Basic EPS from continuing operations |
53.2 |
132.3 |
40.2 |
53.1 |
127.2 |
41.7 |
|
Exceptional items (net of tax) |
15.9 |
- |
12.0 |
7.2 |
- |
5.7 |
|
Amortisation of acquired intangible assets (net of tax) |
6.5 |
- |
4.9 |
1.9 |
- |
1.5 |
|
Joint ventures' exceptional items (net of tax) |
- |
- |
- |
(0.3) |
- |
(0.2) |
|
Adjusted basic EPS from continuing operations |
75.6 |
132.3 |
57.1 |
61.9 |
127.2 |
48.7 |
|
Effect of dilutive securities: |
||||||
|
Share options |
- |
1.0 |
(0.4) |
- |
1.1 |
(0.5) |
|
Adjusted diluted EPS from continuing operations |
75.6 |
133.3 |
56.7 |
61.9 |
128.3 |
48.2 |
Basic and diluted earnings per share from discontinued operations amount to 0.9 pence per share (2007: loss of 3.2 pence per share).
There have been no transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.
|
Notes to the financial statements |
|
|
10 Goodwill |
|
|
£m |
|
|
Cost |
|
|
At 1 April 2006 |
133.4 |
|
Additions |
152.2 |
|
Business disposals |
(2.0) |
|
Exchange |
1.9 |
|
At 31 March 2007 |
285.5 |
|
Additions |
4.8 |
|
Exchange |
25.8 |
|
At 31 March 2008 |
316.1 |
|
Accumulated impairment |
|
|
At 31 March 2006, 2007 and 2008 |
(2.3) |
|
Net book amount at 31 March 2008 |
313.8 |
|
Net book amount at 31 March 2007 |
283.2 |
|
11 Intangible assets |
|||||
|
Internally |
Acquired |
||||
|
Generated |
intangibles |
Total |
|||
|
£m |
£m |
£m |
|||
|
Cost |
|||||
|
At 1 April 2006 |
2.1 |
3.6 |
5.7 |
||
|
Acquisitions |
- |
148.3 |
148.3 |
||
|
Exchange |
|
|
- |
1.8 |
1.8 |
|
At 31 March 2007 |
2.1 |
153.7 |
155.8 |
||
|
Additions |
1.2 |
- |
1.2 |
||
|
Acquisitions |
- |
2.6 |
2.6 |
||
|
Exchange |
|
|
- |
26.7 |
26.7 |
|
At 31 March 2008 |
|
|
3.3 |
183.0 |
186.3 |
|
Accumulated amortisation |
|||||
|
At 1 April 2006 |
0.2 |
1.0 |
1.2 |
||
|
Amortisation for the year |
|
|
0.4 |
2.7 |
3.1 |
|
At 31 March 2007 |
0.6 |
3.7 |
4.3 |
||
|
Amortisation for the year |
0.5 |
9.0 |
9.5 |
||
|
Exchange |
|
|
- |
1.1 |
1.1 |
|
At 31 March 2008 |
|
|
1.1 |
13.8 |
14.9 |
|
Net book amount at 31 March 2008 |
|
|
2.2 |
169.2 |
171.4 |
|
Net book amount at 31 March 2007 |
|
|
1.5 |
150.0 |
151.5 |
|
The remaining useful lives at 31 March 2008 for significant intangible assets are as follows: |
|||||
|
Acquired St Hubert brand |
24 years |
||||
|
Acquired Le Fleurier brand |
14 years |
||||
|
Acquired Valle brand |
14 years |
||||
2008
- On 17 February 2008 the Group acquired certain assets from the East of England Co-operative Society. This included two customer contracts that have been recognised as intangible assets (£2.0 million). These contracts will be amortised over four years.
- During the year certain adjustments were made to the fair value of intangible assets acquired with St Hubert SAS in January 2007.
These total £0.6 million.
12 Retirement benefit obligations
The Group has two defined benefit pension plans, Dairy Crest in the UK and Wexford in Ireland, both of which require contributions to be made to separately administered funds. The Dairy Crest Group pension fund is a final salary scheme that was closed to new employees joining after 30 June 2006. Employees joining after this date are invited to join a Dairy Crest Group defined contribution plan.
Yoplait Dairy Crest, a 49% owned joint venture, also has a defined benefit pension plan. The most recent full actuarial valuation of the Dairy Crest Group pension fund was carried out as at 31 March 2007 by the fund's independent actuary using the projected unit credit method. Full actuarial valuations are carried out triennially.
The following tables summarise the components of net benefit expense recognised in the consolidated income statement and the funded status and amounts recognised in the consolidated balance sheet for the defined benefit plans. These plans are wholly funded.
|
Dairy Crest Group |
||||
|
pension plans |
||||
|
2008 |
2007 |
|||
|
Net benefit expense recognised in the consolidated income statement |
|
|
£m |
£m |
|
Current service cost |
17.2 |
19.4 |
||
|
Curtailment gains |
- |
(4.1) |
||
|
Interest cost on benefit obligation |
37.9 |
35.2 |
||
|
Expected return on plan assets |
|
|
(48.0) |
(44.7) |
|
Net benefit expense |
|
|
7.1 |
5.8 |
|
2008 |
2007 |
|||
|
Net actuarial gain recognised in the statement of recognised income and expense |
|
£m |
£m |
|
|
Actual return less expected return on pension scheme assets |
(68.3) |
2.7 |
||
|
Experience gains arising on scheme liabilities |
1.9 |
1.7 |
||
|
Gain arising from changes in assumptions underlying the present value of scheme liabilities |
|
77.1 |
28.4 |
|
|
Net actuarial gain |
10.7 |
32.8 |
||
|
Related tax |
|
|
(3.0) |
(9.7) |
|
Net actuarial gain recognised in the statement of recognised income and expense |
|
|
7.7 |
23.1 |
|
Actual returns on plan assets were £(20.3) million (2007: £47.4 million). |
||||
|
2008 |
2007 |
|||
|
Defined benefit surplus / (obligation) |
|
|
£m |
£m |
|
Fair value of plan assets: |
- Equities |
389.6 |
416.6 |
|
|
- Bonds and cash |
266.3 |
245.8 |
||
|
|
- Property and other |
28.9 |
29.4 |
|
|
684.8 |
691.8 |
|||
|
Defined benefit obligation |
|
|
(653.2) |
(692.2) |
|
Net asset / (liability) recognised in the balance sheet |
|
|
31.6 |
(0.4) |
|
Analysed: |
- Dairy Crest scheme |
33.6 |
1.0 |
|
|
|
- Wexford scheme |
|
(2.0) |
(1.4) |
|
|
|
|
31.6 |
(0.4) |
|
Related deferred tax (liability) / asset |
|
|
(8.7) |
0.8 |
|
Net pension asset |
|
|
22.9 |
0.4 |
At 31 March 2008, recognition of the net defined benefit surplus has not been restricted by the implementation of IFRIC 14.
Scheme assets are stated at their market values at the respective balance sheet dates. The expected rate of return on equities of 8% (2007: 8%) reflects historic UK equity returns and a reasonable risk premium over gilts. It is within the range of assumptions typically used by companies of a similar size. The expected rate of return on bonds of 6.1% (2007: 5.3%) is based upon the gross redemption yield available on a similar profile of gilts and corporate bonds.
Included in the above analysis is the Wexford Creamery pension fund. The net benefit expense in the year ended 31 March 2008 amounted to £0.4 million (2007: £0.3 million). The fair value of plan assets at 31 March 2008 was £8.6 million (2007: £8.1 million) and the defined benefit obligation was £10.6 million (2007: £9.5 million) resulting in a scheme deficit of £2.0 million (2007: £1.4 million).
|
Notes to the financial statements |
||
|
12 Retirement benefit obligations (continued) |
||
|
2008 |
2007 |
|
|
Movement in the present value of the defined benefit obligation are as follows: |
£m |
£m |
|
Opening defined benefit obligation |
(692.2) |
(687.9) |
|
Current service cost |
(17.2) |
(19.4) |
|
Curtailment gains |
- |
4.1 |
|
Interest cost |
(37.9) |
(35.2) |
|
Contributions by plan participants |
(7.4) |
(7.5) |
|
Actuarial gains |
79.0 |
30.1 |
|
Exchange impact |
(1.8) |
- |
|
Benefits paid |
24.3 |
23.6 |
|
Closing defined benefit obligation |
(653.2) |
(692.2) |
|
Movement in the fair value of plan assets are as follows: |
|
|
|
Opening fair value of plan assets |
691.8 |
625.9 |
|
Expected return |
48.0 |
44.7 |
|
Actual less expected return |
(68.3) |
2.7 |
|
Contributions by employer |
28.7 |
34.6 |
|
Contributions by employees |
7.4 |
7.5 |
|
Exchange impact |
1.5 |
- |
|
Benefits paid |
(24.3) |
(23.6) |
|
Closing fair value of plan assets |
684.8 |
691.8 |
The principal assumptions used in determining retirement benefit obligations for Dairy Crest Group's pension fund are shown below:
|
2008 |
2007 |
||
|
|
|
% |
% |
|
Key assumptions: |
|||
|
Rate of increase in salaries |
4.8 |
4.7 |
|
|
Rate of increase in pensions in payment and deferred pensions (and price inflation) |
3.3 |
3.2 |
|
|
Average expected remaining life of a 65 year old non-retired male (years) |
20.9 |
19.6 |
|
|
Average expected remaining life of a 65 year old retired male (years) |
19.8 |
18.6 |
|
|
Average expected remaining life of a 65 year old non-retired female (years) |
23.2 |
22.5 |
|
|
Average expected remaining life of a 65 year old retired female (years) |
22.1 |
21.5 |
|
|
Discount rate |
6.5 |
5.5 |
|
|
Expected return: |
- Equities |
8.0 |
8.0 |
|
- Bonds and cash |
6.1 |
5.3 |
|
|
|
- Property and other |
7.0 |
7.0 |
|
13 Provisions |
|||
|
OFT provision |
|||
|
(including |
Onerous |
||
|
legal fees) |
contract |
Total |
|
|
|
£m |
£m |
£m |
|
At 1 April 2007 |
- |
- |
- |
|
Charged in the year as exceptional (see Note 5) |
10.0 |
4.4 |
14.4 |
|
Utilised |
(0.4) |
(1.5) |
(1.9) |
|
Discount unwind |
- |
0.1 |
0.1 |
|
At 31 March 2008 - Current |
9.6 |
3.0 |
12.6 |
Office of Fair Trading ('OFT')
An exceptional provision has been charged in relation to the settlement of the OFT investigation into milk price initiatives (including legal costs).
The amount of the fine provided is £9.4 million and reflects the early resolution agreement that was reached with the OFT in December 2007. This fine represents a significant reduction to the amount that could have been imposed by the OFT and is dependent upon the Group's continued full co-operation with the OFT until the conclusion of its investigation. The possibility of the imposition of a higher fine by the OFT is considered remote given the Group's continuing co-operation in this matter. Settlement is expected to be reached in the year ending 31 March 2009 and the related provision has been classified as current.
Onerous contract
The Group has one milk supply contract with a middle ground customer which, due to recent unprecedented increases in milk costs and subsequent weakening of cream prices has become onerous. An exceptional provision of £4.4 million was charged in the year being the best estimate of the present value of future cash outflows resulting from the contractual obligations in the contract (see Note 5). In the year ended 31 March 2008, £1.5 million was charged against this provision with the remainder expected to be charged in the year ending 31 March 2009. In calculating the amount of cash outflows to the end of this contract, estimates have been made regarding future pricing and volumes.
|
Notes to the financial statements |
|
14 Reconciliation of movements in equity |
|
Attributable to equity shareholders of the parent |
|||||||||
|
Ordinary |
Share |
Interest |
Other |
Retained |
Total |
Minority |
Total |
||
|
shares |
premium |
in ESOP |
reserves |
earnings |
interests |
equity |
|||
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
||
|
At 31 March 2007 |
33.1 |
66.7 |
(1.2) |
60.4 |
180.1 |
339.1 |
4.0 |
343.1 |
|
|
Total recognised income and expense |
|||||||||
|
in the year |
- |
- |
- |
6.6 |
64.0 |
70.6 |
1.1 |
71.7 |
|
|
Issue of share capital |
0.2 |
3.5 |
(3.2) |
- |
- |
0.5 |
- |
0.5 |
|
|
Exercise of options |
- |
- |
0.7 |
- |
(0.7) |
- |
- |
- |
|
|
Share based payments |
- |
- |
- |
- |
3.2 |
3.2 |
- |
3.2 |
|
|
Equity dividends (Note 8) |
- |
- |
- |
- |
(30.8) |
(30.8) |
- |
(30.8) |
|
|
At 31 March 2008 |
33.3 |
70.2 |
(3.7) |
67.0 |
215.8 |
382.6 |
5.1 |
387.7 |
|
|
At 31 March 2006 |
31.3 |
28.8 |
(1.5) |
55.8 |
132.8 |
247.2 |
10.8 |
258.0 |
|
|
Total recognised income and expense |
|||||||||
|
in the year |
- |
- |
- |
4.6 |
73.4 |
78.0 |
0.1 |
78.1 |
|
|
Issue of share capital |
1.8 |
39.0 |
- |
- |
- |
40.8 |
- |
40.8 |
|
|
Equity placing fees |
- |
(1.1) |
- |
- |
- |
(1.1) |
- |
(1.1) |
|
|
Exercise of options |
- |
- |
0.3 |
- |
(0.3) |
- |
- |
- |
|
|
Minority dividends paid |
- |
- |
- |
- |
- |
- |
(1.0) |
(1.0) |
|
|
Purchase of minority interest |
- |
- |
- |
- |
- |
- |
(5.9) |
(5.9) |
|
|
Share based payments |
- |
- |
- |
- |
1.9 |
1.9 |
- |
1.9 |
|
|
Equity dividends (Note 8) |
- |
- |
- |
- |
(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 |
|
The shares held by the Dairy Crest Employees' Share Ownership Plan Trust ('ESOP') are available to satisfy awards under LTISP and ESOS.
Notes to the financial statements
15 Business combinations
2008
On 17 February 2008, the Group acquired the assets and goodwill of the dairy business of the East of England Co-operative Society for an initial consideration of £4 million. The provisional fair value of the identifiable assets and liabilities of the business at the date of acquisition was as follows:
|
Fair value |
Book |
||
|
to Group |
Value |
||
|
|
|
£m |
£m |
|
Property, plant and equipment |
0.4 |
0.5 |
|
|
Intangible assets |
2.0 |
- |
|
|
Deferred tax |
(0.7) |
- |
|
|
Inventories |
0.2 |
0.2 |
|
|
Receivables |
0.9 |
0.9 |
|
|
Payables |
|
(0.1) |
(0.1) |
|
Net assets |
2.7 |
1.5 |
|
|
Goodwill |
|
2.6 |
|
|
Consideration |
|
5.3 |
|
|
Comprising: |
Cash consideration |
4.0 |
|
|
Deferred working capital consideration adjustment |
1.0 |
||
|
|
Professional fees |
0.3 |
Provisional fair values for the assets and liabilities of these depots have been used to calculate goodwill due to the proximity of the acquisition to 31 March 2008. Final valuation will take place during the period to 17 February 2009. Fair value adjustments principally comprise the recognition of two supply contracts as intangible assets along with the related deferred tax liabilities.
During the period, the Group acquired the goodwill of a number of bottled milk buyers for cash consideration of £1.6 million resulting in goodwill of £1.6 million (March 2007: £0.7 million).
Included in goodwill for the above acquisitions are certain intangible assets that cannot be separately identified and measured due to their nature. These include acquired milk rounds lists and assembled workforces. Management believes that goodwill represents value to the Group for which the recognition of a discrete intangible asset is not permitted. The majority of the value was assessed to comprise synergy benefits expected to be achieved by merging the businesses acquired into the Group's existing operations.
The trade and assets acquired as a result of the above acquisitions were absorbed into the wider Dairies business within Dairy Crest Limited. As a result, disclosure of the profit for the year to 31 March is impracticable. Similarly, it is impracticable to disclose what Group profit and revenue from continuing operations would have been if the acquisition had occurred on 1 April 2007.
Certain fair value adjustments were made in relation to St Hubert in the period to December 2007. These comprised adjustments to property, plant and equipment, intangible assets and deferred tax and resulted in additional goodwill of £0.6 million being recognised.
On 6 December 2007, the Group acquired a 50% interest in the ordinary share capital of Fayrefield-Foodtec Limited for a consideration of £2.1 million. The share of assets and goodwill acquired can be analysed as follows:
|
Book and |
|||
|
Fair value |
|||
|
|
|
£m |
|
|
Property, plant and equipment |
0.4 |
||
|
Working capital |
1.0 |
||
|
Goodwill |
0.7 |
||
|
Consideration |
2.1 |
||
|
Analysed: |
|
||
|
Cash consideration |
2.0 |
||
|
Fees |
|
0.1 |
|
|
2.1 |
On 23 October 2007 the Group sold its 50% investment in Cotteswold Dairy Limited for cash consideration of £3.0 million. Until 30 September 2007 this investment had been disclosed as an investment in joint venture using the equity method. At this date the carrying value was impaired by £0.6 million to £3.0 million.
Notes to the financial statements
|
16 Cash flow from operating activities |
Year ended |
Year ended |
||
|
31 March 2008 |
31 March 2007 |
|||
|
|
|
|
£m |
£m |
|
Profit from continuing operations before taxation |
66.0 |
64.6 |
||
|
Finance costs and other finance income |
16.1 |
9.7 |
||
|
Share of joint ventures' net profit |
|
|
(7.7) |
(7.4) |
|
Profit from continuing operations before net finance costs and taxation |
74.4 |
66.9 |
||
|
Loss from discontinued operations before net finance costs and taxation |
- |
(4.5) |
||
|
Depreciation |
39.5 |
40.6 |
||
|
Amortisation of intangible assets |
9.5 |
3.1 |
||
|
Impairment of investment in joint venture |
0.6 |
- |
||
|
Exceptional items |
7.5 |
11.8 |
||
|
Release of grants |
(0.8) |
(0.8) |
||
|
Share based payments |
3.2 |
1.9 |
||
|
Profit on disposal of household depots |
(6.6) |
(6.8) |
||
|
Difference between pension contributions paid and amounts recognised in the income statement |
(11.5) |
(15.2) |
||
|
(Increase) / decrease in inventories |
(9.3) |
2.9 |
||
|
(Increase) / decrease in receivables |
(27.4) |
17.1 |
||
|
Increase / (decrease) in payables |
29.3 |
(22.8) |
||
|
Cash generated from operations |
|
|
108.4 |
94.2 |
|
17 Analysis of net debt |
|||||
|
At 1 April |
Cash |
Exchange |
At 31 March |
||
|
2007 |
flow |
movement |
2008 |
||
|
|
|
£m |
£m |
£m |
£m |
|
Cash at bank and in hand |
24.9 |
14.5 |
0.9 |
40.3 |
|
|
Overdrafts |
|
- |
(1.4) |
- |
(1.4) |
|
Cash and cash equivalents |
24.9 |
13.1 |
0.9 |
38.9 |
|
|
Borrowings (current) |
(120.1) |
95.1 |
- |
(25.0) |
|
|
Borrowings (non-current) |
(324.4) |
(86.6) |
(45.6) |
(456.6) |
|
|
Finance leases |
|
(17.1) |
0.8 |
- |
(16.3) |
|
(436.7) |
22.4 |
(44.7) |
(459.0) |
||
|
Borrowings (non-current) |
|||||
|
Impact of cross-currency swaps* |
(14.3) |
- |
(1.5) |
(15.8) |
|
|
|
|
(451.0) |
22.4 |
(46.2) |
(474.8) |
|
Preference |
|||||
|
At 1 April |
Cash |
shares |
Exchange |
At 31 March |
|
|
2006 |
flow |
issued |
movement |
2007 |
|
|
|
£m |
£m |
£m |
£m |
£m |
|
Cash at bank and in hand |
14.4 |
10.5 |
- |
- |
24.9 |
|
Borrowings (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 $233 million of loan notes against which cross-currency swaps have been put in place to fix interest and principal repayments in Sterling. Under IFRS, Dollar long-term borrowings are retranslated into Sterling at year end exchange rates. The cross-currency swaps are recorded at fair value and incorporate movements in both market exchange rates and interest rates. The Group defines net debt so as to include the effective Sterling liability where cross-currency swaps have been used to convert foreign currency borrowings into Sterling. The £15.8 million adjustment included above (2007: £14.3 million) converts the Sterling equivalent of Dollar loan notes from year end exchange rates (£117.2 million (2007: £118.7 million)) to the fixed Sterling liability (£133.0 million (2007: £133.0 million)).
Related Shares:
Dairy Crest