27th Mar 2009 07:00
27 March 2009
Dairy Crest Group plc announces sale of its stake in Yoplait Dairy Crest
and pre-close trading update for the full year
Dairy Crest has sold its 49% stake in Yoplait Dairy Crest Limited (YDC) for £63.5m
- This is consistent with its strategy to focus on and invest in core brands owned outright
- Cash proceeds will be used to repay debt, substantially increasing available headroom under banking covenants
Trading performance for year ending 31 March 2009 remains in line with expectations
- Clover, Country Life and Cathedral City all show strong volume growth
Sale of Stake in Yoplait Dairy Crest (YDC)
YDC was established in 1991 when Dairy Crest formed a joint venture with Yoplait S.A.S., the owner of the international Yoplait brand, and acts as the distributor in England, Scotland and Wales for fresh dairy products supplied by Yoplait S.A.S. from its factories in France.
The sale of Dairy Crest's 49% stake in YDC to the Yoplait group, which completed yesterday, will result in an exceptional profit on disposal for Dairy Crest of £50 million. No tax is expected to be payable on the disposal. At 31 March 2008 Dairy Crest's share of the net assets of YDC was £2.7 million, Dairy Crest's share of the gross assets of YDC was £19.2 million and Dairy Crest's share of YDC's profit after tax for the year ended 31 March 2008 was £7.4 million. A similar performance is forecast for the year ending 31 March 2009, but, going forward, YDC's performance would have been negatively impacted by the £/€ exchange rate as well as a challenging market environment.
The joint venture agreement with the Yoplait group contained provisions for termination in February 2012. Dairy Crest's decision to sell its stake in YDC before that date is consistent with the Group's strategy to focus on and invest in core brands that it owns outright. The cash proceeds will reduce Group debt and increase headroom against banking covenants.
Under the terms of the sale agreement, Dairy Crest will continue physically to distribute Yoplait products in Great Britain until March 2010. These products include Petits Filous, Frubes, Yop and Wildlife yoghurts. In addition, Dairy Crest will take on the Yoplait group's share of YDC's defined benefit pension scheme liability, estimated at £1.5 million.
Trading update for the year ending 31 March 2009
In line with its normal practice, Dairy Crest is also issuing the following pre-close trading update for the full year ending 31 March 2009.
Overall the Group's expectations for its performance to 31 March 2009 remain in line with its statements on 10 November 2008 and 3 February 2009. The Group's net debt position is substantially improved by the sale of its YDC stake and net debt at the year-end is now expected to be around £435 million. As a result, calculated on a basis that is consistent with the Group's banking arrangements, the net debt to EBITDA ratio on 31 March 2009 will be approximately 3.0, well within the covenant limit of 3.5, and considerably improved from the forecast given on 3 February 2009 of 3.25.
We remain focused on overall cost control and cash generation and believe this leaves us well placed to meet the challenges of an increasingly tough environment for UK consumers.
Foods
Dairy Crest's key UK Foods brands of Cathedral City, Clover and Country Life have continued to grow. Advertising and promotional expenditure has been broadly maintained over the year and these brands have performed well against strong comparatives.
UK Foods sales remain strong and turnover will be around 10% higher than for the year ended 31 March 2008 on a like for like basis after adjusting for the sale of Dairy Crest's Stilton and speciality cheese business in August 2008. As anticipated, the retail environment remains tough and we are continuing to promote to encourage consumers to purchase our brands and to grow volume.
Cathedral City sales have increased approximately 10% by volume and 20% by value over the year. The brand has increased its market share and is worth over £190 million at retail value, making it now the 21st largest UK food and drink brand as measured by the Grocer trade magazine. It remains bigger than the next three largest competitor brands added together. Cathedral City Lighter sales have doubled year on year and this variant now has retail sales approaching £25 million.
Over the last year we have also outperformed the total butters and spreads market. On both volume and value our two key brands, Country Life, which has benefited from the "Great British Butter" advertising campaign, featuring John Lydon, and Clover sales are both up between 25-30%. In addition Utterly Butterly, Vitalite and Willow continue to grow both volume and value.
Our new cheese packing operation at Nuneaton will complete full commissioning during the spring of 2009. This investment will enable us to benefit from greater productivity and reduced transport costs in the future.
We are pleased to report that our French spreads business, St Hubert, continues to deliver in line with expectations. The French market remains depressed but overall St Hubert has increased turnover (in local currency) by around 1% compared to the year ended 31 March 2008.
We have been particularly successful with St Hubert Omega 3 spreads in the year, which has gained 1.5 percentage points in market share, and have maintained our overall market share of the French spreads category.
Dairies
Total Dairies turnover will be up 4% compared to the year ended 31 March 2008. Against a difficult backdrop overall for the UK dairy industry, and a particularly difficult global dairy commodity market, we have made a real improvement to our retail milk business over the year. Volumes of liquid milk sold to major retailers have increased by around 4% by volume and our Frijj brand has also seen good growth.
Efficiency improvements arising from action taken in 2007/08 as well as 2008/09 have reduced costs and improved profitability.
Although the Group has been adversely affected by lower returns from ingredients sales, year-end stocks of ingredients at around £5 million will be significantly lower than at 30 September 2008 and actions have been put in place to minimise the amount of milk processed into ingredients during 2009/10.
Our doorstep delivery business is performing in line with expectations. Having been adversely affected by the increasingly tough consumer environment and the need to recover higher milk prices at the start of 2008/9, this business is now benefiting from actions taken to reduce our overall cost base. Trials of "milk&more", our online doorstep delivery service, continue to progress well with over 60,000 customers registered. Our plans are on track to roll out nationally over the summer.
Mark Allen, Chief Executive of Dairy Crest, commented:
"Despite the well-documented tough environment, we are pleased to report that we have traded in line with our expectations over recent months. Our key brands have benefited from our decision to continue to invest in advertising and promotions and we are well placed to deliver volume growth going forward. In addition we continue to reduce costs across the whole business with particular focus on our Dairies division.
The sale of our stake in Yoplait Dairy Crest is consistent with our strategy to focus on and invest in core brands that we own outright. The sale also substantially reduces Group debt and provides us with more headroom under our banking arrangements."
Preliminary results for the year ending 31 March 2009 will be announced on 19 May 2009.
There will be a conference call for analysts today at 8.30am
Dial in telephone number: +44 (0) 1452 541 077
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For further information, please contact:
Dairy Crest Group plc
Arthur Reeves 01372 472236
Brunswick
Simon Sporborg 020 7404 5959
Jayne Rosefield
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