dairy crest group plc interim results for the period ended 30 september 2010
TRANSCRIPT
DAIRY CREST GROUP PLC
Interim results
For the period ended 30 September 2010
DAIRY CREST GROUP PLC
INTERIM RESULTS 2010/11
Agenda
H1 2010/11 Mark Allen, Chief Executive
Financial Review Alastair Murray, Finance Director
Current Trading & Outlook Mark Allen, Chief Executive
Mark Allen
Chief Executive
H1 2010/11
4
Continuing Progress in H1 Benefiting from our broad base
Build market leading positions in branded and added value markets
5% increase in sales of key brands
New fresh milk contract with Tesco
Focus on cost reduction and efficiency improvements
Efficiency projects set to deliver £20 million
Investment in liquid dairies on track
Improve quality of earnings and reduce commodity risk
Balanced customer base
Balanced product portfolio
Generate growth and focus thebusiness through acquisition& disposals
As suitable value-enhancing opportunities
arise
Adjusted profit before tax up 5% at £40.1 million
Half year debt down 12% from September 2009 to £335 million
Confident that we can continue to deliver profits in line with our expectations
4% increase in interim dividend
5
Benefiting from being a broadly based business
Another half year of growth
Cheese profits rebound to more normal levels
Challenging middle-ground dairies market
H1 10/11 Property Profits £nil million (09/10: £2.3 million)
1425 27 27
15
1313818
113 14
0
10
20
30
40
50
60
07/08 08/09 09/10 10/11
£m
Spreads Cheese Dairies
4246 49 51
6
Brands continue to outperform market
* DC value sales 6 months to 30 September 2010 v 6 months to 30 September 2009** ACN, TNS data 26 weeks to 2 October 2010 v 26 weeks to 3 October 2009, IRI data 26 weeks to 17 October 2010 v 26 weeks to 17 October 2009*** DC value sales 6 months to 30 September 2010 v 6 months to 30 September 2007
4%
10%
2%
7%
1%
2%
46%
70%
69%
32%
10%-1%
5%
5%
Core Brand
Market
Brand Growth
H1 v H1*
Market Growth
H1 v H1**
Brand Growth
3 Year***
UK Cheese
UK Butter, Spreads,
Margarine
UK Butter, Spreads, Margarine
French non-butter spreads
Flavoured Milk
-1%
0%
7
Cheese profits rebounding
Cheese supply chain becoming increasingly efficient as volumes grow
Strong performance in prestigious cheese shows during summer
Spreads businesses dealing successfully with higher input costs
Cost saving projects at Spreads plants progressing to plan
Continuing good progress in Foods- in addition to ongoing key brand growth
8
Profitability (excluding property profits) in line with last year
Replacing middle-ground business with high quality retail sales
Improving milk&more systems to prepare for further growth
Building direct milk supply and leading milk purchasing innovation
Driving efficiencies in factories and depots
Delivering innovation such as JUGIT
Continuing good progress in Dairies
9
Acting responsibly
Increasingly recognised as leading the dairy industry
First dairy business to be named in prestigious Carbon Disclosure Leadership Index
Growing reduced fat brands and 1% fat milk sales
Raising money for Macmillan cancer support, now >£550k
Member of the The Prince’s Rural Action Programme
Biomass boilers at Davidstow will reduce carbon emissionssignificantly next year
Alastair Murray
Finance Director
Financial Review
11
Group revenue down 3% to £776.9m (2009: £803.7m)
Adjusted profit before tax* up 5% to £40.1m (2009: £38.1m)
Adjusted earnings per share* up 6% to 21.4 pence (2009: 20.1 pence)
Interim dividend up 4% to 5.5 pence (2009: 5.3 pence)
Net debt down 12% to £335.5m (September 2009: £380.4m)
* Before exceptional items, amortisation of acquired intangibles and pension interest costs/income
Financial Highlights
12
Income Statement
Year £'m Half Year Half YearMarch 10 Sept 10 Sept 09 % Change
105.8 Profit on operations 50.6 49.2 3%
(22.4) Finance costs (10.5) (11.2) -6%
0.1 Share of Associate net profit - 0.1
83.5 Adjusted profit before tax 40.1 38.1 5%
(0.5) Other finance (expense)/income - pensions - (0.2)
4.0 Exceptional items 0.3 0.8
(9.2) Amortisation of acquired intangibles (4.3) (4.7)
77.8 Profit before tax 36.1 34.0 6%
(25.3) Taxation (incl. exceptional tax) (9.8) (9.1)
52.5 Profit after tax 26.3 24.9
13
Segmental Analysis – Cheese
Revenue down due to disposal of Wexford in the half
Improved whey returns as commodity markets remain strong
Continue to invest in Cathedral City and re-launched Davidstow
Year
March 10
£’m Half Year
Sept 10
Half Year
Sept 09
260.0 Revenue 108.9 131.8
16.9 Profit 12.5 7.9
6.5% Margin 11.5% 6.0%
14
Good performance from key brands offset by weaker Utterly Butterly volumes
Clover and St Hubert Omega 3 brand performance very strong
Margins maintained in a competitive environment, helped by renewed focus on UK cost base
Year
March 10
£’m Half Year
Sept 10
Half Year
Sept 09
277.7 Revenue 134.7 137.9
54.0 Profit 27.2 27.0
19.5% Margin 20.2% 19.6%
Segmental Analysis – Spreads
15
Segmental Analysis – Dairies
Strong volumes in retail milk and successful renewal of key contracts
Improved operating efficiencies
Doorstep decline continues – improvement to milk&more infrastructure and service will underpin future growth
Middle ground remains highly competitive
Year
March 10
£’m Half Year
Sept 10
Half Year
Sept 09
1,081.2 Revenue 529.7 528.7
34.9 Profit 10.9 14.3
3.2% Margin 2.1% 2.7%
16
Balance Sheet
£m Sep 10 Mar 10 Change
Fixed assets, goodwill &intangibles 781.4 794.4 (13.0)
Stocks 167.1 153.7 13.4 Debtors less creditors (107.8) (94.8) (13.0)
Pension deficit (137.2) (142.4) 5.2 Deferred tax (65.9) (65.8) (0.1)Net debt (335.5) (337.2) 1.7 Other (13.7) (18.1) 4.4
Net assets 288.4 289.8 (1.4)
17
Operating Cash Flow
Year £m Half Year Half YearMar 10 Sep 10 Sep 09105.8 Adjusted profit on operations * 50.6 49.2 38.1 Depreciation & amortisation ** 16.8 19.7 (2.6) Exceptional items (1.8) (2.1)
(20.1) Pensions (11.4) (8.1)(1.0) Other *** 0.7 (1.3)25.7 Working capital (3.1) 13.1
145.9 Cash generated from operations 51.8 70.5 (26.9) Capital expenditure (21.5) (11.9)119.0 Operating cash flow 30.3 58.6
* Before exceptional items and amortisation of acquired intangibles
** Net of grant amortisation
*** Operating property profits and share based payment charges
18
Net Cash Flow
Year £m Half Year Half YearMar 10 Sep 10 Sep 09119.0 Operating cash flow 30.3 58.6 (22.1) Interest (9.9) (11.7)(10.5) Tax (8.9) (3.8)(24.3) Dividends paid (18.1) (17.3)
0.1 Dividends received from JVs - 0.1 Acquisition / disposal of businesses
10.7 and assets 4.1 7.8 72.9 Net cash flow (2.5) 33.7 5.7 Foreign exchange movements 4.2 1.7
78.6 Movement in net debt 1.7 35.4 (415.8) Opening net debt (337.2) (415.8)(337.2) Closing net debt (335.5) (380.4)
19
Pensions Summary
Reported deficit under IAS19 £137.2m at September 2010
Small decrease from March 2010 (£142.4m deficit) due to ongoing funding payments of £20m per annum
Falls in discount rate broadly offset by lower inflation assumptions
Full triennial valuation for March 2010 ongoing
20
Continuing to reduce net debt
Net debt £335 million, down £155 million v September 2008
0
50
100
150
200
250
300
350
400
450
500
Sep 2006 Mar 2007 Sep 2007 Mar 2008 Sep 2008 Mar 2009 Sep 2009 Mar 2010 Sep-10
£ m
illi
on
Net debt: EBITDA below 2.4x
Net debt
Mark Allen
Chief Executive
Operating Review and Outlook
22
Stable environment for our British and French Foods businesses
Dairy Crest produces everyday groceries – less susceptible to downtrading
Promotional levels remain historically high but slightly below last year
Food inflation, particularly vegetable oil, building but manageable
After challenging few months retail milk supply now settled
Pressure on middle ground selling prices from increased production and low barriers to entry
Dairy commodity markets remain strong and stable
Trading environment
23
Promotions October 2008 – September 2010
Source: Nielsen
Non Promoted vs Promoted Volume - 12 wkly
31 3234 33 32 33
4043 44
42 43 4446 48 46
44
39 38 3840 39 40 40 41 41 41
44
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
Volume Sales (Tonnes)
0
10
20
30
40
50
60
70
80
90
100
Share %
Non Promoted Promoted Promoted %
Foods – a stable environment
October 2008 October 2009 September 2010
Butters and Spreads percentage sales on promotion are below last year but still high
24
Non Promoted vs Promoted Volume - 12 wkly
5860 59 60
58 58 5759
62 63 6364
6769 69 69
65
60 6063
65 66 65 65 64 63 63
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
Volume Sales (Tonnes)
0
10
20
30
40
50
60
70
80
90
100
Share %
Non Promoted Promoted Promoted %
Foods – a stable environment
Source: Nielsen
And it is a similar story for branded cheddar
Branded Cheddar Promotions October 2008 – September 2010
October 2008 October 2009 September 2010
25
Foods – a stable environment
Raw milk prices have increased but are relatively stable
Vegetable oil prices are increasing but in a manageable way
We have obtained selling price increases to help offset higher milk costs
Power and packaging prices broadly stable
Input price increases are manageable
26
Foods – responding effectively to the challenges
Ongoing commitment to our key brands (media spend up yoy)
Selling price increases obtained to help offset cost increases
Strong pipeline of innovation with several new launches planned for H2
St Hubert continues to grow market share
Cheese & Spreads businesses well positioned
Gate 2Scale up
Gate 3Launch
Gate 1Development
57Ideas or concepts
52Projects
beingscoped
24Projects under development
44 Products in
scale-up
46 Products launched
Gate 0Resource Approval
27
‘Clone-derived milk claim prompts food agency inquiry’3 August 2010
‘Milk is the new beer as price war erupts’
31 July 2010
27 August 2010
‘Milk price war sours Wiseman’17 September 2010
‘Spectre of Britain’s first cattle factory’ 6 August 2010
Dairies environment has been much more volatile
‘Kendall accuses supermarkets of ‘bully boy’ tactics over milk prices’
28
We have a differentiated Dairies business which has advanced strongly over recent years
Improvements to quality, service and cost provide a solid foundation
Actions taken to reduce risk have increased stability
Strong commitment to and increased investment in this business is allowing experienced management team to continue the improvement process
But our Dairies business remains strong
29
Strong innovationJUGIT, milk&more, added
value milk supply pools
Supply 6 major retailers with fresh milk
Co-op, Marks & Spencer,Morrisons, Sainsbury’s,
Tesco and Waitrose
Leading position in flavoured milk
FRijj, own label flavoured milk
Reducing riskself-balancing
seasonal milk supply, cream used for
Country Life butter
A robust, diverse and sustainable
business model
Our Dairies business
30
A clear plan for Dairies
Build on broad retail customer base
Continuous programme of product innovation
- FRijj
- JUGIT
Ongoing investment and focus on cost to drive efficiencies
Leverage lead in milk purchasing
Convert milk&more opportunity
Balanced customer base and product portfolio providesstability and opportunities for profitable growth
31
Dairy Crest drives innovation in retail milk pools
- 1999 M&S and Waitrose groups
- 2007 Sainsbury’s launched SDDG: First joint supply pool (DC & Wiseman)
- December 2010 Tesco Sustainable Dairy Group
Ambition to ensure all our supplying dairy farmers are aligned either to a customer or a Dairy Crest brand
Increased recruitment facilitated by ability to balance seasonal milk supply
Milk Purchasing strategies add value to our relationship with suppliers and customers
32
milk&more can make a real difference
Meeting consumers’ needs with planned top-ups and emergencies
Weekly sales averaged £800k during September 2010
12 depots now in sales growth
A further 20 depots have sales decline < 2%
Systems improvements will increase customer capacity and tell us more about our consumers
The convenience of this service is attracting new customers which leads to higher average spend per customer
33
46
47
48
49
50
51
52
53
2008/09 2009/10 2010/11
% o
f to
tal v
olu
me
s b
y m
ark
et
Retail Middle ground
Over the past 2 years we have increased conventional milk volumes to major retailers and reduced middle ground volumes
Major retailers now account for over half of total volumes
We will be increasingly selective in middle ground to improve profitability
And growing volumes with majorretailers allow us to reduce sales to middle ground
Dairy Crest conventional milk sales(excluding doorstep)
34
Well positioned through our strong, broadly based business
Ongoing investment puts our Foods business in great shape to prosper
Differentiated Dairies business has proved resilient in an eventful six months
We have a clear plan for future success
35
Summary and outlook
Successful first half
– Adjusted profit before tax up 5%
– Net debt down 12% from September 2009
– Sales of key brands up 5%
– Secured new fresh milk contracts with major retailers
Confidence demonstrated by interim dividend increase
Well placed for future with brand growth, operational efficiencies and selling price increases providing resilience
Questions?