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DAIRY CREST GROUP PLC
PRELIMINARY RESULTS For the year ended 31 March 2006
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Highlights
Building value through brand development
• Group Revenue (including share of jvs) £1.42bn (2005: £1.35bn)
• Adjusted profit before tax* £67.7m (2005: £75.7m)
• Adjusted earnings per share* 40.3 pence (2005: 43.9 pence)
• Full year dividend up 6.4% to 21.5 pence (2005: 20.2 pence)
• Net debt £280.2m (2005: £227.5m)
* Including share of joint ventures and before exceptional items and amortisation of acquired intangibles
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HighlightsBuilding value through brand development
• We continue to make good progress with our brand portfolio:
- strong performances from Cathedral City, Clover, Country Life Spreadable and the Yoplait brands
- active programme of new product launches with emphasis on functional foods
- recent launch of Cathedral City Mild
• We have strengthened the Dairies division:
- integration of Midlands Co-op Dairies and Foston completed on time and to plan
- successful implementation of additional Morrisons fresh milk
- better balance of industry supply and demand in fresh milk
- good performance by household business
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Financial Review
Alastair Murray
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Income Statement
* All items include share of joint ventures** Before exceptional items and amortisation of acquired intangibles
£’m Year March 06
Year March 05
Profit on operations** 82.0 91.9
Net finance costs (14.3) (16.2)
Profit after interest** 67.7 75.7
Exceptional items (22.2) (4.4)
Intangible amortisation (1.0) -
Profit before tax 44.5 71.3
Taxation (9.7) (19.7)
Profit after tax 34.8 51.6
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Exceptional Items
£’m Year March 06
Cash Non Cash
Total
Midlands Co-op Dairies (11.7) (1.0) (12.7)
Arla London Foodservice (2.6) - (2.6)
Sale of Newport IOW Dairy 1.4 - 1.4
Impairment of assets - (9.3) (9.3)
(12.9) (10.3) (23.2)
Share of JV sale of Enfield* 1.0 - 1.0
Total (11.9) (10.3) (22.2)
* Profit on sale before tax
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Earnings and Dividends
Pence per share Year March 06
Year March 05
Change%
Adjusted EPS 40.3 43.9 - 8.2
Basic EPS 27.1 41.4 - 34.5
Dividend declared 21.5 20.2 + 6.4
Shares in issue: m 124.8 123.4
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Segmental Analysis
* Including pre tax and interest share of jvs and before exceptional items
£’m YearMarch 06
YearMarch 05
Revenue
Foods excl jvs 539 518
Joint ventures 69 88
Foods 608 606
Dairies 816 743
Total 1,424 1,349
Profit on operations *
Foods excl jvs 54.9 49.2
Joint ventures 9.3 7.5
Foods 64.2 56.7
Dairies 16.8 35.2
Total 81.0 91.9
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Operating Margin*
* Including share of joint ventures and before exceptional items
% YearMarch 06
YearMarch 05
Foods excl jvs 10.2 9.5
Joint ventures 13.5 8.5
Foods 10.6 9.4
Dairies 2.1 4.7
Total 5.7 6.8
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Balance Sheet
£’m YearMarch 06
YearMarch 05
Net operating assets 558.6 466.4
Tax (20.4) (18.3)
538.2 448.1
Net debt (280.2) (227.5)
Net assets employed 258.0 220.6
Gearing 109% 103%
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Operating Cash Flow
* Including share of joint ventures and before exceptional items** Net of grants
£’m YearMarch 06
YearMarch 05
Adjusted profit on operations* 81.0 91.9
Depreciation and amortisation** 38.6 33.1
Exceptional items (14.3) (1.3)
Pensions (1.3) 7.4
Joint ventures and other (14.3) (10.5)
Working capital (16.3) 22.4
Operating cash flow 73.4 143.0
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Cash Flow
£’m YearMarch 06
YearMarch 05
Operating cash flow 73.4 143.0
Capital expenditure (net of grants) (44.0) (37.7)
Interest, tax and dividends (57.5) (54.2)
Dividends received from jvs 9.0 -
Acquisitions (43.7) (9.9)
Disposals 9.4 8.4
Other 0.7 2.6
Movement in net debt (52.7) 52.2
Net debt at 31 March 2005 227.5
Net debt at 31 March 2006 280.2
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Pensions Summary
• IAS19 gross deficit at 31 March 2006 of £62.0m (2005:£102.7m)
- highly volatile measure
- increased asset valuations and discount rate
• Scheme to close to new entrants from July 2006
• Additional cash contribution of £6.0m in 2005/06
• Employer contributions to increase by £11.0m to c.£28.3m from 2006/07
- additional cash contribution of £12.0m
- basic contribution increased from £11.3m to c.£16.3m
• Committed to maintain additional cash contribution of £12.0m in 2007/08
• Next full actuarial valuation as at 31 March 2007
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Business Review
Drummond Hall
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Total Shareholder Return since IPO• TSR = Share price + dividends
0.0
100.0
200.0
300.0
400.0
500.0
600.0
Aug-96 Aug-97 Aug-98 Aug-99 Aug-00 Aug-01 Aug-02 Aug-03 Aug-04 Aug-05
Dairy Crest (TSR) FTSE 250 (TSR)
Source: Datastream (May 2006)
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0 100 200 300 400
Country Life
Petits Filous
Our brands are getting bigger
Source: Dairy Crest Annual Sales Volumes (Country Life 100% since Sept 2004) – 1996/97 indexed to 100
0 100 200 300 400
Clover
Cathedral City + 248%1996/97
2005/06
1996/97
1996/97
1996/97
2005/06
2005/06
2005/06+ 36%
+ 210%
+ 317%
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£106m
£41m
£52m
£66m
Our brands are getting bigger
Source: TNS / AC Nielsen / IRI 52 week ended March 2006
bigger than
bigger than
bigger than
bigger than
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We’ve been active with new product development
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Spreads
• Spreads business continues to be biggest profit contributor
• Marketing continues to focus on four key brands
- simplified portfolio with fewer brands and sku’s
• Good performance from Clover
- sales value growth of 5%
- lower proportion of sales on promotion
- price increases achieved in Sept 2005 and Jan 2006
• Utterly Butterly continues to make progress against competition
- increased share of dairy spreads sector
- sales up 7% by volume and down 2% by value
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25,000
30,000
35,000
40,000
45,000
50,000
55,000
60,000
65,000
70,000
Jan-0
2
Apr-02
Jul-0
2
Oct
-02
Dec-0
2
Mar
-03
Jun-0
3
Sep-0
3
Nov-03
Feb-04
May
-04
Aug-04
Nov-04
Jan-0
5
Apr-05
Jul-0
5
Oct
-05
Dec-0
5
Mar
-06
Clover ICBINB Utterly Butterly
DC acquired UB
Source: AC Nielsen (MAT) 26 March 2006
MAT Value: £000’s
Clover and UB outperform ICBINB
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Country Life
• Good growth in Country Life
- packet sales up 9% by value
- spreadable sales up 23% by value
• Successful marketing campaign launched in summer 2005
- first national TV advertising for 20 years
• Lightly salted version of Country Life Spreadable launched in January 2006
• New packaging for Country Life range introduced
• Opportunities to stretch the Country Life brand into new areas
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St. Ivel Gold
• St. Ivel Gold volume and share under pressure
- sales down 17% by value
- strong competitor performance
• St. Ivel Gold relaunched in January 2006
- new packaging
- new television advertising campaign
- new Omega-3 variant launched
• St. Ivel Gold will be the platform for functional spreads
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Cathedral City
• Strong performance from Cathedral City
- sales up 17% by value and 11% by volume
- lower proportion of sales on promotion
• New packaging launched
• Successful TV advertising campaign
• Cathedral City Mild launched May 2006
• Final phase of Davidstow redevelopment completed
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Cathedral City Growth
£0m
£20m
£40m
£60m
£80m
£100m
£120m
Cathedral City Seriously Strong Pilgrims Choice
Source: TNS (MAT) 26 March 2006
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Cheese
• Strong overall performance from our cheese business- Cathedral City growth- cost related price increases achieved in summer 2005
• Davidstow brand performed strongly with sales up 19%
• Successful implementation of new own label supply arrangements with ASDA and Morrisons
• Stilton business continues to be challenging- impairment charge on value of assets of £9.3m- launch of new speciality cheese brand ‘Over the Moon’
• Strong market for whey products
• Industry cheese stocks have risen in second half
- pressure on pricing in commodity cheese in 2006/07
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Cheese Stocks
British Cheese Board cheddar stocks12 month moving averageK tonnes
85.0
90.0
95.0
100.0
105.0
110.0
115.0
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• Continued good growth in chilled yogurts and desserts market
• Brands continue to perform strongly with overall sales value up 11%
- Petits Filous up 25%
- Frubes up 34%
- Wildlife up 6%
- YOP up 13%
• Weight Watchers down 4% by value but held market share in ‘Light’
• New product development in functional foods
- Petits Filous Plus: probiotic yogurt drink for kids
• Closure of own label operations in June 2005
Yoplait Dairy Crest
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Liquid Products
• Retail milk volumes down 17% year on year
- Tesco volume ceased in April 2005
• Morrisons additional volume successfully implemented at end of October 2005
• Acquisitions of Midland Co-op Dairies and Foston dairy in May 2005
- integration completed on schedule and to plan
- MCD Birmingham dairy closed February 2006
- Foston now fully operational
• Better balance of supply and demand in fresh milk industry
• Price increases achieved from March 2005 and further increases achieved in January 2006 to offset higher input costs
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Other Liquid Products
• Strong growth in organic milk
- own label milk sales up 49% by value
- Rachel’s brand sales up 47% by value
• FRijj maintained market leading position
- value down 5% due to lower promotional volumes
- addressing capacity constraints for 2006/07
• Potted cream sales up 15% by value
- M&S sole supply position from August 2006
• St. Ivel advance encouraging performance so far
- good levels of trade distribution
- annualised retail sales of approximately £13m
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Household• Overall household volumes up 31% year on year
- volume gained in middle ground- Midlands Co-op Dairies acquisition May 2005- Arla’s London foodservice business October 2005- ongoing infill acquisitions
• Uplift in Midlands Co-op performance- Average milk per round: 322 to 450 gallons pw- Non-milk products per round: £55 to £206 pw
• Underlying doorstep decline maintained at around 8%
- investment in canvassing
- first class service initiatives
• Non-milk product sales up by 30%
• Doorstep price increase from September 2005 of 2 pence per pint
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Milk Procurement
• Strong working relationship with Dairy Crest Direct
- over 70% of raw milk sourced from Dairy Crest Direct
• Dairy Crest continues to pay market leading prices
- Waitrose and Marks & Spencer
- Davidstow
• Price reductions on cheese contracts following 0.8 ppl increase in summer 2005:
- 0.5ppl from March 2006 (excluding Davidstow)
- Announced 0.5ppl from June 2006 (0.25ppl for Davidstow)
• Price reduction on liquids contracts of 0.5ppl from April 2006 reflecting lower commodity cream prices
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Outlook
• Our brand portfolio continues to make good progress
- further new product launches
• Markets for own label and commodity products continue to be challenging
• Improved performance from Dairies division
• Trading at the start of the new financial year is on track
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DAIRY CREST GROUP PLC
PRELIMINARY RESULTS For the year ended 31 March 2006