TIDMDCG
RNS Number : 6154G
Dairy Crest Group PLC
07 November 2018
Correction: Dividend Record Date updated to 4 January 2019 from
3 January 2019 in Note 6
7 November 2018
Dairy Crest Group plc ("Dairy Crest")
Interim results announcement for the six months ended 30
September 2018
Highlights
-- Revenue up 2% to GBP224.9m
-- Adjusted profit before tax* up 13% to GBP22.7m; reported profit before tax of GBP17.8m
-- Cathedral City and Clover deliver strong revenue growth of +7% and +9% respectively
-- New product innovation across the business
-- Pension surplus increased by GBP87m on an accounting basis since September 2017
-- Cash generated from operations up 71% to GBP18.5m
-- Net debt* reduced to GBP221.4m following the May 2018 share placing; 21% lower than
September 2017
-- Proposed interim dividend up 2% to 6.4 pence
-- Full year expectations remain unchanged
Financial summary
Half year ended 30 September
2018 2017 Change
Revenue GBP224.9m GBP220.1m +2%
Adjusted profit before tax* GBP22.7m GBP20.0m +13%
Profit before tax(1) GBP17.8m GBP151.4m -88%
Adjusted basic earnings per share* 12.3p 11.6p +6%
Basic earnings per share(1) 9.7p 87.6p -89%
Pension surplus GBP126.9m GBP39.9m +218%
Net debt*(2) GBP221.4m GBP281.4m -21%
Interim dividend 6.4p 6.3p +2%
*Alternative performance measures:
The Group uses alternative performance measures (APMs) as key
financial performance indicators to assess the underlying
performance of the Group. The APMs are widely used industry
measures and form the measurement basis of key targets. Definitions
of the APMs discussed throughout this document and a reconciliation
to the equivalent reported measure are detailed in Note 13.
(1) Including an exceptional cost of GBP4.9m (2017: exceptional
gain of GBP131.4m recognised primarily for the reduction in pension
scheme liabilities).
(2) For a reconciliation of net debt, refer to note 9 of the
interim financial statements.
All comparative figures in the interim results announcement
relate to the six months ended 30 September 2017.
Mark Allen, Chief Executive, said:
"We have delivered a good first half performance driven by our
two largest brands, Cathedral City and Clover. Demand for our
Functional Ingredients continues to grow.
"Innovation continues to shape the business and we have recently
launched exciting new products in all of our categories. We
understand the importance of staying ahead of the market and
ensuring we are meeting consumers' needs. Food provenance, health
and wellbeing are core themes which we will continue to focus
on.
"Our investment at Davidstow is progressing as planned. We are
pursuing a number of opportunities to take Cathedral City into new
international markets as well as deepen its penetration into
existing domestic channels, capitalising on its status as one of
the UK's top ten brands according to YouGov. We are confident in
delivering our expectations for the full year."
For further information:
Investors/Analysts
Tom Atherton Dairy Crest 01372 472264
Kate Goode Dairy Crest 01372 472236
Media
Tim Danaher/Alison Lea Brunswick 020 7404 5959
A video interview with Mark Allen, Chief Executive, and Tom
Atherton, Deputy Chief Executive and Group Finance Director, will
be available from 07:00 (UK time) from the investor section of the
Group's website www.dairycrest.co.uk.
There will be an analyst and investor meeting at 09.00 (UK time)
today at The Lincoln Centre, 18 Lincoln's Inn Fields, London, WC2A
3ED. An audiocast of the presentation will be available on the
Group's website later today.
Operating review
A high quality British business
Dairy Crest is a leading British dairy company built on a
passion to create exceptional food, loved by every generation.
Fundamental to our business is the high quality milk which is
supplied by approximately 330 farmers in the South West who supply
exclusively to us and with whom we have a close working
relationship. Our exacting standards ensure that we consistently
produce outstanding cheese and whey.
Our production, packaging and distribution facilities in
Davidstow and Nuneaton are the most advanced of their kind,
enabling us to deliver unrivalled quality and consistency. We have
a track record of investing in manufacturing excellence,
exemplified by our recent announcement to expand production
capacity and improve our environmental credentials at our creamery
in Cornwall. We recognise that superior facilities deliver
significant operational benefits.
Cost advantages achieved through an efficient supply chain and
the high quality and consistency achieved by our operating
facilities allow us to invest in innovation, marketing and
promotional activity to create leading brands like Cathedral
City.
The strength of our business model enables us to deliver a world
class cheese business with unrivalled, stable operating margins in
spite of fluctuating dairy markets.
Key brand performance
Brand Market Volume growth* Revenue growth*
Cathedral City Cheese -3% +7%
--------- --------------- ----------------
Clover Spreads +8% +9%
--------- --------------- ----------------
Country Life Butters -16% -4%
--------- --------------- ----------------
Frylight Oil -23% -22%
================ ========= =============== ================
Total -2% +4%
--------------- ----------------
* Dairy Crest volume and revenue 6 months to 30 September 2018
vs. 6 months to 30 September 2017
Combined revenue of our four key brands grew by 4% in the first
half of 2018/19 compared to last year, driven by the strong
performance of our two largest brands, Cathedral City and
Clover.
Davidstow expansion project
In May 2018 we announced our intention to expand capacity at the
Davidstow creamery from 54,000 tonnes of cheese per annum up to
77,000 tonnes to accommodate the long-term growth of Cathedral City
in both the UK and abroad. Approximately half of the additional
capacity is earmarked for the UK where we have the opportunity to
increase our share of the sliced, grated and snacking categories.
The remainder is targeted for export, primarily into Germany, China
and the US, where we are confident there is demand for high quality
cheddar.
The project will also position the creamery for a sustainable
future, moving towards self-sufficiency in water usage and greater
energy resilience. The GBP85 million expansion will take place in
phases over the next four to five years and is expected to deliver
a return on invested capital of at least 20% at the end of the
project.
In the current financial year we are undertaking enabling works
for the increase in cheese capacity. We will place orders for two
new water-heated vats and commence investment in site resilience.
The expected capital outlay for 2018/19 will be around GBP6
million, followed by approximately GBP20 million per annum in the
four years thereafter.
Cathedral City - continued innovation
We took the decision at the end of our last financial year to
focus on increasing prices in a market where milk input costs were
high. Revenues of Cathedral City benefitted from these price
increases and were positive, despite small volume declines in both
the second half of 2017/18 and the first half of this financial
year. Volumes are already improving in the second half of 2018/19
as promotional activity picks up and new products are rolled
out.
In the first half of the financial year Cathedral City generated
revenue growth of 7%. Volumes were consequently somewhat weaker at
-3% against strong volumes a year ago. IRI Kantar data(1) for the
24 weeks ended 8 September 2018 shows that revenue for the Everyday
Cheese market grew by 2% compared to the same period last year
while volumes contracted by 1%.
Cathedral City has cemented its position as the 'Nation's
Favourite' cheese. It was recently voted one of the top 10 brands
by UK consumers in YouGov's Annual Brand Health Rankings, based on
consumers' perceptions of quality, value, satisfaction and
reputation. It was also voted number one in the chilled/frozen
foods category.
Healthy eating and snacking continue to influence consumer
purchases. We have developed a number of product innovations to
benefit from these trends. Firstly, in mid-October, we launched a
Caramelised Onion and a Sweet Chilli variant of the Cathedral City
snack bar, both of which have toasted pumpkin seeds for added
texture. Each bar contains less than 100 calories. The adult cheese
snacking market is currently small but growing at over 30% per
annum. We have a significant opportunity to develop our
distribution in the 'food to go' areas at the front of
supermarkets, as well as expanding beyond traditional food
retailers into travel hubs, sandwich shops and high street
channels.
Last month we also unveiled a Cathedral City Lactose Free range.
According to figures from Mintel, around four in ten adults now
regularly buy 'Free From' food and drink, and within this group 16%
buy Lactose Free products. This presents another opportunity to
broaden our customer base.
Finally, we have revamped our Cathedral City Kids Snacking
range. The range now uses 30% less fat 'Mild Lighter' cheese in
response to the Public Health England Change4Life 100 calorie
snacks campaign. The kids' cheese snacking market is worth over
GBP220 million in the UK but is dominated by processed varieties so
we expect our products to resonate with the current trend to eat
more natural, healthy food. We have also launched a new on-pack
partnership with Nickelodeon.
Cathedral City accounts for more than 55% of all branded cheddar
sold by UK retailers and more than 20% of total sales. There is
headroom for growth. The sliced and grated markets total around
GBP500 million of annual retail sales and are growing at
approximately 10% per annum. Dairy Crest has less than 5% market
share of these sub-sectors so they, together with snacking, will
continue to be growth areas for us.
Spreads brands continue to take market share
Dairy Crest's spreads brands grew revenue by 10% for the six
month period, compared to the overall spreads market which grew by
3%, according to IRI Kantar data. As retail butter prices have
climbed, consumers have switched to more cost effective
alternatives. This has helped to reverse the decline of the spreads
market which had been contracting volumes by more than 5% per annum
on average over the five years prior.
Clover has been a prime beneficiary of this move away from
butter with its buttery taste and no artificial ingredients.
Volumes grew by 8% and revenue by 9% over the six month period
ended 30 September 2018. It continues to gain market share and now
represents almost 21% of the spreads sector based on IRI Kantar
data. Building on this success, we launched Clover Light with no
artificial ingredients in August 2018. We expect this product will
support the continued growth of this brand.
The ongoing growth of the 'Free From' market supports the
success of our dairy-free spread, Vitalite, which grew both volumes
and revenue by more than 40% over the period. It is the leading
dairy-free spread in the UK by a considerable margin. We will
shortly be launching a block variety for baking and cooking.
Willow's growth also continued as consumers consider it an
economical alternative to butter. The brand generated double digit
volume and revenue growth.
Butter markets remain challenged
The cream price, which determines the input costs for Country
Life butter, fell by 25% over the twelve months to September 2018
since reaching record levels of around GBP3.00 per litre in August
2017. However, the price was still 25% higher than two years ago
during the period which led us to maintain our strategy to reduce
investment and marketing in this, our lowest margin product.
Volumes fell by 16% over the period while revenue reduced by 4%. We
expect an improved performance in the second half of the year,
supported by an on-pack promotion with English Heritage.
Frylight returns to growth in second half
Sales volumes and revenue of Frylight, the UK's leading oil
brand(2) , were down by around 20% for the six months to the end of
September 2018 as the summer heatwave led to consumers frying less.
In the first half last year there was also a major television
advertising campaign backed up by sizeable promotional
activity.
Frylight sales are weighted towards the second half of the year,
particularly the fourth quarter. Based on strong current trading,
we expect to return to year on year growth in the second half.
Kantar data for the 24 weeks ended 7 October 2018 showed volumes
and revenue for the whole UK oil market both decreased by 1%,
indicating that pouring oil was also impacted but to a lesser
extent given its broader usage in both hot foods and salads.
Frylight is stocked in all major retailers and discounters and
household penetration of the brand has doubled over the past five
years to reach more than 25%. We continue to work with key health
influencers and dieticians to promote the health benefits of using
Frylight and increase brand awareness.
Broadening the customer base for Functional Ingredients
The customer base for demineralised whey (D90) continues to
grow. Demand is expected to exceed supply in 2019. During the
period a significant number of audits of the Davidstow facility
were completed by infant formula manufacturers. Demand is
increasing as customers recognise the premium quality of our D90.
Production of galacto-oligosaccharides (GOS) is also ramping up as
an increasing number of infant formula manufacturers are purchasing
our product.
We are engaging with major feed manufacturers, vet groups,
nutritionists and animal producers regarding Nutrabiotic GOS. This
is the brand we have developed for use in animal feed. We have
conducted a number of academic trials which continue to show that
GOS improves weight gain and feed conversion ratios and also
reduces the levels of pathogens in the animal. Further academic
trials are continuing on poultry, swine, calves and fish as well as
companion animals. Commercial trials are also underway with several
major feed manufacturers. The results of these trials continue to
support the successful discussions we have with a range of
customers.
We recently unveiled a GOS 'shot' for consumers which is
marketed under the Promovita brand name. The unique prebiotic
dietary fibre, which feeds friendly bacteria in the gut, is sold as
liquid sachets to be taken daily. We are currently in discussions
with a range of different retailers about them launching the
product.
Focus on efficiency
Dairy Crest is always looking at ways to improve its cost base
and become more efficient. The previously announced extensive
programme to replace and simplify our core IT systems is well
underway and due to be completed next year. Once the new system is
fully rolled out we expect to make annualised cost savings of
around GBP5 million from 2019/20 onwards.
The improvement programme at our butters and spreads facility in
Kirkby last year is delivering results, including improved
efficiencies and lower wastage. Exceptional costs totalling GBP1.7
million have been incurred during the current period but we expect
to exit this financial year with annualised cost savings of GBP3
million. This is above our initial GBP2.5 million projection. We
are pursuing the sale of some surplus land on the site for
redevelopment which will help to offset the cash impact of this
restructuring.
Financial review
Group revenue from operations of GBP224.9 million represents a
2% increase against the comparative period. Cheese and spreads
revenue both increased, driven by strong performances from
Cathedral City and Clover, up 7% and 9% respectively. Frylight
volumes and revenue were lower than last year when there was a
significant advertising campaign supported by promotional activity.
Furthermore, the unusually hot summer impacted UK cooking oil
consumption. Sales of Country Life, our butter brand, were down
reflecting continued high input costs. Functional Ingredients sales
were broadly flat as improved demineralised whey pricing offset
lower returns from whey butter and cream. Finally, other revenue
from providing warehousing for third parties fell, as expected,
following the cessation of the distribution agreement with Muller
UK & Ireland Group LLP in June 2017 as part of the sale of our
Dairies business.
Once again the complementary nature of our portfolio has
delivered stable profits in spite of fluctuations within the
product groups. Total product group profit(3) increased by 3% to
GBP25.7 million (2017: GBP24.9 million). This is without the
benefit of any property sales which amounted to GBP0.5 million in
the prior year period. Profits in Butters, Spreads and Oils
increased by GBP8.4 million to GBP11.2 million as the spreads
brands continued to perform well and butter margins recovered
versus last year when the business had to cope with dramatic input
cost inflation. Cheese and Functional Ingredients group profits
decreased by GBP7.6 million to GBP14.5 million. This was
principally due to higher cost of sales reflecting increases in
milk input costs during 2017.
Total finance costs include both debt and pension scheme
interest and, at GBP3.0 million, were GBP1.9 million lower than
last year. Debt interest was GBP0.2 million lower due to reduced
borrowings following the share placing in May 2018. Pension
interest swung from a cost of GBP0.4 million in 2017 to income of
GBP1.3 million in 2018, reflecting the scheme moving into a
substantial surplus following the change in future indexation of
pension payments.
Adjusted profit before tax(3) was GBP22.7 million, up 13% from
GBP20.0 million in 2017. Product group analysis is included in note
3 to the interim financial statements. We have previously excluded
amortisation of acquired intangible items and pension interest from
our adjusted profit measure. However, these adjusting items are not
material in nature and, in the case of pension interest, resulted
in an inconsistent treatment of pension interest and pension
administration costs. In order to simplify reporting and reduce the
number of reconciliations between reported and adjusted measures,
we will in future only report pre-exceptional profit measures as
our chosen measure of underlying business performance. This has the
benefit of being clearly visible in the consolidated group income
statement.
Exceptional costs amounted to GBP4.9 million. Costs of GBP3.2
million were incurred in relation to changes to IT systems. A
further GBP1.7 million was incurred in Kirkby to deliver the final
site operating model encompassing new shift patterns, equipment
investment and revised terms and conditions. The combined annual
savings from these projects will be approximately GBP8 million per
annum, once completed. In the prior year exceptional income of
GBP131.4 million was recorded. The principal component of this was
GBP132.4 million which was recognised in relation to the reduction
in pension scheme liabilities resulting from the change in the
indexation benchmark for pensions in payment from RPI to CPI.
Reported profit before tax for the six months ended 30 September
2018 amounted to
GBP17.8 million. The figure of GBP151.4 million for the prior
year period included an exceptional gain of GBP132.4 million in
relation to the pension fund.
The effective rate of tax was 18.5% (2017: 19.0%) and is
representative of the expected rate for the year ending 31 March
2019.
Adjusted basic earnings per share(3) amounted to 12.3 pence
(2017: 11.6 pence), an increase of 6%, consistent with higher
adjusted profit before tax but more shares in issue following the
share placing in May 2018. Basic earnings per share decreased to
9.7 pence (2017: 87.6 pence), reflecting the large exceptional gain
recognised in the prior year.
Cash generated from operations in the six months ended 30
September 2018 amounted to GBP18.5 million compared to GBP10.8
million in the prior year, an increase of 71%. This increase was
underpinned by improved profits and a smaller working capital
outflow. In addition, capital expenditure in the first half of 2018
amounted to GBP13.0 million, GBP3.8 million less than last year. In
May 2018, the Group completed a share placing in order to fund the
future expansion of its cheese operations. This placing raised
GBP68 million after fees and, as a result, net debt at 30 September
2018 amounted to GBP221 million, GBP60 million lower than September
2017.
At 30 September 2018 the Group had a pension surplus of GBP126.9
million
(2017: GBP39.9 million surplus). The actuarial valuation, which
is more relevant in determining cash contributions, was a deficit
of GBP100 million at the time of the last full valuation in March
2016 but is estimated to be below GBP40 million at September 2018.
The next full actuarial valuation will be as at March 2019 and will
determine the levels of cash contributions in the new schedule of
contributions. The current schedule of contributions requires
GBP14.2 million of cash payments in the year ending 31 March 2019,
of which GBP6.7 million was paid in the first half of the year.
The principal risks and uncertainties affecting the Group are
disclosed on pages 26 to 29 of the 2017/18 Annual Report and
Accounts.
The financial statements have been prepared on a going concern
basis. In determining whether this is appropriate, we have
considered current performance and forecasts, the ability of the
Group to meet its bank covenants and the Group's borrowings. We
remain confident in the Group's ability to operate as a going
concern.
Summary and outlook
We have delivered a good first half performance driven by our
two largest brands, Cathedral City and Clover. Demand for our
Functional Ingredients continues to grow.
Innovation continues to shape the business and we have recently
launched exciting new products in all of our categories. We
understand the importance of staying ahead of the market and
ensuring we are meeting consumers' needs. Food provenance, health
and wellbeing are core themes which we will continue to focus
on.
Our investment at Davidstow is progressing as planned. We are
pursuing a number of opportunities to take Cathedral City into new
international markets as well as deepen its penetration into
existing domestic channels, capitalising on its status as one of
the UK's top ten brands according to YouGov. We are confident in
delivering our expectations for the full year.
Mark Allen
Chief Executive
7 November 2018
Consolidated income statement
Audited Unaudited Unaudited
Year ended 31 March Half year ended Half year ended
2018 30 September 2018 30 September 2017
------------------------------------- ------------------------------------- ------------------------------------
Before Before Before
exceptional Exceptional exceptional Exceptional exceptional Exceptional
items items Total items items Total items items Total
GBPm GBPm GBPm Note GBPm GBPm GBPm GBPm GBPm GBPm
----------- ----------- ------- ---------- ---- ----------- ----------- ------- ----------- ----------- ------
456.8 - 456.8 Revenue 3 224.9 - 224.9 220.1 - 220.1
Operating
(387.8) 118.0 (269.8) costs (199.2) (4.9) (204.1) (195.7) 131.4 (64.3)
Other
income -
2.4 - 2.4 property - - - 0.5 - 0.5
----------- ----------- ------- ---------- ---- ----------- ----------- ------- ----------- ----------- ------
Profit on
71.4 118.0 189.4 operations 25.7 (4.9) 20.8 24.9 131.4 156.3
Finance
(9.5) - (9.5) costs (4.3) - (4.3) (4.5) - (4.5)
Other
finance
income /
(expense)
(0.7) - (0.7) - pensions 1.3 - 1.3 (0.4) - (0.4)
----------- ----------- ------- ---------- ---- ----------- ----------- ------- ----------- ----------- ------
Profit
61.2 118.0 179.2 before tax 3,4 22.7 (4.9) 17.8 20.0 131.4 151.4
Tax
(expense)
(10.6) (19.1) (29.7) / credit 5 (4.2) 0.9 (3.3) (3.8) (24.9) (28.7)
----------- ----------- ------- ---------- ---- ----------- ----------- ------- ----------- ----------- ------
Profit for
50.6 98.9 149.5 the period 18.5 (4.0) 14.5 16.2 106.5 122.7
----------- ----------- ------- ---------- ---- ----------- ----------- ------- ----------- ----------- ------
All amounts are attributable to owners of the parent.
All references to financial results within the interim accounts
are in relation to continuing operations.
Year ended Half year ended Half year ended
31 March 30 September
2018 Earnings per share 2018 30 September 2017
----------- ---------------------------- ---------------- -------------------
106.6p Basic earnings per share 7 9.7p 87.6p
105.6p Diluted earnings per share 7 9.6p 86.8p
A final dividend of GBP25.2 million (16.3 pence per share) was
paid in the period to 30 September 2018 (2017: GBP22.8 million;
16.3 pence per share). A dividend of GBP9.9 million (6.4 pence per
share) was approved by the Board on 6 November 2018 for payment on
31 January 2019 (2017: GBP8.8 million; 6.3 pence per share). See
Note 6.
Consolidated statement of comprehensive income
Year ended Half year ended
31 March 30 September
----------------------
2018 2018 2017
Audited Unaudited Unaudited
GBPm Note GBPm GBPm
---------- ---------------------------------------------- -------------- ------ --------- ---------
149.5 Profit for the period 14.5 122.7
---------- -------------------------------------------------- -------------- ------ --------- ---------
Other comprehensive income to be reclassified
to profit and loss in subsequent periods:
Cash flow hedges - reclassification adjustment
(10.2) for gains / (losses) in income statement 6.8 6.8
Cash flow hedges - (losses) / gains recognised
11.0 in other comprehensive income (6.9) (4.9)
Tax charge relating to components of other
(0.5) comprehensive income - (0.7)
---------- ---------------------------------------------------------------- ----- ---- --------- ---------
0.3 (0.1) 1.2
---------- ---------------------------------------------- ------------ --- ---- --------- ---------
Other comprehensive income not to be reclassified
to profit and loss in subsequent periods:
Remeasurements of defined benefit pension
61.1 plans 10 25.5 9.3
Tax (charge) / credit relating to components
(10.3) of other comprehensive income (4.3) 0.5
------------------------------------------------------------- ----- ----
50.8 21.2 9.8
---------- --------- ---------
Other comprehensive gain for the period,
51.1 net of tax 21.1 11.0
---------- ------------------------------------------------------------- ----- ---- --------- ---------
Total comprehensive gain for the period,
200.6 net of tax 35.6 133.7
---------- ------------------------------------------------------------- ----- ---- --------- ---------
All amounts are attributable to owners
of the parent.
Consolidated balance sheet
30 September
--------- ------------
31 March
2018 2018 2017
Audited Unaudited Unaudited
GBPm Note GBPm GBPm
-------- ------------------------------------------------------------- ---- --------- ------------
Assets
Non-current assets
185.7 Property, plant and equipment 184.9 199.9
86.3 Goodwill 86.3 86.3
20.5 Intangible assets 24.7 17.6
Financial assets - Derivative financial
1.4 instruments 11 5.7 7.2
- Deferred tax asset - 1.7
Retirement benefits
93.9 surplus 10 126.9 39.9
-------- --------------------------------------------------------------- ---- --------- ------------
387.8 428.5 352.6
-------- ------------------------------------------------------------- ---- --------- ------------
Current assets
183.5 Inventories 188.3 169.5
29.3 Trade and other receivables 30.9 38.8
Financial assets - Derivative financial
1.6 instruments 11 3.1 -
22.6 Cash and short-term deposits 9 12.2 7.6
-------- ----------------------------------------------------------------- ---- --------- ------------
237.0 234.5 215.9
-------- ------------------------------------------------------------- ---- --------- ------------
3.4 Non-current assets held for sale 8 3.4 3.9
-------- ------------------------------------------------------------------- ---- --------- ------------
628.2 Total assets 666.4 572.4
-------- --------------------------------------------------------------- ---- --------- ------------
Equity and liabilities
Non-current liabilities
(275.5) Financial liabilities - Long-term borrowings 9 (228.7) (297.8)
(1.0) * Derivative financial instruments 11 - -
(10.0) Deferred tax liability (17.1) -
(2.4) Deferred income (2.4) (2.7)
(2.0) Provisions (2.0) (2.0)
-------- ------------------------------------------------------------- ---- --------- ------------
(290.9) (250.2) (302.5)
-------- ------------------------------------------------------------- ---- --------- ------------
Current liabilities
(72.6) Trade and other payables (71.1) (80.4)
(18.3) Financial liabilities - Short-term borrowings 9 (17.7) (0.9)
(0.3) Current tax liability (0.6) (0.8)
(0.6) Deferred income (0.3) (0.9)
(1.8) Provisions (3.1) (2.2)
(93.6) (92.8) (85.2)
-------- ---- --------- ------------
(384.5) Total liabilities (343.0) (387.7)
-------- --------------------------------------------------------------- ---- --------- ------------
Shareholders'
equity
(35.4) Ordinary shares (38.9) (35.3)
(86.8) Share premium (151.7) (86.7)
0.5 Interest in ESOP 0.5 0.5
(48.6) Other reserves (48.5) (49.5)
(73.4) Retained earnings (84.8) (13.7)
-------- --------------------------------------------------------------- ---- --------- ------------
(243.7) Total shareholders' equity (323.4) (184.7)
-------- ----------------------------------------------------------------- ---- --------- ------------
(628.2) Total equity and liabilities (666.4) (572.4)
-------- ----------------------------------------------------------------- ---- --------- ------------
The interim results were approved by the directors on 6 November
2018.
Consolidated statement of changes in equity
Ordinary Share Interest Other Retained Total
shares premium in ESOP reserves earnings Equity
Half year ended 30 September
2018 (Unaudited) GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ -------- ------- -------- -------- -------- ------
At 31 March 2018 35.4 86.8 (0.5) 48.6 73.4 243.7
Profit for the period - - - - 14.5 14.5
------
Other comprehensive (loss)
/ gain:
Cash flow hedges - - - (0.1) - (0.1)
Remeasurement of defined benefit
pension plan - - - - 25.5 25.5
Tax on components of other
comprehensive income - - - - (4.3) (4.3)
------------------------------------ -------- ------- -------- -------- -------- ------
Other comprehensive (loss)
/ gain - - - (0.1) 21.2 21.1
------------------------------------ -------- ------- -------- -------- -------- ------
Total comprehensive
(loss) / gain - - - (0.1) 35.7 35.6
Issue of share capital
(Note 7) 3.5 64.9 - - - 68.4
Share-based payments - - - - 0.9 0.9
Equity dividends - - - - (25.2) (25.2)
----------------------------------- -------- ------- -------- -------- -------- ------
At 30 September 2018 38.9 151.7 (0.5) 48.5 84.8 323.4
----------------------------------- -------- ------- -------- -------- -------- ------
Half year ended 30 September
2017 (Unaudited)
------------------------------------ -------- ------- -------- -------- -------- ------
At 31 March 2017 35.3 85.6 (0.5) 48.3 (96.8) 71.9
Profit for the period - - - - 122.7 122.7
------
Other comprehensive gain /
(loss):
Cash flow hedges - - - 1.9 - 1.9
Remeasurement of defined benefit
pension plan - - - - 9.3 9.3
Tax on components of other
comprehensive income - - - (0.7) 0.5 (0.2)
------------------------------------ -------- ------- -------- -------- -------- ------
Other comprehensive
gain - - - 1.2 9.8 11.0
----------------------------------- -------- ------- -------- -------- -------- ------
Total comprehensive
gain - - - 1.2 132.5 133.7
Issue of share capital - 1.1 - - - 1.1
Share-based payments - - - - 0.8 0.8
Equity dividends - - - - (22.8) (22.8)
----------------------------------- -------- ------- -------- -------- -------- ------
At 30 September 2017 35.3 86.7 (0.5) 49.5 13.7 184.7
----------------------------------- -------- ------- -------- -------- -------- ------
Year ended 31 March
2018 (Audited)
----------------------------------- -------- ------- -------- -------- -------- ------
At 31 March 2017 35.3 85.6 (0.5) 48.3 (96.8) 71.9
Profit for the period - - - - 149.5 149.5
------
Other comprehensive gain /
(loss):
Cash flow hedges - - - 0.8 - 0.8
Remeasurement of defined benefit
pension plan - - - - 61.1 61.1
Tax on components of other
comprehensive income - - - (0.5) (10.3) (10.8)
------------------------------------ -------- ------- -------- -------- -------- ------
Other comprehensive gain - - - 0.3 50.8 51.1
------------------------------------ -------- ------- -------- -------- -------- ------
Total comprehensive
gain - - - 0.3 200.3 200.6
Issue of share capital 0.1 1.2 - - - 1.3
Share-based payments - - - - 1.6 1.6
Tax on share-based payments - - - - (0.1) (0.1)
Equity dividends - - - - (31.6) (31.6)
----------------------------------- -------- ------- -------- -------- -------- ------
At 31 March 2018 35.4 86.8 (0.5) 48.6 73.4 243.7
----------------------------------- -------- ------- -------- -------- -------- ------
All amounts are attributable to owners of the parent.
Consolidated cash flow statement
Half year
Year ended ended
31 March 30 September
---------- --------- ------------
2018 2018 2017
Audited Unaudited Unaudited
GBPm Note GBPm GBPm
---------- ------------------------------------------------- ---- --------- ------------
Cash flow from operating activities
179.2 Profit before tax 17.8 151.4
10.2 Finance costs and other finance income - pensions 3.0 4.9
---------- ------------------------------------------------------- ---- --------- ------------
189.4 Profit on operations 20.8 156.3
17.7 Depreciation 8.2 9.2
Amortisation of internally generated intangible
0.7 assets 0.1 0.4
0.4 Amortisation of acquired intangible assets 0.2 0.2
(127.2) Difference between cash outflow on exceptional 1.5 (134.9)
items and amounts recognised in the income
statement
(1.5) Release of grants (0.3) (0.9)
1.6 Share-based payments 0.9 0.8
(2.4) Profit on disposal of depots - (0.5)
(11.5) Difference between pension contributions paid (6.2) (7.9)
and amounts recognised in the income
statements
(33.5) Increase in working capital (6.7) (11.9)
---------- ------------------------------------------------------- ---- --------- ------------
33.7 Cash generated from operations 18.5 10.8
(9.7) Interest paid (4.3) (4.5)
(0.5) Taxation paid (0.1) -
---------- ---- --------- ------------
23.5 Net cash inflow from operating activities 14.1 6.3
---------- ------------------------------------------------------- ---- --------- ------------
Cash flow from investing activities
(31.2) Capital expenditure (13.0) (16.8)
Proceeds from disposal of property, plant
22.1 and equipment - 0.5
(9.1) Net cash used in investing activities (13.0) (16.3)
---------- ------------------------------------------------------- ---- --------- ------------
Cash flow from financing activities
(12.0) Repayment and cancellation of loan notes - (11.9)
31.0 Net drawdown under revolving credit facilities (54.0) 31.0
(31.6) Dividends paid (25.2) (22.8)
Proceeds from issue of shares (net of issue
1.3 costs) 68.4 1.1
(1.4) Finance lease repayments (0.7) (0.7)
---------- ----------------------------------------------------- ---- --------- ------------
(12.7) Net cash used in financing activities (11.5) (3.3)
---------- ------------------------------------------------------- ---- --------- ------------
Net (decrease) / increase in cash and cash
1.7 equivalents (10.4) (13.3)
Cash and cash equivalents at beginning of
20.9 period 22.6 20.9
---------- ------------------------------------------------------- ---- --------- ------------
22.6 Cash and cash equivalents at end of period 9 12.2 7.6
---------- ------------------------------------------------------- ---- --------- ------------
(265.7) Net debt at end of period 9 (221.4) (281.4)
---------- ----------------------------------------------------- ---- --------- ------------
Notes to the interim financial statements
(Unaudited)
1 General information
Dairy Crest Group plc (the "Company") is a public limited
company incorporated in the United Kingdom under the Companies Act
2006. The address of the registered office and principal place of
business is Claygate House, Littleworth Road, Esher, Surrey, KT10
9PN. The principal activity of the Company and its subsidiaries
(the "Group") in the period was the processing, manufacture and
sale of branded dairy products as described in the Group's annual
financial statements for the year ended 31 March 2018.
2 Basis of preparation, accounting policies and approval of interim statement
Basis of preparation and approval of interim statement
These condensed interim financial statements comprise the
consolidated balance sheet as at 30 September 2018, consolidated
income statement, consolidated statement of comprehensive income,
consolidated statement of cash flow, consolidated statement of
changes in equity and supporting notes (hereinafter referred to as
"financial information").
The financial information is not audited and does not constitute
statutory financial statements as defined in section 435 of the
Companies Act 2006. Comparative figures for the year ended 31 March
2018 have been extracted from the Group's 2017/18 statutory
accounts, on which the auditors gave an unqualified opinion, did
not include an emphasis of matter reference and did not include a
statement under section 498(2) or (3) of the Companies Act
2006.
These sections address whether adequate accounting records have
been kept, whether the Company's financial statements are in
agreement with those records and whether the auditors have obtained
all the information and explanations necessary for the purposes of
the audit. The Group's financial statements for the year ended 31
March 2018 have been filed with the Registrar of Companies and can
be found on our corporate website, www.dairycrest.co.uk.
The financial information for the period ended 30 September 2018
has been prepared in accordance with the Disclosure and
Transparency Rules of the Financial Services Conduct Authority and
with IAS 34, "Interim Financial Reporting" as adopted by the
European Union. The financial information should be read in
conjunction with the Group's financial statements for the year
ended 31 March 2018, which have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union.
The Group uses a number of alternative performance measures
(APMs) to assess the performance of the Group which are not defined
under IFRS. The definition of these APMs, their relevance to
assessing performance and reconciliation to the IFRS balances are
shown in Note 13.
The results from operations for the half year are not
necessarily indicative of the results expected for the full
year.
This financial information was approved for issue on 6 November
2018.
Going concern
The Directors have reviewed current performance and forecasts,
combined with expenditure commitments, including capital
expenditure. After making appropriate enquiries, the Directors have
a reasonable expectation that the Group has adequate financial
resources to continue its current operations, including contractual
and commercial commitments, for the foreseeable future. For this
reason, they have continued to adopt the going concern basis in
preparing the interim financial statements.
2 Basis of preparation, accounting policies and approval of interim statement (continued)
Accounting policies and areas of estimation and judgement
The financial information has been prepared in accordance with
accounting policies used for the Group's financial statements for
the year ended 31 March 2018, with the exception of the adoption of
the new standards and interpretations that came into effect in the
half year. The Directors' position on the standards and
interpretations effective after the date of the interim financial
statements remains unchanged from the year ended 31 March 2018.
There have been no changes to the areas of estimation and judgement
from the year ended 31 March 2018.
New standards, interpretations and amendments
The following accounting standards and interpretations became
effective for the current reporting period:
New standard IFRS 9: Financial Instruments
New standard IFRS 15: Revenue from contracts with customers
The adoption of these standards and interpretations does not
have a material impact on the Group's interim financial statements
in the period.
IFRS 9: Financial Instruments
Classification and measurement of financial assets
The Group has applied IFRS 9 from 1 April 2018. All financial
assets within the scope of IFRS 9 are measured at amortised cost,
or fair value through profit and loss (FVTPL) or fair value through
other comprehensive income (FVOCI). The Directors of the Company
have reviewed and assessed the Group's financial assets at 1 April
2018 and based on the facts, concluded that the application of IFRS
9 has had the following impact on the Group's financial assets as
regard the classification and measurement.
Financial assets classified as trade receivables under IAS 39
'Financial Instruments: Recognition and measurement' continue to be
measured at amortised cost under IFRS 9. They are held to collect
contractual cash flows which consist only of payments of
principal.
Impairment of financial assets
IFRS 9 requires an expected credit loss model, rather than an
incurred credit loss model, to be applied. This requires the
assessment of the expected credit loss on each class of financial
asset at each reporting date. This assessment should take into
consideration any changes in credit risk since the initial
recognition of the financial asset. At 1 April 2018 and at 30
September 2018, the Directors of the company have reviewed and
assessed the existing financial assets, and amounts due from
customers using reasonable and supportable information to determine
the credit risk of each item and concluded that there is no
financial impact on the Group. The main classes of financial asset
held by the Group are trade receivables; the expected credit loss
is insignificant.
Classification and measurement of financial liabilities
The Group does not hold any financial liabilities which are held
at FVTPL and as such, the application of IFRS 9 has had no impact
on the classification and measurement of the Group's financial
liabilities which are held at amortised cost.
Hedge accounting
In accordance with the allowed accounting policy choice for
hedge accounting, the Group has decided to continue to apply the
hedge accounting requirements of IAS 39 instead of IFRS 9 to all
its derivative financial instruments and cash flow hedges.
IFRS 15: Revenue from contracts with customers
IFRS 15: "Revenue from contracts with customers" has replaced
IAS 18 "Revenue" with effect from the accounting period beginning 1
April 2018 and Management has reviewed the impact of this standard
on the Group's financial statements. Under IFRS 15, revenue will be
recognised based on a five step model which requires, for each
contract with a customer, the transaction price to be matched
against the performance obligation arising under the contract or in
the case of more than one performance obligation, apportioned over
those obligations. The transaction price will be the amount of
consideration the Group expects to be entitled to in exchange for
transferring the goods or service to the customer.
2 Basis of preparation, accounting policies and approval of interim statement (continued)
Management has considered the impact of the standard against the
Group's contracts with customers and has concluded that no changes
are required to the way in which the Group accounts for revenue
under IFRS 15.
Management continues to assess the impact of standards and
disclosures that will apply to financial periods after 31 March
2019. To understand the potential impact, refer to the annual
report for the year ended 31 March 2018.
Taxation
Taxes on income before exceptional items in the interim periods
are accrued using the effective tax rate that is expected to be
applicable to total earnings before exceptional items for the full
year based on substantively enacted or enacted tax rates at the
interim date.
3 Segmental analysis
IFRS 8 requires operating segments to be determined based on the
Group's internal reporting to the Chief Operating Decision Maker
("CODM"). The CODM has been determined to be the Company's Board
members as they are primarily responsible for the allocation of
resources to segments and the assessment of performance of the
segments.
The business is managed centrally by functional teams (Demand,
Supply, Procurement and Finance) that have responsibility for the
whole of the Group's product portfolio. Although some discrete
financial information is available to provide insight to the
management team of the key performance drivers, the product group
profit is not part of the CODM's review. Management has judged that
the Group comprises one operating segment under IFRS 8. As such,
disclosures required under IFRS 8 for the financial statements are
shown on the face of the consolidated income statement and balance
sheet.
To assist the readers of the financial statements, management
considers it appropriate to provide voluntary disclosure on a basis
consistent with historical reporting of the cheese and functional
ingredients product group and the butters, spreads and oils product
group results included within the consolidated income statement. In
disclosing the product group profit for the period, certain
assumptions have been made when allocating resources which are
centralised at a group level for the continuing business and
property income.
The 'Other' product group comprises revenue earned from
distributing products for third parties and certain central costs
net of recharges to the other product groups. Generally, central
costs less external 'Other' revenue is recharged back into the
product groups such that their result reflects the total cost base
of the Group. 'Other' operating profit therefore is nil.
The results under the historical segmentation basis for the
business included in the financial information are as follows:
Half year
Year ended ended
31 March 30 September
----- ------------
2018 2018 2017
GBPm GBPm GBPm
---------- ------------------------------------------- ----- ------------
External revenue
Cheese and Functional
277.2 Ingredients 142.5 135.3
Butters, Spreads
174.2 and Oils 79.9 80.9
5.4 Other 2.5 3.9
---------- ------------------------------------------- ----- ------------
456.8 Total product group external revenue 224.9 220.1
-----------------------------------------------------
Product group profit
*
Cheese and Functional
50.1 Ingredients 14.5 22.1
Butters, Spreads
21.3 and Oils 11.2 2.8
---------- ------------------------------------------- ----- ------------
71.4 Total product group profit 25.7 24.9
(9.5) Finance costs (4.3) (4.5)
(0.7) Other finance income / (expense) - pensions 1.3 (0.4)
61.2 Adjusted profit before tax * 22.7 20.0
118.0 Exceptional items (Note 4) (4.9) 131.4
-------------------------------------------------
179.2 Group profit before tax 17.8 151.4
---------- --------------------------------------------------- ----- ------------
*Denotes alternative performance measures as described in Note
13.
3 Segmental analysis (continued)
Seasonality of results
Certain products experience increased sales around Christmas.
Working capital normally increases in the first six months of the
year as milk production is higher during the spring and summer.
However, this impact can be offset by other factors including
levels of cheese sales volumes, promotional activity and milk cost
movements. Where required, the Group manages the seasonality of its
working capital by drawing down under its revolving credit
facility.
4 Exceptional items
Exceptional items comprise those items that are material and
one-off in nature that the Group believes should be separately
disclosed to assist in the understanding of the underlying
financial performance of the Group.
The exceptional items charged to operating costs are analysed
below:
Half year
Year ended ended
31 March 30 September
----- ------------
2018 2018 2017
GBPm GBPm GBPm
---------- -------------------------------------------------- ----- ------------
Operating costs
(5.4) Kirkby improvement programme (1.7) (1.7)
Restructuring costs resulting from changes
(2.6) to IT systems (3.2) -
Profit on sale in relation to closed manufacturing
0.7 sites - 0.7
Gain on the Group's Pension
130.9 Fund - 132.4
(5.6) Demineralised whey powder and GOS projects - -
------------------------------------------------------------
118.0 (4.9) 131.4
(19.1) Tax relief / (charge) on exceptional items 0.9 (24.9)
98.9 (4.0) 106.5
---------- -------------------------------------------------------- ----- ------------
Kirkby improvement programme
In April 2017, the Group commenced a restructuring project to
improve the flexibility and efficiency of the Butters and Spreads
manufacturing facility in Kirkby, Liverpool. In a challenging UK
Butters and Spreads market it is important that the Group's
facility is as efficient as it can be. In the six months ending 30
September 2018, costs of GBP1.7 million have been incurred, largely
as a result of headcount restructuring and project management at
the site as well as some project consultancy costs. The tax credit
in respect of this charge is GBP0.3 million. Management considers
the costs to be exceptional due to the materiality of the costs and
the one-off nature of the project and expects further costs of
between GBP0.5 million and GBP1.0 million to be incurred in the
second half of the year. In the medium term, the costs of
restructuring should be partly offset by the proceeds from the sale
of surplus land on the site. Any future profits resulting from the
sale of land will also be treated as an exceptional item.
Restructuring costs resulting from changes to IT systems
In 2016, the Group undertook a project to replace its
manufacturing, purchasing and financial systems. The implementation
of the new systems began in November 2017 and will be phased
gradually throughout 2018 and early 2019. During the six months
ended 30 September 2018, costs of GBP3.2 million have been
incurred. Included within this cost, following communication to the
impacted employees, the Group has provided GBP1.5 million in
relation to the restructuring of the Business Systems department. A
further GBP0.8 million of restructuring costs have been incurred in
the first half of the year in relation to employees who have left
the Group as a result of this project. The tax credit in respect of
this charge was GBP0.6 million. Management considers these costs to
be exceptional due to the materiality of the costs and the one-off
nature of the project to which they relate and expects further
costs of between GBP1.5 million and GBP2.0 million to be incurred
in the second half of the year on the completion of this
project.
4 Exceptional items (continued)
Prior Year
Profit on sale in relation to closed manufacturing sites
In the six months ended 30 September 2017, the Group disposed of
a closed manufacturing facility in Fenstanton, Cambridgeshire
resulting in a profit on disposal of GBP1.0 million. In addition,
the Group impaired two leasehold properties for which Management
has determined there to be no future economic benefit, resulting in
an impairment of GBP0.3 million. The net gain has been treated as
an exceptional item consistent with the historical closure costs of
manufacturing sites which were considered to be exceptional due to
the materiality and one-off nature of the costs. The tax in respect
of this gain was GBPnil.
Gain on the Group's Pension Fund
On 31 August 2017, the Group and the Trustee of the Group's
Pension Fund ("the Fund") finalised the 31 March 2016 funding
valuation. As part of the overall package of funding, the Group and
the Trustee formally agreed to change the measurement of inflation
used for Fund pension increases from the Retail Price Index (RPI)
to the Consumer Price Index (CPI). CPI will therefore apply for
Fund pension increases from 25 March 2018 onwards. This has been
factored into the IAS19 valuation of the retirement benefit
obligation as at 31 March 2018 resulting in an exceptional gain,
net of costs, of GBP130.9 million. The tax charge in respect of
this gain is GBP22.1 million. Management considered this gain to be
exceptional due to the materiality and one-off nature of the
gain.
Demineralised whey powder and GOS projects
During the year ended 31 March 2017, the Group completed an
investment in its cheese creamery at Davidstow, Cornwall enabling
the Group to manufacture demineralised whey powder, a base
ingredient of infant formula, and galacto-oligosaccharide ("GOS"),
widely used in infant formula. In the year ended 31 March 2018,
GBP8.5 million of costs were charged to the income statement offset
by GBP2.9 million received in settlement of project related
litigation. Costs were incurred in two areas: GBP3.8 million
relating to commissioning production costs and GBP4.7 million
resulting from the write-down of stock. We do not expect further
exceptional items in 2018/19. The tax credit relating to this
exceptional charge was GBP0.9 million. For a more detailed
breakdown of this prior year exceptional cost, refer to the annual
report for the year ended 31 March 2018.
5 Taxation
The tax expense calculation for the half year ended 30 September
2018 is based on the estimated effective tax rate on
pre-exceptional profit for the full year of 18.5% (September 2017:
19.0%; March 2018: 17.3%). The tax relief on exceptional items for
the half year ended 30 September 2018 was GBP0.9 million (September
2017: tax charge GBP24.9 million; year ended 31 March 2018: tax
charge GBP19.1 million).
The deferred tax liability of GBP17.1 million at 30 September
2018 has increased from GBP10.0 million at 31 March 2018. This
change is partly due to the movement in the valuation of the
Group's pension fund asset from GBP93.9 million at 31 March 2018 to
GBP126.9 million at 30 September 2018.
To understand the comparative results, refer to the annual
report for the year ended 31 March 2018 and the interim financial
statements for the six months ended 30 September 2017.
6 Dividends
A dividend of GBP9.9 million (6.4 pence per share) (2017: GBP8.8
million; 6.3 pence per share) will be payable on 31 January 2019 to
shareholders on the register on 4 January 2019. This dividend is
not recorded in the balance sheet as a liability at 30 September
2018 because it had not been committed to at the balance sheet
date.
7 Earnings per share
The basic earnings per share ("EPS") measures for the period
have been calculated by dividing the profit attributable to equity
shareholders of the Group by the weighted average shares in issue
during the period, excluding those held by the Dairy Crest
Employees' Share Ownership Plan Trust which are held as treasury
shares and treated as cancelled.
The weighted average number of shares used in the calculation of
basic EPS is detailed below along with the diluted weighted average
number of shares used for the calculation of diluted EPS. The
diluted weighted average number of shares reflects the dilutive
impact of share options exercisable under the Group's share option
schemes.
To show earnings per share on a consistent basis, adjusted
earnings per share have been calculated. The Directors consider
this measure to be more appropriate in reflecting the underlying
performance of the Group because it excludes exceptional items.
14.1 million 25p ordinary shares were issued for a consideration
of GBP68.4 million (net of fees), following the share placing on 30
May 2018. This resulted in an increase in share capital and share
premium of GBP3.5 million and GBP64.9 million respectively.
Half year
Year ended ended
31 March 30 September
----- ------------
2018 2018 2017
GBPm GBPm GBPm
---------- ----------------------------------------------------- --------- --- ----- ------------
Profit on operations:
149.5 Profit attributable to equity shareholders 14.5 122.7
Exceptional items (net of
(98.9) tax) 4.0 (106.5)
50.6 Adjusted earnings attributable to equity shareholders 18.5 16.2
---------- ----------------------------------------------------------------------------------- ----- ------------
Total profit attributable to equity
149.5 shareholders 14.5 122.7
---------- --------------------------------------------------------------- ------ ----- ----- ------------
Weighted average number of shares
140.2 (million) 149.9 140.0
Diluted weighted average number
141.5 of shares (million) 151.4 141.4
Earnings per share
106.6p Basic earnings per share 9.7p 87.6p
105.6p Diluted earnings per share 9.6p 86.8p
36.1p Adjusted basic earnings per share 12.3p 11.6p
35.8p Adjusted diluted earnings per share 12.2p 11.5p
8 Non-current assets held for sale
Non-current assets held for sale of GBP3.4 million (September
2017: GBP3.9 million, March 2018 GBP3.4 million) represent
properties owned by the Group and comprised closed manufacturing
sites that management has committed to sell and where completion of
the sale within twelve months of the classification date is highly
probable. The held for sale value represents the lower of carrying
value and fair value less costs to sell. Any future profit on
disposal of the closed manufacturing sites will be recognised under
exceptional items within the income statement.
9 Analysis of net debt
Half year
Year ended Closing net debt ended
31 March 30 September
------ ------------
2018 2018 2017
GBPm GBPm GBPm
---------- ----------------------------------------------------- ------ ------------
17.8 Loans repayable in less than one year 17.8 -
1.1 Finance leases repayable within one year 0.4 1.5
(0.6) Debt issuance costs (0.5) (0.6)
---------- --------------------------------------------------------- ------ ------------
18.3 Short-term borrowings 17.7 0.9
---------- --------------------------------------------------------- ------ ------------
276.1 Loans repayable in greater than one year 229.1 298.1
- Finance leases repayable in greater than one year - 0.3
(0.6) Debt issuance costs (0.4) (0.6)
-----------------------------------------------------
275.5 Long-term borrowings 228.7 297.8
---------- --------------------------------------------------------- ------ ------------
(22.6) Cash and short-term deposits (12.2) (7.6)
---------- ----------------------------------------------------------- ------ ------------
Borrowings and cash - before impact of cross-currency
271.2 swaps 234.2 291.1
1.2 Debt issuance costs excluded 0.9 1.2
(6.7) Impact of cross-currency swaps * (13.7) (10.9)
265.7 Net Debt 221.4 281.4
---------- ----------------------------------------------------- ------ ------------
* The Group has US$126.3 million of loan notes against which
cross-currency swaps have been put in place to fix interest and
principal repayments in Sterling (September 2017: US$126.3 million;
March 2018: US$126.3 million). Under IFRS, currency 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 GBP13.7 million
adjustment included above (September 2017: GBP10.9 million; March
2018: GBP6.7 million) converts the Sterling equivalent of Dollar
and Euro loan notes from year end exchange rates (GBP96.9 million
(September 2017: GBP94.1 million; March 2018: GBP89.9 million)) to
the fixed Sterling liability of GBP83.2 million (September 2017:
GBP83.2 million; March 2018: GBP83.2 million)
Movement in net debt Opening Cash Exchange Closing
balances flow movement balances
Six months ended 30
September 2018 GBPm GBPm GBPm GBPm
----------------------------- -------- ------ -------- --------
Cash and short-term
deposits 22.6 (10.4) - 12.2
Borrowings (293.9) 54.0 (7.0) (246.9)
Finance leases (1.1) 0.7 - (0.4)
Cross-currency swaps 6.7 - 7.0 13.7
-------- ------ --------
(265.7) 44.3 - (221.4)
----------------------- -------- ------ -------- --------
Six months ended 30
September 2017
----------------------------- -------- ------ -------- --------
Cash and short-term
deposits 20.9 (13.3) - 7.6
Borrowings (285.9) (19.0) 6.8 (298.1)
Finance leases (2.5) 0.7 - (1.8)
Cross-currency swaps 17.7 - (6.8) 10.9
(249.8) (31.6) - (281.4)
---------------------- ---- -------- ------ -------- --------
Year ended 31 March
2018
----------------------------- -------- ------ -------- --------
Cash and short-term
deposits 20.9 1.7 - 22.6
Borrowings (285.9) (19.1) 11.1 (293.9)
Finance leases (2.5) 1.4 - (1.1)
Cross-currency swaps 17.7 0.1 (11.1) 6.7
(249.8) (15.9) - (265.7)
--------------------------- -------- ------ -------- --------
10 Retirement benefit obligations
The Group has a defined benefit pension scheme (Dairy Crest
Group Pension Fund), which is closed to future service accrual and
a defined contribution scheme (Dairy Crest Group Defined
Contribution Scheme).
The net pension asset of the Group's pension fund at 30
September 2018 can be analysed as follows:
31 March 30 September
--------- ------------
2018 2018 2017
GBPm GBPm GBPm
--------- ------------------------------- --------------------------------- --------- ------------
779.9 Bonds and cash 753.3 762.0
Equity return swaps
(0.5) valuation 2.8 4.2
115.4 Property and other 121.0 116.2
Insured retirement
288.1 obligations 274.4 302.1
1,182.9 1,151.5 1,184.5
--------- ------------------------------- --------------------------------- --------- ------------
(825.8) Defined benefit obligation: Uninsured retirement obligations (775.0) (869.0)
(263.2) Insured retirement obligations (249.6) (275.6)
--------- ------------------------------- ------------------------------------- --------- ------------
Total defined benefit
(1,089.0) obligation (1,024.6) (1,144.6)
--------- --------- ------------
Net surplus recognised in the balance
93.9 sheet 126.9 39.9
Related deferred
(16.0) tax liability (21.6) (6.8)
--------- --------------------------------- --------------------------------- --------- ------------
77.9 Net pension surplus 105.3 33.1
--------- --------------------------------- --------------------------------- --------- ------------
Analysis of movements in the Group
pension
fund during the period:
--------- --------------------------------------- --------------------------------- --------- ------------
Opening surplus / (deficit) before
recognition
of liability for unrecoverable notional
(109.6) surplus 93.9 (109.6)
Net interest income
(0.6) / (cost) 1.3 (0.4)
1.6 Settlement gain - -
131.5 Past service cost - 132.7
(1.0) Administration costs incurred (0.5) (0.4)
Actuarial gain arising from changes in
25.9 demographic assumptions - -
Actuarial gain arising from changes in
36.6 financial assumptions 51.3 16.7
(10.9) Actuarial loss arising from experience (0.3) (2.9)
Remeasurement (loss) / gain on Fund
9.5 assets (25.5) (4.5)
10.9 Contributions by employer 6.7 8.3
--------- --------------------------------------- --------------------------------- --------- ------------
Closing surplus (excluding liability
93.9 for unrecoverable notional surplus) 126.9 39.9
--------- --------------------------------------- --------------------------------- --------- ------------
The principal assumptions used in determining the retirement
benefit obligations for the Group's pension fund are as
follows:
Mar 18 Sep 18 Sep 17
------ ---------------------------------------------------------- ------ ------
3.3 Price inflation - RPI (%) 3.4 3.3
2.2 Price inflation - CPI (%) 2.3 2.2
Life expectancy at 65 for a male
23.4 currently aged 50 (years) 23.4 24.1
Average expected remaining life of a 65 year
21.9 old retired male (years) 21.9 22.5
Life expectancy at 65 for a female
26.5 currently aged 50 (years) 26.5 27.0
Average expected remaining life of a 65 year
24.5 old retired female (years) 24.5 24.8
2.6 Discount rate (%) 2.9 2.5
------ ---------------------------------------------------------- ------ ------
Funding requirements
UK legislation requires that pension schemes are funded
prudently. The last funding valuation of the Fund was carried out
by a qualified actuary as at 31 March 2016 and showed a deficit of
GBP100 million.
Under the latest schedule of contributions, which was signed in
August 2017, the level of contributions payable by the Group to the
fund is GBP15.0 million for 2018/19 and then GBP20.0 million per
annum until March 2022.
10 Retirement benefit obligations (continued)
Risk
The Group and Trustee have agreed a long term strategy for
reducing investment risk as and where appropriate. This includes an
asset-liability matching policy which aims to reduce the volatility
of the funding level of the Fund by investing in assets which
perform in line with the liabilities of the plan so as to protect
against inflation being higher than expected. In December 2008 and
June 2009, certain obligations relating to retired members were
hedged by the purchase of annuity contracts.
Past service cost
On 31 August 2017, the Group and the Trustee of the Group's
pension fund finalised the 31 March 2016 funding valuation. As part
of the overall package of funding, the Group and the Trustee
formally agreed to change the measurement of inflation used for
Fund pension increases from the Retail Price Index (RPI) to the
Consumer Price Index (CPI). CPI will therefore apply for Fund
pension increases from 25 March 2018 onwards. It was calculated
that as at 31 August 2017, the Fund's defined benefit obligation
was reduced from GBP1,323.0 million to GBP1,190.3 million, a
reduction of GBP132.7 million.
Surplus
The Group has an unconditional right to receive any surplus on
winding up of the Fund. As such, management have judged it
appropriate to recognise the full surplus under IAS19.
11 Financial Instruments
The following table summarises the Group's financial
instruments:
31 March 30 September
------- ------------
2018 2018 2017
GBPm GBPm GBPm
-------- ------- ------------
Financial Assets
3.0 Cross currency swaps (cash flow hedges) 8.8 7.2
3.0 8.8 7.2
-------- ------- ------------
Financial Liabilities
(1.0) Forward currency contracts - -
Bank loans (at amortised
(159.0) cost) (105.0) (159.0)
Loan notes (at amortised
(134.9) cost) (141.9) (139.1)
Obligations under finance
(1.1) leases (0.4) (1.8)
1.2 Debt issuance costs 0.9 1.2
(294.8) (246.4) (298.7)
-------- ------- ------------
Fair values of financial assets and financial liabilities
The carrying amounts and the fair values of all of the Group's
financial instruments that are carried in the financial statements
are the same with the exception of the loan notes. The carrying
value of the loan notes was GBP141.9 million and the fair value was
GBP140.9 million. The fair value of the loan notes has been
calculated by discounting the expected future cash flows at a
prevailing interest rate.
Fair value hierarchy
All derivative financial instruments and loan notes are fair
valued at each balance sheet date and all comprise Level 2
valuations under IFRS 13: Fair value measurement, namely, that they
are based on inputs observable directly (from prices) or indirectly
(derived from prices).
Valuation techniques
The fair values of cross currency swaps and forward currency
contracts are measured by the external counterparties to the
contracts and verified using present value of future cash flows at
discount rates implied by the forward curve. These valuation
techniques maximise the use of observable market data where it is
available.
The fair value of loan notes has been measured by reference to
yields of publicly quoted debt of equivalent duration, coupon and
credit-worthiness.
12 Commitments and contingencies
Capital expenditure contracted for but not provided for in the
interim financial statements amounts to GBP5.2 million (September
2017: GBP3.6 million; March 2018: GBP10.5 million).
Contingent liabilities
Dilapidation liability of Chadwell Heath
Under the terms of the sale and purchase agreement of the
Dairies operation, the Group has a potential dilapidations
liability to 26 December 2015 in relation to the Chadwell Heath
site. The lease does not end until July 2032, with break clauses in
July 2022 and July 2027. Muller UK & Ireland Group LLP has
announced they intend to close the site in 2018; however, any
obligations are dependent on the intentions of the landlord in
respect of the site. The Directors are not quantifying the
potential liability in respect of this obligation because to do so
may be prejudicial to the interests of the Group as the matter may
be subject to negotiation or judicial proceedings. There has been
no change on the Group's position on this contingent liability in
the six months to 30 September 2018.
Litigation in relation to the capital project at Davidstow
At 31 March 2018 there was one outstanding claim against the
Group. The Group has rebutted this claim but nonetheless accrued
for professional fees in respect of it. The Group is not disclosing
detail of the claim due to the legal sensitivity of the matter.
There has been no change on the Group's position on this contingent
liability in the six months to 30 September 2018 and it is the
opinion of the Directors that there is no significant liability
that would require being provided for as at 30 September 2018.
13 Alternative performance measures
The Group uses a number of alternative performance measures
(APMs) to assess the performance of the Group which are not defined
under IFRS. The Directors use these performance measures to assess
the underlying performance of the Group and they are used to set
targets as disclosed in the Directors Remuneration Report contained
within Annual Report 2017/18. As such these measures should be
considered alongside the IFRS measures. Reconciliations from
statutory performance measures to the APMs are shown below.
Adjusted profit before tax
The Group has previously excluded amortisation of acquired
intangible items and pension interest when calculating adjusted
profit before tax. However, these adjusting items are not material
in nature and in order to simplify reporting and reduce the number
of reconciliations between reported and adjusted measures, the
Group will now only report on pre-exceptional profit. The Directors
consider this measure appropriate because it reports the underlying
performance of the Group excluding the material values that can be
associated with exceptional items. This allows the Directors to
measure the longer-term performance of the Group on a comparable
basis.
Reconciliation of profit before tax to adjusted profit before
tax
Half year
Year ended ended
31 March 30 September
---------- --------- ---------------
2018 2018 2017
GBPm GBPm GBPm
---------- --- ------------------------- --- --------- -------------------- --------- ---------------
Face of consolidated income
179.2 Profit before tax statement 17.8 151.4
Adjust for: Exceptional
(118.0) items Note 4 4.9 (131.4)
---------- ---------------------------- --- --------------------------------- --------- -----------------
Adjusted profit before
61.2 tax 22.7 20.0
---------- ------------------------------ --- --------- -------------------- --------- ---------------
13 Alternative performance measures (continued)
Product group profit
Product group profit represents the Group's operating profit or
profit from operations, before exceptional items. The Directors
consider this an appropriate measure for the Group because it
represents the underlying profitability of the Group excluding the
impact of any changes to the Group's financing structure thus
making it an appropriate measure to communicate internally where
the majority of employees are not able to influence decisions
around the Group's financing structure or acquisition
decisions.
Reconciliation of profit on operations to product group
profit
Half year
Year ended ended
31 March 30 September
---------- --------- ---------------
2018 2018 2017
GBPm GBPm GBPm
---------- --- ------------------------- --- --------- -------------------- --------- ---------------
Face of consolidated income
189.4 Profit on operations statement 20.8 156.3
Adjust for: Exceptional
(118.0) items Note 4 4.9 (131.4)
---------- ---------------------------- --- --------------------------------- --------- -----------------
71.4 Product group profit 25.7 24.9
---------- ------------------------------ --- --------- -------------------- --------- ---------------
Adjusted earnings per share
Adjusted earnings per share represent the earnings per share
adjusted for exceptional items. The Directors consider this measure
to be appropriate because it measures the underlying earnings per
share of the Group excluding the material values that can be
associated with exceptional items. This allows the Directors to
measure the longer-term earnings per share on a comparable
basis.
A reconciliation of profit on operations to adjusted earnings
per share can be found in Note 7.
Net debt
Net debt represents the Group's borrowings and is made up of
interest bearing loans and borrowings and finance leases less cash
and cash equivalents. The calculation of net debt excludes the fair
value of derivative financial instruments with the exception of
cross currency swaps to fix foreign currency debt in Sterling where
they are designated as cash flow hedges. In this case the fixed
Sterling debt, not the underlying foreign currency debt
retranslated, is included in net debt. It includes any cash or
borrowings included within disposal groups classified as held for
sale and excludes unamortised upfront facility fees. The Directors
consider this to be the key performance measure of the Group's debt
position and balance sheet efficiency. The Directors are required
to meet net debt targets under their long term incentive plans.
A reconciliation of financial liabilities to net debt can be
found in Note 9.
Statement of directors' responsibilities
The directors confirm that this condensed set of financial
statements has been prepared in accordance with IAS 34 as adopted
by the European Union and that the interim management report herein
includes a fair review of the information required by DTR 4.2.7R
and DTR 4.2.8R of the Disclosure and Transparency Rules. The Board
of Directors that served during the six months ended 30 September
2018, and their respective responsibilities, can be found on pages
30 and 31 of the 2017/18 Annual Report and Accounts. Mr Andrew
Carr-Locke stood down as a Non-Executive Director at the Annual
General Meeting on 17 July 2018.
By order of the Board
M Allen T Atherton
Chief Executive Deputy Chief Executive and Group
6 November 2018 Finance Director
6 November 2018
Principal risks and uncertainties
The Board considers risk assessment, identification of
mitigating actions and internal controls to be fundamental to
achieving Dairy Crest's strategic corporate objectives. The
principal factors considered when assessing Dairy Crest's ability
to achieve its short-term and long-term objectives are:
- Economic, cultural and market conditions which influence consumer and customer behaviour;
- Relationships with dairy farmers and future milk sourcing;
- The impact of increased milk costs and the volatility of
ingredients and other commodity markets;
- Investing in our brand portfolio and innovative new product development;
- Attracting and retaining the best people;
- Maintaining high levels of food safety standards and
operational performance across the manufacturing base;
- Impact of financial market turmoil on pension scheme assets
and future funding requirements;
- Regulatory and legal risks;
- Environmental trends and risks and
- The impact of the UK's withdrawal arrangements for leaving the
European Union in March 2019.
There have been no significant changes in the material risks
faced by the Group since publication of the 2017/18 Annual Report.
The processes by which the Board safeguards shareholder value and
the assets of the Group and risks and uncertainties that would have
a significant impact on long-term value generation are set out in
the 2017/18 Annual Report and Accounts on pages 26 to 29.
INDEPENDENT REVIEW REPORT TO DAIRY CREST GROUP plc
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2018 which comprises the consolidated
income statement, consolidated statement of total comprehensive
income, the consolidated balance sheet, the consolidated statement
of changes in equity, the consolidated cash flow statement and
related notes 1 to 13. We have read the other information contained
in the half-yearly financial report and considered whether it
contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial
statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2018 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
6 November 2018
(1) IRI is a market research organisation which gathers
Electronic Point of Sale (EPOS) data directly from retailers.
Kantar Worldpanel is a representative panel of 30,000 British
households which collects information on shopping habits using
barcode scanners in the home.
(2) Source: Kantar Worldpanel
(3) Definitions of the Alternative Performance Measures
discussed throughout this document and a reconciliation to the
equivalent statutory measure are detailed in Note 13.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR VDLBBVFFZFBQ
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