fit for the future preliminary results for the year ended 31 march 2010 dairy crest group plc
TRANSCRIPT
FIT FOR THE FUTURE
Preliminary Results
For the year ended 31 March 2010
DAIRY CREST GROUP plc
Preliminary Results for the year ended 31 March 2010
Agenda
2009/10 Mark Allen, Chief Executive
Financial Review Alastair Murray, Finance Director
St Hubert Mark Allen, Chief Executive
Martyn Wilks, Executive MD Foods
Current Trading & Outlook Mark Allen, Chief Executive
DAIRY CREST GROUP plc
Mark Allen
Chief Executive
2009/10
4
Focus on cost reduction and efficiency improvements
Improve quality of earnings and reduce commodity risk
Generate growth and focus the business through
acquisitions and disposals
Build market leading positions in branded and added
value markets
Consistently delivering on our strategy
5
“…..by continuing to invest in our business in the form of marketing spend and in development of operating facilities. We will also maintain focus on efficiencies and cost control.”
Mark Allen, Chief Executive Dairy Crest, 10 November 2008
“Our plans for 2009/10 are to maintain our focus on cash management and to continue the development of our key brands. We are a broadly based business and the benefits of this will be demonstrated during 2009/10.”
Mark Allen, Chief Executive Dairy Crest, 19 May 2009
“Our second half focus will remain on cash management, cost reduction and the development of our key brands.”
Mark Allen, Chief Executive Dairy Crest, 12 November 2009
Consistently delivering on our strategy
6
Generating increased profits and reducing debt
Brand growth5 key brands grew by 13% (volume) and 9% (value)
St Hubert now the largest French spreads brand
Other growthMilk sales to major retailers up 9% (volume) and 8% (value)
Reached initial target of 250,000 registered milk&more customers
New productsJugit milk in a bag launched nationally with Sainsbury’s and on doorstep
Lighter brands now all >10% of main brands
Cost reduction £20 million annual savings generated in year
Cash generation Operating cashflow up 49% to £119 million
Reported net debt lowest since September 2006
Risk reduction Defined benefit pension scheme closed
Adjusted Group profit before tax up 5% to £83.5 million Year end debt down £79m (19%) to £337 million
7
Consistent investment in brands paying off
Commitment to Dairies business confirmed by new £75 million capital investment programme
Investing in the future…
% increase in consumersagreeing
2008-2010
Cathedral City is one of the best cheeses you can buy 15%
Clover is a good balance between health and taste 100%
Country Life is British 23%
FRijj has cool packaging 33%
8
Benefitting from being a broadly based business
Strong recovery from Dairies division
Ongoing delivery from Spreads
No stock profits in Cheese
Operating Profits by Segment
3860 54
34
35 17
328
35
0
20
40
60
80
100
120
07/08 08/09 09/10
£m
Dairies
Cheese
Spreads
105 102106
9
Brands continue to outperform the market
* DC value sales 12 months to 31 March 2010 v 12 months to 31 March 2009 ** ACN, IRI, TNS data 52 weeks to 21 March 2010*** DC value sales 12 months to 31 March 2010 v 12months to 31 March 2007
12%
5%
4%
9%
12%
3%
-2%
7%
67%
24%
45%
42%
21%
1%1%
1%
Core Brand Market Brand growth2009/10*
Market growth
2009/10**
3 Year Brand growth
9/10 v 6/07***
UK Cheese
UK Butter Spreads
Margarine
UK Butter Spreads
Margarine
French non-butter spread
Flavoured Milk
10
There has been no let up in cost reduction projects
- Davidstow milk collection outsourced
- Closure of Fenstanton glass bottling
- Redesign of spreads tubs
- New media buying agency
- Job reductions at Kirkby
- Job reductions at Nuneaton warehouse
Average employee numbers are falling
More efficient dairies give us greater processing capacity
Driving efficiencies and increasing capacity
6600
6800
7000
7200
7400
7600
7800
8000
8200
8400
8600
2007/08 2008/09 2009/10
11
Defined benefit pension scheme closed
Wexford sale progressing
Less milk through Ingredients
Fixed price, longer term milk purchasing contracts
Reducing risk
12
Workplace10% fewer days lost from accidents
Bonus scheme extended to a further 900 staff
Community£400,000 raised for Macmillan Cancer Support
Volunteer scheme introduced
Environment8% reduction in CO2 emissions
10% recycled material in polybottles
MarketplaceFixed price milk buying contracts offered
Lighter products reducing fat consumption
Acting responsibly
13
We have delivered consistently against the strategy we set out 18 months ago
Strong growth in added value sales, ongoing cost reduction programme and strong cash generation have allowed us to
- Increase profits
- Increase investment
- Increase final dividend
- Reduce debt
Summary of the year
Alastair Murray
Finance Director
Financial Review
15
Adjusted profit before tax* up 5% to £83.5m (2009: £79.5m)
Adjusted earnings per share* down 1% to 44.5p (2009: 45.0p)
Final dividend up 4.6% to 13.6p (2009:13.0p)
Net debt reduced by £78.6m to £337.2m (2009: £415.8m)
Financial Highlights
* Before exceptional items, amortisation of acquired intangibles and pension interest costs/income
16
Income Statement
£’m Mar-10 Mar-09
Profit on operations* 105.8 101.7
Finance Costs (22.4) (29.5)
Share of JV net profit 0.1 7.3
Adjusted profit before tax* 83.5 79.5
Other finance (expenses)/ income – pensions
(0.5) 6.9
Exceptional Items 4.0 26.4
Amortisation of acquired intangibles
(9.2) (9.6)
Profit before tax 77.8 103.2
Taxation (incl.exceptional tax) (25.3) (28.9)
Group profit after tax 52.5 74.3
* Before exceptional items and amortisation of acquired intangibles
17
Segmental Analysis - Cheese
Successful promotional activity has driven revenue growth of 6.5%
Profits reduced due to higher cost of sales following milk price increases in 2008 and increased levels of promotion
Cathedral City now worth £214m at retail prices benefitting from increased A&P investment
£’m Year to
Mar-10
Year to
Mar-09
Revenue 260.0 244.2
Profit 16.9 34.3
Margin 6.5% 14.1%
18
Includes UK Spreads and St Hubert
Strong performance from 3 key brands – Clover, St Hubert Omega 3 & Country Life – offset by lower sales of non-branded and other brands which have not been advertised and promoted as heavily
Increasing cost pressure and competitive promotional environment impacted profit
St Hubert continues to exceed expectations
£’m Year to
Mar-10
Year to
Mar-09
Revenue 277.7 284.2
Profit 54.0 59.5
Margin 19.5% 20.9%
Segmental Analysis - Spreads
19
Segmental Analysis - Dairies
Good progress in our retail milk business – volumes up 8%
Strong performance by FRijj
Improved operating efficiencies, lower milk prices, decreased distribution costs and lower balancing volumes
Doorstep sales have declined
- Decline rate of 6% lower than last year (10%)
- Over 250k registered milk&more customers at 31 March 2010
£’m Year to
Mar-10
Year to
Mar-09
Revenue 1,081.2 1,108.2
Profit 34.9 7.9
Margin 3.2% 0.7%
20
Exceptional Items
£m P&L Cash
Nuneaton prepack (1.5) (1.5)
Pensions curtailment gain 16.3 (0.6)
Reduced OFT 2.2 -
Onerous Contract - (0.5)
17.0 (2.6)
Nottingham Property Sale 1.0 2.5
YDC Disposal 2.0 1.2
Wexford Asset Impairment (16.0) 0
4.0 1.1
*
*
*included in acquisition/disposal of business and assets
21
Balance Sheet
£m Mar-10 Mar-09 Change
Fixed assets, goodwill &intangibles 794.4 834.2 (39.8)
Stocks 153.7 197.8 (44.1)Debtors less creditors (94.8) (91.6) (3.2)
Pension deficit (142.4) (63.3) (79.1)Deferred tax (65.8) (90.8) 25.0 Net debt (337.2) (415.8) 78.6 Other (15.1) (13.5) (1.6)
Net assets 292.8 357.0 (64.2)
Pension and related deferred tax (102.5) (46.1) (56.4)
22
Operating Cash Flow
* Before exceptional items and amortisation of acquired intangibles** Difference between normal cash contributions and current service cost charged to income statement*** Share based payments and property profits
£’m Year Mar-10 Year Mar-09
Adjusted profit on operations* 105.8 101.7
Depreciation & amortisation 38.1 40.6
Exceptional Items (2.6) (12.8)
Pensions
- normal**
- additional
(10.1)
(10.0)
(4.0)
(12.0)
Other *** (1.0) (3.5)
Working capital 25.7 19.1
Cash generated from operations 145.9 129.1
Capital expenditure (26.9) (49.3)
Operating cashflow 119.0 79.8
23
£m Year Mar-10 Year Mar-09
Operating cash flow 119.0 79.8
Interest (22.1) (30.3)
Tax (10.5) (9.2)
Dividends paid (24.3) (32.3)
Dividends received from JVs 0.1 2.9
Acquisition / disposal of businesses and assets
10.7 84.2
Net cash flow 72.9 95.1
Foreign exchange movements 5.7 (36.1)
Movement in net debt 78.6 59.0
Opening net debt (415.8) (474.8)
Closing net debt (337.2) (415.8)
Net Cash Flow
24
451 459 475 491
416380
337
200
250
300
350
400
450
500
550
Mar 07 Sep 07 Mar 08 Sep 08 Mar 09 Sep 09 Mar-10
£m
2
2.2
2.4
2.6
2.8
3
3.2
Net debt
Net Debt / EBITDA
Net Debt History
Mark Allen, Chief Executive
Martyn Wilks,
Executive Managing Director Foods
St Hubert
26
St Hubert
- Strategic purchase in 2007
- Branded business – increases quality of Group earnings
- European move facilitates further growth
One in a series of transactions which have fundamentally reshaped Group
Strong financial criteria applied including synergies with UK business
Purchase price €370 million
St Hubert – growth through acquisition
27
Strong business with good products and distribution in France and Italy
Since acquisition, we have grown volumes
Grown profits
Generated cash - €63 million in last 3 years
St Hubert – beating expectations
28000
29000
30000
31000
32000
33000
34000
2005/06 2006/07 2007/08 2008/09 2009/10
28
We have grown market share in France whereSt Hubert has overtaken Unilever’s Fruit d’Or….
22.925.7
28.3 28.8
36.634.3
30.6 29.4 30.129
28.428.5
2005 2006 2007 2008 2009 2010
St Hubert Fruit d'Or Primevère Planta Fin
13,713,7
IRI CC au 7 mars 2010
29
50.7
46.4
42.741.6 41.5
5.67.5 7.5
35.635.635.533.3
30.6
15.415.313.4 14.5
15.2
6.55.1
0.0
10.0
20.0
30.0
40.0
50.0
60.0
2006 2007 2008 2009 2010
ST HUBERT UNILEVER LACTALIS O.L.
IRI MAT P3 in value
…and overall we have narrowed the gap with Unilever in France
30
Valle still value leader in Italian Spreads, and now also volume leader in enlarged Butter and Spreads market
Margarine market - Value share
48.4 48.451.2
53.657.2 58.2
31.5 29.726.3 24.7
22.2 21.3
2005 2006 2007 2008 2009 2010
Valle Unilever
…and our Italian Valle brand is leading the market
31
Benefitting from Dairy Crest’s ownership
Clear and differentiated brand positioning
Product superiority
Consistent investment in R&D and CAPEX
Increased media investment focused on St Hubert Omega 3
St Hubert - A strong business – growing stronger
32
33
St Hubert – the future
Strong and stable management team
Well placed for further organic growth
- pipeline in place
- interesting dairy-alternative category
Offers a strong platform for further acquisitions
Mark Allen
Chief Executive
Looking Forward
35
Dairy Crest is a UK based dairy food company with a significant profit stream from continental Europe
Commodity businesses disposed of
Clear decision to remain “broadly based”
European platform established
Strong and growing brands, a world class cheese supply chain, cost-efficient dairies, sound finances
Dairy Crest today
36
Focus on cost reduction and efficiency improvements
Improve quality of earnings and reduce commodity risk
Generate growth and focus the business through acquisitions and disposals
Build market leading positions in branded and added value markets
Looking Forward
…we will continue to pursue the same strategy
37
Growing brands
milk&more
Build market leading positions in branded and added value markets
Focus on cost reduction and efficiency improvements
Generate growth and focus the business through acquisitions and disposals
Improve quality of earnings and reduce commodity risk
…building added value sales…
38
In 2009/10 we increased sales of key brands and milk to retailers by £52 million
Over the last 3 years our 5 key brands have grown by nearly 50%
We supply products that aim to meet consumers’ needs and earn their loyalty
Our consistent investment in marketing is delivering results
Ability to grow brands further
Health Taste Convenience Ethical Home & LocalHealth Taste Convenience Ethical Home & Local
39
Investment in media underpins brand growth
40
41
milk&more growth potential
Good progress made with milk&more and first target of 250,000 registered customers achieved
Reduced decline in doorstep sales
Focus now is to increase amount spent by each customer
Currently weekly spend is approximately £6 – significantly higher than normal sales
Breaking new ground, but real prospect that milk&more could generate sales growth
42
Growing brands
milk&more
Build market leading positions in branded and added value markets
Focus on cost reduction and efficiency improvements
Generate growth and focus the business through acquisitions and disposals
Improve quality of earnings and reduce commodity risk
…and driving efficiencies…
Investing in Dairies
Ongoing cost reduction
43
Investment in Liquid Dairies
New investment of £75 million over 3 years on liquid dairies – improving efficiencies and increasing capacity
Total includes funds for innovation – packaging and product technology
Opportunities to reduce distribution costs by further utilising national depot network and advanced planning technology
We expect to commit around £25 million in 2010/11
44
Ongoing Cost Reduction - taking costs from depots and head office
In our Household business early results of pilot programme in 6 depots confirm that we can improve customer service and reduce costs by centralising administration away from Household depots
Ongoing reduction in central overheads
More projects in the pipeline
45
…reducing risk and improving earnings…
Build market leading positions in branded and added value markets
Focus on cost reduction and efficiency improvements
Generate growth and focus the business through acquisitions and disposals
Improve quality of earnings and reduce commodity risk
Growing brands
milk&more
Investing in Dairies
Ongoing cost reduction
Further work on pensions
Wexford exit
46
Build market leading positions in branded and added value markets
Focus on cost reduction and efficiency improvements
Generate growth and focus the business through acquisitions and disposals
Improve quality of earnings and reduce commodity risk
Growing brands
milk&more
Investing in Dairies
Ongoing cost reduction
…generating growth through acquisitions…
Further work on pensions
Wexford exit
Stick to basics
Look for appropriate opportunities
47
Markets are tough but generally stable
Signs of increased commodity input costs – we have a track record of being able to work in this environment
We will continue doing the things that have contributed to recent success- investment in brands
- strong promotional programme
- further cost reductions
- cash generation
Trading at start of the year is in line with expectations and we are confident for the year as a whole
Current year outlook
48
A Compelling Investment Proposition
Brand building
Innovation
Chilled distribution
UK and Continental retailers
Cost management
Milk buying
Corporate activity
Underpinned by strong competencies
Well defined strategy
Sound, balanced customer base for both Liquid Products and Foods
5 key brands with good growth record and further potential
Direct access to 1.3 million consumers
Strong record of cost reduction with further opportunities
Sound finances and strong cash generation
Confirmed commitment to a progressive dividend policy
Experienced, well-motivated management team