7 Nov 2013 07:00
Dairy Crest Group plc ("Dairy Crest")
Interim Results Announcement
Dairy Crest today announces its unaudited results for the six months ended 30 September 2013:
| Half year ended 30 September | |||
| Financial Highlights: | 2013 | 2012 3 | Change |
Revenue 1 : | £672.2m | £688.2m | -2% |
Profit / (loss) before tax 1 : | £19.7m | £(13.1)m | n/a |
Adjusted profit before tax: 1, 2 | £21.9m | £18.6m | +18% |
Basic earnings / (loss) per share1 : | 13.1p | (7.0)p | n/a |
Adjusted basic earnings per share: 1, 2 | 13.1p | 11.4p | +15% |
Half year net debt: | £192.3m | £75.8m | +154% |
Interim dividend: | 5.9p | 5.7p | +3.5% |
1 From continuing operations
2 Before exceptional items, amortisation of acquired intangibles and pension interest
3 2012 comparatives have been restated to reflect amendments to IAS 19R: Employee Benefits. See Note 11 to the interim financial statements.
Steady first half performance in challenging trading environment
- Four key brands together deliver sales growth
- Annual cost savings ahead of £20 million target
- Interest savings as expected
- Interim dividend up 3.5%
- Whey project underway
Mark Allen, Chief Executive, said:
"Dairy Crest has had a steady first half. Despite the challenging environment we have continued to grow our key brands through innovation and reduce our cost base.
We have committed to an exciting whey project which will increase future profits and widen our customer base. This is a significant move for Dairy Crest which demonstrates our focus on growing the business in added value markets.
We remain confident that full year performance will be in line with our expectations."
For further information:
Dairy Crest Group plc | ||||||||
Arthur Reeves | 01372 472236 | |||||||
Brunswick | ||||||||
Tim Danaher / Max McGahan | 020 7404 5959 | |||||||
A video interview with Mark Allen will be available from 07:00 (UK time) from the investor section of the Group's website investor.dairycrest.co.uk. There will be an analyst and investor meeting at 08.30 (UK time) today at The Lincoln Centre, 18 Lincoln's Inn Fields, London, WC2A 3ED. An audiocast of the presentation will be available from the investor section of the Group's website investor.dairycrest.co.uk later today.
Operating review
In line with our well-established strategy, Dairy Crest continues to focus on growing added value sales and reducing our cost base.
Key brand sales up
In aggregate, sales of our four key brands (Cathedral City, Country Life, Clover and FRijj) were up 1% despite trading against tough comparatives last year when sales were up 11%. This reflects a strong second quarter performance after a first quarter in which sales of these brands were down 4%.
Annual cost reductions ahead of £20 million target
Cost reduction remains an important part of our strategy, and in the six months ended 30 September 2013 we have made good progress to improve efficiency across the business. We anticipate that cost reduction projects initiated this year will deliver annual benefits ahead of our £20 million target. We are also continuing to benefit from the work we did in this area last year.
Following a significant reorganisation of the business earlier this year into one business unit, we have assessed that the Group comprises one operating segment under International Financial Reporting Standards (IFRS 8). To assist the reader of the financial statements we have chosen to provide a product group analysis consistent with prior periods. The main product groups are Cheese, Spreads and Dairies.
Another strong performance from Cheese
Cheese revenues and profits have increased compared to the same period last year. Cathedral City sales have increased by 9%, significantly ahead of the market. We expect a continuing strong performance in the second half, supported by new product launches which further widen the appeal of the brand.
Higher volumes have helped drive lower unit costs at both Davidstow and our two packing plants, further benefitting profitability. Whey realisations have also remained strong.
More difficult in Butters and Spreads
Spreads profits are down in a butters and spreads market that remains difficult. Demand has fallen across the category and higher cream prices have adversely impacted costs. In this challenging environment Clover, with sales up 2%, and Country Life Spreadable have both performed creditably. However Country Life block butter sales and market share are down significantly, mainly as a result of lower promotional activity, leaving overall Country Life sales down 17% compared to the first half of last year. In addition some retailers have reduced the amount of space they allocate to butters and spreads in their stores and our Utterly Butterly brand has been adversely affected.
We have new product launches and television advertising planned for Clover during the second half. We also remain on track to consolidate all of our spreads and butter production at Kirkby in mid 2014.
Progress in Dairies, although property profits phased to second half
We remain committed to improve our Dairies profits to our medium-term target of 3% return on sales. The key drivers are cutting costs, growing FRijj sales and maximising the profits from the sale of redundant properties. We need these to more than offset higher farmgate milk prices and declining doorstep sales.
We continue to support our farmers and the price we pay for their milk has increased significantly over the period. We have further increased their prices since the period end. Some of these increases have been funded from higher cream prices and we have also been successful in negotiating price increases from some of our customers. This is an ongoing process as we maintain our commitment to paying a fair, market-related price to our farmers.
The rate of decline in residential sales has increased marginally over the period and is now close to 14%. On-line sales are faring better than off-line and there are some clear geographical differences in performance. We have a clear strategy to exit areas where residential and middle ground sales cannot be made profitable and we sold our business in North West England in the period. Profits from the sale of properties that we no longer require as this structural change takes place were lower in the period but we expect full year property profits to be similar to last year and that they are likely to increase further in future years.
As noted above, we have been successful in reducing costs across the business. Dairies gains the most from this and has benefitted from the dairy and depot closures and major reorganisation we carried out last year, and from further depot closures, distribution efficiencies and purchasing savings initiated this year.
As anticipated, FRijj sales were down in the first half as we scaled back promotions whilst we increased our production capacity and capability. Sales fell 17% in the period but we expect that second half performance will improve following the commissioning of a new production line and that the brand will be in growth for the year as a whole. The second half has started well with sales significantly up in October 2013 compared to October 2012. The upgrade of our production facilities leaves us well placed to benefit from our leading position in the fast growing flavoured milk category.
Whey
As previously announced, we have committed to investing around £45 million to manufacture demineralised whey powder, a base ingredient for baby food - a fast growing global market. We expect production to start in the first half of 2015 and that the project will have a five year cash payback and enhance annual operating profits by over £5 million. Having considered a range of marketing alternatives, we are currently in detailed discussions with a small number of potential customers.
Financial review
Group revenue of £672.2 million represents a 2% reduction from last year and reflects lower spreads and milk volumes.
Group pre-exceptional profit from continuing operations fell 7% to £27.0 million (2012: £28.9 million). Within this, property profits, arising from an ongoing programme of sales of delivery depots that we no longer require, were £2.5 million in the six months ended 30 September 2013 (2012: £4.8 million).
Following our major reorganisation we have assessed that the Group has one reporting segment in accordance with the requirements of IFRS 8. However we have chosen to provide product group analysis consistent with prior periods to assist the reader. This can be found in note 4 to the interim financial statements.
Finance costs of £5.4 million are significantly lower than last year and reflect reduced net debt levels and the repayment and maturity of loan notes in April 2013.
Group adjusted profit before tax (before exceptional items, amortisation of acquired intangibles and pension interest) was £21.9 million, up 18% versus £18.6 million in 2012.
Exceptional restructuring costs of £1.8 million were incurred during the six months ended 30 September 2013. £1.5 million was in relation to the ongoing rationalisation of our spreads and butter manufacturing facilities which will result in the closure of our Crudgington site in 2014. £0.3 million related to the major reorganisation of the business. Further exceptional charges of approximately £5 million are expected in the second half of the year across both of these projects.
The total cash cost of exceptional items in the first half was £14.0 million, comprising £3.3 million for costs associated with the major reorganisation, £8.7 million of costs associated with the early redemption of loan notes, £0.4 million in relation to the consolidation of spreads and butter manufacturing and £1.4 million relating to the closure of Fenstanton and Aintree factories in 2012.
Following changes to IAS 19 that took effect from 1 April 2013, the Group recognises pension scheme administrative expenses within operating costs. In addition the pension interest is now calculated by reference to the discount rate being applied to scheme assets rather than the expected rate of return. All prior year amounts have been restated accordingly and further details are set out in note 11 to the interim financial statements.
The pre-exceptional tax expense of £4.0 million represents an effective tax rate of 18.6% based on expectations for the full year. This effective tax rate benefits from property profits which do not attract tax due to rollover relief and significant brought forward capital losses. The equivalent full year effective tax rate for 2012/13 was 20.1%.
Basic earnings per share on continuing operations of 13.1 pence compared to a loss per share of 7.0 pence in 2012. Adjusted basic earnings per share of 13.1 pence represents a 15% increase in the half, consistent with the increase in adjusted profit before tax and the higher issued share capital. 2012 comparatives have been restated to reflect amendments to IAS 19R: Employee Benefits.
The directors have declared an increased interim dividend of 5.9 pence per share, up 0.2 pence (3.5%) from 2012. We remain committed to a progressive dividend policy with a target cover range of between 1.5 and 2.5 times.
Group net debt amounted to £192.3 million at 30 September 2013, an increase of £132.6 million since 31 March 2013. This reflects the one-off payment of £40 million made by Dairy Crest to the pension scheme in April 2013 and the one-off charges of £8.7 million associated with debt repayment in the half. It also reflects: high capital expenditure of £29.8 million (2012: £21.6 million) driven by spend at Kirkby (consolidation of spreads and butter manufacturing) and Severnside (FRijj capacity and capability extension); lower receipts from ongoing property sales; and the normal working capital build in the first half of the year.
We expect year end net debt to fall to around £175 million, leaving our net debt / EBITDA ratio at between 1.5 and 2.0 times. Looking further forward we continue to expect capital expenditure in areas other than whey to fall back towards the level of annual depreciation and proceeds from property sales to increase.
The defined benefit pension scheme deficit reported under IAS 19 decreased in the first half to £49.0 million (March 2013: £67.2 million). The reduction takes into account the one-off payment of £40 million made by Dairy Crest to the pension scheme in April 2013. The triennial actuarial valuation is underway for March 2013 which will result in a revised schedule of contributions expected to be agreed with the Trustee by March 2014. Until then we will continue to make cash contributions of £20 million per annum into the scheme.
The principal risks and uncertainties affecting the Group are set out below the statement of directors' responsibilities and further details are disclosed on pages 16 and 17 of the 2013 Annual Report and Accounts. Related party transactions are given in note 12 to the interim financial statements.
Summary and outlook
Dairy Crest has had a steady first half. Despite the challenging environment we have continued to grow our key brands and reduce our cost base.
We have committed to an exciting whey project which will drive added-value sales, widen our customer base and increase future profits.
We remain confident that full year performance will be in line with our expectations.
Mark Allen
Chief Executive
7 November 2013
Consolidated income statement (unaudited)
Year ended 31 March 2013 - Restated | Half year ended 30 September 2013 | Half year ended 30 September 2012 - Restated | ||||||||||||||||||||
Before | Before | Before | ||||||||||||||||||||
exceptional | Exceptional | exceptional | Exceptional | exceptional | Exceptional | |||||||||||||||||
items | items | Total | items | items | Total | items | items | Total | ||||||||||||||
£m | £m | £m | Note | £m | £m | £m | £m | £m | £m | |||||||||||||
1,381.6 | - | 1,381.6 | Group revenue | 4 | 672.2 | - | 672.2 | 688.2 | - | 688.2 | ||||||||||||
(1,321.3) | (47.8) | (1,369.1) | Operating costs | (647.7) | (1.8) | (649.5) | (664.1) | (29.7) | (693.8) | |||||||||||||
7.7 | - | 7.7 | Other income - property | 9 | 2.5 | - | 2.5 | 4.8 | - | 4.8 | ||||||||||||
68.0 | (47.8) | 20.2 | Profit / (loss) on operations | 27.0 | (1.8) | 25.2 | 28.9 | (29.7) | (0.8) | |||||||||||||
(18.7) | (8.7) | (27.4) | Finance costs | (5.4) | - | (5.4) | (10.3) | - | (10.3) | |||||||||||||
(3.5) | - | (3.5) | Other finance expense - pensions | (0.2) | - | (0.2) | (1.8) | - | (1.8) | |||||||||||||
- | - | - | Share of associate's net profit / (loss) | 0.1 | - | 0.1 | (0.2) | - | (0.2) | |||||||||||||
45.8 | (56.5) | (10.7) | Profit / (loss) before tax | 4 | 21.5 | (1.8) | 19.7 | 16.6 | (29.7) | (13.1) | ||||||||||||
(9.2) | 12.0 | 2.8 | Tax (expense) / credit | 6 | (4.0) | 2.2 | (1.8) | (3.0) | 6.8 | 3.8 | ||||||||||||
36.6 | (44.5) | (7.9) | Profit / (loss) for the period from continuing operations operopoperations | 17.5 | 0.4 | 17.9 | 13.6 | (22.9) | (9.3) | |||||||||||||
6.8 | 47.7 | 54.5 | Profit for the period from discontinued operations | 9 | - | - | - | 6.8 | 47.7 | 54.5 | ||||||||||||
43.4 | 3.2 | 46.6 | Profit for the period | 17.5 | 0.4 | 17.9 | 20.4 | 24.8 | 45.2 | |||||||||||||
All amounts are attributable to owners of the parent. | ||||||||||||||||||||||
The prior period comparatives have been restated to reflect the amendment to IAS 19R: Employee Benefits (See notes 2 and 11).
The prior period comparatives include discontinued operations that were a result of the disposal of the St Hubert business in August 2012.
The post-tax profit relating to discontinued operations is further analysed in Note 9.
Year ended | ||||||||||
31 March 2013 | Half year ended | Half year ended | ||||||||
- Restated | Earnings per share | 30 September 2013 | 30 September 2012 - Restated | |||||||
34.6 | Basic earnings per share on profit for the period (pence) | 8 | 13.1 | 33.9 | ||||||
34.6 | Diluted earnings per share on profit for the period (pence) | 8 | 12.8 | 33.9 | ||||||
(5.9) | Basic earnings/(loss) per share from continuing operations (pence) | 8 | 13.1 | (7.0) | ||||||
(5.9) | Diluted earnings/(loss) per share from continuing operations (pence) | 8 | 12.8 | (7.0) | ||||||
29.4 | Adjusted basic earnings per share from continuing operations (pence) * | 8 | 13.1 | 11.4 | ||||||
29.4 | Adjusted diluted earnings per share from continuing operations (pence) * | 8 | 12.8 | 11.4 | ||||||
40.5 | Basic earnings per share from discontinued operations (pence) | 8 | - | 40.9 | ||||||
40.5 | Diluted earnings per share from discontinued operations (pence) | 8 | - | 40.9 | ||||||
* Adjusted earnings per share calculations exclude exceptional items, amortisation of acquired intangibles, discontinued operations and the pension interest in relation to the defined benefit pension scheme.
The prior period comparatives have been restated to reflect the amendment to IAS 19R: Employee Benefits (See notes 2 and 11). A final dividend of £20.5 million (15.0 pence per share) was paid in the period to 30 September 2013 (2012: £19.6 million; 14.7 pence per share). A dividend of £8.1 million (5.9 pence per share) was approved by the Board on 6 November 2013 for payment on 30 January 2014 (2012: £7.8 million; 5.7 pence per share). See Note 7.
Consolidated statement of comprehensive income
(Unaudited)
Year ended | Half year ended | |||||||||||||
31 March | 30 September | |||||||||||||
2013 | 2013 | 2012 | ||||||||||||
(Restated) | (Restated) | |||||||||||||
£m | Note | £m | £m | |||||||||||
46.6 | Profit for the period | 17.9 | 45.2 | |||||||||||
Other comprehensive income to be reclassified to profit and loss in subsequent periods: | ||||||||||||||
Net investment hedges: | ||||||||||||||
(15.3) | Exchange differences on foreign currency net investments | - | (14.5) | |||||||||||
6.0 | Exchange differences on foreign currency borrowings designated as net investment hedges | - | 6.0 | |||||||||||
11.4 | Exchange differences reclassified to income statement on sale of subsidiary | - | 11.4 | |||||||||||
(9.5) | Cash flow hedges - reclassification adjustment for gains / (losses) in income statement | 16.0 | 7.0 | |||||||||||
10.0 | Cash flow hedges - (losses) / gains recognised in other comprehensive income | (15.5) | (6.2) | |||||||||||
(0.2) | Tax relating to components of other comprehensive income | (0.1) | - | |||||||||||
2.4 | 0.4 | 3.7 | ||||||||||||
Other comprehensive income not to be reclassified to profit and loss in subsequent periods: | ||||||||||||||
(3.2) | Remeasurements of defined benefit pension plans | 11 | (31.2) | (12.0) | ||||||||||
5.4 | Tax relating to components of other comprehensive income | 7.4 | 2.6 | |||||||||||
4.6 | Other comprehensive (loss) / gain for the period, net of tax | (23.4) | (5.7) | |||||||||||
51.2 | Total comprehensive (loss) / gain for the period, net of tax | (5.5) | 39.5 | |||||||||||
All amounts are attributable to owners of the parent. | ||||||||||||||
Consolidated balance sheet
(Unaudited)
31 March | 30 September | |||||||||
2013 | 2013 | 2012 | ||||||||
£m | Note | £m | £m | |||||||
Assets | ||||||||||
Non-current assets | ||||||||||
270.3 | Property, plant and equipment | 278.4 | 256.4 | |||||||
74.3 | Goodwill | 74.3 | 74.3 | |||||||
30.5 | Intangible assets | 29.7 | 29.3 | |||||||
0.3 | Investments | 0.3 | - | |||||||
0.5 | Investment in associate using equity method | 0.6 | 0.5 | |||||||
1.4 | Deferred consideration | 1.4 | 1.3 | |||||||
14.5 | Financial assets - Derivative financial instruments | 9.0 | 8.6 | |||||||
391.8 | 393.7 | 370.4 | ||||||||
Current assets | ||||||||||
208.2 | Inventories | 226.8 | 204.0 | |||||||
98.8 | Trade and other receivables | 133.5 | 122.5 | |||||||
9.6 | Financial assets - Derivative financial instruments | 0.5 | 6.0 | |||||||
276.1 | Cash and short-term deposits | 10 | 32.7 | 265.0 | ||||||
592.7 | 393.5 | 597.5 | ||||||||
984.5 | Total assets | 4 | 787.2 | 967.9 | ||||||
Equity and liabilities | ||||||||||
Non-current liabilities | ||||||||||
(184.3) | Financial liabilities | - Long-term borrowings | 10 | (147.1) | (270.8) | |||||
(3.9) | - Derivative financial instruments | (5.3) | (12.8) | |||||||
(67.2) | Retirement benefit obligations | 11 | (49.0) | (83.8) | ||||||
(14.6) | Deferred tax liability | (9.0) | (14.9) | |||||||
(9.6) | Deferred income | (8.7) | (6.2) | |||||||
(279.6) | (219.1) | (388.5) | ||||||||
Current liabilities | ||||||||||
(221.8) | Trade and other payables | (198.3) | (209.1) | |||||||
(167.5) | Financial liabilities | - Short-term borrowings | 10 | (78.3) | (69.1) | |||||
(2.3) | - Derivative financial instruments | (1.8) | - | |||||||
(2.6) | Current tax liability | (5.4) | (3.7) | |||||||
(1.6) | Deferred income | (1.7) | (0.5) | |||||||
(1.7) | Provisions | (1.7) | (1.9) | |||||||
(397.5) | (287.2) | (284.3) | ||||||||
(677.1) | Total liabilities | (506.3) | (672.8) | |||||||
Shareholders' equity | ||||||||||
(34.1) | Ordinary shares | (34.1) | (33.3) | |||||||
(77.5) | Share premium | (77.6) | (71.0) | |||||||
0.6 | Interest in ESOP | 0.6 | 0.6 | |||||||
(51.4) | Other reserves | (51.8) | (52.5) | |||||||
(145.0) | Retained earnings | (118.0) | (138.9) | |||||||
(307.4) | Total shareholders' equity | (280.9) | (295.1) | |||||||
(984.5) | Total equity and liabilities | (787.2) | (967.9) | |||||||
| ||||||||||
The interim results were approved by the directors on 6 November 2013. | ||||||||||
Consolidated statement of changes in equity
(Unaudited)
Ordinary | Share | Interest | Other | Retained | ||||||||||||
shares | premium | in ESOP | reserves | earnings | Total | |||||||||||
Half year ended 30 September 2013 | £m | £m | £m | £m | £m | £m | ||||||||||
At 31 March 2013 | 34.1 | 77.5 | (0.6) | 51.4 | 145.0 | 307.4 | ||||||||||
Profit for the period | - | - | - | - | 17.9 | 17.9 | ||||||||||
Other comprehensive gain / (loss): | ||||||||||||||||
Net investment hedges | - | - | - | - | - | - | ||||||||||
Exchange differences reclassified to income | ||||||||||||||||
statement on sale of subsidiary | - | - | - | - | - | - | ||||||||||
Cash flow hedges | - | - | - | 0.5 | - | 0.5 | ||||||||||
Remeasurement of defined benefit pension plan | - | - | - | - | (31.2) | (31.2) | ||||||||||
Tax on components of other comprehensive income | - | - | - | (0.1) | 7.4 | 7.3 | ||||||||||
Other comprehensive gain/(loss) | - | - | - | 0.4 | (23.8) | (23.4) | ||||||||||
Total comprehensive gain / (loss) | - | - | - | 0.4 | (5.9) | (5.5) | ||||||||||
Issue of share capital | - | 0.1 | - | - | - | 0.1 | ||||||||||
Shares acquired by ESOP | - | - | (1.1) | - | - | (1.1) | ||||||||||
Exercise of options | - | - | 1.1 | - | (1.4) | (0.3) | ||||||||||
Share based payments | - | - | - | - | 0.8 | 0.8 | ||||||||||
Equity dividends | - | - | - | - | (20.5) | (20.5) | ||||||||||
At 30 September 2013 | 34.1 | 77.6 | (0.6) | 51.8 | 118.0 | 280.9 | ||||||||||
Half year ended 30 September 2012 - Restated | ||||||||||||||||
At 31 March 2012 | 33.3 | 70.9 | (0.6) | 49.0 | 121.7 | 274.3 | ||||||||||
Profit for the period | - | - | - | - | 45.2 | 45.2 | ||||||||||
Other comprehensive gain / (loss): | ||||||||||||||||
Net investment hedges | - | - | - | (8.5) | - | (8.5) | ||||||||||
Exchange differences reclassified to income | ||||||||||||||||
statement on sale of subsidiary | - | - | - | 11.4 | - | 11.4 | ||||||||||
Cash flow hedges | - | - | - | 0.8 | - | 0.8 | ||||||||||
Remeasurement of defined benefit pension plan | - | - | - | - | (12.0) | (12.0) | ||||||||||
Tax on components of other comprehensive income | - | - | - | (0.2) | 2.8 | 2.6 | ||||||||||
Other comprehensive gain/(loss) | - | - | - | 3.5 | (9.2) | (5.7) | ||||||||||
Total comprehensive gain | - | - | - | 3.5 | 36.0 | 39.5 | ||||||||||
Issue of share capital | - | 0.1 | - | - | - | 0.1 | ||||||||||
Share based payments | - | - | - | - | 0.8 | 0.8 | ||||||||||
Equity dividends | - | - | - | - | (19.6) | (19.6) | ||||||||||
At 30 September 2012 | 33.3 | 71.0 | (0.6) | 52.5 | 138.9 | 295.1 | ||||||||||
Year ended 31 March 2013 - Restated | ||||||||||||||||
At 31 March 2012 | 33.3 | 70.9 | (0.6) | 49.0 | 121.7 | 274.3 | ||||||||||
Profit for the period | - | - | - | - | 46.6 | 46.6 | ||||||||||
Other comprehensive gain / (loss): | ||||||||||||||||
Net investment hedges | - | - | - | (9.3) | - | (9.3) | ||||||||||
Exchange differences reclassified to income | ||||||||||||||||
statement on sale of subsidiary | - | - | - | 11.4 | - | 11.4 | ||||||||||
Cash flow hedges | - | - | - | 0.5 | - | 0.5 | ||||||||||
Remeasurement of defined benefit pension plan | - | - | - | - | (3.2) | (3.2) | ||||||||||
Tax on components of other comprehensive income | - | - | - | (0.2) | 5.4 | 5.2 | ||||||||||
Other comprehensive gain | - | - | - | 2.4 | 2.2 | 4.6 | ||||||||||
Total comprehensive gain | - | - | - | 2.4 | 48.8 | 51.2 | ||||||||||
Issue of share capital | 0.8 | 6.6 | - | - | - | 7.4 | ||||||||||
Share based payments | - | - | - | - | 1.9 | 1.9 | ||||||||||
Equity dividends | - | - | - | - | (27.4) | (27.4) | ||||||||||
At 31 March 2013 | 34.1 | 77.5 | (0.6) | 51.4 | 145.0 | 307.4 | ||||||||||
All amounts are attributable to owners of the parent.
The prior period comparatives have been restated to reflect the amendment to IAS 19R: Employee Benefits (See notes 2 and 11)
Consolidated cash flow statement
(Unaudited)
Year ended | Half year ended | |||||||||
31 March | 30 September | |||||||||
2013 | 2013 | 2012 | ||||||||
(Restated) | (Restated) | |||||||||
£m | Note | £m | £m | |||||||
Cash flow from operating activities | ||||||||||
(10.7) | Profit / (loss) before taxation - continuing operations | 19.7 | (13.1) | |||||||
62.7 | Profit before taxation - discontinued operations | - | 62.7 | |||||||
(51.4) | Remove pre-tax profit on disposal of business | - | (51.4) | |||||||
30.9 | Finance costs and other finance income - continuing operations | 5.6 | 12.1 | |||||||
(0.1) | Finance costs and other finance income - discontinued operations | - | (0.1) | |||||||
- | Share of associate's net (profit) / loss | (0.1) | 0.2 | |||||||
31.4 | Profit on operations | 25.2 | 10.4 | |||||||
29.0 | Depreciation | 13.9 | 15.1 | |||||||
3.4 | Amortisation of internally generated intangible assets | 2.0 | 1.8 | |||||||
3.4 | Amortisation of acquired intangible assets | 0.2 | 3.2 | |||||||
17.9 | Exceptional items | (3.5) | 15.0 | |||||||
(0.9) | Release of grants | (0.9) | (0.4) | |||||||
1.9 | Share based payments | 0.8 | 0.8 | |||||||
(7.7) | Profit on disposal of depots | (2.5) | (4.8) | |||||||
Difference between pension contributions paid and amounts recognised in the | ||||||||||
(19.3) | income statement | (49.8) | (9.8) | |||||||
(40.0) | Increase in working capital | (56.7) | (61.8) | |||||||
19.1 | Cash (used in) / generated from operations | (71.3) | (30.5) | |||||||
(18.0) | Interest paid | (8.9) | (10.1) | |||||||
(4.7) | Taxation repaid / (paid) | 2.5 | (4.5) | |||||||
(3.6) | Net cash outflow from operating activities | (77.7) | (45.1) | |||||||
Cash flow from investing activities | ||||||||||
(50.9) | Capital expenditure | (29.8) | (21.6) | |||||||
5.3 | Grants received | - | - | |||||||
(0.4) | Grants repaid | - | - | |||||||
10.1 | Proceeds from disposal of property, plant and equipment | 5.4 | 5.5 | |||||||
(0.6) | Purchase of businesses and investments (net of cash and debt acquired) | - | - | |||||||
330.8 | Sale of discontinued operation (net of cash disposed of and fees) | 9 | - | 335.3 | ||||||
294.3 | Net cash (used in) / generated from investing activities | (24.4) | 319.2 | |||||||
Cash flow from financing activities | ||||||||||
(7.5) | Repayment and cancellation of loan notes | (168.1) | - | |||||||
(68.7) | Net drawdown / (repayment) under revolving credit facilities | 50.0 | (68.6) | |||||||
(27.4) | Dividends paid | (20.5) | (19.6) | |||||||
7.4 | Proceeds from issue of shares (net of issue costs) | 0.1 | 0.1 | |||||||
- | Realised exchange loss on loan note revaluation | 0.8 | - | |||||||
- | Purchase of shares by ESOP | (1.4) | - | |||||||
(1.7) | Finance lease repayments | 10 | (2.2) | (0.4) | ||||||
(97.9) | Net cash used in financing activities | (141.3) | (88.5) | |||||||
192.8 | Net (decrease) / increase in cash and cash equivalents | (243.4) | 185.6 | |||||||
79.4 | Cash and cash equivalents at beginning of period | 276.1 | 79.4 | |||||||
3.9 | Exchange impact on cash and cash equivalents | 10 | - | - | ||||||
276.1 | Cash and cash equivalents at end of period | 10 | 32.7 | 265.0 | ||||||
(59.7) | Memo: Net debt at end of period | 10 | (192.3) | (75.8) | ||||||
The prior period comparatives have been restated to reflect the amendment to IAS 19R: Employee Benefits (See notes 2 and 11) | ||||||||||
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") is the processing, manufacture and sale of fresh milk and branded dairy products in the UK and Europe as described in the Group's annual financial statements for the year ended 31 March 2013.
2 Significant accounting policies
Basis of preparation
These condensed interim financial statements comprise the consolidated balance sheet as at 30 September 2013 and related income statement, statement of comprehensive income, statement of cash flows, 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 2013 have been extracted from the Group's 2013 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 financial statements for the year ended 31 March 2013 have been filed with the Registrar of Companies.
The financial information can be found on our corporate website, www.dairycrest.co.uk
The financial information for the period ended 30 September 2013 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services 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 2013, which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The accounting policies and methods of computation used to prepare the financial information for the period ended 30 September 2013 are the same as those used for the Group's financial statements for the year ended 31 March 2013 except for the adoption of the new standards and interpretations that came into effect in the half year (see below). Having made appropriate enquiries, the Directors consider that the Group has adequate resources to remain in operation for the foreseeable future and have therefore continued to adopt the going concern basis in preparing the financial information.
The results for 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 2013.
Taxes on income in the interim periods are accrued using the tax rate that is expected to be applicable to total annual earnings for the full year in each tax jurisdiction based on substantively enacted or enacted tax rates at the interim date.
The following accounting standards and interpretations became effective for the current reporting period:
IFRS 13 - Fair Value Measurement (effective 1 January 2013)
IAS 1 - Amendments to IAS 1: Presentation of Financial Statements (effective 1 July 2012)
IAS 19R - Amendments to IAS 19: Employee Benefits (effective from 1 January 2013)
IFRIC 20 - Stripping Costs in the Production Phase of a Surface Mine (effective from 1 January 2013)
The adoption of these standards and interpretations do not have a material impact on the Group's interim financial statements in the period with the exception of the following:
IAS 19R - Employee Benefits
The principal impact on the Group of the application of this standard is the requirement to use the discount rate when calculating expected returns on the asset component of pension cost. This change has resulted in higher charges to the Consolidated Income Statement for the pension interest cost as set out in note 11 to the interim financial statements. There is no material impact on the reported pension liabilities each year end as the impact on the Consolidated Income Statement is mitigated by an offsetting change in the calculation of actuarial gains and losses in the Statement of Comprehensive Income. Further details are included in note 11 to the interim financial statements.
IFRS 13 - Fair Value Measurement
There is no change in the underlying accounting but the disclosures required have been shown in note 13 to the interim financial statements
3 Critical accounting estimates and judgements
The following are areas of particular significance to the Group's financial information and include the application of judgement, which is fundamental to the completion of a set of condensed consolidated interim financial statements.
Pensions
The present value of the Group's pension obligations and the pension interest charge in each period depends on a number of actuarial assumptions. The primary assumptions used include the expected long-term rate of return on invested funds, the discount rate applicable to scheme liabilities, the long-term rate of inflation and estimates of the mortality applicable to scheme members.
At each reporting date, and on a continuing basis, the Group reviews the macro-economic and scheme specific factors influencing each of these assumptions, using professional advice, in order to record the Group's ongoing commitment and obligation to its defined benefit pension scheme in accordance with IFRS. Further details of the underlying assumptions are set out in Note 11.
Carrying value of property, plant and equipment, goodwill and other intangible assets
Impairment reviews in respect of goodwill are performed annually unless an event indicates that an impairment review is necessary. Impairment reviews in respect of property, plant and equipment and intangible assets are performed when an event indicates that an impairment review is necessary. Examples of such triggering events include a significant planned restructuring, a major change in market conditions or technology, expectations of future operating losses, or a significant reduction in cash flows. The recoverable amounts of cash-generating units are determined based on the higher of realisable value and value-in-use calculations. These calculations require the use of estimates of future cash flows and are sensitive to the discount rate used.
Promotional accruals
Accruing for customer claims against agreed promotional funding is an area of judgement that management consider to be significant due to the potential size of the claims. Accruals are calculated based on an estimated redemption rate of the promotion. The redemption rate used is dependent on the promotional mechanic and considers known historic data on the performance of that promotional mechanic.
Exceptional items
Exceptional items are not explicitly defined under IFRS. Accordingly, the Group has defined exceptional items as those of a material, one-off nature which result from a restructuring of the business or some other event or circumstance and are disclosed in this manner in order to give a better understanding of the underlying operational performance of the Group. The profits arising on disposal of closed sites, other than as a result of depot rationalisation, are reported within exceptional items. Exceptional items are included in the basic earnings per share calculation but are excluded from the adjusted basic earnings per share calculation.
Segmental reporting
A key judgement made by management in the process of applying the Group accounting policy for segment reporting is that used to determine operating segments as set out in the criteria defined in IFRS 8. Management's conclusion regarding operating segments following a significant group wide reorganisation is set out in Note 4
Taxation
The sale of the St Hubert business will result in tax payable in France both on the chargeable gain on disposal and on dividend payments made to UK parent between 31 March 2012 and the date of disposal in August 2012. An estimate has been made of the likely tax costs resulting from these transactions. However, the final assessment has yet to be agreed with the French tax authorities which may result in a change to the level of tax provisioning.
4 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 CODM uses trading profit, as reviewed at monthly business review meetings, as the key measure of the Group's results as it reflects the Group's underlying trading performance for the period under evaluation. Trading profit is defined as profit on operations before exceptional items and amortisation of acquired intangible assets but includes the Group share of post-tax profit of associates.
In April 2013, the Group reorganised from a divisional structure to a functional structure to become 'One Dairy Crest'. Prior to the reorganisation, the business was structured into divisions according to product types and this was used to identify and determine the Group's operating segments as 'Cheese', 'Spreads', 'MH Foods', 'Dairies', 'Share of Associates' and 'Other'. Certain of these operating segments were aggregated and the Group reported on five continuing segments within the business: 'Cheese', 'Spreads', 'Dairies', 'Share of Associates' and 'Other'.
Following the reorganisation, the CODM's primary focus for review and resource allocation is the Group as a whole and no longer any component part of the business. All revenue streams for the business are 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 trading profit of the individual product groups is not available or reviewed by either the Management Board or the CODM.
Having considered these factors, management has judged that following the implementation of the new structure the Group comprises one operating segment under IFRS 8. As such, disclosures required under IFRS 8 for the interim financial statements are shown on the face of the consolidated income statement and consolidated balance sheet.
Voluntary disclosure
To assist the readers of the financial statements, management considers it appropriate to provide voluntary disclosure on a basis consistent with historic reporting of the product groups. In disclosing the trading profit of each product group in the current period, certain assumptions have been made when allocating resources which are now centralised at a group level.
Associates forms a separate product group whose results are reviewed on a post-tax basis.
The Other product group comprises revenue earned from distributing products for third parties and certain central costs net of recharges to other product groups. Generally, central costs less external 'other' revenue are 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 historic segmentation basis for the period ended 30 September 2013 and 30 September 2012 and for the year ended 31 March 2013 and the reconciliation of product group measures to the respective line items included in the financial information are as follows:
Year ended | Half year ended | ||||||||
31 March | 30 September | ||||||||
2013 (Restated) (Restated) | 2013 | 2012 (Restated) | |||||||
£m | £m | £m | |||||||
External revenue | |||||||||
231.3 | Cheese | 124.9 | 111.6 | ||||||
194.5 | Spreads | 85.5 | 97.5 | ||||||
951.6 | Dairies | 459.8 | 476.9 | ||||||
4.2 | Other | 2.0 | 2.2 | ||||||
1,381.6 | Total external revenue | 672.2 | 688.2 | ||||||
Profit | |||||||||
33.1 | Cheese | 17.5 | 15.5 | ||||||
25.5 | Spreads | 7.1 | 11.7 | ||||||
9.8 | Dairies | 2.6 | 1.9 | ||||||
- | Share of associate's net profit / (loss) | 0.1 | (0.2) | ||||||
68.4 | Total product group profit | 27.3 | 28.9 | ||||||
(18.7) | Finance costs | (5.4) | (10.3) | ||||||
49.7 | Adjusted profit before tax | 21.9 | 18.6 | ||||||
(0.4) | Acquired intangible amortisation | (0.2) | (0.2) | ||||||
(56.5) | Exceptional items (see Note 5) | (1.8) | (29.7) | ||||||
(3.5) | Other finance expense - pensions | (0.2) | (1.8) | ||||||
(10.7) | Group profit / (loss) before tax | 19.7 | (13.1) | ||||||
Total assets | |||||||||
237.7 | Cheese | 253.0 | 236.0 | ||||||
138.0 | Spreads | 154.6 | 124.3 | ||||||
268.1 | Dairies | 300.5 | 282.9 | ||||||
2.2 | Investments and Share of associate | 2.3 | 1.8 | ||||||
38.3 | Other | 34.6 | 43.3 | ||||||
684.3 | Total product group | 745.0 | 688.3 | ||||||
300.2 | Un-allocated assets | 42.2 | 279.6 | ||||||
984.5 | Total assets | 787.2 | 967.9 | ||||||
Inter-product group revenue | |||||||||
11.3 | Cheese | 4.9 | 5.9 | ||||||
2.8 | Spreads | 1.2 | 1.5 | ||||||
(14.1) | Elimination | (6.1) | (7.4) | ||||||
- | Total | - | - | ||||||
The prior period comparatives have been restated to reflect the amendment to IAS 19R: Employee Benefits (See notes 2 and 11).
Assets allocated by product group comprise property, plant and equipment, goodwill, intangible assets, inventories, receivables and investments in associates using the equity method and deferred consideration. Other assets comprise certain property, plant and equipment that cannot be allocated by product group. They exclude cash and cash equivalents, derivative financial assets and deferred tax assets as these items cannot be allocated meaningfully by product group. Total liabilities have not been allocated by product group in line with our historic basis for segmental reporting.
Inter-product group revenue comprises the sale of finished Cheese and Spreads products to the Dairies product group on a cost plus basis. Other inter-product group transactions principally comprise sales of cream from the Dairies product group to the Spreads product group for the manufacture of butters. Cream sold into Spreads is priced by reference to external commodity markets and is adjusted regularly. Revenue from inter-product group cream sales is not reported as revenue but as a reduction to the Dairies product group input costs.
Seasonality of results
Consumer demand for our products tends to be lower during the summer months as it is impacted by warm weather and school holidays. Certain cream and non-milk products experience increased sales in the run up to 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.
5 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.
Year ended | Half year ended | |||||||||||||
31 March | 30 September | |||||||||||||
2013 | 2013 | 2012 | ||||||||||||
£m | Note | £m | £m | |||||||||||
Operating costs | ||||||||||||||
(9.2) | Depot administration restructuring costs | - | (4.4) | |||||||||||
(21.3) | Costs associated with closure of Dairy processing sites | - | (12.6) | |||||||||||
(13.8) | Spreads restructuring costs | (1.5) | (12.7) | |||||||||||
(3.5) | Business reorganisation | (0.3) | - | |||||||||||
(47.8) | (1.8) | (29.7) | ||||||||||||
Finance costs | ||||||||||||||
(8.7) | Repayment of loan notes and associated costs | - | - | |||||||||||
(56.5) | (1.8) | (29.7) | ||||||||||||
12.0 | Tax relief on exceptional items | 0.3 | 6.8 | |||||||||||
- | Deferred tax adjustment for change in UK corporation tax rate | 6 | 1.9 | - | ||||||||||
(44.5) | 0.4 | (22.9) | ||||||||||||
47.7 | Post-tax gain on disposal of St Hubert (Discontinued operations) | - | 47.7 | |||||||||||
3.2 | 0.4 | 24.8 | ||||||||||||
Exceptional items in the period ended 30 September 2013 comprise:
- In September 2012 the Group announced that it was to consult with employees on plans to consolidate spreads production into a single UK location at its site in Kirkby, Liverpool. As a result of this consolidation the site at Crudgington, Shropshire will close in 2014. The exceptional costs incurred in the period ending 30 September 2013 were £1.5 million (September 2012: £12.7 million; year ended 31 March 2013: £13.8 million), comprising £1.0 million of plant and equipment write-down and £0.5 million of other costs including termination costs and duplicate running costs.
- In February 2013 the Group announced plans to reorganise the business into a single management and operational structure from 1 April 2013. This has replaced the divisional structures that previously existed and has led to a more efficient and simplified organisation. This reorganisation resulted in exceptional costs in the period ended 30 September 2013 of £0.3 million (year ended 31 March 2013: £3.5 million) comprising predominantly redundancy costs.
Total exceptional costs of approximately £5.0 million are expected to be incurred in the second half of 2013/14.
Exceptional items in the year ended 31 March 2013 comprised:
- £9.2 million of costs associated with the rationalisation of administrative activities and other structural changes in the depot network. This restructuring resulted in centralisation of back office activities supporting the depot network. These costs related to redundancies (£7.4 million), incremental operating costs associated with delivery of the project (£1.1 million) and write downs of property, plant and equipment (£0.7 million). The project has now completed.
- During the year ended 31 March 2013 the Group closed two processing sites at Aintree in Liverpool and Fenstanton in Cambridgeshire. The closure of the sites and resultant changes in the supply chain, volume requirements and customer channels resulted in exceptional costs of £21.3 million. These costs related to redundancies (£9.0 million), duplicate running costs (£6.2 million), asset write downs (£0.7 million) and other costs (£5.4 million) including stock write offs.
- In March 2013 the Group gave notice to the holders of its 2007 private placement loan notes that it would repay £100 million of principal in April 2013. The costs of early repayment were accrued at 31 March 2013 as the Group was irrevocably committed to the repayment at that date. Costs of £8.7 million predominantly comprised make whole penalties which were calculated based on the discounted future coupons between repayment date and original note maturity.
6 Tax expense
The tax expense for the half year ended 30 September 2013 has been calculated on the basis of the estimated effective tax rate on pre-exceptional profit for the full year of 18.6% (September 2012: 18.1%; March 2013: 20.1%). The comparative effective tax rate excludes the discontinued St Hubert business: both its corporation tax on profits until the date of disposal and any accrued taxes relating to the disposal - see Note 9. Tax relief on exceptional costs for the half year ended 30 September 2013 was £0.3 million (September 2012: £6.8 million; year ended 31 March 2013: £12.0 million).
The staged reduction in the UK corporation tax rate from 23% to 20% by April 2015 has been enacted in the 2013 Finance Act. Consequently, UK deferred tax balances that reverse after 31 March 2015 have been calculated using a corporation tax rate of 20%. The impact of this change was a £1.9 million credit to the income statement and this has been classified as exceptional in line with Group policy.
7 Dividends
A dividend of £8.1 million (5.9 pence per share) (2012: £7.8 million; 5.7 pence per share) will be payable on 30 January 2014 to shareholders on the register on 3 January 2014. This dividend is not recorded in the balance sheet as a liability at 30 September 2013 because it had not been committed to at the balance sheet date.
8 Earnings per share
Basic earnings per share on profit for the period has been calculated on the basis of profit attributable to equity shareholders of £17.9 million (September 2012: £45.2 million; March 2013: £46.6 million) and the weighted average number of shares in issue during the period, excluding those held by the Dairy Crest Employees' Share Ownership Plan Trust and held as treasury shares which are treated as cancelled, totalling 136.407 million (September 2012: 133.260 million; March 2013: 134.685 million).
To show earnings per share on a consistent basis, which in the directors' opinion reflects the underlying performance of the Group more appropriately, adjusted earnings per share has been calculated as follows:
Year ended | ||||||||||||||||
31 March | ||||||||||||||||
2013 (Restated) | Half year ended 30 September
| |||||||||||||||
2013 | 2012 (Restated) | |||||||||||||||
£m | £m | £m | ||||||||||||||
46.6 | Profit attributable to equity shareholders | 17.9 | 45.2 | |||||||||||||
(54.5) | Discontinued operations after exceptional items (net of tax) | - | (54.5) | |||||||||||||
(7.9) | Profit from continuing operations | 17.9 | (9.3) | |||||||||||||
44.5 | Exceptional items net of tax | (0.4) | 22.9 | |||||||||||||
0.3 | Amortisation of acquired intangible assets (net of tax) | 0.2 | 0.2 | |||||||||||||
2.7 | Pension interest expense (net of tax) | 0.2 | 1.4 | |||||||||||||
39.6 | Adjusted earnings | 17.9 | 15.2 | |||||||||||||
34.6 | Basic earnings per share (pence) | 13.1 | 33.9 | |||||||||||||
34.6 | Diluted earnings per share (pence) | 12.8 | 33.9 | |||||||||||||
40.5 | Basic earnings per share from discontinued operations (pence) | - | 40.9 | |||||||||||||
40.5 | Diluted earnings per share from discontinued operations (pence) | - | 40.9 | |||||||||||||
(5.9) | Basic earnings per share from continuing operations (pence) | 13.1 | (7.0) | |||||||||||||
(5.9) | Diluted earnings per share from continuing operations (pence) | 12.8 | (7.0) | |||||||||||||
29.4 | Adjusted basic earnings per share from continuing operations (pence) | 13.1 | 11.4 | |||||||||||||
29.4 | Adjusted diluted earnings per share from continuing operations (pence) | 12.8 | 11.4 | |||||||||||||
The prior period comparatives have been restated to reflect the amendment to IAS 19R: Employee Benefits (See notes 2 and 11). This resulted in a basic loss per share on continuing operations and therefore no dilution has been assumed across any EPS measures. This is in line with IAS 33 guidelines.
Diluted earnings per share has been calculated on the basis of a diluted number of shares of 139.324 million (September 2012: 136.323 million; March 2013: 136.556 million). This reflects the dilutive impact of share options exercisable under the Dairy Crest share schemes.
9 Disposals and business combinations Half year ended 30 September 2013Disposal of Northern DepotsAs part of the ongoing rationalisation of the depot network, on 27 July 2013, the Group completed the disposal of seven depots located in the north-west of England for a cash consideration of £1.2 million. The carrying value of assets sold was £0.8 million including net working capital and fees were £0.1 million resulting in a profit on disposal of £0.3 million. The gain on disposal of these depots has been included in other income - property in the consolidated income statement Year ended 31 March 2013Disposal of Discontinued OperationsFollowing a strategic review of the Group's overseas operations in the light of the inability to undertake synergistic acquisitions, on 28 August 2012 the Group completed the disposal of St Hubert SAS ("St Hubert") for a cash consideration of £341.1 million (€430.5 million). St Hubert formed part of the Spreads reportable segment. Cash held in the disposed business at that date amounted to £4.1 million, resulting in a net cash inflow to the Group of £337.0 million. This amount was reduced by fees of £6.2 million. The disposal resulted in a post-tax profit of £47.7 million which can be analysed as follows:
£m | £m | ||||||||||||
Sales proceeds - cash consideration | 341.1 | ||||||||||||
Book value of assets disposed: | |||||||||||||
Property, plant and equipment | 10.3 | ||||||||||||
Goodwill | 176.4 | ||||||||||||
Intangible assets | 131.5 | ||||||||||||
Inventories | 3.3 | ||||||||||||
Trade and other receivables | 14.9 | ||||||||||||
Cash and short-term deposits | 4.1 | ||||||||||||
Trade and other payables | (18.4) | ||||||||||||
Current tax liabilities | (5.5) | ||||||||||||
Deferred tax liabilities | (44.5) | (272.1) | |||||||||||
Gain on disposal before fees and recycling of exchange differences | 69.0 | ||||||||||||
Fees | (6.2) | ||||||||||||
Amounts reclassified to profit and loss | (11.4) | ||||||||||||
Pre-tax gain on disposal | 51.4 | ||||||||||||
Expected tax charge | (3.7) | ||||||||||||
Post-tax gain on disposal of Discontinued Operation | 47.7 | ||||||||||||
Year ended | |||||||||||||
31 March | |||||||||||||
2013 | |||||||||||||
£m | |||||||||||||
Revenue | 41.7 | ||||||||||||
Operating costs before amortisation of acquired intangibles | (27.5) | ||||||||||||
Trading profit | 14.2 | ||||||||||||
Amortisation of acquired intangibles | (3.0) | ||||||||||||
Profit on operations | 11.2 | ||||||||||||
Finance income | 0.1 | ||||||||||||
Profit before tax | 11.3 | ||||||||||||
Tax expense | (4.5) | ||||||||||||
Profit for the year | 6.8 | ||||||||||||
The cash flows of the St Hubert business in the period of disposal can be analysed as follows: | |||||||||||||
Cash flow from operating activities | 0.3 | ||||||||||||
Cash used in investing activities | (0.6) | ||||||||||||
Cash used in financing activities | 0.1 | ||||||||||||
Net movement in cash and cash equivalents | (0.2) | ||||||||||||
Year ended | Closing net debt | ||||||||||
31 March | Half year ended 30 September Half year 30 September
| ||||||||||
2013 | 2013 | 2012 | |||||||||
£m | £m | £m | |||||||||
165.7 | Loans repayable in less than one year | 75.6 | 66.7 | ||||||||
2.4 | Finance leases repayable within one year | 3.3 | 3.1 | ||||||||
(0.6) | Debt issuance costs | (0.6) | (0.7) | ||||||||
167.5 | Short-term borrowings | 78.3 | 69.1 | ||||||||
182.4 | Loans repayable in greater than one year | 147.9 | 268.8 | ||||||||
3.1 | Finance leases repayable in greater than one year | - | 3.7 | ||||||||
(1.2) | Debt issuance costs | (0.8) | (1.7) | ||||||||
184.3 | Long-term borrowings | 147.1 | 270.8 | ||||||||
(276.1) | Cash and short-term deposits | (32.7) | (265.0) | ||||||||
75.7 | Borrowings and cash - before impact of cross-currency swaps | 192.7 | 74.9 | ||||||||
1.8 | Debt issuance costs excluded | 1.4 | 2.4 | ||||||||
(17.8) | Impact of cross-currency swaps * | (1.8) | (1.5) | ||||||||
59.7 | Net Debt | 192.3 | 75.8 | ||||||||
* The Group has $204.0 million and €41.0 million of loan notes against which cross-currency swaps have been put in place to fix interest and principal repayments in Sterling (March 2013: $308.2 million and €75.0 million; September 2012: $318.0 million and €75.0 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 £1.8 million adjustment included above (March 2013: £17.8 million; September 2012: £1.5 million) converts the Sterling equivalent of Dollar and Euro loan notes from year end exchange rates (£160.8 million (March 2013: £266.7 million; September 2012: £256.0 million)) to the fixed Sterling liability of £159.0 million (March 2013: £248.9 million; September 2012: £254.5 million).
On 18 April 2013 the Group repaid €106.9 million (£92.7 million) and £7.2 million of 2007 notes at a combined premium of £8.7 million. £69.2 million of these notes were due for repayment in April 2014 and £30.7 million were due for repayment in April 2017. In addition there was a natural maturity of £59.5 million ($104.3 millon) of loan notes and a €60.0 million (£51.0 million) reduction in the revolving credit facility.
Movement in net debt | Opening | Cash | Exchange | Closing | |||||||
balances | flow | movement | balances | ||||||||
Six months ended 30 September 2013 | £m | £m | £m | £m | |||||||
Cash and short-term deposits | 276.1 | (243.4) | - | 32.7 | |||||||
Borrowings | (348.1) | 109.4 | 15.2 | (223.5) | |||||||
Finance leases | (5.5) | 2.2 | - | (3.3) | |||||||
Cross-currency swaps | 17.8 | - | (16.0) | 1.8 | |||||||
(59.7) | (131.8) | (0.8) | (192.3) | ||||||||
Six months ended 30 September 2012 | |||||||||||
Cash and short-term deposits | 79.4 | 185.6 | - | 265.0 | |||||||
Borrowings | (417.2) | 68.6 | 13.1 | (335.5) | |||||||
Finance leases | (7.2) | 0.4 | - | (6.8) | |||||||
Cross-currency swaps | 8.6 | - | (7.1) | 1.5 | |||||||
(336.4) | 254.6 | 6.0 | (75.8) | ||||||||
Year ended 31 March 2013 | |||||||||||
Cash and short-term deposits | 79.4 | 192.8 | 3.9 | 276.1 | |||||||
Borrowings | (417.2) | 76.2 | (7.1) | (348.1) | |||||||
Finance leases | (7.2) | 1.7 | - | (5.5) | |||||||
Cross-currency swaps | 8.6 | - | 9.2 | 17.8 | |||||||
(336.4) | 270.7 | 6.0 | (59.7) | ||||||||
11 Retirement benefit obligations
The Group's defined benefit pension scheme ("the scheme") is accounted for in accordance with the requirements of IAS 19R 'Employee Benefits'. The net pension liability of the Group pension scheme at 30 September 2013 can be analysed as follows:
31 March | 30 September | ||||||||||||
2013 | 2013 | 2012 | |||||||||||
£m | £m | £m | |||||||||||
84.3 | Equities | 81.2 | 71.4 | ||||||||||
393.4 | Bonds and cash | 489.9 | 337.5 | ||||||||||
42.9 | Equity return swaps valuation | (6.3) | 30.0 | ||||||||||
286.3 | Insured retirement obligations | 288.1 | 276.6 | ||||||||||
62.5 | Property and other | 64.4 | 60.1 | ||||||||||
869.4 | 917.3 | 775.6 | |||||||||||
(639.4) | Defined benefit obligation: | Uninsured retirement obligations | (661.4) | (582.8) | |||||||||
(286.3) | Insured retirement obligations | (288.1) | (276.6) | ||||||||||
(925.7) | Total defined benefit obligation | (949.5) | (859.4) | ||||||||||
(10.9) | Recognition of liability for unrecoverable notional surplus | (16.8) | - | ||||||||||
(936.6) | (966.3) | (859.4) | |||||||||||
(67.2) | Net liability recognised in the balance sheet | (49.0) | (83.8) | ||||||||||
17.1 | Related deferred tax asset | 20.1 | 16.6 | ||||||||||
(50.1) | Net pension liability | (28.9) | (67.2) | ||||||||||
Analysis of movements in the Group pension deficit during the period - restated: | |||||||||||||
(79.8) | Opening deficit before recognition of liability for unrecoverable notional surplus | (56.3) | (79.8) | ||||||||||
(3.5) | Net finance cost | (0.2) | (1.8) | ||||||||||
(0.9) | Admin cost of scheme | (0.4) | (0.5) | ||||||||||
7.7 | Actuarial (loss) / gain | (25.3) | (12.0) | ||||||||||
20.2 | Contributions by employer | 50.0 | 10.3 | ||||||||||
(56.3) | Closing liability (excluding liability for unrecoverable notional surplus) | (32.2) | (83.8) | ||||||||||
The principal assumptions used in determining the retirement benefit obligations for the Group's pension scheme are as follows:
Mar 13 | Sept 13 | Sept 12 | ||||
3.5 | Price inflation - RPI (%) | 3.4 | 2.9 | |||
2.5 | Price inflation - CPI (%) | 2.4 | 2.2 | |||
22.6 | Average expected remaining life expectancy for a non-retired 65 year old male (years) | 22.6 | 22.5 | |||
21.7 | Average expected remaining life expectancy for a retired 65 year old male (years) | 21.7 | 21.6 | |||
25.3 | Average expected remaining life expectancy for a non-retired 65 year old female (years) | 25.3 | 25.2 | |||
24.1 | Average expected remaining life expectancy for a retired 65 year old female (years) | 24.1 | 24.0 | |||
4.6 | Discount rate (%) | 4.4 | 4.6 |
In December 2008, certain obligations relating to retired members were hedged by the purchase of an insurance contract. A further insurance contract for retired members was purchased in June 2009 resulting in coverage for all members who retired up to August 2008. These contracts are included within scheme assets and their value will always be equal to the obligation as calculated under IAS 19 for those members covered.
From October 2009, the Company has been making additional funding contributions to the scheme of £20 million per annum. The level of cash contributions will continue at this level until March 2018 based on the latest schedule of contributions which was signed in June 2011. However a new schedule of contributions will be agreed with the Trustee following the next full actuarial review as at 31 March 2013. The £20 million per annum includes £2.8 million per annum of rental payments for land and buildings that were subject to a sale and leaseback agreement between the Group and the Scheme as part of the final schedule of contributions. The land and buildings included in these arrangements are subject to long term leases and the Group will continue to benefit from substantially all of the risks and rewards of ownership. On this basis, under IFRS these land and buildings continue to be recognised in property, plant and equipment and rental payments of £2.8 million per annum are treated as cash contributions, reflecting the substance of the arrangements.
The purchase of the second insurance contract in June 2009 was funded by the sale of equities. Subsequently, in order to re-establish an appropriate equity weighting of scheme assets, the Scheme purchased equity total return swaps (synthetic equity). These instruments comprise an asset leg and a liability leg. The asset leg generates a return based on UK and overseas equity indices and the liability leg incurs a cost based on LIBOR plus margin. Credit risk is minimised since collateral is provided by the counterparties to the benefit of the Scheme when the instruments are in the money.
In April 2013 the Company made a one-off cash contribution to the scheme of £40 million. In addition to this the company granted the trustee of the Group's pension scheme a floating charge over the maturing cheese inventories with a maximum realisable value of £60 million.
Discount rate assumptions for each reporting period are based upon quoted AA-rated corporate bond indices, excluding collateralised bonds, with maturities matching the schemes expected benefit payments.
The consolidated statement of comprehensive income reports a figure of £31.2 million for the remeasurement of the Group's pension scheme. The difference of £5.9 million to the £25.3 million actuarial loss figure is the movement in the value of the unrecoverable notional surplus calculated under IFRIC 14.
The Company has adopted IAS19R (revised 2011) retrospectively. As a result the interest cost and expected returns on plan assets of defined benefit plans recognised in the income statement have been replaced by the net interest on the defined benefit liability, calculated using the discount rate used to measure the net pension obligation. Administration expenses are now recognised in the income statement rather than as part of the actuarial gains and losses. The effects of the adoption of IAS19R on previously reported results are summarised as follows :-
Originally | Amended | Originally | Amended | ||||||
Reported | IAS19R | Movement | Reported | IAS19R | Movement | ||||
30 Sep 12 | 30 Sep 12 | 30 Sep 12 | 31 Mar 13 | 31 Mar 13 | 31 Mar 13 | ||||
Consolidated Income Statement | £m | £m | £m | £m | £m | £m | |||
Operating costs | 0.0 | (0.5) | (0.5) | 0.0 | (0.9) | (0.9) | |||
Other finance income / (costs) - pensions | 3.0 | (1.8) | (4.8) | 5.9 | (3.5) | (9.4) | |||
Profit before tax | 3.0 | (2.3) | (5.3) | 5.9 | (4.4) | (10.3) | |||
Deferred tax | (0.7) | 0.5 | 1.2 | (1.4) | 1.0 | 2.4 | |||
Profit for the period | 2.3 | (1.8) | (4.1) | 4.5 | (3.4) | (7.9) | |||
Consolidated Statement of Comprehensive Income | |||||||||
Profit for the period | 2.3 | (1.8) | (4.1) | 4.5 | (3.4) | (7.9) | |||
Actuarial gains / (losses) | (17.3) | (12.0) | 5.3 | (2.6) | 7.7 | 10.3 | |||
Deferred tax | 4.0 | 2.8 | (1.2) | 0.6 | (1.8) | (2.4) | |||
Total | (11.0) | (11.0) | 0.0 | 2.5 | 2.5 | 0.0 | |||
Consolidated Balance Sheet | |||||||||
Deferred tax liability | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||
Shareholders' funds | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||
Decrease in reported earnings per share : | |||||||||
Basic earnings per share on profit for the year (pence) | 37.0 | 33.9 | 40.5 | 34.6 | |||||
Diluted earnings per share on profit for the year (pence) | 36.2 | 33.9 | 39.9 | 34.6 | |||||
Basic earnings/(loss) per share from continuing operations (pence) | (3.9) | (7.0) | 0.0 | (5.9) | |||||
Diluted earnings/(loss) per share from continuing operations (pence) | (3.9) | (7.0) | 0.0 | (5.9) | |||||
Adjusted basic earnings per share from continuing operations (pence) | 11.7 | 11.4 | 29.9 | 29.4 | |||||
Adjusted diluted earnings per share from continuing operations (pence) | 11.5 | 11.4 | 29.5 | 29.4 | |||||
Basic earnings per share from discontinued operations (pence) | 40.9 | 40.9 | 40.5 | 40.5 | |||||
Diluted earnings per share from discontinued operations (pence) | 40.0 | 40.9 | 39.9 | 40.5 | |||||
12 Related party transactions
The Group's only significant related party is its associate, Wexford Creamery Limited (WCL). During the period ended 30 September 2013 the Group purchased cheese at a cost of £4.0 million from WCL (September 2012: £4.5 million; March 2013: £7.5 million).
13 Financial Instruments
The following table provides a comparison of the carrying amounts and fair values of the Group's financial instruments at 30 September 2013.
Carrying | Fair | ||||||
amount | value | ||||||
Financial Assets | £m | £m | |||||
Forward exchange contracts | 0.5 | 0.5 | |||||
Cross currency swaps | 7.4 | 7.4 | |||||
Wexford Creamery Limited option | 1.6 | 1.6 | |||||
9.5 | 9.5 | ||||||
Financial Liabilities | |||||||
Cross currency swaps | (7.1) | (7.1) | |||||
Revolving credit facility | (50.0) | (50.0) | |||||
Loan notes | (173.5) | (173.5) | |||||
Obligations under finance leases | (3.3) | (3.3) | |||||
(233.9) | (233.9) | ||||||
Management judge that the fair value of the financial instruments is equal to the carrying value. The fair value has been determined allowing for any counterparty risk or company credit risk albeit these amounts are immaterial.
Fair value hierarchy
The fair value measurements at the reporting date are classified according to the significance of the inputs used in making the measurements. The level in the hierarchy within which the fair value is categorised is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (e.g prices) or indirectly (e.g. derived from prices).
Level 3: inputs for the assets or liabilities that are not based on observable market data.
For financial instruments that are recognised at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation at the end of each reporting period.
At 30 September 2013, the Group held the following classes of financial instruments measured at fair value.
30 Sept 13 | Level 1 | Level 2 | Level 3 | |||||||
Financial assets at fair value | £m | £m | £m | £m | ||||||
Forward exchange contracts | 0.5 | 0.5 | ||||||||
Cross currency swaps | 7.4 | 7.4 | ||||||||
WCL option | 1.6 | 1.6 | ||||||||
Financial Liabilities at fair value | ||||||||||
Cross currency swaps | (7.1) | (7.1) | ||||||||
Revolving credit facility | (50.0) | (50.0) | ||||||||
Loan notes | (173.5) | (173.5) | ||||||||
Obligations under finance leases | (3.3) | (3.3) | ||||||||
During the six months ended 30 September 2013 there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 measurements. There were no movements in Level 3 measurements reported in other comprehensive income.
There were no movements in Level 3 fair value measurements in the half year ended 30 September 2013.
Valuation techniques
The fair values of cross currency swaps and forward exchange 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 the loan notes has been measured by reference to yields of publicly quoted debt of equivalent duration, coupon and credit-worthiness.
Management has valued the WCL option by comparing the current equity accounted carrying value of the 20% holding with the estimated present value of consideration received from the exercise of the option. The difference between these amounts comprises the option value of £1.6 million at 30 September 2013. The principal input assumptions in valuing these options are (i) estimated future profits of WCL which have been based upon best available budgets and forecasts (ii) an appropriate post-tax discount rate of 6% and (iii) an option exercise date of 2018. Over the period until exercise of these options, any movements in the fair value of these instruments is charged / credited to the income statement.
14 Commitments and contingencies
Capital expenditure contracted for but not provided for in the interim financial statements amounts to £19.9 million (September 2012; £21.0 million, March 2013; £21.3 million).
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 2013, and their respective responsibilities, can be found on pages 10 and 11 of the 2013 Annual Report and Accounts.
By order of the Board
M Allen T Atherton
Chief Executive Finance Director
6 November 2013 6 November 2013
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 and in particular the current weak economic conditions resulting from the global financial crisis and weak consumer demand;
- 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; and
- Environmental trends and risks.
There have been no significant changes in the material risks faced by the Group since publication of the 2013 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 2013 Annual Report and Accounts on pages 16 to 17.
Independent Review Report to Dairy Crest Group plc
Introduction
We have been engaged by Dairy Crest Group plc (the 'Company') to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2013 which comprises Consolidated income statement, Consolidated statement of comprehensive income, Consolidated balance sheet, Consolidated statement of changes in equity, Consolidated cash flow statement and the related notes 1 to 14. 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 guidance contained in ISRE 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our 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 and Transparency Rules of the United Kingdom's Financial Services 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 Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, 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 Ireland) 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 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
Ernst & Young LLP
London
6 November 2013