Dairy Crest Regulatory News (DCG)

9 Nov 2006 07:01

Dairy Crest Group PLC09 November 2006 9 November 2006 Dairy Crest Group plc ("Dairy Crest") INTERIM RESULTS ANNOUNCEMENT Dairy Crest today announces its unaudited results for the six months ended 30September 2006: Half year ended 30 September Financial Highlights: 2006 2005 Change Revenue (including share of joint ventures): £622.6m £590.1m +6%Profit before tax: £29.8m £19.5m +53%Adjusted profit before tax*: £31.8m £25.4m +25%Earnings per share: 17.8p 11.9p +50%Adjusted earnings per share*: 18.2p 14.4p +26%Half year net debt: £329.0m £301.2m +9%Interim dividend: 6.7p 6.3p +6% * Including share of joint ventures and before exceptional items andamortisation of acquired intangibles. All amounts are from continuing operations. Business Highlights and Recent Developments: • Active six months with strong profit growth • Good performance from Cathedral City, Country Life and Frijj • Country Life extended as a cross-category brand with the launch of premium cheese range and organic milk • Sale of majority of retailer brand cheese operations completed for £61.9m • Improved performance from the Dairies division • Acquisition of Express Dairies creates UK's leading doorstep and middle ground business Dairy Crest has announced separately today the acquisition of the St HubertFrench and Italian spreads business from Uniq plc. Drummond Hall, Chief Executive, said: "Dairy Crest has delivered strong profit growth in the first half, whichtogether with our recent corporate activity, gives us a sound platform for therest of the year. In the last six months we have significantly reshaped the Group through theExpress Dairies acquisition and the sale of the majority of our retailer brandcheese operations. In addition we are delighted to be announcing today theacquisition of the St Hubert spreads business. In the second half we will focuson realising the financial and operational benefits from these transactions andon further developing our brand portfolio. We continue to expect to deliver a good outcome for the full year, in spite ofchallenging trading conditions." Simon Oliver, Chairman, said: "As this is the last set of results before Drummond's retirement, I want tothank him on behalf of the Board for his considerable contribution to the Groupover the last 15 years. Throughout his time with Dairy Crest, Drummond hasplayed an important role in developing the Group's successful strategy to growthe branded and added value side of the business. This has delivered strongshareholder returns since the Group's flotation in 1996 and he will leave DairyCrest well placed for the future. Mark Allen takes over as Chief Executive on 1January and I am confident that he will drive the business forward for our nextphase of growth. " For further information: Dairy Crest Group plcWill Shaw, Investor Relations 07919 568498Nicole Lander, Media 07801 235756BrunswickSimon Sporborg / Laura Cummings 020 7404 5959 Operating and Financial Review Overall the Group has delivered a solid set of first half results in line withmarket expectations in spite of challenging trading conditions. Adjusted* profitbefore tax was up 25% to £31.8 million. This reflects an improved performancefrom the Dairies division and continued good progress from some of our keybrands, notably Cathedral City and Country Life. We continue to broaden ourbrand portfolio and have recently extended the Country Life brand into bothcheese and organic milk and have launched Cathedral City Mild which has made anencouraging start. Strategic Developments During the first half we have taken significant steps to reshape the Group andimprove the quality of earnings. In July we announced the acquisition of theExpress Dairies operations for £33 million (before working capital adjustments)to create the UK's leading doorstep and middle ground business. The acquisition,which is consistent with our successful infill strategy for the Dairiesbusiness, will generate substantial operational and financial synergies and behighly earnings accretive. In September 2006 we announced the sale of the majority of our retailer brandcheese operations to First Milk for £61.9 million. The market for retailer brandand other commodity cheese is competitive and has delivered unsatisfactorycyclical returns for the Group. This sale is in line with our strategy to reduceexposure to commodity markets and allows us to focus on accelerating thedevelopment of our added value branded business including Cathedral City. Financial Review The Group achieved half-year revenue from continuing operations of £588.6million up 6% on £555.8 million in the comparable period last year. This mainlyreflects the impact of last year's acquisitions in the Dairies division.Including share of joint ventures, Group revenue was up 6% at £622.6 million(2005: £590.1 million). Adjusted* operating profit was up 11% to £36.1 million (2005: £32.4 million).This principally reflects good profits growth in the retained cheese businessand an improved performance in the liquid products business following adifficult first half last year. Exceptional items of £0.2 million representinitial integration costs relating to the Express Dairies acquisition. A further£2.6 million is expected to be incurred in the current financial year. On 26 September 2006 we announced the disposal of the majority of our retailerbrand cheese operations to First Milk Limited. The revenue and results for thisbusiness, after adjusting for tax, have been disclosed as discontinued andcomparatives have been adjusted accordingly. In addition a pre-tax exceptionalitem of £4.0 million has been recognised at 30 September 2006 reflecting theestimated book loss on disposal of this business after certain assetimpairments, fees and separation costs offset by a pension curtailment gain. Gross finance costs of £9.0 million are up on £8.1 million in the first halflast year reflecting the impact of the dairies acquisitions last year. Otherfinance income from the Group's pension schemes under IAS19 was £4.7 million(2005: £1.0 million) reflecting stronger equity markets and lower bond yields atthe beginning of the financial year. Consequently, overall net finance costswere lower at £4.3 million (2005: £7.1 million). The Group's adjusted profit before tax was £31.8 million (2005: £25.4 million).The income tax expense was £8.8 million (including taxation on joint venturesand before tax on exceptional items) and represents an effective tax rate ofapproximately 28% on adjusted profit before taxation. Basic earnings per sharewere up 50% at 17.8 pence (2005: 11.9 pence). Adjusted earnings per share wereup 26% at 18.2 pence compared to 14.4 pence last year. The directors have declared an interim dividend of 6.7 pence per share, whichrepresents an increase of 6% over the dividend of 6.3 pence per share last year.The dividend will be paid on 30 January 2007 to shareholders on the register at5 January 2007. Group net debt amounted to £329.0 million at September 2006, reflecting a netcash outflow of £48.8 million from 31 March 2006. Acquisition expenditure in thefirst half amounted to £37.5 million (2005: £38.9 million) and capitalexpenditure amounted to £19.9 million (2005: £21.6 million). There was a networking capital outflow of £21.1 million reflecting the normal seasonal trendsof milk flows on cheese stocks. The Group's final salary pension scheme closed to new employees joining theGroup from July 2006. However, as part of the Express Dairies acquisition,transferring employees who were members of either the Express Dairies, or theArla defined benefit schemes, were invited to join the Dairy Crest Group PensionFund (the defined benefit scheme) from their date of transfer. All othertransferring employees and any other new employees have the opportunity to jointhe Dairy Crest Stakeholder Pension plan. Dairy Crest did not assume existingpension liabilities for transferring employees as part of the Express Dairiestransaction. The pension deficit in the Dairy Crest Group Pension Fund underIAS19 at the end of the first half was £54.2 million (after adjusting for anestimated £3.0 million curtailment gain resulting from the cheese businessdisposal) compared to a deficit at 31 March 2006 of £62.0 million. Financialmarkets at the end of September were at broadly similar levels to the start ofthe half. Dairy Crest also made additional cash contributions during the half of£5 million out of the £12 million committed for the full year. * From continuing operations, including share of joint ventures and beforeexceptional items and amortisation of acquired intangibles Business Operations Foods Our Foods division achieved a 2% increase in adjusted trading profit fromcontinuing operations (including share of joint ventures and before exceptionalitems) to £28.8 million (2005: £28.2 million) on revenue of £199.9 million(2005: £201.9 million) producing a trading margin of 14.4% (2005: 14.0%). The butter and spreads market (excluding cooking fats) is showing modest valueand volume growth of 2% and 1% respectively. The sector of greatest growthcontinues to be spreadable butter up 13% by value. Against this backdrop, Country Life has performed strongly in both spreadableand packet butter formats. It is the fastest growing spreadable brand, withsales up 26% by value. In packet butter, where it is the only major brand ofpacket butter that is growing year on year, sales were up 3% by value. Cloverperformed well with sales up 2% by value strengthening its position as themarket-leading dairy spreads brand. Notwithstanding these good performances,overall our branded spreads sales were flat half on half due to a weakerperformance from Utterly Butterly and St. Ivel Gold where sales were down 11%and 18% respectively. St. Ivel Gold, in particular, has been impacted bysignificant competitor marketing activity. However we continue to believe thatour brand portfolio can capitalise on the opportunities presented by the growingtrend towards healthy eating. The cheese market has continued to grow, with value and volume growth of 3% and2% respectively. Within the cheddar market, the mature and extra mature sectoris growing well, up 6% by value, and continuing to gain share. Cathedral City has once again delivered strong growth with sales up 19% by valueand the brand is now worth approximately £113 million at retail prices. Thisperformance has in part been driven by an increased level of trade promotions.In May we launched a further brand extension, Cathedral City Mild. We continueto invest in marketing and new product development to support the brand'sgrowth. A lower level of promotions compared to the first half last yearimpacted the Davidstow brand, with sales down 14% by value. We have recentlylaunched a range of premium cheeses including Cornish cheddar, Stilton, Dovedaleand Cornish Brie under the Country Life brand. As expected there was some downward pressure on cheese pricing in the firsthalf, mainly at the commodity end of the market, resulting from higher industrycheese stocks. Both industry stock levels and prices have stabilised over thelast few months. The market for whey powder was strong during the first halfwith prices holding up well. In September 2006 we announced the sale of the majority of the Group's retailerbrand cheese operations to First Milk Limited for a net cash consideration of£61.9 million. The sale, which completed on 14 October 2006, included thecheddar creameries at Haverfordwest (in which First Milk already had a 20%interest) and Aspatria, as well as the Group's pre-packing and whey processingfacilities at Maelor. We will focus our future cheese activities on acceleratingthe development of our branded and added value products. The Group is retainingcreameries at Davidstow, Wexford and Hartington (stilton and speciality cheeses)and the prepacking site at Frome. Davidstow, our industry leadingstate-of-the-art cheddar manufacturing site, still has significant capacity forthe future growth of the retained business. It is our intention to develop a newprepacking facility over the next two to three years with a likelihood that thiswill be located at our National Distribution Centre at Nuneaton. The chilled yogurt and desserts market remains in growth up 4% by value and 2%by volume. The Weight Watchers, Wildlife and YOP brands have shown good growth,up 12%, 9% and 5% by value respectively during the half. Both Petits Filous andFrubes showed sales decline during the period down 9% and 4% respectively byvalue. This largely reflected the impact of promotional phasing and increasedcompetitor activity. Dairies Dairies achieved an adjusted trading profit (before exceptional items andamortisation of acquired intangibles) of £7.3 million (2005: £4.2 million) onrevenue of £422.7 million (2005: £388.2 million) giving an operating margin of1.7% (2005: 1.1%). This mainly reflects a better performance from our majorretail milk business following a difficult first half last year. The retail milk market continues to grow modestly, benefiting from priceincreases in January 2006, with sales up 1%. The organic milk market remains instrong growth with sales up over 40% by value year on year. Volumes to major retailers were up 4% over the first half last year reflectingthe benefit of volume gains in the second half of 2005/06 including theadditional Morrisons business which commenced in October 2005. We continue tofocus on improving operating margins in our major retail milk business throughcost reduction and operational efficiency projects. The retail milk market has continued to be more stable with supply and demandbroadly in balance. During the first half we were retained as a key supplier offresh milk to Sainsbury's. Sainsbury's has committed to a closer workingrelationship with dairy producers and launched the Sainsbury Dairy DevelopmentGroup. This group will include a large number of Dairy Crest's direct suppliers. FRijj, our market leading fresh flavoured milk brand, has returned to goodgrowth, now that we have addressed production capacity constraints, with salesup 28% by value. Distribution of St. Ivel advance has grown during the periodand we have also recently launched Country Life organic milk to take advantageof the strongly growing organic milk market. This is a strategic decision todevelop our own brand in the organic milk sector and we have consequentlydecided to give termination notice on the existing licence agreement for theRachel's brand where we have had a contract packing arrangement. This takeseffect at the end of 2006. The household business has performed in line with our expectations. Overallhousehold milk volumes (excluding Express Dairies) were up 3% benefiting fromthe Midlands Co-op Dairies acquisition and Arla London Foodservice acquisitionslast year. The underlying annual decline rate in our doorstep business hasslightly improved to below 8%. We have continued to focus on increasing non-milkproduct sales which were up 29% half on half. This continues to be a keyopportunity for the household business going forward. We acquired the Express Dairies business from Arla in August 2006 for aconsideration of £33 million (before working capital adjustments). Thiscomprised 76 distribution depots, dairies in Liverpool and Nottingham and 1,850employees. The business currently distributes approximately 390 million litres(690 million pints) of milk per annum. The acquisition creates the UK's marketleading doorstep and middle ground business with broad coverage across Englandand Wales. As a result of our industry leading business model significantsynergies will be delivered which are anticipated to peak at approximately £9.0million in 2008/09. We believe there are substantial additional businessopportunities to be leveraged from a direct customer base of 1.6 million. Thisacquisition is consistent with our successful infill strategy for our Dairiesdivision, at a price which will deliver significant value for shareholders. Milk procurement We continue to work constructively with Dairy Crest Direct (who now supplynearly 75% of our total milk requirement) and our other milk suppliers to givethem a sustainable long-term future. Following market related price reductionsthis summer, in order to provide some stability to our suppliers, we set a floorunder our milk prices through to January 2007. Recent improvements in somecommodity markets have allowed us to increase the price we pay our suppliers onliquid contracts by 0.2 pence per litre with effect from 1 November 2006. Board Changes I announced in July that I would take early retirement from the Board at the endof December 2006 after 15 years on the Board. As part of a planned successionprocess, Mark Allen, currently Executive Managing Director of Dairy Crest'sDairies Division will succeed me as Chief Executive with effect from 1 January2007. Outlook Dairy Crest has delivered strong profit growth in the first half, which togetherwith our recent corporate activity, gives us a sound platform for the rest ofthe year. In the last six months we have significantly reshaped the Group through theExpress Dairies acquisition and the sale of the majority of our retailer brandcheese operations. In addition we are delighted to be announcing the acquisitionof the St Hubert French and Italian spreads business from Uniq plc. In thesecond half we will focus on realising the financial and operational benefitsfrom these transactions and on further developing our brand portfolio. We continue to expect to deliver a good outcome for the full year, in spite ofchallenging trading conditions. Drummond Hall, Chief Executive8 November 2006 Consolidated income statement (unaudited) Half year ended 30 September 2006 Half year ended 30 September 2005 __________________________________________________________________________ Year ended Before Before 31 March exceptional Exceptional exceptional Exceptional 2006 items items Total items items Total £m £m £m £m £m £m £m_______________________________________________________________________________________________________________________ 1,161.0 Group revenue from continuing operations 588.6 - 588.6 555.8 - 555.8 (1,122.9)Operating costs (562.0) (0.2) (562.2) (531.1) (4.1) (535.2) 7.5 Other income 4.8 - 4.8 2.8 - 2.8_______________________________________________________________________________________________________________________ 45.6 Profit on operations from continuing 31.4 (0.2) 31.2 27.5 (4.1) 23.4 operations (16.7)Finance costs (9.0) - (9.0) (8.1) - (8.1) 2.2 Other finance income - pensions 4.7 - 4.7 1.0 - 1.0 7.3 Share of joint ventures' net profit 2.9 - 2.9 3.2 - 3.2_______________________________________________________________________________________________________________________ Profit from continuing operations before 38.4 tax 30.0 (0.2) 29.8 23.6 (4.1) 19.5 (5.6)Tax expense (7.6) 0.1 (7.5) (5.4) 1.1 (4.3)_______________________________________________________________________________________________________________________ Group profit for the period from 32.8 continuing operations 22.4 (0.1) 22.3 18.2 (3.0) 15.2 (Loss) / profit for the period from 2.0 discontinued operations (0.1) (2.8) (2.9) 0.5 - 0.5_______________________________________________________________________________________________________________________ 34.8 Group profit for the period 22.3 (2.9) 19.4 18.7 (3.0) 15.7_______________________________________________________________________________________________________________________ Profit attributable to equity 33.8 shareholders 22.2 (2.9) 19.3 18.3 (3.0) 15.3 Profit attributable to minority 1.0 interests 0.1 - 0.1 0.4 - 0.4_______________________________________________________________________________________________________________________ 34.8 Group profit for the period 22.3 (2.9) 19.4 18.7 (3.0) 15.7_______________________________________________________________________________________________________________________ Earnings per share - continuing operations Basic earnings per share from continuing 25.5 operations (p) 17.8 11.9 Diluted earnings per share from 25.4 continuing operations (p) 17.6 11.8 Adjusted basic earnings per share from 38.7 continuing operations (p) * 18.2 14.4 Adjusted diluted earnings per share from 38.6 continuing operations (p) * 18.0 14.4 Earnings per share Basic earnings per share on profit for 27.1 the period (p) 15.5 12.3 Diluted earnings per share on profit for 27.0 the period (p) 15.3 12.2_______________________________________________________________________________________________________________________ • Adjusted earnings per share calculations exclude exceptional items and amortisation of acquired intangibles. A final dividend of £19.0 million (15.2 pence per share) was paid in the periodto 30 September 2006 (2005: £17.7 million; 14.3 pence per share). A dividend of£8.4 million (6.7 pence per share) was approved by the Board on 8 November 2006for payment on 30 January 2007 (2005: £7.9 million and 6.3 pence per share). SeeNote 4. In order to provide a trend measure of underlying performance, profit before taxis adjusted for items which management consider will distort comparability as aresult of specific accounting treatments. _______________________________________________________________________________________________________________________ Adjusted Group profit before tax: Profit from continuing operations before 38.4 tax 30.0 (0.2) 29.8 23.6 (4.1) 19.5 1.0 Amortisation of acquired intangibles 0.6 - 0.6 0.3 - 0.3 3.2 Share of joint ventures' tax charge 1.2 - 1.2 1.5 - 1.5_______________________________________________________________________________________________________________________ 42.6 Adjusted Group profit before tax 31.8 (0.2) 31.6 25.4 (4.1) 21.3_______________________________________________________________________________________________________________________ Consolidated balance sheet (unaudited) 31 March 30 September 2006 2006 2005 £m Note £m £m ___________ _____________________________________________________________________________ ________ ________ Assets Non-current assets 330.2 Property, plant and equipment 336.4 334.6 131.1 Goodwill 131.3 130.3 4.5 Intangible assets 3.8 4.7 4.3 Investment in joint ventures using equity method 4.0 8.4 ___________ _____________________________________________________________________________ ________ ________ 470.1 475.5 478.0 ___________ _____________________________________________________________________________ ________ ________ Current assets 192.6 Inventories 159.8 196.2 142.8 Trade and other receivables 171.9 132.8 0.3 Financial assets - Derivative financial instruments 0.3 0.1 14.4 Cash and cash equivalents 11.1 10.5 ___________ _____________________________________________________________________________ ________ ________ 350.1 343.1 339.6 ___________ _____________________________________________________________________________ ________ ________ - Assets in disposal group held for sale 7 71.1 - ___________ _____________________________________________________________________________ ________ ________ 820.2 Total assets 889.7 817.6 ___________ _____________________________________________________________________________ ________ ________ Equity and liabilities Non-current liabilities (253.8) Financial liabilities - Long-term borrowings (339.3) (261.9) (0.1) - Derivative financial instruments (0.1) (1.0) (62.0) Retirement benefit obligations 10 (54.2) (103.4) (13.6) Deferred tax liability (14.6) (3.1) (10.4) Deferred income (10.0) (11.2) ___________ _____________________________________________________________________________ ________ ________ (339.9) (418.2) (380.6) ___________ _____________________________________________________________________________ ________ ________ Current liabilities (173.3) Trade and other payables (200.2) (157.1) (40.8) Financial liabilities - Short-term borrowings (0.8) (49.8) (0.2) - Derivative financial instruments (6.1) (0.3) (6.8) Current tax liability (8.8) (9.1) (1.2) Deferred income (0.6) (0.9) ___________ _____________________________________________________________________________ ________ ________ (222.3) (216.5) (217.2) ___________ _____________________________________________________________________________ ________ ________ - Liabilities in disposal group held for sale 7 (1.6) - ___________ _____________________________________________________________________________ ________ ________ (562.2) Total liabilities (636.3) (597.8) ___________ _____________________________________________________________________________ ________ ________ Shareholders' equity (31.3) Share capital 8 (31.5) (31.3) (28.8) Share premium 8 (28.8) (28.7) 1.5 Interest in ESOP 8 1.5 1.5 (55.8) Other reserves 8 (49.8) (54.6) (132.8) Retained earnings 8 (133.8) (96.6) ___________ _____________________________________________________________________________ ________ ________ (247.2) Total shareholders' equity (242.4) (209.7) (10.8) Minority interests (4.1) (10.1) - Minority interests in disposal group held for sale 7 (6.9) - ___________ _____________________________________________________________________________ ________ ________ (10.8) Minority interests 8 (11.0) (10.1) ___________ _____________________________________________________________________________ ________ ________ (258.0) Total equity (253.4) (219.8) ___________ _____________________________________________________________________________ ________ ________ (820.2) Total equity and liabilities (889.7) (817.6) ___________ _____________________________________________________________________________ ________ ________ The interim financial statements were approved by the directors on 8 November 2006. Consolidated cash flow statement (unaudited) Year ended Half year ended 31 March 30 September 2006 2006 2005 £m £m £m_____________________________________________________________________________________________ _______ __________ Cash flow from operating activities 45.6 Profit from continuing operations before net finance costs and taxation 31.2 23.4 2.9 (Loss) / profit from discontinued operations before net finance costs and taxation (0.1) 0.7 38.3 Depreciation 19.8 18.4 1.2 Amortisation of intangible assets 0.7 0.3 8.9 Exceptional items - 0.3 (0.9) Release of grants (0.4) (0.4) 1.1 Share based payments 0.9 0.7 (6.1) Profit on disposal of household depots (4.8) (2.8) Difference between pension contributions paid and amounts recognised in income (1.3) statement (1.8) 3.7 (16.3) Increase in working capital (21.1) (25.3)_____________________________________________________________________________________________ _______ __________ 73.4 Cash generated from operations 24.4 19.0 9.0 Dividends received from joint ventures 2.8 - (16.4) Interest paid (6.2) (8.4) (15.5) Tax paid (0.9) (10.8)_____________________________________________________________________________________________ _______ __________ 50.5 Net cash flow from operating activities 20.1 (0.2)_____________________________________________________________________________________________ _______ __________ Cash flow from investing activities (44.3) Payments to acquire property, plant and equipment (19.9) (21.6) 0.3 Grants received 1.1 0.3 9.4 Proceeds from disposal of property, plant and equipment 5.9 4.1 (43.7) Purchase of businesses (net of cash and debt acquired) (37.5) (38.9)_____________________________________________________________________________________________ _______ __________ (78.3) Net cash used in investing activities (50.4) (56.1)_____________________________________________________________________________________________ _______ __________ Cash flow from financing activities (65.0) Repayment of term loans (90.0) (40.0) 105.1 Bank loans (repaid) / advanced (6.9) 96.9 - Loan notes issued 143.0 - (25.6) Dividends paid (19.0) (17.8) 0.7 Proceeds from exercise of share options - 0.6 (0.2) Finance lease repayments (0.1) (0.1)_____________________________________________________________________________________________ _______ __________ 15.0 Net cash used in financing activities 27.0 39.6_____________________________________________________________________________________________ _______ __________ (12.8) Net decrease in cash and cash equivalents (3.3) (16.7)_____________________________________________________________________________________________ _______ __________ 27.2 Cash and cash equivalents at beginning of period 14.4 27.2_____________________________________________________________________________________________ _______ __________ 14.4 Cash and cash equivalents at end of period 11.1 10.5_____________________________________________________________________________________________ _______ __________ (280.2) Memo: Net debt at end of period (329.0) (301.2)_____________________________________________________________________________________________ _______ __________ Consolidated statement of recognised income and expense (unaudited) Year ended Half year ended 31 March 30 September 2006 2006 2005 £m £m £m_____________________________________________________________________________________________ _______ __________ 37.2 Actuarial (losses) / gains (1.9) 2.0 - Exchange differences on foreign currency net investments (0.5) (0.3) - Exchange differences on foreign currency borrowings 0.4 0.3 (0.1) Cash flow hedges - transferred to income statement (0.2) - (0.2) Cash flow hedges - losses deferred in equity (5.8) (1.6) 0.3 Share of joint ventures' income recognised in equity (0.5) (0.3) (11.1) Tax on items taken directly to equity 2.4 (0.3)_____________________________________________________________________________________________ _______ __________ 26.1 Net (expense) / income recognised directly in equity (6.1) (0.2) 34.8 Profit for the period 19.4 15.7_____________________________________________________________________________________________ _______ __________ 60.9 Total recognised income and expense for the period 13.3 15.5_____________________________________________________________________________________________ _______ __________ 59.9 Attributable to equity shareholders 13.1 15.1 1.0 Attributable to minority interests 0.2 0.4_____________________________________________________________________________________________ _______ __________ Segmental analysis - continuing operations (unaudited) Year ended 31 March 2006 Half year ended 30 September___________________________ ________________________________________________________ 2006 2006 2005 2005 Revenue Profit on Revenue Profit on Revenue Profit on operations operations operations before before before exceptional exceptional exceptional items items items £m £m £m £m £m £m___________ _________ _______________________________ ________ ________ ________ ________ Analysis by division: 345.3 52.0 Foods 165.9 24.7 167.6 23.6 815.7 16.8 Dairies 422.7 6.7 388.2 3.9___________ _________ _______________________________ ________ ________ ________ ________ 1,161.0 68.8 Group 588.6 31.4 555.8 27.5___________ _________ _______________________________ ________ ________ ________ ________ Adjusted segmental analysis including share of joint ventures 345.3 52.0 Foods - Group 165.9 24.7 167.6 23.6 - Share of joint 69.0 9.3 ventures 34.0 4.1 34.3 4.6___________ _________ _______________________________ ________ ________ ________ ________ Foods including share of joint 414.3 61.3 ventures 199.9 28.8 201.9 28.2___________ _________ _______________________________ ________ ________ ________ ________ 815.7 16.8 Dairies - Group 422.7 6.7 388.2 3.9 - Amortisation of - 1.0 acquired intangibles - 0.6 - 0.3___________ _________ _______________________________ ________ ________ ________ ________ Dairies excluding amortisation 815.7 17.8 of acquired intangibles 422.7 7.3 388.2 4.2___________ _________ _______________________________ ________ ________ ________ ________ Adjusted Group and share of 1,230.0 79.1 joint ventures 622.6 36.1 590.1 32.4___________ _________ _______________________________ ________ ________ ________ ________ The segmentation of the Group has been analysed on a basis consistent with that used in the 2006 statutory accounts. Notes to the interim financial statements(unaudited) 1 Basis of preparation These accounts have been prepared using the accounting policies set out in the Group's 2006 statutory accounts. This interim consolidated financial information is not audited and does notconstitute statutory financial statements as defined in section 240 of the Companies Act 1985. Comparative figures for the year ended 31 March 2006 have been extracted from the Group Financial Statements, on which the auditors gave an unqualified opinion and did not include a statement under section 237(2) or (3) of the Companies Act 1985. The Group Financial Statements for the year ended 31 March 2006 have been filed with the Registrar of Companies. 2 Exceptional items Exceptional items comprise those items that are material and one-off in naturethat 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 2006 2006 2005 £m £m £m___________ _______________________________________________________________________ ________ ________ (1.0) Fixed asset write-downs - - (5.1) Redundancy costs - (1.1) (4.5) Duplicate running costs - (2.1) (4.7) Other rationalisation costs (0.2) (0.9)___________ _______________________________________________________________________ ________ ________ (15.3) Restructuring costs (0.2) (4.1) (9.3) Impairment of assets - - 1.4 Profit on disposal of closed sites - -___________ _______________________________________________________________________ ________ ________ (23.2) (0.2) (4.1) 0.8 Share of joint ventures' exceptional items (after tax) - - 6.6 Tax on exceptional items 0.1 1.1 - Discontinued exceptional item (2.8) -___________ _______________________________________________________________________ ________ ________ (15.8) (2.9) (3.0)___________ _______________________________________________________________________ ________ ________ Exceptional items in 2006/07 comprise initial restructuring expenditure withrespect to the rationalisation of the Express Dairies depot operations and theLiverpool and Nottingham dairies of Arla Foods UK Limited, which were acquiredon 19 August 2006 (see Note 6). Further restructuring costs of approximately £7million are expected to be incurred in the 18 months to March 2008. Discontinued exceptional items in 2006/07 comprise the post-tax loss providedfor the disposal of the retailer brand cheese operations to First Milk Limited(see Note 7). This is analysed as follows: £m _______________________________________________________________________ ________ Impairment of goodwill (2.0) Impairment of other assets (3.3) Estimated curtailment gain on pension scheme 3.0 Fees and other separation costs (1.7) _______________________________________________________________________ ________ Provision for loss on disposal before tax (4.0) Tax on exceptional item 1.2 _______________________________________________________________________ ________ (2.8) _______________________________________________________________________ ________ During 2005/06, exceptional items principally reflected the restructuring costsof integrating the Midlands Co-Operative Society and Arla London Foodservicebusinesses into the Group (£15.3 million) and an impairment charge for thegoodwill and property, plant and equipment of the Speciality Cheese business(£9.3 million). 3 Tax expense The tax expense for the half year ended 30 September 2006 has been calculated onthe basis of the estimated effective tax rate on profit for the full year. Thetax credit on exceptional items on continuing operations for the half year ended30 September 2006 was £0.1 million (2005: £1.1 million). 4 Dividends The dividend of £8.4 million (6.7 pence per share) (2005:£7.9 million; 6.3 penceper share) will be payable on 30 January 2007 to shareholders on the register on5 January 2007. This dividend is not recorded in the balance sheet as aliability at 30 September 2006. 5 Earnings per share Basic earnings per share on profit for the period has been calculated on thebasis of profit attributable to equity shareholders of £19.3 million (2005:£15.3 million) and the weighted average number of shares in issue during theperiod, excluding those held by the Dairy Crest Employees' Share Ownership PlanTrust and held as treasury shares which are treated as cancelled, totalling124.846 million (2005: 124.766 million). Basic earnings per share on continuing operations has been calculated on thebasis of Group profit for the period from continuing operations less profitattributable to minority interests of £22.2 million (2005: £14.8 million) andthe weighted average number of shares of 124.846 million (2005: 124.766). To show earnings per share on a consistent basis, which in the directors'opinion reflects the underlying performance of the business more appropriately,adjusted earnings per share have been calculated as follows: Year ended Half year ended 31 March 30 September 2006 2006 2005 £m £m £m___________ _______________________________________________________________________ ________ ________ 32.8 Group profit for the period from continuing operations 22.3 15.2 (1.0) Minority interests (0.1) (0.4)___________ _______________________________________________________________________ ________ ________ 31.8 Profit from continuing operations attributable to equity shareholders 22.2 14.8 16.6 Exceptional items on continuing operations (net of tax) 0.1 3.0 0.7 Amortisation of acquired intangible assets (net of tax) 0.4 0.2 (0.8) Joint ventures' exceptional items (net of tax) - -___________ _______________________________________________________________________ ________ ________ 48.3 Adjusted earnings 22.7 18.0___________ _______________________________________________________________________ ________ ________ 38.7 Adjusted earnings per share (pence) 18.2 14.4___________ _______________________________________________________________________ ________ ________ Diluted earnings per share has been calculated on the basis of diluted number of shares of 125.944 million (2005: 125.251 million). 6 Business combinations On 19 August 2006 the Group acquired the Express Dairies depot operations and the Liverpool and Nottingham dairies from Arla Foods UK plc for a total consideration of £40.8 million (including working capital). The provisional fair value of the identifiable assets and liabilities of the businesses acquired was £39.1 million resulting in goodwill of £1.7 million on acquisition. The provisional fair value of the assets acquired and the resulting goodwill can be analysed as follows: Fair value Book to Group value £m £m___________________________________________________________________________ ________ ________Property, plant and equipment 32.7 25.8Inventories 2.5 2.5Receivables 21.9 21.9Payables (18.0) (18.0)___________________________________________________________________________ ________ ________Net assets 39.1 32.2 ________Goodwill 1.7___________________________________________________________________________ ________ Consideration 40.8___________________________________________________________________________ ________ Comprising: Initial cash consideration 35.3 Working capital adjustment paid after balance sheet date 3.5 Issue of shares 0.2 Fees 1.8___________________________________________________________________________ ________ During the period, the Group acquired the goodwill of a number of bottled milk buyers for cash consideration of £0.5 million resulting in goodwill of £0.5 million (2005: £1.3 million). 7 Discontinued operations On 26 September 2006 the Group announced its decision to dispose of its retailer brand cheese operations to First Milk Limited for a cash consideration of £61.9 million. Negotiations were finalised on 22 September 2006 and the transaction completed on 14 October 2006. At 30 September 2006 the assets and liabilities of the retailer brand cheese operations have been classified as 'disposal group held for sale'. The major classes of assets and liabilities held for sale at 30 September 2006 are as follows: Assets £m ____________________________________________________________ ________Property, plant and equipment 22.2Inventories 48.9____________________________________________________________ ________Assets classified as held for resale 71.1____________________________________________________________ ________ Liabilities____________________________________________________________ ________Grants (1.6)____________________________________________________________ ________ Minority interest (6.9)____________________________________________________________ ________ Post-tax results for the businesses to be disposed of and the estimated loss on disposal (including an adjustment to the disposal group assets to fair value less costs to sell) have been disclosed as discontinued operations in the consolidated income statement. Post-tax profits can be analysed as follows: Year ended Half year ended 31 March 30 September 2006 2006 2005 £m £m £m___________ _______________________________________________________________________ ________ ________ 194.2 Revenue 97.8 86.1 (191.3) Operating costs (97.9) (85.4)___________ _______________________________________________________________________ ________ ________ 2.9 Profit on operations (0.1) 0.7 (0.9) Tax at effective rate of 30% - (0.2)___________ _______________________________________________________________________ ________ ________ 2.0 Profit after tax (0.1) 0.5___________ _______________________________________________________________________ ________ ________ The estimated loss on disposal is analysed in Note 2: Exceptional items. 8 Share capital and equity reserves Share Share Interest Other Retained Minority capital premium in ESOP reserves earnings interests £m £m £m £m £m £m_________________________________________ ________ ________ ________ ________ ________ ________At 31 March 2006 31.3 28.8 (1.5) 55.8 132.8 10.8Total recognised income and expense in the period - - - (6.0) 19.1 0.2Issue of share capital 0.2 - - - - -Share based payments - - - - 0.9 -Equity dividends - - - - (19.0) -_________________________________________ ________ ________ ________ ________ ________ ________At 30 September 2006 31.5 28.8 (1.5) 49.8 133.8 11.0_________________________________________ ________ ________ ________ ________ ________ ________ 9 Movement in net debt Year ended Half year ended 31 March 30 September 2006 2006 2005 £m £m £m___________ _______________________________________________________________________ ________ ________ (12.8) Net decrease in cash and cash equivalents (3.3) (16.7) 65.0 Repayment of term loans 90.0 40.0 (105.1) Decrease / (Increase) in borrowings 6.9 (96.9) 0.2 Decrease in finance leases 0.1 0.1 - Increase in loan notes (143.0) (0.6) - Exchange movement 0.5 0.4___________ _______________________________________________________________________ ________ ________ (52.7) Increase in net debt (48.8) (73.7) (227.5) Opening net debt (280.2) (227.5)___________ _______________________________________________________________________ ________ ________ (280.2) Closing net debt (329.0) (301.2)___________ _______________________________________________________________________ ________ ________ 10 Retirement benefit obligations The Group's defined benefit pension schemes are accounted for in accordance withthe requirements of IAS 19 'Employee Benefits'. The net pension deficit of theGroup pension schemes at 30 September 2006 can be analysed as follows: Year ended Half year ended 31 March 30 September 2006 2006 2005 £m £m £m___________ _______________________________________________________________________ ________ ________ 438.9 Equities 438.3 411.4 160.3 Bonds and cash 165.9 125.4 26.7 Property and other 28.1 20.8___________ _______________________________________________________________________ ________ ________ 625.9 Total market value of assets 632.3 557.6 (687.9) Defined benefit obligation (686.5) (661.0)___________ _______________________________________________________________________ ________ ________ (62.0) Net liability recognised in the balance sheet (54.2) (103.4) 18.6 Related deferred tax asset 16.3 31.0___________ _______________________________________________________________________ ________ ________ (43.4) Net pension liability (37.9) (72.4)___________ _______________________________________________________________________ ________ ________ Analysis of movements in the Group pension deficit during the period: (102.7) Opening deficit (62.0) (102.7) (16.7) Current service costs (9.7) (8.1) 0.7 Curtailment gains 3.0 - 2.2 Net finance income 4.7 1.0 37.2 Actuarial (loss) / gain (1.9) 2.0 17.3 Contributions 11.7 4.4___________ _______________________________________________________________________ ________ ________ (62.0) Closing deficit (54.2) (103.4)___________ _______________________________________________________________________ ________ ________ The closing deficit incorporates the Dairy Crest Group Pension Fund and the Wexford Creamery Limited Defined Benefit Scheme. 11 Post balance sheet events On 14 October 2006, the Group completed the disposal of its retailer brandedcheese business to First Milk Limited for an initial cash consideration of £61.9million On 26 October 2006, the OFT lifted its hold separate undertaking in relation tothe Group's acquisition of the Express Dairies depot operations and Liverpooland Nottingham dairies from Arla Foods UK plc, imposed on 21 September 2006. 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