Dairy Crest Regulatory News (DCG)

28 Mar 2008 07:01

Dairy Crest Group PLC28 March 2008 28 March 2008 Dairy Crest Group plc Pre-close Trading Update In line with its normal practice, Dairy Crest is issuing the following pre-closetrading update for the full year ending 31 March 2008. Overall the Group has performed well during the year and we expect full yearresults before exceptionals to be in line with our expectations. Our strategy tofocus on our core brands has helped drive good growth from Cathedral City,Utterly Butterly, Country Life Spreadable, St Hubert Omega 3 and Petits Filous. The dairy industry has experienced well-documented volatility over the pastyear. Industry raw milk prices rose sharply in the autumn as a result ofincreased commodity prices, higher on-farm costs and national volume shortages.As previously reported we were successful in offsetting these higher milk costsby implementing price increases across the range of our products. Our farmersuppliers are continuing to face higher on-farm costs particularly in respect ofanimal feed. Consequently we have supported our farmer suppliers over the lastfew months by maintaining raw milk prices despite falling prices in dairyingredients. We intend to continue to be supportive. Like other food producers we are facing inflationary pressures in a number ofcommodity areas including resin, diesel, vegetable oils and energy. In thecoming months we will continue to pursue further cost related price increases asnecessary. Foods In the Foods division we have made good progress in strengthening our key brandsand continue to meet changing consumer lifestyles with our plans to develophealthier variants of these brands. A recent example of this is the launch ofCathedral City Lighter, a high quality cheese with 30% reduced fat. Cathedral City, our market leading cheddar brand, has again delivered gooddouble-digit growth. It is now worth around £160 million at retail sales value,up from £124 million a year ago, and is ranked 35th in Nielsen's Top 100 GroceryBrands in the UK. Davidstow has also performed well reflecting a high level ofpromotional activity particularly in the first half. Work on the new cheesepacking facility at Nuneaton has started and we remain on track to begincommercial production in early 2009. The market for whey powder, which wasstrong in the first half, fell sharply in the second half. In UK spreads, we launched a new television advertising campaign for Clover inthe last quarter. A strong programme of promotional activity, agreed with thesupermarkets, is supporting this. We believe that Clover is well positioned torecover strongly in the next financial year now that the operational issues havebeen resolved. Utterly Butterly has had a very strong year and gainedsignificant market share from its main competitor. This reflects both increasedpromotional activity and the launch last summer of a new health focused variantof Utterly Butterly with added Omega 3. We further demonstrated our commitmentto have healthier variants of our key brands with the launch of Country LifeSpreadable Lighter. This has helped deliver a good performance by this brand. The St Hubert business in France has continued to make pleasing progress. StHubert Omega 3, its number one brand variant, has again grown strongly andcontinues to increase market share. The Valle brand has also delivered goodsales growth increasing its market leading position in the Italian spreadsmarket. Overall the Yoplait brands have delivered good double-digit growth. This isahead of the market and Petits Filous, Frubes and Yop have all grown strongly. Dairies During the year we have continued to improve our retail milk business. We werepleased to be retained as a long-term supplier of fresh milk to Morrisonsfollowing a supplier review. We also achieved a small uplift in storeallocations from February 2008. Cost reduction has been a prime focus in ourmanufacturing sites. This was demonstrated with the closure of our Totnes dairyin September 2007, where the benefits are now being delivered. Realisations from our ingredients operations have fallen in the last quarterafter a strong first half reflecting the recent significant falls in marketprices for skimmed milk powder, cream and butter. In the doorstep business, trials in five depots of 'milk&more', ourinternet-based ordering service, have continued to progress well. We are nowextending the trials to five further depots. In addition we are developing plansto roll out the ability to order and pay over the Internet to most of ourdoorstep customers. The underlying net annual decline rate in the doorstep business remains below 7%despite the significant autumn price rise. This compares to 10% in 2003/04. In the middle ground business we successfully implemented a number of costrelated price increases during the second half. However, the unprecedentedincreases in raw milk costs during the year combined with recent weak creamprices have resulted in a long-term supply contract with a middle groundcustomer becoming onerous for the Group. An exceptional charge of approximately£4.5 million will be taken in the year ending 31 March 2008, reflecting expectedlosses on this contract from October 2007 through to its term, based on ourcurrent view of the market. We announced on 7 December 2007, that Dairy Crest, in common with a number ofother processors and retailers, had reached an early resolution agreement withthe Office of Fair Trading concerning its investigation into the "milk priceinitiatives" of 2002 and 2003. Under this agreement Dairy Crest expects to pay asignificantly reduced fine of £9.4 million provided that it continues tocooperate fully with the OFT's investigation. This amount will be treated as anexceptional item in the current financial year ending 31 March 2008. Net Debt As previously indicated net debt has been impacted by the appreciation of theEuro against Sterling which has now increased the value of our Euro denominateddebt by £30 million since September 2007. Taxation The Group's effective tax rate in the current year, which is expected to bearound 23%, has benefited from a one-off reduction in deferred tax liabilitiesresulting from the forthcoming decrease in the UK corporation tax rate to 28%.The 2008 Budget introduced further changes in legislation that will impact oureffective rate of tax next year. The pre-exceptional effective tax rate for 2008/09 is now expected to increase to between 26% and 27%. Pensions There has been continued volatility in financial markets since our last tradingupdate in January 2008. Equity markets remain weak, however corporate bondyields have increased. Our current best estimate is that there is a smallpension fund surplus under IAS 19, an improvement from the position reported atthe half year. However, this is subject to market conditions at 31 March 2008and detailed valuation work to be performed at the year-end. It is likely thatthe pension interest credit for next year will be lower than the current yearbut this will be largely offset by a reduction in the current service charge. Mark Allen, chief executive of Dairy Crest, commenting on the full year said: "We have again made good progress this year and expect to report full yearresults before exceptionals in line with our expectations. A number of keybrands including Cathedral City, Country Life Spreadable, Utterly Butterly,Petits Filous and St Hubert Omega 3 have performed strongly. The dairy industry has experienced well-documented volatility over the pastyear. The market continues to be challenging particularly in respect of inputcost inflation, but we are optimistic that our business is well placed to dealwith this." Preliminary results for the year ending 31 March 2008 will be announced on 20May 2008. For further information, please contact: Dairy Crest Group plc Will Shaw, Investors 01372 472477Nicole Lander, Media 01372 472419 Brunswick Simon Sporborg 020 7404 5959Laura Cummings 07974 982492 This information is provided by RNS The company news service from the London Stock Exchange