Dairy Crest Group plc Interim results For the six months ended 30 September 2017

Transcription

1 Dairy Crest Group plc Interim results For the six months ended 30 September

2 Dairy Crest Group plc Introduction Mark Allen, Chief Executive Interim Financial Review Tom Atherton, Group Finance Director Operational Review Mark Allen, Chief Executive

3 2017/18 Interim Financial Review Tom Atherton Group Finance Director

4 STRONG PERFORMANCE IN A CHALLENGING MARKET Revenue up 16% to 220.1m Adjusted profit before tax 1 up 8% to 20.6m Cathedral City volume growth of 10% Clover and Frylight growing market share strongly Pension deficit eliminated on an accounting basis Proposed interim dividend up 2% to 6.3p Full year expectations remain unchanged 1 From continuing operations before exceptional items (material and one-off in nature), amortisation of acquired intangibles and pension interest 4

5 MARKET LEADING BRANDS CONTINUING TO DELIVER Key Brand Market Volume Growth* Cheese Value Growth* +10% +7% Market Data** Everyday cheese volumes and value grew by 3% and 4% respectively Spreads +2% -8% +2% Spread volumes and value fell by 3% and 2% respectively Butters -14% +2% +5% Butter volumes fell by 1% while value grew by 20% Oil +10% +9% Oils market growth of 3% volume and 6% value Combined +4% +6% * Source: Dairy Crest volume and value: 6 months to 30 September 2017 vs 6 months to 30 September 2016 ** Source: IRI Kantar data 28 weeks ended 7 October 2017 vs 28 weeks ended 8 October

6 INCOME STATEMENT Six months ended 30 September ( m) Revenue % Product group profit % Finance costs (4.5) (4.0) Adjusted profit before tax % Pension interest and intangible amortisation (0.6) (0.6) Exceptional items (2.9) Group profit before tax % Pre-exceptional effective tax rate 19.0% 18.9% Adjusted basic EPS from continuing operations p 11.1p +7% Basic EPS from continuing operations p 9.3p +842% 1 Profit on operations before pension interest, intangible amortisation and exceptional items 2 From continuing operations before exceptional items (material and one-off in nature), amortisation of acquired intangibles and pension interest 3 From continuing operations including an exceptional gain of 131.4m (2016: exceptional loss of 2.9m) 6

7 PRODUCT GROUP PERFORMANCE Six months ended 30 September Cheese & Functional Ingredients Butters, Spreads & Oils Other Group Revenue ( m) % % % Profit*( m) % % % Strong Cheese & Functional Ingredients performance helped to offset record high input costs for Butters, Spreads & Oils * Profit on operations before pension interest, intangible amortisation and exceptional items 7

8 CREAM PRICES UP 65% IN H1 FROM A HIGH BASE COSTS AND BENEFITS Higher input costs in butter business impact on Country Life 3,000 2,500 UK wholesale cream price ( /tonne)* +65% Benefits cheese and functional ingredients business sale of cream and whey butter by-products 2,000 1,500 1, Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Prices have fallen recently but remain high versus historic average * Source: AHDB Dairy 8

9 EXCEPTIONAL ITEMS Six months ended 30 September ( m) Pensions Kirkby improvement programme (1.7) - Profit on sale of closed manufacturing site Davidstow demineralised whey & GOS - (5.1) Quadra writeback (2.9) Significant net exceptional gain 9

10 KIRKBY IMPROVEMENT PROGRAMME ENTERS SECOND PHASE 2014/15 Crudgington site closed Butters and spreads production consolidated at Kirkby 2017/18 24/7 working schedule to be introduced New site agreement, line improvements and voluntary leavers scheme to significantly improve site efficiency and flexibility Future Proceeds from sale of surplus land expected to fund site improvement programme Expected to deliver annualised cost savings of approximately 2.5 million 10

11 OPERATING CASH FLOW Six months to 30 September ( m) Product group profit* Depreciation and amortisation** Working capital (11.6) 3.0 Pension (7.9) (5.9) Other Exceptional items (3.5) (12.0) Cash generated from operations Rising input costs for milk and butter have increased working capital * Profit on operations before interest, amortisation of acquired intangibles and exceptional items. Prior period includes discontinued operations ** Excludes acquired intangible amortisation and net of grant amortisation 11

12 NET DEBT MOVEMENT Six months to 30 September ( m) Cash generated from operations Capital expenditure (16.8) (10.1) Interest paid (4.5) (7.4) Dividends paid (22.8) (22.4) Disposal of assets (including sale and leaseback in 2016) Disposal of business - (28.4) Proceeds from share schemes / other Movement in net debt (31.6) (33.3) Closing net debt (281.4) (262.3) Committed to reducing net debt below 2x EBITDA 12

13 PENSION DEFICIT ELIMINATED ON AN ACCOUNTING BASIS Move from RPI to CPI delivers exceptional gain of million Reported surplus of 39.9 million at 30 September 2017 Permanent reduction in funding requirement March 2016 actuarial deficit of 100 million; September 2017 estimated at 50 million Cash contributions of 10 million and 15 million this year and next Next valuation due March 2019 Pension fund now in surplus on an accounting basis 13

14 PROGRESSIVE DIVIDEND Proposed interim dividend increased by 2% to 6.3p Committed to delivering a progressive policy with earnings cover for dividend targeted at 1.5 to 2.5 times Business expected to deliver improved earnings and cash flow cover in future Interim and final dividends (pence) Interim Final 14

15 Operational Review Mark Allen Chief Executive

16 DELIVERING AGAINST OUR STRATEGY To generate growth by building strong positions in branded and added value markets To simplify, make more resilient and reduce costs To generate cash and reduce risk To make acquisitions where they will generate value 4 largest brands: Volume growth +4% Value growth +6% Kirkby restructuring underway; IT simplification continues Significant agreement reached with Pension Trustee Continue to look for opportunities 16

17 CATHEDRAL CITY: THE NUMBER ONE UK CHEESE BRAND AND GROWING Strong performance Volumes +10% Revenue +7% Value growth expected to exceed volume growth for full year Top 10 cheese brands by retail sales ( m)* Cathedral City 268 Dairylea 124 Philadelphia 92 Pilgrims Choice 76 Growing faster than the Everyday Cheese market New product development focused on snacking and convenience Babybel Cheestrings Seriously Strong Laughing Cow Leerdammer President Cheddar brands * Source: IRI Kantar data 52 weeks ended 7 October

18 CLOVER: CONTINUING TO WIN MARKET SHARE UK s number 1 dairy spread Consumers attracted to its buttery taste and no artificial ingredients Benefitting from increased butter prices on shelf Volume and value growth of 2% vs category decline of 3% and 2% respectively Value growth expected to exceed volume growth for full year Lighter version to be launched in 2018 Clover market share volume growth continues* 20.0% 19.6% 19.5% 19.3% 19.0% 18.5% 18.2% 18.0% 17.8% 17.5% 17.0% 16.5% 2014/ / /17 H1 17/18 * Source: IRI Kantar data 52 weeks ended March 2015 to 2017 and 28 weeks ended 7 October 2017; volume share of Spreads market 18

19 BALANCED BUTTERS AND SPREADS PORTFOLIO Reduced promotional activity on Country Life to protect margins All Dairy Crest spread brands outperforming the market Vitalite is the UK s number 1 dairy-free spread Double digit volume and value growth in H1 New Coconut variant well received Willow volume and value growth both exceeded 45% in H1 Dairy Crest spreads* (excl. butter) Spreads market** (excl. butter and DC brands) Volume growth H1 2017/18 +8% -6% * Source: Dairy Crest volume 6 months to 30 September 2017 vs 6 months to 30 September 2016 ** Source: IRI Kantar data 28 weeks ended 7 October 2017 vs 28 weeks ended 8 October Spreads category excluding Dairy Crest brands 19

20 Rolling 12 month sales ( '000) FRYLIGHT: THE CLEAR MARKET LEADER No 1 branded oil Volume growth of 10% and value growth of 9% Growth expected to accelerate in H2 due to increased distribution Focus on raising awareness and highlighting health benefits versus pouring oil Itsu using Frylight in its 70 UK shops 30,000 25,000 20,000 15,000 10,000 5,000 Frylight largest oil brand by sales value* Oil brands rolling 12 month sales 0 Flora Napolina Crisp N Dry Filipo Berio Frylight c.60% of UK oil market is private label** * Source: Kantar retail sales value data 52 weeks to 8 October 2017 ** Source: Kantar volume data 52 weeks to 8 October

21 /tonne DEMINERALISED WHEY AND GOS UPDATE Demineralised whey customer base accelerating Stringent testing and auditing takes time New regulations in China (Article 81) impacted demand for demineralised whey in 2017 but that trend now seems to be reversing 1,800 1,600 1,400 1,200 1, Demineralised whey and SWP price* GOS trials ongoing and sales for infant formula market growing D90 Indicative SWP * Source: US Department Agriculture; demineralised whey is an indicative price based on a combination of whey protein concentrate and lactose SWP = sweet whey powder GOS = galacto-oligosaccharide 21

22 FULL YEAR OUTLOOK Value growth to exceed volume growth for top 4 brands for the full year Strong Cheese & Functional Ingredients performance and increased efficiencies expected to offset higher cost of sales for remainder of financial year Further efficiencies in operations and IT to help reduce cost base Second half will see sales accelerate for D90 and GOS Full year expectations remain unchanged 22

23 Thank You Q&A 23