Dairy Crest Group plc Interim results For the six months ended 30 - - PowerPoint PPT Presentation

Dairy Crest Group plc

Interim results For the six months ended 30 September 2017

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Dairy Crest Group plc

Introduction Mark Allen, Chief Executive Interim Financial Review Tom Atherton, Group Finance Director Operational Review Mark Allen, Chief Executive

2017/18 Interim Financial Review

Tom Atherton Group Finance Director

• Revenue up 16% to £220.1m
• Adjusted profit before tax1 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

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STRONG PERFORMANCE IN A CHALLENGING MARKET

1 From continuing operations before exceptional items (material and one-off in nature),

amortisation of acquired intangibles and pension interest

+2% Key Brand Market Volume Growth* Value Growth* Market Data**

Cheese

Everyday cheese volumes and value grew by 3% and 4% respectively

Spreads

Spread volumes and value fell by 3% and 2% respectively

Butters

Butter volumes fell by 1% while value grew by 20%

Oil

Oils market growth of 3% volume and 6% value

Combined

* 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 2016

• 8%

+9% +10%

MARKET LEADING BRANDS CONTINUING TO DELIVER

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+2% +10% +7% +5%

• 14%

+4% +6% +2%

Six months ended 30 September (£m) 2017 2016 Revenue 220.1 190.0 +16% Product group profit1 25.1 23.1 +9% Finance costs (4.5) (4.0) Adjusted profit before tax2 20.6 19.1 +8% Pension interest and intangible amortisation (0.6) (0.6) Exceptional items 131.4 (2.9) Group profit before tax 151.4 15.6 +871% Pre-exceptional effective tax rate 19.0% 18.9% Adjusted basic EPS from continuing operations2 11.9p 11.1p +7% Basic EPS from continuing operations3 87.6p 9.3p +842%

INCOME STATEMENT

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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)

PRODUCT GROUP PERFORMANCE

Strong Cheese & Functional Ingredients performance helped to offset record high input costs for Butters, Spreads & Oils

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Six months ended 30 September Cheese & Functional Ingredients Butters, Spreads & Oils Other Group Revenue (£m) 135.3 +17% 80.9 +19% 3.9 220.1 +16% Profit*(£m) 22.1 +91% 3.0

• 74%
• 25.1

+9%

* Profit on operations before pension interest, intangible amortisation and exceptional items

CREAM PRICES UP 65% IN H1 FROM A HIGH BASE – COSTS AND BENEFITS

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Prices have fallen recently but remain high versus historic average

* Source: AHDB Dairy

UK wholesale cream price (£/tonne)*

500 1,000 1,500 2,000 2,500 3,000 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17

• Higher input costs in butter

business – impact on Country Life

• Benefits cheese and

functional ingredients business – sale of cream and whey butter by-products

+65%

EXCEPTIONAL ITEMS

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Six months ended 30 September (£m) 2017 2016 Pensions 132.4

• Kirkby improvement programme

(1.7)

• Profit on sale of closed manufacturing site

0.7

• Davidstow – demineralised whey & GOS
• (5.1)

Quadra writeback

• 2.2

131.4 (2.9) Significant net exceptional gain

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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

OPERATING CASH FLOW

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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

Six months to 30 September (£m) 2017 2016 Product group profit* 25.1 22.1 Depreciation and amortisation** 8.7 7.1 Working capital (11.6) 3.0 Pension (7.9) (5.9) Other

• 1.3

Exceptional items (3.5) (12.0) Cash generated from operations 10.8 15.6

NET DEBT MOVEMENT

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Six months to 30 September (£m) 2017 2016 Cash generated from operations 10.8 15.6 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) 0.5 18.0 Disposal of business

• (28.4)

Proceeds from share schemes / other 1.2 1.4 Movement in net debt (31.6) (33.3) Closing net debt (281.4) (262.3) Committed to reducing net debt below 2x EBITDA

PENSION DEFICIT ELIMINATED ON AN ACCOUNTING BASIS

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• Move from RPI to CPI delivers exceptional gain of £132.4 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

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

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Interim and final dividends 2010-2018 (pence)

5 10 15 20 25

Interim Final

Operational Review

Mark Allen Chief Executive

DELIVERING AGAINST OUR STRATEGY

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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

• pportunities

17 20 30 48 55 59 76 92 124 268 President Leerdammer Laughing Cow Seriously Strong Cheestrings Babybel Pilgrims Choice Philadelphia Dairylea Cathedral City

• Strong performance

– Volumes +10% – Revenue +7%

• Value growth expected to exceed

volume growth for full year

• Growing faster than the Everyday Cheese market
• New product development focused on

snacking and convenience

CATHEDRAL CITY: THE NUMBER ONE UK CHEESE BRAND AND GROWING

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* Source: IRI Kantar data 52 weeks ended 7 October 2017

Cheddar brands

Top 10 cheese brands by retail sales (£m)*

CLOVER: CONTINUING TO WIN MARKET SHARE

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• 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*

* Source: IRI Kantar data 52 weeks ended March 2015 to 2017 and 28 weeks ended 7 October 2017; volume share of Spreads market

17.8% 18.2% 19.3% 19.6% 16.5% 17.0% 17.5% 18.0% 18.5% 19.0% 19.5% 20.0% 2014/15 2015/16 2016/17 H1 17/18

• 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

BALANCED BUTTERS AND SPREADS PORTFOLIO

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Volume growth H1 2017/18 Dairy Crest spreads*

(excl. butter)

+8% Spreads market**

(excl. butter and DC brands)

• 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 2016. Spreads category excluding Dairy Crest brands

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

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Frylight – largest oil brand by sales value*

Oil brands – rolling 12 month sales

* Source: Kantar retail sales value data 52 weeks to 8 October 2017 ** Source: Kantar volume data 52 weeks to 8 October 2017

5,000 10,000 15,000 20,000 25,000 30,000 Flora Napolina Crisp N Dry Filipo Berio Frylight Rolling 12 month sales (£'000)

c.60% of UK oil market is private label**

• 200

400 600 800 1,000 1,200 1,400 1,600 1,800 €/tonne D90 Indicative SWP

DEMINERALISED WHEY AND GOS UPDATE

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Demineralised whey and SWP price*

• 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

• GOS trials ongoing and sales for infant

formula market growing

* 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

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

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Full year expectations remain unchanged

Thank You Q&A

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