FIT FOR THE FUTURE Preliminary Results For the year ended 31 March 2010 DAIRY CREST GROUP plc.

FIT FOR THE FUTURE

Preliminary Results

For the year ended 31 March 2010

DAIRY CREST GROUP plc

Preliminary Results for the year ended 31 March 2010

Agenda

2009/10 Mark Allen, Chief Executive

Financial Review Alastair Murray, Finance Director

St Hubert Mark Allen, Chief Executive

Martyn Wilks, Executive MD Foods

Current Trading & Outlook Mark Allen, Chief Executive

DAIRY CREST GROUP plc

Mark Allen

Chief Executive

2009/10

4

Focus on cost reduction and efficiency improvements

Improve quality of earnings and reduce commodity risk

Generate growth and focus the business through

acquisitions and disposals

Build market leading positions in branded and added

value markets

Consistently delivering on our strategy

5

“…..by continuing to invest in our business in the form of marketing spend and in development of operating facilities. We will also maintain focus on efficiencies and cost control.”

Mark Allen, Chief Executive Dairy Crest, 10 November 2008

“Our plans for 2009/10 are to maintain our focus on cash management and to continue the development of our key brands. We are a broadly based business and the benefits of this will be demonstrated during 2009/10.”

Mark Allen, Chief Executive Dairy Crest, 19 May 2009

“Our second half focus will remain on cash management, cost reduction and the development of our key brands.”

Mark Allen, Chief Executive Dairy Crest, 12 November 2009

Consistently delivering on our strategy

6

Generating increased profits and reducing debt

Brand growth5 key brands grew by 13% (volume) and 9% (value)

St Hubert now the largest French spreads brand

Other growthMilk sales to major retailers up 9% (volume) and 8% (value)

Reached initial target of 250,000 registered milk&more customers

New productsJugit milk in a bag launched nationally with Sainsbury’s and on doorstep

Lighter brands now all >10% of main brands

Cost reduction £20 million annual savings generated in year

Cash generation Operating cashflow up 49% to £119 million

Reported net debt lowest since September 2006

Risk reduction Defined benefit pension scheme closed

Adjusted Group profit before tax up 5% to £83.5 million Year end debt down £79m (19%) to £337 million

7

Consistent investment in brands paying off

Commitment to Dairies business confirmed by new £75 million capital investment programme

Investing in the future…

% increase in consumersagreeing

2008-2010

Cathedral City is one of the best cheeses you can buy 15%

Clover is a good balance between health and taste 100%

Country Life is British 23%

FRijj has cool packaging 33%

8

Benefitting from being a broadly based business

Strong recovery from Dairies division

Ongoing delivery from Spreads

No stock profits in Cheese

Operating Profits by Segment

3860 54

34

35 17

328

35

0

20

40

60

80

100

120

07/08 08/09 09/10

£m

Dairies

Cheese

Spreads

105 102106

9

Brands continue to outperform the market

* DC value sales 12 months to 31 March 2010 v 12 months to 31 March 2009 ** ACN, IRI, TNS data 52 weeks to 21 March 2010*** DC value sales 12 months to 31 March 2010 v 12months to 31 March 2007

12%

5%

4%

9%

12%

3%

-2%

7%

67%

24%

45%

42%

21%

1%1%

1%

Core Brand Market Brand growth2009/10*

Market growth

2009/10**

3 Year Brand growth

9/10 v 6/07***

UK Cheese

UK Butter Spreads

Margarine

UK Butter Spreads

Margarine

French non-butter spread

Flavoured Milk

10

There has been no let up in cost reduction projects

- Davidstow milk collection outsourced

- Closure of Fenstanton glass bottling

- Redesign of spreads tubs

- New media buying agency

- Job reductions at Kirkby

- Job reductions at Nuneaton warehouse

Average employee numbers are falling

More efficient dairies give us greater processing capacity

Driving efficiencies and increasing capacity

6600

6800

7000

7200

7400

7600

7800

8000

8200

8400

8600

2007/08 2008/09 2009/10

11

Defined benefit pension scheme closed

Wexford sale progressing

Less milk through Ingredients

Fixed price, longer term milk purchasing contracts

Reducing risk

12

Workplace10% fewer days lost from accidents

Bonus scheme extended to a further 900 staff

Community£400,000 raised for Macmillan Cancer Support

Volunteer scheme introduced

Environment8% reduction in CO2 emissions

10% recycled material in polybottles

MarketplaceFixed price milk buying contracts offered

Lighter products reducing fat consumption

Acting responsibly

13

We have delivered consistently against the strategy we set out 18 months ago

Strong growth in added value sales, ongoing cost reduction programme and strong cash generation have allowed us to

- Increase profits

- Increase investment

- Increase final dividend

- Reduce debt

Summary of the year

Alastair Murray

Finance Director

Financial Review

15

Adjusted profit before tax* up 5% to £83.5m (2009: £79.5m)

Adjusted earnings per share* down 1% to 44.5p (2009: 45.0p)

Final dividend up 4.6% to 13.6p (2009:13.0p)

Net debt reduced by £78.6m to £337.2m (2009: £415.8m)

Financial Highlights

* Before exceptional items, amortisation of acquired intangibles and pension interest costs/income

16

Income Statement

£’m Mar-10 Mar-09

Profit on operations* 105.8 101.7

Finance Costs (22.4) (29.5)

Share of JV net profit 0.1 7.3

Adjusted profit before tax* 83.5 79.5

Other finance (expenses)/ income – pensions

(0.5) 6.9

Exceptional Items 4.0 26.4

Amortisation of acquired intangibles

(9.2) (9.6)

Profit before tax 77.8 103.2

Taxation (incl.exceptional tax) (25.3) (28.9)

Group profit after tax 52.5 74.3

* Before exceptional items and amortisation of acquired intangibles

17

Segmental Analysis - Cheese

Successful promotional activity has driven revenue growth of 6.5%

Profits reduced due to higher cost of sales following milk price increases in 2008 and increased levels of promotion

Cathedral City now worth £214m at retail prices benefitting from increased A&P investment

£’m Year to

Mar-10

Year to

Mar-09

Revenue 260.0 244.2

Profit 16.9 34.3

Margin 6.5% 14.1%

18

Includes UK Spreads and St Hubert

Strong performance from 3 key brands – Clover, St Hubert Omega 3 & Country Life – offset by lower sales of non-branded and other brands which have not been advertised and promoted as heavily

Increasing cost pressure and competitive promotional environment impacted profit

St Hubert continues to exceed expectations

£’m Year to

Mar-10

Year to

Mar-09

Revenue 277.7 284.2

Profit 54.0 59.5

Margin 19.5% 20.9%

Segmental Analysis - Spreads

19

Segmental Analysis - Dairies

Good progress in our retail milk business – volumes up 8%

Strong performance by FRijj

Improved operating efficiencies, lower milk prices, decreased distribution costs and lower balancing volumes

Doorstep sales have declined

- Decline rate of 6% lower than last year (10%)

- Over 250k registered milk&more customers at 31 March 2010

£’m Year to

Mar-10

Year to

Mar-09

Revenue 1,081.2 1,108.2

Profit 34.9 7.9

Margin 3.2% 0.7%

20

Exceptional Items

£m P&L Cash

Nuneaton prepack (1.5) (1.5)

Pensions curtailment gain 16.3 (0.6)

Reduced OFT 2.2 -

Onerous Contract - (0.5)

17.0 (2.6)

Nottingham Property Sale 1.0 2.5

YDC Disposal 2.0 1.2

Wexford Asset Impairment (16.0) 0

4.0 1.1

*

*

*included in acquisition/disposal of business and assets

21

Balance Sheet

£m Mar-10 Mar-09 Change

Fixed assets, goodwill &intangibles 794.4 834.2 (39.8)

Stocks 153.7 197.8 (44.1)Debtors less creditors (94.8) (91.6) (3.2)

Pension deficit (142.4) (63.3) (79.1)Deferred tax (65.8) (90.8) 25.0 Net debt (337.2) (415.8) 78.6 Other (15.1) (13.5) (1.6)

Net assets 292.8 357.0 (64.2)

Pension and related deferred tax (102.5) (46.1) (56.4)

22

Operating Cash Flow

* Before exceptional items and amortisation of acquired intangibles** Difference between normal cash contributions and current service cost charged to income statement*** Share based payments and property profits

£’m Year Mar-10 Year Mar-09

Adjusted profit on operations* 105.8 101.7

Depreciation & amortisation 38.1 40.6

Exceptional Items (2.6) (12.8)

Pensions

- normal**

- additional

(10.1)

(10.0)

(4.0)

(12.0)

Other *** (1.0) (3.5)

Working capital 25.7 19.1

Cash generated from operations 145.9 129.1

Capital expenditure (26.9) (49.3)

Operating cashflow 119.0 79.8

23

£m Year Mar-10 Year Mar-09

Operating cash flow 119.0 79.8

Interest (22.1) (30.3)

Tax (10.5) (9.2)

Dividends paid (24.3) (32.3)

Dividends received from JVs 0.1 2.9

Acquisition / disposal of businesses and assets

10.7 84.2

Net cash flow 72.9 95.1

Foreign exchange movements 5.7 (36.1)

Movement in net debt 78.6 59.0

Opening net debt (415.8) (474.8)

Closing net debt (337.2) (415.8)

Net Cash Flow

24

451 459 475 491

416380

337

200

250

300

350

400

450

500

550

Mar 07 Sep 07 Mar 08 Sep 08 Mar 09 Sep 09 Mar-10

£m

2

2.2

2.4

2.6

2.8

3

3.2

Net debt

Net Debt / EBITDA

Net Debt History

Mark Allen, Chief Executive

Martyn Wilks,

Executive Managing Director Foods

St Hubert

26

St Hubert

- Strategic purchase in 2007

- Branded business – increases quality of Group earnings

- European move facilitates further growth

One in a series of transactions which have fundamentally reshaped Group

Strong financial criteria applied including synergies with UK business

Purchase price €370 million

St Hubert – growth through acquisition

27

Strong business with good products and distribution in France and Italy

Since acquisition, we have grown volumes

Grown profits

Generated cash - €63 million in last 3 years

St Hubert – beating expectations

28000

29000

30000

31000

32000

33000

34000

2005/06 2006/07 2007/08 2008/09 2009/10

28

We have grown market share in France whereSt Hubert has overtaken Unilever’s Fruit d’Or….

22.925.7

28.3 28.8

36.634.3

30.6 29.4 30.129

28.428.5

2005 2006 2007 2008 2009 2010

St Hubert Fruit d'Or Primevère Planta Fin

13,713,7

IRI CC au 7 mars 2010

29

50.7

46.4

42.741.6 41.5

5.67.5 7.5

35.635.635.533.3

30.6

15.415.313.4 14.5

15.2

6.55.1

0.0

10.0

20.0

30.0

40.0

50.0

60.0

2006 2007 2008 2009 2010

ST HUBERT UNILEVER LACTALIS O.L.

IRI MAT P3 in value

…and overall we have narrowed the gap with Unilever in France

30

Valle still value leader in Italian Spreads, and now also volume leader in enlarged Butter and Spreads market

Margarine market - Value share

48.4 48.451.2

53.657.2 58.2

31.5 29.726.3 24.7

22.2 21.3

2005 2006 2007 2008 2009 2010

Valle Unilever

…and our Italian Valle brand is leading the market

31

Benefitting from Dairy Crest’s ownership

Clear and differentiated brand positioning

Product superiority

Consistent investment in R&D and CAPEX

Increased media investment focused on St Hubert Omega 3

St Hubert - A strong business – growing stronger

33

St Hubert – the future

Strong and stable management team

Well placed for further organic growth

- pipeline in place

- interesting dairy-alternative category

Offers a strong platform for further acquisitions

Mark Allen

Chief Executive

Looking Forward

35

Dairy Crest is a UK based dairy food company with a significant profit stream from continental Europe

Commodity businesses disposed of

Clear decision to remain “broadly based”

European platform established

Strong and growing brands, a world class cheese supply chain, cost-efficient dairies, sound finances

Dairy Crest today

36



Generate growth and focus the business through acquisitions and disposals

Build market leading positions in branded and added value markets

Looking Forward

…we will continue to pursue the same strategy

37

Growing brands

milk&more





…building added value sales…

38

In 2009/10 we increased sales of key brands and milk to retailers by £52 million

Over the last 3 years our 5 key brands have grown by nearly 50%

We supply products that aim to meet consumers’ needs and earn their loyalty

Our consistent investment in marketing is delivering results

Ability to grow brands further

Health Taste Convenience Ethical Home & LocalHealth Taste Convenience Ethical Home & Local

39

Investment in media underpins brand growth

41

milk&more growth potential

Good progress made with milk&more and first target of 250,000 registered customers achieved

Reduced decline in doorstep sales

Focus now is to increase amount spent by each customer

Currently weekly spend is approximately £6 – significantly higher than normal sales

Breaking new ground, but real prospect that milk&more could generate sales growth

42

Growing brands

milk&more





…and driving efficiencies…

Investing in Dairies

Ongoing cost reduction

43

Investment in Liquid Dairies

New investment of £75 million over 3 years on liquid dairies – improving efficiencies and increasing capacity

Total includes funds for innovation – packaging and product technology

Opportunities to reduce distribution costs by further utilising national depot network and advanced planning technology

We expect to commit around £25 million in 2010/11

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44

Ongoing Cost Reduction - taking costs from depots and head office

In our Household business early results of pilot programme in 6 depots confirm that we can improve customer service and reduce costs by centralising administration away from Household depots

Ongoing reduction in central overheads

More projects in the pipeline

45

…reducing risk and improving earnings…





Growing brands

milk&more



Further work on pensions

Wexford exit

46





Growing brands

milk&more



…generating growth through acquisitions…

Further work on pensions

Wexford exit

Stick to basics

Look for appropriate opportunities

47

Markets are tough but generally stable

Signs of increased commodity input costs – we have a track record of being able to work in this environment

We will continue doing the things that have contributed to recent success- investment in brands

- strong promotional programme

- further cost reductions

- cash generation

Trading at start of the year is in line with expectations and we are confident for the year as a whole

Current year outlook

48

A Compelling Investment Proposition

Brand building

Innovation

Chilled distribution

UK and Continental retailers

Cost management

Milk buying

Corporate activity

Underpinned by strong competencies

Well defined strategy

Sound, balanced customer base for both Liquid Products and Foods

5 key brands with good growth record and further potential

Direct access to 1.3 million consumers

Strong record of cost reduction with further opportunities

Sound finances and strong cash generation

Confirmed commitment to a progressive dividend policy

Experienced, well-motivated management team

FIT FOR THE FUTURE Preliminary Results For the year ended 31 March 2010 DAIRY CREST GROUP plc.

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Transcript of FIT FOR THE FUTURE Preliminary Results For the year ended 31 March 2010 DAIRY CREST GROUP plc.