TIDMDCG
RNS Number : 6664Y
Dairy Crest Group PLC
19 May 2016
19 May 2016
Dairy Crest Group plc ("Dairy Crest")
Preliminary Results Announcement for the year ended 31 March
2016
Highlights
-- Combined volumes of four key brands up 2%
-- Cathedral City grows revenue and volumes in a period of
continuing, significant price deflation
-- Improved Clover and Country Life performance in the second
half of the year; Frylight continues to grow strongly
-- Profit margins from continuing operations maintained after a strong second half of the year
-- Production and sales of demineralised whey and galacto-oligosaccharide have commenced
-- Transformational sale of Dairies business completed on 26 December 2015
-- Strong underlying cash generation from the continuing business
-- Proposed final dividend up 1.9% to 16.0 pence
Financial Summary
Year ended 31 March
2016 2015 Change
Revenue (1) GBP422.3m GBP448.2m -6%
Profit before tax (1) GBP45.4m GBP36.8m +23%
Adjusted profit before tax (1, 2) GBP57.7m GBP58.8m -2%
Basic earnings per share (1) 27.9p 21.5p +30%
Adjusted basic earnings per share(1, 2) 34.5p 34.3p +1%
(Loss)/profit attributable to equity shareholders GBP(113.0)m GBP20.5m n/a
Cash generated from operations: continuing
(1) GBP82.9m GBP56.8m +46%
Cash generated from operations GBP31.3m GBP35.3m -11%
Net debt GBP229.0m GBP198.7m +15%
Final dividend 16.0p 15.7p +2%
(1) From continuing operations
(2) Before exceptional items, amortisation of acquired
intangibles and pension interest
Commenting on the results, Mark Allen, Chief Executive, Dairy
Crest Group plc said:
"This is an exciting time to be leading Dairy Crest. Although we
expect food price deflation to persist in the short term, the
business is well positioned to deliver profitable and sustainable
growth.
We are making progress with all of our four key brands and the
continued investment we are putting behind them this year gives me
confidence that we can continue to grow their market share.
The other focus for 2016/17 will be on accelerating sales of
demineralised whey and GOS, the new infant formula ingredients and
continuing to explore further applications for GOS.
Future cash generation will improve as the sale of our Dairies
business and completion of the investment at Davidstow removes a
significant drain on cash"
For further information, please
contact:
Dairy Crest Olivia Seccombe 01372 472249
Dairy Crest Tom Atherton 01372 472264
Brunswick Mike Smith 0207 404 5959
A video interview with Mark Allen and Tom Atherton is available
from the investor section of the Group's website
www.dairycrest.co.uk/investors. There will be an analyst and
investor meeting at 11:00 (UK time) today at The Lincoln Centre, 18
Lincoln's Inn Fields, London, WC2A 3ED, following which an
audiocast of the presentation will be available from the investor
section of the Group's website www.dairycrest.co.uk/investors.
Chief Executive's Review
Summary: well positioned for growth
2015/16 has been a significant year for Dairy Crest. We
successfully sold our Dairies business and completed a programme of
significant investment in functional ingredients manufacture at our
Davidstow facility in Cornwall. These initiatives have transformed
the Group. Dairy Crest is now a simpler business focussed on growth
and innovation in branded and value-added products. The business is
well positioned to generate cash and deliver attractive margins
that should improve in the future.
Dairy Crest's continuing business posted a solid financial
performance in 2015/16 despite continued deflation in dairy
markets. Against this background, I am particularly pleased by the
improved profitability in the second half of the year. Our key
brands have performed well and have good prospects. We will
continue to focus on growing brands and establishing our functional
ingredients business. This gives us access to new, higher-growth
markets and a range of new customers. This will ensure that the
company is well positioned for the future despite current market
conditions which are expected to remain challenging in the short
term.
Market background: another year of deflation
In the past year we have once again seen significant price
deflation in the cheese, whey and butter categories. Another year
of strong UK and global milk production has resulted in downward
price pressure across all dairy products. This showed no signs of
slowing in the second half of the year. Regrettably, in this
environment, we have had to reduce the price paid to our farmers
for their milk; a reduction of about 17% over the course of the
last year. We continue to pay farmers a fair, competitive price for
milk and have recently introduced a new, innovative milk contract
for our farmers. This will promote more stable and transparent
pricing for core milk volumes that support our cheese business'
requirements.
Inevitably, the market environment has put downward pressure on
selling prices. Our cheese margins have been pressured because the
benefit of lower input costs take up to 12 months to be reflected
in the income statement. This is the average maturation time for
our cheese. This effect is compounded by lower realisations from
whey sales. We therefore are particularly pleased to have delivered
margins slightly ahead of last year given this background.
The major food retailers, our principal customers, have had to
deal with both food deflation and continued intense competition. We
expect these tough conditions to continue. In this environment it
is crucial that we continue to work with our customers innovatively
to help grow the categories in which we operate in ways that are
mutually beneficial. Our "Dairy for Life" initiative continues to
play an important role in helping to grow dairy categories in
partnership with our retailer customers. It is a framework to grow
the categories in which we operate and guides plans for future
innovation, marketing and category merchandising.
Key brands perform robustly in deflationary environment
Brand Market Dairy Crest volume Dairy Crest sales
growth* growth*
-------------- ------------------- ------------------- ------------------
Cathedral
City Cheese 6.4% 0.8%
-------------- ------------------- ------------------- ------------------
Butters, spreads,
Clover margarine (6.4)% (14.9)%
-------------- ------------------- ------------------- ------------------
Butters, spreads,
Country Life margarine 3.9% (6.2)%
-------------- ------------------- ------------------- ------------------
Frylight Oils 29.1% 27.9%
-------------- ------------------- ------------------- ------------------
Total 1.7% (2.3)%
----------------------------------- ------------------- ------------------
* Dairy Crest volume and value sales 12 months to 31 March 2016
vs 12 months to 31 March 2015
In line with our expectations, overall revenue from our four key
brands was down by 2.3% over the financial year. This was a good
performance in a deflationary marketplace. Key brand sales volumes
increased by 1.7% with all four brands growing volumes year on year
in the second half despite very challenging conditions in the
butters and spreads market.
Cathedral City outperforms again
IRI data for the 52 weeks ended 26 March 2016 compared to the
same period last year show that the total cheese market (excluding
discounters) grew by 6.1% in volume but fell by 0.4% in value.
Within this, the everyday cheese market fell by 3.6% in value.
Cathedral City outperformed the market with volumes increasing by
6.4% and revenue increasing by 0.8%. It now accounts for 55% of
branded everyday cheese sales in the UK.
Cathedral City market penetration over a 12 month period is now
58%. Almost three fifths of households bought Cathedral City in the
last year and this is a measure of how the brand has grown over
recent years. We are determined to continue building on this
success. In April 2016 we began to roll out updated and refreshed
branded packaging across the Cathedral City portfolio. This brand
evolution simplifies and standardises the master brand; it will
also improve Cathedral City's prominence on the shelf. The brand
refresh will be supported by a new advertising campaign and
promotional activity.
Spreads and Butters performance improves over the year
IRI data for the 52 weeks ended 26 March 2016 show that butters
volumes grew by 6.4% but spreads volumes declined by 8.6%, leaving
combined volumes down 2.2%. Selling prices fell in both markets
resulting in retail sales down 2.1% for butters, 13.1% for spreads
and 6.5% combined.
Retail sales of Clover moved broadly in line with the market
over the 52 weeks ended 26 March 2016. The performance improved in
the second half following the re-launch of Clover in September
2015. This launch was the culmination of a two-year project that
removed all artificial ingredients from Clover and was supported by
marketing and promotional activity in the autumn.
Since the re-launch, over 500,000 more customers have bought
Clover. In the second half of the year Clover volumes increased by
1.2% compared to the same period last year despite market volume
declines overall. IRI data for the last quarter of the year shows
Clover has gained 1.7% share volume versus the previous year.
Country Life delivered volume growth of 3.9% in the year with a
step change in performance in the second half. This was helped by
new British themed packaging which, we know from consumer research,
plays to the brand's strengths. Volumes and revenue grew by 20% and
3% respectively in the last six months of the year compared to the
second half of 2014/15. This gives us strong momentum as we move
into the new financial year.
Frylight delivers strong growth
Frylight, our 1 Calorie cooking spray, has once again delivered
strong growth; volumes were up 29.1% year on year and revenue was
up 27.9%. Based on Kantar data for the 52 weeks to 27 March 2016,
the retail oils market is worth GBP330 million at retail and has
grown in both volume and value by 4% over the last 12 months.
Frylight is now the number one brand in this market with household
penetration of over 20%.
The brand has benefitted both from increased listings and
product innovation. 2015/16 saw the introduction of both coconut
oil and rapeseed oil variants. This continued pace of innovation
will be crucial to growing the brand in the future.
Infant formula ingredients on track
We have successfully completed our investment programme at
Davidstow to manufacture ingredients for the infant formula market.
This unique UK facility is now producing both demineralised whey
and galacto-oligosaccharide ('GOS'). Following successful food and
infant formula quality audits, these products are being sold to our
partner, Fonterra. Final commissioning took somewhat longer than
expected although we started production in March 2016. We will get
a full year benefit from the investment in the financial year to 31
March 2017.
This is an important step for our business as it delivers a
premium on all of our whey by-product. It also allows us to grow a
profitable GOS infant formula business while researching further
GOS applications and uses. It gives Dairy Crest access to important
business-to-business ingredients customers and an ability to
develop in emerging markets. In December 2015 we acquired the
outstanding 50% of Promovita Ingredients Limited ("Promovita") our
GOS joint venture. This has allowed us to control the direction and
pace of our GOS development.
Whey, along with other dairy products, has experienced steep
falls in price during the last 12 months. However, demineralised
whey continues to deliver a price premium compared to the sweet
whey powder that we produced previously. This uplift will deliver a
project payback in line with our expectations despite short-term
weakness in the market.
Innovation at the heart of what we do
The retained business is much more focussed following the sale
of the Dairies operations and pace of innovation is, and needs to
be, an important point of difference. Future growth is underpinned
by innovation.
In December 2015, our research and development and technical
teams moved into our new Dairy Crest Innovation Centre on the
Harper Adams University campus. This state-of-the-art facility will
help drive our ambitious target of 10% of sales each year coming
from innovation in the previous three years. This year, helped by
the re-launch of Clover we achieved 11% of sales from recent
innovation across our four key brands.
The Innovation Centre consolidates all of our technical and
research expertise and equipment in one place and allows us to
benefit from cross-fertilisation of people and ideas with the
University which is a leading centre of food and agricultural
research.
Innovation continues to drive our business forward in other
ways. In the year ended 31 March 2016, we:
-- successfully launched Clover Simple with no artificial ingredients;
-- brought two new Frylight products to market - coconut and rapeseed spray oils;
-- introduced a new milk purchasing contract for our Davidstow
supplying farmers that aligns our growth ambitions with theirs;
and
-- agreed a partnership with Fowler Welch, a logistics
specialist, to maximise the throughput at our Nuneaton distribution
and warehousing site.
We continue to carry out research with universities and
commercial trials with partners into the effect of GOS on animal
development. The laboratory data seen to date is encouraging and
work will continue in this area during 2016. To this end we have
allocated an increase of over GBP2 million in the GOS research
budget for 2016/17. We intend to validate laboratory findings with
field trials and find additional commercial applications for
GOS.
A simpler business
Dairy Crest is a simpler, leaner and more responsive business
following the Dairies sale. We now have five well-invested
manufacturing sites and fewer than 1,200 employees. There are
opportunities to further simplify procedures and support structures
within the business. Over time this will allow us to reduce
overheads and increase efficiency. We are currently embarking on a
change to our core IT systems which will roll out over the next
three years. This will deliver a more appropriate and cost
effective IT infrastructure for a business of our scale. It will
also be the catalyst for us to simplify the processes that sit
alongside these IT systems.
We continue to drive operational efficiency improvements and
following the successful consolidation of butters and spreads
production into one site at Kirkby in early 2015, we will continue
to focus on improving line performance efficiency. We have already
seen improvements in efficiency measures over the year to March
2016.
Future prospects
This is an exciting time to be leading Dairy Crest. Although we
expect food price deflation to persist in the short term, the
business is well positioned to deliver profitable and sustainable
growth.
We are making progress with all of our four key brands and the
continued investment we are putting behind them this year gives me
confidence that we can continue to grow their market share.
The other focus for 2016/17 will be on accelerating sales of
demineralised whey and GOS, the new infant formula ingredients and
continuing to explore further applications for GOS.
Future free cash generation will improve as the sale of our
Dairies business and completion of the investment at Davidstow
removes a significant drain on cash.
Mark Allen
Chief Executive
18 May 2016
Financial Review
Overview
Dairy Crest has continued to make progress in difficult trading
conditions and in 2015/16 the Group took two important steps in
delivering against its long-term strategy.
Firstly, on 26 December 2015 we completed the sale of our
Dairies business to Müller UK & Ireland Group ("Müller") LLP.
This transformational sale allows us to focus on a significantly
simplified branded and value-added business with growth potential
through both branded sales and new functional ingredients business
streams.
Secondly, following investment at our Davidstow facility, we are
now producing demineralised whey and GOS for sale into
international infant formula markets with strong growth
characteristics. Furthermore, we continue to research uses of GOS
beyond infant formula in order to provide further growth
opportunities in the future.
These initiatives leave us well placed for the future despite
price deflation in dairy markets that persisted throughout 2015 and
has continued into 2016.
Overall, the financial performance of the continuing Group
during the year has been robust despite price deflation which has
reduced revenues by 5.8% to GBP422.3 million. Product group profit
margins have been increased to 15.6% despite the delayed margin
benefit of milk input cost deflation due to the average one year's
cheese maturation time. However, the very difficult conditions in
the liquid milk market persisted throughout 2015 and our
discontinued Dairies business made pre-exceptional operating losses
of GBP33.3 million in the nine months before its sale.
Underling cash generation from the retained business was strong
and this will continue in the future. However, overall net debt
increased by GBP30 million in the year due to significant losses in
the Dairies business, pre-completion separation and transactional
costs as well as the demineralised whey and GOS investment at
Davidstow. However, these costs will not be incurred in future.
Continuing operations
Revenue
We continue to provide product group analysis consistent with
prior years to assist the users of the Financial Statements
although the Group operated as one segment throughout 2015/16.
2016 2015 Change Change
GBPm GBPm GBPm %
----------------------- ------ ------ ------- -------
Cheese and whey 263.7 274.4 (10.7) (3.9)
Butter, Spreads
& Oils 152.6 170.0 (17.4) (10.2)
Other 6.0 3.8 2.2 57.9
----------------------- ------ ------ ------- -------
Continuing operations 422.3 448.2 (25.9) (5.8)
----------------------- ------ ------ ------- -------
Revenue decreased by 5.8% to GBP422.3 million. Despite sales
volumes across our four key brands increasing by 1.7% the Group
faced price deflation throughout the year across cheese, whey and
butter. Cheese and whey revenues fell by GBP10.7 million (3.9%)
despite increased sales volumes. Revenue in Butter, Spreads and
Oils fell by GBP17.4 million (10.2%) as volume declines in spreads
and butter price deflation more than offset volume growth in
Country Life and strong volume and value growth in Frylight. Other
revenue comprised warehousing and distribution services provided to
third parties.
Profit on continuing operations
2016 2015 Change Change
GBPm GBPm GBPm %
---------------------------------- ------ ------ ------- -------
Cheese and whey 36.4 33.1 3.3 10.0
Butters, Spreads & Oils 29.6 33.8 (4.2) (12.4)
---------------------------------- ------ ------ ------- -------
Total product group profit 66.0 66.9 (0.9) (1.3)
---------------------------------- ------ ------ ------- -------
Acquired intangible amortisation (0.4) (0.4) - -
---------------------------------- ------ ------ ------- -------
Group profit on continuing
operations (pre-exceptional
items) 65.6 66.5 (0.9) (1.4)
---------------------------------- ------ ------ ------- -------
Overall Group product group profit (before interest, acquired
intangible amortisation and exceptional items) fell by GBP0.9
million to GBP66.0 million although this represents an improved
margin of 15.6% (2015: 14.9%). This margin is after charging all
central corporate costs and includes the GBP3.6 million benefit of
the sale of closed depots that were not disposed of as part of the
sale of the Dairies business to Muller. These depot sales will
continue beyond 2015/16 but are finite. Their treatment as
operating income is consistent with the treatment in previous years
of the related closure costs. Future sales of ex-manufacturing
sites such as Fenstanton in Cambridgeshire will be classified as
exceptional consistent with the historical treatment of the related
closure costs.
Cheese and whey product group profits increased by 10.0% with a
margin recovery to 13.8% (2015: 12.1%). This is despite lower
revenue which continued to reflect falling milk input costs during
the year. These falling costs were not fully reflected in cost of
sales in 2015/16 due to the 12 month average cheese maturation
cycle which means the cost benefit of a price cut in milk is not
recognised in the income statement until a year later.
Managing deflation will continue to be a feature of the cheese
and whey business throughout 2016 as it has been for the last two
years. During deflationary periods, the lag effect described above
results in lower reported profit margins but it results in working
capital reductions and improved cash margins ahead of profit
margins.
Butters, Spreads and Oils product group profits were lower
following a strong 2014/15 albeit profit margins were broadly
maintained at 19.4% (2015: 19.9%). Cream input costs remained low
during the year and this has helped to fund the relaunch of Clover
as well as increased second half advertising and promotional
activity across the brand portfolio while maintaining margins.
Exceptional items
Pre-tax exceptional charges from continuing operations reduced
to GBP11.3 million (2015: GBP19.8 million) and are likely to result
in a net credit in 2016/17 as we sell previously closed
manufacturing sites.
The Group realised a gain of GBP6.0 million on its investment in
Promovita at the point that it acquired 100% control in December
2015. The carrying value of the GOS business is now represented by
GBP12.1 million of goodwill and over GBP20 million of tangible
fixed assets.
The Group incurred GBP16.2 million of exceptional costs in
relation to the building and commissioning of the demineralised
whey and GOS facilities at the Davidstow creamery in Cornwall
(2015: GBP3.4 million). The principal elements of spend were
duplicate running costs, commissioning expenses and project
management.
An exceptional provision of GBP1.8 million has been provided for
dilapidation costs for leased properties in the retained business
albeit crystallised by the sale of the Dairies business (2015: nil)
and provisions relating to the closure of the Crudgington site
totalling GBP0.7 million were released.
Finance costs
Finance costs of GBP8.3 million increased by GBP0.2 million in
the year as levels of borrowings increased. The average cost of
borrowing will fall in 2016/17 following the issuance of GBP76
million Sterling equivalent of new loan notes in March 2016 at a
fixed effective coupon of 3.3%. These notes replace GBP80 million
(swapped Sterling equivalent) of 10-year loan notes issued in April
2006 at an effective fixed rate of 5.3% which matured in April
2016.
Although the cost of borrowing will fall in 2016/17, reported
interest costs will increase due to a reduction in the amount of
capitalised interest following the completion of the Group's
investment in Davidstow. Capitalised interest costs in 2015/16
amounted to GBP3.8 million (2015: GBP2.4 million). Interest cover
excluding pension interest, calculated on total product group
profit was 8.1 times (2015: 8.3 times).
Other finance expenses, which comprise the net expected return
on pension scheme assets after deducting the interest cost on the
defined benefit obligation, decreased to GBP0.6 million (2015:
GBP1.8 million). These costs are dependent upon the pension scheme
position at 31 March each year and are volatile, being subject to
market fluctuations. We therefore exclude this item from headline
adjusted profit before tax.
Profit before tax - continuing operations
2016 2015 Change Change
GBPm GBPm GBPm %
---------------------------- ------- ------- ------- -------
Total product group profit 66.0 66.9 (0.9) (1.3)
Finance costs (8.3) (8.1) (0.2) (2.5)
---------------------------- ------- ------- ------- -------
Adjusted profit before tax 57.7 58.8 (1.1) (1.9)
Amortisation of acquired
intangibles (0.4) (0.4) -
Exceptional items (11.3) (19.8) 8.5
Other finance expenses -
pensions (0.6) (1.8) 1.2
---------------------------- ------- ------- ------- -------
Reported profit before tax
- continuing operations 45.4 36.8 8.6 23.4
---------------------------- ------- ------- ------- -------
Adjusted profit before tax (before exceptional items and
amortisation of acquired intangibles) decreased by 1.9% to GBP57.7
million. This is management's key Group profit measure. Reported
profit before tax of GBP45.4 million represents a GBP8.6 million
(23.4%) increase from 2015 predominantly due to the lower level of
exceptional items incurred.
Taxation
The Group's effective pre-exceptional tax rate on continuing
operations reduced to 17.5% (2015: 20.1%). The effective tax rate
is slightly below the headline rate of UK corporation tax as we
continue to sell a small number of properties the profits on which
are offset by brought forward capital losses or roll over
relief.
Earnings per share
The Group's adjusted basic earnings per share from continuing
operations increased by 0.6% to 34.5 pence (2015: 34.3 pence) as a
lower effective rate of tax offset a marginal decrease in profit
before tax. Basic earnings per share from continuing operations,
which includes the impact of exceptional items, pension interest
expense and the amortisation of acquired intangibles, amounted to
27.9 pence (2015: 21.5 pence).
Discontinued operations
The Group completed the sale of its Dairies operations on 26
December 2015 having had the transaction cleared by the Competition
and Markets Authority ("CMA") on 19 October 2015.
Conditions in the UK dairy sector remained extremely challenging
throughout 2015 and worsened significantly from March 2015. The
Group's dairy operations were further impacted by the uncertainty
surrounding the CMA review which affected commercial relationships
and our employees during the period of review. Operating losses in
the nine months to December 2015 amounted to GBP33.3 million (12
months to 31 March 2015: GBP1.8 million profit).
These losses also impacted the proceeds received for the
business which were subject to a number of adjusting items compared
to the headline consideration of GBP80 million. Final consideration
is estimated at GBP28.6 million although this amount remains
subject to agreement on levels of working capital and EBITDA, both
of which are in the process of being determined by an independent
expert.
Certain of the reductions in headline consideration are due to
the fact that the Group had already received the cash in the period
between the announcement of the sale (November 2014) and completion
of the transaction (December 2015). This is true for property sale
adjustments and to some extent working capital being below
target.
Consideration was further reduced by the requirement for an
undertaking in lieu to be agreed with the CMA in order to
facilitate a phase 1 review clearance. The Group paid GBP15 million
to Muller to contribute to the cost of delivering this
undertaking.
The post-tax loss on disposal, taking into account the best
current estimate of the final consideration and including costs of
the transaction, is GBP110.7 million. Following the sale, the Group
has a deferred tax asset of GBP19.5 million having judged that
brought forward trading losses and balancing charges will be
utilised in future years. The final amount of consideration remains
subject to determination by an independent expert and any
adjustment will be recorded in the year ending 31 March 2017.
In addition to the loss on disposal, the Group incurred post-tax
exceptional items totalling GBP14.4 million as the operations to be
sold were carved out of the Dairy Crest Group and site
restructuring continued in the Dairies business. Full details of
discontinued operations are set out in the notes to the financial
statements.
Group result for the year
The reported Group profit for the year from continuing
operations was GBP38.5 million (2015: GBP29.4 million). The loss
for the year attributable to equity shareholders was GBP113.0
million (2015: GBP20.5 million profit).
Dividends
We remain committed to a progressive dividend policy and have
continued to deliver against that policy by increasing our proposed
final dividend by 1.9%. The proposed final dividend of 16.0 pence
per share represents an increase of 0.3 pence per share. Together
with the interim dividend of 6.1 pence per share (2015: 6.0 pence
per share) the total proposed dividend is 22.1 pence per share
(2015: 21.7 pence per share). The final dividend will be paid on 11
August 2016 to shareholders on the register on 8 July 2016.
Dividend cover of 1.6 times is within the Board's target range
of 1.5 to 2.5 times (2015: 1.7 times).
Pensions
During the year ended 31 March 2016 the Group paid GBP20.8
million cash contributions into the closed defined benefit pension
scheme, including an GBP8.3 million prepayment of future agreed
cash contributions in relation to lease payments on three
properties owned by the pension scheme. These properties were
repurchased from the scheme in November 2015 in order to facilitate
the completion of the sale of the Dairies business. This upfront
buyback of leases will reduce the current agreed level of cash
contributions as agreed at the March 2013 valuation by GBP2.8
million per annum.
The current schedule of contributions agreed as part of the
March 2013 valuation has a revised level of cash contribution for
2016/17 of GBP13.2 million now that property leases have been
prepaid.
The reported deficit under IAS 19 at 31 March 2016 was GBP42.5
million; an increase of GBP1.1 million from March 2015. However,
this methodology values liabilities by reference to high quality
corporate bond yields. The full actuarial valuation, which will be
based on March 2016 conditions and from which a new Schedule of
Contributions will be agreed, is valued by reference to UK gilt
yields which remain very low by historical standards. We would
therefore expect the actuarial deficit at March 2016 to be
significantly greater than the IAS 19 deficit at the same date,
although the final valuation will not be determined until later in
2016.
Cash flow
Our aim is for the business to generate strong free cash flows
in future years and 2015/16 saw good progress as drags on cash
generation in the form of dairies losses, restructuring costs and
high levels of capital expenditure all either fell away or moved
towards completion.
In the year ended 31 March 2016 cash generated from operations
was GBP31.3 million (2015: GBP35.3 million). Excluding discontinued
operations, cash generated from continuing operations amounted to
GBP82.9 million (2015: GBP56.8 million). This demonstrates a
substantially stronger cash generation for the Group following the
sale of the Dairies business.
Operating cash flow benefitted from a GBP14.0 million reduction
in working capital. The reduced cost of milk for our cheese
business has reduced the value of maturing cheese stocks by GBP20
million during the year as older, more expensively made cheese is
sold and released to the income statement. This working capital
reduction offsets the cheese margin squeeze described earlier.
Overall the continuing business benefitted from a GBP31.7 million
reduction in working capital partly offset by an increase in
Dairies working capital which was influenced by its deteriorating
business performance and the timing of the disposal versus the
usual March year end.
Exceptional cash costs of GBP17.6 million (2015: GBP19.8
million) are due to significant costs associated with the
separation of the Dairies business before sale and the
commissioning of the demineralised whey and GOS plants at
Davidstow.
Cash interest payments amounted to GBP12.8 million (2015:
GBP10.5 million) due to the payment of fees in relation to the
refinancing of the Group's revolving credit facility. There were no
net tax payments due to the high level of dairies losses, pension
contributions and significant levels of capital expenditure
incurred during the year (2015: nil).
Capital expenditure of GBP66.8 million represents a GBP13.3
million or 17% fall from last year's GBP80.1 million. Capital
expenditure in the continuing business amounted to GBP56.4million
(2015: GBP63.9 million) with the majority having been incurred at
our Davidstow site as we built the demineralised whey and GOS
facilities. Commissioning started in the final quarter and finished
in the first quarter of 2016/17. The Group now has well invested
facilities and, following the new project expenditure at Davidstow,
future levels of capital expenditure will fall further.
Proceeds from property disposals were GBP5.4 million (2015:
GBP22.5 million) and the sale of our Dairies operations resulted in
initial cash proceeds of GBP54.5 million - comprising headline
proceeds of GBP80.0 million less GBP15.0 million for the cost of
the undertaking in lieu, GBP7.5 million of property sales from
which the Group had already received the cash proceeds and GBP3.0
million in relation to pre-sale capital expenditure in Dairies
falling below an agreed target. Against this, the Group paid GBP5.5
million in related fees reflecting the extended review undertaken
by the CMA. A balancing payment of GBP25.9 million was made to
Muller in April 2016. The Group paid GBP6 million for the
outstanding 50% of the share capital of Promovita.
Overall, the high level of Dairies losses, restructuring and
separation costs and investment at Davidstow resulted in a GBP30.3
million increase in net debt during the year (2015: GBP56.5 million
increase). In the two financial years ended 31 March 2016,
discontinued operations generated GBP100 million of operating cash
outflows (being cash used in operations less capital expenditure).
However, the continuing business is strongly cash generative and
the level of restructuring and capital expenditure will reduce
significantly in 2016/17.
Borrowing facilities
In October 2015, the Group agreed a new five year multi-currency
revolving credit facility for GBP240 million which reduces by GBP80
million in October 2018. This reducing facility had the benefit of
reduced fees compared to a flat GBP240 million facility but also
reduces the level of unused facility headroom for a Group that
expects to reduce levels of net debt in future years.
At 31 March 2016 the Group had a swapped Sterling equivalent of
GBP220 million of loan notes outstanding having issued GBP76
million of notes in March 2016. However GBP80 million of these
notes matured on 4 April 2016 leaving GBP140 million of notes
outstanding maturing between 2017 and 2026.
Total facilities now comprise GBP380 million Sterling
equivalent.
Treasury Policies
The Group operates a centralised treasury function, which
controls cash management and borrowings and the Group's financial
risks. The main treasury risks faced by the Group are liquidity,
interest rates and foreign currency. The Group only uses
derivatives to manage its foreign currency and interest rate risks
arising from underlying business and financing activities.
Transactions of a speculative nature are prohibited. The Group's
treasury activities are governed by policies approved and monitored
by the Board.
Post balance sheet events
In the year ended 31 March 2012, the Group recorded an
exceptional bad debt provision of GBP4.3 million as a result of
Quadra Foods Limited ("Quadra") and Farmright Limited ("Farmright")
going into administration. The bad debt provision related to Quadra
and disputed amounts owed to Farmright continued to be held as a
liability. At 31 March 2016, amounts owed to the Group by Quadra
had been fully provided for and the Group carried a creditor
balance of GBP3.1 million for potential future liabilities in
relation to Farmright. On 9 May 2016, the Group paid GBP1.0 million
in full and final settlement of claims arising out of the amount
originally owed to Farmright. Claims between the Group, Farmright
and Quadra are now resolved. Following settlement, GBP2.1 million
will be released as an exceptional item in the year ending 31 March
2017.
On 4 April 2016, the Group repaid $123 million (GBP70 million
sterling equivalent) and GBP10 million of 2006 fixed coupon loan
notes on their maturity.
Tom Atherton
Finance Director
18 May 2016
Consolidated income statement
Year ended 31 March 2016
2016 2015
--------------------------------- ----------------------------------
Restated
Before Before Restated
exceptional Exceptional exceptional Exceptional Restated
items items Total items items Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ---- ----------- ----------- ------- ----------- ----------- --------
Revenue 2 422.3 - 422.3 448.2 - 448.2
Operating costs 3,5 (360.3) (17.3) (377.6) (381.7) (19.8) (401.5)
Remeasurement gain on
Promovita
Ingredients 5,18 - 6.0 6.0 - - -
Other income -
property 4 3.6 - 3.6 - - -
--------------------- ---- ----------- ----------- ------- ----------- ----------- --------
Profit on continuing
operations 65.6 (11.3) 54.3 66.5 (19.8) 46.7
Finance costs 6 (8.3) - (8.3) (8.1) - (8.1)
Other finance expense
- pensions 15 (0.6) - (0.6) (1.8) - (1.8)
---------------------- ---- ----------- ----------- ------- ----------- ----------- --------
Profit before tax from
continuing
operations 56.7 (11.3) 45.4 56.6 (19.8) 36.8
Tax (expense) /
credit 7 (9.9) 3.0 (6.9) (11.4) 4.0 (7.4)
--------------------- ---- ----------- ----------- ------- ----------- ----------- --------
Profit from continuing
operations 46.8 (8.3) 38.5 45.2 (15.8) 29.4
(Loss) / Profit from
discontinued
operations 8,18 (26.4) (125.1) (151.5) 5.0 (13.9) (8.9)
---------------------- ---- ----------- ----------- ------- ----------- ----------- --------
(Loss) / Profit for the year
attributable to equity
shareholders 20.4 (133.4) (113.0) 50.2 (29.7) 20.5
----------------------------- ----------- ----------- ------- ----------- ----------- --------
The prior year comparatives have been restated to reclassify the
Dairies operation sold during the year ended 31 March 2016 as a
discontinued operation (see Note 8).
Restated
2016 2015
Earnings per share
Basic earnings per share from continuing
operations (pence) 9 27.9 21.5
Diluted earnings per share from continuing
operations (pence) 9 27.7 21.4
Adjusted basic earnings per share from
continuing operations (pence)* 9 34.5 34.3
Adjusted diluted earnings per share
from continuing operations (pence) 9 34.2 34.1
Basic (loss) / earnings per share (pence) 9 (81.9) 15.0
Diluted (loss) / earnings per share
(pence) 9 (81.3) 14.9
2016 2015
Dividends
Proposed final dividend (GBPm) 10 22.3 21.6
Interim dividend paid
(GBPm) 10 8.4 8.2
Proposed final dividend (pence) 10 16.0 15.7
Interim dividend paid (pence) 10 6.1 6.0
--------------------------------------------- ------ --------
* Adjusted earnings per share from continuing operations
calculations are presented to give an indication of the underlying
operational performance of the Group. The calculations exclude
exceptional items, amortisation of acquired intangibles and pension
interest in relation to the Group's defined benefit pension scheme,
being dependent upon market assumptions at 31 March each year.
Consolidated statement of comprehensive income
Year ended 31 March 2016
2016 2015
Note GBPm GBPm
-------------------------------------------------- ---- ------- ------
(Loss) / Profit for
the year (113.0) 20.5
--------------------------------------------------- ---- ------- ------
Other comprehensive income to be reclassified
to profit and loss in subsequent years:
Cash flow hedges - reclassification adjustment
for gains / (losses) in income statement 4.4 (16.1)
Cash flow hedges - (losses) / gains recognised
in other comprehensive income (5.4) 15.0
Tax relating to components of other comprehensive
income 7 0.2 0.2
----------------------------------------------------- ---- ------- ------
(0.8) (0.9)
-------------------------------------------------- ---- ------- ------
Other comprehensive income not to be reclassified
to profit and loss in subsequent years:
Remeasurement of defined benefit
pension plans 15 (20.5) 4.3
Tax relating to components of other comprehensive
income 7 1.0 1.7
----------------------------------------------------- ---- ------- ------
(19.5) 6.0
Other comprehensive (loss) / gain for the year,
net of tax (20.3) 5.1
----------------------------------------------------- ---- ------- ------
Total comprehensive (loss) / gain for the year,
net of tax (133.3) 25.6
----------------------------------------------------- ---- ------- ------
All amounts are attributable to owners of the parent.
Consolidated balance sheet
At 31 March 2016
2016 2015
Note GBPm GBPm
----------------------------------------------- ----------------------------------- ---- ------- -------
Assets
Non-current assets
Property, plant and equipment 11 233.9 328.5
Goodwill 12 86.3 74.3
Intangible
assets 13 11.1 25.6
Investments 0.5 0.5
Deferred tax
asset 7 19.3 -
Financial assets - Derivative financial instruments 2.3 14.7
-------------------------------------------------------------------------------------- ---- ------- -------
353.4 443.6
----------------------------------------------------------------------------------- ---- ------- -------
Current assets
Inventories 152.1 199.7
Trade and other receivables 43.2 95.3
Financial assets - Derivative financial instruments 16.0 -
Cash and short-term deposits 100.3 50.6
------------------------------------------------- ----------------------------------- ---- ------- -------
311.6 345.6
----------------------------------------------------------------------------------- ---- ------- -------
Total assets 2 665.0 789.2
-------------------------------------------------------------------------------------- ---- ------- -------
Equity and Liabilities
Non-current liabilities
Financial liabilities - Long-term borrowings 14 (250.3) (263.0)
- Derivative financial instruments 14 (1.3) (1.9)
Retirement benefit obligations 15 (42.5) (41.4)
Deferred tax
liability 7 - (11.1)
Deferred income (4.5) (6.2)
------------------------------------------------ ----------------------------------- ---- ------- -------
(298.6) (323.6)
----------------------------------------------------------------------------------- ---- ------- -------
Current liabilities
Trade and other payables 16 (120.3) (168.1)
Financial liabilities - Short-term borrowings 14 (96.5) -
- Derivative financial instruments 14 - (0.2)
Current tax liability (3.8) (2.8)
Deferred income (1.6) (1.6)
Provisions 17 (10.0) (3.1)
-------------------------------------------------------------------------------------- ---- ------- -------
(232.2) (175.8)
----------------------------------------------------------------------------------- ---- ------- -------
Total liabilities (530.8) (499.4)
------------------------------------------------ ----------------------------------- ---- ------- -------
Shareholders' equity
Ordinary shares (35.2) (34.4)
Share premium (84.3) (79.8)
Interest in ESOP 0.5 0.1
Other reserves (50.6) (51.4)
Retained earnings 35.4 (124.3)
------------------------------------------------ ----------------------------------- ---- ------- -------
Total shareholders' equity (134.2) (289.8)
Total equity and liabilities (665.0) (789.2)
------------------------------------------------- ----------------------------------- ---- ------- -------
Consolidated statement of changes in equity
Year ended 31 March 2016
Attributable to owners
of the parent
Attributable to owners of
the parent
-------- ------- ----------------------------------------
Ordinary Share Interest Other Retained Total
shares premium in ESOP Reserves earnings Equity
2016 GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- -------- ------- -------- -------- -------- -------
At 31 March 2015 34.4 79.8 (0.1) 51.4 124.3 289.8
Loss for the year - - (0.3) - (112.7) (113.0)
------------------------- ----------- -------- ------- -------- -------- -------- -------
Other comprehensive gain
/ (loss):
Cash flow hedges - - - (1.0) - (1.0)
Remeasurement of defined benefit
pension plan - - - - (20.5) (20.5)
Tax on components of other
comprehensive
income - - - 0.2 1.0 1.2
------------------------------------- -------- ------- -------- -------- -------- -------
Other comprehensive loss - - - (0.8) (19.5) (20.3)
------------------------- -------- ------- -------- -------- -------- -------
Total comprehensive loss - - (0.3) (0.8) (132.2) (133.3)
Issue of share capital 0.8 4.5 - - - 5.3
Shares acquired by ESOP - - (0.3) - - (0.3)
Exercise of options - - 0.2 - (0.2) -
Share-based payments - - - - 2.3 2.3
Tax on share-based
payments - - - - 0.4 0.4
(30.0)
Equity dividends - - - - (30.0) )
------------------------- -------- ------- -------- -------- -------- -------
At 31 March 2016 35.2 84.3 (0.5) 50.6 (35.4) 134.2
------------------------- -------- ------- -------- -------- -------- -------
2015
----------------------- -------- ------- -------- -------- -------- -------
At 31 March 2014 34.2 77.6 (0.6) 52.3 125.9 289.4
Profit for the year - - - - 20.5 20.5
------------------------- ----------- -------- ------- -------- -------- -------- -------
Other comprehensive gain
/ (loss):
Cash flow hedges - - - (1.1) - (1.1)
Remeasurement of defined benefit
pension plan - - - - 4.3 4.3
Tax on components of other
comprehensive
income - - - 0.2 1.7 1.9
------------------------------------- -------- ------- -------- -------- -------- -------
Other comprehensive gain
/ (loss) - - - (0.9) 6.0 5.1
------------------------- -------- ------- -------- -------- -------- -------
Total comprehensive gain
/(loss) - - - (0.9) 26.5 25.6
Issue of share capital 0.2 2.2 - - - 2.4
Exercise of options - - 0.5 - (0.6) (0.1)
Share-based payments - - - - 1.7 1.7
Equity dividends - - - - (29.2) (29.2)
------------------------- -------- ------- -------- -------- -------- -------
At 31 March 2015 34.4 79.8 (0.1) 51.4 124.3 289.8
------------------------- -------- ------- -------- -------- -------- -------
Consolidated statement of cash flows
Year ended 31 March 2016
2016 2015
Note GBPm GBPm
---------------------------------------------- ---- ------- -------
Cash generated from operations 19 31.3 35.3
Interest paid (12.8) (10.5)
---- ------- -------
Net cash inflow from operating activities 18.5 24.8
------------------------------------------------ ---- ------- -------
Cash flow from investing activities
Capital expenditure (66.8) (80.1)
Proceeds from disposal of property, plant
and equipment 5.4 22.5
Purchase of businesses and investments 18 (6.0) (0.1)
Sale of businesses net of fees 18 49.0 4.0
Net cash (used in) / generated from investing
activities (18.4) (53.7)
------------------------------------------------ ---- ------- -------
Cash flow from financing activities
Issue / (repayment and cancellation)
of loan notes 20 76.1 (27.4)
Net drawdown under revolving credit
facilities 20 - 69.0
Dividends
paid 10 (30.0) (29.2)
Proceeds from issue of shares (net of issue
costs) 5.0 2.4
Finance lease repayments 20 (1.5) (1.8)
----------------------------------------------- ---- ------- -------
Net cash generated from / (used in) financing
activities 49.6 13.0
------------------------------------------------ ---- ------- -------
Net increase (decrease) in cash and cash
equivalents 49.7 (15.9)
Cash and cash equivalents at beginning
of year 20 50.6 67.3
Exchange impact on cash and cash
equivalents 20 - (0.8)
----------------------------------------------- ----
Cash and cash equivalents at end
of year 20 100.3 50.6
----------------------------------------------- ---- ------- -------
Net debt at end of year 20 (229.0) (198.7)
----------------------------------------------- ---- ------- -------
Notes to the preliminary announcement
1 Basis of preparation
The consolidated financial statements have been prepared in
accordance with the Disclosure and Transparency Rules of the UK
Financial Services Authority, International Financial Reporting
Standards ("IFRS") and International Financial reporting
Interpretation Committee ("IFRIC") interpretations as endorsed by
the European Union, and those parts of the Companies Act 2006
applicable to companies reporting under IFRS. Except as described
below, the accounting policies applied are consistent with those of
the annual financial statements for the year ended 31 March 2015,
as described in those financial statements.
The following accounting standards and interpretations became
effective for the current reporting period:
IAS 19 'Defined Benefit Plans: Employee Contributions -
Amendments to IAS 19'
IFRS 2 - Improvement to IFRS 2 Share-based Payment - Definitions
of vesting conditions
IFRS 3 - Improvement to IFRS 3 Business Combinations -
Accounting for contingent consideration in a business
combination
IFRS 8 - Improvement to IFRS 8 Operating Segments - Aggregation
of operating segments and Reconciliation of the total of the
reportable segments assets to the entity's assets
IAS 16 & IAS 38 - Improvement to IAS 16 Property, Plant and
Equipment and IAS 38 Intangible Assets - Revaluation method
IAS 24 - Improvement to IAS 24 Related Party Disclosures - Key
management personnel
IFRS 3 - Improvement to IFRS 3 Business Combinations - Scope
exceptions for joint ventures
IFRS 13 - Improvement to IFRS 13 Fair Value Measurement - Scope
of paragraph 52
IAS 40 - Improvement to IAS 40 Investment Property -
Interrelationship between IFRS 3 and IAS 40 (ancillary
services)
The application of these standards has had no material impact on
the net assets, results and disclosures of the Group in the year
ended 31 March 2016.
The financial information set out in this document does not
constitute the statutory accounts of the Group for the years ended
31 March 2016 or 31 March 2015 but is derived from the 2016 Group
Annual Report and Financial Statements. The Group Annual Report and
Financial Statements for 2016 will be delivered to the Registrar of
Companies in due course. The auditors have reported on those
accounts and have given an unqualified report, which does not
contain a statement under Section 498 of the Companies Act
2006.
2 Segmental analysis
IFRS 8 requires operating segments to be determined based on the
Group's internal reporting to the Chief Operating Decision Maker
("CODM"). The CODM has been determined to be the Company's Board
members as they are primarily responsible for the allocation of
resources to segments and the assessment of performance of the
segments.
Following the creation of a standalone Dairies operation and
before its disposal, the CODM's primary focus for review and
resource allocation in the year has been between the continuing
business and the Dairies operation which is classified as a
discontinued operation and whose results are disclosed in Note 8
rather than in this note.
The continuing business is managed centrally by functional teams
(Demand, Supply, Procurement and Finance) that have responsibility
for the whole of the continuing Group's product portfolio. Although
some discrete financial information is available to provide insight
to the management team of the key performance drivers, the product
group profit is not part of the CODM's review. Management has
judged that the continuing Group comprises one operating segment
under IFRS 8. As such, disclosures required under IFRS 8 for the
financial statements are shown on the face of the consolidated
income statement and balance sheet.
To assist the readers of the financial statements, management
considers it appropriate to provide voluntary disclosure on a basis
consistent with historical reporting of the cheese and spreads
product group results included within the consolidated income
statement. In disclosing the product group profit for the year,
certain assumptions have been made when allocating resources which
are centralised at a group level for the continuing business and
property income.
The 'Other' product group comprises revenue earned from
distributing products for third parties and certain central costs
net of recharges to the other product groups. Generally, central
costs less external 'Other' revenue is recharged back into the
product groups such that their result reflects the total cost base
of the Group. 'Other' operating profit therefore is nil.
Notes to the preliminary announcement
2 Segmental analysis (continued)
The results under the historical segmentation basis for the
continuing business included in the financial information are as
follows:
Year ended
------ ----------
Restated
2016 2015
Note GBPm GBPm
-------------------------------------------------- ---- ------ ----------
External revenue
Cheese 263.7 274.4
Spreads 152.6 170.0
Other 6.0 3.8
---------------------------------------------------------- ---- ------ ----------
Total product group external revenue - continuing
operations 422.3 448.2
------------------------------------------------------ ----
Product group profit
*
Cheese 36.4 33.1
Spreads 29.6 33.8
---------------------------------------------------------- ---- ------ ----------
Total product group profit - continuing
operations 66.0 66.9
Finance costs 6 (8.3) (8.1)
---------------------------------------------------------- ---- ------ ----------
Adjusted profit before tax - continuing
operations** 57.7 58.8
Acquired intangible amortisation 13 (0.4) (0.4)
Exceptional items 5 (11.3) (19.8)
Other finance expense -
pensions 15 (0.6) (1.8)
----------------------------------------------------- ---- ------ ----------
Group profit before tax
- continuing operations 45.4 36.8
----------------------------------------------------- ---- ------ ----------
2016 2015
Total assets GBPm GBPm
------ ----------
Cheese 331.6 292.4
Spreads 147.2 158.5
Dairies - 229.8
Investments and share of
associate 0.5 0.5
Other 47.8 42.7
---------------------------------------------------------- ---- ------ ----------
Total product group 527.1 723.9
Unallocated assets 137.9 65.3
Total assets 665.0 789.2
---------------------------------------------------------- ---- ------ ----------
* Profit on operations before exceptional items and amortisation
of acquired intangibles.
** Before exceptional items, amortisation of acquired
intangibles and pension interest.
Year ended
------------ ----------
Restated
2016 2015
GBPm GBPm
-------------------------------------------------------------- ------------ ----------
Product group depreciation and amortisation (excluding amortisation
of acquired intangible assets)
Cheese (8.1) (7.0)
Spreads (4.5) (2.6)
Other (5.0) (5.3)
--------------------------------------------------------------- ------------ ----------
Total (17.6) (14.9)
--------------------------------------------------------------- ------------ ----------
Product group additions to
non-current assets
Cheese 65.8 55.7
Spreads 2.5 6.0
Other 4.1 4.9
Total 72.4 66.6
----------------------------------------------------------- ------------ ----------
Dairies additions not included above amounted to GBP7.3 million
(2015: GBP16.1 million)
Product group exceptional items
Cheese (10.2) (3.4)
Spreads 0.7 (16.7)
Share of Associate - 0.6
Unsegmented (1.8) (0.3)
--------------------------------- ------ ------
Total exceptional operating
costs 5(11.3) (19.8)
---------------------------------- ------ ------
Interest income and expense are not included in the measure of
product group profit. Group treasury has always been centrally
managed and external interest income and expense are not allocated
to product groups. Further analysis of the Group interest expense
is provided in Note 6.
Notes to the preliminary announcement
2 Segmental analysis (continued)
Tax costs are not included in the measure of product group
profit.
Product group assets comprise property, plant and equipment,
goodwill, intangible assets, inventories, receivables and
investments in associates using the equity method and deferred
consideration but exclude cash and cash equivalents, derivative
financial assets and deferred tax assets. Other product group
assets comprise certain property, plant and equipment that is not
reported in the product groups.
Product group depreciation and amortisation excludes
amortisation of acquired intangible assets of GBP0.4 million (2015:
GBP0.4 million) as these costs are not charged in the product group
result.
Product group additions to non-current assets comprise additions
to goodwill, intangible assets and property, plant and equipment
through capital expenditure and acquisition of businesses.
Year ended
------------
Geographical information - continuing operations Restated
2016 2015
External revenue attributed on basis of
customer location GBPm GBPm
------------------------------------------------------ ----- -----
UK 411.3 432.8
Rest of world 11.0 15.4
----- -----
Total revenue 422.3 448.2
---------------------------------------------------- ----- -----
Non-current assets* based on location
---------------------------------------------------- ----- -----
UK 350.6 428.4
Rest of world 0.5 0.5
----- -----
Total 351.1 428.9
-------------------------------------------------------- ----- -----
* Comprises property, plant and equipment, goodwill, intangible
assets, investments and investment in associate.
The Group has four customers which individually represent more
than 10% of revenue from continuing operations in the year ended 31
March 2016 (2015: three) with each customer accounting for GBP46.9
million GBP53.6 million, GBP67.6 million and GBP102.1 million
(2015: GBP66.2 million, GBP73.7 million and GBP100.7 million) of
revenue from continuing operations, being 11.1%, 12.7%, 16.0% and
24.2% (2015: 14.8%, 16.4% and 22.5%).
3 Operating costs - continuing operations
Year ended 31 March 2016 Year ended 31 March 2015
------------------------------- ----------------------------------
Restated
Before Before Restated
exceptional Exceptional exceptional Exceptional Restated
items items Total items items Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ----------- ----------- ----- ----------- ----------- --------
Cost of sales 295.6 15.5 311.1 315.7 19.8 335.5
Distribution costs 26.7 - 26.7 23.3 - 23.3
Administrative expenses 38.0 1.8 39.8 42.7 - 42.7
------------------------- ----------- ----------- ----- ----------- ----------- --------
360.3 17.3 377.6 381.7 19.8 401.5
----------- ----------- ----- ----------- ----------- --------
4 Other income - property
Other income GBP3.6 million (2015: GBPnil) relates to the
profits from disposal of closed Dairies depots retained by Dairy
Crest.
5 Exceptional items
Exceptional items comprise those items that are material and
one-off in nature that the Group believes should be separately
disclosed to assist in the understanding of the underlying
financial performance of the Group.
The exceptional items charge to the operating costs of the
continuing operations are analysed below. The exceptional items
charged in relation to discontinued operations are analysed in Note
8.
Notes to the preliminary announcement
5 Exceptional items (continued)
Year ended
----------------
Restated
2016 2015
Operating costs GBPm GBPm
-------------------------------------------------- ------ --------
Demineralised whey powder
and GOS projects (16.2) (3.4)
Property provision (1.8) -
Spreads restructuring costs 0.7 (16.7)
Business reorganisation - (0.3)
Disposal of remaining interest in
Wexford Creamery Limited - 0.6
----------------------------------------------------- ------ --------
(17.3) (19.8)
Gain on remeasurement to fair value of original
investment in Promovita Ingredients Limited 6.0 -
--------------------------------------------------------- ------ --------
(11.3) (19.8)
Tax relief on exceptional
items 3.0 4.0
--------------------------------------------------- ------ --------
(8.3) (15.8)
----------------------------------------------------- ------ --------
Demineralised whey powder and GOS projects
The Group has completed an investment in its cheese creamery at
Davidstow, Cornwall enabling the Group to manufacture demineralised
whey powder, a base ingredient of infant formula, and
galacto-oligosaccharide ("GOS"), widely used in infant formula.
During the year GBP16.2 million of exceptional costs were incurred
in relation to this major project of which GBP5.3 million related
to the commissioning of the facility and GBP6.5 million on project
review costs. A further GBP4.4 million was charged for set up
costs. In the year ending 31 March 2015 the project costs of GBP3.4
million were for initiation and set up. The tax credit relating to
this exceptional charge in the year was GBP2.7 million (2015:
GBP0.7 million).
Property provision
During the year, the Group commissioned a dilapidation
assessment on some of its leasehold properties. The GBP1.8 million
exceptional charge represents an increase in provision for property
dilapidation liabilities on properties where the Group considers
there to be a high likelihood of exiting when the lease term
expires. The tax credit on this exceptional charge was GBP0.4
million.
Spreads restructuring costs
During the year ended 31 March 2015, the Group completed the
consolidation of its spreads production operations into one site in
Kirkby, Liverpool. As a result of this consolidation, the site at
Crudgington, Shropshire ceased production in December 2014. The
exceptional credit of GBP0.7 million in the year represents the
release of a prior year provision relating to the completion of
this project that was not required. The tax charge relating to this
exceptional credit was GBP0.3 million. In the prior year,
exceptional costs relating to this project were GBP16.7 million
with an associated tax credit of GBP3.2 million.
Gain on remeasurement to fair value of original investment in
Promovita Ingredients Limited
On 18 December 2015, the Group completed the stepped acquisition
of Promovita Ingredients Limited ("Promovita"). In accordance with
IFRS 3 (Revised), the original investment was revalued to fair
value at point of acquisition and the resulting gain of GBP6.0
million has been recognised within exceptional items. See Note
18.
Prior Year
Business reorganisation
The Group reorganised the business into a single management and
operational structure from 1 April 2013. This reorganisation
resulted in exceptional redundancy costs in the prior year of
GBP0.3 million with an associated tax credit of GBP0.1 million.
Disposal of remaining interest in Wexford Creamery Limited
On 16 May 2014 the Group completed the sale of its 30%
shareholding in Wexford Creamery Limited for EUR3.4 million (GBP2.8
million) realising a gain on disposal in the comparative period of
GBP0.6 million.
6 Finance costs and other finance income
Finance costs
Year ended
----- ----------
2016 2015
GBPm GBPm
-------------------------------------------------- ----- ----------
Bank loans and overdrafts (at amortised
cost) (8.2) (8.1)
Finance charges on finance
leases (0.1) (0.1)
--------------------------------------------------- ----- ----------
Pre-exceptional finance costs - continuing
operations (8.3) (8.2)
Finance income on cash balances (financial assets
not at fair value through profit and loss) - 0.1
----------------------------------------------------------- ----- ----------
Total net finance costs - continuing
operations (8.3) (8.1)
----------------------------------------------------- ----- ----------
Interest payable on bank loans and overdrafts is stated after
capitalising GBP3.8 million (2015: GBP2.4 million) of interest on
expenditure on capital projects at a rate of 5.0% (2015: 5.0%). The
tax impact of the capitalised interest was GBP0.7 million (2015:
GBP0.5 million).
Notes to the preliminary announcement
7 Tax expense
Continuing operations
The major components of income tax expense for continuing
operations for the years ended 31 March 2016 and 2015 are:
Year ended
----- ----------
Restated
2016 2015
Consolidated income statement GBPm GBPm
-------------------------------------------------------- ----- ----------
Deferred income tax
Relating to origination and reversal of temporary
differences 7.5 7.6
Effect of change in
tax rate (0.2) -
Adjustment in respect of previous years - deferred
tax (0.4) (0.2)
-------------------------------------------------------------
6.9 7.4
----- ----------
Before exceptional
Analysed: items 9.9 11.4
Exceptional
items (3.0) (4.0)
6.9 7.4
----- ----------
Reconciliation between tax charge and the profit before tax
multiplied by the statutory rate of corporation tax in the UK:
Restated
2016 2015
GBPm GBPm
--------------------------------------------------- ----- --------
Profit before tax 45.4 36.8
Tax at UK statutory corporation tax rate of 20%
(2015:21%) 9.1 7.7
Adjustments in respect of previous years (0.4) (0.2)
Adjustments for change in UK corporation tax
rate* (0.2) (0.4)
Non-deductible expenses 1.1 0.9
Profits offset by available
tax relief (2.7) (0.6)
6.9 7.4
----- --------
The effective pre-exceptional rate of tax on the Group's profit
before tax from continuing operations is 17.5% (Restated 2015:
20.1%).
The total Group effective tax rate is below the headline rate of
UK corporation tax at 15.2% (Restated 2015: 20.1%). The principal
reason for this is a credit relating to goodwill arising on the
acquisition of 50% of the share capital of Promovita Ingredients
Limited, taking the Group's interest in this company to 100%. We
expect the effective tax rate to increase next year and be broadly
in line with the statutory corporation tax rate.
* UK corporation tax rate reduced to 20% from April 2015. Two
further 1% reductions have been enacted, taking the rate to 19%
from April 2017 and to 18% from April 2020. Accordingly, deferred
tax has been provided on all temporary differences at the rate in
force when they are anticipated to reverse. A further 1% reduction
in the rate from April 2020 was announced in the 2016 Budget,
taking the rate to 17% but this has not been reflected in the
accounts.
Discontinued Operations
The total income tax credit in respect of discontinued
operations for the year ended 31 March 2016 is GBP35.7 million
(Restated 2015: GBP5.8 million credit). Tax relief on exceptional
costs incurred by discontinued operations in the year ended 31
March 2016 was GBP28.8 million (Restated 2015: GBP2.6 million). Tax
attributable to discontinued operations is disclosed in Note
18.
Tax credit relating to components of consolidated
other comprehensive income 2016 2015
GBPm GBPm
----------------------------------------------------- -------- --- --------- ---------
Deferred income tax related to items charged to
other comprehensive income
* Pension deferred tax movement taken directly to
reserves (1.0) (1.7)
* Valuation of financial instruments (0.2) (0.2)
Tax credit (1.2) (1.9)
------------------------------------------------------------------------------------ --------- ---------
Tax on items recognised directly to equity
Deferred tax of GBP0.4 million relating to share-based payments
was credited directly to equity in the year ended 31 March 2016
(2015: nil).
Notes to the preliminary announcement
7 Tax expense (continued)
Deferred income tax
Deferred income tax at 31 March 2016 and 2015 relates to the
following:
2016 2015
Deferred tax liability GBPm GBPm
-------------------------------------------- ------- --- --------- ---------
Accelerated depreciation for tax purposes (4.5) (29.5)
Goodwill and intangible assets (7.9) (8.5)
(12.4) (38.0)
--------- ---------
Deferred tax assets
-------------------------------------------- ---- ------
Government grants 1.2 1.6
Share-based payments 0.9 0.1
Pensions 12.5 16.0
Financial instruments valuation 0.3 0.1
Trading losses 15.3 9.0
Other 1.5 0.1
31.7 26.9
---- ------
Net deferred tax asset / (liability) 19.3 (11.1)
--------------------------------------- ---- ------
The recognition of the deferred tax asset relating to trading
losses is based on the expectation that the business will continue
to be profitable going forward.
The movement on the net deferred tax asset / (liability) is
shown below:
Deferred tax asset / (liability)
---------------------------------------------------------
Goodwill
and Accelerated Other
Intangible tax temporary
assets Pensions depreciation differences Total
GBPm GBPm GBPm GBPm GBPm
Balances at 31 March 2015 (8.5) 16.0 (29.5) 10.9 (11.1)
(Charge) / credit to income statement:
continuing operations 0.6 (4.5) (3.5) 0.5 (6.9)
Credit to income statement:
discontinued operations - - - 7.2 7.2
Credit to other comprehensive
income - 1.0 - 0.2 1.2
Credit taken directly to reserves - - - 0.4 0.4
Disposal of
business - - 28.5 - 28.5
-------------------------------------------
Balances at 31 March 2016 (7.9) 12.5 (4.5) 19.2 19.3
---------------------------------------- ---------- -------- ------------ ----------- ------
Balances at 31 March 2014 (8.0) 17.9 (28.0) 6.7 (11.4)
(Charge) / credit to income statement:
continuing operations (0.5) (3.6) (7.2) 3.9 (7.4)
Credit to income statement:
discontinued operations - - 5.7 0.1 5.8
Credit to other comprehensive
income - 1.7 - 0.2 1.9
----------------------------------------
Balances at 31 March 2015 (8.5) 16.0 (29.5) 10.9 (11.1)
---------------------------------------- ---------- -------- ------------ ----------- ------
The Group has capital losses which arose in the UK of GBP55.4
million (2015: GBP34.0 million) that are available indefinitely for
offset against future taxable gains. Deferred tax has not been
recognised in respect of these losses as there is no foreseeable
prospect of their being utilised. The Group has realised capital
gains amounting to GBP47.9 million (2015: GBP39.2 million) for
which rollover relief claims have been or are intended to be
made.
Notes to the preliminary announcement
8 Discontinued operations
On 26 December 2015, the Group completed the disposal of its
Dairies operation to Muller UK & Ireland Group LLP. The Dairies
operation has therefore been classified as a discontinued operation
given it was a major product group of the business and prior period
comparatives have been adjusted accordingly.
The results of the Dairies operation which have been included in
the consolidated income statement within discontinued operations
can be analysed as follows:
Year ended
------- ----------
2016 2015
GBPm GBPm
------------------------------------------------------- ------- ----------
Revenue 529.1 881.6
Operating costs (562.5) (897.4)
Other income - property 0.1 17.6
-------------------------------------------------------- ------- ----------
Operating (loss) / profit before exceptional operating
items and tax attributable to discontinued operations (33.3) 1.8
Exceptional operating items (16.6) (16.5)
---------------------------------------------------------- ------- ----------
Operating loss before tax attributable to discontinued
operations (49.9) (14.7)
Attributable tax 9.1 5.8
---------------------------------------------------------------- ------- ----------
Loss after tax from discontinued operations (40.8) (8.9)
Loss on disposal (137.3) -
Attributable tax on disposal 26.6 -
---------------------------------------------------------- ------- ----------
Loss for the period from discontinued operations (151.5) (8.9)
---------------------------------------------------------------- ------- ----------
Loss per share from discontinued operations
Basic (pence) (109.9) (6.5)
Diluted (pence) (109.0) (6.5)
2016 2015
Loss from discontinued operations is
stated after charging GBPm GBPm
---------------------------------------------------------- ------- ----------
Depreciation (6.9) (13.9)
Amortisation of intangibles - internally
generated (0.9) (1.8)
Operating lease rentals (13.7) (18.2)
Research and development expenditure (0.4) -
Cost of inventories recognised as an
expense (426.3) (706.6)
---------------------------------------------------------- ------- ----------
a. Exceptional items
2016 2015
GBPm GBPm
-------------------------------------------------- ------- ------
Exceptional operating items after attributable
tax (14.4) (13.9)
Loss on disposal after attributable
tax (Note 18) (110.7) -
-------------------------------------------------- ------- ------
Exceptional items after tax (125.1) (13.9)
-------------------------------------------------- ------- ------
Exceptional operating costs
2016 2015
GBPm GBPm
-------------------------------------------------------- ------ ------
Rationalisation of operating
sites (7.7) (11.8)
Costs associated with the separation and proposed
sale of the Dairies operation (8.9) (4.3)
Disposal of the business and assets of FoodTec
UK Limited - (0.4)
----------------------------------------------------------- ------ ------
Exceptional operating costs - discontinued operations (16.6) (16.5)
Tax relief on exceptional items 2.2 2.6
----------------------------------------------------------- ------ ------
(14.4) (13.9)
----------------------------------------------------------- ------ ------
Rationalisation of operating sites
In September 2014, the Group announced it had started
consultation with employees and their representatives regarding the
closure of its glass bottling dairy in Hanworth, West London. An
exceptional charge of GBP1.7 million was incurred in the year
(2015: GBP2.5 million), primarily comprising accelerated
depreciation of assets following an assessment of their useful
economic lives as well as other associated closure costs. The Group
ceased production at its specialist cream potting factory in Chard,
Somerset in September 2015, a GBP7.8 million impairment charge was
recognised in the prior year to write the assets down to GBPnil
along with a charge of GBP1.5 million in relation to redundancy and
closure costs. In the current year a charge of GBP6.0 million was
recognised in relation to site decommissioning and demolition
costs. The tax credit on these exceptional costs in the period was
GBP0.3 million (2015: GBP2.1 million).
Notes to the preliminary announcement
8 Discontinued operations (continued)
Costs associated with the separation and proposed sale of the
Dairies operations
In the year ended 31 March 2015, the Group started the process
of separating its Dairies operation into a standalone operating
unit to support the potential sale and increase focus in the
challenging Dairies market. In the prior year, the Group incurred
GBP2.7million of professional fees relating to the transaction and
GBP1.6 million in relation to the separation of the Dairies
operation including one off systems costs. In the current year the
Group incurred GBP8.9 million of separation costs such as one off
systems costs and professional fees. The tax credit on this
exceptional charge in the year was GBP1.9 million (2015: GBP0.5
million).
Disposal of business and assets of FoodTec UK Limited
On 29 July 2014, the Group completed the sale of the business
and assets of FoodTec UK Limited for a cash consideration of GBP1.2
million, realising a loss on disposal of GBP0.4 million. The
carrying value of the assets sold was GBP1.6 million representing
net working capital (GBP1.5 million) and tangible fixed assets
(GBP0.1 million).
b. Net cash flows attributable to discontinued operations
Net cash flows attributable to the Dairies operation in the
period and comparative period are as follows:
Year ended
------ ----------
2016 2015
GBPm GBPm
----------------------------------------------- ------ ----------
Cash flow from operating activities (51.6) (21.5)
Cash used in investing activities (10.4) 7.5
Net cash flows attributable to discontinued
operations (62.0) (14.0)
----------------------------------------------- ------ ----------
9 Earning per share
The basic earnings per share ("EPS") measures for the year have
been calculated by dividing the profit attributable to equity
shareholders from the relevant operations (continuing, discontinued
and total group) by the weighted average number of ordinary shares
in issue during the period, excluding those held by the Dairy Crest
Employees' Share Ownership Plan Trust which are held as treasury
shares and treated as cancelled.
The weighted average number of shares used in the calculation of
basic EPS is detailed below along with the diluted weighted average
number of ordinary shares used for the calculation of diluted EPS.
The diluted weighted average number of ordinary shares reflects the
dilutive impact of share options exercisable under the Group's
share option schemes. Note that in the circumstances where there is
a basic loss per share from continuing operations, share options
are anti-dilutive and therefore are not included in the calculation
of any other EPS measures.
To show earnings per share on a consistent basis, which in the
Directors' opinion reflects the underlying performance of the Group
more appropriately, adjusted earnings per share has been
calculated.
Restated
Year ended 31 March 2016 Year ended 31 March 2015
-------------------------------- ------------------------------
Weighted Per Weighted Per
average no share average no share
Earnings of shares amount Earnings of shares amount
GBPm million pence GBPm million pence
Basic EPS from continuing
operations 38.5 137.9 27.9 29.4 136.7 21.5
Effect of dilutive securities:
Share options - 1.1 (0.2) - 0.9 (0.1)
-------- --------- ------- -------- --------- ----------
Diluted EPS from continuing
operations 38.5 139.0 27.7 29.4 137.6 21.4
-------- --------- ------- -------- --------- ----------
Adjusted EPS from continuing
operations
Profit from continuing operations 38.5 137.9 27.9 29.4 136.7 21.5
Exceptional items (net of tax) 8.3 - 6.0 15.8 - 11.6
Amortisation of acquired
intangible assets (net of tax) 0.3 - 0.2 0.3 - 0.2
Pension interest expense (net of
tax) 0.5 - 0.4 1.4 - 1.0
-------- --------- ------- -------- --------- ----------
Adjusted basic EPS from
continuing operations 47.6 137.9 34.5 46.9 136.7 34.3
-------- --------- ------- -------- --------- ----------
Effect of dilutive securities:
Share options - 1.1 (0.3) - 0.9 (0.2)
-------- --------- ------- -------- --------- ----------
Adjusted diluted EPS from
continuing operations 47.6 139.0 34.2 46.9 137.6 34.1
-------- --------- ------- -------- --------- ----------
Basic loss per share from
discontinued operations (151.5) 137.9 (109.9) (8.9) 136.7 (6.5)
Effect of dilutive securities:
Share options - 1.1 0.9 - 0.9 -
-------- --------- ------- -------- --------- ----------
Diluted loss per share from
discontinued operations (151.5) 139.0 (109.0) (8.9) 137.6 (6.5)
-------- --------- ------- -------- --------- ----------
Basic (loss) / earning per share
for the year (113.0) 137.9 (81.9) 20.5 136.7 15.0
Effect of dilutive securities:
Share options - 1.1 0.6 - 0.9 (0.1)
-------- --------- ------- -------- --------- ----------
Diluted (loss) / earnings per
share for the year (113.0) 139.0 (81.3) 20.5 137.6 14.9
-------- --------- ------- -------- --------- ----------
There have been no transactions involving ordinary shares or
potential ordinary shares between the reporting date and the date
of signing these financial statements.
Notes to the preliminary announcement
10 Dividends paid and proposed
2016 2015
Declared and paid during the
year GBPm GBPm
---------------------------------------------------- ---- ----
Equity dividends on ordinary
shares:
Final dividend for 2015: 15.7 pence (2014: 15.4
pence) 21.6 21.0
Interim dividend for 2016: 6.1 pence (2015: 6.0
pence) 8.4 8.2
------------------------------------------------------- ---- ----
30.0 29.2
---- ----
Proposed for approval at AGM (not recognised as
a liability at 31 March)
-------------------------------------------------------
Equity dividends on ordinary
shares:
Final dividend for 2016: 16.0 pence (2015:15.7
pence) 22.3 21.6
------------------------------------------------------- ---- ----
11 Property, plant and equipment
Vehicles, Assets in
plant
Land and and the course
buildings equipment of construction Total
2016 GBPm GBPm GBPm GBPm
------------------------------------ --------- --------- --------------- -------
Cost
At 1 April
2015 171.7 310.0 74.9 556.6
Additions 7.0 12.8 44.4 64.2
Disposals (5.0) - - (5.0)
Disposal of Dairies operation
(Note 18) (92.4) (147.3) - (239.7)
Transfers and reclassifications 0.7 22.4 (23.1) -
At 31 March 2016 82.0 197.9 96.2 376.1
------------------------------------ --------- --------- --------------- -------
Accumulated depreciation
At 1 April
2015 68.6 159.5 - 228.1
Charge for the year - continuing 2.0 14.5 - 16.5
Charge for the year - discontinued
operations 1.8 5.1 - 6.9
Asset impairments - discontinued
operations - 1.6 - 1.6
Disposals (3.4) - - (3.4)
Disposal of Dairies operation
(Note 18) (38.7) (68.8) - (107.5)
At 31 March 2016 30.3 111.9 - 142.2
------------------------------------ --------- --------- --------------- -------
Net book amount at 31 March
2016 51.7 86.0 96.2 233.9
------------------------------------ --------- --------- --------------- -------
2015
------------------------------------ --------- --------- --------------- -------
Cost
At 1 April
2014 174.0 287.3 69.5 530.8
Additions 2.6 3.9 74.9 81.4
Disposals (6.5) (45.9) - (52.4)
Disposal of FoodTec UK Limited
(Note 8) (0.3) (2.9) - (3.2)
Transfers and reclassifications 1.9 67.6 (69.5) -
At 31 March 2015 171.7 310.0 74.9 556.6
------------------------------------ --------- --------- --------------- -------
Accumulated depreciation
At 1 April
2014 63.7 178.5 - 242.2
Charge for the year - continuing 1.5 12.0 - 13.5
Charge for the year - discontinued
operations 3.5 10.4 13.9
Asset impairments - discontinued
operations 3.5 5.7 - 9.2
Disposals (3.3) (44.2) - (47.5)
Disposal of FoodTec UK Limited
(Note 8) (0.3) (2.9) - (3.2)
------------------------------------
At 31 March 2015 68.6 159.5 - 228.1
------------------------------------ --------- --------- --------------- -------
Net book amount at 31 March
2015 103.1 150.5 74.9 328.5
------------------------------------ --------- --------- --------------- -------
2015/16
In the year ending 31 March 2016, GBP1.6 million of exceptional
accelerated depreciation was charged in relation to Hanworth prior
to the disposal of the Dairies operation (See Note 8).
2014/15
During the year ending 31 March 2015, GBP9.2 million of assets
were impaired. The Chard site was to be closed on economic grounds
in the second half of 2015, a GBP7.8 million impairment charge was
recognised to write the assets down to nil being their net
realisable value after selling costs which is lower than their
value in use. In addition, GBP1.4 million of exceptional
accelerated depreciation was charged in relation to Hanworth (see
Note 8).
Notes to the preliminary announcement
12 Goodwill
GBPm
------------------------------------- ------
Cost
At 31 March 2014 147.3
Disposal of FoodTec UK Limited
(Note 8) (1.7)
At 31 March 2015 145.6
Acquisition of Promovita Ingredients
Limited (Note 18) 12.0
Disposal of discontinued operations
(Note 18) (70.7)
-------------------------------------- ------
At 31 March
2016 86.9
---------------------------------------- ------
Accumulated impairment
At 31 March 2014 (73.0)
Disposal of FoodTec UK Limited
(Note 8) 1.7
-------------------------------------- ------
At 31 March 2015 (71.3)
Disposal of discontinued operations
(Note 18) 70.7
-------------------------------------- ------
At 31 March 2016 0.6
-------------------------------------- ------
Net book amount at 31 March 2016 86.3
-------------------------------------- ------
Net book amount at 31 March 2015 74.3
-------------------------------------- ------
During the year ended 31 March 2016, the Group acquired the
remaining share capital of Promovita Ingredients Limited leading to
the recognition of GBP12.0 million of goodwill (see Note 18) and
disposed of its Dairies operation leading to the disposal of
GBP70.7 million of goodwill which was fully written down during the
year ended 31 March 2012.
Impairment testing of goodwill
Acquired goodwill has been allocated for impairment testing
purposes to three groups of cash-generating units ('CGUs'):
Spreads, MH Foods and Cheese. Goodwill recognised on the
acquisition of Promovita Ingredients Limited is included in the
Cheese CGU as the business is directly linked to the cheese product
group with a number of shared overheads.
All groups of CGUs with goodwill are tested for impairment
annually by comparing the carrying amount of that CGU with its
recoverable amount. Recoverable amount is determined based on a
value-in-use calculation using cash flow projections based on
financial budgets and strategic plans approved by senior management
covering a three-year period and appropriate growth rates beyond
that. The discount rate applied to the projections was 6.0% for
Spreads (2015: 8.8%), MH Foods and Cheese (2015: 8.9%).
The growth rate used to extrapolate cash flows beyond the
three-year period for MH Foods, Cheese and Spreads is nil (2015:
nil Cheese, MH Foods and Spreads).
The carrying amount of goodwill allocated to groups of CGUs at
31 March 2016 is:
MH Foods GBP6.7 million (2015: GBP6.7 million)
Spreads GBP65.5 million (2015: GBP65.5 million)
Cheese GBP14.1 million (2015: GBP2.1 million)
Gross margin - budgeted gross margins are based initially on
actual margins achieved in the preceding year further adjusted for
projected input and output price changes, volume changes,
initiatives implemented and associated efficiency improvements. The
budgeted margins form the basis for strategic plans, which
incorporate longer-term market trends.
Discount rates - Discount rates are pre-tax and calculated by
reference to average industry gearing levels, the cost of debt and
the cost of equity based on the capital asset pricing model and
CGU-specific risk factors.
Raw materials prices - budgets are prepared using the most up to
date price and forecast price data available. This is based on
forward prices in the market place adjusted for any contracted
prices at the time of forecast. The key resources are milk,
vegetable oils, fuel oil, diesel, gas and electricity and packaging
costs.
Growth rate estimates - for periods beyond the length of the
strategic plans, growth estimates are based upon published industry
research adjusted downwards to reflect the risk of extrapolating
growth beyond a three year time frame.
The Directors consider the assumptions used to be consistent
with the historical performance of each CGU where appropriate and
to be realistically achievable in the light of economic and
industry measures and forecasts.
2015/16 and 2014/15
Sensitivity to changes in assumptions
With regard to the assessment of value in use of the Spreads, MH
Foods and Cheese CGUs, management believes that no reasonably
possible change in the above key assumptions would cause the
carrying value of those units to exceed their recoverable
amount.
Notes to the preliminary announcement
13 Intangible assets
Assets in
the course Internally Acquired
of construction generated intangibles Total
GBPm GBPm GBPm GBPm
-------------------------------- --------------- ---------- ----------- ------
Cost
At 31 March 2014 6.5 29.2 8.7 44.4
Additions 1.3 - - 1.3
Transfers and reclassifications (6.4) 6.4 - -
At 31 March 2015 1.4 35.6 8.7 45.7
Additions 3.5 - - 3.5
Disposal (0.4) (31.2) - (31.6)
Transfers and reclassifications (1.0) 1.0 - -
At 31 March 2016 3.5 5.4 8.7 17.6
--------------------------------- --------------- ---------- ----------- ------
Accumulated amortisation
At 31 March 2014 - 13.0 3.5 16.5
Amortisation for the year
- continuing - 1.4 0.4 1.8
Amortisation for the year
- discontinued operations - 1.8 - 1.8
At 31 March 2015 - 16.2 3.9 20.1
Amortisation for the year
- continuing - 1.1 0.4 1.5
Amortisation for the year
- discontinued operations - 0.9 - 0.9
Disposal - (16.0) - (16.0)
At 31 March 2016 - 2.2 4.3 6.5
--------------------------------- --------------- ---------- ----------- ------
Net book amount at 31 March
2016 3.5 3.2 4.4 11.1
--------------------------------- --------------- ---------- ----------- ------
Net book amount at 31 March
2015 1.4 19.4 4.8 25.6
--------------------------------- --------------- ---------- ----------- ------
In the year ending 31 March 2016, additions to assets in the
course of construction of GBP3.5 million comprised third party
systems and set-up support costs relating to the Demineralised whey
powder and GOS projects at Davidstow. In the prior year, the assets
in the course of construction comprised the enterprise resource
planning costs and integrated business systems costs.
Internally generated intangible assets comprise software
development and implementation costs across manufacturing sites and
Head Office.
Acquired intangibles comprise predominantly brands acquired with
the acquisition of businesses. The largest component within
acquired intangibles is the "Frylight" brand acquired with the
acquisition of Morehands Limited (MH Foods) in June 2011. A useful
life of 15 years has been assumed for this brand, with 10 years
remaining. The carrying value of the Frylight brand at 31 March
2016 is GBP4.1 million (2015: GBP4.5 million).
14 Financial liabilities
2016 2015
GBPm GBPm
---------------------------------------- ----- -----
Current
Obligations under finance leases 1.5 -
Loan notes (at amortised cost) 95.6 -
Debt issuance costs (0.6) -
-------------------------------------------- ----- -----
Financial liabilities - Borrowings 96.5 -
Cross currency swaps (cash flow hedges) - -
Forward currency contracts (at fair
value: cash flow hedge) - 0.2
Financial liabilities - Derivative
financial instruments - 0.2
----------------------------------------- ----- -----
Current financial liabilities 96.5 0.2
-------------------------------------------- ----- -----
Non-current
Obligations under finance leases 2.4 -
Loan notes (at amortised cost) 144.2 158.2
Bank loans (at amortised cost) 105.0 105.0
Debt issuance costs (1.3) (0.2)
-------------------------------------------- ----- -----
Financial liabilities - Borrowings 250.3 263.0
Cross currency swaps (cash flow hedges) 1.3 1.9
Financial liabilities - Derivative
financial instruments 1.3 1.9
----------------------------------------- ----- -----
Non-current financial
liabilities 251.6 264.9
-------------------------------------------- ----- -----
All derivative financial instruments are fair valued at each
balance sheet date and all comprise Level 2 valuations under IFRS
13 : Fair Value Measurement, namely, that they are based on inputs
observable directly (from prices) or indirectly (derived from
prices).
Notes to the preliminary announcement
14 Financial liabilities (continued)
Interest bearing loans and borrowings
The effective interest rates on loans and borrowings at the
balance sheet date were as follows:
Effective Effective
Interest Interest
2016 rate 2015 rate
at March at March
Maturity GBPm 2016 GBPm 2015
---------------------------------- ----- ------------- ----- -------------- ----- ---------
Current
US$ swapped into
Loan notes: GBP April 2016 85.6 5.31% -
Sterling April 2016 10.0 5.27% -
Finance leases 1.5 3.61% -
---------
Debt issuance costs (0.6) -
96.5 -
---------------------------------- ----- -----
Non-current
Revolving credit facilities:
Sterling floating October 2018 53.0 LIBOR + 190bps -
Sterling floating October 2020 52.0 LIBOR + 160bps -
Multi-currency revolving
credit facilities:
Sterling floating October 2016
LIBOR +
(Cancelled October 2015) - 105.0 115bps
US$ swapped into
Loan notes: GBP April 2016 - 82.9 5.31%
Sterling April 2016 - 10.0 5.27%
Euro swapped
into GBP April 2017 8.5 5.53% 7.7 5.53%
Sterling April 2017 2.8 5.84% 2.8 5.84%
US$ swapped into November
GBP 2018 17.4 3.87% 16.8 3.87%
US$ swapped into November
GBP 2021 39.2 4.52% 38.0 4.52%
US$ swapped into
GBP March 2023 31.3 3.33% -
Sterling March 2026 45.0 3.34% -
Finance Leases 2.4 3.61% -
-------------- ---------
Debt issuance
costs (1.3) (0.2)
250.3 263.0
---------------------- ----- -----
The Group is subject to a number of covenants in relation to its
borrowing facilities which, if contravened, would result in its
loans becoming immediately repayable. These covenants specify a
maximum net debt to EBITDA ratio of 3.5 times and minimum interest
cover ratio of 3.0 times. No covenants were contravened in the year
ended 31 March 2016 (2015: None). Key covenants to the 2015
revolving credit facility and March 2016 private placement debt
were unchanged from existing covenants.
On 23 June 2015, the Group entered into a secondary lease
arrangement for certain assets at Nuneaton for a period of 3.75
years.
15 Retirement benefit obligations
The Group has a defined benefit pension scheme (Dairy Crest
Group Pension Fund), which is closed to future service accrual and
a defined contribution scheme (Dairy Crest Group defined
contribution scheme).
Defined Benefit Pension Scheme
The Dairy Crest Group Pension Fund ('the Fund') is a final
salary defined benefit pension scheme, which was closed to future
service accrual from 1 April 2010 and had been closed to new
joiners from 30 June 2006. This pension scheme is a final salary
scheme.
The Fund is administered by a corporate trustee which is legally
separate from the Company. The Trustee's directors are comprised of
representatives of both the employer and employees, plus a
professional trustee. The Trustee is required by law to act in the
interest of all relevant beneficiaries and is responsible for the
investment policy with regard to the assets plus the day to day
administration of the benefits.
The Company and Trustee have agreed a long term strategy for
reducing investment risk as and where appropriate. This includes an
asset-liability matching policy which aims to reduce the volatility
of the funding level of the pension plan by investing in assets
which perform in line with the liabilities of the plan so as to
protect against inflation being higher than expected. In December
2008 and June 2009, certain obligations relating to retired members
were hedged by the purchase of annuity contracts.
UK legislation requires that pension schemes are funded
prudently. The most recent full actuarial valuation of the Fund was
carried out as at 31 March 2013 by the Fund's independent actuary
using the projected unit credit method. Full actuarial valuations
are carried out triennially. This valuation resulted in a deficit
of GBP145.0 million compared to the IAS19 deficit of GBP56.3
million reported at that date. The next full actuarial valuation
will be carried out in 2016/17 on the 31 March 2016 position.
Notes to the preliminary announcement
15 Retirement benefit obligations (continued)
Under the latest schedule of contributions, which was signed in
March 2014, the level of contributions is GBP13 million per annum
from April 2014 to March 2016, then GBP16 million per annum until
March 2017 and then GBP20 million per annum until March 2020. Until
June 2018, these contributions included GBP2.8 million per annum of
rental payments for land and buildings that were subject to a sale
and leaseback arrangement between the Group and the Fund as part of
the final schedule of contributions. The Group bought back the land
and buildings for GBP8.3 million in November 2015 with rental
payments ceasing from this date. This reduced contributions payable
to GBP11.8 million per annum to March 2016, GBP13.2 million per
annum from April 2016 to March 2017, GBP17.2 million per annum
until June 2018 and then GBP20 million per annum until March
2020.
A new schedule of contributions will be agreed with the Trustee
following the next actuarial review as at 31 March 2016.
The Fund duration is an indicator of the weighted-average time
until benefit payments are made. For the Fund as a whole, the
duration is around 17 years reflecting the approximate split of the
defined benefit obligation (including insured pensioners) between
deferred members (duration of 23 years), current non-insured
pensioners (duration of 14 years) and insured pensioners (duration
of 11 years).
The principal risks associated with the Group's defined benefit
pension arrangements are as follows:
Asset Volatility
The liabilities are calculated using the discount rate set with
reference to corporate bond yields; if assets underperform this
yield, this will create a deficit. The Fund holds a significant
proportion in a range of return-seeking assets which, though
expected to outperform corporate bonds in the long term, create
volatility and risk in the short-term. The allocation to
return-seeking assets is monitored to ensure it remains appropriate
given the Fund's long terms objectives.
Changes in Bond Yields
A decrease in corporate bond yields will increase the value
placed on the Fund's liabilities for accounting purposes, although
this will be partially offset by an increase in the value of the
fund's bond holdings.
Inflation Risk
A significant portion of the Fund's benefit obligations are
linked to inflation, and higher expected future inflation will lead
to higher liabilities (although, in most cases, caps on the level
of inflationary increases are in place to protect against extreme
inflation). The majority of the assets
are either unaffected by or only loosely correlated with
inflation, meaning that an increase in expected future inflation
will also increase the deficit.
Longevity Risk
The majority of the Fund's obligations are to provide benefits
for the life of the member, so increases in life expectancy will
result in an increase in liabilities.
A contingent liability exists in relation to the equalisation of
Guaranteed Minimum Pension ('GMP'). The UK Government intends to
implement legislation which could result in higher benefits for
some members. This would increase the defined benefit obligation of
the Fund. At this stage, it is not possible to quantify the impact
of this change.
The following tables summarise the components recognised in the
consolidated balance sheet, consolidated income statement and
consolidated statement of comprehensive income.
2016 2015
Defined benefit obligation GBPm GBPm
-------------------------------------------- ----------------------- --------- ---------
Fair value of scheme
assets: - Equities 43.7 53.1
- Bonds and
cash 592.9 592.6
- Equity return swaps
valuation* 1.9 10.7
- Property and
other 114.6 106.0
- Insured retirement
obligations 291.3 306.8
-------------------------- --------- ---------
1,044.4 1,069.2
--------- ---------
- Uninsured retirement
Defined benefit obligation: obligations** (786.8) (790.4)
- Insured retirement
obligations (288.0) (303.3)
-------------------------- --------- ---------
Total defined benefit
obligation (1,074.8) (1,093.7)
Recognition of liability for unrecoverable
notional surplus (12.1) (16.9)
----------------------------------------------------------------------- --------- ---------
(1,086.9) (1,110.6)
--------- ---------
Net liability recognised in the balance
sheet (42.5) (41.4)
---------------------------------------------------------------------- --------- ---------
Related deferred
tax asset 12.5 16.0
------------------------------------------------------------------------- --------- ---------
Net pension liability (30.0) (25.4)
------------------------------------------------------------------------- --------- ---------
*Comprises a positive synthetic equity exposure of GBP107.7
million (2015: GBP155.3 million) and a negative LIBOR exposure of
GBP105.8 million
(2015: GBP144.6 million).
**Includes obligations to deferred members of GBP541.9 million
(2015: GBP551.6 million) and non-insured members of GBP244.9
million (2015: GBP238.8 million).
The Group is entitled to any surplus on winding up of the Fund
albeit refunds are subject to tax deductions of 35% at source.
Based on the present value of committed cash contributions at 31
March 2016 and the IAS 19 valuation at that date of GBP30.4
million, GBP12.1 million would be deducted from any notional
surplus returned to the Group and this has been recognised as an
additional liability in accordance with IFRIC 14. However, it
should be noted that cash contributions are determined by reference
to the triennial actuarial valuation, not the IAS 19 valuation.
The
Notes to the preliminary announcement
15 Retirement benefit obligations (continued)
actuarial deficit is greater than that recognised under IAS 19
since liabilities are discounted by reference to gilt yields rather
than high quality corporate bond yields.
2016 2015
Amounts recognised in consolidated income
statement GBPm GBPm
------------------------------------------------ ------ ------
Administration expenses (0.8) (0.8)
Past service cost - 1.8
Other finance costs -
pensions (0.6) (1.8)
--------------------------------------------- ------ ------
Loss before tax (1.4) (0.8)
Deferred tax 0.3 0.2
--------------------------------------------------- ------ ------
Loss for the year (1.1) (0.6)
--------------------------------------------------- ------ ------
2016 2015
Amounts recognised in other comprehensive
income GBPm GBPm
------------------------------------------------ ------ ------
Return on plan assets (excluding amounts
included in net interest) (44.0) 89.3
Experience gains arising on scheme
liabilities 14.1 10.1
Actuarial gains / (losses) due to changes
in the financial assumptions 4.6 (88.3)
------------------------------------------------ ------ ------
Net actuarial (loss)
/ gain (25.3) 11.1
Movement in liability for unrecoverable
notional surplus 4.8 (6.8)
------------------------------------------------ ------ ------
Recognised in other comprehensive
income (20.5) 4.3
Related tax 1.0 1.7
--------------------------------------------------- ------ ------
Net actuarial (loss) / gain recognised in
other comprehensive income (19.5) 6.0
------------------------------------------------- ------ ------
Actual returns on plan assets were GBP(8.0)
million (2015: GBP130.2 million).
2016 2015
Movement in the present value of the defined
benefit obligations are as follows: GBPm GBPm
--------------------------------------------------- --------- ---------
Opening defined benefit obligation (1,093.7) (1,011.7)
Interest cost (36.6) (42.7)
Actuarial gains / (losses) 18.7 (78.2)
Past service cost - 1.8
Benefits paid 36.8 37.1
Closing defined benefit obligation (1,074.8) (1,093.7)
---------------------------------------------- --------- ---------
2016 2015
Movement in the fair value of plan
assets are as follows: GBPm GBPm
------------------------------------------------ --------- ---------
Opening fair value of scheme
assets 1,069.2 964.1
Interest income on fund
assets 36.0 40.9
Re-measurement (losses) / gains
on fund assets (44.0) 89.3
Contributions by employer 20.8 12.8
Administration costs
incurred (0.8) (0.8)
Benefits paid out (36.8) (37.1)
Closing fair value of
plan assets 1,044.4 1,069.2
---------------------------------------------------- --------- ---------
Notes to the preliminary announcement
15 Retirement benefit obligations (continued)
The Fund's assets are invested in the following asset classes
(all assets have a quoted market value in an active market with the
exception of property, annuity policy and cash).
Assets 2016 2015 2014
GBPm GBPm GBPm
Equities :
United Kingdom 35.0 49.9 50.6
North America 46.3 65.9 62.8
Europe (ex UK) 17.9 26.4 29.1
Japan 12.2 17.1 15.8
Asia (ex Japan) 8.5 9.2 8.2
Emerging Markets 15.4 23.7 21.0
Global Small Cap 16.1 16.2 13.7
Cash/LIBOR Synthetic
Equity (105.8) (144.6) (152.4)
Emerging Market Debt
* 52.3 54.0 61.2
High Yield Bonds - - -
Multi Asset Credit ** 62.0 62.5 60.0
Insurance Linked Securities
*** 31.7 29.4 24.7
Absolute Return Bonds
**** 32.5 33.1 30.4
Bonds:
Government Index Linked
Gilts - - -
Network Rail Index Linked
Gilts - - -
Corporate Bonds 123.8 118.1 98.0
Liability Driven Investments
***** 225.3 224.6 170.0
Annuity Policy 291.3 306.8 299.4
Property 82.9 76.6 67.6
Cash 97.0 100.3 104.0
------------------------------ ------------- ------------- -------
Total 1,044.4 1,069.2 964.1
------------------------------ ------------- ------------- -------
Equities are a combination of physical equities of GBP43.7
million (2015: GBP53.1 million), a positive synthetic equity
exposure of GBP107.7 million (2015: GBP155.3 million) and a
negative LIBOR exposure of GBP105.8 million (2015: GBP144.6
million).
The Group does not use any of the pension fund assets.
* This is debt issued by emerging market countries denominated
in the emerging market's domestic currency. The debt is almost
entirely issued by governments and not by corporations. Investors
benefit from higher yields on the bonds due to the additional risks
of investing in emerging market countries, compared to developed
countries and it is also expected that emerging market currencies
will appreciate over time relative to developed countries.
** Multi Asset Credit strategies invest globally in a wide range
of credit-based asset classes which include bank loans, high yield
bonds, securitised debt, emerging market debt and distressed debt
of non-investment grade. The investment strategies will also
allocate amounts in investment grade credit, sovereign bonds and
cash for defensive reasons. The strategies are opportunistic and
allocate dynamically to the best opportunities within the credit
market from an asset allocation and individual security selection
perspective.
*** Insurance linked securities are event-linked investments
which allow investors outside the insurance industry to access
insurance premiums for assuming various forms and degrees of
insurance risk. The underlying risk premium is a type of investment
risk where the event is linked to natural or man-made catastrophes.
The premium paid to the investor represents compensation for the
"expected loss" due to the uncertainty around the size and timing
of the insured event.
**** Absolute Return Bond strategies are designed to deliver a
positive return in all market environments and will take advantage
of numerous alpha opportunities within the fixed income universe.
The objective of the strategy is to capture returns from active
management in a number of areas within fixed income including
interest rates, currencies, asset allocation and security
selection. The strategy will have long and short positions and
employ a degree of leverage. The strategies tend to have low
sensitivity to the direction of interest rates and credit.
***** Insight have been appointed to manage the Liability Driven
Investment ('LDI') portfolio for the Fund. The objective is to
hedge a proportion of the Fund's liabilities against changes in
interest rates and inflation expectations by investing in assets
that are similarly sensitive to changes in interest rates and
inflation expectations. Insight will seek to add interest and
inflation exposure to the LDI portfolio over time in line with
parameters that have been set by the Trustee. Insight are permitted
to use a range of swaps and gilt based derivative instruments as
well as physical bonds to structure the liability hedge for the
Fund. In addition, Insight are responsible for monitoring market
yields against a number of pre-set yield triggers and will increase
the level of hedging as and when the triggers are met.
Notes to the preliminary announcement
15 Retirement benefit obligations (continued)
The principal assumptions used in determining retirement benefit
obligations for the Fund are shown below:
2016 2015 2014
% % %
-------------------------------------- ---- ---- ----
Key assumptions:
Price inflation (RPI) 3.2 3.1 3.6
Price inflation (CPI) 2.1 2.0 2.6
Pension increases (Pre 1993
- RPI to 7% / annum) 3.2 3.1 3.6
Pension increases (1993 to 2006
- RPI to 5% / annum) 3.1 3.0 3.4
Pension increases (Post 2006
- RPI to 4% / annum) 2.9 2.8 3.1
Life expectancy at 65 for a
male currently aged 50 (years) 24.0 23.9 23.8
Average expected remaining life of
a 65 year old retired male (years) 22.4 22.4 22.3
Life expectancy at 65 for a
female currently aged 50 (years) 26.9 26.8 26.7
Average expected remaining life of
a 65 year old retired female (years) 24.7 24.6 24.5
Discount rate 3.5 3.4 4.3
-------------------------------------------- ---- ---- ----
The financial assumptions reflect the nature and term of the
Fund's liabilities. The mortality assumptions are based on analysis
of the Fund members, and allow for expected future improvements in
mortality rates. It has been assumed that members exchange 25% of
their pension for a cash lump sum at retirement and 30% of deferred
members take the Pension Increase Exchange option at
retirement.
Sensitivity to changes in assumptions
The key assumptions used for IAS 19 are discount rate, inflation
and mortality. If different assumptions were used, this could have
a material effect on the results disclosed. The sensitivity of the
results (excluding unrecoverable notional surplus) to these
assumptions is as follows:
Expected Expense for 2016/17
Expected Expense for 15/16
--------------------------------
Service Net Total P&L March 2016
Cost Interest Charge Deficit
GBPm GBPm GBPm GBPm
Current Figures (excluding unrecoverable
notional surplus) 0.8 0.8 1.6 (30.4)
Effect of a 0.1% decrease
in the discount rate - 0.5 0.5 (15.2)
Recalculated value 0.8 1.3 2.1 (45.6)
Effect of a 0.1% increase in
the inflation assumption - 0.5 0.5 (13.2)
Recalculated value 0.8 1.3 2.1 (43.6)
Effect of a 1 year increase
in life expectancy - 1.1 1.1 (29.7)
Recalculated value 0.8 1.9 2.7 (60.1)
The above sensitivities assume that, with the exception of the
annuity contracts, the Fund's assets remain unchanged due to
changes in assumptions, but in practice changes in market interest
and inflation rates will also affect the value of the Fund's
assets. The Company and Trustee have agreed a long term strategy
for reducing investment risk as and when appropriate. This includes
an asset-liability matching policy which aims to reduce the
volatility of the funding level of the Fund by investing in assets
which perform in line with the liabilities of the Fund. In December
2008 and June 2009, certain obligations relating to retired members
were fully hedged by the purchase of annuity contracts. The Fund's
other investments include matching assets which protect against
changes in bond yields and against inflation risk. The respective
interest rate and inflation hedge ratios for these assets as at 31
March 2016 were both 36% of those obligations not covered by
annuity contracts.
Defined Contribution Pension Scheme
The Group has charged GBP2.1 million in respect of the Dairy
Crest Group defined contribution scheme in the year ended 31 March
2016 (2015 restated: GBP3.2 million).
16 Trade and other payables
2016 2015
GBPm GBPm
------------------------------ ----- -----
Trade payables* 50.2 100.3
Other tax and social security 1.3 3.6
Other creditors* 32.4 9.7
Accruals* 36.4 54.5
-------------------------------- ----- -----
120.3 168.1
----- -----
*Financial liabilities at amortised cost.
Included within accruals is GBP13.0 million in relation to
promotional funding which is subject to a degree of estimation
uncertainty (2015: GBP12.6 million).
Notes to the preliminary announcement
17 Provisions
Onerous Site restructuring Dairies disposal Dilapidation
Contract and rationalisation provision provision Total
GBPm GBPm GBPm GBPm GBPm
-------------------- -------- ------------------- ---------------- ------------ -----
At 31 March 2014
- current 1.7 - - - 1.7
Settled on disposal (1.7) - - - (1.7)
Charged during the
year - 3.1 - - 3.1
------------------------ -------- ------------------- ---------------- ------------ -----
At 31 March 2015 -
current - 3.1 - - 3.1
Utilised during the
year - (2.4) - - (2.4)
Charged during the
year - 4.3 3.0 2.0 9.3
------------------------ -------- ------------------- ---------------- ------------ -----
At 31 March 2016 -
current - 5.0 3.0 2.0 10.0
------------------------ -------- ------------------- ---------------- ------------ -----
Onerous contract
An onerous contract provision of GBP3.6 million was created in
relation to minimum cheese purchase volumes from Wexford Creamery
Limited ('WCL') following the Group's disposal of 50% of the share
capital in June 2010. When the Group sold its remaining
shareholding on 16 May 2014, the remaining onerous contract
provision of GBP1.7 million was released.
Restructuring and rationalisation of operating sites
During the year, the Group provided through exceptional
operating items, decommissioning and demolition costs in relation
to the closure of the Chard site of GBP4.3 million. The Group
expects a large proportion of these costs to be paid in the year
ending 31 March 2017.
Dairies disposal provision
At 31 March 2016, the Group held a provision of GBP3.0 million
for future expected costs in relation to the disposal of the
Dairies operation to Muller UK & Ireland Group LLP on 26
December 2015. The Group expects payments relating to this
provision to be made in the year ending 31 March 2017.
Dilapidation provision
At 31 March 2016, the Group held a provision relating to
leasehold property dilapidation liabilities on properties where the
Group considers there to be a high likelihood of exiting when the
lease term expires. The payment of this provision would occur
following vacation of the property.
18 Business combinations and disposals
(i) Disposal of Discontinued Operations
On 26 December 2015, the Group completed the disposal of its
Dairies operation to Muller UK & Ireland Group LLP ("Muller").
The Dairies operation has therefore been classified as discontinued
operations given it was a major product group and prior period
comparatives have been adjusted accordingly.
The disposal resulted in a post tax loss of GBP110.7 million
which is analysed below. The total consideration consists of
GBP54.5 million received in cash during the year net of GBP25.9
million which was repaid to Muller subsequent to the year end,
based on the agreement of certain purchase price metrics. The final
consideration is subject to the agreement of the levels of working
capital and EBITDA, which are in the process of being determined.
The disposal resulted in a net cash inflow in the year to the Group
GBP49.0 million, after GBP5.5 million of professional fees.
Year ended
31 March
2016
GBPm
------------------------------------ ----------
Property, plant and equipment (132.2)
Intangible assets (15.6)
Inventories (33.0)
Trade and other receivables (9.0)
Trade and other payables 29.4
------------------------------------------ ----------
Net assets and liabilities
disposed (160.4)
Consideration 28.6
(5.5)
Disposal costs (5.5)
--------------------------------- ----------
Loss on disposal before
tax (137.3)
Attributable tax 26.6
------------------------------------------ ----------
Loss on disposal of discontinued
operations (110.7)
------------------------------------------ ----------
Notes to the preliminary announcement
18 Business combinations and disposals (continued)
(ii) Acquisition
On 18 December 2015, the Group acquired the outstanding share
capital of Promovita Ingredients Limited ("Promovita") for a cash
consideration of GBP6.0 million bringing its shareholding to 100%.
Promovita was established in 2014 as joint venture between the
Group and Fayrefield Foods Limited to develop and produce
galacto-oligosaccharide, a prebiotic for use in infant formula. In
accordance with IFRS 3 (Revised) 'Business Combinations', the value
of the previously held 50% shareholding has been restated to fair
value at the acquisition date. The difference between the fair
value of the equity owned prior to acquisition of GBP6.0 million
and the book value of the original investment of GBPnil was
recognised in the consolidated income statement, with the gain of
GBP6.0 million reported in exceptional items of continuing
operations.
The fair value of the original shareholding has been calculated
based on the principles of IFRS 13 'Fair Value Measurement' under
Hierarchy Level 2, with the fair value being equal to the amount
paid for Fayrefield Foods Limited's 50% share.
Book and
provisional
fair
value
GBPm
--------------------------------- -----------
Net assets acquired:
Trade and other receivables 0.8
Trade and other payables (0.8)
------------------------------- -----------
-
Gain on remeasurement to fair
value (6.0)
Goodwill 12.0
------------------------------- -----------
Total consideration satisfied
by cash 6.0
--------------------------------------- -----------
The goodwill of GBP12.0 million arising on acquisition
represents future opportunities in relation to the use of
galacto-oligosaccharide sale in infant formula and other products.
None of the goodwill is expected to be deductible for corporate
income tax purposes.
During the period to acquisition of the remaining 50% share, the
Group recognised a GBP0.1 million loss within operating profit from
its original shareholding. This is disclosed within the operating
profits of Cheese within the voluntary segmental disclosure due to
the value being immaterial.
19 Cash flow from operating activities
Year ended Year ended
31 March 31 March
2016 2015
GBPm GBPm
----------------------------------------------------- ---------- ----------
Profit before taxation -
continuing operations 45.4 36.8
Loss before taxation - discontinued
operations (187.2) (14.7)
Finance costs and other finance income
- continuing operations 8.9 9.9
Loss on disposal of Dairies operation 137.3 -
---------------------------------------------------------- ---------- ----------
Profit on operations 4.4 32.0
Depreciation 23.4 27.4
Amortisation of internally generated
intangible assets 2.0 3.2
Amortisation of acquired
intangible assets 0.4 0.4
Difference between cash outflow on exceptional items
and amounts recognised in the income
statement (excluding disposal of Dairies operation) 10.3 16.5
Release of grants (1.7) (1.7)
Share-based payments 2.2 1.7
Profit on disposal of depots (3.7) (17.6)
Difference between pension contributions paid and
amounts recognised in the income statement (20.0) (13.8)
R&D tax credits - (0.8)
Realised exchange loss on early loan note repayment
and translation of foreign currency balances - 0.8
Decrease in inventories 13.8 15.4
Decrease in receivables 44.2 22.8
Decrease in payables (44.0) (51.0)
Cash generated from operations 31.3 35.3
-------------------------------------------------------- ---------- ----------
Notes to the preliminary announcement
20 Analysis of net debt
At 1 April Cash Non-cash Exchange At 31 March
2015 flow movement** movement 2016
GBPm GBPm GBPm GBPm GBPm
----------- ----------- --------- ---------- -------- ---------- --------- -----------
Cash and cash equivalents 50.6 49.7 - - 100.3
Borrowings (current) - - (92.9) (2.7) (95.6)
Borrowings (non-current) (263.2) (76.3) 92.9 (2.6) (249.2)
Finance leases - 1.5 (5.4) - (3.9)
Debt issuance costs 0.2 1.6 0.1 - 1.9
----------------------------------- ---------- -------- ---------- --------- -----------
(212.4) (23.5) (5.3) (5.3) (246.5)
Debt issuance costs
excluded (0.2) (1.6) (0.1) - (1.9)
Impact of cross-currency
swaps * 13.9 0.2 - 5.3 19.4
----------------------------------- ---------- -------- ---------- --------- -----------
Net debt (198.7) (24.9) (5.4) - (229.0)
------------------------ --------- ---------- -------- ---------- --------- -----------
At 1 April Cash Non-cash Exchange At 31 March
2014 flow movement movement 2015
GBPm GBPm GBPm GBPm GBPm
----------- ----------- --------- ---------- -------- ---------- --------- -----------
Cash and cash equivalents 67.3 (15.9) - (0.8) 50.6
Borrowings (current) (25.3) 25.3 - - -
Borrowings (non-current) (180.2) (69.0) - (14.0) (263.2)
Finance leases (1.8) 1.8 - - -
Debt issuance costs 1.1 - (0.9) - 0.2
----------------------------------- -------- ---------- --------- -----------
(138.9) (57.8) (0.9) (14.8) (212.4)
Debt issuance costs
excluded (1.1) - 0.9 - (0.2)
Impact of cross-currency
swaps * (2.2) 2.1 - 14.0 13.9
----------------------------------- ---------- -------- ---------- --------- -----------
Net debt (142.2) (55.7) - (0.8) (198.7)
------------------------ --------- ---------- -------- ---------- --------- -----------
* The Group has $249.4 million and EUR10.7 million of loan notes
against which cross-currency swaps have been put in place to fix
interest and principal repayments in Sterling (March 2015: $204.4
million and EUR10.7 million). Under IFRS, currency borrowings are
retranslated into Sterling at year end exchange rates. The
cross-currency swaps are recorded at fair value and incorporate
movements in both market exchange rates and interest rates. The
Group defines net debt so as to include the effective Sterling
liability where cross-currency swaps have been used to convert
foreign currency borrowings into Sterling. The GBP19.3 million
adjustment included in the above (March 2015: GBP13.9 million)
converts the Sterling equivalent of Dollar and Euro loan notes from
year end exchange rates (GBP182.0 million (March 2015: GBP145.4
million)) to the fixed Sterling liability of GBP162.6 million
(March 2015: GBP131.5 million).
**Finance lease non-cash movement relates to the recognition of
the agreement of a secondary lease term for assets at Nuneaton.
On 4 April 2014 there was a natural maturity of loan notes of
EUR30.6 million (GBP27.4 million).
21 Post Balance Sheet Events
Maturity of Fixed Coupon Loan Notes
On 4 April 2016, the Group repaid $123 million (GBP70.2 million)
and GBP10 million of 2006 fixed coupon loan notes on maturity.
Settlement of liability in relation to Farmright Limited
On 9 May 2016, the Group paid GBP1.0 million in full and final
settlement of claims arising out of the debt originally owed to
Farmright Limited. Claims between the Group, Farmright Limited and
Quadra Foods Limited (and any assignees of the claims) are now
resolved. At 31 March 2016, amounts owed to the Group by Quadra
Foods Limited had been fully provided for and the Group carried a
creditor balance of GBP3.1 million for potential future liabilities
in relation to Farmright Limited. Following settlement, GBP2.1
million will be released as an exceptional item in the year ending
31 March 2017.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BIGDUSBBBGLI
(END) Dow Jones Newswires
May 19, 2016 02:01 ET (06:01 GMT)
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