TIDMDCG
RNS Number : 4803F
Dairy Crest Group PLC
18 May 2017
18 May 2017
Dairy Crest Group plc ("Dairy Crest")
Preliminary Results Announcement for the year ended 31 March
2017
Highlights
-- Adjusted profit before tax(1, 2) up 5% to GBP60.6m
-- Cathedral City returns to volume growth in the second half - strong momentum in 2017/18
-- Frylight, Clover and Country Life spreadable all grow volume and increase market share
-- Demineralised whey production meets targeted levels of infant formula grade
-- Partnerships with DuPont and others to research
galacto-oligosaccharide usage in animal nutrition - trials under
way
-- Innovation - proportion of sales from recently launched products now 13%, well above target
-- Net debt increased as expected due to completion of Davidstow
commissioning and final payment to Muller on sale of Dairies
business
-- Proposed final dividend up 2% to 16.3 pence
Financial Summary
Year ended 31 March
2017 2016 Change
Revenue (1) GBP416.6m GBP422.3m -1%
Adjusted profit before tax (1, 2) GBP60.6m GBP57.7m 5%
Profit before tax (1) GBP40.3m GBP45.4m -11%
Adjusted basic earnings per share(1, 2) 35.6p 34.5p +3%
Basic earnings per share (1) 23.7p 27.9p -15%
Profit/(loss) attributable to equity shareholders GBP38.3m GBP(113.0)m n/a
Operating cash flow (3) GBP32.8m GBP(17.9)m n/a
Net debt GBP249.8m GBP229.0m +9%
Final dividend 16.3p 16.0p +2%
(1) From continuing operations
(2) Before exceptional items, amortisation of acquired
intangibles and pension interest
(3) Cash generated from operations, less capital expenditure,
before exceptional cash outflows of GBP25.6m (2016: GBP17.6m)
Commenting on the results, Mark Allen, Chief Executive, Dairy
Crest Group plc said:
"In the first full year since the transformational sale of our
Dairies business, we have delivered a robust performance in a tough
market.
"Our industry leading margins are the result of our focus on
driving long-term value through brand building, innovation,
investment in a world class supply chain and strong cost
control.
"Our key brands are performing well. Cathedral City remains the
nation's favourite cheese and following its brand refresh at the
start of the year, the good progress and momentum we have seen in
the last six months has continued in the new financial year. Our
overall spreads market share has increased, and Frylight had
another outstanding year with sales growing 19%. This is well ahead
of the market. The ongoing investment that we are putting behind
our brands gives me confidence that we can grow market share.
"We have continued to make good progress in our demineralised
whey operations at Davidstow. We are now hitting our targeted level
of infant formula grade. Developing our sales of demineralised whey
and GOS into the high-margin global infant formula market will be a
key priority this year. At the same time we will continue our
research into other potential animal and human applications for
GOS.
"Looking forward, I am excited about the future for Dairy Crest.
The business is well positioned to deliver profitable, sustainable
growth and stronger cash generation. This underpins our commitment
to growing our dividends and reducing debt."
For further information, please
contact:
Dairy Crest Alistair Smith 01372 472236
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 10:00 (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: margin improvement despite deflation
Dairy Crest has implemented significant changes during the last
two years. We are a much leaner, more focused organisation that
makes predominantly branded and high value added products. This
allows management and the business to focus on those areas that
will drive long-term value creation: innovation, brand building,
efficiency improvements and cost reduction.
I am particularly pleased that overall margins in the business
have improved. This is despite the difficult input cost environment
and the longer than expected commissioning period of the new
functional ingredients facility at Davidstow. The strength of our
brands, our well-invested supply chain and the quality of our
people all ensure that the Company is well positioned for the
future. This will help us to maintain our strong track record of
rewarding shareholders with higher dividends.
Market background: the return of inflation
We are a major UK buyer of milk and last year we purchased
around 500 million litres. The past year has seen a turning point
in dairy prices. After a prolonged period of deflation, dairy
commodity prices have experienced strong gains. Low milk prices had
an effect on milk volumes. They were down in most large milk
producing countries across the world. Consequently milk prices
rose. During the course of the year we have increased the price we
pay farmers for milk by 38% to 30 pence per litre. Since then we
have announced a 1 pence per litre reduction from June and a
further 1 pence per litre reduction from July. We pay our farmers a
fair, competitive price for their milk and our price remains one of
the highest in the country.
However these inflationary forces do take time to work their way
through to the prices that customers see in the shops. In the first
nine months of the financial year cheese retail prices fell or
remained stable. Since Christmas, however, we have seen evidence of
prices increasing on shelf. Butter has been even more affected than
cheese. Cream prices, which determine the input costs for butter,
more than doubled during the year. Inevitably this has impacted
margins in our Butters, Spreads & Oils business.
Managing volatility is a challenge for both us and food
retailers, our principal customers. For this reason we continue to
work with our customers to help to grow our categories through
innovation, marketing and category merchandising.
Key brands perform robustly
Brand Market Dairy Crest volume Dairy Crest value
growth* growth*
-------------- ----------------------------- ------------------- ------------------
Cathedral
City Cheese (3)% (9)%
-------------- ----------------------------- ------------------- ------------------
Clover Butters, spreads, margarine 1% (9)%
-------------- ----------------------------- ------------------- ------------------
Country Life Butters, spreads, margarine 0% 2%
-------------- ----------------------------- ------------------- ------------------
Frylight Oils 23% 19%
-------------- ----------------------------- ------------------- ------------------
Total 0% (6)%
--------------------------------------------- ------------------- ------------------
* Dairy Crest volume and value sales 12 months to 31 March 2017
vs 12 months to 31 March 2016
Overall revenues from our four key brands were down 6%. This is
in line with our expectations. Most of this decline was due to the
deflationary market place that we experienced for over three
quarters of the year. Key brand volumes were flat across the year.
Volume growth in Frylight, Clover and Country Life spreadable was
offset by declines in Country Life block butter, which we promoted
less, and Cathedral City. However, as predicted, the latter made
good progress in the second half of the year, with a return to
volume growth.
Cheese
IRI data for the 52 weeks ended 25 March 2017 shows that the
total cheese market grew by 3% in volume but was unchanged in value
terms. Within this the everyday cheese market grew by 2% in volume
but fell by 3% in value, a deflation of 5%. For much of the year
there were high levels of cheese stocks in the market. In order to
maintain the brand's premium positioning within the category we
decided against discounting aggressively. Consequently, Cathedral
City slightly underperformed this market growth, with volumes down
3% for the year. However volumes improved in the second half and
this positive momentum has continued into 2017/18.
Cathedral City remains the nation's favourite cheese brand. It
accounts for 54% of total branded everyday cheese sales in the UK
and almost three fifths of households bought Cathedral City during
the past year.
Earlier in the year we successfully rolled out a refreshed
master brand identity for Cathedral City. The new design simplifies
the brand, improves visibility on shelf and strengthens our range.
This allows our brand investment to work better across the whole of
the growing cheese category. It was supported by significant
investment including a successful new TV advertisement, "The Rules
of Cheese". We have seen a positive consumer reaction both to the
new packaging and the marketing campaign.
Spreads and Butters
IRI total market data for the 52 weeks ended 25 March 2017 shows
that butter volumes grew by 2% but that spreads volumes declined by
7%. Selling prices for spreads were down very slightly for the year
and for butters were up slightly. However, for butters this full
year number masks the change from heavy deflation in the first part
of the year to price increases of 16% in the last quarter.
Our main spreads brand, Clover, had a very successful year,
growing volumes at 1% versus a significant market decline, partly
driven by increased promotional volumes. Our other smaller spreads
brands, Utterly Butterly, Vitalite and Willow also performed well
and our total volume growth in spreads, including Clover, was 4%,
11 percentage points better than the market. This means that our
overall spreads market share has climbed by 2 percentage points to
27.2%.
With Clover we continued to reinforce the 'no artificial
ingredients' positioning through a marketing campaign in the first
half of the year and launched new packaging in the second half of
the year. This further supports the naturalness messaging for the
brand. We were pleased that the 'no artificial ingredients' recipe
received external recognition as "Product of the Year 2017" in the
world's largest consumer survey award for product innovation.
Whilst Country Life overall volumes were flat for the year,
sales were up 2%. Country Life spreadable, which accounts for 65%
of brand sales, grew volumes by 6% and was the best performing
branded spreadable product for the year. However the block product
experienced a volume decline as we promoted less following the
sharp rises in input costs.
Frylight: another exceptional year
Frylight, our one calorie cooking spray, has had another
outstanding year. Volumes grew by 23% and sales by 19%, well ahead
of market growth of 1% and 2% respectively (Kantar data for the 52
weeks ended 26 March 2017). Frylight has strengthened its lead as
the UK's number one oil brand and increased its share of the market
for the year to 11%, with a household penetration rate of 23%.
During the year we redesigned the pack to emphasise its 'no
artificial ingredients' credentials and this was highlighted in
well received TV advertising during the fourth quarter. This
advertising has driven increased growth in the final quarter with
the market share climbing to 15% and the brand will be advertised
again in the first quarter of this year. We were delighted that
during the year Frylight received the Institute of Grocery and
Distribution (IGD) Health and Wellness product award.
Infant formula quality improvement
The quality targets for infant formula grade demineralised whey
are rightly demanding. During the year we have continually improved
our product so that by the year end we had met our target of 80% of
our whey being of infant formula grade. The feedback we have
received from customers so far on the quality of our product has
been very positive. In partnership with Fonterra we are building
our sales relationships with infant formula producers for both
galacto-oligosaccharide ('GOS') and demineralised whey and expect
strong growth in sales of these products during the coming year,
with the majority of this growth coming in the second half of the
year.
Long-term demand for proteins looks robust. Whey protein
concentrate prices have risen strongly in the second half and
demineralised whey prices are now starting to firm. We are well
positioned to deliver improved returns in 2017/18.
An important part of the long-term future for GOS is its
potential beyond the infant formula market to extend its use into
other areas such as animal and adult human nutrition. The research
and development programme for GOS in animals has broadened and
during the year we signed an agreement with Danisco Animal
Nutrition, part of DuPont. Trials are now underway in this
partnership that will provide an extensive level of research into
the benefits of GOS in the animal husbandry industry.
Innovation
The retained business is much more focused following the sale of
the Dairies operations. The pace of innovation is, and needs to be,
an important point of difference. Future growth will be underpinned
by innovation.
Our Innovation Centre on the Harper Adams University campus,
which opened in late 2015, is already helping to 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 with 'no artificial ingredients', we achieved 13% of sales
from innovation during the last three years. This is an
industry-leading level of innovation.
Innovation continues to drive our business forward. As well as
building on the success of the new Clover product, in the year
ended 31 March 2017, we:
-- brought a new Frylight product to market - avocado spray oil;
-- developed a new Frylight cap design to be launched in early 2017/18;
-- launched a new Cathedral City snack bar range;
-- relaunched the Cathedral City spreadable range;
-- strengthened our 'Dairy Free' Vitalite range with the launch of a new Coconut variant; and
-- agreed a partnership with Fowler Welch Coolchain Ltd, a
logistics specialist, to maximise the throughput at our Nuneaton
distribution and warehousing site.
A simpler business
Dairy Crest is a simple, lean and responsive business. We 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. During the year we
embarked on a change to our core IT systems which will bring
benefits over the next two years. This will deliver a more
appropriate and cost effective IT infrastructure for a business of
our scale and is also acting as a catalyst for us to simplify the
processes that sit alongside these IT systems.
We continue to drive operational efficiency improvements. A
particular focus is improving performance efficiency at Kirkby,
where we successfully consolidated all our butters and spreads
production onto one site in 2015. We are confident that all our
sites will contribute towards further improved productivity over
the year to 31 March 2018.
Future prospects
In the first full year since the transformational sale of our
Dairies business, we have delivered a robust performance in a tough
market.
Our industry leading margins are the result of us driving
long-term value through innovation, brand building, investment in a
world class supply chain and strong cost control.
Our key brands continue to perform well. Cathedral City remains
the nation's favourite cheese and following its brand refresh at
the start of the year, the good progress and momentum we have seen
in the last six months has continued in the new financial year. Our
overall spreads market share has climbed, and Frylight had another
outstanding year with sales growing 19%, well ahead of the market.
The ongoing investment that we are putting behind our brands gives
me confidence that we can grow market share.
We have continued to make good progress in our demineralised
whey operations at Davidstow. We are now consistently hitting our
targeted level of whey being of infant formula grade. Developing
our sales of demineralised whey and GOS into the high-margin global
infant formula market will be a key priority this year. At the same
time we are continuing our research into other potential animal and
human applications for GOS.
Looking forward, I am excited about the future for Dairy Crest.
The business is well positioned to deliver profitable, sustainable
growth and stronger cash generation, underpinning our commitment to
growing our dividends and reducing debt.
Mark Allen
Chief Executive
17 May 2017
Financial Review
Overview
This year we have delivered a set of results which demonstrate
the underlying robustness of our business. Revenue is lower than
last year despite flat volumes reflecting the deflationary
environment that existed for much of the last two years. However,
milk and butter input costs rose significantly as the year
progressed. Despite this highly volatile background we improved
profit margins.
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 the year
ended 31 March 2017.
2017 2016 Change Change
GBPm GBPm GBPm %
----------------------------------- ------ ------ ------- -------
Cheese and Functional Ingredients 254.8 263.7 (8.9) (3.4)
Butters, Spreads & Oils 150.7 152.6 (1.9) (1.2)
Other 11.1 6.0 5.1 85.0
----------------------------------- ------ ------ ------- -------
Continuing operations 416.6 422.3 (5.7) (1.3)
----------------------------------- ------ ------ ------- -------
Revenue decreased by 1.3% to GBP416.6 million, although revenue
in the second half of the year was 3.7% ahead of the same period
last year. Despite sales volumes across our four key brands
remaining broadly flat the Group faced price deflation in the first
half which only partially reversed in the second half of the year.
Cheese and whey revenue fell by GBP8.9 million (3.4%) with
decreased sales volumes and prices. Revenue in butters, spreads and
oils fell by GBP1.9 million (1.2%) as price deflation across
spreads and butter in the first half of the year more than offset
the second half recovery and the strong value and volume growth in
Frylight. Other revenue comprised warehousing and distribution
services provided to third parties.
Profit on continuing operations
2017 2016 Change Change
GBPm GBPm GBPm %
--------------------------------------- ------ ------ ------- -------
Cheese and Functional Ingredients 42.8 36.4 6.4 17.6
Butters, Spreads & Oils 25.5 29.6 (4.1) (13.9)
Total product group profit 68.3 66.0 2.3 3.5
--------------------------------------- ------ ------ ------- -------
Acquired intangible amortisation (0.4) (0.4) - -
--------------------------------------- ------ ------ ------- -------
Group profit on continuing operations
(pre-exceptional items) 67.9 65.6 2.3 3.5
--------------------------------------- ------ ------ ------- -------
Overall total product group profit (before interest, acquired
intangible amortisation and exceptional items) increased by GBP2.3
million to GBP68.3 million and the margin increased to 16.4% (2016:
15.6%). This margin is after charging all central corporate costs
and includes GBP3.0 million profit (2016: GBP3.6 million) on the
sale of closed depots that were not disposed of as part of the sale
of the Dairies business in 2015 to Müller UK & Ireland Group
LLP ("Muller"). These depot sales are expected to continue next
year but will then cease. 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, Cambridgeshire and Crudgington, Shropshire will be
classified as exceptional consistent with the historic treatment of
the related closure costs.
Cheese and functional ingredients product group profits
increased by 17.6% and the margin increased to 16.8% (2016: 13.8%).
This is despite lower revenue which reflected lower selling prices
during the year. The profit and margin benefited from the reduction
in milk costs in 2015/16 that resulted in lower cost of sales in
2016/17 due to the 12 month average cheese maturation cycle.
Milk costs increased significantly in the second half of the
year and these costs will lead to higher cost of sales in
2017/18.
Butters, spreads and oils product group profits at GBP25.5
million (2016: GBP29.6 million) were GBP4.1 million lower than 2016
with profit margins of 16.9% (2016: 19.4%) reflecting the
competitive butters and spreads market and significantly higher
butter input costs.
Exceptional items
Pre-tax exceptional charges from continuing operations increased
to GBP19.1 million (2016: GBP11.3 million).
The Group incurred GBP19.0 million of exceptional costs in
relation to the building and commissioning of the demineralised
whey and GOS facilities at the Davidstow creamery in Cornwall
(2016: GBP16.2 million). The principal elements of spend were
duplicate running costs, stock write-offs, commissioning expenses
and project management. In addition, there was an exceptional
charge of GBP2.3 million (2016: GBPnil) relating to the disposal
costs of closed manufacturing sites at Totnes, Fenstanton and
Crudgington. The treatment of this charge as an exceptional item is
consistent with the treatment of the closure costs in prior years.
These costs have been partly offset by the release of GBP2.2
million of an exceptional provision in relation to the settlement
of historic claims between the Group, Farmright Limited and Quadra
Foods Limited at GBP1.0 million, which was lower than the creditor
balance held of GBP3.2 million.
In 2016 an exceptional provision of GBP1.8 million was created
for dilapidation costs for leased properties in the retained
business, crystallised by the sale of the Dairies business, and
provisions relating to the closure of the Crudgington site
totalling GBP0.7 million were released. The Group also realised a
gain in 2016 of GBP6.0 million on its investment in Promovita at
the point that it acquired 100% control in December 2015.
Finance costs
Finance costs of GBP7.7 million reduced by GBP0.6 million in the
year. This reflected the benefit from refinancing the GBP80 million
of loan notes that matured in April 2016 with loan notes issued in
March 2016 at a lower interest rate. This was offset by a GBP0.7
million reduction in interest capitalised on the investment at
Davidstow and increased interest costs on borrowings under the
revolving credit facility, as the total level of borrowings
increased. The interest cost will increase next year as the
capitalisation of interest on the investment at Davidstow will
cease. Capitalised interest costs in the year amounted to GBP3.1
million (2016: GBP3.8 million).
Interest cover excluding pension interest, calculated on total
product group profit was 9.0 times (2016: 8.1 times).
Other finance expenses, which comprise the net expected return
on pension scheme assets after deducting the interest cost on the
defined benefit obligation, increased slightly to GBP0.8 million
(2016: GBP0.6 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
2017 2016 Change Change
GBPm GBPm GBPm %
---------------------------- ------- ------- ------- -------
Total product group profit 68.3 66.0 2.3 3.5
Finance costs (7.7) (8.3) 0.6 7.2
---------------------------- ------- ------- ------- -------
Adjusted profit before tax 60.6 57.7 2.9 5.0
Amortisation of acquired
intangibles (0.4) (0.4) -
Exceptional items (19.1) (11.3) (7.8)
Other finance expenses -
pensions (0.8) (0.6) (0.2)
---------------------------- ------- ------- ------- -------
Reported profit before tax
- continuing operations 40.3 45.4 (5.1) (11.2)
---------------------------- ------- ------- ------- -------
Adjusted profit before tax (before exceptional items,
amortisation of acquired intangibles and pension interest)
increased by 5.0% to GBP60.6 million. This is management's key
Group profit measure because it excludes exceptional items and
therefore gives a better indication of underlying performance.
Reported profit before tax of GBP40.3 million represents a GBP5.1
million (11.2%) decrease from 2016 predominantly due to the
increase in exceptional items.
Taxation
The Group's effective pre-exceptional tax rate on continuing
operations was 18.0% (2016: 17.5%). The effective tax rate is
slightly below the headline rate of UK corporate 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 3.2% to 35.6 pence (2016: 34.5 pence) as a
result of the increase in adjusted profit before tax and the lower
tax charge. 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
23.7 pence (2016: 27.9 pence).
Discontinued operations
The post-tax profit on discontinued operations totalled GBP5.2
million.
A gain of GBP1.4 million relates to the disposal of the Dairies
business, which completed in 2015/16. This gain includes:
additional costs of GBP2.1 million resulting from a reassessment of
liabilities at the date of disposal; the final consideration
reduction of GBP2.5 million paid back to Muller following
determination by an independent expert; and a tax credit on these
items of GBP6.0 million.
There is a discontinued credit of GBP3.8 million that relates to
the release of tax provisions held in relation to the St Hubert
business that was sold in August 2012. These provisions are no
longer required.
In 2016 the loss from discontinued operations was GBP151.5
million. This reflected operating losses in the nine months to
December 2015 of GBP33.3 million (post tax GBP26.4 million),
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 and a post-tax
loss on disposal of GBP110.7 million.
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 GBP33.1 million (2016: GBP38.5 million). The profit
for the year attributable to equity shareholders was GBP38.3
million (2016: GBP113.0 million loss).
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 16.3 pence
per share represents an increase of 0.3 pence per share. Together
with the interim dividend of 6.2 pence per share (2016: 6.1 pence
per share) the total dividend for the year is 22.5 pence per share
(2016: 22.1 pence per share). The final dividend will be paid on 11
August 2017 to shareholders on the register on 7 July 2017.
Dividend cover of 1.6 times is within the Board's target range
of 1.5 to 2.5 times (2016: 1.6 times).
Pensions
During the year ended 31 March 2017 the Group paid GBP13.1
million cash contributions into the closed defined benefit pension
scheme (2016: GBP20.8 million including an GBP8.3 million
prepayment of future agreed cash contributions in relation to lease
payments on three properties owned by the pension scheme).
The reported deficit under IAS 19 at 31 March 2017 was GBP109.6
million; an increase of GBP67.1 million from March 2016. The
principal reason for the increase was falling corporate bond yields
which are the reference point for the discount rate used to value
scheme liabilities.
The March 2016 actuarial valuation and corresponding schedule of
contributions has yet to be finalised. This valuation will
determine future cash contributions and will replace the existing
funding plan which has cash contributions for 2017/18 of GBP17.2
million.
We continue to manage pension scheme liabilities and during the
year a Flexible Retirement Option programme was undertaken
resulting in GBP18.8 million of liabilities being permanently
removed from the scheme.
Cash flow
The business generates strong operating cash flows. However the
year saw a number of one-off items in the form of final payments
associated with the sale of the Dairies business and high levels of
exceptional commissioning costs at Davidstow.
In the year ended 31 March 2017 cash generated from operations
was GBP32.8 million (2016: GBP31.3 million). Operating cash flow
was impacted by a GBP6.1 million increase in working capital (2016:
GBP14.0 million reduction). This reflected higher stocks of
demineralised whey powder and lower levels of creditors.
Exceptional cash costs of GBP25.6 million (2016: GBP17.6 million)
relate principally to the commissioning of the demineralised whey
and GOS plants at Davidstow. This commissioning is now
substantially complete.
Cash interest payments amounted to GBP12.2 million (2016:
GBP12.8 million) reflecting lower costs on the Group's loan notes
following the maturity of notes in April 2016. Capital expenditure
of GBP25.6 million represents a GBP41.2 million (62%) reduction
from last year's GBP66.8 million. This reflects the completion of
the projects at Davidstow. Capital expenditure next year is
expected to be similar to this year.
Proceeds from depot disposals were GBP4.5 million (2016: GBP5.4
million). In addition the Group received GBP37.9 million from the
sale of some of the assets at Davidstow relating to GOS and
demineralised whey, which were subsequently leased back on
operating lease terms. During the year the Group repaid a total of
GBP28.4 million to Muller including GBP2.5 million following the
independent expert's determination of final adjustments to the
consideration. In 2016 the sale of our Dairies business 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 the Dairies
business falling below an agreed target. Against this, the Group
paid GBP5.5 million in related fees reflecting the extended review
undertaken by the CMA. The Group also paid GBP6 million for the
outstanding 50% of the share capital of Promovita in 2015/16.
Overall, the final payments to Muller, the commissioning costs
at Davidstow and the adverse movement in working capital offset by
the sale and leaseback at Davidstow have resulted in a GBP20.8
million increase in net debt during the year (2016: GBP30.3 million
increase) to GBP249.8 million (2016: GBP229.0 million). However,
looking ahead, strong underlying cash generation will translate
into lower levels of borrowing as these one-off factors fall away -
the Dairies business is sold, Davidstow commissioning is complete
and milk input costs are set to reduce in June 2017. We remain
committed to reducing net debt to EBITDA to below 2.0 times.
Borrowing facilities
Total borrowing facilities comprise GBP380 million Sterling
equivalent.
The Group has a five year multi-currency revolving credit
facility for GBP240 million which reduces by GBP80 million in
October 2018.
At 31 March 2017 the Group had a swapped Sterling equivalent of
GBP140 million of loan notes outstanding maturing between 2017 and
2026.
Post balance sheet events
On 4 April 2017, the Group repaid EUR10.7 million (GBP9.2
million Sterling equivalent) and GBP2.8 million of 2007 fixed
coupon loan notes on their maturity.
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.
Tom Atherton
Finance Director
17 May 2017
Consolidated income statement
Year ended 31 March 2017
2017 2016
--------------------------------- ---------------------------------
Before Before
exceptional Exceptional exceptional Exceptional
items items Total items items Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ---- ----------- ----------- ------- ----------- ----------- -------
Revenue 2 416.6 - 416.6 422.3 - 422.3
Operating costs 3,5 (351.7) (19.1) (370.8) (360.3) (17.3) (377.6)
Remeasurement gain on
Promovita
Ingredients 5,19 - - - - 6.0 6.0
Other income -
property 4 3.0 - 3.0 3.6 - 3.6
---------------------- ---- ----------- ----------- ------- ----------- ----------- -------
Profit on continuing
operations 67.9 (19.1) 48.8 65.6 (11.3) 54.3
Finance costs 6 (7.7) - (7.7) (8.3) - (8.3)
Other finance expense
- pensions 16 (0.8) - (0.8) (0.6) - (0.6)
----------------------- ---- ----------- ----------- ------- ----------- ----------- -------
Profit before tax from
continuing
operations 59.4 (19.1) 40.3 56.7 (11.3) 45.4
Tax (expense) / credit 7 (10.7) 3.5 (7.2) (9.9) 3.0 (6.9)
---------------------- ---- ----------- ----------- ------- ----------- ----------- -------
Profit from continuing
operations 48.7 (15.6) 33.1 46.8 (8.3) 38.5
Profit / (loss) from
discontinued
operations 8,19 (1.8) 7.0 5.2 (26.4) (125.1) (151.5)
----------------------- ---- ----------- ----------- ------- ----------- ----------- -------
Profit / (loss) for the year
attributable to equity
shareholders 46.9 (8.6) 38.3 20.4 (133.4) (113.0)
------------------------------ ----------- ----------- ------- ----------- ----------- -------
2017 2016
Earnings per share
Basic earnings per share from continuing
operations (pence) 9 23.7 27.9
Diluted earnings per share from continuing
operations (pence) 9 23.5 27.7
Basic earnings / (loss) per share (pence) 9 27.4 (81.9)
Diluted earnings / (loss) per share
(pence) 9 27.1 (81.3)
2017 2016
Dividends
Proposed final dividend (GBPm) 10 22.8 22.3
Interim dividend paid
(GBPm) 10 8.7 8.4
Proposed final dividend (pence) 10 16.3 16.0
Interim dividend paid (pence) 10 6.2 6.1
--------------------------------------------- ---- ------
Consolidated statement of comprehensive income
Year ended 31 March 2017
2017 2016
Note GBPm GBPm
-------------------------------------------------- ---- ------ -------
Profit / (loss) for
the year 38.3 (113.0)
--------------------------------------------------- ---- ------ -------
Other comprehensive income to be reclassified
to profit and loss in subsequent years:
Cash flow hedges - reclassification adjustment
for (losses) / gains in income statement (4.8) 4.4
Cash flow hedges - gains / (losses) recognised
in other comprehensive income 1.6 (5.4)
Tax relating to components of other comprehensive
income 7 0.9 0.2
----------------------------------------------------- ---- ------ -------
(2.3) (0.8)
-------------------------------------------------- ---- ------ -------
Other comprehensive income not to be reclassified
to profit and loss in subsequent years:
Remeasurement of defined benefit
pension plans 16 (80.4) (20.5)
Tax relating to components of other comprehensive
income 7 10.7 1.0
----------------------------------------------------- ---- ------ -------
(69.7) (19.5)
Other comprehensive loss for the year, net
of tax (72.0) (20.3)
----------------------------------------------------- ---- ------ -------
Total comprehensive loss for the year, net
of tax (33.7) (133.3)
----------------------------------------------------- ---- ------ -------
All amounts are attributable to owners of the parent.
Consolidated Balance Sheet
At 31 March 2017
2017 2016
Note GBPm GBPm
---------------------------------------- ------------------------ ---- ------- -------
Assets
Non-current assets
Property, plant and equipment 11 198.6 233.9
Goodwill 12 86.3 86.3
Intangible
assets 13 14.4 11.1
Investments - 0.5
Deferred tax
asset 7 29.6 19.3
Financial assets - Derivative financial
instruments 12.3 2.3
-------------------------------------------------------------------- ---- ------- -------
341.2 353.4
----------------------------------------------------------------- ---- ------- -------
Current assets
Inventories 154.2 152.1
Trade and other receivables 33.4 43.2
Financial assets - Derivative financial
instruments - 16.0
Cash and short-term deposits 20.9 100.3
------------------------------------------ ------------------------ ---- ------- -------
208.5 311.6
----------------------------------------------------------------- ---- ------- -------
Non-current assets held for sale 14 7.4 -
-------------------------------------------------------------------- ---- ------- -------
Total assets 2 557.1 665.0
-------------------------------------------------------------------- ---- ------- -------
Equity and Liabilities
Non-current liabilities
Financial liabilities - Long-term borrowings 15 (274.2) (250.3)
- Derivative financial
instruments 15 - (1.3)
Retirement benefit obligations 16 (109.6) (42.5)
Deferred tax
liability 7 - -
Deferred income (3.0) (4.5)
Provisions 18 (2.0) -
----------------------------------------- ------------------------ ---- ------- -------
(388.8) (298.6)
----------------------------------------------------------------- ---- ------- -------
Current liabilities
Trade and other payables 17 (79.1) (120.3)
Financial liabilities - Short-term borrowings 15 (12.8) (96.5)
- Derivative financial
instruments 15 (0.3) -
Current tax liability - (3.8)
Deferred income (1.5) (1.6)
Provisions 18 (2.7) (10.0)
-------------------------------------------------------------------- ---- ------- -------
(96.4) (232.2)
----------------------------------------------------------------- ---- ------- -------
Total liabilities (485.2) (530.8)
----------------------------------------- ------------------------ ---- ------- -------
Shareholders' equity
Ordinary shares (35.3) (35.2)
Share premium (85.6) (84.3)
Interest in ESOP 0.5 0.5
Other reserves (48.3) (50.6)
Retained earnings 96.8 35.4
----------------------------------------- ------------------------ ---- ------- -------
Total shareholders' equity (71.9) (134.2)
------- -------
Total equity and liabilities (557.1) (665.0)
------------------------------------------ ------------------------ ---- ------- -------
Consolidated statement of changes in equity
Year ended 31 March 2017
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
2017 GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ---- --- --- -------- ------- -------- -------- -------- -------
At 31 March 2016 35.2 84.3 (0.5) 50.6 (35.4) 134.2
Profit for the year - - - - 38.3 38.3
------------------- ---------------- -------- ------- -------- -------- -------- -------
Other comprehensive
gain
/ (loss):
Cash flow hedges - - - (3.2) - (3.2)
Remeasurement of defined benefit
pension plan - - - - (80.4) (80.4)
Tax on components of other
comprehensive
income - - - 0.9 10.7 11.6
----------------------------------- --- -------- ------- -------- -------- -------- -------
Other comprehensive
loss - - - (2.3) (69.7) (72.0)
------------------- -------- ------- -------- -------- -------- -------
Total comprehensive
loss - - - (2.3) (31.4) (33.7)
Issue of share
capital 0.1 1.3 - - - 1.4
Share-based
payments - - - - 1.2 1.2
Tax on share-based
payments - - - - (0.1) (0.1)
(31.1)
Equity dividends - - - - (31.1) )
------------------- ---- --- --- -------- ------- -------- -------- -------- -------
At 31 March 2017 35.3 85.6 (0.5) 48.3 (96.8) 71.9
------------------- -------- ------- -------- -------- -------- -------
2016
----------------- ---- --- --- -------- ------- -------- -------- -------- -------
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 shared-base
payments - - - - 0.4 0.4
------------------- -------- ------- -------- -------- -------- -------
Equity dividends - - - - (30.0) (30.0)
------------------- -------- ------- -------- -------- -------- -------
At 31 March 2016 35.2 84.3 (0.5) 50.6 (35.4) 134.2
------------------- -------- ------- -------- -------- -------- -------
Consolidated statement of cash flows
Year ended 31 March 2017
2017 2016
Note GBPm GBPm
---------------------------------------------- ---- ------- -------
Cash generated from operations 20 32.8 31.3
Interest paid (12.2) (12.8)
---- ------- -------
Net cash inflow from operating activities 20.6 18.5
------------------------------------------------ ---- ------- -------
Cash flow from investing activities
Capital expenditure (25.6) (66.8)
Proceeds from disposal of property, plant
and equipment 42.4 5.4
Purchase of businesses and investments 19 - (6.0)
(Repayment) / proceeds relating
to sale of businesses net of fees 19 (28.4) 49.0
Net cash used in investing activities (11.6) (18.4)
------------------------------------------------ ---- ------- -------
Cash flow from financing activities
(Repayment) / Issue of loan notes 21 (80.2) 76.1
Net drawdown under revolving credit
facilities 21 23.0 -
Dividends
paid 10 (31.1) (30.0)
Proceeds from issue of shares (net of issue
costs) 1.4 5.0
Finance lease repayments 21 (1.5) (1.5)
----------------------------------------------- ---- ------- -------
Net cash (used in) / generated from financing
activities (88.4) 49.6
------------------------------------------------ ---- ------- -------
Net (decrease) / increase in cash and cash
equivalents (79.4) 49.7
Cash and cash equivalents at beginning
of year 21 100.3 50.6
Cash and cash equivalents at end
of year 21 20.9 100.3
----------------------------------------------- ---- ------- -------
Net debt at end of year 21 (249.8) (229.0)
----------------------------------------------- ---- ------- -------
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 2016,
as described in those financial statements.
The following accounting standards and interpretations became
effective for the current reporting period:
-- IAS 7 'Disclosure Initiative' - Amendments to IAS7
-- IAS 12 'Recognition of Deferred Tax Assets for Unrealised Losses' - Amendments to IAS 12
-- IFRS 12 'Disclosure of Interests in Other Entities' -
Clarification of the scope of the disclosure requirements in IFRS
12
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 2017.
The financial information set out in this document does not
constitute the statutory accounts of the Group for the years ended
31 March 2017 or 31 March 2016 but is derived from the 2017 Group
Annual Report and Financial Statements. The Group Annual Report and
Financial Statements for 2017 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.
The business is managed centrally by functional teams (Demand,
Supply, Procurement and Finance) that have responsibility for the
whole of the 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 functional
ingredients product group and the butters, spreads and oils 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.
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
------ ----------
2017 2016
Note GBPm GBPm
-------------------------------------------------- ---- ------ ----------
External revenue
Cheese and Functional Ingredients 254.8 263.7
Butters, Spreads and Oils 150.7 152.6
Other 11.1 6.0
---------------------------------------------------------- ---- ------ ----------
Total product group external revenue - continuing
operations 416.6 422.3
------------------------------------------------------ ----
Product group profit
*
Cheese and Functional Ingredients 42.8 36.4
Butters, Spreads and Oils 25.5 29.6
------------------------------------------------------ ---- ------ ----------
Total product group profit - continuing
operations 68.3 66.0
Finance costs 6 (7.7) (8.3)
---------------------------------------------------------- ---- ------ ----------
Adjusted profit before tax - continuing
operations** 60.6 57.7
Acquired intangible amortisation 13 (0.4) (0.4)
Exceptional items 5 (19.1) (11.3)
Other finance expense -
pensions 16 (0.8) (0.6)
----------------------------------------------------- ---- ------ ----------
Group profit before tax
- continuing operations 40.3 45.4
----------------------------------------------------- ---- ------ ----------
2017 2016
Total assets GBPm GBPm
------ ----------
Cheese and Functional Ingredients 305.8 331.6
Butters, Spreads and Oils 150.5 147.2
Investments - 0.5
Other 100.8 47.8
---------------------------------------------------------- ---- ------ ----------
Total product group 557.1 527.1
Unallocated assets - 137.9
Total assets 557.1 665.0
---------------------------------------------------------- ---- ------ ----------
* Profit on operations before exceptional items and amortisation
of acquired intangibles.
** Adjusted profit before tax from continuing operations is
presented as management's key Group profit measure because it
excludes exceptional items and therefore gives a better indication
of the underlying operational performance of the Group. The
calculations also exclude amortisation of acquired intangibles and
pension interest in relation to the Group's defined benefit pension
scheme, being dependent on market assumptions at 31 March each
year.
Year ended
---------- ----------
2017 2016
GBPm GBPm
---------------------------------------------------------------- ---------- ----------
Product group depreciation and amortisation (excluding amortisation
of acquired intangible assets)
Cheese and Functional Ingredients (8.6) (8.1)
Butters, Spreads and Oils (4.0) (4.5)
Other (2.8) (5.0)
----------------------------------------------------------------- ---------- ----------
Total (15.4) (17.6)
----------------------------------------------------------------- ---------- ----------
Product group additions to
non-current assets
Cheese and Functional Ingredients 21.6 65.8
Butters, Spreads and Oils 6.4 2.5
Other 2.6 4.1
Total 30.6 72.4
------------------------------------------------------------- ---------- ----------
Dairies additions not included above amounted to GBPnil (2016:
GBP7.3 million)
Product group exceptional items
Cheese and Functional Ingredients (19.0) (10.2)
Butters, Spreads and Oils - 0.7
Unsegmented (0.1) (1.8)
-------------------------------------- ------ ------
Total exceptional operating
costs 5(19.1) (11.3)
----------------------------------- ------ ------
Notes to the preliminary announcement
2 Segmental analysis (continued)
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.
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 cash and
cash equivalents. They exclude derivative financial assets and
deferred tax assets. Other product group assets comprise certain
property, plant and equipment that is not reported in product
groups.
Product group depreciation and amortisation excludes
amortisation of acquired intangible assets of GBP0.4 million (2016:
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
2017 2016
External revenue attributed on basis of
customer location GBPm GBPm
------------------------------------------------------ ----- -----
UK 404.7 411.3
Rest of world 11.9 11.0
----- -----
Total revenue 416.6 422.3
---------------------------------------------------- ----- -----
Non-current assets* based on location
---------------------------------------------------- ----- -----
UK 336.3 350.6
Rest of world - 0.5
----- -----
Total 336.3 351.1
-------------------------------------------------------- ----- -----
* Comprises property, plant and equipment, goodwill, intangible
assets, investments, deferred tax asset and assets held for
sale.
The Group has three customers which individually represent more
than 10% of revenue from continuing operations in the year ended 31
March 2017 (2016: four) with each customer accounting for GBP54.2
million, GBP56.2 million and GBP92.7 million (2016: GBP46.9
million, GBP53.6 million, GBP67.6 million and GBP102.1 million) of
revenue from continuing operations, being 13.0%, 13.5% and 22.3%
(2016: 11.1%, 12.7% 16.0% and 24.2%).
3 Operating costs - continuing operations
Year ended 31 March 2017 Year ended 31 March 2016
------------------------------- -------------------------------
Before Before
exceptional Exceptional exceptional Exceptional
items items Total items items Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ----------- ----------- ----- ----------- ----------- -----
Cost of sales 287.5 19.1 306.6 295.6 15.5 311.1
Distribution costs 31.6 - 31.6 26.7 - 26.7
Administrative expenses 32.6 - 32.6 38.0 1.8 39.8
------------------------- ----------- ----------- ----- ----------- ----------- -----
351.7 19.1 370.8 360.3 17.3 377.6
----------- ----------- ----- ----------- ----------- -----
4 Other income - property
Other income of GBP3.0 million (2016: GBP3.6 million) relates to
the profits from the disposal of closed Dairies depots retained by
Dairy Crest.
Notes to the preliminary announcement
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.
Year ended
--------------
2017 2016
Operating costs GBPm GBPm
--------------------------------------------------- ------ ------
Demineralised whey powder
and GOS projects (19.0) (16.2)
Property provision - (1.8)
Spreads restructuring costs - 0.7
Disposal costs in relation to closed
manufacturing sites (2.3) -
------------------------------------------------------ ------ ------
(21.3) (17.3)
Settlement gain in relation to Farmright Limited
and Quadra Foods Limited 2.2 -
Gain on remeasurement to fair value of original
investment in Promovita Ingredients Limited - 6.0
---------------------------------------------------------- ------ ------
(19.1) (11.3)
Tax relief on exceptional
items 2.8 3.0
Release of deferred tax liability
in respect of industrial buildings 0.7 -
------------------------------------------------------ ------ ------
(15.6) (8.3)
------------------------------------------------------ ------ ------
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 GBP19.0 million of costs were charged to the income
statement in relation to this project. GBP12.3 million related to
commissioning of the facility of which GBP7.3 million was for the
write-down of product produced during the commissioning process
which did not meet the required standard to be considered for
infant formula. In addition, GBP5.8 million related to project
review costs. A further GBP0.9 million has been charged in respect
of a financial liability relating to the project that did not meet
the criteria for hedge accounting due to it being an ineffective
hedge at 31 March 2017. In the prior year GBP16.2 million of
exceptional costs were incurred of which GBP5.3 million related to
the commissioning and GBP6.5 million on project review costs. A
further GBP4.4 million was charged for set up costs. The tax credit
relating to this exceptional charge in the year was GBP3.1 million
(2016: GBP2.7 million). Management considers these costs to be
exceptional due to the materiality and the one-off nature of the
capital project to which they relate and do not expect any
significant costs in relation to this project going forward.
Disposal costs in relation to closed manufacturing sites
The Group has incurred costs of GBP2.3 million relating to the
disposal of closed manufacturing sites in Totnes in Devon,
Fenstanton in Cambridgshire and Crudgington in Shropshire.
Management has determined these properties to be 'held for sale' at
the 31 March 2017 and any future gains in respect of these
properties will be treated as exceptional consistent with the
historical closure costs. The tax credit in relation to these costs
was GBP0.1 million.
Settlement gain in relation to Farmright Limited and Quadra
Foods 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. Following settlement, GBP2.1 million plus a provision for
professional fees of GBP0.1 million which was no longer required,
have been released. Management considers this credit to be
exceptional due to it being one-off in nature and in relation to
the debt of Quadra Foods Limited, for which GBP4.3 million was
provided for under an exceptional impairment provision in the year
ended 31 March 2012. The tax charge in relation to this release was
GBP0.4 million.
Prior year
Property provision
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.
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.
Notes to the preliminary announcement
6 Finance costs and other finance income
Finance costs
Year ended
----- ----------
2017 2016
GBPm GBPm
---------------------------------------- ----- ----------
Bank loans and overdrafts (at amortised
cost) (7.6) (8.2)
Finance charges on finance
leases (0.1) (0.1)
----------------------------------------- ----- ----------
Total net finance costs - continuing
operations (7.7) (8.3)
------------------------------------------- ----- ----------
Interest payable on bank loans and overdrafts is stated after
capitalising GBP3.1 million (2016: GBP3.8 million) of interest on
expenditure on capital projects at a rate of 4.0% (2016: 5.0%). The
tax impact of the capitalised interest was GBP0.6 million (2016:
GBP0.7 million).
7 Tax expense
Continuing operations
The major components of income tax expense for continuing
operations for the years ended 31 March 2017 and 2016 are:
Year ended
----- ----------
2017 2016
Consolidated income statement GBPm GBPm
-------------------------------------------------------- ----- ----------
Current income tax - -
Deferred income tax
Net utilisation of deferred tax asset 8.5 7.5
Effect of change in
tax rate (0.5) (0.2)
Adjustment in respect of previous years - deferred
tax (0.8) (0.4)
-------------------------------------------------------------
7.2 6.9
----- ----------
Before exceptional
Analysed: items 10.7 9.9
Exceptional
items (3.5) (3.0)
7.2 6.9
----- ----------
There is no current tax charge in the year due to tax relief in
respect of pension contributions, capital allowances and in
relation to the disposal of the Dairies operation in December
2015.
Reconciliation between tax charge and the profit before tax
multiplied by the statutory rate of corporation tax in the UK:
2017 2016
GBPm GBPm
--------------------------------------------------- ----- -----
Profit before tax 40.3 45.4
Tax at UK statutory corporation tax rate of 20%
(2016:20%) 8.1 9.1
Adjustments in respect of previous years (0.8) (0.4)
Adjustments for change in UK corporation tax
rate* (0.5) (0.2)
Non-deductible expenses 1.2 1.1
Profits offset by available
tax relief (0.8) (2.7)
7.2 6.9
----- -----
The effective pre-exceptional rate of tax on the Group's profit
before tax from continuing operations is 18.0% (2016: 17.5%).
The total Group effective tax rate is below the headline rate of
UK corporation tax at 17.9% (2016: 15.2%). One of the reasons for
this is the availability of capital losses for which no deferred
tax asset has been recognised against profits of GBP3.0 million on
the disposal of closed depots. We expect the effective tax rate to
remain below the headline rate of UK corporation tax next year due
to the expected disposal of closed properties.
* Two further reductions in the UK Corporation tax rates have
been enacted, taking the rate to 19% from April 2017 and to 17%
from April 2020. Accordingly, deferred tax has been provided on all
temporary differences at the rate in force when they are
anticipated to reverse.
Notes to the preliminary announcement
7 Tax expense (continued)
Discontinued Operations
The total income tax credit in respect of discontinued
operations for the year ended 31 March 2017 is GBP9.8 million
(2016: GBP35.7 million). Tax relief on exceptional costs incurred
by discontinued operations in the year ended 31 March 2017 was
GBP5.7 million (2016: GBP28.8 million). A GBP3.8 million tax credit
has been realised in respect of the disposal of St Hubert SAS. Tax
attributable to discontinued operations is disclosed in Note 8.
Tax credit relating to components of consolidated
other comprehensive income 2017 2016
GBPm GBPm
---------------------------------------------------------- ------ -----
Deferred income tax related to items charged to
other comprehensive income
* Pension deferred tax movement taken directly to
reserves (10.7) (1.0)
* Valuation of financial instruments (0.9) (0.2)
Tax credit (11.6) (1.2)
---------------------------------------------------------------- ------ -----
Tax on items recognised directly to equity
Deferred tax of GBP0.1 million relating to share-based payments
was charged directly to equity in the year ended 31 March 2017
(2016: GBP0.4 million credited to equity).
Deferred income tax
Deferred income tax at 31 March 2017 and 2016 relates to the
following:
2017 2016
Deferred tax liability GBPm GBPm
--------------------------------------------- ----- ------
Accelerated depreciation for tax purposes - (4.5)
Goodwill and intangible assets (7.8) (7.9)
(7.8) (12.4)
----- ------
Deferred tax asset
------------------------------------------------- ---- ----
Accelerated depreciation for tax purposes 1.1 -
Government grants 0.9 1.2
Share-based payments 1.0 0.9
Pensions 18.6 12.5
Financial instruments valuation 1.2 0.3
Trading losses 14.0 15.3
Other 0.6 1.5
37.4 31.7
---- ----
Net deferred tax asset 29.6 19.3
-------------------------------------------- ---- ----
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 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 2016 (7.9) 12.5 (4.5) 19.2 19.3
(Charge) / credit to income statement:
continuing operations 0.1 (4.6) 5.6 (8.3) (7.2)
Credit to income statement:
discontinued operations - - - 6.0 6.0
Credit to other comprehensive
income - 10.7 - 0.9 11.6
Credit taken directly to reserves - - - (0.1) (0.1)
Disposal of
business - - - - -
---------------------------------------
Balances at 31 March 2017 (7.8) 18.6 1.1 17.7 29.6
---------------------------------------- ---------- -------- ------------ ----------- ------
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
---------------------------------------- ---------- -------- ------------ ----------- ------
Notes to the preliminary announcement
7 Tax expense (continued)
The Group has capital losses which arose in the UK of GBP121.2
million (2016: GBP118.1 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 GBP22.6 million (2016: GBP47.9 million) for
which rollover relief claims have been or are intended to be
made.
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 been classified as a discontinued operation since the
year of disposal.
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
----- ----------
2017 2016
GBPm GBPm
------------------------------------------------------- ----- ----------
Revenue - 529.1
Operating costs (2.1) (562.5)
Other income - property - 0.1
-------------------------------------------------------- ----- ----------
Operating loss before exceptional operating items and
tax attributable to discontinued operations (2.1) (33.3)
Exceptional operating items - (16.6)
---------------------------------------------------------- ----- ----------
Operating loss before tax attributable to discontinued
operations (2.1) (49.9)
Attributable tax 0.8 9.1
Tax credit in relation to the disposal of St Hubert 3.8 -
---------------------------------------------------------------- ----- ----------
Profit / loss after tax from discontinued
operations 2.5 (40.8)
Loss on disposal (2.5) (137.3)
Attributable tax on disposal 5.2 26.6
---------------------------------------------------------- ----- ----------
Profit / loss for the period from discontinued
operations 5.2 (151.5)
---------------------------------------------------------------- ----- ----------
Earnings / (loss) per share from discontinued
operations
Basic (pence) 3.7 (109.9)
Diluted (pence) 3.7 (109.0)
2017 2016
Loss from discontinued operations is
stated after charging GBPm GBPm
---------------------------------------------------------- ----- ----------
Depreciation - (6.9)
Amortisation of intangibles - internally
generated - (0.9)
Operating lease rentals - (13.7)
Research and development expenditure - (0.4)
Cost of inventories recognised as an
expense - (426.3)
---------------------------------------------------------- ----- ----------
The operating costs of GBP2.1 million in the year comprise
GBP1.6 million relating to certain costs in respect of the Dairies
operation that had not been accrued for at the point of sale and as
such were the liability of the Group in line with the sale and
purchase agreement with Muller UK & Ireland LLP. A further
GBP0.5 million has been charged in respect of the Group's
investment in HEICO Limited which has been fully impaired in the
period. The investment related to the Dairies operation and as such
the impairment has been recognised within discontinued
operations.
a. Exceptional items
2017 2016
GBPm GBPm
-------------------------------------------------- ---- -------
Exceptional operating items after attributable
tax 4.3 (14.4)
Profit / (loss) on disposal after attributable
tax 2.7 (110.7)
-------------------------------------------------- ---- -------
Exceptional items after tax 7.0 (125.1)
-------------------------------------------------- ---- -------
Exceptional operating costs
2017 2016
GBPm GBPm
-------------------------------------------------------- ---- ------
Rationalisation of operating
sites - (7.7)
Costs associated with the separation and proposed
sale of the Dairies operation - (8.9)
Exceptional operating costs - discontinued operations - (16.6)
Tax relief on exceptional items 0.5 2.2
Tax credit in relation to the disposal of St Hubert 3.8 -
----------------------------------------------------------- ---- ------
4.3 (14.4)
----------------------------------------------------------- ---- ------
Notes to the preliminary announcement
8 Discontinued operations (continued)
Tax credit in relation to the disposal of St Hubert
A tax provision of GBP3.8 million was created when St Hubert SAS
was disposed of in August 2012. A tax credit has been recognised in
the period in respect of this because the period during which the
French authorities can raise tax assessments has now expired. This
has been recognised within discontinued operations consistent with
the results of St Hubert SAS following disposal.
Costs associated with the separation and proposed sale of the
Dairies operations
In the prior year the Group incurred GBP8.9 million of
separation costs such as one-off systems costs and professional
fees. A tax credit of GBP0.5 million has been recognised in the
period (2016: GBP1.9 million).
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,
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. In the prior 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 prior year was GBP0.3
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
----- ----------
2017 2016
GBPm GBPm
----------------------------------------------- ----- ----------
Cash flow from operating activities (2.1) (51.6)
Cash used in investing activities - (10.4)
Net cash flows attributable to discontinued
operations (2.1) (62.0)
----------------------------------------------- ----- ----------
Notes to the preliminary announcement
9 Earnings 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.
Year ended 31 March 2017 Year ended 31 March 2016
--------------------------------- -----------------------------------------
Weighted Weighted
average no Per share average no Per share
Earnings of shares amount Earnings of shares amount
GBPm million pence GBPm million pence
Basic EPS from
continuing
operations 33.1 139.8 23.7 38.5 137.9 27.9
Effect of
dilutive
securities:
Share options - 1.3 (0.2) - 1.1 (0.2)
-------- ------------ --------- ------------ ------------- -----------
Diluted EPS
from
continuing
operations 33.1 141.1 23.5 38.5 139.0 27.7
-------- ------------ --------- ------------ ------------- -----------
Adjusted EPS
from
continuing
operations*
Profit from
continuing
operations 33.1 139.8 23.7 38.5 137.9 27.9
Exceptional
items (net of
tax) 15.6 - 11.2 8.3 - 6.0
Amortisation
of acquired
intangible
assets (net
of tax) 0.3 - 0.2 0.3 - 0.2
Pension
interest
expense (net
of tax) 0.7 - 0.5 0.5 - 0.4
-------- ------------ --------- ------------ ------------- -----------
Adjusted basic
EPS from
continuing
operations 49.7 139.8 35.6 47.6 137.9 34.5
-------- ------------ --------- ------------ ------------- -----------
Effect of
dilutive
securities:
Share options - 1.3 (0.4) - 1.1 (0.3)
-------- ------------ --------- ------------ ------------- -----------
Adjusted
diluted EPS
from
continuing
operations 49.7 141.1 35.2 47.6 139.0 34.2
-------- ------------ --------- ------------ ------------- -----------
Basic earnings
/ (loss) per
share from
discontinued
operations 5.2 139.8 3.7 (151.5) 137.9 (109.9)
Effect of
dilutive
securities:
Share options - 1.3 - - 1.1 0.9
-------- ------------ --------- ------------ ------------- -----------
Diluted
earnings /
(loss) per
share from
discontinued
operations 5.2 141.1 3.7 (151.5) 139.0 (109.0)
-------- ------------ --------- ------------ ------------- -----------
Basic earnings
/ (loss) per
share for the
year 38.3 139.8 27.4 (113.0) 137.9 (81.9)
Effect of
dilutive
securities:
Share options - 1.3 (0.3) - 1.1 0.6
-------- ------------ --------- ------------ ------------- -----------
Diluted
earnings /
(loss) per
share for the
year 38.3 141.1 27.1 (113.0) 139.0 (81.3)
-------- ------------ --------- ------------ ------------- -----------
There have been no transactions involving ordinary shares or
potential ordinary shares between the reporting date and the date
of signing these financial statements.
*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 on market assumptions at 31 March each year.
10 Dividends paid and proposed
2017 2016
Declared and paid during the
year GBPm GBPm
---------------------------------------------------- ---- ----
Equity dividends on ordinary
shares:
Final dividend for 2016: 16.0 pence (2015:15.7
pence) 22.4 21.6
Interim dividend for 2017: 6.2 pence (2016: 6.1
pence) 8.7 8.4
------------------------------------------------------- ---- ----
31.1 30.0
---- ----
Proposed for approval at AGM (not recognised as
a liability at 31 March)
-------------------------------------------------------
Equity dividends on ordinary
shares:
Final dividend for 2017: 16.3 pence (2016:16.0
pence) 22.8 22.3
------------------------------------------------------- ---- ----
Notes to the preliminary announcement
11 Property, plant and equipment
Vehicles, Assets in
plant
Land and and the course
buildings equipment of construction Total
2017 GBPm GBPm GBPm GBPm
------------------------------------ --------- --------- --------------- -------
Cost
At 1 April
2016 82.0 197.9 96.2 376.1
Additions 4.9 9.3 12.2 26.4
Disposals (1.3) (44.8) - (46.1)
Transfers and reclassifications 4.0 91.0 (95.0) -
Transfer to non-current assets
held for sale (note 14) (14.6) (0.5) - (15.1)
At 31 March 2017 75.0 252.9 13.4 341.3
------------------------------------ --------- --------- --------------- -------
Accumulated depreciation
At 1 April
2016 30.3 111.9 - 142.2
Charge for the year - continuing 2.6 12.3 - 14.9
Disposals - (6.7) - (6.7)
Transfer to non-current assets
held for sale (note 14) (7.3) (0.4) - (7.7)
At 31 March 2017 25.6 117.1 - 142.7
------------------------------------ --------- --------- --------------- -------
Net book amount at 31 March
2017 49.4 135.8 13.4 198.6
------------------------------------ --------- --------- --------------- -------
2016
------------------------------------ --------- --------- --------------- -------
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 19) (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 19) (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
------------------------------------ --------- --------- --------------- -------
2017
On 31 March 2017, GBP7.3 million of land and buildings and
GBP0.1 million of plant and equipment was transferred to
non-current assets held for sale (see note 14).
During the year, the Group disposed of GBP37.9 million of plant
and equipment under two sale and leaseback agreements with Lombard
Business Leasing Limited. The sale and leaseback was for certain
plant and equipment relating to the demineralised whey and GOS
facility at Davidstow.
2016
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.
Notes to the preliminary announcement
12 Goodwill
GBPm
------------------------------------- ------
Cost
At 31 March 2015 145.6
Acquisition of Promovita Ingredients
Limited (note 19) 12.0
Disposal of discontinued operations
(note 19) (70.7)
-------------------------------------- ------
At 31 March 2016 and 31 March 2017 86.9
-------------------------------------- ------
Accumulated impairment
At 31 March 2015 (71.3)
Disposal of discontinued operations
(note 19) 70.7
-------------------------------------- ------
At 31 March 2016 and 31 March 2017 (0.6)
-------------------------------------- ------
Net book amount at 31 March 2016
and 31 March 2017 86.3
-------------------------------------- ------
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 19) 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'): Butters
and Spreads, MH Foods and Cheese and Functional Ingredients.
Goodwill recognised on the acquisition of Promovita Ingredients
Limited is included in the Cheese and Functional Ingredients CGU as
the business is directly linked to the Cheese and Functional
Ingredients 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 6.5% for
Butters and Spreads, MH Foods and Cheese and Functional Ingredients
(2016: 6.0%).
The growth rate used to extrapolate cash flows beyond the
three-year period for Butters and Spreads, MH Foods and Cheese and
Functional Ingredients is nil (2016: nil).
The carrying amount of goodwill allocated to groups of CGUs at
31 March 2017 is:
MH Foods GBP6.7 million (2016: GBP6.7 million)
Butters and Spreads GBP65.5 million (2016: GBP65.5 million)
Cheese and Functional Ingredients GBP14.1 million (2016: GBP14.1
million)
Key assumptions on which management has based its cash flow
projections
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.
2017 and 2016
Sensitivity to changes in assumptions
With regard to the assessment of value in use of the Butters and
Spreads, MH Foods and Cheese and Functional Ingredients 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 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
Additions 4.2 - - 4.2
Disposal - (3.5) - (3.5)
Transfers and reclassifications (3.5) 6.1 (2.6) -
At 31 March 2017 4.2 8.0 6.1 18.3
--------------------------------- --------------- ---------- ----------- ------
Accumulated amortisation
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
Amortisation for the year
- continuing - 0.5 0.4 0.9
Amortisation for the year
- discontinued operations - - - -
Disposal - (3.5) - (3.5)
Transfers and reclassifications - 2.3 (2.3) -
--------------------------------- --------------- ---------- ----------- ------
At 31 March 2017 - 1.5 2.4 3.9
--------------------------------- --------------- ---------- ----------- ------
Net book amount at 31 March
2017 4.2 6.5 3.7 14.4
--------------------------------- --------------- ---------- ----------- ------
Net book amount at 31 March
2016 3.5 3.2 4.4 11.1
--------------------------------- --------------- ---------- ----------- ------
In the year ending 31 March 2017, additions to assets in the
course of construction of GBP4.2 million comprised third party
system support costs relating to a new enterprise planning system
of GBP3.7 million (2016: GBPnil) and product development costs of
GBP0.5 million (2016: GBPnil). In the prior year, the 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.
Internally generated intangible assets comprise software
development and implementation costs across manufacturing sites and
Head Office and product development where the future recoverability
can be reasonably assured under IAS 38 'Intangible Assets'.
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 9 years
remaining. The carrying value of the Frylight brand at 31 March
2017 is GBP3.7 million (2016: GBP4.1 million).
14 Non - current assets held for sale
2017 2016
GBPm GBPm
---- --------------------------------- ---- ----
Non-current assets held for sale 7.4 -
----------------------------------------- ---- ----
Non-current assets held for sale of GBP7.4 million represent
properties owned by the Group, comprising closed depots and closed
production facilities, that management has committed to sell and
where the completion of the sale within twelve months of the
classification date is highly probable. The held for sale value
represents the lower of carrying value and fair value less costs to
sell. Any future profit on disposal of the closed depots will be
recognised as Other Income - property within the Income Statement.
Any future profit on disposal of the closed production facilities
will be recognised under exceptional items within the Income
Statement.
Notes to the preliminary announcement
15 Financial liabilities
2017 2016
GBPm GBPm
---------------------------------------- ----- -----
Current
Obligations under finance leases 1.5 1.5
Loan notes (at amortised cost) 11.9 95.6
Debt issuance costs (0.6) (0.6)
-------------------------------------------- ----- -----
Financial liabilities - Borrowings 12.8 96.5
Cross currency swaps (cash flow hedges) 0.1 -
Forward currency contracts (at fair
value: cash flow hedge) 0.2 -
Financial liabilities - Derivative
financial instruments 0.3 -
----------------------------------------- ----- -----
Current financial liabilities 13.1 96.5
-------------------------------------------- ----- -----
Non-current
Obligations under finance leases 1.0 2.4
Loan notes (at amortised cost) 146.0 144.2
Bank loans (at amortised cost) 128.0 105.0
Debt issuance costs (0.8) (1.3)
-------------------------------------------- ----- -----
Financial liabilities - Borrowings 274.2 250.3
Cross currency swaps (cash flow hedges) - 1.3
Financial liabilities - Derivative
financial instruments - 1.3
----------------------------------------- ----- -----
Non-current financial
liabilities 274.2 251.6
-------------------------------------------- ----- -----
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).
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
2017 rate 2016 rate
at March at March
Maturity GBPm 2017 GBPm 2016
----------------------------- ------------------ ------------- ----- -------------- ----- ---------
Current
US$ swapped into
Loan notes: GBP April 2016 - 85.6 5.31%
Sterling April 2016 - 10.0 5.27%
Euro swapped
into GBP April 2017 9.1 5.53% - -
Sterling April 2017 2.8 5.84% - -
Finance leases 1.5 3.61% 1.5 3.61%
-------------- ---------
Debt issuance costs (0.6) (0.6)
12.8 96.5
----------------------------- ----- -----
Non-current
Revolving credit facilities:
LIBOR +
Sterling floating October 2018 80.0 LIBOR + 150bps 53.0 160bps
LIBOR +
Sterling floating October 2020 48.0 LIBOR + 170bps 52.0 190bps
Euro swapped
Loan notes: into GBP April 2017 - 5.53% 8.5 5.53%
Sterling April 2017 - 5.84% 2.8 5.84%
US$ swapped into November
GBP 2018 20.0 3.87% 17.4 3.87%
US$ swapped into November
GBP 2021 45.0 4.52% 39.2 4.52%
US$ swapped into
GBP March 2023 36.0 3.33% 31.3 3.33%
Sterling March 2026 45.0 3.34% 45.0 3.34%
Finance Leases 1.0 3.61% 2.4 3.61%
-------------- ---------
Debt issuance
costs (0.8) (1.3)
274.2 250.3
-------------------- ----- -----
On 4 April 2016, the Group repaid $123 million (GBP70.2 million)
and GBP10 million of 2006 fixed coupon loan notes on maturity. To
fund the repayment, on 23 March 2016, the Group raised GBP45
million and $45 million (GBP31.1 million) of fixed coupon loan
notes. The sterling loan notes have a maturity of 10 years and an
interest rate of 3.34%. The US Dollar loan notes have a maturity of
seven years, the principal and the interest cash flows have been
swapped into Sterling at an exchange rate of 1.4471 and an interest
rate of 3.23%.Upfront debt issuance costs amounted to GBP0.4
million and these are being charged to the consolidated income
statement over the term of the loan notes.
On 6 October 2015, the Group refinanced its revolving credit
facility. The GBP170 million plus EUR90 million revolving credit
facility which was due to expire in October 2016 was cancelled and
replaced by a GBP240 million facility, of which GBP80 million will
expire on 6 October 2018 and GBP160 million will expire on 6
October 2020. Upfront debt issuance costs amounted GBP1.6 million
and these are being charged to the consolidated income statement
over the expected life of the facility. There were no debt issuance
costs charged to the income statement relating to the cancelled
facility in the prior year.
Notes to the preliminary announcement
15 Financial liabilities (continued)
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 2017 (2016: None).
16 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 comprise
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.
During the financial year, a Flexible Retirement Option ("FRO")
exercise was carried out. An offer enabling deferred pensioners
aged 55 and over to take cash equivalent transfer values (or
trivial commutation lump sums, where applicable), with financial
advice paid for by the company. Transfer values totalling GBP16.7
million and trivial commutation lump sums totalling GBP0.1 million
were accepted. This resulted in a settlement gain before costs of
GBP2.0 million, representing IAS19 liabilities extinguished of
GBP18.8 million less amounts paid of GBP16.8 million.
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 is
currently being carried on the 31 March 2016 position. We expect
the results of the valuation in the first half of 2017/18.
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 from
April 2017 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 20 years reflecting the approximate split of the
defined benefit obligation (including insured pensioners) between
deferred members (duration of 27 years), current non-insured
pensioners (duration of 15 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.
Notes to the preliminary announcement
16 Retirement benefit obligations (continued)
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.
2017 2016
Defined benefit obligation GBPm GBPm
-------------------------------------------- ----------------------- --------- ---------
Fair value of scheme
assets: - Equities - 43.7
- Bonds and
cash 747.0 592.9
- Equity return swaps
valuation* 18.6 1.9
- Property and
other 115.5 114.6
- Insured retirement
obligations 310.6 291.3
-------------------------- --------- ---------
1,191.7 1,044.4
--------- ---------
- Uninsured retirement
Defined benefit obligation: obligations** (994.0) (786.8)
- Insured retirement
obligations (307.3) (288.0)
-------------------------- --------- ---------
Total defined benefit
obligation (1,301.3) (1,074.8)
Recognition of liability for unrecoverable
notional surplus - (12.1)
----------------------------------------------------------------------- --------- ---------
(1,301.3) (1,086.9)
--------- ---------
Net liability recognised in the balance
sheet (109.6) (42.5)
---------------------------------------------------------------------- --------- ---------
Related deferred
tax asset 18.6 12.5
------------------------------------------------------------------------- --------- ---------
Net pension liability (91.0) (30.0)
------------------------------------------------------------------------- --------- ---------
*Comprises a positive synthetic equity exposure of GBP157.5
million (2016: GBP107.7 million) and a negative LIBOR exposure of
GBP138.9 million
(2016: GBP105.8 million).
**Includes obligations to deferred members of GBP676.9 million
(2016: GBP541.9 million) and non-insured members of GBP317.1
million (2016: GBP244.9 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 2017 and the IAS 19 valuation at that date of GBP109.6
million, there would be nothing deducted from any notional surplus
returned to the Group (2016: GBP12.1 million). In the prior year
this was recognised as an additional liability in accordance with
IFRIC 14.It should be noted that cash contributions are determined
by reference to the triennial actuarial valuation, not the IAS 19
valuation. The 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.
2017 2016
Amounts recognised in consolidated income
statement GBPm GBPm
--------------------------------------------------------- ------- ------
Administration expenses (1.0) (0.8)
Settlement gain 2.0 -
Other finance costs -
pensions (0.8) (0.6)
------------------------------------------------------ ------- ------
Loss before tax 0.2 (1.4)
Deferred tax (0.3) 0.3
------------------------------------------------------------ ------- ------
Loss for the year (0.1) (1.1)
------------------------------------------------------------ ------- ------
2017 2016
Amounts recognised in other comprehensive
income GBPm GBPm
--------------------------------------------------------- ------- ------
Return on plan assets (excluding amounts
included in net interest) 152.5 (44.0)
Experience gains arising on scheme
liabilities 30.6 14.1
Actuarial (losses) / gains due to changes
in the financial assumptions (275.6) 4.6
--------------------------------------------------------- ------- ------
Net actuarial loss (92.5) (25.3)
Movement in liability for unrecoverable
notional surplus 12.1 4.8
--------------------------------------------------------- ------- ------
Recognised in other comprehensive
income (80.4) (20.5)
Related tax 10.7 1.0
------------------------------------------------------------ ------- ------
Net actuarial loss recognised in other comprehensive
income (69.7) (19.5)
---------------------------------------------------------- ------- ------
Actual returns on plan assets were GBP188.4
million (2016: GBP(8.0) million).
Notes to the preliminary announcement
16 Retirement benefit obligations (continued)
2017 2016
Movement in the present value of the defined
benefit obligations are as follows: GBPm GBPm
------------------------------------------------------ --------- ---------
Opening defined benefit obligation (1,074.8) (1,093.7)
Interest cost (36.7) (36.6)
Actuarial (losses) / gains arising from changes
in financial assumptions (275.6) 4.6
Actuarial gains arising from experience 30.6 14.1
Benefits paid 53.2 36.8
Settlement gains 2.0 -
Closing defined benefit obligation (1,301.3) (1,074.8)
------------------------------------------------- --------- ---------
2017 2016
Movement in the fair value of plan
assets are as follows: GBPm GBPm
--------------------------------------------------- --------- ---------
Opening fair value of scheme
assets 1,044.4 1,069.2
Interest income on fund
assets 35.9 36.0
Re-measurement gains / (losses)
on fund assets 152.5 (44.0)
Contributions by employer 13.1 20.8
Administration costs
incurred (1.0) (0.8)
Benefits paid out (53.2) (36.8)
Closing fair value of
plan assets 1,191.7 1,044.4
------------------------------------------------------- --------- ---------
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 2017 2016 2015
GBPm GBPm GBPm
Equities :
United Kingdom 42.8 35.0 49.9
North America 62.4 46.3 65.9
Europe (ex UK) 22.8 17.9 26.4
Japan 17.9 12.2 17.1
Asia (ex Japan) 11.6 8.5 9.2
Emerging Markets - 15.4 23.7
Global Small Cap - 16.1 16.2
Cash/LIBOR Synthetic
Equity (138.9) (105.8) (144.6)
Emerging Market Debt
* 55.0 52.3 54.0
Multi Asset Credit ** 69.1 62.0 62.5
Insurance Linked Securities
*** 37.6 31.7 29.4
Absolute Return Bonds
**** 33.5 32.5 33.1
Bonds:
Corporate Bonds 203.9 123.8 118.1
Liability Driven Investments
***** 305.9 225.3 224.6
Annuity Policy 310.6 291.3 306.8
Property 77.9 82.9 76.6
Cash 79.6 97.0 100.3
------------------------------ ------- ------- -------
Total 1,191.7 1,044.4 1,069.2
------------------------------ ------- ------- -------
Equities are a combination of physical equities of GBPnil (2016:
GBP43.7 million), a positive synthetic equity exposure of GBP157.5
million (2016: GBP107.7 million) and a negative LIBOR exposure of
GBP138.9 million (2016: GBP105.8 million).
The Group does not use any of the 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
Notes to the preliminary announcement
16 Retirement benefit obligations (continued)
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.
The principal assumptions used in determining retirement benefit
obligations for the Fund are shown below:
2017 2016 2015
% % %
-------------------------------------- ---- ---- ----
Key assumptions:
Price inflation (RPI) 3.3 3.2 3.1
Price inflation (CPI) 2.2 2.1 2.0
Pension increases (Pre 1993
- RPI to 7% / annum) 3.3 3.2 3.1
Pension increases (1993 to 2006
- RPI to 5% / annum) 3.2 3.1 3.0
Pension increases (Post 2006
- RPI to 4% / annum) 3.0 2.9 2.8
Life expectancy at 65 for a
male currently aged 50 (years) 24.1 24.0 23.9
Average expected remaining life of
a 65 year old retired male (years) 22.5 22.4 22.4
Life expectancy at 65 for a
female currently aged 50 (years) 27.0 26.9 26.8
Average expected remaining life of
a 65 year old retired female (years) 24.8 24.7 24.6
Discount rate 2.4 3.5 3.4
----------------------------------------------- ---- ---- ----
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 to these assumptions is as follows:
Expected Expense for 2017/18
Expected Expense for 15/16
--------------------------------
Service Net Total P&L March 2017
Cost Interest Charge Deficit
GBPm GBPm GBPm GBPm
--------- --------- ---------- ----------
Current Figures 1.0 2.4 3.4 (109.6)
Effect of a 0.1% decrease
in the discount rate - 0.4 0.4 (22.9)
Recalculated value 1.0 2.8 3.8 (132.5)
Effect of a 0.1% increase in
the inflation assumption - 0.5 0.5 (20.3)
Recalculated value 1.0 2.9 3.9 (129.9)
Effect of a 1 year increase
in life expectancy - 1.0 1.0 (41.6)
Recalculated value 1.0 3.4 4.4 (151.2)
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 2017 were both 36% of those obligations not covered by
annuity contracts.
The Company recognises no liabilities on its balance sheet, or
charges or credits in its income statement or statement of
recognised income and expense in relation to the Fund. The legal
sponsor of the Fund is Dairy Crest Limited.
Defined Contribution Pension Scheme
The Group has charged GBP2.0 million in respect of the Dairy
Crest Group defined contribution scheme in the year ended 31 March
2017 (2016: GBP2.1 million).
Notes to the preliminary announcement
17 Trade and other payables
2017 2016
GBPm GBPm
------------------------------ ---- -----
Trade payables* 45.8 50.2
Other tax and social security 1.2 1.3
Other creditors* 6.4 32.4
Accruals* 25.7 36.4
-------------------------------- ---- -----
79.1 120.3
---- -----
*Financial liabilities at amortised cost.
Included within accruals is GBP7.6 million in relation to
promotional funding which is subject to a degree of estimation
uncertainty (2016: GBP13.0 million). The accruals relating to
promotional funding are calculated based on an estimated redemption
rate of the promotion. The customer will claim the funding
retrospectively based on the performance of the promotion. There
has been a reduction in accruals relating to promotional funding in
the period reflecting a growing trend towards off-invoice
promotional funding from retrospective promotional funding.
18 Provisions
Site restructuring Dairies disposal Dilapidation
and rationalisation provision provision Total
GBPm GBPm GBPm GBPm
-------------------- ------------------- ---------------- ------------ -----
As at 1 April 2016 5.0 3.0 2.0 10.0
Utilised during the
year (2.7) (2.8) - (5.5)
Charged during the
year - - 0.2 0.2
------------------------ ------------------- ---------------- ------------ -----
At 31 March 2017 2.3 0.2 2.2 4.7
------------------------ ------------------- ---------------- ------------ -----
Current 2.3 0.2 0.2 2.7
Non-Current - - 2.0 2.0
At 1 April 2015 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 5.0 3.0 2.0 10.0
------------------------ ------------------- ---------------- ------------ -----
Current 5.0 3.0 2.0 10.0
Non-Current - - - -
Restructuring and rationalisation of operating sites
In the prior 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 has
paid GBP2.7 million of these costs in the year ending 31 March 2017
(2016: GBP2.4 million) and expects the remaining provision to be
utilised in the year ending 31 March 2018.
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 has paid GBP2.8 million of these costs in
the year ending 31 March 2017 and expects the remainder of this
provision to be utilised in the year ending 31 March 2018.
Dilapidation provision
At 31 March 2017, 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 respective properties. A provision of
GBP0.2 million relates to vacated properties and therefore may
become payable in the year ending 31 March 2018. The remaining
GBP2.0 million relates to properties where the lease term expires
in the year ending 31 March 2020 and as such the provision has been
re-classified as non-current in the Group's financial statements.
The prior year has not been re-stated.
Notes to the preliminary announcement
19 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.
The disposal resulted in a post-tax loss of GBP108.0 million
which is analysed below. The final consideration of GBP23.5 million
comprised GBP54.5 million received in cash during the prior year
net of GBP25.9 million which was provided for in the prior year but
repaid to Muller in 2017. The final consideration adjustment of
GBP2.5 million was agreed in the current year. The disposal
resulted in a net cash outflow in the current year of GBP28.4
million (2016: GBP49.0 million inflow, after GBP5.5 million of
professional fees).
Year ended Year ended
31 March
31 March 2017 2016
GBPm 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 (2.5) 28.6
(5.5)
Disposal costs - (5.5)
-------------------------------------------- ------------- ----------
Loss on disposal before
tax (2.5) (137.3)
Attributable tax 5.2 26.6
--------------------------------------------------- ------------- ----------
Profit / (loss) on disposal of discontinued
operations 2.7 (110.7)
-------------------------------------------------- ------------- ----------
(ii) Acquisition
There were no business acquisitions during the year.
In the prior year, 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 a joint venture between the
Group and Fayrefield Foods Limited to develop and produce GOS, 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 under 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 GOS in
infant formula and other products. None of the goodwill is expected
to be deductible for corporate income tax purposes.
Notes to the preliminary announcement
20 Cash flow from operating activities
Year ended Year ended
31 March 31 March
2017 2016
GBPm GBPm
----------------------------------------------------- ---------- ----------
Profit before taxation -
continuing operations 40.3 45.4
Loss before taxation - discontinued
operations (4.6) (187.2)
Finance costs and other finance income
- continuing operations 8.5 8.9
Loss on disposal of Dairies operation 2.5 137.3
---------------------------------------------------------- ---------- ----------
Profit on operations 46.7 4.4
Depreciation 14.9 23.4
Amortisation of internally generated
intangible assets 0.5 2.0
Amortisation of acquired
intangible assets 0.4 0.4
Impairment of investment 0.5 -
Difference between cash outflow on exceptional items
and amounts recognised in the income
statement (excluding disposal of Dairies operation) (6.5) 10.3
Release of grants (1.6) (1.7)
Share-based payments 1.2 2.2
Profit on disposal of depots (3.0) (3.7)
Difference between pension contributions paid and
amounts recognised in the income statement (14.1) (20.0)
R&D tax credits (0.1) -
(Increase)/decrease in inventories (10.5) 13.8
Decrease in receivables 9.3 44.2
Decrease in payables (4.9) (44.0)
Cash generated from operations 32.8 31.3
-------------------------------------------------------- ---------- ----------
21 Analysis of net debt
At 1 April Cash Non-cash Exchange At 31 March
2016 flow movement** movement 2017
GBPm GBPm GBPm GBPm GBPm
-------------------------- --- ---------- ------ ---------- -------- -----------
Cash and cash equivalents 100.3 (79.4) - - 20.9
Borrowings (current)** (95.6) 95.6 (11.3) (0.6) (11.9)
Borrowings (non-current) (249.2) (23.0) 11.3 (13.1) (274.0)
Finance leases*** (3.9) 1.5 (0.1) - (2.5)
Debt issuance costs 1.9 0.4 (0.9) - 1.4
-------------------------------- ---------- ------ ---------- -------- -----------
(246.5) (4.9) (1.0) (13.7) (266.1)
Debt issuance costs
excluded (1.9) (0.4) 0.9 - (1.4)
Impact of cross-currency
swaps * 19.4 (15.4) - 13.7 17.7
-------------------------------- ---------- ------ ---------- -------- -----------
Net debt (229.0) (20.7) (0.1) - (249.8)
--------------------------- --- ---------- ------ ---------- -------- -----------
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)
--------------------------- --- ---------- ------ ---------- -------- -----------
* The Group has $126.3 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 2016: $249.4
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 GBP17.7 million
adjustment included in the above (March 2016: GBP19.4 million)
converts the Sterling equivalent of Dollar and Euro loan notes from
year end exchange rates (GBP110.1 million (March 2016: GBP182.0
million)) to the fixed Sterling liability of GBP92.4 million (March
2016: GBP162.6 million).
** During the year the Group repaid $123 million (GBP70.2
million) and GBP10 million of 2006 fixed coupon loan notes on
maturity. The GBP80.2 million cash flow in respect of the repayment
is reflected in the table under borrowings (current) of GBP95.6
million and the impact of cross-currency swaps of GBP15.4
million.
*** Finance lease non-cash movement relates to the recognition
of the agreement of a secondary lease term for assets at
Nuneaton.
Notes to the preliminary announcement
22 Post Balance Sheet Events
Maturity of Fixed Coupon Loan Notes
On 4 April 2017, the Group repaid EUR10.7 million (GBP9.2
million) and GBP2.8 million of 2007 fixed coupon loan notes on
maturity.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BIGDURBBBGRR
(END) Dow Jones Newswires
May 18, 2017 02:00 ET (06:00 GMT)
Dairy Crest (LSE:DCG)
Historical Stock Chart
From Mar 2024 to Apr 2024
Dairy Crest (LSE:DCG)
Historical Stock Chart
From Apr 2023 to Apr 2024
