Annual Report 2015
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Dairy Crest Group plc Annual Report 2015 Dairy Crest Group plc Claygate House Littleworth Road Esher Surrey KT10 9PN Company No: 3162897 Visit our website at www.dairycrest.co.uk Dairy Crest Group plc http://www.dairycrest.co.uk/investors/ Annual Report 2015 This report is printed on Chorus Lux Silk paper. This paper has been independently certified as meeting the standards of the Forest Stewardship Council® (FSC) and was manufactured at a mill that is certified to the ISO14001 and EMAS environmental standards. The inks used are all vegetable based. Printed at Pureprint. Designed and produced by Tor Pettersen & Partners. Photographic direction by Hudson Wright Associates. Board photography by Ed Hill. CONTENTS Dairy Crest processes and markets branded dairy 2 At a glance products and nutritious fresh milk. The Company Strategic report 4 Our business model has a well-established strategy, a clear vision, 6 Our strategy robust values and good people. 8 Our people 10 Chairman’s statement 11 Chief Executive’s review In the year ended 31 March 2015 Dairy Crest has grown the 14 Principal risks and uncertainties combined sales and profits of our predominantly branded 16 Performance Strategic report Cheese and whey and Spreads and butter businesses. 16 – Cheese & whey 18 – Spreads & butters We have also negotiated the sale of our Dairies operations. 20 – Dairies 22 – Milk Procurement Reported sales and profits from these operations have both 23 – Corporate Responsibility fallen in the year. 28 – Financial review The sale, which will transform Dairy Crest and allow us to Governance 32 Board of Directors and Advisers focus further on profitable growth, is subject to the approval 34 Management team Governance of the competition authorities. 35 Corporate governance 45 Directors’ remuneration report We constantly innovate, bringing new products to market and 63 Directors’ report new ways of working across the business. 66 Statement of Directors’ responsibilities We are a responsible business and have been awarded five The numbers stars by Business in the Community up from four and a half 67 Independent auditor’s report stars last year, maintaining our place at the very top of their 71 Consolidated income statement 72 Consolidated statement index. of comprehensive income 73 Consolidated and Parent The numbers At the end of a year of change, Dairy Crest is well positioned Company balance sheets to deliver sustainable and profitable growth for the benefit of 74 Consolidated statement everyone connected to the business. of changes in equity 75 Parent Company statement of changes in equity 76 Consolidated and Parent Company statement of cash flows 77 Accounting policies 83 Notes to the financial statements 121 Group financial history 122 Shareholders’ information Notice: Limitations on Director liability – company law. Liabilities of the Directors in Non-GAAP measures of financial performance The purpose of the Annual Report is to provide connection with that report shall be subject to the used throughout this Annual Report and information to members of the Company and it limitations and restrictions provided by such law. Accounts are defined in the Financial review has been prepared for, and only for, the members on pages 28 to 31 and in Note 1 to the of the Company, as a body. The Company its Cautionary statement regarding forward financial statements. Directors, employees, agents and advisors do looking statements – The Group’s reports not accept or assume responsibility to any other including this Annual Report and Accounts and person to whom this document is shown or written information released or oral statements into whose hands it may come and any such made to the public in future, by or on behalf responsibility is expressly disclaimed. Under the of the Company and the Group, may contain Companies Act 2006, a safe harbour limits the forward-looking statements. By their nature, liability of Directors in respect of statements in these statements involve uncertainty since future and omissions from the Report of the Directors events and circumstances can cause results contained on pages 4 to 33 and 35 to 44. Under to differ materially from those anticipated. The English law the Directors would be liable to forward-looking statements reflect knowledge the Company (but not to any third party) if the and information available at the time of their Report of the Directors contained errors as a preparation and, except to the extent required by result of recklessness or knowing misstatement applicable regulations or by law, the Company or dishonest concealment of a material fact, but and the Group undertake no obligation to update would not otherwise be liable. The Report of the these forward-looking statements. Nothing in this Directors has been drawn up and presented in Annual Report and Accounts should be construed accordance with and in reliance upon English as a profit forecast. Dairy Crest Annual Report 2015 1 AT A GLANCE Who we are Dairy Crest processes and markets branded dairy products and nutritious fresh milk Vision Strategy tWe are proud of our links to the countryside, our dairy tTo generate growth by building strong positions in heritage and the part they play in everyday life branded and added value markets tWe want to earn the right to consumers’ loyalty by tTo simplify, make sustainable and reduce costs providing healthy, enjoyable, convenient products tTo generate cash and reduce risk We aim to meet consumers’ needs and go where this t To make acquisitions where they will generate value takes us t tAs we grow, we will look after our people and the communities where we work Product groups Cheese & whey Spreads & butters Dairies Contribution to Group: % of total Group. Revenue excludes other revenue. Profit is product group profit excluding associates. Cheese revenue Cheese profit Spreads revenue Spreads profit Dairies revenue Dairies profit 21% 48% 13% 49% 66% 3% Dairy Crest has the leading cheese brand Dairy Crest produces some of the UK’s We process and deliver fresh conventional, in the UK, Cathedral City, and a world- leading spreads and butter brands. We organic and flavoured milk to major class cheese supply chain. Cathedral City focus on two key brands Clover and retailers, ‘middle ground’ customers is made at our Davidstow creamery in Country Life. including smaller retailers, coffee shops Cornwall from milk supplied by local dairy We also manufacture and sell Frylight and hospitals, and residential customers. farmers. The cheese is matured, cut and one calorie cooking spray. We also manufacture and sell FRijj, the wrapped at our purpose-built facility in During the year we have consolidated leading fresh flavoured milk brand, cream Nuneaton from where it is despatched to the production of spreads and packet and milk powders. retailers. butters at Kirkby, Merseyside. Dairies also benefit from property profits We also have a smaller cheese arising from the sale of surplus depots. packing facility at Frome, Somerset which Highlights provides the business with additional tCountry Life Spreadable continues to Highlights flexibility. We currently dry the whey that grow and outperform the market tFRijj sales up by 7% is produced as a by-product of cheese Clover maintains market share – awarded Reduced sugar FRijj variant introduced making at Davidstow. t t ‘Best Buy’ in spreads category by Which We are developing a new facility that Ongoing cost reductions achieved magazine t will manufacture demineralised whey Property profits £17.6 million powder and galacto-oligosaccharide, a tFrylight sales growing strongly t lactose based prebiotic. Packet butter and spreads manufacturing t Sale of Dairies consolidated into one site Highlights On 6 November 2014 Dairy Crest tCathedral City continues to grow market agreed to sell its Dairies operations share and is now Britain’s 16th largest to Muller UK and Ireland Group grocery brand (Source: The Grocer) LLP for £80 million in cash on tCathedral City now accounts for over completion. The sale has been 50% of total retail branded cheddar sales approved by shareholders but remains conditional on tOur premium brand Davidstow has also the approval of the relevant grown market share competition authorities. tOn track to produce demineralised whey Details of the sale are included and galacto-oligosaccharide later in 2015 in the Financial review on page 29. 2 Dairy Crest Annual Report 2015 Our retail markets Financial highlights IRI market data, £ million 52 weeks ended Revenue Adjusted profit Net debt 28 March 2015 (£m) before tax* (£m) (£m) Cheese 2,453 65.3 336.4 1,514.7 1,502.2 60.6 311.6 1,391.0 1,381.6 1,329.8 Butter and 52.9 49.7 1,161 47.5 spreads 198.7 Milk 2,764 142.2 * Before exceptionals, Ready to drink 59.7 268 amortisation of flavoured milk acquired intangibles and pension interest 11 12 13 14 15 11 12 13 14 15 11 12 13 14 15 Production sites Cheese & whey Kirkby Foston1 Nuneaton No1 UK branded cheese 1 Severnside1 Chadwell Heath Hanworth1,3 Erith Frome Chard 2 Davidstow Spreads & butters Dairies 1. Site included in the proposed sale of Dairies operations. 2. Planning to close 2015. 3. Planning to close 2016. No1 UK dairy spread Fresh milk Country Life milk to retailers Frylight 1Cal No1 ready Residential to drink delivery – flavoured milk ‘milk&more’ Dairy Crest Annual Report 2015 3 OUR BUSINESS MODEL Making the most from milk Raw milk Cheese Dairies and Spreads Packaged milk Cream Dairy Crest processes and markets branded dairy products and nutritious fresh milk. Our business depends on milk and we make sure we use every drop we buy. This diagram shows how milk flows through our business and the products we make from it. We have three product groups: Cheese & whey, Spreads & butters and Dairies. Milk procurement Cheese & whey Spreads & butters A sustainable supply of high We process over 400 million Our Spreads & butters quality milk is important to litres of milk into cheese each operation makes packet butter Dairy Crest.