“Our results reflect trading conditions that proved even tougher than we had anticipated, due to an intensification of competition in the shop and supermarket sector. Against this very difficult background, management is making good progress with the implementation of planned cost reductions and business reorganisation.”
* Operating profit before goodwill amortisation and operating exceptional charges £20.3  million (2000: £32.1 million)
* Underlying* pre-tax profit £13.3 million (2000: £23.3 million)
* Debt reduced by £28 million since September 2000
* Planned cost savings of £9 million this year on track – further significant cost savings  identified
* Non-core businesses in Northern Ireland, Scotland and Durham sold
* New Chairman and Deputy Chairman appointed

“We are in the process of re-engineering the business to provide increased focus on our two core activities and to reduce our level of debt.”
* Underlying pre-tax profit is defined as profit before taxation, exceptional items and goodwill amortisation, adjusted for discontinued activities and minority interest.

Chairman’s Statement: Christopher Haskins
Our results reflect trading conditions that proved even tougher than we had anticipated, due to an intensification of competition in the shop and supermarket sector. Against this very difficult background, management is making good progress with the implementation of planned cost reductions and business reorganisation. Results
Underlying* pre-tax profit for the six months to 30 September 2001 was £13.3 million (2000: £23.3 million). Operating profit before goodwill amortisation and operating exceptional charges was £20.3 million (2000: £32.1 million) and interest charges were £5.3 million (2000: £8.2 million) reflecting improved cash flow and a £1.9 million net benefit from the unwinding of currency and interest swaps following the redemption of US Notes. Adjusted earnings per share were 2.8 pence (2000: 5.6 pence)
The reduction in operating profit against our expectation principally reflected increased competition in the supply of milk to retailers, as new capacity was added in an already oversupplied market place. We retained our position as the leading UK supplier to the major retailers, gaining market share albeit at the expense of margins. Profitability in the doorstep sector continued to be affected by declining volumes and the under-recovery of increased raw milk costs.
Cost reduction and reorganisation
Determined action has been taken to reduce our cost base across the business, and we are on track to deliver our forecast savings of £9 million in the current financial year. Further savings have already been identified for next year, including £2 million as a result of our development of a shared service centre centralising accounting for all our operations.
Net debt at 30 September was £195 million, compared with £224 million at the same point last year and £203 million at the end of our financial year in March. This positive trend continues, with receipts of £20 million from disposals announced in the second half.
* Underlying pre-tax profit is defined as profit before taxation, exceptional items and goodwill amortisation, adjusted for discontinued activities and minority interest.
The Board has decided that it is not appropriate to declare an interim dividend for the current year. Dividend policy will be reviewed in the light of the full year results and our prospects for the next financial year.
The Board
As previously announced, Sir David Naish will become Chairman and Peter Cawdron Deputy Chairman of the Group on my long-planned retirement early in 2002. Sir David has served as a non-executive director since the demerger in 1998, and has unrivalled experience of agriculture and the food industry as both a businessman and a past President of the National Farmers’ Union. His expertise will be ideally complemented by that of Peter Cawdron, a non-executive director since 1999, who was formerly Group Strategy Development Director of Grand Metropolitan and has had extensive experience of corporate restructuring and the City both in that role and as a director of other major public companies. I am confident that I will leave the future direction of the business in experienced and capable hands, and I look forward to working with them and the executive directors to ensure a smooth transition.
The business will benefit from the steps management have already taken to reorganise our activities and reduce costs, and further action is planned in the months ahead. This will drive further reductions in the group’s debt position. Although trading conditions will remain difficult particularly until industry overcapacity in the supermarket sector is reduced, we will continue to protect our leading market positions and to simplify and strengthen our business for the longer term. 
Chief Executive’s Review: Neil Davidson
We are in the process of re-engineering the business to provide increased focus on our two core activities and to reduce our level of debt. We have successfully implemented significant cost saving measures and since 30 September we have sold non-core operations in Northern Ireland, Scotland and Durham. We have also proved the practicality of delivering parcels on milk rounds, through our trials in recent months with Parcelforce Worldwide.
Disposals and rationalisation
The sale of our 80%-owned Northern Ireland milk business, Dale Farm Dairies, to Dromona Quality Foods, a subsidiary of the major farmers’ co-operative in the Province, was completed on 3 November. The cash consideration for our shareholding was £14.6 million, realising a profit over book value of approximately £1 million, subject to completion adjustments and after recycling £3.7 million of goodwill previously written off. The sale of our business supplying milk to small shop and catering customers in the central belt of Scotland to Grahams Dairies for £0.5 million was completed on the same date.
On 5 November, we announced the sale of our liquid milk business and certain assets in County Durham to Associated Co-operative Creameries for £5 million, subject to completion adjustments. This is a predominantly wholesale business, supplying independent bottled milk buyers, and did not fit our core focus on franchised home delivery in the major conurbations of the North West, Midlands and London.
As previously announced we closed our Wakefield bottling dairy in April and closed our London glass bottling operation at Ruislip in September. We have recently announced the closure of our Durham dairy, following the sale of our business in the area. This will concentrate our glass bottling at two centres in Liverpool and Nottingham, so maximising throughput and efficiencies. Total planned cost savings of £9 million this year are being delivered on schedule. The development of our new shared service accounting centre in Leicester is proceeding to plan, and this will contribute £2 million to the significant cost savings which have already been identified for our next financial year. As our re-engineering of the group continues, there will be further emphasis on reducing costs.
We have recently gained market share in an intensely competitive market place, thus retaining our pre-eminent position as the leading supplier of milk to the major retailers. Since 1994 we have invested over £100 million in our supermarket dairies, which remain the most fully automated in the UK.
Utilisation and productivity are at record levels and are continually improving. We believe that our total supply chain costs, from farms to supermarket and shops, are the lowest in the industry in England.
Home delivery
The profitability of our home delivery business was affected by higher raw milk costs, recovery of which has now been achieved through the implementation of three 1p per pint price increases over the last 12 months. This in turn affected volumes, which have shown a decline of 11% year-on-year, in line with our expectations.
The practicality of parcel delivery by our franchisees as an integral part of the milkround has been proven over the last few months in a trial with Parcelforce Worldwide across 29 of our depots. The milkround offers a very cost effective method of covering the expensive last few miles to household and office parcel delivery points. The Group’s objective is to exploit this opportunity in conjunction with existing parcel operators and in doing so increase the utilisation of our depots and vehicles, without the need for major investment.
Other businesses
Our Ingredients business achieved higher prices than anticipated for commodity products, particularly skimmed milk powder, but this was counterbalanced by lower than expected volumes.    Commodity prices have fallen sharply in the second half to date, but our stock levels are low. Unless sterling weakens significantly in the short term, these falls suggest downward pressure on UK raw milk prices in the months ahead.
Our Distribution business performed satisfactorily, notwithstanding a major fire at our Warrington depot and the additional costs of preventive measures following the foot and mouth disease outbreak.
In Scotland, an agreement in lieu of ‘Interim Measures’ between Robert Wiseman Dairies and the Office of Fair Trading is currently being implemented. It is too early to say whether this will provide our Claymore Dairies subsidiary with the relief that these measures were intended to achieve. The principal OFT enquiries in Scotland continue, and we await further developments.
The results of our Northern Ireland operations, which have been sold since the end of the first half, are shown as a discontinued business.
Management and staff
Job losses are the unpalatable but inevitable consequence of our drive to reduce costs. When the announced disposals and associated job transfers are complete, we will employ 6400 people – 1250 fewer than a year ago. I would like to record the Board’s appreciation of the understanding and commitment which all our people have shown in implementing and adapting to the essential changes in the business over the last twelve months. 

Financial Review: Paul Whitfield (Finance Director)
Cash flow and financing
The cash inflow for the period was £8.0 million, some £31 million better than the corresponding period last year, reducing group debt to £195.4 million at 30 September. Major items of note in the cash flow are the seasonal working capital outflow of £14.4 million (more than £8 million better than the first half of last year) and £3.7 million of asset sales. There are a number of further redundant site sales to progress during the second half.
Capital expenditure in the half year was approximately £5 million as major spends on facilities and the roll out of hand held terminals to our roundsmen are now complete.
Turnover on continuing activities at £437.0 million was 1% higher than in the corresponding period last year, with increased sales to major retailers outweighing the decline in doorstep deliveries. Selling prices in all sectors rose during the period as a result of the increases in milk input costs in October 2000 and April 2001.
Underlying pre-tax profit before goodwill amortisation, exceptionals and minority interest, adjusted for the sale of our Irish business as a discontinued activity, was £13.3 million in the period, a reduction of some 43% year on year. Operating losses in our Scottish operations amounted to £1.5 million in the first six months, a similar level to those reported in the previous period.
Net interest costs at £5.3 million benefited by a credit of £1.9 million following the buyback of 25% of our US loan notes at par, completed on 5 October, and the unwinding of the associated cross currency and interest rate swaps. This figure compares to realised gains of £0.4 million in the comparable period last year and £1.6 million for the year to March 2001.
Exceptional costs
Operating exceptional costs of £5.7 million relate primarily to the closure of the Ruislip bottling plant and the ongoing costs of moving all administration into a shared service centre in Leicester.
The major item within the non-operational exceptional item of £5.7 million is the £3.0 million write-off of our shareholding in m-box, the remainder being a combination of profit following an insurance claim and a write-down of certain assets to realisable value.
The effective tax rate pre-exceptionals is 41.7% primarily due to goodwill amortisation for which no tax relief is available. An £8.0 million adjustment has been made to the prior year and current balance sheet for deferred tax in line with the requirements of the new accounting standard FRS 19 which requires the recognition of all timing differences.  


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