Although we tried to complete the assignment within the stipulated number of words, yet after taking charts, diagrams and tables into consideration [roughly 500 words] it goes slightly above the word limit Introduction In this assignment, history of Dairy Crest Group Plc will be portrayed followed by the balance sheet interpretation, calculation and analysis of key financial ratios, commenting on the performance of Dairy Crest in 2007.
Dairy Crest is a broadly based UK Chilled dairy food company with a significant presence in UK dairy market, serving both the retail grocery trade and major food manufacturers, employing roughly 7,000 people at locations around the UK. We can notice a substantial increase in the Goodwill (283. 2m in 2007, 131. 1m in 2006) and the Intangible Assets (151. 5m in 2007, 4. 5m in 2006). Goodwill covers the various attributes of the business like, quality of the product, skill of the work force, relationship with the customers etc.
However, here, it is evident from the company’s cash flow statement that it has acquired new businesses for 293. 3m. The increase is primarily caused by these two acquisitions in the accounting period 2006-07. The same has caused the increase in the Intangible Assets in the form of assembled workforce, license agreements, and contact with the customers etc. There is a noticeable decrease in the total current assets, which have gone down from 350. 1 m in 2006 to 330. 7 m in 2007. It can be a cause of worry for any group.
However, it can be seen that the change is brought down by decrease in inventories from 192. 6m in 2006 to 147. 5m in 2007. The decrease has been primarily caused by the sale of their retailer-branded cheese business, as we can notice the sale transaction in the group’s cash flow statement. The sale was a strategic move in order to concentrate more on the branded cheese business and added value elements. The long-term borrowings have increased hugely from 253. 8m in 2006 to 339. 9m in 2007.
But again, the main reason behind borrowings was the acquisition of two businesses. Though, the finance charges have gone up by 15% to 19. 2m as a result of increased levels of net debt, yet it has been offset by the profit generated from the amount invested. As a result of the acquisition of the Express Dairies, the Dairies division of the company has increased profit on operations by 52% to 27. 1m. Also, the other acquired business- St. Hubert, has enjoyed overall profit increase of 7%. It implies that the Group is on a progressive path.
Retirement Benefit Obligation was in deficit of 62. 0m at the end of Financial Year 2005-06. It has come down to 0. 4m in 2006-07. It implies that the investments of the fund have caused a strong return. If we track the operations of the group for the year 2006-07, it is clear that due to 60% equity weighting and strong worldwide equity return, the movement in the fair value of plan assets has gone up by 65. 9m. Also, the yields from the corporate bonds have been higher than the yields last year.
Bonds and cash together have gone up from 160. 3m in 2006 to 245. 8m in 2007. And the group itself has also contributed to the pension scheme during 2006-07, equalling 17. 0m. Deferred Tax Liability means, any future tax liability. It is caused by the temporary differences between the book value of assets and liabilities and their tax value. The main reason behind it is the difference between the accounting for shareholders and the Tax Accounting. It has gone up hugely to 82. 4m from 13. 6m in 2005-06.
