Dairy Crest has issued a pre-close trading update for the six months ending 30 September 2013, ahead of announcing Interim Results on 7 November 2013.
“We continue to perform in line with our expectations despite the challenging trading environment,” said Mark Allen, chief executive. “The butters and spreads market has been particularly difficult. We have offset pressures there by growing our cheese business, reducing our cost base and improving the underlying performance of Dairies. We are excited by our investment in whey which is in line with our strategy of growing added value sales and expect this to generate attractive returns for shareholders.”
Dairy Crest said that it continues to focus on the profitability of its key brands and its dairies business and cost reduction remains an important part of its strategy. Sales of the company’s four key brands are together likely to be broadly the same as they were in the corresponding period last year when they grew by 11% compared to the six months ended 30 September 2011.
The cheese business performed well in the first half, said Dairy Crest, and it expects sales of Cathedral City to have outperformed the market and increased in the first half compared to the same period last year. However, the butters and spreads market has been difficult and profits in the company’s spreads business will be lower than last year. Clover sales are expected to be broadly unchanged as the brand continues to outperform the market but Country Life sales will be lower as a result of less promotional activity. Dairy Crest said that it also faced higher input costs in our Spreads business which has impacted profitability.
The underlying performance of the Dairies business continues to improve towards Dairy Crest’s medium-term target of 3% return on sales, although reported first half profits will be impacted by lower profits from property sales which this year will be weighted to the second half. Higher returns from cream have contributed to the improved underlying performance. They have also enabled Dairy Crest to pay farmers more for their milk across all its milk purchasing contracts. As expected, FRijj sales will be lower in the first half after Dairy Crest scaled back promotions during the upgrade of its production capacity and capability. This upgrade work is on track to be completed in October and Dairy Crest expects an improved performance in the second half. This business benefits most from the work done to reduce costs and Dairy Crest now expects to achieve annual cost savings across the group of more than £20 million this year.
Looking forward, Dairy Crest said that it had committed to investing around £45 million to add value to the whey produced as a by-product of the cheese made at its creamery in Davidstow, Cornwall. At present, the unit produces standard whey powder which is mostly sold to food manufacturers. The investment will allow the company to remove minerals from the whey and produce demineralised whey powder, a base ingredient for baby food – a fast growing global market. Dairy Crest said that it expects production to start in the first half of 2015 and anticipate that the project will enhance full year operating profits by over £5 million after additional depreciation charges of around £4 million, effectively providing a five year cash payback.
“We continue to perform in line with our expectations despite the challenging trading environment,” said Mark Allen, chief executive. “The butters and spreads market has been particularly difficult. We have offset pressures there by growing our cheese business, reducing our cost base and improving the underlying performance of Dairies. We are excited by our investment in whey which is in line with our strategy of growing added value sales and expect this to generate attractive returns for shareholders.”
Dairy Crest said that it continues to focus on the profitability of its key brands and its dairies business and cost reduction remains an important part of its strategy. Sales of the company’s four key brands are together likely to be broadly the same as they were in the corresponding period last year when they grew by 11% compared to the six months ended 30 September 2011.
The cheese business performed well in the first half, said Dairy Crest, and it expects sales of Cathedral City to have outperformed the market and increased in the first half compared to the same period last year. However, the butters and spreads market has been difficult and profits in the company’s spreads business will be lower than last year. Clover sales are expected to be broadly unchanged as the brand continues to outperform the market but Country Life sales will be lower as a result of less promotional activity. Dairy Crest said that it also faced higher input costs in our Spreads business which has impacted profitability.
The underlying performance of the Dairies business continues to improve towards Dairy Crest’s medium-term target of 3% return on sales, although reported first half profits will be impacted by lower profits from property sales which this year will be weighted to the second half. Higher returns from cream have contributed to the improved underlying performance. They have also enabled Dairy Crest to pay farmers more for their milk across all its milk purchasing contracts. As expected, FRijj sales will be lower in the first half after Dairy Crest scaled back promotions during the upgrade of its production capacity and capability. This upgrade work is on track to be completed in October and Dairy Crest expects an improved performance in the second half. This business benefits most from the work done to reduce costs and Dairy Crest now expects to achieve annual cost savings across the group of more than £20 million this year.
Looking forward, Dairy Crest said that it had committed to investing around £45 million to add value to the whey produced as a by-product of the cheese made at its creamery in Davidstow, Cornwall. At present, the unit produces standard whey powder which is mostly sold to food manufacturers. The investment will allow the company to remove minerals from the whey and produce demineralised whey powder, a base ingredient for baby food – a fast growing global market. Dairy Crest said that it expects production to start in the first half of 2015 and anticipate that the project will enhance full year operating profits by over £5 million after additional depreciation charges of around £4 million, effectively providing a five year cash payback.
