Raw material costs soar, but Dairy Crest nails savings
In addition, the company expected its new demineralised whey business to generate extra profit of £5M in 2015–2016, it reported as it announced its annual results.
The sale of its French spreads business St Hubert last year had helped transform it into a simpler, stronger business, with better potential for future growth, Dairy Crest said.
It had completed its reorganisation into one business unit, enabling it to increase its consumer focus and boost supply chain efficiencies, it said.
The rationalisation of butter and spreads manufacturing into its site in Kirkby, Manchester, supported by a £30M investment, and the planned closure of its Crudgington factory was progressing well, it added.
Dairy Crest said it aimed to spend £45M on its Davidstow demineralised whey operations, intended to add value to the whey it produces as a by-product of cheese production, by May 2015. It expected production of the ingredient there to begin in mid 2015.
‘Exclusive contract’
“We are in the process of agreeing a contract with an exclusive customer, which is already well established in the appropriate markets,” the company reported. “The customer will also provide technical advice as the project moves forward.”
On the other side of things, its major UK retail customers were suffering declines in food sales and in an effort to compete were keeping liquid milk prices down. As a result, Dairy Crest was finding it hard to pass on increases in raw material prices to customers, emphasising the importance of cost reduction initiatives, it said.
It had managed to cut costs by £25M across the year, ahead of a £20M target. “The greatest cost savings this year have arisen from the reorganisation of the business into ‘One Dairy Crest’,” the firm reported. “Next year we expect to benefit from lower spreads manufacturing costs as a result of the consolidation of our spreads manufacturing into Kirkby as well as lower milk distribution costs.”
The company said it aimed to deliver 3% growth in dairy operations in the medium term.
Dairy Crest grew sales of major brands, Cathedral City cheese, Clover and Country Life butters and spreads and Frijj flavoured milk by 4% overall during the year. However, while Cathedral City sales rose 12%, driven by innovation, sales of Clover fell by 6% and Country Life and FRijj sales declined by 4%.
Plans to revive FRijj
The company said it had plans to revive FRijj, which were already boosting its performance. “Second half sales were much stronger following the upgrade of our production facilities in the first half. We also introduced new flavours and new pack sizes and configurations into the market.
“Sales in the second half of the year ended March 31 2014 grew by 11% compared to the second half of the year ended March 31 2013.
“The upgrade of our production facilities also delayed the full launch of our new long-life product which we now expect to take place in the year ending March 31 2015.This will allow us to grow FRijj sales into convenience and other outlets where less refrigerated storage is available.”
Ceo Mark Allen said: “The year ended March 31 2014 was one of consolidation for Dairy Crest. Following the transformational sale of our French spreads business last year we have completed our reorganisation into one business structure. This has helped in our constant drive to reduce costs.
“The current trading environment is challenging. However, the strength of our key brands and our proven ability to cut costs and drive efficiencies mean that we remain confident that we can generate profit growth in all three of our product groups over the medium term. Additional profit growth will come from our project to add value to the whey stream at Davidstow, which is on track.”
Adjusted pre-tax profit at Dairy Crest rose 31% in the year to March 31, from £49.7M last year to £65.3M this year on revenue up 1%, from £1.38bn to £1.39bn.
