Dairy Crest to invest £25m into dairies in 2010/11
The firm, which posted a 5% rise in adjusted pre-tax profit* to £83.5m on sales down 1% to £1.63bn in the year to March 31, will invest £13m in its ‘superdairy’ at Severnside, £4m at Chadwell Heath and £7m in its Frijj milkshakes, bosses have revealed.
The £13m at Severnside will cover milk processing and end-of-line capabilities, new potted cream equipment, a new milk bag line, plus investment in extended shelf-life technology, said chief executive Mark Allen.
“At Chadwell Heath we will invest over £4m in 2010/11 in processing and cold storage capacity in preparation for new filling lines in 2011/12. We have already prepared the production areas for the first of these new lines.”
“Around £7m” over the next two years would be invested in packaging formats, processing capacity and new lines for milkshake brand Frijj, he added. “The Foston site is also now ready for an additional high speed filling line when the business needs it.”
Meanwhile, Dairy Crest was also exploring new opportunities to extract further cost savings through operational efficiencies, he said. For example, significant savings had already been achieved through redesigning spreads tubs.
But there were also benefits to be gained from “leveraging recent investments in IT systems”, he suggested. “In February we initiated a pilot programme to evaluate the potential benefit. This project is progressing well and will lead to substantial savings in our cost base.”
Key brands up 13% by volume, but Utterly Butterly down 21%
Strong sales of key brands and milk to supermarkets were offset by lower sales of dairy ingredients, weaker sales to the ‘doorstep’ market and lacklustre sales to ‘middle ground’ milk customers, said Allen.
“Our five key brands [Cathedral City, Country Life, St Hubert Omega-3, Clover and FRijj] have increased 13% by volume and 9% by value."
The dairies division had also “bounced back from a difficult 2008/9” and was benefiting from efficiency gains and higher cream prices, he said. “Milk sales to major retailers have grown by 9% in volume and 8% in value. We have also made good progress in developing sales of milk in bags using our innovative patented jug, Jugit.”
The jug, which contains 75% less packaging than a standard 2-pint plastic milk bottle, is currently stocked in Sainsbury’s, said Allen, but he was confident of securing new listings this year: “We expect to gain listings with other major retailers.
Increasing expenditure on marketing and promotions had contributed to lower profits in spreads and cheese, he said. However, sales of Clover had grown by 5% in value and 13% in volume, while Country Life butter was up 4% in value and 6% in volume.
Reduced-fat variants performed particularly well, with sales of Clover Lighter and Country Life Lighter Spreadable up 13% and 12% (by value) respectively.
However, sales of Utterly Butterly dived 27% in value and 21% in volume, he said.
Dairy commodity prices to rise
While dairy markets and UK milk prices had been relatively stable over the past year, dairy commodity prices had started to rise, which could push up milk prices in coming months, he predicted.
“There are also signs that some other commodity costs are starting to increase.”
Analysts at Investec Securities said the results were in line with expectations, with a "much better dairy result partly offset by a decline in foods. We expect to see further steady profit and dividend growth in 2011, although in the medium-term the dairy projects [the Milk & More online delivery service and the £75m capex programme] will have an important bearing on the pace of profit growth."
