Dairy Crest recall sours strong financial performance

After boasting double digit sales growth in its spreadable sales, Dairy Crest has been forced to recall contaminated Country Life butter products.

Shares in the company continued to decline to a new low of 212p on 13 November, despite dropping 25% to 247p early last week wiping off £115M of its market value. This came after the company announced that annual profits would be down 10% on last year.

In its six-month trading statement, chief executive Mark Allen said that the company had been affected by the “tough economic climate”, higher milk costs and by shoppers switching to supermarkets’ own brands.

But despite this, Allen maintained that the group’s portfolio of brands had “continued to make strong progress” in the six months to September 30, 2008: “Country Life Spreadable achieved double-digit sales growth by volume and value compared to the six months to September 30, 2007.”

However, since the release of the statement, the Food Standards Agency revealed that Dairy Crest had been forced to recall contaminated Country Life Spreadable because of possible contamination by pieces of white rubber.

The product recall notices appeared in the national press on Thursday, November 13. That day Dairy Crest’s share prices reached a five-year low to 212p, down from a five year high of 740p on July 31, 2007.

The recall affects pack sizes 250g and 500g with use by dates December 20, 2008 and December 21, 2008.The FSA announcement followed last year’s recall of two million tubs of Clover butter that were contaminated with mould. It was said to cost an estimated £5M.

On Friday, however, following the spate of bad news, Dairy Crest launched its first Utterly Butterly on-pack-promotion, offering consumers the chance to win one of 10,000 instant prizes. The activity is hoped to drive awareness and increased sales of the brand.

The company said that it was continuing its talks with staff and unions over the potential closure of its Nottingham dairy, which employs 215 people. And said that the closure could take place in January.

Dairy Crest’s profit warning comes after Robert Wiseman reported a 37% decline in first-half profits and said that lower cream prices would lead to a fall of £7M in second half profits.