Dairy Crest: cost cutting key part of strategy
“We continue to focus on the profitability of our key brands and our dairies business and cost reduction remains an important part of our strategy,” said the firm in a statement today (September 23).
“This business benefits most from the work we have done to reduce costs and we now expect to achieve annual cost savings across the group of more than £20M this year.”
Total sales of its four key brands will be similar to the same period of last year when they grew by 11%, compared with the six months to September 30 2011, it predicted.
Dairy Crest’s cheese business performed well – with sales of Cathedral City predicted to have outperformed the market. Sales were up in the first half compared with the same period of last year.
‘Butter and spreads market difficult’
But profits in the spreads business were expected to be lower than last year, with conditions in the butters and spreads market described as “difficult”.
Clover sales were expected to be unchanged as the brand continues to outperform the market, claimed the firm. But Country Life sales will be lower due to less promotional activity.
The spreads business had also faced higher input costs, which had reduced profitability.
In the Dairies business, the underlying performance continued to improve towards the firm’s medium-term target of 3% return on sales. But first half profits will be affected by lower profits from property sales. This year property sales will be weighted to the second half.
Higher returns from cream will contribute to the improved performance and enabled the company to pay farmers more for their milk across all the firm’s milk purchasing contracts.
FRijj sales were predicted to be lower in the first half, following reduced promotions during the upgrade of Dairy Crest’s production capacity and capability. The upgrade will be completed next month and was predicted to help improve performance in the second half.
Mark Allen, chief executive, highlighted the firm’s performance in line with expectations despite the challenging trading environment.
‘Growing our cheese business’
“The butters and spreads market has been particularly difficult,” said Allen. “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.”
The firm has pledged to invest about £45M to add value to the whey produced as a by-product of the cheese at its Davidstow creamery, Cornwall. Currently, standard whey powder is mainly sold to food manufacturers.
The investment will enable Dairy Crest to remove minerals from the whey and produce demineralised whey powder. The powder will be used as a base ingredient for baby food – a fast growing global market.
Production was expected to start in the first half of 2015. The plan was expected to boost full year operating profits by more than £5M after additional depreciation charges of about £4M, offering a five-year cash payback.
