Dairy Crest’s key brands to deliver volume growth

By Michael Stones

- Last updated on GMT

Cathedral City was expected to suffer a small volume decline in the first half
Cathedral City was expected to suffer a small volume decline in the first half

Related tags Dairy crest Term Milk Generally accepted accounting principles

Dairy Crest’s four key brands – Cathedral City, Clover, Country Life and Frylight – are expected to deliver combined volume growth in the first half of this year, according to the firm’s pre-close trading update for the six months to September 30.

The prediction was an improvement on the first quarter when performance was said to be in line with the same period of last year.

Three of the leading brands – Clover, Country Life and Frylight – achieved strong volume growth and continued to increase market share, said the business.

But Cathedral City was expected to suffer a small volume decline in the first half of the year compared with “a very strong performance in the first half of last year​”.

That was said to reflect Dairy Crest’s decision to discount less than competitors during the period in order to maintain the brand's premium positioning. The brand was relaunched in the first half of the year with new branding and packaging.

Half-year profit

Half-year profit was predicted to be ahead of last year, while expectations for the full year remained unchanged.

Dairy Crest’s net debt was expected to peak around the middle of the year, reflecting increased stock levels in the first half due to the seasonality of milk supply. Reduced capital expenditure and strong underlying cash flow meant that the increase in net debt during the first six months of the year was expected to be lower than in the same period of 2015.

Dairy Crest chief executive Mark Allen said: “Dairy Crest expects to report a good performance in the first half of this year. We continue to see good momentum from our key brands. Our butters, spreads and oils business delivered strong volume growth and increased market share in the first half. There has been a very positive customer response to the Cathedral City refresh which should underpin future growth of the brand.

“Recently we have seen inflation across all dairy markets. To date we have announced increases amounting to 12% in the milk price we pay our farmers. Cream prices have been particularly affected, doubling over a very short period. This sudden cost inflation is likely to have an impact on butter volumes and margins in the second half.

Allen added that as a strong branded and added-value business, the firm was well placed to deal with inflationary pressures.

Earnings per share

City analyst Shore Capital forecast six months of strong profits growth, with current pre-tax profit (CPTP) of about 16% to total £18.5M. Earnings per share (EPS) were predicted to be up by 18.5% to 11.0p.

Analysts Clive Black and Darren Shirley retained their 2017 financial year forecasts of CPTP at £61.5M and EPS of 36.4p, representing year-on-year growth of 6.4%.

While Dairy Crest was expected to benefit from both UK inflation and global dairy prices over the medium term, in the short term, the analysts advised keeping “a cautionary eye”​ on the UK cream price. It had more than doubled since May 2016 and may hit butter volumes and margin in the second half of the year.

Meanwhile, Dairy Crest will issue its interim results on November 10 2016.


Dairy Crest’s four key brands: what the analysts said:

“Across the four key brands – Cathedral City, Clover, Country Life and Frylight – we are pleased that management expects combined volumes to be ahead of H1​ [first half] 2016, as such with Q1​ [first quarter] volumes said to be in-line this indicates a robust Q​2 [second quarter] performance, and we estimate volumes ahead by about 4–5% over the latter three months.”

  • Shore Capital analysts Darren Shirley and Clive Black

Related topics Dairy Dairy-based ingredients

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