Key brands help Dairy Crest profits rise

By This Is Money
Updated: 06:05 EDT, 19 May 2011

Cathedral City cheese and Country Life butter's market-beating performances helped profits rise 5% at Dairy Crest.

Milk man: Firm countered inflationary pressures with efficiency savings

It reported a 7% rise in sales for its five key brands, which also include Clover and St Hubert, while the volume of milk sold to major retailers jumped 9% after a new supply deal with Tesco.

With the company's milk&more doorstep delivery service recording weekly sales of more than £1m for the first time, Dairy Crest said profits adjusted for one-off items rose to £87.6m in the year to March 31.

The improvement came despite a £40m rise in milk costs over the period, while other commodity input costs such as vegetable oil, fuel and packaging are forecast to be around £25m higher this year.

It has countered inflationary pressures with efficiency savings, including through new production lines, and higher selling prices to its customers.

Chief executive Mark Allen said the results demonstrated the benefit of being a broadly-based business. 'A strong performance from our branded spreads and cheese businesses has more than offset tougher trading in dairies.'

The company, which takes its milk from 1,330 dairy farmers, manufactures its butters and spreads in two factories in the UK, at Kirkby near Liverpool and at Crudgington in Shropshire.

The UK butter, spreads and margarine market grew 8% in the year to £1.2bn, but Dairy Crest said its Clover and Country Life brands grew by around 9% over the same period. However, it added that sales of Utterly Butterly had fallen after it focused marketing on its key brands.

Cathedral City, which is made at its Davidstow creamery in Cornwall, saw sales rise by 6%, ahead of the 2% growth seen in the rest of the cheese market.

The company's dairies divisions saw a significant increase in sales to its major retail customers, including Sainsbury's and Waitrose, but this was offset by increased competition and lower margins in the middle ground market, which includes smaller retailers and coffee shops.

Profits in the dairies business fell 22% over the year to £27.1m, compared with a flat performance in spreads at £53.3m and a 65.7% jump in cheese to £28m.

Shares slipped 7.5p (1.9%) in early trading.