New Era of Growth For Dairy Crest
Dairy Crest has reported on its first full trading period since the sale of its Dairies business. Group revenue from continuing operations for the six months ended 30 September 2016 at £190 million was down 7% decrease from the previous year, reflecting the deflationary conditions that remained a feature of the UK dairy group’s markets for much of the first half. However, total product group profit from continuing operations increased by 16% to £23.1 million and adjusted profit before tax was up 19% to £19.1 million.
Profits from the cheese and whey product group increased by £2.5 million. Butters and spreads product group profits increased by £0.6 million as efficiencies at the butters and spreads plant in Kirkby and good growth in profits from Frylight, the UK’s leading oil brand, helped to offset the effects of lower revenues and rising input costs.
Dairy Crest’s Clover and Country Life brands also enjoyed strong volume growth during the first half and Cathedral City has launched new branding and packaging with a successful marketing campaign.
Dairy Crest is also making good progress in functional ingredients for the infant formula market. The new £35 million functional ingredients facility at Davidstow is a significant investment that gives Dairy Crest access to the fast-growing global infant formula market and potential access to the adult functional foods and the animal feed additives markets This marks a significant new sales channel for Dairy Crest.
Dairy Crest has been producing demineralised whey since May 2016. The focus since then has been on operational efficiency and consistency. The required specification for infant formula grade demineralised whey is demanding and there is no room for variability. During the first six months of the year, a high proportion of the demineralised whey was sold as non-infant formula grade, which, although it commands a premium to sweet whey powder, is lower value than infant formula grade. However, the proportion of whey that is meeting the infant formula quality threshold is increasing and Dairy Crest expects to consistently reach its target of over 80% by the end of the financial year.
The galacto-oligosaccharide (GOS) business is proceeding to plan. In the first six months of the year Dairy Crest produced initial batches of GOS and is on track to produce and sell the planned level of infant formula grade GOS in its current financial year. Dairy Crest is developing the customer base for both products in partnership with Fonterra, the New Zealand-based global dairy co-operative.
Capital expenditure during the first half was £10.1 million, representing a significant reduction compared to the £35.5 million incurred in the six months ended 30 September 2015, when Dairy Crest was investing in the new demineralised whey and GOS facility at Davidstow.
Mark Allen, chief executive of Dairy Crest.
“We are pleased to have delivered a strong set of interim results in our first full trading period since the sale of Dairies. Our four key brands are continuing to perform well in a challenging marketplace, with strong volume growth for Clover, Country Life and Frylight and a successful launch of new branding and packaging for Cathedral City,” comments Mark Allen, chief executive of Dairy Crest.
“We are also seeing the benefits of Dairy Crest’s transformation into a leaner and more focused organisation, with strong profit growth and significantly improved cash generation during the first half. Our expectations for the full year remain unchanged.”
He continues: “Looking further ahead, the significant investment at Davidstow has opened up attractive opportunities in high-margin, global infant formula markets as well as the potential to develop new functional ingredients. Combined with our continued focus on innovation within our key brands, this will underpin future growth and help us to maintain our strong track record of rewarding shareholders with higher dividends.”
