Dairy Crest’s full year financial expectations remain “unchanged”, despite what the firm has described as a challenging first half to the year.
The UK-based dairy processor remains focused on achieving a 3% return on sales for the year, despite profits for the six months to 30 September 2012 falling short of those achieved in the same period last year.
“Trading in the first half of the year has remained challenging and our profits, having adjusted for the disposal of our French spreads business, St Hubert, will be lower than the same period last year. However, our profit expectations for the full year ending 31 March 2012 remain unchanged,” said a Dairy Crest statement.
Alongside its trading update, Dairy Crest announced that the price it pays to its dairy farmer suppliers will increase from 1 October 2012 and 1 November 2012.
Unprecedented market conditions
“Our dairies business has been facing unprecedented market conditions but we remain focused on achieving a 3% return on sales in this business in the medium term,” the Dairy Crest statement continued.
In order to achieve its targets, Dairy Crest has made a number of efforts to improve efficiency across its business – including the proposed closure of its Crudgington plant, which it announced last week.
Earlier today, the firm also announced a series of milk price increases – bringing it in line with its competitors.
The price paid to those on non-aligned milk contracts and Davidstow cheese contracts will increase to 29 pence per litre (ppl) from 1 November 2012, while the firm’s non-aligned dairy farmers will benefit from an improved milk price of 28.25ppl from 1 October 2012.
“We continue to take a number of decisive actions to achieve this, including implementing milk selling price increases, closing our Aintree creamery, consolidating milk rounds to allow the closure of 23 depots in the six months and reducing overheads,” the Dairy Crest statement added.
For the six months to 30 September 2012, the firm also reported strong sales from its four key UK brands – Cathedral City, Country Life, Clover and Frijj. New products including Chedds natural cheese, Frijj Incredibles and Cathedral City Selection also performed during the period, the company added.
Response to the trading update from the City has been mixed.
“As we had expected, commercial life in the Dairies division has remained tough and a target 3% operating margin remains some way off,” said Shore Capital analyst Darren Shirley.
“That said Dairy Crest has taken decisive actions in closing the Aintree creamery, the planned closure of the Fenstanton facility in October consolidating home delivery milk rounds (closing 23 depots in doing so), reducing central overheads and seeking higher milk prices,” he added.
Meanwhile, Panmure Gordon’s Damian McNeela described the firm’s valuation as “attractive” following the announcement.
“We understand that both volumes and value increased by double digits which we view as encouraging,” said McNeela. “As expected trading within the Dairies business remains challenging but the company is this morning increasing the price paid to farmers for its milk, bringing it more into line with its competitors.”