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H1 revenue down, but financial position ‘much improved’ – Dairy Crest

By Mark Astley , 08-Nov-2012

Dairy Crest is confident that it will meet its full year expectations, despite a tough start to the year that saw a 7% sales revenue decrease compared with H1 2011.

The UK-based dairy processor reported revenue of £688.2m for the six month period ending 30 September 2012 – a 7% decrease on the £739.1m achieved by the firm in H1 2011. Dairy Crest has attributed this to lower milk and ingredients sales.

The firm’s Dairies segment recorded a revenue decrease of 10.7%, and its Spreads business reported revenue of £97.5m for the period – a 3% decline on the same period of 2011.

Meanwhile, the firm’s Cheese business reported a sales revenue increase of 10% for the period. Total sales of Dairy Crest’s four key brands – Cathedral City, Country Life, Clover and Frijj – were up 11% compared with H1 2011.

Despite the overall sales revenue decrease, Dairy Crest has claimed that its financial position is “much improved” as a result of the disposal of its St Hubert spreads business earlier this year.

Full year expectations

“Dairy Crest has had a busy first six months as we continued to navigate a challenging trading environment. The decisive actions we have taken during the period leave us well placed as we move forward,” said Dairy Crest CEO Mark Allen.

“The sale of St Hubert has created a more focussed business and a much stronger balance sheet. We now have the ability to make UK acquisitions, but we will take time to ensure that any transaction creates value for our shareholders.”

“Despite the challenging environment we have continued to grow our key brands. We have reduced our cost base and made improvements to our Dairies business. We expect this to benefit future profitability.”

“We remain confident full year performance will be in line with our expectations,” Allen added.

“Better shape” financially

Analysts have backed Dairy Crest’s H2 outlook, stating that the firm is in “much better shape” financially.

“Dairy Crest has seen challenging conditions in 1H but this was reflected in consensus and the group has come in slightly ahead of our 1H forecast. Reassuringly, the second half should be better as the Dairy business moves from loss back to profit. Financially, the group is in much better shape and well-placed to make value-enhancing acquisition,” said Investec analyst Nicola Mallard.

Panmure Gordon added that despite Dairy Crest’s H1 results coming in below its expectations, it is anticipating an “improved performance” from the firm’s Dairies division in H2.

“Dairy Crest’s interim results have come in below our expectations but in-line with market expectations,” said Panmure Gordon equity researcher, Damian McNeela.

“We expect an improved performance from the Dairies business in 2H as bulk cream prices have rallied strongly, and this should allow it to achieve our FY 2013E forecasts which remain at £48.6m.”