Dairy Crest eyes milk supply opportunities, profits on track
that its end of year results will be in line with expectations,
despite turbulent times for its liquid milk division, Tom
Armitage reports.
The Surrey-based company noted that its 2004 profits (year ending 31 March) would be in line with expectations - although the costly termination of its contract to supply leading UK multiple retailer Tesco with liquid milk would not be realised until the next financial year.
Dairy Crest noted, however, that it was currently in discussions with a number of UK customers in an attempt to compensate for the £60 million Tesco deficit and help it re-establish its position in what it called a "competitive retail environment".
Furthermore, the group said that it was now in a position to review its farmgate milk prices, after achieving a 2p per litre price increase from a number of major retail customers, including Asda, Sainsbury's and Tesco, which it said would cover "higher industry costs" - namely plastics and petrol.
"Despite an extremely competitive environment, this has been another solid year of trading for Dairy Crest and we expect results to be in line with expectations," commented Drummond Hall, Dairy Crest's CEO.
"Strong cash generation and investment in brands have continued to be important features of this performance," he added.
Broker ABN AMRO said that it had no reason to alter its underlying pre-tax profit forecast for Dairy Crest of £84 million, down from £85.1 million on the previous year, noting that the group had achieved a "very satisfactory outcome" amid a particularly challenging UK food market.
Dairy Crest's branded spreads business, which includes Clover, Utterly Butterly, St. Ivel Gold and Country Life notched up an undisclosed increase in value sales during 2004.
However, the burgeoning trend for UK multiple retailers to use spreads as a means of driving store traffic through "everyday low pricing", somewhat compromised Dairy Crest's opportunities for promotional activities in 2004 - which subsequently led to lowered sales volumes, compared to 2003-4.
Its cheese division fared slightly better, with buoyed prices stemming from an industry-wide stock shortage and a major contract to supply Asda with own label cheddar in the pipeline.
Meanwhile, Cathedral City continues to reinforce its position as the UK's leading branded cheddar, outperforming the rest of the mature cheddar market, which has increased by around 5 per cent on the previous year.
Yoplait Dairy Crest, the group's fresh drinking yoghurt and dairy desserts division, said that its strategy to focus on bolstering sales of its core brands, Petits Filous, Frubes, Wildlife, YOP and Weight Watchers was beginning to pay off - despite imminent factory closures at Enfield and Yeovil, to come into effect this summer.
