Dairy Crest on track despite a tough first half
Dairy Crest is issuing the following pre-close trading update for the six months ending 30 September 2012 ahead of announcing its Interim Results on 8 November 2012.
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 2013 remain unchanged.
Strong momentum in Brands
Our four key UK brands (Cathedral City, Country Life, Clover and Frijj) have continued to perform strongly in the first half. Increased marketing expenditure behind these brands is supporting this growth. All four have been advertised on television in the period - the first time that has ever happened.
Innovation remains a focus in our ongoing drive for added value sales. For example, Chedds, natural cheese for children (whose annual retail sales now exceed £7 million), Frijj Incredibles and Cathedral City Selections are all performing strongly. Further innovations are planned for the second half, including a long-life variant of Frijj. This is aimed at the convenience market and provides a significant opportunity for further growth.
As part of our continued drive to grow and improve efficiency across our business, we have decided to consult with employees on plans to consolidate our spreads production into a single UK location, our existing facility at Kirkby, Merseyside.
As a result of the consolidation our site in Crudgington, Shropshire, will potentially close in 2014.
Decisive action in Dairies
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. 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. Plans are on track to close our Fenstanton dairy, as previously announced, this autumn.
We increased the price we pay our non-aligned supplier farmers for milk by 1.85 pence per litre from 1 October 2011, but a steep fall in cream prices led to a price reduction of 2 pence per litre from 1 May 2012. A second planned reduction, due to take place on 1 August 2012 was postponed while we negotiated price increases with our customers and this had a small adverse effect on profits in the period.
We have today announced higher farmgate milk prices for our suppliers. These reflect the expectations of improving returns from commodity markets and higher selling prices.
Improved financial position
Following the sale of St Hubert, our financial position is much improved. We received €430 million on 28August 2012 which has been used in part to repay drawdowns from our revolving credit facility. The balance has been placed on short-term deposits, with the position for the longer term currently under review. Our aim in deploying cash will be to preserve the Group's capacity to make acquisitions, while providing appropriate long-term funding for the pension fund and driving towards a more efficient debt structure.
Mark Allen, Chief Executive, commented:
"We are pleased with our first half performance despite the significant pressures on our business. Although we expect these to continue into the second half our first half performance together with our plans for the second half means that our profit expectations for the full year remain unchanged. At the same time we have continued to move the business forward and the proceeds from the sale of St Hubert leave us much stronger financially."
Dairy Crest is hosting a visit for analysts and investors at its Kirkby Spreads manufacturing facility on the afternoon of Monday 24 and Tuesday 25 September. The management team will make presentations on our Spreads and Dairies Businesses, as well as the Group's sales and marketing activities. These will be made available on Dairy Crest's website at www.dairycrest.co.uk/investors.
No material new information will be disclosed in these presentations.