Simplified Dairy Crest sees profit rise

A transformative year for the Dairy Crest business has seen its profitability on continuing activities rise on lower revenues, after the business divested its liquid milk activity.

The business made an adjusted pre-tax profit after exceptional costs figure of £57.7 million on sales of £422.3m in the year to March 31st 2016, compared to £58.9m and £448.2m in the previous year. But on a like-for-like trading basis, profitability rose by 23% to £45.4m.

The business completed the sale of its dairy operations to the Muller Group in December, leaving it as a manufacturer of cheese, spreads and dairy ingredients.

Chief executive Mark Allen says the period saw significant price deflation in cheese, whey and butter, with a year of strong UK and global milk production resulting in downward price pressure across all dairy products. It has also had to contend with intense competition for market share amongst its major food retailer customers.

In turn, Dairy Crest had to reduce the price paid to its farmers for their milk by some 17% over the twelve months. While remaining competitive, the business has introduced a new, innovative milk contract to promote more stable, transparent pricing for the core milk volumes that support its cheese business.

The company reports volume growth in its core Cathedral City cheese, Countrylife butter and Clover spreads brands. It is also seeing the results of investment at the Davidstow creamery in Cornwall to manufacture demineralised whey and galactooligosaccharide (GOS) ingredients for the infant formula market. Full production under the Promovita brand started in March 2016, with the ingredients sold to Fonterra. Dairy Crest now owns the whole Promovita business, after buying out its original partner, Fayrefield Foods, for £6m in December 2015.

“This is an exciting time to be leading Dairy Crest," says Mr Allen. “We successfully sold our Dairies business and completed a programme of significant investment in functional ingredients manufacture. These initiatives have transformed the Group. Dairy Crest is now a simpler business focussed on growth and innovation in branded and value-added products.

 “Although we expect food price deflation to persist in the short term, the business is well positioned to deliver profitable and sustainable growth. We are making progress with all of our four key brands and the continued investment we are putting behind them this year gives me confidence that we can continue to grow their market share. The other focus for 2016/17 will be on accelerating sales of demineralised whey and GOS, the new infant formula ingredients and continuing to explore further applications for GOS.

“Future cash generation will improve as the sale of our Dairies business and completion of the investment at Davidstow removes a significant drain on cash.”

The year also saw the Dairy Crest R&D and technical teams move into the new Dairy Crest Innovation Centre on the Harper Adams University campus in December 2015. “The Innovation Centre consolidates all of our technical and research expertise and equipment in one place and allows us to benefit from cross-fertilisation of people and ideas with the University, a leading centre of food and agricultural research,” notes Mr Allen. “This state-of-the-art facility will help drive our ambitious target of 10% of sales each year coming from innovation in the previous three years.”