23 June 1995

Dairy Crest profits rise, despite drop in doorstep sales

By Shelley Wright

DESPITE declining sales on the doorstep and an increase in milk costs of 15% since Nov 1, Dairy Crest has managed to lift profits.

For the year to Mar 31, the company has announced profits before tax of £22.1m on sales of £766m. This compares with last years figure of £2.8m on a turnover of £824m, and is in stark contrast to equivalent results for Unigate and Northern Foods.

The main reason for this improvement was the lower exceptional charge (of £11.2m compared with £35.5m last year). Before accounting for this and interest, operating profit actually fell slightly to £29.8m.

"But the successful implementation of the major cost reduction programme last year and prompt action to close uneconomic plants kept the reduction to a minimum," said chief executive John Houliston.

Dairy Crest is split into two sectors. Consumer Foods comprises cheese, spreads, butter, liquid milk and fresh dairy products sold through the retail grocery trade. Food Services comprises doorstep milk and food ingredients.

The Consumer Foods sector made sales of £329.8m, up from £321.7m last year. Operating profits increased by 9.7% to £16.9m. Mr Houliston attributed most of the growth to the increased supply of milk to supermarkets.

But sales in the Food Services division dropped by £66m to £436m, reflecting the continuing reduction in demand for doorstep milk and the closure of the Whitland ingredients plant. Profit dropped almost 22% to £12.9m.

With product pricing in the ingredient sector determined on a pan-European basis, it was not easy to recoup raw material cost increases in any one country, Mr Houliston told farmers weekly.

"The significant hike in milk prices on Nov 1 meant that Whitland moved from profit to loss overnight. We had no alternative but to close the creamery," he said.

He added that the company had no plans to re-open the plant.

Meanwhile, Dairy Crest had reduced the risk of any further decline in doorstep sales by moving all its glass bottling operations to a single site. The business had now completed its restructuring programme, he said, leaving it well placed for the future. "Other companies are only now beginning their rationalisation."

Mr Houliston added that he still hoped Dairy Crest would be floated on the stock exchange, but the final decision lay with the Residuary MMB.