13 November 1998

Dairy Crests food arm helps profits leap 11%

By Robert Harris

FARMER shareholders in Dairy Crest will receive almost £100 following the firms announcement this week of an interim dividend of 3.85p a share following a good first half performance.

The figures showed overall profit before tax up 11% on the same period last year to £20.7m, slightly ahead of City forecasts.

Unusually, it was the food services division, which includes commodity ingredients (butter and skim milk powder) and household milk sales, that posted the biggest gain in profits. This was despite a £22m fall in turnover which reflected lower milk costs. Operating profit rose 28% to £6.9m, compared with a 5% rise to £15.4m in the added value consumer foods division.

This marks the first significant rise in the commodity sector for over two years. But finance director Ian Laurie denied the company was reaping the benefits of a lower raw milk price, which has fallen 3p over the year.

"Any savings in raw milk purchased for bulk cheese or supermarket milk sales are passed directly onto the customer," he said.

For example, although cheaper milk resulted in a saving of about £9m on bulk cheese costs, the price the company received for the product was about 10-12% lower, explained Mr Laurie.

The main reason for the sectors strong performance was an increase in doorstep milk deliveries, bucking the national trend which showed an 8% decline, says chief executive John Houliston. Dairy Crest volumes increased by 4% thanks to the acquisition of Anglia Dairies last year.

There was no future in hiking milk prices to create a false market, he stressed.

That could only weaken the UK dairy industry, which would do neither processors nor producers any favours. "By adding value and building brands, we stand a reasonable chance of reflecting that in the raw milk price."

Added value products accounted for almost 70% of Dairy Crests operating profit, at £15.4m. Turnover increased slightly to £239m.

Star performers included mature cheddar, sales of which increased 7%, well ahead of the national 2% growth, said Mr Houliston. Davidstow showed the largest climb at 10%.

Clover retained its position as market leader, taking 29% of national dairy spreads sales, while Yoplait Dairy Crest brands such as Frubes and Wildlife also generated strong growth.

The positive news helped Dairy Crests share price to rise 7.5p to 322p on Wednesday. &#42

OTHERRESULTS

Express Dairies reported a first half rise in pre-tax profits of 10.4% to £26.6m, on a marginally higher turnover of £389.2m.

The company will continue its push into big multiple retail chains, says chairman, Lord Haskins. The volume of doorstep sales declined by 4.7%. But overall milk volume rose by 14.9% year on year, much of that due to the acquisition of Woodgate Farms Dairy in February.

The company is also test marketing an added value milk product, signalling a move into this area. It declared an interim dividend of 3.3p a share, up 6.5%.

Robert Wiseman Dairies is continuing its southern push, reviewing six development sites as a staging post into the London milk market. The group plans to invest £30m in a plant which will service Asda, Safeway and Tesco.

Interim results for the six months to Oct 3 show sales volume up 1.4%. Pre-tax profit was up 6.5% on the same period last year at £9.3m. The dividend has been increased by 6% to 1.4p a share. Wiseman has also announced a producer price increase of 0.2p/litre from January for its direct suppliers.