21 November 1997

Dairy profits recover to shine at half-year mark

DAIRY company profits are recovering strongly, according to half-year results from three of the countrys leading players.

Unigate was first out of the blocks on Monday (Nov 17), posting a 10% increase in total group profits of £66m in the six months to Sept 30 on sales of £1.17bn.

Within that figure, the dairy division recorded an 11% profit rise to £19.5m on sales marginally up at £312m. "Results have benefited from both lower raw milk costs and more stable prices for butter and powder products," says the company.

Finance director John Worby defended the companys decision to cut milk prices again this autumn (in line with other dairy operators), pointing to the "leading and lagging" in the market.

"Last year we suffered in our dairy business due to falling realisations at a time when milk prices did not fall," he said. Lower producer prices now reflected the lack of market responsiveness in the Milk Marque selling system, he claimed, which created the lag.

But he gave a cautious welcome to Milk Marques latest plans for market-related contracts. Any chance of improved producer prices next spring would depend on the market performance between now and then – and the responsiveness of the selling system.

Encouragingly, Unigate has reported a slowdown in the drop in doorstep deliveries, while profits in this sector increased. And in the processed product sector, profits were also more buoyant – especially for yogurts and cheese. While sales volumes of the latter were down 10% on last year, profits were up, reflecting the higher proportion of mature cheeses.

But Mr Worby added that dairy profits at Unigate were still lower than they were in 1994. And, with markets remaining volatile, further consolidation was needed in the industry.

The picture is remarkably similar for Northern Foods, with overall group profits up 19% to £69m, and dairy profit rising 26% to £27m – recouping the 27% fall seen last year. Six-month sales came to £907m.

Doorstep sales outperformed the industry average, dropping by just 8% in the six months to Sept 30 – ahead of earlier projections. "Profitability has benefited substantially from our programme of dairy rationalisation and geographical consolidation through small acquisitions and business exchanges," said dairy boss, Neil Davidson on Tuesday.

"We expect the recovery in dairy profits to be even more pronounced in the second half of the current year," he added.