Dairy profits on track

DAIRY PROCESSORS have had a year of difficult trading, but should produce profits in line with expectations, the City has heard.

Dairy Crest, Arla and Robert Wiseman Dairies are all due to publish their full-year financial figures in May, and claim they are on target.

Branded products, such as Yoplait yoghurts, Anchor spreads and Wiseman‘s low fat The One milk have all seen sales growth, the processors claim.

But analysts say that earnings have taken a pasting compared with last year. Wiseman looks set to be the biggest loser, with profits forecast at £25m, down £4m on last year.

Dairy Crest is also expected to drop £1m with profits this year of £84m, and Arla Foods has seen a flat performance, according to Nicola Mallard, food analyst at Investec Securities.

Only a £12m cost-cutting programme has propped up the company’s bottom line, where the merger with Express has boosted profits from £39m to £51m, she said.

“There have been a lot of changes this year, as retailers have negotiated contract changes and milk volumes have moved. There have been some losers and some winners.

“Wholesale pricing has also come down because no-one ever moves a contract for the same price.

“Finally, oil price inflation has raised costs for transport, energy and packaging, for which a retail price rise has just been agreed.”

And the outlook for the coming year is unlikely to see much improvement in trading conditions, said Miss Mallard.

“Price increases must go through the middle ground. It‘s a bit patchy at present, and the question is, how much will stick?

“Contract renegotiations with Morrisons and Somerfield still to come could affect wholesale milk prices.

“And come July, the intervention price cuts for skimmed milk powder and butter under CAP reform should lower commodity values, bringing down raw milk prices.

“The markets were strong last year, but it would be asking a lot for prices not to react to another 6% cut.”