By Robert Harris
TOUGH trading conditions have slowed profit growth at Dairy Crest.
First-half results to 30 September show pre-tax profits of £21 million, just 1% higher than the same period last year, when profits jumped 11%.
However, the board has declared an interim dividend of 4.15p a share, up 8%, suggesting a stronger second half performance to come.
Shareholders, of whom over 19,000, or 44%, are farmers, will receive just over £100 for an average holding of 2500 shares.
Performance in the added value consumer foods division, responsible for about 70% of total group profits, was pegged by the tough supermarket liquid milk market.
However, Dairy Crest has now secured contracts to supply an extra 40m litres of milk a year each to Sainsbury and Safeway and has resigned from the “less profitable” Somerfield contract.
“We feel the liquid milk business is more robust than a year or two ago, following significant investment in plants so we can operate to the highest hygiene and quality standards,” says chief executive John Houliston.
Dairy Crest now sells about 320m litres a year to supermarkets.
But a strong performance by value-added products helped consumer foods make an operating profit of £14.4m, down just £1m on the year.
Turnover rose £6m to £245m.
In the mature cheddar market, Cathedral City continued to outstrip the national 3% growth, while in the spreads sector, Clover volumes increased 13% compared with average growth of 8%.
Fresh dairy products (various Yoplait brands) and liquid products (Frijj) also performed well.
As last year, due to the absence of the key Christmas market – which pushes added value sales – it was the smaller food services division which posted the best profit performance in the first half.
Operating profit in this division, which includes commodity ingredients and household milk sales, rose almost 16% to £8m.
“However, market pressures in the commodity sectors have increased significantly,” says Mr Houliston.
“Ingredient market prices continue to reflect the comparative strength of Sterling.”
Opportunistic purchasing of milk ahead of seasonal tightening of ex-farm supplies enabled Dairy Crest to increase manufacturing volumes, helping to offset lower market prices, he adds.
The household business continued to benefit from the Longs Dairies acquisition in January, with total volumes increasing by 3%, though underlying volumes declined in line with the market.
Dairy Crests share price moved up in the few days following the results, to finish Tuesday at 250p.
- £4m windfall for Dairy Crest fat cats, FWi, 19 August, 1999
- Dairy Crest details dividend after profit rise, FWi, 26 May, 1999
- Dairy Crest sets dividend after good first half, FWi, 10 November, 1998