Premium goods give another lift to DCs profits

5 June 1998

Premium goods give another lift to DCs profits

By Robert Harris

FURTHER gains in the premium products sector helped Dairy Crests operating profit rise for the third year running.

Shareholders, including 21,000 farmers, will receive a share dividend of 10.9p, an average of about £400 each.

Overall turnover for the year to Mar 31 remained almost static at £787.4m, but operating profit rose 9% to £43.3m.

Cheaper milk supplies helped boost results in the consumer foods division, which includes added-value branded products. The company buys 1.6bn litres of milk a year, 70% through Milk Marque, the rest directly.

But John Houliston, chief executive, makes no apologies for sourcing milk as aggressively as possible. He firmly believes that producers stand to gain from a strong Dairy Crest, which has to compete in a tough market-place.

In the past two years, a near doubling of Dairy Crests share price, plus share dividends, equate to a gain of about £7600 a farmer shareholder – an extra 0.6p/litre a year for a producer with a 600,000 litre-annual output.

"What is the point in paying more for our raw product than we have to?" said Mr Houliston.

"There is no future in that. We are here to drive shareholder value, half of which is owned by farmers. We have to focus on those sectors in which we are strong. That means adding value, and reducing dependence on commodities."

Most of the increased profit came from the consumer foods division, which includes branded cheeses like Cathedral City, sales of which rose by 16% during the year, and Davidstow. Claimed combined market share in the farmhouse and mature Cheddar market is 35%.

Operating profit climbed 12% to £30m in this sector, aided by firm sales of dairy spreads (including market leader Clover, and Willow), fresh dairy products (various Yoplait brands) and liquid products (Frijj).

Performance in the food services sector, which includes commodity ingredients (butter, skimmed milk powder) and household milk sales, reflected the tough trading conditions caused by the strong £, notes Mr Houliston, with sales falling more than 4%. But increased operating efficiency helped to offset lower market prices, and profit rose slightly to £13.3m.

Cash earned from the food services sector will continue to be re-invested at the more lucrative consumer foods division, says Mr Houliston.

Overall, Dairy Crest achieved a 15% growth in earnings a share to 25.7p in the year to Mar 31. Shares firmed 10p to 344p. &#42

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