FDBusiness.com

Dairy Crest is continuing to reap the benefits of its development strategy of brand investment, cost reduction and cash generation.

Dairy Crest has reported a slight decline in revenue from £1.648 billion to £1.63 billion for the year ended March 31st 2010, as strong sales growth of key brands and liquid milk to retailers, which together increased by £52 million, was offset by planned lower sales of dairy ingredients and lower sales to doorstep and middle ground milk customers. Adjusted profit before tax at the UK-based dairy group rose 5% to £83.5 million.

After adjusting for exceptional items and amortisation reported profit before tax was down 25% at £77.8 million, which was chiefly due to the £50.4 million exceptional gain on the sale of Dairy Crest’s stake in joint venture Yoplait Dairy Crest in the previous year.

During the year, Dairy Crest was able to successfully progress its development strategy of continuing to build market-leading positions in branded and added value markets; of focusing on cost reduction and efficiency improvements; and driving cash generation in order to reduce debt. Sales of key brands increased by 9% and sales of milk to major retailers were up 8%. Dairy Crest has introduced new initiatives to generate £20 million in annualised cost reductions. Net debt was reduced by £78.6 million or 19% to £337.2 million by the year end, which was better than expected.

Investing For Future Growth

Mark Allen, chief executive of Dairy Crest.

Dairy Crest is continuing to invest for the future. Increased marketing investment has strengthened key brands for further growth and the group has embarked on a major capital investment programme at its dairies division in order to improve the efficiency and infrastructure of its liquid milk operations. Dairy Crest will spend £75 million over the next three financial years in addition to its normal replacement capital expenditure, to be funded from cash generated by the business.

“The increased investment in our liquid milk dairies will allow us to drive further cost efficiencies, remain competitive and maintain high levels of service to our customers,” says Mark Allen, chief executive of Dairy Crest.

Investment until now had been focused on the cheese business, where following the opening of the new Nuneaton packing plant, Dairy Crest has a world-class supply chain supporting its Cathedral City brand. Dairy Crest has also continued to invest in other parts of the business; for example, at Foston where a modern greenfield dairy has been created, readily capable of further expansion.

Development Strategy

“We have consistently delivered on our strategy of brand investment, cost reduction and cash generation, and have strengthened the business for the future. During the year, we have increased operating profits and significantly cut our borrowings, and at the same time we have continued to develop our key brands and other added value sales,” remarks Mark Allen. “Dairy Crest has changed from the predominantly commodity focused, UK based business that it was fifteen years ago to an added value dairy food company with a significant profit stream from continental Europe. We have shown that we can grow added value sales both organically and through acquisitions and we are well placed to continue this.”