Allen gives "optimistic" assessment of spreads outlook

Allen gives "optimistic" assessment of spreads outlook

Dairy Crest has said that it sees cause for optimism at its struggling spreads business, thanks to improved efficiencies and optimism surrounding its "star" brand - Clover.

Dairy Crest has seen sales and profits come under pressure in the first half, with a marked weakness at its spreads division impacting the group result.

In a trading update released today (7 November), Dairy Crest said sales fell 2% on the year, while operating profit was down 6% to GBP27.3m (US$43.9m). In particular, the group's spreads business continued to struggle. The performance of the unit weakened year-on-year, with sales down 12% and profit down 39%.

The company attributed the decline to "difficult" market conditions. "Demand has fallen across the category and higher cream prices have adversely impacted costs," Dairy Crest revealed.

The company said its two key spreads brands, Clover and Country Life, performed "credibly". Country Life sales were down 17% reflecting lower promotional activity and Clover sales were up 2% on the year.

Looking at the spreads performance in the wake of the results, Dairy Crest chief executive officer Mark Allen emphasised the comparatively strong performance from Clover. "Spreads is a tough category at the moment and we are operating in that categoy. But what we have got is a star. Clover is doing particularly well and we have just launched three new healthy variants of the brand, that we are really optimistic about," he said.

Nevertheless, Allen conceded that top line growth was unlikely to be "the story" on spreads. "For us the story on spreads is making sure we get the full benefit of the manufacturing efficiencies that will come through as we move two factories into one in the early part of next year."

Dairy Crests dairies division saw improvements in the half, with profit rising 37% to GBP2.6m, including property disposals of GBP2.5m. However, Allen said the group's dairy drink brand, Frijj, has been "slightly disappointing".

"Frijj had a difficult first-half as we constrained capacity whilst we invested in capacity and capability," Allen observed.

However, he was optimistic on the outlook for the brand: "That [investment] has now been finished and we are able to process new products, flavours and pack types, that will put us in a good place in the second half and, in fact, sales in October are significantly up on the same period of last year."

Likewise, in cheese - which booked the strongest divisional performance with a 9% increase in sales - the company will focus on innovation to drive further growth. Allen said the company was "optimistic" about launches under the Cathedral City brand, with Cathedral City bites and individual grated portions already out on the market and Cathedral City spreadable sue to launch in the second half of the year.

Commenting on Dairy Crests first-half, Panmure Gordon analyst Damian McNeela said that the result was "slightly below our expectations" but "broadly in line with the market". 

Overall, McNeela suggested the cheese division is positioned to benefit from product launches in the back half of the year, while dairies has seen an improvement in the underlying business. However, he cautioned on the competitive outlook for the spreads category.

"The cheese division continues to perform well with sales rising 9% and profits rising by 13% and should benefit from new product launches in H2. The spreads market has remained challenging during the period... In dairies profits rose ... which indicates a good improvement in underlying dairies performance."