UK: Dairy Crest sees Clover sales fall in "difficult spreads market"
Dairy Crest has announced a fall in sales of its Clover brand
Dairy Crest saw the combined sales of its four key brands rise in its first quarter - but revealed spreads brand Clover was continuing to see its sales under pressure.
Sales of Cathedral City cheese, Country Life margarine and Frijj milkshakes were up more than 5% for the period ended 30 June. However, the UK firm's Clover brand was hit by a fall in sales in what it called a "difficult spreads market".
Chief executive Mark Allen said he expected Clover's performance to improve as a result of a forthcoming TV advertising campaign.
In a trading update given at Dairy Crest's AGM, the company said profits remained under pressure at its dairies division as the firm maintained high milk purchase prices despite lower cream revenues.
The company said it had lowered the price it pays for milk but said earnings from the dairies arm would be "second-half weighted". Property profits, from the sale of redundant depots, are likely to make up a larger part of total earnings than first anticipated, it said.
"Despite the continuing challenging market conditions our full year expectations remain unchanged," added Allen.
Shares in Dairy Crest were down 1.48% at 431.80p at 10:43 BST today (15 June).
Dairy Crest, the leading UK-owned dairy foods company, is issuing the following Interim Management Statement for the 3 months ended 30 June 2014 at its Annual General Meeting later today.
Aggregate sales of our four key brands grew by 4% in the period compared to the first quarter of 2013/14. Three of our key brands, Cathedral City, Country Life and FRijj each grew sales by more than 5%. The exception was Clover where sales continued to fall in a difficult spreads market. We expect the performance of this brand to benefit over the remainder of the year from the television advertising that is scheduled for the second quarter. We also remain on target to complete the rationalisation of our spreads and butter manufacturing facilities and close our Crudgington site this year.
One of the elements of our plan to improve the profits in our Dairies operations is to grow FRijj, which is already the market leader in the ready to drink flavoured milk market. FRijj has increased its presence on retailers' shelves in recent months and secured a greater share of display. New coffee flavours are also contributing to its growth.
The second element to our Dairies plan is to reduce our costs. Across the business as a whole we are on target to again reduce our costs by £20 million this year, with Dairies benefitting most. Our focus is on reducing our distribution costs and we have made good progress in the period.
Thirdly, we aim to maximise profits from the sale of surplus properties. As previously reported, in this period we have completed the sale of a redundant depot in Surbiton, Surrey resulting in a profit on disposal of £4.9 million. We now anticipate full year profits from sales of redundant distribution depots will be in the range £10 million to £15 million.
Despite progress with these three elements of our plan, profits in our Dairies product group have remained under pressure as we maintained high milk purchase prices during the quarter despite lower cream revenues. Although we have now reduced the price we pay for milk for Dairies, profits in this product group will be second-half weighted and property profits will make up a larger part of total profits than we originally anticipated.
At the end of the first quarter our financial position remains in line with our expectations and the outlook for the full year remains unchanged.
As announced earlier this month, our £45 million investment to manufacture demineralised whey at Davidstow remains on track and we are working closely with our partner, Fonterra, to maximise the potential returns from both this investment and from the newly announced £20 million investment to manufacture galacto-oligosaccharide (GOS).
Mark Allen, Chief Executive, commented: “Three of our four key brands have performed well in the first quarter and we expect Clover’s future performance to benefit from the forthcoming television advertising campaign. We are also on track to meet our cost reduction targets, which together with our projects to benefit from the increasing global demand for infant formula will underpin future growth.
Despite the continuing challenging market conditions our full year expectations remain unchanged.”
Original source: Dairy Crest
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