UK: Depot sale to boost Dairy Crest profits
Dairy Crest spread sales still under pressure
Dairy Crest has said the sale of its Nine Elms milk depot will mean its full-year profits are likely to come in ahead of expectations despite a weaker-than-anticipated performance from spreads.
Giving a trading update today (31 January), the dairy said its year-to-date performance has been in line with expectations in a "challenging" environment.
Sales of its four key brands - Cathedral City, Country Life, Clover and Frijj - rose by 4% in the first nine months of the year and the group made continued progress in reducing costs at its struggling dairies division. Dairy Crest again insisted it is on-track to hit savings ahead of its annual target of GBP20m (US$32.9m) and added it remains committed to a medium-term target of a 3% return on sales.
Dairy Crest is also looking to improve profitability by establishing demineralised whey powder production. The project is "progressing to plan" and the company is in "advanced talks" with a number of potential customers, Dairy Crest said.
The company has sold its Nine Elms depot in London to Battersea Project Phase 5 Residential Company Limited for GBP17.6m. The deal will result in a one-time gain profit of GBP15m.
"We now anticipate that profits from the sale of properties will total around GBP18m this year, GBP10m ahead of previous expectations," Dairy Crest said. "However, the challenging spreads market will lead to full year spreads profits below previous expectations. Taken together these changes will increase adjusted profit before tax."
Panmure Gordon analyst Damian McNeela said he expected lower spread profits to trim GBP2.5m off the bottom line, while Dairy Crest has indicated that it will pay GBP2.5m more in staff bonuses this year. "Accordingly we are increasing our adjusted profit-before-tax forecasts by GBP5m to GBP61.1m resulting in an 8% EPS upgrade to 39.8p," he wrote in a note to investors.
Dairy Crest shares had edged up almost 1% at 10:00 GMT this morning.
Dairy Crest Group plc ("Dairy Crest")
Interim Management Statement and Sale of Nine Elms Depot
Dairy Crest, the leading UK-owned dairy foods company, is today issuing its Interim Management Statement for the nine months ended 31 December 2013. It is also announcing that it has agreed the sale of its Nine Elms residential and middle-ground milk depot ("Nine Elms"). Following this transaction we expect to report profits for the year ending 31 March 2014 ahead of our expectations.
Third quarter trading in line
Trading in the third quarter was broadly in line with our expectations in an environment that remains challenging. We have continued to grow key brand sales and implement cost reduction projects.
Taken together, sales of our four key brands (Cathedral City, Country Life, Clover and FRijj) have grown by 4% over the nine month period. Innovation continues to be an important factor in the success of these brands, new products introduced earlier this year such as Clover Additions and Cathedral City Grated Portions are meeting their targets and we have recently launched Cathedral City Spreadable. We continue to expect FRijj to be in growth for the year as a whole following the successful upgrade of our production facilities in the first half of the year and a strong third quarter.
We have also continued with initiatives designed to improve the profitability of our Dairies product group and remain committed to our medium-term target of 3% on sales. We are on track to deliver cost savings ahead of our annual target of £20 million.
Our demineralised whey powder project is progressing to plan and we are in advanced discussions with a small number of potential customers.
Proceeds from sale of depot exceed expectations
The sale of Nine Elms in London to Battersea Project Phase 5 Residential Company Limited for £17.6 million in cash generates a profit of £15 million on the disposal.
Residential milk deliveries have steadily declined over recent years as supermarkets have grown their share of the market. Property profits from the sale of depots such as Nine Elms offset the costs associated with this decline. We had forecast property profits of around £8 million but we had also highlighted that Nine Elms was a particularly valuable property which would result in a spike in profits in the year in which it was sold. We anticipate profits from the sale of depots we no longer require are likely to return to a more normal £5 million to £10 million in future years.
Outlook for year
We now anticipate that profits from the sale of properties will total around £18 million this year, £10 million ahead of previous expectations. However, the challenging Spreads market will lead to full year Spreads profits below previous expectations. Taken together these changes will increase adjusted profit before tax. This will result in additional bonus payments to over 1,200 of our employees which will total around £2.5 million and lead us to report profits for the year ending 31 March 2014 ahead of expectations.
Mark Allen, Chief Executive of Dairy Crest, commented:
"Dairy Crest has delivered a solid performance in the third quarter, with the combined sales of our four key brands continuing to grow. Innovation continues to support the development of these brands and our new launches are performing in line with our expectations.
"We are delighted to have secured over £17 million from the sale of Nine Elms. This reflects the work we have done to maximise the potential of this site over recent years.
As a result profits this year are likely to be ahead of previous expectations, and significantly ahead of last year. Looking forward, we will continue to grow added value sales and reduce costs in line with our well-established strategy."
Dairy Crest expects to issue its Preliminary Results for the year ending 31 March 2014 on 22 May 2014.
Original source: Dairy Crest
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