Dairy Crest today (24 May) insisted it expects to see an improved return from its dairies division after the unit pushed the UK dairy processor into the red in its last financial year.
The company said “unsatisfactory results” from its dairy unit weighed on its full-year numbers. The firm reported a net loss of GBP10.1m (US$5.8m) after impairment charges of GBP81.7m in dairies dented the bottom line.
Speaking following the release of its results, CEO Mark Allen told analysts and investors that last year was a “very difficult time”, not just for Dairy Crest but for the industry as a whole.
“Everybody that was selling milk last year had a tough time. Actually, what that has made us do is hold a mirror up to ourselves and have a real look at not just what we are doing, but the speed in which we were doing it,” he said.
Allen revealed Dairy Crest has embarked on a number of initiatives designed to improve profitability from its milk business. He said he expected efficiency to increase and prices to rise.
The group has stripped costs from the unit by merging its dairies management and sales teams – originally divided by customer base – into one division.
“That does two things in reality. The first thing it does is make sure that the whole group is focussed on selling milk to the people who can deliver the maximum value for it. It also gives the added advantage of taking our costs, which we were successful in doing,” Allen said.
The company has also re-evaluated its manufacturing network to ensure it is “matched very appropriately and carefully” to the “customers that we want to serve”. Over the past 12 months, Dairy Crest has announced a swathe of cuts from its dairies manufacturing unit, including the closure of two dairies last month.
Finally, Allen said Dairy Crest has taken the decision to sacrifice business rather than chasing unprofitable volumes. He said the company had to “make sure… we actually trade profitably with each of those groups of customers” – retailers, doorstep delivery and the middle ground.
“You will find over the next few months, and there is evidence of this already, that we will consciously make choices not to trade with certain customers. We will only trade with people that are prepared to pay us a fair price for the high-quality product that we deliver to them,” he said.
Allen said that, while trading remains “difficult” in the “medium term”, Dairy Crest expects its dairies unit will return to a profitability level of around 3% of sales.