UK dairy processor Dairy Crest insisted that it has "clear plans in place" to address issues at its spreads business, where its brands have been hit by the overall decline of the category in a deflationary environment.

In its interim trading statement, released this morning (5 November), Dairy Crest said that sales of its four key brands were on par with last year as “strong” growth at Cathedral City and Frylight was offset by ongoing declines in spreads brands Clover and Country Life. Cathedral City and Frylight sales were up 7% and 37% respectively.

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CEO Mark Allen commented: “In the first half of the year Cathedral City has continued to go from strength to strength and has again grown sales and market share. A strong performance from Frylight has helped us maintain margins in our spreads and butters business. We have clear plans in place to address the performance of Clover and Country Life.”

Dairy Crest said it has introduced a new Clover recipe that is free from artificial ingredients and will be supported by a “strong” media programme that the company said it anticipates will give "the renewed impetus to improve the performance of Clover in the second half." The company is also bringing out new Country Life packaging that will emphasise the brand's “overtly British position”.

On a group-wide basis, Dairy Crest booked a 5% drop in sales to GBP203.8m in the six months to 30 September. Adjusted pre-tax profit, including exceptional items, amortisation and pension interest, fell 38% to GBP16m. Pre-tax profit was down 13% to GBP13.2m.

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Despite the drop in profitability, Allen was upbeat on Dairy Crest's financial position having secured competition approval to push ahead with the sale of its liquid milk business to Muller Wiseman. The “transformational” sale will complete on 26 December, the company revealed.

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"The sale of our Dairies operations leaves Dairy Crest well positioned for long-term profitable and sustainable growth alongside strong cash generation. We expect this to start in the second half of 2015/16 despite the continuing challenging environment," Allen said.  

Shore Capital analyst Clive Black concurred that the sale of the dairies division will leave Dairy Crest well-placed to focus on its branded cheese and spreads portfolio. "The organisation has prime of place market positions in branded high quality cheddar cheese and spreads, most particularly through the Cathedral City & Clover brands respectively, which we deem to carry high implicit value. Those brands are underpinned by well invested manufacturing, packing and distribution capabilities, making for a lean and effective long-life dairy product organisation," he wrote in an investor note.