Sales at British dairy processor Dairy Crest Group are up 2% to £224.9 million, according to the firm’s interim results announcement for the six months ended September 30, 2018.
Adjusted profit before tax also increased by 13% to £22.7 million; reported profit before tax of £17.8 million.
Increased sales of the Cathedral City and Clover brands, sales of which grew by 7% and 9% respectively, were given credit for much of the increase.
Chief executive Mark Allen said: “We have delivered a good first half performance driven by our two largest brands, Cathedral City and Clover. Demand for our functional ingredients continues to grow.
Innovation continues to shape the business and we have recently launched exciting new products in all of our categories.
“We understand the importance of staying ahead of the market and ensuring we are meeting consumers’ needs. Food provenance, health and wellbeing are core themes which we will continue to focus on.
“Our investment at Davidstow is progressing as planned. We are pursuing a number of opportunities to take Cathedral City into new international markets as well as deepen its penetration into existing domestic channels, capitalising on its status as one of the UK’s top 10 brands according to YouGov. We are confident in delivering our expectations for the full year.
Dairy Crest is supplied by approximately 330 farmers in the South West.
The firm has a total of seven sites in the UK including its production, packaging and distribution facilities in Davidstow and Nuneaton, a creamery in Cornwall, and an innovation centre in Newport.
Expansion
In May 2018, the firm announced its intention to expand capacity at the Davidstow creamery from 54,000t of cheese per annum up to 77,000t to accommodate the long-term growth of Cathedral City in both the UK and abroad.
Approximately half of the additional capacity is earmarked for the UK where Dairy Crest hopes to increase its share of the sliced, grated and snacking categories.
The remainder is targeted for export – primarily into Germany, China and the US.
The project will also position the creamery for a sustainable future, moving towards self-sufficiency in water usage and greater energy resilience.
The £85 million expansion will take place in phases over the next four to five years and is expected to deliver a return on invested capital of at least 20% at the end of the project.
Spreads brands up market share
Dairy Crest’s spreads brands grew revenue by 10% for the six month period, compared to the overall spreads market which grew by 3%, according to Kantar data.
As retail butter prices have climbed, consumers have switched to more cost-effective alternatives. This has helped to reverse the decline of the spreads market which had been contracting volumes by more than 5% a year on average over the five years prior.
Clover has been a prime beneficiary of this move away from butter.
Volumes grew by 8% and revenue by 9% over the six month period ended September 30, 2018. It continues to gain market share and now represents almost 21% of the spreads sector based on Kantar data.
Building on this success, the firm also launched ‘Clover Light’ in August 2018. We expect this product will support the continued growth of this brand.
The ongoing growth of the ‘Free From’ market has also seen dairy-free spread, Vitalite, grow in both volumes and revenue by more than 40% in just six months.
As a result, bosses also plan to launch a block variety for baking and cooking.
Butter markets remain challenged
However, as a creamery, the firm saw both sides of the increase in butterfat prices.
Cream prices determine the input costs for Country Life butter, fell by 25% over the 12 months to September 2018 since reaching record levels of around £3/L in August 2017.
“However, the price was still 25% higher than two years ago during the period which led us to maintain our strategy to reduce investment and marketing in this, our lowest margin product,” Mark Allen explained.
As a result, volumes fell by 16% over the period while revenue reduced by 4%.
Frylight also had a challenging year, with sales down by around 20% for the six months to the end of September 2018 as the summer heatwave led to consumers frying less.
However, by the second half of the year, the brand was back performing well. Based on strong current trading, it’s expected to return to year-on-year growth in the second half.
Focus on efficiency
A new IT system due to be completed next year is expected to make annual savings of around £5 million from 2019-20 onwards.
The improvement programme at Dairy Crest’s butters and spreads facility in Kirkby last year is delivering results, including improved efficiencies and lower wastage.
Exceptional costs totalling £1.7 million have been incurred during the current period, however, the firm expects to leave the financial year with annualised cost savings of £3 million.
Dairy Crest also plans to sell some surplus land on the site for redevelopment to help offset the cash impact of this restructuring.
