Its ingredients operations have benefited from the strong markets for dairy products. However volumes were impacted over the summer period due to shortages of milk.
UK dairy, Dairy Crest has said in a trading update that unprecedented changes have taken place in the dairy industry since the beginning of the year. The world markets for skimmed milk powder and bulk butter have been particularly strong. This, together with lower milk production levels due to the adverse weather over the summer, has led to considerable upward pressure on raw milk prices. This in turn has resulted in price rises across most dairy categories. As a result of these changes Dairy Crest will increase the price it pays to its direct suppliers on liquid milk and cheese contracts to 25.0 and 24.7 pence per litre respectively from October. “We have agreed price increases to our customers in cheese, fresh milk, potted cream and packet butter which reflect these higher input costs,” the company said.
In the Foods division the cheese business has made good progress benefiting from the continued growth of Cathedral City. Cathedral City Lighter, which was launched in February, is performing well and is now achieving good distribution across the retail trade.
In UK spreads, Utterly Butterly has returned to good levels of growth supported by increased levels of marketing and promotional activity. In addition, in August, we launched a new variant of Utterly Butterly with added Omega-3. Country Life Spreadable is again growing strongly helped by the launch in May 2007 of Country Life Spreadable Lighter. Clover volumes in the first half have been significantly impacted by the product recall in May. Whilst base levels of sales quickly returned towards normal levels, promotional activity has been limited due to ongoing improvement activities at the factory. The costs associated with this, together with higher cream prices, will materially impact the performance of UK spreads this year.
The St Hubert business, which was acquired in January, is making encouraging progress in line with our business plan and has gained market share in France. This performance has been driven principally by the continued strong growth of St Hubert Omega 3, which is now the number one brand variant in the French spreads market.
Yoplait Dairy Crest has also performed well with Petits Filous, Frubes and YOP all showing good growth.
The company’s Dairies business is making progress as it continues to take costs out of its operations. As planned we ceased production at Totnes in September and processing has been moved to other dairies. Overall volumes to major retailers are slightly up on the first half of last year. We have also seen good growth in potted cream and flavoured milk. Its ingredients operations have benefited from the strong markets for dairy products. However volumes were impacted over the summer period due to shortages of milk.
In Household, to reflect the significant increase in the cost of raw milk we are implementing price increases in both the middle ground and doorstep sectors. In our doorstep business the underlying annual decline rate is currently running at around 7% and we are continuing trials of ‘Milk & More’, our new internet based service delivery model.
The integration of the Express Dairies business remains on track. We have closed nine overlapping depots, rationalised shifts at the Nottingham and Liverpool dairies and, in line with our original plans, the administration office in Leicester will close this autumn.
As previously announced on 20 September 2007, the Office of Fair Trading (‘OFT’) has issued a Statement of Objections to retailers and dairy processors in its investigation into pricing in the dairy produce sector. Dairy Crest is reviewing the OFT’s provisional findings in detail and will respond accordingly.
Mark Allen, Chief Executive of Dairy Crest, commented: “The UK dairy market has seen unprecedented changes in recent months. Against this market background the Group overall is trading in line with our expectations. We have been successful in achieving higher prices across a range of products, enabling us, in turn to deliver higher prices to our direct milk suppliers. A number of our key pillar brands including Cathedral City, Country Life, Utterly Butterly and Petits Filous are performing strongly and we continue to roll out healthier products. We are also particularly pleased with the continued encouraging contribution made by St Hubert.”
Interim results for the six months ended 30 September 2007 will be announced on 8 November 2007.
