Cathedral city cheese

Cathedral City performed strongly for Dairy Crest

Dairy Crest has reported a 1% increase in sales and a return to bottom-line profitability after “a year of consolidation” that saw it reorganise its business structure and slash costs by £25m.

Adjusted pre-tax profits increased by 31% year on year, to £65.3m, helped by property sales, in the year to 31 March 2014. Overall profit from continuing operations was £48m compared with a loss of £7.9m in 2012/13.

Sales and profits were up in Dairy Crest’s cheese and whey division but fell in its butters and spreads business. Meanwhile, sales in its dairies business were down slightly but profits soared thanks to the sale of surplus depots, including a site at Nine Elms, which generated £15.3m for the company.

The trading environment had been challenging, said CEO Mark Allen, but Dairy Crest’s portfolio of brands – particularly Cathedral City – had performed strongly. “The strength of our key brands and our proven ability to cut costs and drive efficiencies mean that we remain confident that we can generate profit growth in all three of our product groups over the medium term.”

Dairy Crest sold its French spreads business St Hubert last year and then reorganised its business structure. “This has helped in our constant drive to reduce costs,” Allen said, with Dairy Crest making annualised savings of £25m in 2013/14.

The company is also in the process of consolidating all its butter and spreads production at its Kirkby site, which it said would further help improve efficiency and cut costs.

Net debt shot up by 137%, from £60m to £142m, but remained “comfortably within the targeted range,” the company said.

To help reduce debt levels, Dairy Crest announced it would be reducing its contribution to its pension fund from £20m to £13m for the next two years.


Revenue in Dairy Crest’s cheese and whey division – which includes the market-leading Cathedral City brand – stood at £264.6m, up from £231.3m last year, with profits of £39.3m, up from £33.1m.

“Cathedral City sales strongly outperformed the market, growing 12% by value and 9% by volume,” Allen said. “As a result, Cathedral City now has an 11% share of retail cheese sales, up from 10% last year.”

Its butters and spreads division – which includes Country Life and Clover – delivered revenue of £177.4m, down from £194.5m a year ago. Profits also fell, from £25.5m to £16.8m. “Clover grew volume but lost a little value market share,” Allen said in his operational review. “During the year we introduced a new range of healthy spreads into the Clover range and supported them and the other products in the range with TV advertising.

“Country Life spreadable grew sales and volumes, outperforming the market and other spreadable brands. However, higher cream prices for most of the year increased the cost of Country Life block butter and we chose to promote it less. This led to significantly lower sales and market share. For the first time Country Life spreadable sales were higher than those of Country Life block butter.”

And its dairies division – which includes its liquid milk business, doorstep delivery service Milk & More and the Frijj brand of milkshakes – reported revenue of £944.8m, down from £951.6m in 2012/13. Profits in the division increased from £9.8m to £18.8m, and margin stood at 2%, up from 1% a year earlier. Dairy Crest is targeting a margin of 3% in the medium term.

FRijj sales declined in the first half of Dairy Crest’s 2013/14 financial year as it worked on upgrading its production capacity, Allen said, but second-half sales had been much stronger. “Sales in the second half of the year ended 31 March 2014 grew by 11% compared to the second half of the year ended 31 March 2013. The ready-to-drink flavoured milk market, in which FRijj is the leading brand, has continued to grow strongly during the year. Total market sales are up by 16% in value and 9% by volume.”

Allen added: “The upgrade of our production facilities also delayed the full launch of our new long-life product which we now expect to take place in the year ending 31 March 2015. This will allow us to grow FRijj sales into convenience and other outlets where less refrigerated storage is available.”

Analyst reaction

Panmure Gordon said Dairy Crest’s results were “broadly in line with expectations” but noted the outlook for the company’s spreads and dairies divisions remained challenging. “We acknowledge the company’s yield attraction, but we struggle to get excited over the medium-term prospects of the business given the challenging conditions which face both the spreads and dairies division,” it said in a note.

Meanwhile, JP Morgan said the results were below its expectations, citing lower commodity cream prices and faster-than-expected decline in its doorstep delivery business as key factors.

However, it stressed the Dairy Crest’s portfolio remained attractive, with cheese “a standout” thanks to strong growth for Cathedral City. “The brand continues to take market share and this exemplifies how we believe Dairy Crest can create value for shareholders.”