Dairy Crest reports recovery for cheese brand

Foods producer Dairy Crest produced a more confident outlook today after resolving the problems that drove down sales of its leading cheese brand.

Annual profits of £85.1m (€127.4m) were 11% higher than a year ago despite sales of Cathedral City tailing off sharply in the final three months of 2003.

The group, based in Surbiton, Surrey, blamed a slow response to price cuts by rivals and inadequate promotional activity for the sudden drop in demand.

But it cheered investors today with news that cheese sales were back on track following a TV advertising campaign in February and better marketing.

In addition to Cathedral City, Dairy Crest produces a host of other chilled dairy brands including Clover butter, Utterly Butterly and Yoplait yoghurt.

Turnover grew 3% to £1.36bn (€2bn) during the 12 months to March 31 and benefited from the acquisition of the St Ivel Spreads business more than a year ago.

Dairy Crest said the spreads business was now its biggest profits centre with Clover and Utterly Butterly delivering good growth in volumes over the past year.

The relaunch of St Ivel Gold in the autumn – backed by TV advertising and new packaging – also generated higher sales after a long period of decline.

Dairy Crest has ploughed more than £200m (€299m) into improving its facilities over the past four years with the creation of two “super dairies” at Chadwell Heath, east London, and Gloucester.

Cheese sales will be supported by a new creamery to open at Davidstow, Cornwall.

Chief executive Drummond Hall said the group was “well placed to meet the challenges of the future” that include changes to EU farm rules this summer.

His comments come at the end of a year of major changes in the food retail sector that pose a risk to the future growth of groups such as Dairy Crest.

On Tuesday, supermarket chain Asda announced that it was ending a contract to receive milk from Dairy Crest in favour of rival Arla Foods.

And the merger of Morrisons with Safeway earlier this year is likely to herald another shake-up of supply deals.

Investec analyst Nicola Mallard expected one of the big three suppliers - Dairy Crest, Arla Foods or Robert Wiseman Dairies – to lose out.

“But after Tuesday’s changes it is anyone’s guess who will be the casualty,” she said.

Investors were cheered by higher than expected growth in the full-year dividend, up 15% to 18.9p.

Restructuring charges pushed bottom-line profits down by 5% to £45.6m (€68m), but net debt was lowered to £279.9m (€418.9m) from £345.2m (€516.7m) a year ago.