Dairy Crest reliant on property sales for first half profit

15th Jul 2014 08:33

- Three of four brands grow sales- Dairies profits to be H2-weighted- Property sales to make the differenceIn the face of continued challenging market conditions in the first quarter, Dairy Crest still grew sales at three of its four key brands and said it remained confident of hitting full year numbers, although this will be made up by selling more of its redundant properties. The dairy foods group, which this year plans to cut costs by £20m and aims to make £10m-£15m profit from sales of surplus property, said aggregate sales of the four key brands grew by 4% versus the same period last year.Its Clover spread saw sales continue to fall in a "difficult" spreads market, but is expected to firm in the remainder of the year thanks to a televised advertising campaign in the second quarter. The other three brands, Cathedral City cheese, Country Life butter and FRijj milkshakes each grew sales by more than 5%."We are also on track to meet our cost reduction targets, which together with our projects to benefit from the increasing global demand for infant formula will underpin future growth," said Chief Executive Mark Allen. "Despite the continuing challenging market conditions our full year expectations remain unchanged."To improve the profits in the Dairies business, on top of cost cutting and property sales, management plan to grow FRijj, which is already the market leader in the ready to drink flavoured milk market and has increased its presence on retailers' shelves in recent months, securing a greater share of display and benefitting from new coffee flavours. Despite progress with these three elements of our plan, Allen admitted Dairies profits have remained under pressure from maintaining high milk purchase prices during the quarter despite lower cream revenues. Although the group has now reduced the price it pays farmers for milk, Dairy profits will be second-half weighted and property profits will make up a larger part of total profits than originally anticipated. Broker Shore Capital estimated that, with cream prices continuing to weaken, and a price cut to farmers not implemented until July 1st, it believes the dairy operations have been loss making through the first quarter and will remain so through the first half before property sales are included. "If Dairy follows much of the UK dairy industry and implements a further price cut through the second quarter, we believe the operations can become profitable through the second half, albeit we have nudge down our profit expectation for the operations to breakeven - from £2m," it said.Shares in the company were down 1.45% to 431.95p at 08:45 on Tuesday.OH