Dairy Crest is issuing the following Interim Management Statement for the 3 months ended 30 June 2015 at its Annual General Meeting later today.
Overall our Cheese and Spreads businesses have performed in line with our expectations during the first quarter and the outlook for the full year remains unchanged.
In the first quarter aggregate sales of our four key brands, Cathedral City, Clover, Country Life and Frylight, were in line with the first quarter of last year. Cathedral City had another strong quarter, during which it has continued to grow sales and market share. The brand is now Britain’s 16th largest grocery brand (Source: The Grocer) and its 7th largest grocery online brand (Source: CheckoutSmart). Frylight has also continued to perform very strongly. However Clover and Country Life sales have fallen in a butter and spreads market that continues to decline.
We expect sales of our key brands to perform strongly as the year progresses. However as previously announced, the combined performance of our Cheese and Spreads businesses will be weighted towards the second half.
The project to make demineralised whey powder and galacto-oligosaccharide (GOS) at our Davidstow creamery is nearing completion and we expect to start selling both these products in this financial year. The first full-year benefit from these new products, which give Dairy Crest access to new sales channels in growing global markets, will come in the year ending 31 March 2017.
Sale of Dairies operations
On 6 November 2014 Dairy Crest announced that it had agreed to sell the assets of its Dairies operations to Muller UK & Ireland Group LLP. The sale has already received the approval of Dairy Crest’s shareholders but remains subject to that of the Competition and Markets Authority, which, as announced on 26 June 2015, is now looking at undertakings offered by Müller. A further update is expected on 21 August 2015.
Underlying cash generation is good and, as the year progresses, lower milk costs will make a significant difference to the carrying value of cheese stock and hence working capital.
As usual we anticipate that Dairy Crest’s net debt will peak around the middle of the year. We expect the usual stock build in the first half of the year reflecting the seasonality of milk production, which has been high this year. Additionally it will reflect another six months where capital expenditure has exceeded depreciation as we complete the investments at Davidstow and Harper Adams University, the site of our new innovation centre.
Our expectations for the full year remain unchanged.
Mark Allen, Chief Executive, commented:
“The year has started off as we expected. Higher sales of Cathedral City and Frylight are encouraging in markets that remain challenging.
Our demineralised whey and GOS projects are nearing completion and we will see the full benefits next year. We are also making progress with the sale of our Dairies operations and we expect this to complete before the end of 2015.
Dairy Crest is well positioned for profitable and sustainable growth. Our full year expectations remain unchanged.”