September 28, 2007

UK's Dairy Crest to increase dairy products

Due to unprecedented changes that took place in the British dairy sector since the onset of 2007, UK major dairy firm Dairy Crest said in a trading update that they will be forced to increase prices of their milk and dairy products this year until 2008.

Though demand for skimmed milk powder and bulk butter have been particularly strong, lower milk production levels due to adverse weather over the summer has led to considerable upward pressure on raw milk prices. As a result, 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 in October.

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. 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. The company 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, the company will implement price increases in both the middle ground and doorstep sectors.