May 25, 2012

 

Dairy Crest slide to first loss in two decades
 

 

Dairy Crest has declined to its first loss in about two decades, as it wrote off the value of its dairies.

 

Its poor figures from its milk business offset another strong year for its cheese brand, Cathedral City. They also underlined the treacherous state of the milk market, with supermarkets cutting prices for shoppers but insisting the processing companies pick up the bill. Dairy Crest has also been hit by thousands of households abandoning their local milkman and instead buying their milk from shops.
 

The number of customers who receive doorstep deliveries fell by 10% last year, with about one million households still buying pintas on their doorsteps.

 

The company took a hefty write-down on the value of the dairy arm, after it announced last month that it was closing two of its dairies leading to the loss of up to 470 jobs. That led to a pre-tax loss for 2012, concluding at March 31, at a value of GBP10.1 million (US$15.9 million).

 

This is the first time the company has made a loss since it was spun out of the Milk Marketing Board and privatised in 1991.

 

Mark Allen, the chief executive, denied that losing a contract with Tesco last month had any role in the write down or affected the company's profits. "It was really a very small part of our dairy business - just 3%."

 

He blamed most of the troubles on the "middle-ground" retailers, such as large corner shops and mid-sized grocery stores.

 

Profits from Dairy Crest's dairy division fell to GBP10.2 million (US$16 million) and margins fell to 1% from 2.5% in 2011. Mr Allen said the company wanted to return to a time when it made a 3% operating margin on processing milk. "We need to sell milk to people prepared to pay a fair price, and be brave enough not to supply them if they are not."

 

He said he could not rule out further job losses as the company continued to look at ways to cut costs.

 

"We will continue to hold a mirror up to ourselves and ask if we can do things differently." The company aims to cut a further GBP20 million (US$31.4 million) from its cost base this year.

 

In contrast to its milk woes, its Cathedral City, St Hubert, Frijj and Clover brands all performed well, with 11% sales growth, with Cathedral City becoming one of the country's largest food brands.

 

Mr Allen said his confidence in the potential for these brands to keep on innovating was underlined by the company's 4% increase in the dividend to 14.7%.

 

The shares moved up 6.5% to 321.7%. Many analysts are buyers of the shares because of the over 6% dividend yield.