30th Sep 2008 07:00
30 September 2008
Dairy Crest Group plc ("Dairy Crest")
Trading Update for the six months ending 30 September 2008
Dairy Crest is issuing the following pre-close trading update for the six months ending 30 September 2008 ahead of announcing its Interim Results on 13 November 2008.
Dairy Crest has performed in line with its expectations over the first six months of the year. The Group's portfolio of brands has continued to make strong progress. Of the key brands Clover, Utterly Butterly, Country Life and Cathedral City have all achieved double-digit sales growth by volume and value, whilst St Hubert Omega 3, Petits Filous, Frubes and Frijj have achieved double-digit sales growth by value.
Over recent months our markets have become more difficult with general economic conditions worsening and upward pressure on input costs, notably raw milk, vegetable oils, packaging, energy and fuel. To counteract these pressures we have been focusing on delivering significant cost savings in two principal areas. Firstly we are continuing to drive costs out of both distribution and manufacturing in the Dairies division. Further details of this are set out below. Secondly we are in the process of implementing a reorganisation of our Head Office and other supporting functions which will deliver significant cost savings next year. As well as reducing our cost base we continue to implement price increases with our customers. These efforts will assist the Group in meeting the challenging market conditions expected in second half.
Foods
Overall the Foods division has seen a significant uplift in performance during the first half. This reflects the strong progress by our portfolio of brands and in particular a significant improvement by the UK butter and spreads business over the comparable period last year.
In UK butter and spreads we have continued to strengthen our market share in the dairy spreads category. As expected Clover is recovering well with strong double-digit volume and value sales growth in the first half. Clover Lighter was launched in August with very high levels of retail distribution for a new product. Early sales are encouraging and in line with forecast. Utterly Butterly has also delivered double-digit volume and value growth following on from its strong performance last year.
The Country Life brand has started the year well. An uplift in promotional activity has delivered good growth from packet butter and an exceptional performance by Country Life Spreadable where sales volumes have more than doubled in the first half. We continue to be optimistic on the prospects of the Country Life brand and are launching an exciting new marketing campaign. This includes new packaging and a new TV advertisement focused on the brand's British heritage.
St Hubert, our French and Italian spreads business, continues to make solid progress. The business has maintained its market share and St Hubert Omega 3 has continued to deliver both volume and value sales growth. This is despite a fall in volumes in the French spreads market over the last few months. The overall French retail market has been under pressure resulting from the economic downturn. In line with the Group's focus on offering consumers choice around its most popular brands we are launching St Hubert Lighter with Omega 3 in the autumn. In Italy the Vallé brand has grown strongly.
In cheese, Cathedral City has again delivered double digit volume and value growth. The brand is now worth over £180 million at retail sales value. Cathedral City Lighter, with a new pack design and television advertising, is performing well. As previously announced, in August we sold our loss making Stilton and speciality cheese business to Long Clawson Dairy Limited for total cash proceeds of approximately £3.5 million. This transaction will result in a loss on disposal of approximately £4.4 million.
Yoplait Dairy Crest ('YDC') has performed satisfactorily. Overall sales have grown double-digit by value. However volumes are slightly down. This reflects a lower level of promotional activity compared to the first half last year. The strongest performing brand in the half has been Frubes.
Dairies
Overall performance by the Dairies division in the first half is expected to be well down on the first half last year. This principally reflects the impact of the dairy ingredients markets, which are significantly lower than the very high levels seen last year, and the effect of higher input costs.
We continue to focus on taking significant costs out of manufacturing and distribution in the Dairies division. This week we are opening our new regional distribution centre ('RDC') at Aldridge in the West Midlands. We are also progressing well with a new distribution solution in the South East. This project reduces distribution costs, allows the dairy sites to improve efficiency and increases overall production capacity.
As a result of the RDC project we are now in a position to take further costs out of our manufacturing footprint in Dairies. This will improve our overall efficiency. We have confirmed today that we are considering the closure of the Nottingham dairy (a predominantly glass bottling operation which we acquired in 2006 as part of the Express Dairies acquisition). We are today starting a 90-day consultation process with employees and unions. Currently the Nottingham site employs 215 people and processes approximately 90 million litres of milk per annum. If ultimately decided upon, the closure of the Nottingham site and associated restructuring in Dairies is expected to result in an exceptional charge of approximately £8 million in the year ending March 2009 comprising approximately £5 million of cash costs and the remainder being a non-cash asset write down.
Our retail milk business has continued to make progress in developing long-term partnerships with our major customers. Overall volumes to major retailers are slightly up on the first half of last year. As previously announced over the last twelve months we have been successful in securing our positions as key long-term suppliers of fresh milk to both Sainsbury's and Morrisons. We have also recently won further business with Lidl UK. From September Dairy Crest will supply fresh milk exclusively to five of Lidl's six distribution centres in England and Wales.
Frijj, our market leading fresh flavoured milk drink, has delivered good growth. During the half we launched a new innovative Internet-based marketing campaign "Four Ridges" and sponsored the Frijj Film Festival.
In Household, we implemented further price increases on both the doorstep and in the middle ground to recover substantial increases in milk, packaging and distribution costs. This has had some impact on sales volumes of milk during the first half. Following the May price increase, the underlying milk volume decline on the doorstep has increased to around 10%. The doorstep business is running a number of promotions during the Autumn aimed at improving this performance. Good progress is being made with the roll out of the 'milk&more' service, which enables customers to order and pay over the Internet. As planned a further 26 depots went live on the service in August.
Milk supply
UK production levels remain very tight. In addition farmers have faced further rises in on-farm costs. This has been putting upward pressure on milk prices despite prices falling elsewhere in Europe. We have continued to support our supplying farmers and have increased prices on both liquid and cheese contracts during the half. The latest price increase was 1 penny per litre to our Davidstow farmers with effect from the beginning of September.
Net Debt
Net debt at the end of the half is expected to be broadly in line with our expectations. We were very pleased to announce in July that the Group had successfully agreed a new 5-year revolving credit facility of £85 million and €175 million. Despite difficult credit markets the Group importantly agreed unchanged financial covenants in the new facility with good support from its existing syndicate of banks.
Mark Allen, Chief Executive of Dairy Crest, commented:
"Our Foods business has made good progress in the first half of the year and our portfolio of key brands continues to grow strongly. Dairies has been impacted by higher input costs and a weaker ingredients market. The commercial environment has become more challenging over recent months and we are taking actions, including significant cost reductions, to ensure our business and our brands are well positioned for the trading environment ahead."
Interim results for the six months ended 30 September 2008 will now be announced on 13 November 2008.
For further information, please contact:
Dairy Crest Group plc
Will Shaw 01372 472477
Arthur Reeves 01372 472236
Brunswick
Simon Sporborg 020 7404 5959
Laura Cummings
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