Dairy Crest has reported a 7% rise in pre-tax profit and signalled it is ready for further growth – organically or through acquisitions – on the back of its newly strengthened balance sheet following the sale of St Hubert.

The dairy processor today reported profit before tax had risen from £47.5m to £50.6m during the 12 months to 31 March 2013, and net debt was reduced dramatically during the period, down 82% from £336m to £60m.

It comes after Dairy Crest sold its French St Hubert spreads business for £341m last August, and restructured its balance sheet.

This had strengthened Dairy Crest’s financial position, and “leaves us well placed to invest for growth in the UK, either internally or through acquisitions,” said CEO Mark Allen.

Dairy Crest said it was exploring new opportunities to add further value to the whey generated by its cheese business, particularly from its Davidstow production. “The whey stream at Davidstow is particularly valuable because of its size and quality and because it contains no colouring. We are excited about an opportunity to increase whey profits by extending manufacturing into higher-value products which are in demand world-wide, and have initiated a project to scope this opportunity.”

House broker Jefferies welcomed the news of Dairy Crest’s whey plans and said: “It now looks most likely they will push ahead with plans to build a c.£35-40m facility to move its c.25k tonne whey pool up the value chain - supplying into the high growth, high margin end-markets of sports nutrition and infant nutrition.”

JP Morgan Cazenove, also house broker, said: “Having reduced its financial leverage significantly with the sale of St Hubert last year, Dairy Crest has the capacity to pursue growth strategies that may see its forward earnings multiples become even more attractive.” It added the results should “establish a basis for future earnings growth”, and increased its price target for the company from 493p to 545p.

Investec also highlighted that Dairy Crest’s balance sheet was in “much better shape”. Looking ahead to the next 12 months, it is forecasting the company will deliver profit before tax of £64m for the 12 months to 31 March 2014.  

Dairies, spreads and cheese

Overall revenue from continuing operations declined 9% year-on-year to £1,382m; this included the loss of revenue following the St Hubert sale.

 Dairy Crest’s dairies business saw an 11% drop in revenue to £951.6m, with profit up marginally from £10.2m to £10.3m. The past 12 months had once again been tough for dairies, said Dairy Crest, but it remained committed to its medium-term target of generating a return of 3% on sales.

During the second half of its past financial year, returns stood at 1.7% compared with 0.4% during the first half.

Volume sales of Dairy Crest’s market-leading Frijj milkshake brand dropped by 2% during the period, following the launch of new competitor products, although value sales were up 5% year-on-year.

In spreads, revenue fell by 8% to £194.5m, but profit was up by 11% to £25.7m. Volume sales of Clover were up 2% but value was down 5%, while Country Life volumes were flat but value was down 3%.

The spreads market was particularly difficult at the moment, Dairy Crest said. “Promotions are at a historically high level across the category, but are not driving category growth.”

In cheese, meanwhile, revenue increased by 1% to £231.3m but profits fell by 6% to £33.3m; this was partly because stock profits from last year were not repeated during the period.

Volume sales of Cathedral City were up 1% year-on-year, with value up 3%. Dairy Crest said it continued to work on new formats – such as Selections cheese snacks – and on widening the Cathedral City range, with just 57%of brand sales now coming from its flagship mature variant, down from 65% during 2011/12.

Alastair Murray leaves

Dairy Crest announced its finance director, Alastair Murray, was leaving the business to “pursue other business interests”, to be replaced by Tom Atherton, currently director of financial control.

It also confirmed the MD of its dairies division, Toby Brinsmead, recently left the business following its reorganisation.

Over the past 12 months, Dairy Crest’s total head count has been reduced by 20%.

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