Dairy Crest’s Davidstow whey venture to focus on baby formula

Dairy Crest has decided its whey venture at Davidstow will focus on demineralised whey powder, which is used in baby formula.

The company announced last month it wanted to invest up to £40m in a whey production facility at its Davidstow creamery, but had not decided at the time whether to opt for demineralised whey powder or whey protein concentrate, which is used in sports nutrition.

Announcing its decision in favour of baby formula during a management update on its first-quarter performance today, Dairy Crest said baby food was a rapidly growing market with significant potential. “We expect this project to generate attractive returns for shareholders,” it added.

As reported by The Grocer last month, Dairy Crest is looking to enter the high-value whey market through partnerships, and the company said talks with several prospective partners were continuing. Further details would be announced at its next trading update in September, it added.

Overall, Dairy Crest said its performance in the three months to 30 June 2013 was in line with expectations and its full-year expectations remained the same.

Sales fall

Sales of its four key brands – Cathedral City, Clover, Country Life and Frijj – fell by 4% year-on-year in the quarter, as a result of a tough consumer environment and comparison against strong results last year. Cathedral City and Clover sales increased year on year, but Country Life struggled, with spreadable sales flat and block butter sales “significantly down”, Dairy Crest said, citing its decision to promote less as a result of recent cream price increases.

“Our key brands have stood up well in the first quarter against tough comparatives, our dairies business is improving and we are confident about our cost savings”

Mark Allen, Dairy Crest

The company did not give a sales update on Frijj but said it had also reduced promotions for the milkshake brand while it upgraded its production capacity and capabilities. “This will allow us to produce different formats and pack sizes and remove constraints on meeting promotional demands,” it said.

On the liquid milk side, Dairy Crest said it continued to make progress towards its medium-term profitability target of 3%. It confirmed it had recently renewed its contract to supply liquid milk to Lidl, and said it remained focused on cost reduction, with £20m in cost savings to be delivered this year.

Its structural reorganisation, announced in February, was progressing to plan, and had “already helped us identify a number of opportunities to strengthen the business, and support our cost reduction target”, it added.

CEO Mark Allen said he was pleased with Dairy Crest’s performance during the quarter. “Our key brands have stood up well in the first quarter against tough comparatives, our dairies business is improving and we are confident about our cost savings,” he added. “All three of our product categories, cheese, spreads and dairies, are well positioned to generate medium-term growth.”