Cheesemaker set for a large wedge as first half volumes increase
Cheese and butter producer Dairy Crest has said its four core brands are all expected to help the company to a strong first half.
In a pre-close trading update for the six months ending September 30, the group said it expected that the combined volumes of Cathedral City, Clover, Country Life and Frylight would be ahead of the same period last year.
Combined value growth of these brands is expected to be higher than volume growth; Cathedral City – the UK’s leading cheese brand – is alone expected to deliver double-digit volume growth in the first half.
However, butter brand Country Life has been hit by higher cream prices, which determine input costs for the butter business. As a result, the company said it had reduced promotional activity on the brand, which had impacted sales, although this had partly mitigated the adverse impact on margins.
The group, which has its national distribution centre in Nuneaton, said the second half would see it start to benefit from the progress made towards developing a customer base for its demineralised whey and galacto-oligosaccharide products, which develops healthy bacteria in the body.
It also reaffirmed that the changes announced earlier this month to its pension fund were expected to yield major benefits.
After agreement with the pension trustee, the company has agreed to change the indexation of the pension fund the Retail Prices Index (RPI) to the Consumer Prices Index (CPI). This is expected to result in an exceptional gain in 2017/18 of approximately £125m.
The actuarial deficit of £100m at March 2016 represents a reduction of £45m compared to the March 2013 valuation, despite significantly lower gilt yields. Deficit reduction contributions will be £10m and £15m in 2017/18 and 2018/19 respectively; a reduction of £12m across these two years compared to the 2013 contributions schedule. They will revert to £20m in 2019/20 although March 2019 is the date of the next full actuarial valuation and schedule of contributions.
In a reassuring message to shareholder, the group said it expected half year profit to be ahead of the same period last year and its expectations for the full year remain unchanged.
Mark Allen, chief executive, said: “Cathedral City has had a strong first half of the year, delivering good volume and value growth and strengthening its position as the nation’s favourite cheese. This performance has more than offset the impact of further input cost inflation in the butter business.
“Overall, first half profits are expected to be ahead of last year. Our profit expectations for the full year are unchanged despite input costs remaining high. The strength of our brands and focus on quality, innovation and efficiencies mean that we remain well positioned to deal with market conditions.”
