Milk Shortage Leads to Dairy Crest Hikes ; FOOD

By Graeme Evans

Clover and Cathedral City firm Dairy Crest said yesterday that it was in the process of implementing price increases across most of its products.

The group, which also makes Utterly Butterly, said the move reflected strong worldwide markets for diary ingredients and shortages in UK milk production.

The company pointed out it had increased its own raw milk prices on both liquid and cheese contracts by more than 35 per cent since June.

Despite the challenging market conditions, Dairy Crest said its expectations for full-year results remained unchanged. In the half- year, pre-tax profits for the six months to September 30 rose 21 per cent to pounds 37.1 million.

Dairy Crest said the improvement reflected benefits from the acquisitions of Express Dairies and the St Hubert spreads business last year.

The company’s spreads division faced the biggest challenge during the period, with higher cream costs and the impact of a product recall.

Some two million tubs produced at the company’s Crudgington Creamery at Telford were taken off the shelves in May after mould contamination was discovered.

Clover sales were down 17 per cent by value and 18 per cent by volume after it carried out “very little promotional activity” following the discovery that a mould typically found in blue cheese had got into the manufacturing process.

The company said Clover product sales had since returned to more normal levels, although promotions have been constrained due to the impact on volumes caused by improvement work at the factory concerned.

Dairy Crest did not detail the level of price increases passed on to retail chains, however the price of a doorstep pint of milk has increased by 4p.

The company’s shares made gains in early trading yesterday as analysts upgraded their full year profit estimates.

Evolution Securities raised its forecast by pounds 1 million to pounds 96.3 million before tax, yielding an estimated earnings per share of 57.1p compared with 56.5p previously.

ABN Amro said the interim results, which came in ahead of its expectations, were generally perceived as “reassuring”. It said the shares have been exceptionally weak over the past month, which it thought was due to market concerns about the ability of UK mid-cap food companies to recovered rising raw material costs.

ABN said yesterday’s figures, combined with a positive outlook statement, should show that Dairy Crest is managing the challenge effectively.

The broker said the weakness in the shares, which has left them trading on a forecast 2008 PE ratio of 9.9 times, was a “considerable over-reaction”.

Dairy Crest chief executive, Mark Allen, said yesterday the company is testing an initiative to “bring the milkman into the 21st century” by enabling customers to order milk online as late as 10pm for delivery the next morning.

Trials of “milk&more”, which also allows customers to order up to 300 food items, including organic and locally-sourced produce, are progressing well.

“Customers are very pleased with the facility to pay online and it means they don’t have to leave cash out for the milkman, which is the traditional way of dealing with these things,” Mr Allen said.

The group is Britain’s biggest doorstep milk delivery business following its acquisition of Express Dairies last year.

Competition from supermarkets has seen the doorstep sector decline in recent years, from 25 per cent in 2000 to just 11 per cent now. Shares closed up 271/2p at 590.5p.

“Customers are very pleased with the facility to pay online and it means they don’t have to leave cash out for the milkman Mark Allen

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