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Oil Cost Puts Skids Under Dairy Crest

Posted on: Friday, 11 November 2005, 09:00 CST

Dairy Crest has posted a 27 per cent drop in first-half profits after the maker of Cathedral City cheese and Country Life butter was hit by a sharp rise in oil-related input costs.

Britain's biggest producer of dairy foodstuffs, which has taken over the Midland Co-op milk plant in Birmingham, posted profit before tax, exceptional items and goodwill amortisation of pounds 26.1 million in the six months to September 30, down from pounds 35.7 million, on sales up 1.8 per cent to pounds 642 million.

The figures were broadly in line with financial analysts' forecasts after a September profit warning.

"Although trading conditions are competitive with oil-related costs continuing to be high, expectations for the full year remain unchanged," chief executive Drummond Hall said.

Financial analysts expect annual underlying earnings of around pounds 74.5 million. Operating profit at Dairy Crest's milk processing unit shrank 74 per cent to pounds 4.2 million. Sales rose 4.2 per cent to pounds 388.2 million, largely the result of acquisitions.

A major overhaul of milk supply arrangements saw Dairy Crest this spring lose a pounds 60 million contract to supply Tesco with fresh milk, which wiped pounds 15 million off first-half earnings.

That followed the loss of a pounds 20 million contract with Asda.

Under intense pressure from leading supermarkets, Dairy Crest has been struggling to pass on cost increases.

Analysts believe it makes no more than two pence on each litre of milk, having been making up to 3 1 /2 pence before the shake-up.

Mr Hall said the company's bill for fuel, energy and plastic packaging costs was likely to rise by around pounds 9 million over the course of the current year

Source: Birmingham Post; Birmingham (UK)

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