Interim Management Statement and Sale of Nine Elms Depot

31 Jan 2014

Dairy Crest, the leading UK-owned dairy foods company, is today issuing its Interim Management Statement for the nine months ended 31 December 2013.  It is also announcing that it has agreed the sale of its Nine Elms residential and middle-ground milk depot (“Nine Elms”).  Following this transaction we expect to report profits for the year ending 31 March 2014 ahead of our expectations.

Third quarter trading in line

Trading in the third quarter was broadly in line with our expectations in an environment that remains challenging. We have continued to grow key brand sales and implement cost reduction projects. 

Taken together, sales of our four key brands (Cathedral City, Country Life, Clover and FRijj) have grown by 4% over the nine month period.  Innovation continues to be an important factor in the success of these brands, new products introduced earlier this year such as Clover Additions and Cathedral City Grated Portions are meeting their targets and we have recently launched Cathedral City Spreadable.  We continue to expect FRijj to be in growth for the year as a whole following the successful upgrade of our production facilities in the first half of the year and a strong third quarter.

We have also continued with initiatives designed to improve the profitability of our Dairies product group and remain committed to our medium-term target of 3% on sales.  We are on track to deliver cost savings ahead of our annual target of £20 million.

Our demineralised whey powder project is progressing to plan and we are in advanced discussions with a small number of potential customers. 

Proceeds from sale of depot exceed expectations

The sale of Nine Elms in London to Battersea Project Phase 5 Residential Company Limited for £17.6 million in cash generates a profit of £15 million on the disposal.

Residential milk deliveries have steadily declined over recent years as supermarkets have grown their share of the market. Property profits from the sale of depots such as Nine Elms offset the costs associated with this decline.  We had forecast property profits of around £8 million but we had also highlighted that Nine Elms was a particularly valuable property which would result in a spike in profits in the year in which it was sold.  We anticipate profits from the sale of depots we no longer require are likely to return to a more normal £5 million to £10 million in future years.

Outlook for year

We now anticipate that profits from the sale of properties will total around £18 million this year, £10 million ahead of previous expectations.  However, the challenging Spreads market will lead to full year Spreads profits below previous expectations.  Taken together these changes will increase adjusted profit before tax. This will result in additional bonus payments to over 1,200 of our employees which will total around £2.5 million and lead us to report profits for the year ending 31 March 2014 ahead of expectations.

Mark Allen, Chief Executive of Dairy Crest, commented:

“Dairy Crest has delivered a solid performance in the third quarter, with the combined sales of our four key brands continuing to grow. Innovation continues to support the development of these brands and our new launches are performing in line with our expectations. 

“We are delighted to have secured over £17 million from the sale of Nine Elms.  This reflects the work we have done to maximise the potential of this site over recent years.

As a result profits this year are likely to be ahead of previous expectations, and significantly ahead of last year.  Looking forward, we will continue to grow added value sales and reduce costs in line with our well-established strategy."

Dairy Crest expects to issue its Preliminary Results for the year ending 31 March 2014 on 22 May 2014.