Cheese and spreads push up Dairy Crest profits

Buoyant trading from its cheeses, spreads and fresh dairy products arm helped newly floated Dairy Crest make up for declining sales and profits from its ingredients and doorstep milk delivery operations in the six months to September.

Dairy Crest, which came to the market in August, announced overall pre- tax profits of pounds 16.5m, compared with pounds 15.4m in the comparable half- year period. Earnings per share rose from 9.3p to 10.5p and there was a maiden interim dividend of 3.26p.

The group figures disguised sharply different performances from the two divisions, however. Consumer foods enjoyed a surge in sales from pounds 178.3m to pounds 218.3m, from which profits of pounds 12.9m were struck, a 42 per cent increase on the pounds 9.1m recorded in 1995. Food services suffered from an 8 per cent decline in sales to pounds 163.3m and operating profits were pounds 1.1m lower at pounds 6.4m.

Consumer foods, increasingly Dairy Crest's strategic focus, benefited from a trend towards mature and farmhouse cheddar cheese, which helped expand the UK retail market by 15 per cent to an annual value of pounds 470m. The recent acquisition of Mendip helped the division, but even without it profits were 25 per cent higher. The operating margin in consumer foods widened from 5.1 per cent to 5.9 per cent.

In food services, the continuing decline of doorstep deliveries of milk was exacerbated by a reversal of last year's strong market prices for commodity ingredients sold to food manufacturers. Conditions in the division are expected to be no better in the second half, taking the shine off an expected continuation of the improvement on the consumer side.

Despite the problems facing food services during the half, cash flow remained strong with an inflow from operations of pounds 20.2m. That had contributed to a reduction in debts taken on as part of a capital reconstruction ahead of the flotation. Gearing at the half-year stage was 16 per cent.

Dairy Crest's shares, which were placed at a controversially low price of 155p a share, leapt in first dealings to more than 190p but have done little since.

Even though farmers were given 70 per cent of the shares in Dairy Crest, formerly the processing arm of the Milk Marketing Board, the sharp rise in early dealings convinced many that institutions should have paid more for their stake.

Yesterday they closed 4.5p lower at 199p.

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