Dairy Crest 'on track for 10% earnings growth'

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The Independent Online
Dairy Crest, the marketing and processing arm of the old Milk Marketing Board, said yesterday it was on track to reach its target of 10 per cent earnings growth this year, despite difficult markets for liquid milk. The optimism sent the shares up 5.5p higher to 220p yesterday, close to their all-time high and well up on the 155p at which the Yoplait to Clover spreads business was floated last year.

Unveiling the group's first set of full year results since the stock market launch, the chief executive, John Houliston, said that "without making a forecast we are confident that we are on track to hit our 10 per cent target". Profits would be increasingly weighted to the second half of the year, given the seasonality of many of the group's brands like Davidstow mature cheddar, which do well in the run-up to Christmas, he said.

The latter part of the year should also be boosted by the launch of the new "Football Milk" - a semi-skimmed variety, fortified with vitamins and featuring the colours of teams such as Arsenal, Liverpool and Manchester United. The new cartons go on sale in a few weeks' time, for the start of the new football season, and follow a similar range covering the rugby Super League launched in March.

Ignoring the effects of the capital restructuring prior to the listing, profits rose 13 per cent to pounds 35.5m in the 12 months to March, a rise which would have been 16 per cent if the float costs of pounds 900,000 are stripped out. A final dividend of 6.64p makes 9.9p for the year, for a notional increase of 8.8 per cent over the pro forma total for 1996.

The higher results were achieved despite a "challenging" market for liquid milk, Mr Houliston said. The group, which with over 16 per cent of the market is one of the leading suppliers to the retail market, saw the growth in volumes almost halve from 13 per cent to just 7 per cent in the year. Meanwhile, the higher selling prices achieved in the spring of 1996 have been eroded by competition from rivals. Mr Houliston described as "disappointing" the fact that the benefits of the 2p a litre cut in selling prices posted by Milk Marque, the dominant supplier, in April had already been lost.

But much of the pain has been felt in the food services operation, including dairy ingredients and doorstep deliveries, which saw its operating profits slip pounds 2.3m to pounds 12.9m. Mr Houliston warned that the continuing strength of sterling and further reductions in intervention floor prices meant the margin squeeze in the ingredients business was set to continue into the first half.