Dairy Crest targets China's baby formula market

 

Cathedral City cheese and Frijj milk drink maker Dairy Crest is close to entering the $12bn Chinese baby formula market it revealed yesterday.

Dairy Crest, which reported 31 per cent rise in full-year pre-tax profit, is in talks with a company to create a joint venture to turn whey powder – the by-product of cheese manufacturing at its Davidstow creamery – into baby formula to sell in growth markets such as China.

Dairy Crest’s pre-tax profit of £65.3m just missed analyst forecasts but its cheese business beat expectations with earnings up 19 per cent to £ 39.3m. The Country Life and Clover maker revealed its milk and spreads business remained weak with spreads earnings down 34 per cent.

Chief executive Mark Allen said: “The trading environment is challenging but we have taken costs out of the business, we paid farmers more than last year and the financial position is stronger with net debt down.”

But investors remained concerned about the outlook for its spreads business and shares fell nearly 7 per cent to 427.9p yesterday.

An Investec analyst said: “There were a number of issues, related largely to the liquid milk business, including acceleration of the doorstep decline as supermarkets cut shelf prices on milk aggressively, and also some pressure on milk margins as cream prices softened but farm gate milk prices remained firm.

"The first of these issues is likely to continue, but with farm gate milk prices now starting to fall this should bring some relief to liquid milk margins. On valuation, the market has also probably got more bearish on Dairy again.”

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