Dairy Crest's rise in advertising spend may curb profitability

Dairy Crest is running furiously to stay still. You are going to see more television ads for its products - which include Cathedral City cheddar, St Ivel Gold, Clover, Yoplait and Frijj - as the group tries to lure consumers away from supermarket own brands.

Dairy Crest is running furiously to stay still. You are going to see more television ads for its products - which include Cathedral City cheddar, St Ivel Gold, Clover, Yoplait and Frijj - as the group tries to lure consumers away from supermarket own brands.

It also makes supermarket own-brand dairy products, but there is much less profit here. In milk, for instance, there has just been a vicious round of negotiations between the major supermarket chains and their suppliers. Dairy Crest lost contracts with Tesco and Asda and made up a little of the difference with extra work for Morrisons and Sainsbury's, but all the dairies have had to accept lower margins as the price of supplying the over-mighty grocers.

Dairy Crest has made acquisitions to build scale, shut dairies, invested in better facilities at others. It has been a busy year, and branded products have grown strongly, particularly Catherdral City, yet profits (before one-offs and write-downs) declined 1 per cent. In the circumstances, that is a triumph.

The company sounded a note of caution yesterday, saying that the first half of the new financial year will be depressed by additional advertising spending.

We tipped Dairy Crest last September when the shares, at 325p, offered an irresistable dividend yield of 6 per cent. They have surged since, to 470p, and new buyers can expect a more modest 4.5 per cent.