UK dairy suppliers struggle with rising input costs

Esher, Surrey UK:  Cost pressures have hit profits at UK dairy suppliers. Dairy Crest saw its dairy profits fall from £35m to £28m in the year to end of March.

Rival supplier, Robert Wiseman, reported a fall in annual pre-tax profits from £49m to £34m on Tuesday, and is expected to see its annual profits to fall as low as £20m if current levels of cost pressures persist.

Dairy Crest remains in talks with key customers to pass on more of the £40m increase in milk costs experienced over the past year, says Mark Allen, the chief executive. He expects Dairy Crest to continue to protect margins through “pass through” agreements on costs with some farmers and retailers.

But profits would fall again at its milk business following a round of renegotiations between milk suppliers and retailers over the past few months, alongside rising fuel and plastic packaging costs, damped prospects for the sector, says Allen.

Dairy Crest remained partially insulated from downswings in the milk sector through its branded foods business, says Allen. This sector continued to perform well with sales of its five key brands up by 7%. The branded foods business has risen by 57% over four years, he said. These dairy-related foods will counterbalance any weakness in milk, says Allen, who expects trading at Dairy Crest to remain in line with existing expectations.

“Against a background of higher input costs and increasingly cash-constrained consumers we will continue to focus on doing the right things for long-term benefit, including making efficiency improvements and investing in the long-term health of our brands and facilities. We are soundly positioned to deal with the challenges ahead,” he says.

Dairy Crest maintained pre-tax profits of £77.8m in the year to March on revenues that slipped by 2% cent to £1.6bn. A final dividend of 14.2p, up from 13.6p, gave an improved total of 19.7p for the year payable from earnings per share of 42.3p (40.2p). Net debt fell from £337m to £312m.

Shares in the company fell 11.3p to 390.3p this morning, valuing its at £535m.

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