Dairy Crest plans growth – ‘internally or by acquisitions’

Allen said: “The sale of our French spreads business and subsequent restructuring of our balance sheet has strengthened our financial position and leaves us well placed to invest for growth in the UK, either internally or through acquisitions.”​

The firm posted earnings before interest, tax and amortisation (EBITA) flat at £69.3M for the year ended March 31.

Adjusted profit before tax was up by 7% to £50.6M, resulting in a 3% rise in adjusted earnings per share to 29.9p.

Panmure Gordon analyst Damian McNeela described the results as “modestly better than our expectations”.​

‘Modestly better than expectations’​

Overall sales of the key brands were flat in the financial year 2013, said McNeela. The cheese division reported a 6.2% decline in EBITA to £33.3M, which reflected higher milk prices during 2011/12. 

The spreads division reported EBITA up by 10.8% to £25.7M, as the business benefited from cost savings and lower vegetable oil costs.

The dairies division reported flat EBITA at £10.3M, excluding property profits. The EBITA fell by £3M to £2.6M, reflecting the challenging UK dairy market and a slightly weaker performance of Frijj in the fourth quarter, said McNeela.

Allen said Dairy Crest was now “a more streamlined business”.​  Its four key brands had increased their market share in the face of falling UK consumption, while all three product categories had encouraging medium-term profit growth prospects, he said.  

“While we expect the consumer environment to remain subdued, we have strong foundations in place and trading in the current financial year has started in line with our expectations,”​ said Allen.

Improved dairies performance​

Panmure Gordon maintained its forecasts for 38% earning per share growth in the financial year 2014. Share performance would be driven by improved dairies performance and lower interest costs, said McNeela. During the year-to-date, Dairy Crest’s shares have risen by 24% and have outperformed the market by 7%.

McNeela maintained Panmure Gordon’s forecast of 15% EBITA growth to £79.5M in financial year  2014.

Net debt was expected to rise to £124M equating to 1.1x net debt/EBITDA in 2014 – even after the sale of the St Hubert business. The increase would be driven by the impact of increased pension contributions and further working capital outflows.

Panmure Gordon retained its ‘hold’ advice on Dairy Crest stock.

Nicola Mallard, analyst with Investec said Dairy Crest’s balance sheet was “in much better shape”​ and left the group well placed for investment in internal projects or acquisitions.

Last month the processor revealed plans to transfer 20Mkg of its Cathedral City cheese to back its pension fund​. About 20,000 pallets of cheese – representing half the firm’s stock – have been pledged to the pension fund.