Milk turns sour at Dairy Crest

The dairy producer was able to marginally increase sales, but fierce competition meant it was forced to accept lower profit margins in major retail tenders, even though commodity costs rose. As a result, operating profits in the dairies business almost halved from £10.9m to £5.8m. But the underlying picture was worse still, strip out £4.6m of one-off profits from the sale of four depots and dairy profits were just £1.2m.

But chief executive Charles Allen anticipates a much improved performance in the second half, and said expects the business to deliver further efficiency savings in the coming years after identifying £20m of annualised savings in the period.

Sales of branded profits were encouraging, up 5 per cent in aggregate thanks to particularly strong performances from Clover in the UK and St Hubert in France, which benefited from rival products being delisted. Dairy Crest was also able to push through price increases, lifting branded profits 21 per cent to £48.2m.

Broker Panmure Gordon expects underlying EPS of 47.4p in the year to March 2012 (from 47.1p last year).