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Dairy Crest Group (LSE:DCG) had to write down the value of its dairies business by $70.7 million, wiping out adjusted pre-tax profit and posted a loss of £10.1 million, the company’s 2011-2012 financial results revealed.
Its dairies business, which accounts for more than 65% of the total revenue, declined by £20 million to £1.069 billion due to falling prices marked by competition.
“In a very challenging trading environment, our Dairies business did not achieve an acceptable level of profitability,” Mark Allen, the company’s Chief Executive stated in his review.
“On top of downward pressure on selling prices in a tough consumer environment and an extremely competitive ‘middle-ground’, the whole sector suffered from steeply falling dairy commodity markets.”
Restructuring
The dairy, cheese, and spreads supplier said they do not see an improved performance in the near future with their dairies division and commenced several strategies to restructure their business.
Starting with the the £70.7 million write-off of assets, the company has made plans of closing two of its dairy processing sites to be completed in the current fiscal year.
A further £11 million was stricken off from the company’s asset value as a result of this expected closure and another £7 million cost to streamline and central its back office support.
“Although actions are underway to reduce the cost base and restore acceptable profitability in the medium term, the outlook for the segment is weaker than it was in 2011,” the company acknowledged.
Diversity
Dairy Crest’s 2011-2012 performance relied on its cheese and spreads business, which offset the losses the dairies business incurred for the company to modestly gain 1.7% growth in revenue, reported at £1.632 billion.
Double digit growth was reported on their spread and cheese businesses, with spreads segment growing by 12% in the UK and 6% in France, led by the company’s biggest spread brand, St. Hubert.
Cathedral City, the group’s most popular cheese brand, increased its market share by 10% to more than 50% of the UK market, after growing 12% in sales across different variants.
CEO Comments
Chief Executive Mark Allen summarised Dairy Crest Group’s performance in the following statements:
“Dairy Crest’s results for the year demonstrate the continued benefit of being a broadly based business… This has been made possible by a programme of consistent investment in developing our key brands and building a modern, efficient supply chain…. Going forward, we will continue to take decisive strategic action and proactively shape Dairy Crest for the long-term.”
Company Spotlight
Dairy Crest Group’s origin can be traced from the Milk Marketing and the Cheese Board established in the 1930’s to become one of the biggest suppliers of dairy products in the UK.
In 1996, the company became public and was admitted to the London Stock Exchage. In London, shares were slightly up by 1.56% to £3.20 at 10:30 GMT, following the news.
References
↑ Dairy Crest Group History
