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• Performance
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• Performance
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• Performance
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  –Financial review

Cheese & whey

£ million	2013/14	2012/13
Revenue	264.6	231.3
Product group profit	39.3	33.1
Margin	14.9%	14.3%

Dairy Crest produces and markets the UK’s leading cheese brand, Cathedral City, as well as the premium Davidstow cheddar brand.

The short supply chain starts with milk from around 400 dairy farms in Cornwall and Devon. This is made into cheese at our Davidstow creamery in Cornwall. The cheese is then matured for on average 11 months at our purpose-built Nuneaton facility before being cut packed and distributed to customers. We also operate a highly flexible packing site in Frome, Somerset. The whey produced as a by-product of cheese making is also processed at Davidstow.

Since the year end we have further simplified the business by selling our remaining 30% stake in Wexford Creamery Limited for €3.4 million.

Reported revenue for the year ended 31 March 2014 grew by 14% to £264.6 million and profits from the Cheese and whey product group grew by 19% to £39.3 million, resulting in a margin of 14.9% (2013: profit £33.1 million, margin 14.3%).

Total retail cheese market sales remained unchanged in the year although volumes fell back by 3%. Cathedral City sales strongly outperformed the market, growing 12% by value and 9% by volume. As a result Cathedral City now has an 11% share of retail cheese, up from 10% last year. Retailer own label cheese sales account for nearly 55% of this sector. Cathedral City sales continue comfortably to exceed the sales of the next three cheddar brands added together and it is now Britain’s 18th largest grocery brand (Source: The Grocer, March 2014).

Innovation driving Cathedral City’s success

New product development remains key to the success of Cathedral City. Grated mini-bags, spreadable cheese and Selections have all widened the appeal of the brand, as have new launches under the children’s brand, Cathedral City Chedds. For the first time we extended the Cathedral City brand outside of cheese with Baked Bites – Cathedral City cheese biscuits – which are manufactured by Burton’s Biscuit Company. Cathedral City also continues to lead the way with innovative packaging and has recently responded to consumer demand by introducing new ‘easy-tear’ packaging across its range.

Advertising and promotions are also important and Dairy Crest has continued to invest in Cathedral City’s award winning advertising campaign.

Alongside Cathedral City, Dairy Crest’s premium cheddar brand, Davidstow, has performed strongly in the year. Sales of this brand, supported by new varieties and improved packaging, have grown 3% by value.

Although nearly all of its sales are branded, Dairy Crest does supply cheese to two premium retailers for their own label products. One of these customers, Marks & Spencer, has awarded Dairy Crest sole supply of its entire cheddar range from April 2014.

Dairy Crest’s Cheese operations are highly efficient and product group profits continue to be boosted by improved efficiencies at all three of its manufacturing locations.

Demineralised whey powder project on track to grow future profits

Profits have also been supported by strong returns from whey. At present this is dried into powder and sold to food manufacturers. Dairy Crest has initiated a project to invest in the manufacture of demineralised whey powder, a base ingredient of infant formula. We plan to spend around £45 million on new manufacturing assets at Davidstow before May 2015. We expect production of demineralised whey powder to commence in mid 2015. We anticipate that the project will have a five year cash payback and enhance annual Cheese and whey product group profits by over £5 million from 2015/16. We are in the process of agreeing a contract with an exclusive customer who is already well established in the appropriate markets and who will provide technical advice as we move the project forward.

Looking forward – well positioned for growth

Looking forward our strong cheese brands and efficient production facilities, together with the exciting whey project, leave us well positioned to increase the already strong returns from this product category.