Dairy Crest looks ahead to £45m investment at Davidstow
Dairy Crest has confirmed a £45 million investment at its Cornwall creamery, in its latest trading update published today.
It is set to invest in new technologies at its Davidstow plant, that will to add value to the whey that is by-produced from its cheese-making processes.
The resulting demineralised why product will be targeted at the lucrative baby-food industry, a fast growing global market.
At present, the facility produces standard whey powder which is mostly sold to food manufacturers.
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Dairy Crest aims for production to begin in the first half of 2015 and anticipates that the project will boost its annual operating profits by over £5 million.
Chief executive Mark Allen said: “We are excited by our investment in whey which is in line with our strategy of growing added value sales and expect this to generate attractive returns for shareholders.”
In its pre-close trading update for the six months ending September 30, Dairy Crest said that its half-yearly results will reflect a “steady” first half performance, with sales of its Davidstow-made Cathedral City cheddar outperforming the market.
Despite a trading environment it described as “challenging,” the dairy giant said that its cheese business in particular had performed well in the first half.
Sales of Cathedral City are anticipated to have increased, compared to the same period last year.
However, Dairy Crest said that the butters and spreads market has been “difficult” and that profits in its spreads business will be lower than last year.
It said that profit expectations for the full year ending March 31, 2014 remain unchanged.
The underlying performance of its dairies business continues to improve towards a medium-term target of 3% return on sales.
However, reported first half profits will be impacted by lower profits due to property sales, which will be weighted to the second half.
Higher returns from cream have contributed to the improved underlying performance, which it said had enabled it to pay farmers more for their milk across all of its milk purchasing contracts.
It added that cost-cutting exercises were anticipated to result in annual savings of more than £20 million across the group this year.
Mr Allen added: “We continue to perform in line with our expectations despite the challenging trading environment.
“The butters and spreads market has been particularly difficult. We have offset pressures there by growing our cheese business, reducing our cost base and improving the underlying performance of dairies.”