Dairy Crest sales bounce back but disposal proceeds disappoint

Final net proceeds from the disposal are now expected to be around £30m before costs, lower than previous guidance.

But the FTSE 250 group, which has begun production of ingredients for the global infant formula market, said its four key brands - Cathedral City, Country Life, Clover and Frylight - had either increased or maintained value share in the quarter, despite what was described as a "challenging market".

Combined sales of the quartet in the nine months to 31 December have remained roughly flat against the previous year, with volumes rising by 2% and prices falling across the sector.

For Cathedral City cheese, trading in the third quarter has remained ‘strong’, with house broker Shore Capital suggesting volumes in the mid-high single and improved profitability from lower milk prices feeding through.

Having declined in the first half, Clover's volumes are understood to have improved materially, growing year-on-year thanks largely to the successful September launch of Clover Simple, which has no artificial ingredients.

Country Life spreads saw sales volumes also bounce back after a 12% first-half fall with a marked increase in the quarter, seemingly boosted by promotional activity built around new "Best of British" packaging.

Trading in Frylight, the oil spray, is said to have been strong and building on the 46% volume growth in the first half.

Chief executive Mark Allen said: "Dairy Crest is now a branded and added-value business well placed to achieve profitable and sustainable growth. The strength of our brands is demonstrated by their performance in a challenging, deflationary consumer environment."

He said tapping into the infant formula market, through production of demineralised whey powder and galacto-oligosaccharide (GOS) was an exciting new chapter.

Production has begun at the Davidstow factory as part of a new 'functional ingredients' division, with ShoreCap pointing out that the company is building inventory levels before shipping begins after the March year end.

This will add circa a £6m EBIT contribution in the next financial year from the £45m investment made.

Shares in Dairy Crest were down 2.4% to 590p by 0900 GMT on Thursday.