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Dairy Crest sees further debt cuts

Source: Reuters - Tue 29th Sep 2009

Dairy Crest said on Tuesday it intended to cut its debt further in the coming months and that it expected strong sales growth among its main brands to continue.

In the past year Dairy Crest, which supplies milk, cheese and butter under brands such as Clover, has been trying to fund a pension plan deficit, cut costs and reduce debt, which currently stands at 391 million pounds, according to Reuters data.

"We will reduce cheese stocks in the second half, so therefore the debt will come down" Mark Allen, the company's chief executive told Reuters.

"Normally at this time of year you'd expect our debt to go up because cows produce more milk... we therefore normally make more cheese and we'd end up with more stock" he said, adding that the debt included roughly 150 million pounds worth of cheese that was being matured in storage.

Dairy Crest in a statement earlier on Tuesday said it planned to close its defined benefit pension scheme to future accruals as of April 1, 2010, though consultations with employees were still under way.

Earlier this year, the company faced a pension deficit and in March sold its 49 percent stake in yogurt group Yoplait for 63.5 million pounds.

In June, it bought an annuity to insure the remainder of its pension liabilities for 160 million pounds and in September 2008 the fund had liabilities of 658 million pounds.


Dairy Crest said lower borrowings and interest rates had led to a reduced finance charge in the six months to September 30, and that milk sales to big retailers had risen 10 percent versus the previous year. 

Panmure Gordon analyst Graham Jones said in a note the company's trading was in line with its expectations and that it regarded its debt reduction as "good performance."

Key brands such as Clover and Country Life had showed strong growth during that period, Dairy Crest also said.

"That group of brands have been performing well for the last two or three years. So it's good growth on good growth" Allen said, adding that flat raw milk prices in coming months would likely underpin any increases. "We expect that to continue."

Dairy Crest's online milk-ordering plan Milk & More has been launched across England and Wales within the past month.

Allen said 106,000 people, who had increased their spending by 40 percent, had already signed up and that he hoped to increase the number of customers to 250,000 by April.

"We're pretty optimistic about the prospects of that business going forward. It could have a big bearing on the company's performance."

Shares in the company, which have gained 80 so far this year, were up 2.2 percent by 10:17 a.m. outperforming the FTSE 350 Food Producers Index which was flat.

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