London, Sept 30 - Chilled foods company Dairy Crest said on Tuesday it would have to cut costs, raise prices and was considering closing a plant due to the tough commercial environment, despite a solid half-year performance.
Dairy Crest, which makes Cathedral City cheese, Yoplait yoghurts and Clover low-fat spread, said its key brands had delivered double-digit sales growth in the six months to the end of September but recent economic conditions had been difficult.
The group said in a trading statement its foods business had seen a significant rise in performance during the period, reflecting the improvement in its UK butter and spreads business over the comparable period last year.
However, its dairies unit was expected to be well down on last year's first half, largely due to the dairy ingredients markets, which are significantly lower than last year's high levels, and the effect of higher raw milk, vegetable oils, packaging and energy costs and an economic slowdown.
"The commercial environment has become more challenging over recent months and we are taking actions, including significant cost reductions, to ensure our business and our brands are well positioned for the trading environment ahead," Chief Executive Mark Allen said in a statement.
Dairy Crest said it hoped to drive costs out of its dairies division and was looking into shutting its Nottingham dairy, reorganise its head office structure and raise its prices.
Dairy Crest, which supplies milk to supermarkets including Morrison and Sainsbury, said UK milk production levels remained tight and farmers had faced further rises in on-farm costs, which has put pressure on milk prices.
Despite this, Dairy Crest said it expected its half-year performance to be in line with its expectations.
Analysts' consensus forecast for pretax profit for the year to the end of March is 101.2 million pounds, according to Reuters Estimates.
"Latest retail sales trends covering all of Dairy Crest's five major food brands show continuing resilience...Dairy Crest remains on track to deliver expectations for the year," Citi analysts said in a note.
Shares in Dairy Crest, which have underperformed the FTSE All Share food producers index by 7 percent since the turn of the year, have shed around 28 percent of their value since the start of 2008.
The stock closed 5 percent down on Monday at 406.75 pence.