PERFORMANCE

Cheese & whey March 2016 as stock made with less expensive milk is sold. Whey realisations have also fallen and this has contributed to lower reported £ million 2014/15 2013/14 margins in this business. In addition we Revenue 274.4 264.6 have adjusted our aged accruals in line Product group profit* 33.1 39.3 with the Grocery Supply Code of Practice. Margin 12.1% 14.9% * Before exceptional items and amortisation of Cathedral City continues to grow acquired intangibles market share Total retail cheese market sales were Share of the total retail unchanged over the year although cheese market by value volumes fell by 3%. Cheddar accounts for Cathedral more than half of all retail sales. Cathedral City City continued to grow market share, recording flat volumes and 5% sales growth. According to IRI, retail sales of 11% Cathedral City exceeded £280 million. Sales of competing cheddar brands have Other 89% continued to decline. Taken together the next three largest cheddar brands totalled Source: IRI 52 weeks ended 28 March 2015 £141 million, down over 20%. We continue to develop new products Dairy Crest produces and markets in the Cathedral City range. Products Cathedral City, the UK’s leading launched in earlier years such as cheese brand, as well as the Selections, Chedds, Spreadable Cathedral premium cheddar brand. City and Baked Bites have all prospered. Milk from around 400 farmers in This year we have moved outside of and is made into cheddar for the first time and have selected at our Davidstow and Double Gloucester for a creamery in Cornwall. The cheese new Selections variety pack. We have also is then matured for an average of 11 extended the brand into flavoured cheeses. months at our purpose built Nuneaton In addition to bringing exciting new facility before being cut, packed and products to the market we have continued distributed to customers. We have to support Cathedral City with television two cheese packing operations: a and other media advertising and with an highly automated facility at Nuneaton, appropriate promotional programme. Warwickshire, and a plant at Frome, Dairy Crest’s second cheese brand, Somerset capable of producing more Davidstow, has slightly strengthened its complicated packs for innovative market share. We also continue to supply products such as Cathedral City Marks & Spencer and Waitrose with Chedds and Selections. premium own label cheddar. Whey is produced as a by-product During the year we have carried of cheese making. This is currently out a comprehensive category strategy dried and sold to food manufacturers. project, ‘Dairy for Life’, which will form the make demineralised whey powder and However we are developing a foundation for future innovation, marketing galacto-oligosaccharide, a lactose based new facility at Davidstow that will and category merchandising for both of prebiotic. Both products are used in the manufacture demineralised whey our cheese brands. On the back of this, manufacture of infant formula for which powder and galacto-oligosaccharide, in addition to the Cathedral City range there is growing demand across the world. a lactose based prebiotic developments referred to above, we have We expect commercial manufacture of Reported revenue for the year ended worked with customers to cross-promote both products to start later this year. 31 March 2015 grew by 4% to £274.4 Cathedral City and jacket potatoes and During the year we entered into a million. However product group profits fell to create a video of ‘how to make a great strategic partnership with Fonterra, the back by 16% to £33.1 million and margin cheese sauce’ with Cathedral City. world’s leading dairy exporter. Fonterra will declined to 12.1% (2014: 14.9%). market and sell our products on our behalf As is usual in this business, falling milk Growth based on top quality cheese and is also providing valuable technical prices have led to a short-term pressure from a highly efficient supply chain and engineering support. on margins. The maturation process The investment we have made in recent means that we sell cheese made with milk times in our cheese business has created A business with great potential purchased around 11 months before the a highly efficient supply chain that Our Cheese and whey business has well- sale takes place. Falling sales realisations produces top quality products. invested facilities, and strong brands with have now led to lower milk prices but enviable market positions. It remains well there is a time lag before this is reflected Making ingredients for infant formula placed to generate attractive growth. in the costs of stock that is being sold. will provide additional growth We expect this margin squeeze to reverse We are investing a total of £65 million at in the second half of the year ending 31 our in Cornwall to

16 Dairy Crest Annual Report 2015 Strategic report

16 th biggest grocery brand in Britain

Dairy Crest Annual Report 2015 17