Profits warning hits Dairy Crest

Milk costs are rising - hitting profits

The UK's biggest milk and cheese producer, Dairy Crest, saw its shares plunge 27% after warning its annual profits would be down 10% on last year.

The share price fall came despite a 4% rise in Dairy Crest's six monthly pre-tax profits, to £38.5m.

The firm said the economic environment was becoming increasingly tough and more difficult to predict.

It has been hit by higher milk costs and by shoppers switching to supermarkets' own brands to save money.

The fall in Dairy Crest's share price was the biggest for 11 years.

The tough economic climate is affecting consumers' purchasing decisions, in particular making them more value-driven Dairy Crest chief executive, Mark Allen Dairy Crest share price

Despite the tougher trading conditions, Dairy Crest said it was important that it continued to invest in its brands through media campaigns.

The firm saw "double digit" sales growth for its Cathedral City cheese and Country Life butter brands in the first half of the year.

In the company's dairies business, profits were down to £2.7m, from £13.5m in the same period last year - reflecting higher input costs and weaker returns in the dairy ingredients markets.

By contrast, its foods division, which also sells Clover and the spread product St Hubert, saw a 47% increase in underlying profits to £46.7m.

"The tough economic climate is affecting consumers' purchasing decisions, in particular making them more value-driven,'' said chief executive, Mark Allen.

Nicola Mallard, of Investec Securities, said:"Although the group says it is not seeing a big move from brands to own label, it is seeing an increase in sales on promotion, which impacts margins."