Crediton Dairy Limited, one of the UK’s leading dairy drinks businesses, has published its report and accounts for the year ended 04th January 2020. These demonstrate that, despite a difficult dairy market environment, the business continued to perform satisfactorily thanks in particular to a strong increase in sales of its growing range of added value, branded and own label, dairy drinks & speciality milks. While at the same time, it created the basis for future growth and development through the undertaking of a significant capital investment programme to increase both its processing capacity and capabilities.
Commenting on the performance of the business Tim Smiddy, Managing Director of Crediton Dairy said, “2019 was a year of transformation for Crediton Dairy as we undertook significant steps to support the delivery of our strategy of being a highly efficient and flexible, added value, dairy drinks business. This included undertaking £8 million of capital investment to create a second filling hall for the production of innovative, added value dairy drinks and speciality milks which is now operational.
“In line with our business strategy, the year was also characterised by increasing sales of our growing range of both branded and own label, added value, dairy drinks and speciality milks. This was led by a further strong uplift in sales of Iced Coffee which increased by 58 per cent, driven mainly by the continuing strong performance of Crediton’s Arctic Iced Coffee brand. While we also increased sales of our Moo Milk range of flavoured milks and successfully launched our new Lactose Free Milk in a number of major retailers.”
- Turnover was £74.5 million in 2019, which increased by 6.9% from £69.7 million
- Capital Investment of £8.0 million which is 4.5 times that invested in the prior year (£1.8m)
Financially, against the backdrop of difficult UK dairy market conditions and supply chain disruption during the major redevelopment of the dairy, the business continued to perform satisfactorily. Turnover grew by £4.8m (6.9%), driven primarily by improved product mix (with higher sales of added value products particularly Iced Coffee and Lactose Free Milk) and higher overall sales volumes, partially offset by lower Bulk Cream prices. Profitability was lower in 2019 with the key factors being lower Bulk Cream returns and higher one-off operating costs while the business completed the construction of the new filling hall and warehouse, partially offset by an improvement in product mix (led in particular by increased sales of Crediton Dairy’s brands, Arctic Iced Coffee and Moo Milk as well as significant growth in sales of Lactose Free Milk).
Operational and commercial highlights
- A year of volume growth and continued mix improvement
Crediton Dairy saw another year of growth across all product categories. Its core extended shelf life dairy drinks business performed well, due in particular to the launch of Lactose Free Milk in a number of retailers and growth of own label flavoured milk. The Iced Coffee drinks business continued to grow strongly in 2019 (up 58%) driven mainly by the Arctic Iced Coffee brand due to the listing of new products and wider store distribution.
Kantar Worldpanel reported that the UK Long Life Milk market continued to shrink in volume terms in 2019 by 2.8%, which was a higher rate of decline than in the previous year. Despite this, Crediton Dairy’s long life milk business was in growth in 2019 due to gaining an increased share of supply of a major UK retailer.
- A year of added value investment
Crediton Dairy undertook significant capital investment of £8.0 million in 2019 to increase both capacity and capability in its added value dairy drinks business. Expenditure on capital investment was higher in 2019 than the previous year due to a combination of investment in a second filling hall and the associated filling equipment, a new warehouse for storage of packaging & ingredients and ambient & chilled packed milk as well as enhancing site services.
- A dedicated group of local farmer suppliers
Crediton Dairy commenced recruiting farmers to supply the dairy in the Autumn of 2013 and at the financial year-end, 62 farmers were supplying Crediton Dairy, nearly all of whom farm within 25 miles of the dairy. This dedicated group of local dairy farmers produce an annualised volume of 110 million litres of high quality, farm-assured milk. Crediton Dairy recommenced recruitment of additional farmer suppliers in Autumn 2019 to increase milk supply to meet growth in sales volumes. As a result of the recruitment of new farmer suppliers and the growth of existing suppliers, the business continues to be self-sufficient in the supply of raw milk and has more than offset the loss of a small number of suppliers who have either exited the industry due to retirement or transferred supply to another processor.
In line with its commitment to supporting its farmer suppliers, Crediton Dairy’s milk price remained highly competitive throughout the year and was consistently the highest of the non–aligned liquid milk prices and in the upper quartile of the published UK milk price league tables.
Given the volatility of dairy markets in recent years, in October 2019 Crediton Dairy set up a second Fixed Milk Price Scheme which is backed by sales of finished product to a major retail customer. Farmers can receive a fixed price of 28 pence per litre (ppl) for two years, for up to 50% of their Base Milk Volume. A number of Crediton’s larger farmer suppliers took up the option to fix the price for a volume of their milk.
The first half of the current financial year has been dominated by the COVID-19 pandemic which is having a major impact on both public health and the wider economy. In response, Crediton Dairy’s primary concern has been to put in place measures to ensure the health & wellbeing of its staff. While at the same time, it has implemented policies and procedures to build as much resilience as possible into its business & supply chain, both to mitigate against potential disruption and respond to the fast changing requirements of customers and consumers.
In what has been a very volatile market, Crediton Dairy has witnessed strong sales across much of its product range and in particular unprecedented levels of demand for long life milk. Operationally the dairy has significantly increased production while maintaining high levels of customer service, product quality, range availability and staff health & safety. In doing so, the business has benefited from having a strong stock position in terms of packaging & ingredients and through being able to utilise the enhanced capacity and flexibility of its processing and filling operations. In addition, Crediton’s dairy farmers have delivered a strong, uninterrupted supply of milk and, in contrast to many other milk buyers, the business is pleased to have been able to maintain the price it pays to them across April, May and June.
Clearly, the longer term impact of COVID-19 on the dairy sector and wider economy is still difficult to assess. Nevertheless, Crediton Dairy believes that it has the scale, capability and flexibility to address the challenges that will undoubtedly arise. Commenting further Tim Smiddy said, “Having invested £22 million since the MBO in 2013, we have plans in place for an additional investment of £7 million over the next 12 months that will increase further our added value processing capacity and capability. Despite the impact of COVID-19, this we believe will leave Crediton Dairy well placed to meet growing consumer demand for new, added value dairy drinks and speciality milks that deliver both flavour and functionality.”