Dairy Crest warned of lower first half profits, as challenging conditions continue, but said profit expectations for the full year ending March 31st 2013 remain unchanged.

Trading in the first half-year has remained challenging and profits, having adjusted for the disposal of the French spreads business, St Hubert, will be lower than the same period last year, the group said in a company statement.

The company's four main brands; Cathedral City, Country Life, Clover and Frijj, performed strongly in the first half, after it increased marketing spend.

Mark Allen, Chief Executive, commented: "We are pleased with our first half performance despite the significant pressures on our business. Although we expect these to continue into the second half our first half performance together with our plans for the second half means that our profit expectations for the full year remain unchanged."

Dairy Crest said, in line with its continued drive efficiency across its business, is in talks with employees on plans to consolidate its spreads production into a single UK location, an existing facility at Kirkby, Merseyside. As a result, its site in Crudgington, Shropshire, will potentially close in 2014.

Commenting on its Dairies business, in which it has faced unprecedented market conditions, it says it remains focused on achieving a 3% return on sales in this business in the medium term.

"We continue to take a number of decisive actions to achieve this, including implementing milk selling price increases, closing our Aintree creamery, consolidating milk rounds to allow the closure of 23 depots in the six months and reducing overheads. Plans are on track to close our Fenstanton dairy, as previously announced, this autumn," it explained.

Key to share price performance is the use of the proceeds from St Hubert. Acquisitions are likely to be materially earnings enhancing given the low returns on cash.

Analysts at Peel Hunt however have chosen to focus in a reserach note today on the potential for M&A, saying that: "Key to share price performance is the use of the proceeds from St Hubert. Acquisitions are likely to be materially earnings enhancing given the low returns on cash."


CJ

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