Dairy Crest bowed to industry pressure to invest by unveiling a £75m upgrade of its liquid milk dairies as it revealed a continuing jump in sales of its key cheese and butter brands.

The UK dairy group said that the three-year spending programme, run in addition to normal capital expenditure, would "improve the efficiency and infrastructure" at its dairies, and strengthen the supply chain.

The plans follow expansions by rival Robert Wiseman Dairies to its capacity, while Arla Foods is planning the world's largest fresh milk processing plant outside London.

"The increased investment will allow us to drive further cost efficiencies, remain competitive and maintain high levels of service to our customers," Mark Allen, the Dairy Crest chief executive, said.

The group said its efficiency drive had also extended to potential cutbacks at a spreads factory in Liverpool, where it was in talks with staff over reductions.

Key brands 

Dairy Crest's comments came as it revealed that pre-tax profits in the April-to-December period, the first nine months of its financial year, had "slightly" beaten expectations, with sales falling 1% as expected.

The decline reflected lower sales of milk to smaller customers, and came despite a 10% jump in sales of the key brands, including Cathedral cheddar cheese and Clover butter, on which it is splurging advertising spending.

The group will "continue to focus" on supporting its key brands, whose sale shave grown by 39% over the last two years, Mr Allen said.

He added that the group was "encouraged" by its "strong progress" in the first nine months of its financial year, and foresaw its "momentum" continuing in the current quarter.

Market reaction 

The statement received a mixed welcome in the City, where Evolution analyst Warren Ackerman restated a "buy" recommendation on Dairy Crest shares, which have been a "dismal" performer since the group unveiled interim results in November, losing 17%.

"We suspect this has been due to concerns over debt, the branded food performance and the outlook for dairies," Mr Ackerman said.

"Given [Tuesday's] strong statement, these concerns look to have been significantly overplayed."

Graham Jones, at rival broker Panmure Gordon, while nudging its forecast Dairy Crest profits higher, cut its price target on Dairy Crest shares by 30p to 370p, "reflecting a derating in the sector".

The stock closed 1.1% higher at 341.5p in London.