Dairy Crest sells milk division to Müller, posts 95% profit nosedive

British company Dairy Crest Group plc said it has agreed to sell its milk business to Müller UK and Ireland Group for £80 million in an all-cash transaction. The company said it will be several months before the transaction is completed.

In the first six months of the financial year (ending September), the Esher-based company which processes and delivers about 1.3 billion liters of milk annually, i.e. 15% of the UK market, posted a 95% decline in profits to £900,000, compared to £19.7 million in the first half of 2013.

The company blamed furiously volatile markets, with cream prices plunging by 40% from last autumns’ peak. Milk powder prices also plunged.

When the sale is completed Dairy Crest says it will concentrate on its money-making cheese and spreads unit, which generated revenues of £442 million and profits of £56 million in the past year.

The sale includes the dairy factories at Severnside, Chadwell and Foston. It also includes its bottling site at Hanworth. It plans to keep its cheese plants at Frome, Nuneaton and Davidstow, as well as its factories at Erith and Kirkby.

Since it was floated in 1996, Dairy Crest has considerably cut its exposure to unbranded commodity markets by disposing of its commodity cheese operation and scaling back its dairy ingredients business.

The company has built a stable of well-positioned dairy brands, which include the UK’s favorite cheese brand Cathedral City, as well as Country Life and Clover spreads.

Cathedral City, Dairy Crest

According to Dairy Crest, Cathedral City is the UK’s most popular branded cheese.

Over the last few years, Dairy Crest has also developed a clear strategy for its Dairies operations. Its FRijj flavored milk brand is growing well and its strategy to sell surplus depots while residential deliveries fall has helped raise profits.

Dairy Crest believes that combining the two businesses will build on its own progress as well as strengthening the wider UK dairy sector “bringing much needed security for Britain’s dairy farmers. Investment will be more attractive, enabling the British dairy industry to compete more successfully in global markets.”

Dairy Crest CEO Mark Allen said:

“Dairy Crest is very proud of the dairy business it has built and we are delighted that it will be combined with Müller Wiseman Dairies’ equally well-established operation. This proposed sale is a great opportunity for our two companies, our farmers, our staff, our customers and consumers”.

“Completing this transaction would be a positive development for Dairy Crest and for the UK dairy industry. The combination of our Dairies operations with those of Müller Wiseman Dairies will create efficiencies and economies of scale that will help to create a more sustainable UK dairy sector that is better placed to compete on the global stage”.

“The disposal will allow Dairy Crest to focus on continuing to grow our successful and innovative branded cheese and spreads operations. We will also deliver additional added value sales through our whey investment. We are confident that this focus will deliver further medium term profit growth for our shareholders.”

“In the months ahead we will do all we can to minimize the uncertainty that we know today’s news will bring for the many people associated with our business. I want to thank everyone who has been involved in Dairy Crest’s dairies business over the years. Together we have worked hard to build a business of which we should be proud and which has a potentially exciting future as part of Müller Wiseman Dairies.”

Dairy Crest milk business

Dairy Crest is selling its milk division so that it can focus on more profitable products.

Shares in Dairy Crest on Thursday rose 9.5% on news of the sale, which also triggered fears of layoffs. The milk-rounds staff union, UsDaw, which represents workers at dairies in Foston, Derbyshire, and Severnside, near Gloucester, said is was very concerned about its members’ jobs. The union’s national officer David Johnson said he is planning to meet Dairy Crest’s management next week and would also like to see Müller’s people.

Mr. Johnson said:

“Our priority will be to safeguard jobs, maximize employment within the business and protect terms and conditions of employment.”