Dairy Crest is to sell its milk operations to Müller UK & Ireland for £80m as it focuses on the more profitable cheeses and spreads it produces.
The company, which produces Cathedral City cheese and the Country Life and Clover spreads, revealed plans for the disposal as it announced half-year revenues rose 1pc to £682.1m and adjusted pre-tax profts fell 3pc to £21.3m.
Explaining the deal, Dairy Crest said the sale would create a “more sustainable UK dairy sector by driving economies of scale and cost efficiencies that will underpin investment in the industry”.
The company added that it believed the disposal – which is has to be approved by regulators and investors – is in the “best interest of consumers, dairy farmers, employers and Dairy Crest’s shareholders”.
News of the sale pushed up Dairy Crest’s shares by more than 13pc to 475p.
Its dairy business processes and delivers about 1.3bn litres of milk annually and last year had revenues of £944.8m but profits of just £600,000, after stripping out the £18.2m brought in by selling off surplus properties.
Milk made up almost 70pc of Dairy Crest’s £1.39bn annual revenues last year, with the cheeses and spreads operations bringing in sales of £442m and profits of £56.1m. At a group level the company posted a pre-tax profit of £48.8m.
Britain’s dairy industry has been struggling for years as the price of milk paid at the farm gate falls, driven down by international competition and retailers putting pressure on suppliers as they look to cut the the cost of a food staple on shop shelves.
Under the terms of the deal Müller will acquire Dairy Crest’s entire dairy operations, including factories at Foston, Derbyshire, Chadwell Heath, Essex, and Severnside, Gloucester, and 72 depots. Also being transferred is its glass-bottling site in Hanworth, London, which the company is in consultation with the 200 staff about its future as demand for bottled milk declines.
Dairy Crest will keep ownership of dairies and depots it has already closed, as well as its factory which pots cream in Chard, Somerset, where it is in negotiations with staff about closing down.
Dairy Crest has been trying to make its milk business more efficient and by combining them with Müller’s it hopes to create an operation more able to take on competitors, particularly in a global market.
The National Farmers’ Union (NFU) said that while the deal will raise concerns among its members, who have faced “a challenging period” and that “consolidation has been a constant characteristic of UK dairying”, it said it saw the sale as encouraging.
Rob Harrison, NFU dairy board chairman, said: “I am sure that members who supply Dairy Crest will have concerns about the acquisition. We are reassured that all contracts will be transferred to Müller-Wiseman. However, I see this as a positive step in building an increasingly sustainable dairy sector and there are synergies between Müller’s existing business and the planned acquisition.”
By Alan Tovey