FDBusiness.com

Dairy Crest is proposing to close two dairies as part of its long term plan to reduce costs and sustain profitability at its liquid milk business. Dairy Crest is entering into consultation with employees and their representatives on proposals to close two of the dairies at Aintree, Liverpool and Fenstanton, Cambridgeshire later this year. The proposed closures of these dairies has been facilitated by the ongoing £75 million investment programme in the Dairies business. This has driven efficiencies and increased capacity at the group’s other three polybottle dairies at Severnside, Gloucestershire, Chadwell Heath, London and Foston, Derbyshire.

Aintree is predominantly a glass-bottling dairy. There has been a fall in the sales of milk in glass bottles as residential sales continue to decline overall and customers increasingly opt for plastic bottles and milk bags. Dairy Crest will continue to supply residential customers with milk in glass bottles from its Hanworth dairy in London should Aintree close.

At Fenstanton, Dairy Crest packs milk into polybottles. Most of the volume here can be transferred to other, more highly invested Dairy Crest dairies.

Dairy Crest anticipates that there will be cash exceptional costs associated with these closures of around £15 million, to be charged in 2012/13. It will review the March 2012 carrying value of assets at these sites and goodwill in its Dairies business in the light of these proposals. Dairy Crest expects to treat all these charges, together with any required impairment of goodwill, as exceptional items.

Separately the Dairy Crest board has announced that its current contract to supply liquid milk to Tesco will not be renewed when it comes to an end in July 2012. Around 3% of Dairy Crest’s liquid milk sales in 2011/12 were made to Tesco. Despite the loss of this contract, Tesco remains a large and important customer for Dairy Crest’s key UK brands -CathedralCity, Country Life, Clover and Frijj.

The Dairy Crest board has also reported an improved year-end net debt position. Over the fourth quarter, Dairy Crest’s cash collection has been stronger than anticipated and its net debt at 31 March 2012 will be around 5% lower than market expectations.

“Dairy Crest is a broadly based business which has delivered against our strategy despite challenging trading conditions. Our Foods business has performed strongly and sales of our five key brands continue to grow. However, along with the rest of the sector, our Dairies business is under sustained pressure and we have to continue to act decisively to protect its future,” says Mark Allen, chief executive of Dairy Crest. “With lower net debts at the year end than we anticipated, the group has positioned itself well to absorb the cash costs associated with these closures.”

He continues: “The challenges in the liquid milk industry are further underlined by the disappointing loss of the Tesco liquid milk supply contract. However it represents just 3% of our total liquid milk volumes and has not driven the restructuring decisions.”

Dairy Crest will announce preliminary results for the year ended 31 March 2012 on 24 May 2012.