Dairy Crest restructuring

Dairy Crest is moving to consult on the closure of two dairies in the UK. This is part of its long term plan to reduce costs and sustain profitability in an extremely challenging market environment for its liquid milk business, the company says.
Separately, the 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. The loss of this contract does not change the group’s wider relationship with Tesco across key UK brands Cathedral City, Country Life, Clover and Frijj and will not impact Dairy Crest’s profit expectations for the year ending 31 March 2013.

The board notes that strong performances from the foods businesses compensated for more challenging trading in the dairies division.

Dairy Crest is looking at a range of options to restore its dairies business to a satisfactory level of profitability, the company notes. It is entering into consultation with employees on proposals to close two of the group’s dairies at Aintree, Liverpool and Fenstanton, Cambridgeshire later this year.

The proposed closures of these dairies has been aided 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.

Closure costs are expected to be around £15 million, to be charged in 2012/13.

Separately, Dairy Crest was yesterday informed by Tesco that its current contract to supply liquid milk 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.

Mark Allen, chief executive of Dairy Crest, says, “The decision to consult on the closure of our Aintree and Fenstanton facilities has not been taken lightly, but we believe that this proposed restructuring of our Dairies business is the right decision for the long-term. We will do all we can to help employees who may be affected by these proposals.

“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 which we are announcing.”