Dairy Crest has pulled out of milk, selling its loss-making dairy business to German rival Müller for £80m, which leaves the UK’s milk market in the hands of three big suppliers.
Dairy Crest’s dairies operations suppy about 15% of Britain’s milk, or 1.3bn litres a year, to retailers and residential customers. The business will be merged with Müller Wiseman Dairies, which produces fresh milk, cream and butter. The other big milk producers in Britain are Denmark’s Arla, which also dominates the market, and the UK’s First Milk farmers co-op.
Shares in Dairy Crest jumped 9.5% on the news.
Dairy Crest warned last month that its dairies business would post a loss for the six months to 30 September. It blamed “extremely volatile” markets, with cream prices down 40% from last autumn’s peak and both cream and skimmed milk powder prices falling 15% last month.
Dairy Crest, best known for Cathedral City cheese, Clover margarine and Country Life butter, said it will now focus on cheese, packet butter and spreads which together generated revenues of £442m and profits of £56m in the last year. Arla’s brands include Lurpak and Anchor butters in the UK, plus a range of milk and yoghurt brands across Europe.
Peel Hunt analyst Charles Hall hailed the sale as “one giant leap” for Dairy Crest, and thinks it is also good news for Britain’s farmers, who are paid some of the lowest prices in Europe for their milk.
“This deal should ensure that Müller Wiseman is an effective competitor to Arla and result in a healthy UK dairy industry – it is clearly unsustainable that all of the major players are losing money in the supply of milk, and this deal should be welcomed by dairy farmers.”
Analysts at Jefferies said: “This is a good deal at a fair price and is transformational for Dairy Crest,” although they noted that it is a disappointment to lose its flavoured milk brand Frijj.
The dairies sale includes the factories at Foston, Chadwell Heath and Severnside. It also includes the Hanworth glass bottling site, where Dairy Crest is consulting with the site’s 200 employees on its planned closure, and 72 depots. The company said last month it would also shut a cream potting factory in Chard, Somerset, which employs 60 people.
Dairy Crest said it will keep its cheese factories at Davidstow, Nuneaton and Frome, along with its spreads and spray oil factories at Kirkby and Erith.
