Dairy Crest has today announced that it will sell its dairy operations to Müller for £80 million.
The company had been plagued with problems in the last few months. It had announced a cut in its milk contracts payable to farmers and said its two factories will close after a challenging trading environment, which put about 260 jobs at risk.
The acquisition, which is subject to approval by the relevant competition authorities and the shareholders of Dairy Crest, comprises the fresh liquid milk, flavoured milk including the FRijj brand, bulk and potted cream, bulk butter and milk powder businesses of Dairy Crest.
It includes Dairy Crest’s dairy facilities at Severnside, Chadwell Heath, Foston and Hanworth together with around 70 depots.
Dairy Crest’s Dairies operations process and deliver around 1.3 billion litres of British milk per annum to major retailers, ‘’middle ground’ customers (including, for example, smaller retailers, coffee shops and hospitals) and residential customers.
It also manufactures and sells Dairy Crest’s ready to drink flavoured milk brand, FRijj, flavoured milk, cream, bulk butter and milk powders. In the year ended 31 March 2014 Dairy Crest’s Dairies operations recorded revenue of £944.8 million and product group profits of £0.6 million excluding profits from selling surplus properties which were £18.2 million.
At 31 March 2014 the total assets employed in the Dairy Crest’s Dairies operations which are being sold were £253.5 million and the net assets employed were £112.8 million.
The agreement between Dairy Crest and Müller is for Dairy Crest to sell its Dairies operations, including bulk butter manufacture, in its entirety and with its supporting overhead structure to Müller for £80 million, payable in cash, on completion. This includes the factories at Foston, Chadwell Heath and Severnside. It also includes the Hanworth glass bottling site, where Dairy Crest is consulting with employees on the site’s future, and 72 depots.
Dairy Crest will retain full ownership of the previously closed dairies at Totnes and Fenstanton; its Chard site, where it is also consulting with employees on the site’s future; and a number of already closed depots.
The two companies will also enter into a supply agreement whereby Müller Wiseman Dairies will sell bulk butter to Dairy Crest for five years. In addition Dairy Crest will provide certain transitional services to Müller Wiseman Dairies.
The company said it will continue to meet the defined benefit pension obligations in relation to the Dairy Crest Pension Scheme.
The consideration payable by Müller is subject to upward or downward adjustments for variances from agreed levels of working capital, capital expenditure and the profitability of Dairy Crest's Dairies operations and will also be adjusted to reflect profits made on the sale of properties included in the Transaction that are sold by Dairy Crest before completion. Müller also has the ability not to complete the Transaction should there be a material deterioration of more than £20 million in the agreed level of profitability of Dairy Crest's Dairies operations before completion or if any of its four dairies are inoperable at completion.
After completion Dairy Crest will focus on its cheese and packet butter and spreads businesses, which together recorded revenues of £442 million and product group profits of £56.1 million in the year ended 31 March 2014. This product group includes Dairy Crest’s market leading Cathedral City brand, Davidstow, Clover, Country Life and the fast growing Frylight one calorie cooking spray.
As well as these established brands, Dairy Crest has commenced a major project to develop whey-based products at its creamery in Davidstow. These include demineralised whey powder and galacto-oligosaccharide, both used in the fast growing global infant formula market.
Dairy Crest will continue to buy milk direct from around 400 supplying farmers for its Davidstow creamery to produce cheese and whey. With its strong brands and the growth potential of infant formula, Dairy Crest is well placed to grow profits, generate cash and continue to deliver its progressive dividend policy.
Mark Allen, Chief Executive of Dairy Crest 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 minimise 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.”
Heiner Kamps, Chief Executive Officer, said: “This acquisition underlines our ambition to further grow the Unternehmensgruppe Theo Müller in its core markets and it extends our position as an increasingly important competitor in the dairy sector.
“In tandem with this growth we are placing significant emphasis on becoming an employer of choice at what is an exciting time in our further development as an international fresh food company.”
Ronald Kers, Chief Executive of Müller UK & Ireland Group said: “We aim to create a more competitive, sustainable, efficient and innovative dairy processor in the UK which will generate real benefits for customers, consumers, employees and suppliers. We look forward to working with the excellent team in Dairy Crest’s dairies operation.
“We are concerned that the dynamics of the UK fresh milk market are unsustainable for dairy processors in the mid to long term and this acquisition will allow us to reduce our costs, increase our efficiencies and invest in the future.“
