6th Nov 2014 08:49
LONDON (Alliance News) - Dairy Crest Group PLC saw its shares rise strongly Thursday after it agreed a deal to sell its dairy operations for GBP80 million in cash, leaving it focused on its spreads and cheeses like Catherdral City and Country Life as well as whey products for infant formula.
The company has been moving away from unbranded commodity products for several years, scaling back the dairy operations and selling its commodity cheese operations. It mainly branded cheese and spread operations are more profitable, and Dairy Crest said it will also continue to grow its whey-based products, such as demineralised whey powder and galacto-oligosaccharide, for the infant formula market.
Dairy Crest will sell the dairy operations, including its bulk butter operations, to Müller UK & Ireland Group, using the proceeds to reduce its debt. The companies have also agreed that Müller Wiseman Dairies will sell bulk butter to Dairy Crest for five years. The deal will need to be cleared by antitrust regulators, a process Dairy Crest is expecting to take several months.
"Dairy Crest believes that combining the two businesses will build on the progress that Dairy Crest has already achieved. It will also strengthen the wider UK dairy sector bringing much needed security for Britain's dairy farmers. Investment will be more attractive, enabling the British dairy industry to compete more successfully in global markets," it said in a statement.
Dairy Crest's dairies operations process and deliver around 1.3 billion litres of British milk a year to retailers, hospitals and residential customers. However, the operations made a profit of just GBP0.6 million in the year to end-March, on revenue of GBP944.8 million.
Its remaining businesses, which include its Cathedral City brand, Davidstow, Clover, Country Life and the fast growing Frylight one calorie cooking spray, made a profit of GBP56.1 million on revenue of GBP442 million over the same period, it said.
The company separately reported a pretax profit before exceptional items from continuing operations of GBP21.3 million for the six months to end-September, down from GBP21.9 million a year earlier, even though revenue rose to GBP682.1 million, from GBP672.2 million. It said sales of key brands Cathedral City, Country Life, Clover and FRijj were up 2% compared to the first half of last year.
It blamed a loss from its dairies business for the profit decline, offsetting increased profit from its butters and spreads.
Dairy Crest added that it's on track to deliver a GBP20 million annual cost reduction, and it raised its interim dividend to 6.0 pence, from 5.9 pence.
Dairy Crest shares were up 11.8% at 476.33 pence early Thursday, putting it amongst the best-performing stocks on the London market.
By Steve McGrath; [email protected]; @stevemcgrath1
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