Dairy Crest agree deal to sell to German firm Muller

Muller expands UK dairy operation
Germany’s Muller has swallowed up an £80 million portion of Britain’s milk market in a deal which analysts say should provide some relief to hard-pressed dairy farmers.

The deal will see subsidiary Muller Wiseman buy Dairy Crest’s struggling dairy operations, meaning it now controls about a quarter of milk produced in the UK.

The National Farmers’ Union (NFU) welcomed the move, saying it should help to build a more sustainable dairy sector, while DairyCo, a not-for-product body working on behalf of Britain’s dairy farmers, said it could help the UK in a tough market.

Peel Hunt analyst Charles Hall said: “This deal should ensure that Muller 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.”

The move, which is subject to competition clearance, will allow Dairy Crest to focus on its cheese and spread operations, which include leading brands such as Cathedral City, Clover and Country Life.

Dairy Crest’s dairy operations process and deliver around 1.3 billion litres of milk a year to retailers, coffee shops, hospitals and residential customers.

They recorded revenues of £944.8 million in the year to the end of March and underlying profits of £600,000.

But half-year results released today showed the division slipping to a loss of £4.4 million in the six months to the end of September amid falling market prices which have “now led to difficult milk price cuts for British dairy farmers”.

It helped drag group earnings lower – down 3% to £21.3 million on an adjusted basis.

Bottom-line pre-tax profits for the Surrey-based group slumped by 95% to £900,000 after taking into account one-off costs including plant closures.

The sale includes factories in Foston, Chadwell Heath and Severnside as well as the Hanworth glass bottling site, where Dairy Crest is already consulting with employees about the site’s future. It also includes flavoured milk brand Frijj.

Muller said the combination will lead to production efficiencies and unlock the potential for higher levels of innovation, product development and greater exports of dairy products made in Britain.

Ronald Kers, chief executive of Muller UK & Ireland, said: “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.”

NFU dairy board chairman Rob Harrison said: “I see this as a positive step in building an increasingly sustainable dairy sector and there are synergies between Muller Wiseman’s existing business and the planned acquisition.”

DairyCo director Duncan Pullar said: “Clearly this agreement, if approved, would represent a big structural change for the liquid milk industry in Britain and place liquid milk processing on a more consolidated footing.

“Any increase in the scale of any business could improve its competitive position in a challenging market.

Last month the NFU urged more supermarkets to help dairy producers after a worldwide glut led to a 20% fall in the cost of milk, meaning farmers were unable to cover the costs of production.