Dairy Crest to Close Plants Amid Tesco Contract End

UK - The Board of Dairy Crest is today announcing a proposal to consult on the closure of two dairies. 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.

18 April 2012

2 minute read

Europe

There is some speculation that the decision to close the two plants at Aintree and Fenstanton has been influenced by an announcement earlier this week that Dairy Crest's contract to supply liquid milk to Tesco will not be renewed in July 2012.

Around three per cent of Dairy Crest's liquid milk sales in 2011/12 were made to Tesco.

Dairy Crest said: "Whilst the loss of this supply contract is disappointing, it demonstrates the need for the Group's continuing strategy of investment in, and consolidation of, the Dairies business. The loss of this contract does not change the Group's wider and important 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 pre-close trading update indicated that Dairy Crest was looking at a range of options to restore its Dairies business to a satisfactory level of profitability. Today the Board is announcing that the Company is entering into consultation with employees and their representatives 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 facilitated 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.

Mark Allen, Chief Executive of Dairy Crest, commented: "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 proposals we are announcing today are part of a series of actions designed to restore our Dairies business to an acceptable level of profitability over the medium term.

"With lower net debts at the year end than we anticipated, the Group has positioned itself well to absorb the cash costs associated with these closures."