The board of Dairy Crest is announcing a proposal to consult on the closure of two dairies in the UK.
This is part of its long-term plan to reduce costs and sustain profitability in what it describes as 'an extremely challenging market environment for its liquid milk business'.
The board is also reporting an improved year-end net debt position.
Separately, the board is announcing that its current contract to supply liquid milk to Tesco will not be renewed when it comes to an end in July 2012. Around 3% of Dairy Crest's liquid milk sales in 2011/12 were made to Tesco. Despite the loss of this contract, Tesco remains a large and important customer for our key UK brands.
On 29 March 2012, the board issued a pre-close trading update in which it confirmed that overall trading for 2011/12 was in line with its expectations.
Strong performances from the Foods businesses compensated for more challenging trading in the Dairies division.
The announcements that Dairy Crest is making reflect the ongoing competitive environment facing its Dairies business and the Group's determination to take proactive action in line with the overall strategy being pursued by the board.
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. 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 £75m 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.
Dairy Crest anticipates that there will be cash exceptional costs associated with these closures of around £15m, to be charged in 2012/13. It will review the March 2012 carrying value of assets at these sites and goodwill in its Dairies business in the light of these proposals.
Dairy Crest expects to treat all these charges, together with any required impairment of goodwill, as exceptional items.
Separately, Dairy Crest was yesterday informed by Tesco that its current contract to supply liquid milk will not be renewed when it comes to an end in July 2012. Around 3% of Dairy Crest's liquid milk sales in 2011/12 were made to Tesco.
A statement said that, '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'.
Dairy Crest will announce preliminary results for the year ended 31 March 2012 on 24 May 2012.
Source: Dairy Crest
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