Dairy Crest is today announcing that it has agreed to sell the assets of its Dairies operations to Müller UK & Ireland Group (“Müller”) for a consideration of £80 million payable in cash on completion (the “Transaction”).
The sale is conditional on the approval of the relevant competition authorities. This process is expected to take several months, during which time Dairy Crest will focus on continuing to provide high levels of service and delivery throughout the supply chain. It is also conditional on the approval of Dairy Crest’s shareholders and employee consultation.
The combination of Dairy Crest’s Dairies operations with those of Müller Wiseman Dairies (the fresh milk, cream and butter business owned by Müller) will build on the progress Dairy Crest has already made in improving efficiency. It will help to create a more sustainable UK dairy sector by delivering economies of scale and cost efficiencies that will underpin investment in the industry. This in turn should help the UK to compete more successfully in global markets, which is essential for British dairy farmers. Dairy Crest believes the Transaction to be in the best interests of consumers, customers, dairy farmers, employees and Dairy Crest’s shareholders. It will create a stronger business that protects long term employment and has the potential to help reduce costs and increase efficiency.
After completion Dairy Crest’s focus will be on its profitable, predominantly branded, cheese and spreads operations. It will also grow its revenue and profits by continuing to develop whey-based products, such as demineralised whey powder and galacto-oligosaccharide, for the fast growing global infant formula market.
Background to and reasons for the Transaction
Since its flotation in 1996 Dairy Crest has significantly reduced its exposure to unbranded commodity markets by scaling back its dairy ingredients business and (in 2006) disposing of its commodity cheese operations. In line with its strategy to grow added value sales and improve quality of earnings, Dairy Crest has built a stable of strongly positioned dairy brands. This includes Cathedral City, the nation’s favourite cheese brand, Davidstow and Country Life and Clover, both significant brands in the Butter and Spreads market.
Over recent years Dairy Crest has also developed a clear strategy for its Dairies operations. Its fresh flavoured milk brand, FRijj, is growing strongly and its programme to sell surplus depots as residential deliveries decline has enhanced profits. In addition Dairy Crest has consistently identified and implemented cost reductions that improve the efficiency of its Dairies operations and make them more sustainable. These include the creation of a well invested, streamlined supply chain, the use of lighter plastic bottles and the reduction of distribution costs.
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.
Information on Dairy Crest’s Dairies operations
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.
Details of the Transaction
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.
Dairy Crest 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.
Dairy Crest’s continuing operations
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.
Dairy Crest will retain the following manufacturing sites:
Davidstow, Nuneaton and Frome, the world class cheese production, storage and distribution facilities;
Kirkby and Erith, Dairy Crest’s spreads and spray oil manufacturing plants.
Use of proceeds and financial effects of the Transaction on Dairy Crest
The proceeds from an approved sale will initially be used by Dairy Crest to reduce net debt.
Completion of the Transaction
Dairy Crest has entered into a conditional sale and purchase agreement with Müller with respect to the assets of its Dairies operations and will despatch a circular to its shareholders (the “Shareholder Circular”) in due course seeking their approval of the Transaction. The proposed disposal will constitute a Class 1 transaction for Dairy Crest pursuant to the Listing Rules. The Shareholder Circular will contain a notice convening a General Meeting of its shareholders.
The Transaction is also dependent on approval from the relevant competition authorities. It is anticipated that it will take several months for the relevant competition authorities to complete their review of the Transaction.
All other necessary consents have been received.
Further announcements will be made in due course.
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.”
For further information:
Dairy Crest Group plc 01372 472236
J.P. Morgan Cazenove 020 7742 400
John Muncey / Alex Bruce
Jefferies 020 7029 8317
Antonia Rowan / David Watkins
Brunswick 020 7404 5959
Tim Danaher / Max McGahan
Notes to Editors
1. This announcement has been issued by, and is the sole responsibility of, Dairy Crest.
2. J.P. Morgan Limited, which conducts its UK investment banking businesses as J.P. Morgan Cazenove ("J.P. Morgan Cazenove"), is authorised and regulated in the United Kingdom by the Financial Conduct Authority. J.P. Morgan Cazenove is acting as sole financial adviser and joint corporate broker exclusively for Dairy Crest and no one else in connection with the matters set out in this announcement and will not regard any other person as its client in relation to the matters in this announcement and will not be responsible to anyone other than Dairy Crest for providing the protections afforded to clients of J.P. Morgan Cazenove, nor for providing advice in relation to any matter referred to herein.
3. Jefferies International Limited (“Jefferies”) is authorised and regulated in the United Kingdom by the Financial Conduct Authority. Jefferies is acting as joint corporate broker exclusively for Dairy Crest and no one else in connection with the matters set out in this announcement and will not regard any other person as its client in relation to the matters in this announcement and will not be responsible to anyone other than Dairy Crest for providing the protections afforded to clients of Jefferies, nor for providing advice in relation to any matter referred to herein.
4. No statement in this announcement is intended to constitute a profit forecast, nor should any statements be interpreted to mean that earnings or earnings per ordinary share will necessarily be greater or lesser than those for the relevant preceding financial periods of Dairy Crest. Rather, these statements should be construed as references to potential enhancements to the earnings that might otherwise have been earned during the relevant financial period.
5. Müller UK & Ireland Group is wholly owned by the Unternehmensgruppe Theo Müller. It has 19 sites across Britain and employs almost 6,000 people across four business units: Müller Dairy, Müller Wiseman Dairies, Müller Minsterley and TM Telford.
Müller Wiseman Dairies processes and delivers fresh milk daily throughout Britain and is famous for its black & white cow-print branding.
The company supplies fresh milk to a range of customers in the supermarket, convenience, wholesale and food service sectors. Müller Wiseman Dairies has six dairies from Bridgwater in Somerset to Aberdeen and a fresh milk distribution network in the UK. To make its range of dairy products, the company buys milk from more than 1,200 British dairy farmers, all of whom are Red Tractor Farm Assured.
In addition to the terms defined elsewhere in this announcement, the following definitions apply throughout this announcement unless the context requires otherwise:
"Board" or "Directors" the directors of Dairy Crest
“Completion” once all the conditions relating to the Transaction have been met
“Dairy Crest’s Dairies operations” the liquid and flavoured milk, bulk and potted cream and bulk butter businesses of Dairy Crest
“EBIT” earnings before interest and tax
“EBITDA” earnings before interest, tax, depreciation and amortisation
"General Meeting" the proposed General Meeting of the Company
"Listing Rules" the rules and regulations of the UK Listing Authority