Dairy Crest to follow rivals in depot upgrade

by Hannah Kuchler - 04/02/2010

"Dairy Crest is to invest £75m ($120m) in its milk business, following in the footsteps of rivals Robert Wiseman Dairies and Arla Foods."

The announcement came as the maker of Cathedral City cheddar said pre-tax profit was slightly ahead of expectations, but that sales for the nine months to December 31 were down 1 per cent.

The investment, which will be spread over three years from 2011, will modernise its existing dairies. Wiseman has completed a £80m investment in its Bridgwater, Somerset dairy, and Arla is planning to build a £70m dairy near London that will be completed in 2012.

Mark Allen, Dairy Crest chief executive, said: “We think that once the three years are up, people will see that we are ahead of our competitors, not just playing catch-up.”

Dairy Crest said that the capital expenditure would not curtail its ability to pay down its debt. The group said it had cut its net debt to less than £350m, beating analysts’ expectations.

The dairy said it will continue to cut costs and is in negotiations with staff at the Kirkby, Liverpool, spreads factory about redundancies. It is also looking to centralise administration costs.

Warren Ackerman, an analyst at Evolution Securities, said: “The statement was pretty good across the board – especially getting the net debt down to £350m, £15m below consensus.”

He added: “There is a concern that this could be catch-up capital expenditure. Although Dairy Crest said its investment could put the company ahead of the curve in terms of efficiency versus Wiseman and Arla, we remain sceptical given Dairy Crest does not expect the investment to result in any significant uplift to capital returns for its Dairies division.”

Shares rose 2.3p to close at 340p. Shares have fallen 17 per cent since Dairy Crest’s November trading statement, amid fears about its debt and that its focus on brands was premature for cash-strapped consumers.

But sales of its brands – which include Country Life butter – have increased 10 per cent in the nine-month period. The brands have been boosted by TV advertising and promotions, but the number of promotions has fallen by “a few per cent” in the past two months.

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