Dairy Crest closures threaten 500 jobs

Up to 470 jobs are on the line at Dairy Crest after it announced the closure
of two decades-old dairies in Liverpool and Cambridgeshire on the same day
as it lost a “hard-won” contract with Tesco (LSE: TSCO.Lnews) .

The dairy giant said the two developments were unrelated as neither the site
in Aintree, which dates back to the 1950s, nor its 90-year-old dairy in
Fenstanton supplied liquid milk to the supermarket chain.

A spokesman for Dairy Crest would not put a value on the Tesco contract to
supply liquid milk, but said it represented 3pc of the group’s total sales
in that segment for 2011-12.

The group insisted it would not affect profit expectations for the year ending
March 2013 and it will continue to enjoy an “important relationship” with
Tesco by supplying key brands such as Cathedral City, Country Life, Clover (KOSDAQ: 043590.KQnews)
and Frijj.

But analysts at Exane BNP Paribas described the contract loss as a “blow”.

They said the 18-month contract for 50m litres of milk had been “hard won” and
was seen “as a potential foot in the door to the UK’s biggest retailer”.

Dairy Crest has entered a period of consultation with workers at Aintree,
which employs 220, and Fenstanton, which has a workforce of 250.

While there is a possibility that some jobs may be transferred to other sites,
it is believed the majority of the jobs will go.

Mark Allen, chief executive of Dairy Crest, insisted the decision to close the
plants had “not been taken lightly” but was necessary as part of the
company’s strategy to restore its dairy business to an “acceptable level of
profitability”.

He said: “Along with the rest of the sector, our dairies business is under
sustained pressure and we have to continue to act decisively to protect its
future.”

Profits at the dairy business slumped to £27.1m in 2010-11 from £34.9m
previously amid strong pressures on the price of milk.

Full-year profits for the 12 months to March 31 will be published in May.

The Aintree dairy, which was acquired by Dairy Crest in 2006, produces milk in
glass bottles.

The company said milk deliveries to British homes continued to decline but
those customers who did still require the service often chose plastic
bottles or milk bags.

Activities from both the Liverpool and Cambridgeshire sites will be
transferred to another of the company’s dairies, which are benefiting from a
£75m investment programme to increase capacity.

The group has four other plants in this country.

Closure of the sites will likely lead to a charge of about £15m, Dairy Crest
said.

Panmure Gordon analyst Damian McNeela welcomed the development.

He said: “The dairies business has been acknowledged to be under significant
pressure and the company’s ongoing £75m investment programme has created the
opportunity to transfer production to other sites.”

Dairy Crest shares rose 1.6 to 311.75p.

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