Dairy Crest ‘to shop around for acquisitions next year’

27-Jun-2012 - Last updated on 29-Jun-2012 at 19:56 GMT

Cathedral City brand owner Dairy Crest could be looking for UK acquisitions next year

Dairy Crest will start shopping around for acquisitions in the UK next year, after disposing of its French St Hubert spreads business, according to City analysts.

The company was likely to sell St Hubert to a French player and then start to run the rule over complementary British dairy brands as well as British branded and added-value own-label options for the chiller cabinet, said Darren Shirley, analyst at Shore Capital. He was speaking before the announcement today (June 29) of plans to sell St Hubert to Montagu Capital for £344M.

Following a meeting with Dairy Crest this week, he told FoodManufacture.co.uk that it would make sense for Dairy Crest to want to add to its portfolio by acquisition in the UK market.

He also expected the firm to explore moving its big-selling fresh Frijj brand into flavoured UHT.

Dairy Crest believed that it could take a reasonable share of the £100M UHT market, initially on a third-party supplier basis, he added.

St Hubert disposal

Shore Capital said in an upbeat note following the meeting that the St Hubert disposal would allow Dairy Crest to strengthen its finances. “We sense that Dairy Crest wants to engage in calm reflection. Having been a reasonably leveraged business, management may like to experience the 'joy' of a strong balance sheet,” said the statement.

The main challenge for the company was its 1.7bn litre per annum dairies division which was seeing a “perfect storm” of compression of supermarket pricing alongside higher farmgate and oil prices.

While farmgate and oil prices were now easing, strong cream prices which had provided a buffer had now collapsed, said Shirley.

The business was “just about breakeven” at present, and all three major dairies in the UK, including Arla UK's dairies and Robert Wiseman (now owned by Müller), were “presently not too clever either".

Doorstep activities

Dairy Crest is currently rationalising and concentrating its 300M litre doorstep activities with a focus on the south-east of England. This activity that will be focused on its Hanworth dairy with the closure of its Aintree facility near Liverpool and Fenstanton near Cambridge.

The three-year and £75M upgrade to its key dairies at Chadwell Heath near London, Foxton in Derbyshire and Severnside in Gloucestershire was also continuing.

Dairy Crest's UK brands were performing very well, with good marketing, leading positions and robust onward support. Cathedral City and Clover were valuable brands and efficiency in the UK spreads category should be enhanced by the concentration of production at Kirkby on Merseyside, said Shore Capital.

It concluded: “Post any sale of St Hubert, Dairy Crest will be left with a business that comprises good, well-invested brands in a market that it understands and in which it can be expected to grow by acquisition in time.”

For more about the St Hubert sale, click here.