City welcomes Dairy Crest's milk renewal deal with Sainsbury

By Rick Pendrous

- Last updated on GMT

Dairy Crest's strategy remains focused on growing added value sales
Dairy Crest's strategy remains focused on growing added value sales

Related tags Dairy crest Value added Finance

Dairy Crest's liquid milk contract renewal with Sainsbury, which is expected to stabilise its dairy business over the coming years, has been welcomed by analysts.

According to Nicola Mallard, an analyst with Investec Securities, the deal which runs until 2017 removes an immediate challenge for Dairy Crest's supermarket liquid milk business. While the new terms (from February 2014) were slightly worse than Dairy Crest's previous contract with the retailer, Mallard said the group would continue to reduce costs to offset this.

Good job

Mallard was surprised by Dairy Crest's announcement of a management reorganisation, particularly the departure of finance director Alastair Murray, whom she believed had done a good job in "straightening out" the group's finances. Mallard suggested the restructuring announced removing duplicate functions by moving to one business unit from the current two highlighted the group's continued focus on costs.

In an interim statement earlier this month, Dairy Crest said it remained focused on growing added value sales and improving efficiency across its business. It said its four key brands continued to grow, helped by new product launches, and added that it was on track to exceed its annual cost savings target by delivering savings of around £23M this year.

Chief executive Mark Allen said: "Dairy Crest has delivered a solid performance in the third quarter."

'Strong foundation for the future'

He added: "The sale of St Hubert has significantly strengthened Dairy Crest's financial position, and has provided a strong foundation for the future. "​ While some of the proceeds would be used for organic growth of its brands, Allen said he would be looking at potential acquisitions. However, he added: "We do not currently anticipate that any significant acquisition will be made in the near future, and accordingly we have identified a number of internal capital projects to support the continued growth of the business."

Read more about Dairy Crest's contract renewal​ with Sainsbury here.

Related topics Dairy Dairy-based ingredients

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