Liquid milk competition raises wider dairy concerns

By Dan Colombini contact

- Last updated on GMT

Muller and Arla announced a dip in performance, reflecting continued problems for dairy manufacturers across the UK and Ireland
Muller and Arla announced a dip in performance, reflecting continued problems for dairy manufacturers across the UK and Ireland

Related tags: Finance, Dairy

Complications in the liquid milk market have impacted the performance of dairy giants Müller and Arla, with both posting significant downturns in their 2018 full-year results.

The figures from Arla and Müller highlighted ongoing woes across the dairy manufacturing space, with commentators citing “chalk and cheese​” issues at the firms.

Arla and Müller posted their financial results for the period ending 31 December 2018 earlier this week.

Both firms announced a dip in performance, reflecting continued problems for dairy manufacturers across the UK and Ireland, which analysts confirmed were “challenging”​ and “unlikely to go away”​.

Müller posted a turnover of £1.9bn, down from £2.1bn the previous year. Operating profit before amortisation and impairment moved from £38m in 2017 to an operating loss before amortisation and impairment in 2018 of £17m.

Comprehensive business review

 “Liquid milk continues to be challenging and we recently announced a comprehensive review of the business to deliver £100m of cost and margin improvements, called Project Darwin,” ​the firm told Food Manufacture​.

“Amortisation decreased from £170.8m in 2017 to £82.3m in 2018. This is not a cash item – it reflects the gradual writing down of goodwill and intangible assets in line with accounting standards from the three partners – Müller Dairy, TM UK Production and Robert Wiseman and Sons.”

However, Müller remained bullish going forward, highlighting that more than £100m was invested in new capital projects, plant and machinery during 2018.

Müller has had a fantastic yoghurt business, and has done for a long time​,” Clive Black, director and head of research at Shore Capital told Food Manufacture​.

“But it spent a lot of money on the Robert Wiseman acquisition and it has been something of a horror show for them, reflecting the wider dairy industry across the UK.

“In that respect, it will be taking a more long-term view of its business going forward​.”

‘Little short of a disaster’

Julian Wild, corporate finance director at specialist law firm Rollits, added: “Clearly, the retail milk business focused, as they say, on a relatively small number of major multiples, has been little short of a disaster after the acquisition of Robert Wiseman and Dairy Crest’s liquid business. The issues are long-term trends and not going away.”

Arla’s assets in the balance sheet are almost unchanged at £298m for the period. Turnover is slightly up at £2.6bn against £2.5bn the previous year. However, gross profit is down from £302m in 2017 to £262m in 2018, resulting from a significant increase in the cost of sales.

That said, the firm’s performance indicates a stronger position in the sector as 2020 approaches.

Arla’s accounts focus much more on external issues, such as Brexit, than internal matters, indicating a generally well-run and settled business​,” added Wild. “In my view, it is in far better shape than Müller going forwards.​”

Black agreed. “Arla has taken a more strategic, steady and considered approach, so in that respect it is chalk and cheese.”

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