Dairy Crest rejects Morrisons rejig rumours
it is about to lose out on another contract to supply liquid milk
to one of the country's leading multiple retailers, Tom Armitage
reports.
According to industry publication Dairy Industry Newsletter, UK retailer Morrisons is said to be considering leaving out Dairy Crest from its future milk supply arrangements, in favour of rival processor Robert Wiseman Dairies.
Both Dairy Crest and Wiseman dismissed the reports as "speculation" and added that they had not heard "anything at all" from the Bradford-based retailer.
Meanwhile, Morrisons, which is widely believed to be undertaking a review of its supply arrangements, declined to comment.
"We do not discuss supplier issues or contract arrangements," the company said.
Last year, Dairy Crest lost key contracts to supply own label fresh milk for UK supermarkets Asda and Tesco to respective rival processors, Arla Foods UK and Wiseman.
The Surrey-based company, which notched up a turnover of £1.27 billion in 2004, also manufactures Cathedral City, the UK's best-selling branded cheddar cheese, while its Frijj dairy drink and Petit Filous dairy-based dessert brands are best-sellers in their respective categories.
But despite the reports remaining completely unsubstantiated, Dairy Crest's share value has fallen by 6 per cent over the last two days to around 432p.
If the supposed reports are found to be correct, however, it could cost the firm a hefty £8 million in lost revenue (the Tesco contract loss, in comparison, cost it £12 million).
"It is difficult to tell what long-term impact this would have on Dairy Crest's stock, although its annual pre-tax profit forecast of £76 million would remain unchanged," one analyst told DairyReporter.com.
"If the contract goes, however, its liquid milk business will inevitably be pushed into loss and the only cost-effective solution would be to either consolidate or sell to a co-operative farmer association," he added.
As farmers "obviously have limited resources", they would not be keen to inherit a loss-making business and he suggested that Dairy Crest would have to throw in its profitable doorstep delivery business in order to enhance its appeal to potential buyers.
UK farmers have already underlined their ambitions to become more closely connected to the dairy supply-chain in an attempt to raise farmgate milk prices.
Farmer-owned dairy co-operative First Milk, for instance, has recently had its bid to acquire a 15 per cent stake in Wiseman approved by the UK's Office of Fair Trading.
Since the loss of the Asda and Tesco contracts last year, Dairy Crest has made a number of divestments and disposals directed at maintaining the company's profitability - nearly all of which have concerned its Yoplait dairy desserts and ingredients divisions.
The company has so far, however, resisted restructuring at its self-styled super dairies (in which it currently has around £100 million in invested capital) - as as this option would entail costly write downs.
