Dairy Crest today (26 September) announced the sale of its supermarket branded cheese business to farmers’ cooperative First Milk for GBP61.9m (US$177.34m). The UK’s largest dairy producer said that the sale would allow it to focus on its higher margin branded and speciality businesses.

The proposed sale includes the prepacking and whey processing facilities at Maelor and the cheddar creameries at Aspatria and Haverfordwest, where First Milk already holds a 20% stake. As of the end of March, the book value of these net assets was GBP60.5m.

In the year ended 31 March 2006 the business made an estimated operating profit of GBP3.4m on sales of GBP194.2m. Dairy Crest said that the market for own-brand cheese is highly competitive, adding that the business has delivered cyclical returns. In the current year, the own-label cheese business has felt the negative impact of depressed cheese prices.

Dairy Crest said that it intends to focus its future cheese activities on accelerating the development of its branded and value added products which include Cathedral City, the UK’s biggest cheddar brand, Davidstow, Country Life, Wexford and the stilton and speciality cheese business.

“This sale allows Dairy Crest to focus on accelerating the development of Cathedral City and its other cheese brands. The deal is expected to improve the return on capital employed in the cheese business. It will also improve the quality of the group’s earnings overall, with an increased proportion of group sales coming from brands,” Dairy Crest chief executive Drummond Hall said.

The company will retain its creameries at Davidstow, Wexford and Hartington and the prepacking site at Frome. The company is also considering developing a new prepacking facility at one of its manufacturing or distribution sites.

The transaction is expected to have a small positive impact on group profits, part of which will be reinvested to drive the growth of the branded business, the company said. The cash proceeds from the transaction will be principally used to repay debt, Dairy Crest added. It is expected to result in exceptional costs of approximately GBP4m. 

The sale is conditional on the approval of First Milk’s members and is expected to complete on 14 October.

In a separate statement, Dairy Crest said that it expects first half results to meet forecasts. The sale will have a small positive impact on full year earnings, the group added.