Cheese and spreads brand business Dairy Crest (DCG) has disappointed with news the proceeds from December's sale of its loss-making dairies division, to Germany's Muller, will be lower-than-expected. Combined with a recent acquisitive cash outlay, this means March year-end net debt guidance is also raised.

Shares in the Cathedral City, Clover and Country Life brands owner are 16p (2.65%) easier at 588.5p on news proceeds from the transformational dairies sale (26 Dec) will be around £30 million, significantly south of the company's earlier £40 million-£50 million guidance.


Cash generation remains strong, yet 'higher than anticipated pre-sale losses in Dairies, the resultant impact on the sale proceeds and the £6 million acquisition of Promovita shares (see below) will impact reported levels of net debt at the year-end', says the company, prompting joint broker Shore Capital to nudge up its year-end debt forecast to £208.9 million.

The let-down on disposal proceeds shouldn't overshadow the fact the sale of the dairies arm, including the liquid and flavoured milk, bulk and potted cream and bulk butter businesses, has removed a cash drain, dramatically improved earnings quality and reduced leverage. Dairy Crest is better placed to invest in its branded portfolio and complete further bolt-on acquisitions.

Furthermore, there are major positives in today's trading update, covering the nine and three months ended 31 December. CEO Mark Allen assures full-year profit forecasts will be met – Shore sticks with its £58.7 million pre-tax profit estimate. In addition, despite the deflationary environment for cheese and spreads, all four key brands – Cathedral City, Country Life, Clover and the smaller cooking spray brand Frylight – increased or maintained market share during the third quarter.


Especially exciting is the announcement that production of demineralised whey powder and galacto-oligosaccharide (GOS) – both ingredients for the growing, global infant formula market - has begun at its Davidstow factory, a move bringing Dairy Crest access to new growth markets and customers.

Web chart - DCG - Feb 16

December's acquisition of the outstanding half of Promovita, Dairy Crest's 50/50 joint venture with Fayrefield Foods set up to produce GOS (a prebiotic used in infant formula to better match human milk composition), has given it full control over this exciting growth business.

Issue Date: 11 Feb 2016