Up to 470 jobs on the line as dairy group loses contract with Tesco

Dairy Crest Group has lost its contract to supply milk to Tesco, Britain’s largest retailer, and the company said it was looking at closing two facilities, which will affect about 470 employees.

Dairy Crest — known for its butter and spread brands Country Life, St Hubert Omega 3, and Clover, as well as Cathedral City cheese and flavoured milk drink Frijj — said Tesco had decided not to renew its contract with the company after its expiry in July.

Tesco declined to specify the reasons behind its decision, but said there would not be a tender process to replace Dairy Crest with another supplier.

“We regularly tender for contracts in this area and other areas of the business and the decision we make at the end of that process is commercial and therefore confidential,” a Tesco spokeswoman said.

About 3% of Dairy Crest’s liquid milk sales were made to Tesco in 2011-12.

Dairy Crest, which employed about 7,000 people throughout the UK, France, and Italy at the end of the 2011 fiscal year, does not expect the contract loss to impact its profit expectations for the year.

The company has an earnings quality score of 18, compared with a sector median of 53, according to Thomson Reuters StarMine data. A low score on StarMine’s earnings quality model indicates poor earnings sustainability over the next 12 months based on a company’s past operating performance.

The loss of the contract comes at a time when the company’s dairies business is under pressure. Dairy Crest said it was entering into consultation with employees and their representatives on closing two of its dairies at Aintree and Fenstanton.

The company expects to take charge of around £15m (€18m) in 2012-13 related to the closures.

“Overall, this is neutral for profits but a necessary restructuring as it cuts overcapacity, particularly in the middle ground and glass bottled milk,” Peel Hunt analyst Charles Hall said.

Separately, Dairy Crest said it was making progress on the sale of its St Hubert business. Last month, the company said it was looking to sell the French-branded spreads business in a deal that could fetch up to £300m.

“Things are moving along nicely. There’s been quite a lot of interest in the business,” chief executive Mark Allen told Reuters. Mr Allen declined to say who had expressed interest.

Shares of the company, whose dairies segment delivers fresh and flavoured milk to retailers, coffee shops, and residential customers, fell as much as 2% to a more than two-year low of 303p yesterday on the London Stock Exchange.

— Reuters