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European Business News – Week ending September 17, 2010

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European Business News – Week ending September 17, 2010

September 17
14:23 2010

Attention returned to the UK dairy sector last week following a surprise profits warning by fresh liquid milk specialist Robert Wiseman Dairies. Citing recent intense competitive pressure within the marketplace and rising plastic packaging costs, Wiseman anticipates operating profits will be impacted by around £7 million in the second half of the year to April 2nd 2011 and by approximately £16 million in the full financial year to March 31st 2012. Wiseman controls more than 27% of the UK’s fresh liquid milk market. A milk price war amongst the UK’s major retailers, sparked by Asda, has undermined the recent progress made by processors in repairing profit margins.

Wiseman’s rival Dairy Crest moved swiftly to reassure investors. While admitting that the liquid milk market is currently very competitive, Dairy Crest maintains that its broad customer and product base and improvements in its cost base, will allow it to deliver profits this year in line with expectations. Dairy Crest’s strategy has been to reduce its reliance on commodity type products by developing its brands and added value activities.

Both Wiseman and Dairy Crest are currently investing in liquid milk processing facilities. Dairy Crest is spending £75 million over the next three financial years in its liquid milk dairies, while Wiseman is investing £10 million to expand the capacity of its dairy at Bridgwater in Somerset to 500 million litres, having already expanded the facility from 250 million litres to 375 million litres late last year, at a cost of £7.5 million. Bridgwater was opened in 2008 following investment of £80 million, and is believed to be Britain’s most efficient and environmentally advanced fresh milk dairy.

The UK’s three other major dairy groups – Arla Foods UK, First Milk and Milk Link – increased their co-operation during the past week. Arla Foods UK, the British arm of Scandinavian co-op Arla Foods, has acquired a minority stake in Westbury Dairies, a joint venture by British dairy farmers’ co-operatives First Milk and Milk Link. Westbury Dairies is the UK’s most modern skimmed milk powder and bulk butter production facility and plays an important role in providing the key balancing capacity necessary for the British dairy industry to meet its annual peaks in production, and maintaining a more stable market for farmers’ milk.

Dairy Farmers of Britain, another co-operative which was responsible for 10% of UK milk production, was a previous shareholder in Westbury until it collapsed in 2009 after suffering significant losses in its liquid milk division.

Of course, as highlighted in the last newsletter, Arla Foods UK is investing over £150 million in the world’s first billion litre liquid milk dairy at Aston Clinton, Aylesbury, in southern England.

Red Meat

Interim results from Hilton Food Group provided an insight into trends within the European red meat market. Hilton, which specialises in meat packing and supplies major international food retailers in Europe, reported that the effect of consumers trading down to mince and less expensive meat cuts, which was a key trend in Western Europe over the previous year, was not a major feature during the first half of 2010. Indeed, there was a degree of trading up by consumers in some countries. The group continues to expand rapidly in Central Europe where a higher proportion of lower priced pork and minced meat products are consumed.

Global Spirits

The biggest M&A deal of the past seven days was Campari’s Eur128 million purchase of the Carolans, Frangelico and Irish Mist liqueur brands from William Grant & Sons, the Scotch whisky distiller. William Grant had only just acquired the brands as part of its Eur300 million acquisition of the spirits and liqueurs business of Irish and UK cider maker C&C Group in July.

As a result of the two deals, Grant has gained Tullamore Dew, which at 600,000 cases is the world’s second largest Irish whiskey brand, for Eur172 million. This provides Grant with the opportunity to accelerate its growth in non-Scotch and enter the dynamic Irish whiskey category.

Last year, Italy-based Campari made its biggest ever acquisition with the $575 million purchase of Wild Turkey bourbon whisky as it seeks to close the gap on its five larger rivals in the global spirits market – Diageo, Pernod Ricard, Bacardi, Brown-Forman and Fortune Brands.

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