Dairy Crest has announced plans to close two of its sites – with the potential loss of 260 jobs – as it warned about growing pressure from falling retail milk prices and “extremely volatile” dairy commodities markets.

In a trading update for the six months to 30 September, issued on Monday (22 September), the processor said it had launched consultations with staff at its glass bottling dairy in Hanworth, West London, and at its cream potting facility in Chard, Somerset. 

The closure of the sites would help Dairy Crest hit its target of £20m in annual savings in the future, despite generating exceptional cash costs of £15m over the next two years and non-cash asset write-downs, the company said.

The Hanworth glass bottling site, which employs about 200 staff, would remain open for a further two years, but Dairy Crest said it had decided to announce plans for its closure today to give employees “clarity over the dairy’s future.”

Meanwhile, the Chard plant had proved no longer economically viable and was set to close in the second half of 2015, pending consultation.

The decisions had not been taken lightly, said Dairy Crest CEO Mark Allen, “but they are right for the long-term future of the business as a whole.”

Profits in line with last year

Plans to close the plants come as Dairy Crest is facing a “challenging trading environment.” It still expects overall first-half group profits to be roughly in line with last year, with property profits from the sale of some of its delivery depots accounting for a bigger share of profits than in previous years.

Despite increased property profits, its dairies division – which is responsible for liquid milk – had been loss-making during the recent trading period, Dairy Crest said. “There is downward pressure on fresh milk selling prices and returns from dairy commodity markets have fallen steeply in recent week,” it said, adding this had also forced it to “regrettably” cut its milk prices to farmers in recent weeks.

“Dairy markets have recently been extremely volatile. For example, cream prices are currently down around 40% from their peak last autumn, and both cream and skimmed milk powder prices fell nearly 15% in the month of August 2014 alone.”

Sales of Dairy Crest’s four main brands – Cathedral City, Clover, Country Life and Frijj – had increased by 4% overall in the quarter to 31 March 2014, “and we expect to report a similar growth rate for the first half,” the company said, highlighting Cathedral City’s performance as especially strong.

“I am pleased that in the current challenging trading environment overall we continue to perform in line with our expectations,” said Allen. “Taken together, our key brands have performed strongly and the improvements we have made to our dairies operaitons in recent years have made them more resilient.”