Dairy Crest signs deal with world's leading dairy exporter

3rd Jul 2014 08:40

FTSE 250-listed Dairy Crest has signed a strategic partnership with Fonterra, the world's leading dairy exporter, which will market and sell two Dairy Crest products to the infant formula market for a minimum of five years. Dairy Crest explained that Fonterra will receive a commission to sell all of Dairy Crest's demineralised whey production, which is being manufactured at its cheese making factory at Davidstow in Cornwall as part of a previously announced £45m investment. The dairy foods group has also agreed a new £20m capital investment at its Davidstow site to manufacture galacto-oligosaccharide (GOS), a lactose-based pre-biotic that is widely used in infant formula. In an agreement that is expected to provide it with an eight year cash payback, Dairy Crest will enter into a joint venture to produce GOS with UK-based Fayrefield Foods, which will provide access to the necessary enzyme and other intellectual property. Fonterra will supply lactose and will also take responsibility for marketing and selling the product. Chief Executive Mark Allen said: "Demineralised whey powder and GOS form an important part of Dairy Crest's strategy to grow added value sales. We are excited to be working with Fonterra and Fayrefield Foods to bring these two innovative new products to market. These partnerships, with leading experts in the field, give us exposure to global growth opportunities."Shore Capital commented that the announcement "provides the icing on the cake for a programme of work that management has spoken of for some time". "Shore Capital warmly welcomes confirmation of Dairy Crest's strategic partner for its demineralised whey activities as well as the announcement with respect to GOS," the broker continued. "We see these as important strategic initiatives that add value to its cheese production activities, where it is brand leader in the UK market through the Cathedral City and Davidstow brands."While Shore is "warming to Dairy Crest's stock", it retained a 'hold' rating, partly based on its concerns about Dairy Crest's household delivered milk operations. The shares rose 0.4% to 471.90p by 08:36 on Thursday.NR