14 June 2002

Express Dairies hotly tipped to sign co-op deal

By Andrew Shirley

SPECULATION is mounting that Express Dairies will announce a deal with a farmer-owned milk co-operative in the near future.

The firm has just posted underlying pre-tax profits of £25.3m for the year ended Mar 31, down from £41.9m last year. It also pushed £10.1m into the red after £30.9m of exceptional charges and has been linked by pundits to Dairy Farmers of Britain (newly formed from the merger of Zenith and The Milk Group) and Milk Link.

Chief executive Neil Davidson refused to be drawn but strongly alluded to the importance of farmer-owned businesses in dictating the future shape of the dairy sector. "I would say that it makes sense to integrate farmers. In the changing market the capital-raising structures of the co-operatives cannot be ignored."

The most likely initial deal is with Milk Link and could see the 2600-member co-op take over Expresss UHT milk processing plants at Crediton in Devon and Kirkudbright on the west coast of Scotland, perhaps within the next few weeks. This would build on its acquisition of Tanner Foods, the UKs second largest long-life milk processor, earlier this year.

It is unclear whether any of the UKs co-ops could raise the funds to buy the core Express business, valued by analysts at over £300m, and take over its £168.8m debt. Neither Milk Link nor DFB would comment on the likelihood of a bid, however, a spokeswoman for DFB dismissed press speculation that it could muster a £650m war chest. She said £145m would be a more realistic figure.

Karen Young, company secretary at Milk Link, said a members guarantee would enable the group to borrow £60-70m, while a 0.5p/litre levy was boosting its members capital account by £6-7m/year.

A merger could be another possibility. This would provide the organisation with the means to refinance while giving any partner co-op the processing capacity desperately needed to improve members returns.

Mr Davidson is also confident that, after an 18-month trial period, an increase in the volume of parcel deliveries using its milk floats will help bolster Expresss doorstep milk business which is declining by 11%/year. &#42