5 January 2001

Work underway at UMs £40m processing plant

By Robert Harris

WORK on United Milks £40m processing factory has started after company bosses clinched the backing needed to safeguard the project just days before the deadline expired.

Bulldozers have started levelling the 30-acre site at Westbury, Wilts, signalling the successful conclusion to months of complex negotiations.

The plant will be built in two stages. The first phase will see 800m litres of milk a year turned into butter, cream and milk powders, and will take up about half the site. The second phase, still very much on the drawing board, is expected to produce added-value dairy products.

UM chairman Richard Ashworth and chief executive Don Morris signed the last documents hours before offices closed for the Christmas break. "We had to get things completed by the Dec 31 deadline, or we would have had to return farmers money," says Mr Morris. "There is no doubt that this helped to concentrate minds."

Plans for the plant, which is expected to be operational by mid-2002, were announced in April 2000. About 450 farmers signed up to the share offer, raising £10.4m by August. This was only half the amount originally envisaged, and, after some reworking of costs, left £5-6m to be found to secure a £35m loan from the Bank of Scotland. Securing that money took longer than expected, admits Mr Morris.

"A number of third parties were involved and they needed time to put investment safeguards in place. This threw up a commercial and legal process which takes its time."

Most of the third-party funding is loan stock, rather then equity. "There is nothing in terms of venture capital, so United Milk remains 100% farmer-controlled. Voting is exclusively in their hands," says Mr Morris.

UM has also created a new joint venture with two milk trading companies, Murray Vernon and Brooks McRobbie, called United Milk Marketing. It will sell milk and milk products on behalf of UM.

"It is ready to start trading and became operational from the moment we signed the Westbury contracts," says Mr Morris. "It will, above all, give a milk producer confidence to quit his present contract and know there is a professional marketing team to handle his milk."

UM, which became a quota-holding group in October, declared a milk price of 18.6p for a standard 4.1% butterfat litre in the top hygiene band on every day collection from Jan 1. There will be no seasonal adjustments.

At least 200 UM members who did not sign up to the share offer will be targeted in a new membership drive, as will producers supplying other companies. Although they will not be able to invest at this stage, there will be opportunities later on, particularly when phase two is finalised, says Mr Morris, who is planning meetings to aid recruitment. &#42