Glanbia buyout sends Milk Link profits crashing

Milk Link reported full-year sales up by more than a third to £651m for the full year ended 31 March. The rise was mainly due to the cooperative buying a 75 per cent stake in Glanbia, creating The Cheese Company, in April 2004.

The integration of the Glanbia and Milk Link distribution businesses also brought cost savings of more than £1m.

However, the same acquisition played a large part in Milk Link's £2m net loss, which was revealed after the cooperative stripped away extra capital payments made by its members during the year.

Milk Link said the situation was steadily improving and that it had renegotiated or cancelled a "number of uneconomic sales contracts and other management actions to reduce costs"​.

Even so, the teething problems with The Cheese Company's profitability come at a difficult time in the UK dairy sector. Milk Link also reported a loss at its joint venture with Arla UK - something that will inevitably impact on Arla's results too.

Milk Link added that it had also been injured by lower-than-expected milk volumes, which became a particular problem in the group's commodity ingredients business.

A recent report supported by UK agriculture ministry DEFRA said Britain's dairy industry was now facing a 'worst case scenario' as more producers had left the sector than originally expected.

Milk volumes may drop to more than 1bn litres below quota by 2008, it said.

Out-going Milk Link chairman, Jeremy Pope, took a parting swipe at the government's recent actions in relation to uncertainty over CAP reform.

"It is especially unhelpful for the position of the industry to be further destabilised by aggressive statements emanating from the prime minister and the chancellor about CAP in the context of the EU budget."​

Yet, there were a number of positives for Milk Link, reflective of general trends within the UK dairy products market.

Investment in milk brands is showing good signs for Milk Link as it also has for other milk processors, namely Arla and Dairy Crest, in the UK this year. For example, Milk Link successfully launched its Devon Dairy brand in regional Tesco stores and also launched additions to its flagship Moo brand.

And Milk Link chief executive Barry Nicholls announced that Milk Link will re-organise its business into two divisions, one of which should provide the firm with extra branding, marketing and selling clout by containing all consumer products.

A similar move was recently begun on a pan-European level by fellow dairy processor Campina in an attempt to take better advantage of branded and added value dairy trends.