Manufacturing alliance for Express Dairies

Express Dairies went some way towards lightening its crushing debt load yesterday, when it sold its UHT milk and Frome Creamery businesses to Milk Link and announced a strategic alliance and joint venture with the farmers' co-operative.

The disposals, which are conditional on shareholders' approval, raised £33.1 million (€51.5m) for the UK's largest liquid milk supplier, which had debts of £168.8 million at the end of March.

With £22.7 million earmarked for debt reduction, Express now forecasts debt will be down to about £120 million by March next year.

It will also immediately invest £2.6 million in exchange for its 50 per cent stake in the joint venture.

Neil Davidson, chief executive, said: "It [the strategic alliance] brings into sharp focus the two main planks of the business: to sell fresh milk and cream to supermarkets, and doorstep milk delivery."​The proposed strategic alliance would see Express Dairies and Milk Link form a 50:50 joint manufacturing and marketing venture in added value chilled dairy products. The two groups would also co-operate on fresh cream production, milk balancing arrangements, and the supply of raw milk, as well as that of UHT products, for the urban doorstep delivery by Express.

Davidson said the alliance reflected the greater integration of dairy producers, processors and retailers as propagated by the government and the findings of a recent commission of inquiry, published as the Curry Report.

Milk Link is one of the three co-operatives that emerged out of the break up of Milk Marque - the former milk marketing board -in 2000.

The co-operatives are putting in place capital raising structures that would enable them to invest in consolidation of the highly-regulated dairy industry, which is suffering from an estimated 25 per cent over-capacity.

The disposals and alliance follow a number of attempts by Express either to sell itself or to merge with a competitor. Arla Foods, a Scandinavian dairy group, earlier this year held brief but inconclusive talks with Express.

The two businesses being sold together made operating profits of £4 million on sales of £119 million, and had total net assets of £26.5 million last year.