Sale of British milk arm raises £120.5m

Glanbia has made a major move to reduce its debt, with the sale of its British liquid milk business to Express Dairies for £120.5 million and its red meat business in Ireland to Dawn Meats for £10 million. Along with the release of £15 million of working capital, this means that Glanbia has cut its borrowings to £270 million, where interest charges are covered just under three times by operating profits.

Both disposals had been expected and leave Glanbia as be the number one or two player in its remaining product areas - dairy ingredients, dairy products, pigmeat/sheepmeat and food service in Ireland, the UK and the US. The sale of the British milk and Irish red meat operations is the final leg of the group's asset disposal programme.

Express Dairies has paid Glanbia £120.5 million (€153 million) for the British milk operations, which have 9 per cent of the British milk market. These operations had sales of £292 million sterling last year, with operating profits of £18.6 million sterling and pre-tax profits of £17.8 million. The business involved five dairies in the midlands and northwest, 58 depots, 2,000 employees and around 600 franchisees.

Glanbia chief executive Mr Ned Sullivan said that the group had two options in the British milk business - either improve its position by buying other assets or by divesting. "We had discussions with a number of other players and decided that the best option was to take the cash and deploy it elsewhere" He described the £120.5 million deal with Express as "a good price", adding that over the past 10 years, Glanbia has made total profits of £110 million from the British business.

But the sale comes at a cost and Glanbia will incur a loss of £64.3 million on the sale due to the write-back through the profit and loss account of goodwill that had previously been written off against reserves. This loss will be treated as an exceptional item in this year's accounts.

The sale of the red meat business to Dawn Meats has been one of the worst-kept secrets, but Glanbia will still realise £10 million from the sale of a business which had sales last year of £96.3 million but which produced a pretax loss last year of £1 million.

Mr Sullivan emphasised, however, that Glanbia is committed to its pigmeat and sheepmeat operations and said that only last March the group had acquired Nimmo Meats, a move that consolidated its position in the British pigmeat sector.

As a result of the purchase of the Glanbia business, which accounted for 8 per cent of the Irish beef sector last year, Dawn market's share will rise to 22 per cent, second only to Larry Goodman's Irish Food Processors.