Cream for UK farmers: Dairy Crest flotation pencilled in for early 1994 promises about pounds 8,000 each in share windfall

THE 29,000 dairy farmers in England and Wales are within nine months of receiving an average of about pounds 8,000 each in Dairy Crest shares, as the dairy products business heads for a pounds 300m-plus flotation.

This week Dairy Crest, the commercial arm of the Milk Marketing Board, is expected to announce an increase in annual profits before tax and exceptional items from pounds 45.5m in 1991 to more than pounds 50m in 1992.

Dairy Crest's advisers, Schroder Wagg and Hoare Govett, have pencilled in the first quarter of 1994 for the flotation, when shares will be distributed to the farmers, who own the MMB. The MMB, a statutory monopoly created between the wars to assure milk supplies, is being dismantled under the Agriculture Bill, expected to receive royal assent this summer.

Farmers disagree about how the shares should be allotted. Small farmers say everyone should have an equal amount. Large ones, who are likely to win the argument, want allocations based on milk production.

Dairy Crest, worth conservatively pounds 250m, may also raise pounds 50m of new money to reduce borrowings.

Advisers believe that with rivals Northern Foods and Unigate both announcing strong profits growth last week, there will be an appetite for the shares from institutional investors. One concern is that many farmers might sell at once, depressing the share price.

The company is also considering giving farmers the option to receive another pounds 60m owed to them in the form of Dairy Crest shares. This is a sum held in the 'rolling fund' of the MMB and due back to farmers when the organisation is wound up. A 'golden share' is planned, to protect the company from predators in the first few years as a quoted company.

Even after more than pounds 20m of restructuring costs - mainly to close down massive excess cheese-making capacity - in 1992, Dairy Crest's pre-tax profits are expected to rise from the 1991 level of pounds 25m.

Dairy Crest, which as an MMB offshoot remains the buyer of last resort for dairy farmers, has started to turn itself into a more commercial organisation. Its chairman, Geoffrey John, a former chief executive of Dalgety-Spillers, has brought in fresh management from the private sector.

The company, which produces much of the stilton, cheddar, red leicester and double gloucester bought in supermarkets, also owns several strong brands, including Clover. It is a big deliverer of doorstep milk, though it recently sold chunks of territory to Unigate and MD Foods, a move likened by some farmers to selling the family silver.

A joint venture with Yoplait, part of the French farmers' co-operative Sodiaal, has boosted its share of the market for yogurt, fromage frais and chilled desserts - a pounds 670m market which grew 13 per cent last year.

The MMB is to be replaced by a voluntary co-operative on 1 April 1994. Farmers will be free to sell their milk elsewhere, and Northern Foods is recruiting potential suppliers.

(Photograph omitted)