The results this week from Unigate, Northern Foods and Robert Wiseman show that the margin squeeze in the British dairy industry has eased significantly with the reduction in raw milk prices from Milk Marque. That is good news for Avonmore/ Waterford, which has 15 per cent of the British national milk pool and an estimated 10 per cent of the supermarket trade.
But war-like comments this week from Northern's Chris Haskins and Unigate's Ross Buckland suggest that the next 12 months may finally see the long-awaited rationalisation of the British milk industry.
The question is, however, whether Avonmore/Waterford will be in a position to become involved in the shake-out or will it be too preoccupied with making sure that the first year of the merged Irish group goes smoothly.
Last year, before the merger with its neighbour, ABN AMRO, Hoare Govett suggested that Avonmore could be a major player in any shake-up and had £100 million at its disposal to pick up any of the smaller dairies who were unable to cope with the industry rationalisation. The brokers also said at the time that Waterford - with its hefty debt - was unlikely to be involved in any shake-out in the industry.
But Davy has already said the Avonmore/Waterford merger will probably involve a rationalisation charge of £145 million and goodwill write-offs of £111 million and gearing of 265 per cent. Even with annual free cash of £50 million, that does not suggest that the merged group will be a major player in the British rationalisation.
Avonmore/Waterford is the second smallest of the "big six" dairy groups supplying the multiples. It comes behind Northern, Unigate, MD and Dairy Crest and ahead of Robert Wiseman. MD is seen as the most likely seller of its British dairy business, with the Danes thought to be less than enthralled with their experience of the British market.
Some analysts believe the Irish group will do well to retain that number five position in the year ahead and could be in danger of falling behind the acquisitive Wiseman in any industry shake-up. It could be 1999 before Avonmore/ Waterford gets involved.
