DFB tragedy must never be repeated; Llandyrnog part of co-op's downfall.

Byline: ANDREW FORGRAVE

THE failed co-operative Dairy Farmers of Britain collapsed owing pounds 59m to HSBC, partly because its cheese factory at Llandyrnog was forced to sell large cheese stocks at a loss.

A report by receivers PricewaterhouseCoopers (PwC) highlighted a flawed business plan, poor management and bad decision-making, which gradually eroded the profitability and viability of the company.

Massive capital expenditure, associated with a series of acquisitions, led to a serious cash shortfall of pounds 51.5m which, despite increasingly frantic efforts, could not be recovered.

Falling cheese prices and an oversupply of milk to DFB's Llandyrnog plant resulted in a fire sale of its cheese at pounds 500 per tonne below its market value.

The co-operative even looked to sell Llandynog to raise much-needed cash.

When the Denbighshire plant was eventually sold, after PwC had been called in, it fetched pounds 24.96m - more than the price being negotiated prior to the co-op's collapse.

The report steered clear of blaming any individuals for DFB's demise. Instead it highlghted a number of other complex factors that played a part.

Central to DFB's problems was the failure of its liquids division to deliver sustainable profits.

Other issues included the loss of DFB's Co-operative contract, and lower than anticipated sales of Tesco's "localchoice" brand milk.

DFB's trading, member retentions and working capital management were not sufficient to cover the funding gap or even support its farmgate milk price, despite it being at the lower end of the market.

PwC said there was still a significant amount of money to be collected by the receivers and a conclusion was unlikely before June 2010.

However it confirmed that no steps would be taken to call in the 5p/litre guarantees held by 336 DFB members.

It means the firm's bank, HSBC, will recover pounds 55m of its debt, but unsecured creditors will go unpaid.

The co-operative collapsed in June with the loss of 1,100 jobs, although 420 of these were later saved through the sale of subsidiaries.

The NFU described the report as an "extremely sad story" which brought some closure for DFB members.

NFU director general Richard Macdonald said: "I'm sure that many farmers won't be surprised to learn that the underlying causes of DFB's problems appear to include a flawed business plan, poor management and bad decision making.

"This must never be allowed to happen again."

He said there was a need for greater scrutiny of co-op finances, which should be just as accountable as plcs.

There was also an urgent need for more frequent financial appraisals of co-ops.

Mr Macdonald added: "The report shows no evidence of wrong-doing but makes it clear that the main responsibility for the long line of bad decisions, aborted projects and lack of clear strategy rests with the board and the executive team."

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CAPTION(S):

Sale talks were on-going before June