Express Dairies, the UK milk supplier, has said its cost-cutting and restructuring is nearly complete but warned that the market remains "challenging and uncertain".

Chief executive Neil Davidson said the group was now focused on two core divisions - supplying milk and cream products to supermarkets, and domestic milk and business postal deliveries.

The creation of what Davidson called a "leaner, more concentrated group" has come at a price. Staff numbers have reduced from 6,976 a year ago to 5,217 on 30 September.

The company said it would resume paying a dividend to shareholders, after a two year drought.

New deliveries

Doorstep milk deliveries - once the main-stay of Express Dairies' business - have continued to fall.

Milkmen now deliver much more than just milk

In the six months to 30 September, they were down 11.5% on last year.

Executive director Tim Smith told BBC News Online that 20 years ago, almost 96% of all milk consumed in the UK was delivered to doorsteps.

Now that figure has reduced to around 20%, with most milk being bought in supermarkets.

The group has striven to reinvent its delivery service, with the launch of a general postal service in August.

Express Dairies now has a Postcomm licence to deliver up to 4.6m business letters and parcels over the next 12 months.

Supermarket sweep

The majority of the company's milk continues to be delivered to supermarkets.

We may well be consolidated. But we would prefer to be a consolidator

Tim Smith, Express Dairies executive director

However, this is a highly competitive market and chairman Sir David Naish predicted suppliers would soon have to merge.

"Returns in this sector continue to reflect industry overcapacity, which will ultimately be addressed only through consolidation and rationalisation," said Sir David.

Mr Smith told BBC News Online that Express Dairies was now in much better shape than a year ago to become one of the companies taking over another, rather than the other way round.

"We may well be consolidated. But we would prefer to be a consolidator," said Mr Smith.

Job cuts likely

In the six months to 30 September, Express Dairies lifted its pre-tax profits to �14m against �13.4m a year ago.

It also cut �74m off its debt, bringing it down to �121m.

The company said it would now resume paying dividends to shareholders "as promised", since stopping the payments in November 2000.

The company is also planning further job cuts.

Mr Davidson said the group had already been forced to reduce its staffing from 5,862 in March to 5,217 in September.

The company warned that achieving the target of a further �9m cost savings this year would lead to "reductions in head office staff numbers".

But Mr Rice told BBC News Online that the cuts would be "in the 10s rather than the 100s" and that the staff affected had already been told.

Investors were cheered by news of the company's efforts to create a more streamlined business.

Shares were up 5% to 30p in early trading.