First Milk, the UK’s only major dairy company 100% owned by British farmers, increased revenue by 15% to £610 million for the year ending 31 March 2014 and reported profit before tax before exceptionals of £3.5 million, compared to a loss of £0.8 million in 2013, to return to profitability. First Milk’s operating profits before exceptional rose by 210% to £6.5 million and its members’ return on investment grew by 31% to £2.5 million.
Headquartered in Glasgow with seven manufacturing sites across England, Scotland and Wales, First Milk supplies a wide range of dairy products and dairy ingredients to customers in both national and international markets including block cheeses, soft cheeses, raw milk, butter, skimmed milk powder, whey proteins and sports nutrition brands.
The 2013-14 period saw improved returns from commodity markets, resulting in higher milk prices for members, peaking at 32.5ppl in December 2013. During the year, the dairy co-operative entered into a long-term strategic partnership with Adams Foods, providing a secure outlet for the majority of First Milk’s cheese production. First Milk’s existing long term partnerships with Nestlé, Fonterra and Volac continued to perform well.
“Whilst trading subsequent to the financial year end has been challenging,” says Sir Jim Paice MP, chairman of First Milk, “the year to 31 March 2014 was a good one for First Milk. The group returned to profitability, benefited from increasing global demand for dairy products and the consequent uplift in revenue, and underwent significant strategic changes that will benefit First Milk over the long term.”
However, since 31 March 2014, there has been considerable volatility in the returns generated from globally-traded dairy commodities. This has coincided with a significant uplift in the level of milk production off-farm, resulting in an increase in milk supply for conversion into products which were declining in value. This scenario of increased volumes and falling prices resulted in the group incurring losses since the year end.
He explains: “Despite seeking to align milk prices with milk returns, the losses incurred have restricted the amount of cash available to the business. For several months the Board has been in discussion with our lenders and has had a series of very short term increases in our facilities. This is despite the considerable fall in the value of the cheese stock against which the borrowings are secured. In January, the Board decided that this situation could not continue, and that First Milk must stand on its own feet and rebuild the fundamentals of the business ahead of the spring flush.”
This resulted in deferring milk payments by a fortnight to improve First Milk’s cashflow significantly.
The First Milk chairman continues: “We understand that the milk payment deferral has caused concern for members and we are continuing to work with all major banks to ensure that bank managers are well equipped for any conversations they have with our members. The Board’s priority is to make the business and its processing assets as secure as possible in order to ensure First Milk continues to process and market every litre of its members’ milk.”