Farmer controlled milk processor First Milk has unveiled a significant loss on lower revenues from its latest full year of trading, quantifying the problems that caused it to delay farmer payments earlier in the year.
The business has posted a pre-tax loss of £24.9 million on sales of £442.2m in the year ended March 31st 2015, compared to a loss of £4.3m on £610.5m in the previous twelve months. Net bank borrowing at the year-end was down slightly to £60.3m from £62.7m at the end of March 2014. The business finished the latest full year with capital and reserve assets of £6m, down from £35.9m previously.
Outgoing First Milk chairman Sir Jim Paice says the business was affected by impacted the collapse in the value of dairy products since spring 2014, which “resulted in a decline in value in excess of 50% with material reductions month-on-month”. This was exacerbated by the company failing to reduce the milk prices paid to its members fast enough to align them with the returns being generated by the business. At the same time, there was a significant increase in UK milk production, and the business lost a major cheese contract with Morrisons in March 2014, forcing it to process more liquid milk into dairy products at a time when their value was falling.
“This led to significant losses as commitments were made with regard to the milk price that would be paid for supplies before the associated revenues, which were impacted by falling market values, were confirmed,” concedes Sir Jim.
The business also had problems with cheese quality, blamed on higher throughput at its creameries, which cost £8m, a whey facility breakdown that cost £1m and a below budget performance from its CNP acquisition.
The company took a series of decisions to reduce risk and costs, including its controversial payment delay in January and the introduction of a two tier payment system. It says that “the financial performance in the current year is much improved and the level of net debt has continued to reduce”. But the accounts concede the business would be at risk if a major creditor demanded immediate repayment of its loans.