August 17, 2010

First Milk returns to profits in Q1

Dairy co-op First Milk made a pre-tax profit of GBP360,000 (US$564,000) in the year to  March 31, 2010, compared with a loss of almost GBP10 million (US$15 million) the previous year.

The bulk of the turnaround was accounted for by cash from the sale of one-third of the company's shares in Robert Wiseman Dairies, which brought in GBP7.9 million (US$12.4 million) last November.

Against the background of global economic downturn and falling commodity markets, profitability improved even without the impact of the share sale.

Group turnover fell by 8% to GBP536 million (US$840 million) mainly because of a move away from low-margin cheese contracts. Efforts are now more concentrated on higher value, higher margin products with First Milk's branded cheddars doing well.

Generating cash to improve producer milk prices and move up from the bottom of the milk price league table are the top priorities, said chairman Bill Mustoe. Profits are ahead of target for the first quarter of this year.

Despite 2009/10 being a turbulent year for the UK's largest farmer-owned dairy business, it was now in a stronger financial position, with improved profitability, a sound balance sheet and reduced net debt, said Mustoe.

In a move that has brought some accusations of bullying tactics, First Milk recently announced that members who have given notice to leave the group will no longer benefit from milk price rises applying in the 12-month notice period.

Mustoe justified the change to terms and conditions on the grounds that it recognised the value of members who were committed to ongoing supply and that the company needed to know the future level of milk supply to fulfil contracts.

Over the past 12 months, around 100 members have left First Milk, but more than 400 producers joined in the same period, mainly from Dairy Farmers of Britain.