First Milk turnaround progress

Published 26 November 15

First Milk (FM) has announced a £1.1m operating profit for the first six months of the year, ending 30 September 2015. This compares with a £7.6m loss for the same period last year. FM anticipate results for the second six months to March 2016 will show a positive operating profit, giving an overall profit for the year. FM also report that debt has continued to reduce, and at the end of September 2015 was £46.1m, compared to £60.7m as at March 2015.

Seeing FM back into profitability is welcome news for many in the industry, although the improvement has not yet filtered through to its farmer members.

Through the spring of 2014 FM was paying its farmers an industry competitive price. However, AHDB estimate that between April and September 2015, the FM price was more than 4ppl adrift from its competitive set*. For comparison, over the six months to September 2014 this gap averaged less than 1.5ppl. If FM had maintained the milk price gap at 1.5ppl over the six months to September 2015 it would have cost an extra £15m.

It appears that from April to September 2015 a big part of FM’s turnaround in fortunes was achieved by passing lower prices onto its farmer members. FM has reported a £4 million reduction in annualised operating costs, including a significant reduction in headcount. Much of these savings will not have appeared in the results for the six months to September 2015, but will be evident in the second half results. FM says that having stabilised the finances of the business, its next step is to deliver a 2ppl improvement in milk price relative to the market, by the end of the next financial year. A move that can’t come quickly enough for its farmer members.

First Milk milk price comparison Nov15

* The competitive set is based on GB manufacturers including cheese processors, but excluding liquid and retailer-aligned contracts, who are listed in the AHDB milk price league table. A number of milk buyers are not included in the AHDB league table and therefore will not be included in the competitive set calculation.