First Milk has posted a pre-tax loss of £24.9m for the year to 31 March 2015 and admitted that there are “material uncertainties” which may affect its future.
The profit slump compares with a loss in the previous year of £4.3m and is a revision up on the £22m loss that was expected when it published its unaudited accounts in June.
The main reason for the increase in losses in the full accounts was the value of cheese coming out of maturation, said the co-op, along with the wider slump in milk markets.
Turnover was £442.2m compared with £610.5m the previous year, while almost £6.75m in cash was contributed by members during the year compared with £3.4m in 2013-14.
The co-op’s directors said it considered First Milk would remain a going concern and there was a “reasonable expectation” that the group would continue in operation for “the foreseeable future”.
However, they said a number of factors “may cast significant doubt upon the group’s ability to continue as a going concern”.
These included the level of dependency on the continued support of its bank, the risk of not having adequate borrowing after February 2016 and the risk of not achieving forecasted performance.
Independent auditors PricewaterhouseCoopers, noted that First Milk’s bank borrowing facilities were available only until 1 February 2016 at present and its debts were payable on demand.
The co-op continued to make a loss between the end of March and September, although trading had improved.
A spokesman from First Milk said: “Since this report was written we have continued to strengthen the relationship with our banks, and have reduced the amount of debt.
“We remain of the view that we will be able to negotiate an extension of our bank facilities, and that the going concern assumption remains appropriate.”
“We remain of the view that we will be able to negotiate an extension of our bank facilities, and that the going concern assumption remains appropriate”
First Milk spokesman
First Milk’s net bank borrowings reduced to £60.3m in the year to 31 March (£62.7m at the same time in 2014) and were £48.6m by the end of August.
First Milk announced earlier this week that it was overhauling the way it was run, cutting the number of board members, top-level producer representatives and bringing in more commercial experience and expertise.
Its chairman, Jim Paice, resigned in June following criticism about his lack of commercial experience.
Measures taken by First Milk this year to stem the losses include minimising the level of product manufactured but not forward sold, no longer giving 30 days’ notice of farmgate milk price changes and introducing a an A-B milk price mechanism whereby about 20% of milk supplied by members is priced retrospectively, so far at much lower prices than A milk.
The co-op also imposed a two-week payment delay for producers in mid January and a 2p/litre increase in the capital contribution to be made by members (rising from 5p/litre to 7p/litre).
For milk supplied from December 2014 to August 2015, members’ capital investment was increased from 0.5 to 2p/litre to build their total capital towards the 7p/litre target more quickly.