First Milk tanker picking up milk from farm© FLPA / John Eveson/REX/Shutterstock

First Milk has said it expects to return an operating profit for the year to 31 March 2016, compared to heavy losses the year before.

The dairy co-op reports that it is making strong progress in delivering its turnaround plan, unveiled 12 months ago with the arrival of chief executive Mike Gallacher.

The business has said it expects to deliver an operating profit, before taking into account restructuring costs, of £4m for the year to 31 March 2016. This compares with a loss of £20m for the previous year.

See also: First Milk member loans to be converted into shares

Debt has also been reduced to £33m from a peak of £84m in 2014-15.  No figure for the restructuring costs is yet available, but will be included in the final accounts.

Mr Gallacher said significant progress had been made in reshaping the business and improving operational performance, against a backdrop of a worsening dairy market.

“As we move into the second year of our turnaround, the focus will be on continuing to drive a wide range of operational improvements aimed at improving our efficiency and delivering a better service to our customers.

“Progress will allow us to start to improve our relative performance on milk prices as we implement a new operating system based on a stable profit and loss and transparent Milk Price Index. Our aim is to repay the loyalty of our members who have supported their business so strongly.”

Problems evident

The extent of the problems facing First Milk emerged in January 2015, when the business was forced to defer milk cheques to farmers by two weeks in a bid to balance its books.

Since then, a new chief executive and board of directors have been installed, revised payment structures introduced – including the introduction of A and B pricing – and changes implemented to the way loan capital is regarded.

The co-op has also cut costs and reshaped its operation, switching its focus to its core cheese business, by selling off its Glenfield Dairy subsidiary and exiting the Westbury Dairies joint venture.

But the pressures have left farmer members operating with one of the lowest prices in the market, with the A prices for each of the different milk fields currently hovering around the 16p/litre mark and the B price around 12-14p/litre.