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Milk Link: Satisfactory first half performance

04 November 2010

Milk Link has published its 2010 half-year Trading Update, which reported the business performed satisfactorily in the first six months of the financial year despite a challenging economic and trading environment

Looking forward, the business expects full year profits for 2010/11 to be in line with its budget and ahead of last year.

Financial and trading highlights for the first half were as follows:

o Group turnover was £283 million compared to £259 million in H1 2009.
o Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) were £21.3 million compared to £12.5 million in H1 2009.
o Profit Before Tax was £12.2 million compared to £3.6 million.
o Group borrowings were £91.0 million compared to £101.7 million at the corresponding time last year.
o Member funds increased to £68.9 million, with Group gearing 1.32 compared to 1.58 at the corresponding time last year.
o The Milk Link Member milk price increased on average by 1.75ppl in H1.
o Member milk production grew by 4.34%, compared to 3.16% for GB and 3.56% for UK.
o On a selective basis Milk Link recruited 119 new Members and it currently has a large volume of active supplier enquiries on its waiting list.

Milk Link has also announced it's completed the refinancing of the Group. In doing so it has moved from having three separate banking facilities to a single consolidated facility provided by Lloyds TSB, Barclays, HSBC and Rabobank.

The new competitive, longer term and more flexible facility provides Milk Link with the necessary funding for its ongoing business operations, capital investment programmes and growth strategy.

At the same time, the new financing agreement has enabled Milk Link to end with immediate effect the Member Contingent Liability Guarantee of 2ppl on their previous year’s milk volumes. While the Milk Link Board also expects that the strong base provided by the renewal of its financing will allow the ending of the 0.5ppl Member ‘levy’ from 1 April 2011.

Neil Kennedy, Milk Link Chief Executive commented: “Milk Link delivered a satisfactory trading performance in the first six months of the 2010/11 financial year. In doing so, we sustained the momentum created by the business in the previous six months, strengthening commercially, operationally and financially.

“Most importantly we delivered improved returns to our farmer Members, which was of course essential as they came under increased financial pressure due to higher farm input costs, the burden of regulatory compliance and the continuing blight of animal disease.

“The business’ performance was achieved against the backdrop of a highly challenging trading environment, as the weakness of the economy and fragility in consumer confidence had an inevitable impact on our core retail and food service markets. In particular, we continued to witness intense competition for market share and unprecedented levels of deep cut promotional activity, particularly on branded Cheddar, which resulted in an erosion of overall returns from the market.

“From a Milk Link perspective this was partially offset by our being able to take advantage of unseasonably strong dairy commodity prices, increased levels of milk production from our Members and ‘direct’ suppliers and the leveraging of a series of cost saving and efficiency initiatives.

“At the same time, our improved first half financial performance compared to the same period in the prior year also reflected our benefiting from a full six months of contribution from our Llandyrnog Creamery acquired in June 2009 and at the same time not having to manage the impact of a reverse in stock profits as was the case in H1 2009.

“The removal of the Contingent Liability Guarantee and intention to end the ‘levy’ is a significant milestone for Milk Link and our Members. It marks the fact the business has established strong foundations on which to build going forward.”

With regards to the second half outlook, Neil Kennedy said: “Looking forward to the second half of the year the overall economic and trading conditions are likely to remain challenging. Consumer confidence and disposable incomes will come under greater pressure from increased VAT rates and public spending cuts which will continue the drive to offer price led promotional deals in the retail and foodservice markets.

“We remain cautious about the trading outlook for the remainder of this year. However, our ability to offer ‘real value’, innovation and quality we believe leaves us well placed to meet the changing needs of our customers and their consumers. This together with the benefits of many added-value business developments scheduled to be implemented over the coming months means we expect full year profits to be in line with our budget and ahead of last year.”

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