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Milk Link delivers 'solid business performance'

17 May 2012

Milk Link will publish its full 2011/12 audited Annual Report & Accounts on 12th June. In advance, in a business update for its Members and the wider dairy market, Milk Link has announced details of a solid financial and trading performance over the last year

Audited financial highlights for the year ended 31st March 2012 include:

· Group turnover up £42 million to £628 million (+7.1%);

· Turnover per litre up from 38.6ppl to 41.9ppl (+8.5%);

· An increase in comparable Earnings Before Interest Tax Depreciation and Amortisation of £4.5 million to £33.7 million (+ 15.4%). It should be noted that the 2010/11 reported EBITDA was £34.4 million which included £5.1 million of Member ‘levy’. However from 1 April 2011 the ‘levy’ ended for the majority of Milk Link Members and therefore the comparative EBITDA was £29.2 million;

· Comparable Profit Before Tax up by £4.3 million to £14.3 million (+42.7%);

· An increase in the Member milk price during the year of an average 2.85ppl. This meant that in comparison to the previous year Milk Link generated and paid out an additional £33.7 million to its Members for their milk;

· An increase in Member Processing Interest Payment relating to the 2011/12 financial year of £2 million to £5.95 million equating to a 12.8% return on Members’ Qualifying Loan balances;

· Cumulative Reserves increased by £3.4 million to £13.5 million (+34.2%);

· A slight rise in the ratio of third party borrowings to Members’ Funds (gearing) from 1.18 to 1.19;

· An increase in Group borrowings of £2.1 million to £82 million. However, at the same time capital expenditure increased to £10.0 million compared to £5.5 million in the prior year;

· Member milk volumes increased year on year by 148 million litres up over 14%.

Commenting on Milk Link’s performance Ronnie Bell, Milk Link Chairman said: “Milk Link has continued to make good progress over the past 12 months. Despite challenging economic and trading conditions we strengthened financially, commercially and operationally. Most importantly, we were able to reward the hard work and commitment of our dairy farmer

“Members by both increasing the price we paid them for their milk and by delivering a record rate of return on their investment in the business. In doing so, we not only made a positive impact on the livelihoods of our Members but also, I believe, we started to demonstrate the important role progressive, forward-looking, farmer-owned co-operatives such as Milk Link can play in building a growing and vibrant British dairy industry.”

“As such, it was with great regret that after the year end the Board announced a reduction in the Member milk price by 1.5ppl from 1st June. We fully understand the financial burden this will have placed on our farmers especially given the continuing high level of on-farm input costs. As such, the Board and senior executive team are committed to identifying further ways of maximising returns for our Members.”

Commenting further Neil Kennedy, Chief Executive of Milk Link said: “Despite an extremely difficult trading environment the Group’s financial performance again strengthened. During the year we benefited from strong commodity prices for our skimmed milk powder, cream, curd and whey products; from an increase in milk production from our Members and long term ‘direct’ suppliers; from cost savings resulting from the implementation of rigorous efficiency and productivity programmes across all areas of the business and from our continuing emphasis on cash, stock and debt management.

“Nevertheless, the results also reflect that Milk Link’s trading performance in our main retail and foodservice markets held up well despite highly challenging conditions. Indeed sales both in terms of value and volume increased year on year in relation to our core Cheddar business, speciality cheese and flavoured milks.

“During the financial year we increased our Member milk price by 2.50ppl and this brought our standard litre price to 28.50ppl. These price rises together with the full year effect of prior year increases meant that in comparison to the previous year we generated and paid out an additional £33.7 million to our Members for their milk. Nevertheless, at the end of the year our actual 12 month rolling average price paid to Members was still below the rolling DEFRA UK farm gate average. We remain absolutely committed to delivering a Member milk price at least in line with the DEFRA farm gate average and have put in place further business development plans to achieve this.

“In addition to generating and returning to our Members increased revenues, we have also sought to develop and strengthen their processing business for the longer term by undertaking our largest capital investment programme to date. During the year we have enhanced our processing capabilities and capacity by completing two major investment programmes. The first was, as a result of our £12.5 million joint venture between Milk Link and Volac, the development of a state-of-the- art whey processing plant at our Taw Valley Creamery in Devon. Whilst a new £4 million production facility at our Trevarrian Creamery in North Cornwall was also completed by year end and to budget which has substantially increased the capacity of the Creamery to meet a growing demand from major retailers and foodservice providers for its premium soft cheeses.

“Looking forward, over the next 12 months the overall economic and market conditions are likely to remain very challenging. The consumer products market will continue to experience considerable pressures whilst in the short term returns from dairy commodities look set to be sharply down in comparison to the prices seen over the last two years.

“Indeed, it is of course very disappointing that we have had to announce a decrease in our Member milk price of 1.5ppl from 1st June. This reflected the significantly weaker returns being generated from the dairy ingredients and fresh liquid milk markets into which we supply around half of the total milk we handle.

“Although our price cut was less than other major milk buyers we recognise that the resulting drop in farm income has increased further the financial pressure on our Members’ dairy enterprises. As such, we are totally focused on identifying opportunities to generate greater returns from the market and further reduce costs within our business and on passing the benefits of this back to our Members as soon as possible.

“However despite the current very difficult trading conditions, Milk Link remains positive about the long term prospects for the dairy sector and the role that a strong farmer-owned business can play within it. As such, in line with our overall objective of delivering a sustainable future for our dairy farmers, we are committed to implementing an ambitious growth agenda both through delivering organic growth and through corporate business development. Indeed, we believe our growing financial strength and strategic flexibility leaves us well positioned to meet the challenges ahead and take advantage of the opportunities that may arise as the dairy market continues to go through a period of considerable consolidation and change.”

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