10 June 2009 - Milk Link, the UK's most progressive integrated dairy business, today announced its results for the year ended 4 April 2009.
Key financial highlights included:
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Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA), reduced from £30.5 million in 2008 to £28.7 million in 2009 (-5.9%). This reflected the higher milk price paid to Members, the need for less profit to be retained in the business to meet bank covenants and the absence of cheese stock profits enjoyed in the previous year.
Commenting on Milk Link’s performance Ronnie Bell, Milk Link Chairman said:
“Despite a very challenging economic and trading environment, the year was one of solid growth and development for Milk Link. We ended the year financially, structurally and commercially stronger and, most importantly, we were also able to
increase returns to our farmer Members. Our average price paid to Members increased by c.4 pence per litre year on year and for the second year in succession the Processing Interest Payment represented a return in excess of 10% on Members’ Qualifying Loans. This means that cumulatively over the last three years we have now paid in excess of £10 million to Members in relation to their investment in the business.
“Looking forward, trading conditions will continue to be extremely difficult throughout the next financial year. This will result in both challenges and opportunities as increased market pressures impact on returns and accelerate the need for market rationalisation and consolidation. However, I believe that Milk Link’s established vertically integrated business model and financial and commercial strength leaves us well placed to: capitalise on opportunities that may arise; continue our growth and development; and ultimately come out of the downturn faster and steeper than many of our competitors. In doing so, we will provide our Members with greater security, stability and sustainability.”
Commenting further Neil Kennedy, Chief Executive of Milk Link said:
“I am pleased to be able to report that in the last financial year Milk Link has continued to make satisfactory progress. Financially and commercially we have become stronger. Whilst structurally, we have taken steps to refocus and realign the business to enable it to handle the economic downturn and considerable pressures and volatility being experienced in the dairy industry.
“Despite a sustained fall in dairy commodity prices, the Group’s financial performance was strong. This reflected: the strengthening of our customer and product mix; our continued emphasis on driving out costs and improving efficiencies across the business; and our rigorous approach to cash and stock management.
“The considerable downward pressure and volatility we are witnessing in the market comes at a time when the confidence of all dairy farmers is still very fragile. As such, as a farmer owned co-operative, we will continue to do everything in our control to minimise the impact on our Members; and will strive to improve Member returns and further improve our relative milk price building on the progress made in the last year.”
Founded in 2000, Milk Link is the UK’s most progressive integrated dairy producer and processor.Wholly owned by British dairy farmers it processes their milk into a wide range of high quality dairy products including long life milk, creams, flavoured milks, custards, milk powders, yoghurts and dairy ingredients, supplying all of the UK’s major retailers and many of its leading food service and food manufacturing organisations. It is also the UK’s largest manufacturer of cheese, making a comprehensive range of award winning British cheeses.
Milk Link’s aim is to create a long term sustainable future for its farmer Members, through allowing them to benefit from a long term secure outlet for their milk, together with the additional margins available from processing it into added-value products.
OPERATIONAL & COMMERCIAL HIGHLIGHTS
2008/09: A year of realignment and refocusing of the business
A number of significant steps were taken to realign and refocus the business including:
·The sale of the Staplemead creamery to Andros, the French food and dairy products business.The sale enabled Milk Link to exit the loss making fresh dairy ingredients sector and reduced significantly its operational cost base. Overall, the sale improved Milk Link’s operating profit by c. £3.4 million per annum.
·At the end of April Milk Link entered into a new five year Joint Venture with First Milk in relation to Westbury Dairies, the modern powder and butter production facility.With the sale of Staplemead and the consequent closure of its dryer, Milk Link is now able to utilise Westbury more effectively as its sole milk balancing facility.
·After the year end, Milk Link announced the proposed strategic refocusing of its long life and extended shelf life milk and cream business.Integral to this is the plan to consolidate all milk production into its Crediton dairy, which has recently benefited from a substantial programme of investment, and close its smaller and less well-invested Kirkcudbright site in Scotland.The announcement followed an extensive review of Milk Link’s long life and extended shelf life operations to achieve greater manufacturing efficiencies and cost savings and create a platform for sustained business growth and profitability.
2008/09: A year of investing in greater efficiency
Milk Link continued to upgrade its production facilities to deliver greater productivity, cost savings and customer service levels. Activity included:
·The completion of Phase 2 of Project Vision at Milk Link’s Oswestry cheese packing plant.This £1.1 million investment included the installation of advanced robotic case packers and palletisers.
·An investment of over £1.5 million at Milk Link’s Crediton dairy with the installation of the latest technology A3i, high speed, long life milk filler.
·The creation of a second maturation store at the Tuxford & Tebbutt creamery enabling it to meet increased demand for its Stilton.
·The installation at the award winning Taw Valley creamery of an advanced automated block-forming system which has improved cheese quality, increased yields and delivered greater production efficiencies.
·A new integrated SAP IT system being installed across the Milk Link Group.
2008/09: A year of further growth in key customer relationships
During the year Milk Link won further customer brand business with major retail customers such as Sainsbury’s, Waitrose, Marks & Spencer, Tesco, Morrisons, Iceland and the Co-op. This included:
·The awarding by Waitrose of a long term contract to supply the majority of its customer branded of Mild, Medium, Mature and Extra Mature Cheddar.
·The securing of major contracts to supply additional volumes of Stilton to Sainsbury’s and Marks & Spencer.
·The growing of Morrisons long life milk sales through the introduction of our new square packaging format.
·Becoming the leading supplier of Tesco brand flavoured milks.
In relation to food service, ingredients and raw milk customers Milk Link continued to build strong relationships as demonstrated by:
·Being the only dairy company to be a 3663 ‘strategic alliance partner’.
·Successfully launching a range of new South West, Scottish and Welsh ‘provenance’ cheeses for Booker.
·Increasing the volume of raw milk being supplied to key strategic partners such as Arla and Robert Wiseman Dairies.
2008/09: A year of investing in innovation, marketing and product & brand development
The year also witnessed increased investment in innovation, marketing and product & brand development including:
·The creation of a dedicated marketing team within the business led by new Marketing Director Hamish Renton
·The expansion of Milk Link’s flavoured milk range with the launch of Galaxy® chocolate milk and two new Moo® extended shelf life flavoured milks.
·The launch of The Red One – a new Red Leicester branded cheese which was awarded a prestigious Branded Excellence Award by The Grocer magazine. This was the second year in a row that Milk Link has won this award having received it for its Tickler® Extra Mature Cheddar which continues to show strong growth both in sales and distribution.
·The commissioning of Milk Link’s new Innovation Centre. Located at Taw Valley this has already established an exciting new product development pipeline.
·Work has also started on a major new investment at Milk Link’s Reece’s creamery. The £1 million project will see the construction of a new, bespoke cutting & packing hall for ‘speciality cheese’ and give us an enhanced capability to cut and pack a range of traditional hard-pressed and crumbly territorial cheeses for premium customers such as Waitrose.
2008/09: A year of Member and milk retention and recruitment
During a period of declining milk production and farmers leaving the industry, the volume of milk supplied by Milk Link Members remained relatively stable.Production per Member increased, whilst rates of retirement and resignation remained below the industry average.A number of new Members joined Milk Link during the year, whilst a further 119 million litres of milk was secured for our Northern processing facilities on long term direct contracts.