Memorandum submitted by First Milk (DFoB 38)
1. DFB was in serious trouble for some years. Their purchase of the ACC business played a
key part in their demise. We considered making an offer for ACC but did not
follow this through after our investigation into the state of that
business.
2. Our
balance sheet is strong, both quantitatively and qualitatively, and our
approach to accounting is conservative.
Lloyds and Barclays banks have provided us with flexible borrowing
facilities of up to £130m and commented on the strength of our business in a
press release of 28.08.09[1]. We benefit from their ongoing due diligence.
3. Mr
Geoffrey Cox QC MP at Q 101[2] made an unjustified criticism of
our 2008/09 results. Our Board decided to shelter our members from the worst of
the market downturn in late 2008 and therefore we used some of our reserves to
support members. We refer to our press release of 23.9.09[3].
4. From Q95, the Committee may have formed an impression that we do
not have robust processes to ensure proper scrutiny - including external
scrutiny. This is not true. Page 8 of our audited Financial Report[4] shows
that in addition to the external audit by PricewaterhouseCoopers, we use Ernst
& Young as independent internal auditors. We take great care to ensure the
independence of the external auditor. As one example of our robust processes -
prior to implementing our new capital structure, we consulted with the FSA and
also took independent legal, tax and corporate finance advice.
5. The benefits of being a
co-operative: we are totally focussed on delivering returns to our members,
and not driven by external shareholder or stock market interests. We take a long view; in particular we
established the First Milk Academy[5] to
provide development for our producers, and First Milk Direct[6] to
harness the purchasing power of our members. Last year 990 members and farm
employees attended an Academy event and 1150 members used First Milk Direct.
6. The drawbacks and changes
in the legislative framework: although the framework is old, it has not prevented our making substantial
strategic investments. A substantial
revision could take up much time for no benefit. On the European and worldwide experience of cooperatives,
we refer the Committee to research that we commissioned from Promar and
published[7].
7. Lessons to be learned: the importance of consistent,
conservative and rigorous application of accounting standards. In particular, a hard-headed approach to
'goodwill', an intangible asset that all too often becomes a disappearing asset;
and a transparent presentation of the true profit/loss and net assets in
published accounts.
8. Governance: for a full description of our governance
arrangements we refer the Committee to our annual reports and in particular to
pages 6 and 7 of the Financial Report[8]. We repeat point 4. Our farmer directors fully recognise the
importance of external non-executives and training (provided by the Institute
of Directors).
First Milk
November 2009
[1] Here - First
Milk completes £130M banking deal - or click on News on our website, www.firstmilk.co.uk
[2] Q101 Mr Cox: Forgive me. I hear what you say about that, but we
have had one of the main five go out of business and go bust; we hear that
First Milk is making a loss of, what was it, seven-odd million; we hear stories
of problem in others. I do not buy this story that somehow co-operatives are
all fine and dandy...
[3] Here - First
Milk uses reserves to shelter members from Market Downturn under News on
the website.
[4] Here - or click on Our Business on Home
Page of the website and then Annual Reports
[5] Brochure - or click on 'Membership' on Home
Page and then First Milk Academy
[6] Here - or click on 'Membership' and then
First Milk Direct
[7] Here - or click on News and then Industry
Reports
[8] Here - or click on Our Business then Annual
Reports
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