First Milk announces turnaround plan

Over the past nine months, First Milk and its farmer members have been impacted heavily by the unprecedented challenges facing the dairy industry. This backdrop has highlighted strategic and operational issues within the business that must be addressed.

Since his appointment a month ago, First Milk’s new CEO, Mike Gallacher, has been working with the Board and Executive teams to develop a turnaround plan for First Milk with the goal of providing a better return to farmer members. The aim is to develop a business that is focused on providing great service and value to its customers; that is highly efficient; and is relentlessly focused on its core operations. In a competitive global economy, this is the only guarantee of delivering a good milk price to farmers.

As such, today First Milk is announcing a series of changes which are key to delivering that turnaround. These include:

> A programme of significant cost reductions across the business that includes proposals for up to 70 job roles to be removed

> A new approach to milk pricing within its milk fields that links local milk prices to the value generated

> The refocus of the business on core UK dairy contracts and customers, supported by dedicated First Milk teams
These changes follow the announcement two weeks ago of the appointment of three externally recruited senior executives to the First Milk management team. In addition, the company will be appointing a new senior Non-Executive Director to the main Board very shortly, replacing Bob Stott who stepped down at the end of 2014.

Additionally, Sir Jim Paice, chairman of First Milk, announces that an independent review will be conducted of the governance and commercial learnings from the business’s recent disappointing performance. Modelled on the recent Myners review of the Coop, this review will seek to identify clear recommendations which will be shared with members by summer 2015.

The measures announced today are the result of a Strategic Review and form part of ongoing actions necessary to return the business to a secure and confident future.

Cost reduction programme

First Milk has been looking at a wide range of opportunities to reduce costs and improve business efficiencies. At meetings held at First Milk sites today, a proposal to remove up to 70 job roles from the business was communicated to employees.

While a small number of roles at our manufacturing sites are affected, the proposed reduction represents up to 50% of the roles within some of our head office and support teams. Following the communication there will be a period of consultation.

New approach to milk pricing

The collapse of dairy markets and the significant increase in milk volumes during 2014/15 exposed weaknesses in First Milk’s existing milk pricing system. From 1st June 2015, pricing will be based on net commercial returns from First Milk’s manufacturing sites and customers.

As part of this, the tightest and closest milk fields have been identified which will be used to service those outlets most effectively.

We will have 4 Manufacturing and 3 Balancing milk pools:

> Farms located around our Arran, Campbeltown, Lake District and Haverfordwest creameries will make up our manufacturing pools

> Farms located on the Scottish mainland, within Northern England, and the Midlands of England/ East Wales will make up our balancing milk pools
To ensure that the business is financially robust through the restructuring process, the First Milk Board has agreed a £3.3m reduction in member payments and this has been built into our milk prices, equating to an average price reduction of 0.33ppl.

Additionally, the First Milk Board have confirmed the B price for April at 16.1ppl and also that based on our projections the B price range for June will be 14-17ppl.

Mike Gallacher, CEO, said: “None of the decisions announced today have been taken lightly, but they are necessary steps in the process of rebuilding a secure and stable future for First Milk, its members and its employees. As a team, our aim will be to provide every support for those impacted in the coming months.

“First Milk plays an important role in many rural communities across the UK and continues to value the support it has received from all our stakeholders. Our strategy is aimed at continuing to restore the health of First Milk so that we can support those communities through delivering better prices for their milk. “

Mike Gallacher will be explaining the detail of the turnaround plan to First Milk’s members at meetings scheduled during the first two weeks of May.

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