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 £130 million and commented on the strength
of our business in a press release of 28.08.09.[3]
We benefit from their ongoing due diligence.
3. Mr Geoffrey Cox QC MP at Q101[4]
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.[5]
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[6]
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[7]
to provide development for our producers, and First Milk Direct[8]
to harness the purchasing power of our members. Last year 990
members and farm employees attended an Academy event and 1,150
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.[9]
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.[10]
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
3 Here-First Milk completes £130M banking deal-or
click on News on our website, www.firstmilk.co.uk Back
4
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 ... Back
5
Here-First Milk uses reserves to shelter members from Market
Downturn under News on the website. Back
6
Here-or click on Our Business on Home Page of the website and
then Annual Reports. Back
7
Brochure-or click on "Membership" on Home Page and then
First Milk Academy. Back
8
Here-or click on `Membership' and then First Milk Direct. Back
9
Here-or click on News and then Industry Reports. Back
10
Here-or click on Our Business then Annual Reports. Back
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