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First Milk member loans to be converted to shares

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First Milk is to convert its farmers’ invested capital into shares, which could mean members quitting the co-op will no longer get cash pay-outs worth thousands of pounds.

The co-op has conveyed this to farmers stating that it would turn their loan capital, built up from money taken off milk cheques, into equity.

This would mean members leaving the business would have a stake in First Milk.

Those shares will then be tradable, which would set their value, according to a First Milk spokesman. But it has not been decided as to how that value is established and whether they could be sold to outside investors.

The processor upped the waiting period for ex-members to six years for paying back capital contributions, from the previous period of five years.

Apart from the pay-out delays, First Milk has seen lot of dramatic changes last year, including delayed milk cheques, job cuts, a new chief executive, a refreshed board of directors and an overhauled payment structure.

Most of its farmers are now being paid less than 20p/litre under an “A” and “B” system, which is also a part of last year’s changes.

First Milk has billed this latest move as one of the final parts of its turnaround plan, in its efforts to strengthen its balance sheet.

Chairman Clive Sharpe, who joined in February, said the next step was confirming the exact type of shares that would be issued to farmers. He would consider tax implications for members, ex-members and how returns on equity were paid out in the future.

Sharpe said, “This means that in the new financial year starting in April we can focus on improvements we need to make to our relative milk price and rebuilding the long-term value of First Milk as a member-owned business”.

The switch to shares will also change how farmers receive a return on their capital investment.

Members would be paid a dividend, rather than interest on their loans.
First Milk reported an operating profit of £1.1m in the six months to 30 September 2015.

This compared with a £24.9m pre-tax loss for the year to 31 March.

The business managed to refinance with its current banks in December and has been paying down its debt.

First Milk sold its Glenfield Dairy site in Fife, Scotland in autumn. It confirmed early this year that it was stepping away from the joint venture with Arla at Westbury Dairies.

Paul

The author Paul