1. Accounting policies
Basis of measurement and preparation
These financial statements have been prepared in accordance with the provisions of Section 1A (Small Entities) of Financial Reporting Standard 102
Other accounting policies
Basis of preparation
The financial statements have been prepared on the going concern basis, under the historical cost convention, modified to include the revaluation of certain fixed assets, and in accordance with applicable United Kingdom Accounting Standards. The financial statements have been prepared in accordance with the Companies Act 2006.
Exemptions for qualifying entities under FRS 102
FRS 102 allows a qualifying entity certain disclosure exemptions if certain conditions have been complied with, including
notification of and no objection to the use of exemptions by the Company’s shareholders. A qualifying entity is defined as a
member of a group that prepares publicly available financial statements, which give a true and fair view, in which that member is consolidated. Scottish Milk Products Limited is a qualifying entity as its results are consolidated into the consolidated financial statements of First Milk Limited which are available from the Company Secretary, First Milk Limited, 1 George Square, Glasgow, G2 1AL.
As a qualifying entity, the Company has taken advantage of the following exemptions:
i from the requirement to prepare a statement of cash flows as required by paragraph 3.17(d) of FRS 102;
ii from the requirement to present certain financial instrument disclosures, as required by sections 11 and 12
of FRS 102;
iii from the requirement to present a reconciliation of the number of shares outstanding at the beginning and end
of the period as required by paragraph 4.12(a)(iv) of FRS 102;
iv from the requirement to disclose the key management personnel compensation in total as required by
paragraph 33.7 of FRS 102; and
v from the requirement to provide certain related party transactions between group members who are wholly
owned by a group member as required by paragraph 31.1A of FRS 102.
Going Concern
The Company is dependent on its parent company, First Milk Limited (“Group”) for financial support and funding. The information presented below is in respect of the going concern of the Group and is included here as the going concern of the Company is dependent upon the Group's own ability to continue as a going concern.
The directors of the Company have received a letter of formal support from First Milk Limited stating that they will continue to
provide financial support to the Company to enable it to meet its liabilities as they fall due until at least one year from date of
approval of the financial statements.
Current Trading and Borrowings
The year to 31 March 2025 saw a ninth consecutive profitable year at both the operating profit and net profit levels. The Group’s operating profit before amortisation and exceptional items was £20.5m (2024: £16.8m). Net profit for the year was £7.9m compared to £12.8m in 2024.
The strong, stable relationships and profitable contracts that we have built over the last few years with our customers have
continued to recover market movements and, in many cases inflationary increases in our costs to allow us to deliver long term
stability to our members. The year to 31 March 2025 saw improved operating profitability due to the full year of operating with BV Dairy as part of the Group, higher sales volumes and selling prices reflecting the higher costs of production.
The Group’s net bank debt increased slightly year on year to £66.0m at 31 March 2025 as positive operating cashflows were offset by the repayment of loan notes in relation to the acquisition of BV Dairy and capital spend. Borrowings have increased since year end due to higher stock working capital requirements reflecting the seasonal nature of milk supply and cheese production. Net borrowings and facility headroom remain in line with expectations.
Funding
The business is financed through a combination of members’ capital contributions and debt facilities. Members’ capital
contributions are collected through the retention of 0.5 pence per litre from each member’s milk payment until they reach their
capital target. In the financial year members’ capital contributions totalled £0.8m.
Our long-term debt arrangement with Wells Fargo and HSBC continued with the facility limit remaining at £120m. The amount
available is dependent on the value of stock and debtors, based on a percentage draw-down specified in the facility agreement,
and a term loan on our fixed assets. These facilities are secured by fixed securities over certain Group assets, a floating charge
over Scottish Milk Products Limited and a debenture over First Milk Limited, The First Milk Cheese Company Limited, Fast Forward FFW Limited, Lake District Biogas Limited, Blackmore Vale Farm Cream Limited and Wincombe Lane Limited. There are financial covenants applicable to the facilities, with which we have been complying since inception and we continue to comply with throughout the forecast period, that ensure there is a specified minimum level of headroom with the facility on any business day. The amount available from the revolving facility at 26 June 2025 was £112.2m (31 March 2025: £97.4m). The term loan is based on fixed asset values and at 26 June 2025 was £7.8m (31 March 2025: £8.1m). The Board’s forecasts show that there is adequate headroom within the facilities over the next year.
Forecasts
The Board has undertaken a thorough review of the Group’s forecasts and associated risks. These forecasts extend for a period beyond one year from the date of approval of these financial statements. The forecasts make key assumptions based on information available to the directors at the time of the approval of these financial statements that the business will ensure profitability is achieved and returns to members, through milk price and net asset value, are maximised whilst also retaining sufficient profits to meet our business obligations and commitments; key customer and supplier contracts continue as per their existing commercial arrangements over the contractually agreed periods; and there is no material adverse impact in the bank facilities available to the Group or other adverse working capital movements. Stock and debtors provide collateral against which we can draw down loans from our facilities with Wells Fargo and HSBC, increases in working capital are supported by the amended facility signed in February 2024 of £120m.
The directors have based their conclusions regarding going concern upon these forecasts.
Conclusion on going concern
At the date of these financial statements, the directors consider that, based upon the information available, financial forecasts
and the existence of debt facilities available through to 31 July 2026, the Group will have adequate resources to continue in
operational existence for the foreseeable future (being at least twelve months from the approval of these accounts) and consider it appropriate to adopt the going concern basis in preparing the financial statements.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts, when applicable, are shown within borrowings in current liabilities.
Financial Instruments
The Company has chosen to adopt sections 11 and 12 of FRS 102 in respect of financial instruments.
i Financial assets
Basic financial assets, including trade and other receivables and cash and bank balances, are initially recognised at transaction
price unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest.
Such assets are subsequently carried at amortised cost using the effective interest method where applicable.
At the end of each reporting period financial assets measured at amortised cost are assessed for objective evidence of impairment.
If an asset is impaired the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in the profit or loss.
If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised the impairment
is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been
had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.
Financial assets are derecognised when (i) the contractual rights to the cash flows from the asset expire or are settled, or (ii)
substantially all the risks and rewards of the ownership of the asset are transferred to another party or (iii) despite having retained some significant risks and rewards of ownership, control of the asset has been transferred to another party who has the practical ability to unilaterally sell the asset to an unrelated third party without imposing additional restrictions.
ii Financial Liabilities
Basic financial liabilities, including trade and other payables and loans from fellow Group companies, are initially recognised at
transaction price unless the arrangement constitutes a financing transaction where the debt instrument is measured at the
present value of the future receipts discounted at a market rate of interest.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented
as non-current liabilities. Trade payables are recognised initially at transaction price and subsequently measured at amortised
cost using the effective interest method.
Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or income as appropriate.
The Group does not currently apply hedge accounting for interest rate and foreign exchange derivatives.
Financial liabilities are derecognised when the liability is extinguished, that is when the contractual obligation is discharged,
cancelled or expires.
iii Offsetting
Financial assets and liabilities are offset and the net amount presented in the financial statements when there is a legally
enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and
settle the liability simultaneously.
Taxation
Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Company’s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.
Critical Accounting judgements and key source of estimation uncertainty
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the year. However, the nature of the estimation means that actual outcomes could differ from those estimates. There were no critical judgements or key sources of estimation uncertainty made by the directors in applying the Company's accounting policies in the current year.