Annual Return and Accounts

ANNUAL REPORT
AND
FINANCIAL STATEMENTS 2018
the farmers’ business

FIRST MILK LIMITED
ANNUAL RESULTS
YEAR ENDED 31 MARCH 2018
Executive summary
Review of the year 2018
During the last year we have continued to make progress in strengthening and growing the business and I am pleased to report a
good financial performance in line with expectations for the year ended 31 March 2018.
Financial highlights
 Group turnover £252.7m (2017: £206.5m)

 Operating profit (before exceptional items) £6.6m (2017: £11.7m)
 Net profit for the year £3.2m (2017: £6.0m)
 Net bank borrowings £44.9m (2017: £38.6m)
 Capital investment across all our sites £3.2m (2017: £3.8m)
 Total group capital and reserves £27.4m (2017: £22.0m)
Chairman statement
Clive Sharpe
Introduction
After a number of years of considerable change at First Milk, I am pleased to be able to report another year of solid progress, as we
deliver profit in line with our plans for the year ended 31 March 2018.
The last twelve months have seen an adjustment in focus as we have concentrated on getting the business fit for future growth. We
have a clear strategy in place to grow our cheese business and develop our fresh milk business that provides milk sourcing
services through long-term customer partnerships.
As a farmer-owned co-operative, we are committed to ensuring that everything we do adds value to our members – today and in
the future.
Governance
During the year, I was delighted to welcome Shelagh Hancock as our new Chief Executive, and Greg Jardine, who joined the Board
as Chief Financial Officer, having previously been our Commercial Director.
I would like to record my thanks to Owen Shearer, who stood down as Group Finance Director and left the business at the end of
September. Owen played a key role in the re-financing of First Milk and I’d like to thank him for his commitment and contribution to
the business.
During the period we also said goodbye to Nigel Evans, our long-standing Vice Chairman and Farmer Director who, after seven
years, stood down from the Board. Nigel’s commitment, energy and drive were fundamental to the business during this time and I’d
like to thank him for his considerable contribution.
As a farmer-owned co-operative we have clear governance procedures for our farmer director selection process. The selection of a
new farmer director is overseen by a Nominations Committee of the Board, comprising the chair of the Nomination and
Remuneration Committee, Carl Ravenhall, along with another farmer director and two Council members. This ensures that member
views are represented throughout the process.
Members are invited to apply through our newsletter, and the opportunity to apply is open to every member. Candidates are
interviewed by the Nominations Committee and must also present to the Council, which has the opportunity to feedback to the
Nominations Committee before it makes a recommendation to the Board. The Board then confirms which candidate should go
forward to the AGM for election as a farmer director by members.
As a result of a selection process (involving multiple candidates), Robert Craig joined the Board as the new farmer director, and
existing farmer director, Jim Baird, was appointed as Vice-Chairman.
We also held contested Member Council elections during the year. This was the first such election under our new Council structure,
which saw three Council positions becoming vacant – Scott Calderwood and Willie Purdie by rotation, with Robert Craig standing
down from Council as a result of his appointment to the Board as a Farmer Director.
A Nomination Committee oversaw the process and members voted for candidates in an open election. The result of this election
was that Scott and Willie were re-elected for a further term, being joined by new Council member, David Walker.
Our seven-strong Member Council continues to work effectively with independent Member Council Chairman, Séan Rickard, to
oversee the strategy of the business and represent farmer members in discussions with the Board and Executive. The Council acts
as the interface between the membership and the Board and provides input into a range of policy development areas, including in
the last year the changes to our milk price schedules. Over the last twelve months the Council members have also led a series of
‘farmhouse meetings’ with our members across the country, which has helped to improve member engagement and we have also
FIRST MILK LIMITED
ANNUAL RESULTS
Chairman statement (continued)
established a Communications Group, comprising Council, Board and Staff to drive our communications activity across the
business. I particularly value the contribution the Council brings, which ensures that First Milk delivers for our members, and would
like to take this opportunity to thank them for their hard work and commitment, much of which goes on behind the scenes, but which
contributes so much to the development of First Milk.
As you know I informed the Board earlier this year of my intention to step down as Chairman. It has been a great pleasure to chair
the Board over the last two and a half years and through a period of major strategic and structural change. I am delighted to be
handing over on 1 August to Chris Thomas, who has been appointed as your new Chairman following an extensive selection
process and recommendation from the Nominations Committee.
Outlook
The last year has been a perfect demonstration of the external challenges that will continue to face the dairy sector – volatile pricing
and uncertainty as a result of Brexit. This adds complexity to our members’ farm businesses as well as to First Milk, as it makes it
very difficult to predict how dairy markets will develop. Yet, despite these challenges, First Milk is increasingly well-placed to deliver
long-term prosperity to our members.
I would like to take this opportunity to thank our staff, Board and, above all, our members, for their hard work and commitment
during the last year.
CEO statement
Shelagh Hancock
The last year has seen us concentrate on strengthening and developing customer relationships, improving the operational
efficiency of the business, growing our processing capacity and reducing costs. Critically, we have done this whilst putting our
farmer members back at the heart of our business, through improved focus on member engagement and communication.
Strengthening our customer relationships

First Milk has a growing reputation for building strong, solutions-based commercial relationships and over the last twelve months
we have built on this foundation to further strengthen existing connections and to develop new ones.
Cheese business
Our biggest customer is Ornua, an Irish agri-food commercial co-operative which supplies more than 40% of the hard cheese sold
in British retailers and is the largest buyer of British cheese in the UK. We have a long-term contract to supply Ornua, and they buy
the majority of the cheese we produce.
One example of our close relationship with Ornua is that during the last twelve months we have worked with them and their
customer, Tesco, in successfully implementing the Tesco Cheese Group among our members surrounding our Haverfordwest
Creamery. Tesco has a long track record of working with British dairy farmers and we were delighted to work collaboratively to
create a strategic supply chain for them for British cheddar.
In recent months, we have also been pleased to support Ornua in securing new cheese business with Sainsbury’s – their standard
tier hard cheese range. This is a testament to the credibility of our business as part of their supply chain to their retail customers. As
a result of this development, I am delighted that First Milk will be the primary supplier of this cheese for Sainsbury’s. First Milk’s role
in supplying cheese for this contract is a fantastic endorsement of our business.
As well as the success of our relationship with Ornua, we continue to develop our wider commercial relationships. Notably, the
development of our export cheese sales through our partners, which sees us now distribute cheese to more than 15 countries,
including the Netherlands, Saudi Arabia, South Africa, Australia, Japan and the USA.
When it comes to our branded cheese, we have made good progress in growing sales of our Mull of Kintyre and Isle of Arran
brands, driven largely through new product development and brand promotion. However, following a strategic review of our
branded cheese business and after careful consideration, post-year end (in April 2018) we announced that we would be offering
our Scottish cheese businesses at Campbeltown and Arran for sale as they are not core to First Milk’s strategic direction. At the
time of writing, we are focused on finding a potential buyer for this part of the business, to secure its long-term future.
Fresh milk business

We have also further developed our commercial activities around fresh milk sourcing, broadening our strategic customer base and
growing our milk sales volumes.
A key strategic partnership is with Nestlé, the world’s largest food and beverage company. We have been working with them for
more than 13 years and, as Nestlé’s single largest UK supplier, we operate a dedicated farmer supply group to provide milk into
Girvan for chocolate crumb manufacturing and into Dalston for the production of the Nescafé cappuccino ranges. During the last
year, we have worked closely with Nestlé to implement a performance scorecard focused on sustainability and animal welfare on
farm, helping them drive their vision of supporting farmers and the environment. We also completed the two-year Next Generation
programme with Nestlé, which saw young farmer members of First Milk taking part in a unique development programme to broaden
FIRST MILK LIMITED
ANNUAL RESULTS
CEO statement (continued)
their understanding of the industry and the supply chain they are part of. It was a fantastic recognition of our commitment to our
long-term partnership when Nestlé awarded First Milk ‘Best Strategic Partnership Award’ in February 2018.
Strengthening our operational performance

Since joining the business in April 2017, a major focus has been to drive operational efficiency and productivity at our sites, to
ensure we can deliver more from less.
This has involved us restructuring our Lake District and Haverfordwest Creameries during the period to address day-to-day
operational performance and ensure that the sites produce consistent, good quality cheese in the future, whilst concentrating on
high productivity and factory optimisation. To deliver this we have changed working patterns at the sites and, regrettably, this did
impact on some of our colleagues – something that is never easy. These changes were essential, however, to put the business on
a sound footing for future growth.
We exited from Westbury Dairies Limited at the end of December 2017 as planned. This means that we now need to balance our
own milk supply, which is part of the reason for increasing the processing capacity at our key sites at Lake District Creamery and
Haverfordwest.
As well as providing adequate balancing capacity, these developments mean that we are now consistently processing more milk, to
produce higher volumes of high quality cheese, whilst operating at a lower cost base. This has helped us deliver a positive impact
on relative milk price performance for our members in the period.
What is critical is that we are not only producing cheese at lower cost, but we are also maintaining the high quality that our sites are
known for. To that end, I was delighted when the quality of our cheese was recognised with success at the Nantwich International
Cheese Show 2017, where we won numerous awards for all our sites, and at the 2017 World Cheese Awards, where we came
away with a total of eight awards, including two gold, two silver and four bronze.
Strengthening our culture and our people

No business can succeed without good people and the right culture. During the last twelve months, I have made some changes to
strengthen our management team and have restructured various functions to develop the capabilities and expertise of our people.
We have also focused on developing the right

mindset and ways of working, implementing a
new style of problem-solving to improve
business processes. Our ‘continuous
improvement’ approach has been fundamental
to the delivery of performance improvements
across the organisation via enhanced
productivity, quality and reduced waste.
After a period of considerable change at First

Milk over recent years, it has been essential to
re-focus the team and plan for the future, as
we build and grow the business. As such, we
have concentrated on clarifying our vision, so
that we all have a common view of the future
and the values by which we will operate.
This is absolutely critical, as having a clear

direction helps drive strategic decision-making,
as well as the way we operate day-to-day. Of
course, you cannot change the culture of a
business overnight, but we are now working
hard to embed the new approach across our
teams, working to do things better every day.
I would like to take this opportunity to highlight
the important contribution that all our staff
have made during the year and thank them for
their hard work and commitment.
Strengthening membership engagement

At the start of the year we undertook a member survey to understand how our members felt about First Milk. This highlighted that
members felt strongly that it was important to them to be part of a farmer-owned co-operative but outlined some areas for
improvement in terms of member communication and involvement. We have worked hard to address these concerns through the
year, introducing six-monthly member meeting roadshows and improved newsletters and correspondence. Meanwhile, our
membership team has implemented a new approach to day-to-day member relations, as well as annual Farm Business Reviews so
that every member has the opportunity each year for a detailed discussion about their farm and their plans for the future and how
they can maximise returns from membership of First Milk.
FIRST MILK LIMITED
ANNUAL RESULTS
CEO statement (continued)
On top of this, we’ve developed our responsible sourcing strategy – something that is key to customers and to ensuring we have a
sustainable supply of milk for the future – and we’ve launched a national ‘Next Generation’ programme to engage with young
people associated with our members’ farms to understand better what they want from First Milk in the future and to help broaden
their knowledge and share best practice.
First Milk is set on a clear path for growth and as we build our customer relationships and processing capacity we need more milk
to satisfy our requirements. As such, over the last year we have made some significant changes to the way we pay members. In
September 2017 we discontinued A&B pricing and introduced a production bonus – both of these moves were to incentivise milk
volume growth from existing members to meet our growing demand – there are no restrictions on those members that want to grow
their businesses. As well as encouraging additional production from existing members to ensure we can deliver our growth
aspirations, we have also launched proactive recruitment activity to grow our volume. This is already delivering results, with
additional volume coming through the year from new members and suppliers.
Post-year end we have rationalised and

simplified our regional pool pricing so that
members are paid on just two schedules –
liquid and manufacturing - with prices
harmonised across the country on a liquid
standard litre basis ensuring that all returns
generated are distributed across all members
who, through their capital contributions, have
invested in the development of First Milk.
When it comes to absolute milk price during

the year, it has been another period of volatility
on world dairy commodity markets. This
remains difficult to manage for our members
and we have worked hard to minimise the
impact on member prices and remain
completely focused on maximising returns.
Critically, our relative milk price index (MPI)
against our competitors has continued to
improve through the year as a result of
improved business performance.
Building for the future

Looking forward, we are clearly focused on building the business for the future. Close, strong relationships right through the supply
chain will be key and all parts of the supply chain will have to optimise efficiency – both financial and physical – to survive and
flourish. We are focused on building strong long-term relationships with both our farmer members and our customers, and
developing our business to ensure that we have the scale to be relevant yet personal, the commercial ability to deliver value and
the agility to be flexible.
I am pleased that demand from our customers continues to grow and, post year-end, we have started a major capital expenditure
programme at Haverfordwest Creamery, which will see us invest around £6.5m over the next two years.
To take advantage of the increased demand and production capacity that we are creating, we are focused on encouraging our
members to produce more milk and on recruiting additional milk supply.
Yes, the dairy market remains volatile and, as a result, challenging. Yes, Brexit and all the changes that may bring lead to
additional uncertainty. But, as a result of developments undertaken in the last twelve months, and with a clear vision for growth for
the future, I am confident that we are well-placed to move forward with our goal of working together to deliver prosperity for our
members.
I’d like to take this opportunity to thank my Board colleagues, senior management and staff and our members for all their support in
the last twelve months and I look forward to working together to deliver our plans for the future.
FIRST MILK LIMITED
ANNUAL RESULTS
CFO statement
Greg Jardine
During the last year we have continued to make progress in strengthening and growing the business and I am pleased to report a
good financial performance in line with expectations for the year ended 31 March 2018. Our turnover increased, our balance sheet
has strengthened and the business had a positive cash inflow.
Turnover
Turnover increased by 22% to £252.7m. This was driven by a combination of new business growth, higher cheese and brokered
milk selling prices and higher returns from whey.
Profitability
Our operating profit was £6.6m – lower than last year but in line with our budgets and expectations. Our strategic objective is to
maximise the return of value to members, primarily through milk price, whilst retaining sufficient profits to meet our business
obligations and commitments. Profit comparisons year on year therefore need to be considered in conjunction with relative
improvements in milk price returned to members, as highlighted in the improvement in the 12 month rolling averages Milk Price
Index (MPI). The reduction in profit in 2018 is a direct consequence of improving our relative milk price.
Member Investment
During the year members contributed a further £2.1m to the business through the retention of 0.5 pence per litre until they reach
their capital targets. At the end of the year Member Capital stood at £75.5m compared to £73.9m the previous year.
Capital Investment
Capital investment continued at all sites with £3.2m invested (2017: £3.8m) in projects, including a programmable logic controller
upgrade, a chilled water plant, a replacement curd pump and the first stage of a £6.5m investment at Haverfordwest. Over the next
two years our capital investment programme will continue at our Haverfordwest Creamery on new silos, buildings, pasteurisers and
milk separators, heat recovery equipment as well as cheese-making equipment and whey-handling facilities. This will deliver
energy and cost savings as well as improving productivity, releasing additional processing capacity.
Balance sheet, cash flow and net debt

The Group’s balance sheet continues to strengthen, with net asset growth of £5.4m to £27.4m through a combination of a reduction
in the pension deficit, continued investment in our asset base, and the continued profitable and cash generative growth of the
business.
Meanwhile, as a result of the increase in the value of cheese stocks (due to the price of milk used to produce the cheese), our
working capital requirements increased, resulting in our net debt increasing by £6.3m to £44.9m at 31st March 2018. Our stock-
holding volume remains broadly flat year-on-year with controls in place to ensure we only carry the necessary level of stocks to fulfil
our sales needs.
The cash earnings (EBITDA) of £9.6m Cash flow for year ended 31 March 2018
together with £2.1m from member capital
proceeds generated enough cash to allow 18,000
us to service our various commitments. 2,138 (3,957)
16,000
9,574
Cash is required on an annual basis to 14,000
make payment towards the pension deficit (3,179)
12,000
reduction agreements, invest at our
creameries and pay bank interest. The net 10,000 (1,171) 956 (7,210)
inflow before working capital requirements
8,000
was £4.4m.
6,000
4,607
Working capital consumed £10.6m during 4,000
the year. £7.2m was required as a result of (3,620)
higher stock holding value and a further 2,000
2,074 396
£3.6m was consumed by receivables. 0
184
(2,000)
During the year we drew down £2.1m from
our loan facilities, which accompanied by a (4,000)
reduction in cash balances, led to a £6.3m
increase in net debt during the year.
FIRST MILK LIMITED
ANNUAL RESULTS
CFO statement (continued)
Interest
Net finance charges, totalling £2.1m, comprised of £1.2m relating to the Wells Fargo debt facility, £0.2m of bank arrangement fees
and £0.7m of finance costs associated with the pension deficit. The facility in place with Wells Fargo since February 2017 terms are
improved compared to the previous facility resulting in a £1.1m reduction in interest paid in the year.
The constituent elements of the interest charge comprised:
2018 Group 2017 Group

(£m) (£m)
Bank loans, overdrafts and revolving facilities 1.2 2.3
Bank arrangement fees 0.2 0.3
Pension scheme net finance costs 0.7 0.9
Total Finance Costs 2.1 3.5
Pensions
We operate a defined contribution scheme with Standard Life for current employees, company contributions are charged to the
Profit and Loss Account in year.
In addition, First Milk Limited operates the Scottish Milk Limited Retirement Benefits Plan, and also participates in The Milk Pension
Fund, an industry scheme in which all participating employers report only their share of assets, liabilities and obligations while
legally holding joint and several liabilities for the scheme as a whole. Both schemes are closed to accrual of benefits. During the
year our total pension liabilities (net of deferred tax assets) fell from £11.3m to £8.1m. The contributions to the defined contribution
scheme charged to the profit and loss account in the year ended 31 March 2018 were £0.7m (2017: £0.9m).
FIRST MILK LIMITED
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2018
Contents Page
Officers and professional advisers 1

Strategic report 2
Directors’ report 4
Corporate governance report 7
Audit, Finance and Risk committee report 11
Remuneration report 12
Independent Auditor’s report to the members of First Milk Limited 13
Profit and loss accounts 15
Statements of other comprehensive income 15
Balance sheets 16
Group Statement of Changes in Equity 17
Society Statement of Changes in Equity 18
Statements of Cash Flows 19
Notes to the Financial Statements 20
1 FIRST MILK LIMITED
OFFICERS AND PROFESSIONAL ADVISERS
Officers and Professional Advisers
Directors Registered Office Solicitors

Clive Sharpe (chairman) Cirrus House Dentons LLP
Jim Baird (vice chairman) Glasgow Airport Business Park Quartermile One
Robert Craig Marchburn Drive 15 Lauriston Place
Shelagh Hancock Paisley Edinburgh
Greg Jardine PA3 2SJ EH3 9EP
Brian Mackie
Carl Ravenhall
Debt Providers Independent Auditor

Secretary Wells Fargo Capital Finance (UK) Deloitte LLP
Angus Waugh Limited 110 Queen Street
th
4 Floor Glasgow
90 Longacre G1 3BX
London
WC2E 9RA
Bankers
Lloyds Banking Group
Level 6
110 St Vincent St
Glasgow
G2 5ER
FIRST MILK LIMITED 2
STRATEGIC REPORT
Strategic report
The directors of First Milk Limited (“First Milk”, the “Society” or “Group”) present their strategic report for the year ended 31 March
2018. Group includes First Milk Limited, its joint venture and subsidiaries listed in note 12.
The business and principal activities

First Milk Limited is a dairy farmers’ co-operative registered under the Co-operative and Community Benefit Societies Act 2014
(number: 29199R). The principal activities of the Group and Society are the marketing of milk on behalf of its members and the
manufacture and sale of dairy products.
Results
The financial statements on pages 15 to 45 detail the trading results and financial position of the Group and Society, which includes
The First Milk Cheese Company Limited, Scottish Milk Products Limited and joint ventures: Fast Forward FFW Limited and First
Milk Energy Limited.
Key financial performance indicators

The table below provides key financial performance indicators (“KPIs”) relating to the Group’s performance during the year.
Financial KPI 2018 2017
Operating profit (before exceptional items) £6,627k £11,727k
Profit/(loss) for the year £3,156k £6,045k
Total capital and reserves £27,436k £22,041k
Net bank debt (external borrowings less cash) £44,911k £38,626k
The Group’s and Society’s profit and loss accounts and balance sheets are shown on pages 15 and 16.
Prospects and strategic aspiration

The Group is focused on delivering above average total returns to its farmer members.
The directors plan to deliver this objective includes the following elements:
 Improve milk price relative to competitors and grow the value of the business, whilst meeting commitments to lenders
 Positively develop customer relationships that continue to create value through growing our cheese and milk business
 Improve operational performance through cost reduction, optimising site utilisation and increasing productivity
 Improve systems, processes and reporting to speed the provision of timely, informative information
 Deliver value to Members that builds First Milk’s Member proposition
 Enhance people’s effectiveness throughout the business by building knowledge and understanding and developing skills
and capability
Review of the business – key events timeline

On 1 April 2017, Shelagh Hancock was appointed as Chief Executive and as a Director.
On 30 June 2017, the board agreed that Robert Craig should be appointed as a Director with effect from 2 November 2017, subject
to member approval of the appointment at the Annual General Meeting.
On 1 October 2017, Greg Jardine was appointed as Chief Financial Officer and as a Director.
On 1 November 2017, David Walker was elected as a Council Member, replacing Robert Craig.
Post balance sheet events

On 1 April 2018, the board announced plans to simplify its previous payment schedules to two schedules, First Milk liquid and First
Milk manufacturing, and to harmonise its standard litre price for the two schedules.
On 17 April 2018, the board announced plans to offer the creameries on Arran and Campbeltown for sale.
On 24 July 2018, the business announced the appointment of Chris Thomas as non-executive chairman joining the board from 1
August 2018.
Principal risks and uncertainties

Loss of milk production volumes
The Board addresses the risk of losing milk volumes by paying its members the maximum milk price possible, taking into account
the need to retain funds to invest in processing sites and meeting commitments to lenders.
STRATEGIC REPORT (CONTINUED)
Strategic report (continued)
Principal risks and uncertainties (continued)

In addition, members’ milk price is reviewed on a regular basis and the Board has a policy of keeping members appraised of factors
influencing the amount paid. This is supported by a pro-active communications policy, through which members are kept up to date
at meetings and through letters and regular email news briefings.
Competitive risk
The Society sells milk to processors, many of whom have the option of sourcing their raw milk requirement directly from individual
farmers.
First Milk sells hard cheese and dairy ingredients into domestic and export markets. In doing so, it faces competition from other
similar companies at home and abroad. It also manufactures milk derivatives and faces the risk of customers using alternative
supplies or substituting milk derivatives with non-dairy alternatives in their own products.
First Milk addresses these risks by developing long-term strategic relationships with key customers, ensuring that sales staff are
fully aware of relevant markets, including export markets, offering products at market competitive price and providing excellent
service levels.
Regulatory risk
The Group and Society are required to comply with various regulatory regimes in areas such as competition law, health & safety
and environmental regulation. This is achieved through the adoption of appropriate policies and structures, risk assessments,
monitoring and review of performance, recruitment and training of suitably qualified staff and support from external consultants,
including legal advisers, where appropriate.
Input cost risk

First Milk is exposed to market price movements for commodities, including electricity, gas, plastics and cardboard. This risk is
mitigated in relation to many input costs by maintaining awareness of markets and by forward buying where this is appropriate . In
addition, the use of such commodities is kept to a minimum and reduced where possible. The business addresses the exposure to
energy costs by buying energy in the wholesale market, with expert assistance from energy consultants.
Financial risks
The Group and Society’s activities expose it to a number of financial risks including price, credit, interest rate, liquidity and fraud
risk. The use of financial derivatives is governed by the Group and the Society’s risk management framework as approved by the
Board of Directors. The Group and Society does not use derivative financial instruments for speculative purposes.
Price risk
The risk of the business receiving low prices compared to market levels is mitigated, where possible, by the use of up-to-date
market intelligence.
Credit risk
First Milk’s principal financial assets are trade and other receivables, investments, bank balances and cash.
The Group and Society’s credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet
are net of allowances for doubtful receivables. An allowance for impairment is made where there is an identified triggering event
which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows.
Credit risk attributable to trade receivables is mitigated through the use of credit insurance.
Interest rate risk

The Group and Society’s activities expose it to the financial risks of changes in interest rates. The Group and Society has used
interest rate swap contracts in the past, where appropriate, to hedge these exposures. Presently there are no such contracts in
place.
Liquidity risk
In order to maintain liquidity to ensure that sufficient funds are available for ongoing operations and future developments, the Group
and Society aims to use a mixture of long-term and short-term debt finance. Management monitors rolling forecasts of the Group’s
liquidity reserve and cash and cash equivalents on the basis of expected cash flows. Further information with regard to the
management of current liquidity risk is contained in note 1 to the financial statements.
Fraud risk
First Milk recognises the risk of fraud. This risk is mitigated through reviews of controls within systems, conducted, where
appropriate, with the assistance of internal auditors, and by the adoption of an Anti-bribery and Corruption Policy.
Approved by the Directors

and signed by order of the Board
Angus Waugh
Company Secretary
25 July 2018
DIRECTORS’ REPORT
Directors’ report
The directors present their report and the audited financial statements of First Milk Limited for the year ended 31 March 2018.
Business performance and future developments

The business performance and future developments of the Group are highlighted in the strategic report set out on page 2 and the
executive summary.
Dividends
No dividends were paid during the year (2017: £nil) and no recommendation is made in respect of dividends or dividends to be paid
(2017: £nil).
Employees
The recruitment, development, retention and maintenance of a highly skilled workforce is key to the future of the business. It is the
policy of the Board of Directors to enlist the commitment of all employees in attaining the Group's and Society’s objectives.
Implementation of this policy is by encouraging employee involvement through effective communications, which includes an
induction process for new employees, team briefings, newsletters, a company intranet and any other appropriate means of
individual or collective consultation.
Disabled employees
It is the Board of Directors' policy to ensure that continuous employment is offered to employees who become temporarily or
permanently disabled where it is practicable to do so within the scope of the business activities of the Group and Society.
Political donations
The policy of the Board of Directors is not to make donations of a political nature.
The board of directors

The directors who held office during the year to 31 March 2018 and up to the date of signing the financial statements were as
follows:
Clive Sharpe - non-executive director and chairman

Jim Baird - non-executive farmer director and vice-chairman (appointed as vice-chairman on 2 November 2017)
Nigel Evans - non-executive farmer director and vice-chairman (resigned on 2 November 2017)
Robert Craig - non-executive farmer director (appointed on 2 November 2017)
Shelagh Hancock - executive director (appointed on 1 April 2017)
Greg Jardine - executive director (appointed on 1 October 2017)
Brian Mackie - non-executive director
Carl Ravenhall - non-executive director
Owen Shearer - executive director (resigned on 30 September 2017)
The non-executive farmer directors’ capital account balance and interests in the preference shares of the Society at 31 March 2018
and 31 March 2017 were:
31 March 2018 31 March 2017

C Preference New Preference C Preference New Preference
Shares Shares Shares Shares
£ £ £ £
Jim Baird 178,153 17,179 158,153 17,179

Robert Craig 246,154 120,000 141,026 0
Each non-executive farmer director is also a member of First Milk Limited and as such holds one ordinary share.
Post balance sheet events

Events after 31 March 2018 are referred to in the key events timeline in the strategic report.
Financial instruments
The Group and Society do not use derivative financial instruments as referred to in the principal risks and uncertainties section of
the strategic report.
Going concern
The consolidated financial statements have been prepared on a going concern basis.
DIRECTORS’ REPORT (CONTINUED)
Directors’ report (continued)
Current Trading and Borrowings

The year to 31 March 2018 saw a second profitable year at both the Operating Profit level and Profit level, with profits delivered in
line with plans. The Group’s operating profit before exceptional items was £6,627k (2017: £11,727k). Finance interest and
exceptional costs reduced further in the year to 31 March 2018, resulting in a net profit for the year of £3,156k, compared to a profit
of £6,045k in 2017. In the first months of the year to 31 March 2019 trading is tracking in line with the projections set at the
beginning of the year.
The Group’s net bank debt increased from £38,626k to £44,911k during the year, mainly as a result of changes in the value of
cheese stocks due to market price movements. Overall borrowings have remained broadly at the same level in the first months of
the year to 31 March 2019.
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 £2,100k.
The business is in the second year of a 4-year facilities agreement with a debt provider, Wells Fargo. 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 and The First Milk Cheese Company Limited. There are financial covenants applicable to these facilities, with which we
have been in compliance since the inception of the facilities which are repayable on 31 January 2021. The maximum facility
available to the Group is £60 million, with the amount available at any time depending on the value of stock and debtors and is
based on a percentage draw-down specified in the facility agreement. The amount available from the facility at 25 July 2018 was
£58,377k (31 March 2018: £56,648k). In addition to the facility there is a term loan based on fixed asset values which at 25 July
2018 was £4,300k(31 March 2018: £4,700k). The Board’s forecasts show that there is adequate headroom within this level of debt
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 price paid for milk supplies and other costs will fluctuate with returns available to the business to ensure the projected
profitability is achieved;
 there is no material diminution in the bank facilities available to the Group as a result of the market value of stock falling,
given this is a factor in establishing the amount of the borrowing facilities available to the Group, or other adverse working
capital movements; and
 key customer and supplier contracts continue as per their existing commercial arrangements over the contractually agreed
periods.
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 financial projections and the existence of debt
facilities which will be available until 31 January 2021, the Group will have sufficient funding to continue as a going concern for at
least the next twelve months.
Disclosure of information to auditor

In the case of each of the persons who are directors of the Group and Society at the date when this report was approved:
 So far as each of the directors is aware, there is no relevant audit information of which the Group and Society’s auditor is
unaware; and
 Each of the directors has taken all the steps that he/she ought to have taken as a director to make himself/ herself aware
of any relevant audit information and to establish that the Group and Society’s auditor is aware of that information.
Statement of directors’ responsibilities

The directors are responsible for preparing the annual report and financial statements in accordance with applicable law and
regulations.
The directors have chosen to prepare the financial statements for the Group and Society in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), including Financial Reporting
Standard 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102).
Legislation requires the directors to prepare such financial statements for each financial year which give a true and fair view of the
state of affairs of the Group and Society and of the surplus or deficit of the Group and Society for that year and comply with UK
GAAP and the Co-operative and Community Benefit Societies Act 2014 and the Co-operative and Community Benefit Societies
(Group Accounts) Regulations 1969. In preparing those financial statements the directors are required to:
DIRECTORS’ REPORT (CONTINUED)
Directors’ report (continued)
Statement of directors’ responsibilities (continued)

 Select suitable accounting policies and then apply them consistently;
 Make judgements and estimates that are reasonable and prudent;
 State whether applicable accounting standards have been followed subject to any departures disclosed and explained in
the financial statements; and
 Prepare the financial statements on the going concern basis unless it is inappropriate to assume that the Group and
Society will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s
transactions and disclose with reasonable accuracy at any time the financial position of the Group and Society and enable them to
ensure that the financial statements comply with the Co-operative and Community Benefit Societies Act 2014 and the Co-operative
and Community Benefit Societies (Group Accounts) Regulations 1969. They are also responsible for safeguarding the assets of
the Group and Society and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors confirm that they have complied with these requirements and, having a reasonable expectation that the Group and
Society have adequate resources to continue in operational existence for the foreseeable future, have adopted the going concern
basis for preparing the financial statements.
By order of the Board
Angus Waugh
Secretary
25 July 2018
CORPORATE GOVERNANCE REPORT
Corporate governance report
The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-
term success of First Milk.
The Board
The Board of Directors is committed to operating the business with integrity, high ethical values and professionalism and aims to
achieve high standards of corporate governance.
The Board of Directors of First Milk has adopted the Corporate Governance Code for Agricultural Co-operatives (“the Code”) that
was prepared by the Scottish Agricultural Organisation Society “SAOS” and Co-operatives UK.
The Code sets out a number of high-level and supporting principles across a range of areas of governance covering the Board and
its committees, member participation in governance, and the audit and Annual Report. The Code also sets out specific provisions
against which a co-operative’s own governance can be measured.
A copy of the Code can be found at http://www.soas.coop/member-services/
As a consequence, this Corporate Governance report focuses on those aspects that are covered by the Code and should be read
in conjunction with the Audit, Finance and Risk Committee and Remuneration reports on pages 11 and 12.
Members
Members’ powers include the power to:

- Ratify (or vote not to ratify) the appointment of directors at the Annual General Meeting;
- Remove a director at an Annual General meeting or a Special General Meeting (by a two-thirds majority);
- Bring any matter for a member decision at a Special General Meeting that has the support of one-tenth of the
membership;
- Approve Rule changes that relate to key matters such as board or Council governance and changes to the member capital
structure;
- In groups of 10 or more members, bring matters of interest to the Council (members may still raise matters relating to their
own individual situations with the Society); and
- Approve acquisitions and disposals in excess of £25m.
The Council
The Council has a range of powers, including:
- Holding the board to account on behalf of members;

- Recommending candidates for the roles of board chair and vice-chair for election by members at the Annual General
Meeting;
- Approving the Nomination process for non-executive directors;
- Removing directors from office;
- Approving non-executive directors’ remuneration;
- Approving the annual budget and business plan for the Society;
- Approving acquisitions and disposals (in the case of transactions with a value in excess of £25m, prior to approval by
members);
- Approving certain matters relating to member capital, such as the setting of capital targets;
- Approving certain Rule changes; and
- Making representations to the board with regard to matters concerning members.
The Council comprises seven members who are elected directly by members of First Milk. Each year, either three or four Council
members are required to retire by rotation and may stand for re-election, subject to the rules on term limits. In 2017, Robert Craig
resigned as a Council member having been appointed as a farmer director. Scott Calderwood and Willie Purdie retired and were re-
elected. David Walker was also elected as a Council member.
The Council is chaired by an independent chairman, Dr Séan Rickard, who does not have a vote.The Council members are: Scott
Calderwood, Willie Campbell, Di Clements, Christine Kelsall, Willie Purdie, Mike Smith and David Walker.
The Council meets formally on a quarterly basis when it receives a report from the board on performance of the business against
strategic objectives and deals with other matters within its remit. The Council receives monthly information with regard to business
performance. The board also consults the Council as appropriate on matters affecting members.
Board
The role of the board of First Milk Limited is to set strategy and ensure that the business is effectively and efficiently managed and
controlled. In particular, the board is responsible for:
- Determining the strategy of the Society (subject to its approval by the Council);
- Making recommendations for strategic acquisitions and disposals (subject to approval by the Council and where
appropriate, the members);
- Overseeing the business of the Society in accordance with the strategy;
CORPORATE GOVERNANCE REPORT (CONTINUED)
Corporate governance report (continued)
- Motivating and retaining the executive management;

- Holding the executive management to account;
- Ensuring adequate succession planning;
- Overseeing a risk and internal audit framework;
- Setting the milk price paid to members;
- Setting capital targets (subject to Council approval); and
- Approving the business for the AGM.
In terms of the Rules, the board comprises seven members and is structured to bring a variety of skills and experience to the
performance of its roles. It comprises:
- A chair and two other independent non-executive directors who bring experience from diverse backgrounds;
- Two farmer directors; and
- Two executive directors, currently the chief executive and the chief financial officer.
The two farmer directors were appointed following a selection process that was overseen by a Nomination Committee set up for
this purpose and comprising directors and Council members. As with the Council selection process noted above, candidates were
assessed against set criteria and the selection process included the involvement of an independent adviser.
As with the Council, all director appointments were subject to ratification by members at the 2016 AGM. In 2018 and future years
directors will retire by rotation each year and may be eligible for re-appointment.
Other directorships held by directors of First Milk are noted below:
Director External Appointments
Clive Sharpe SFJ Holdings Limited Sharpe Associates Limited

Elite Leisure (Europe) Limited
Jim Baird Auchnotroch Wind Energy Limited
Robert Craig Peepy Farm Ltd Cairnhead Farm Limited

Royal Association of British Dairy Farmers
(The)
Shelagh Hancock Fast Forward FFW Limited* First Milk Energy Limited*
Dairy UK Limited* FMCIRRUS1 Limited
The Dairy Council Scottish Milk Dairies Limited
KCSUBCO1 Limited Scottish Milk Marketing Limited
Kingdom Dairy Company Limited Scottish Milk Products Limited
Kingdom Cheese Company Limited AXIS Milk Limited
Kingdom Cheese Company (1999) Limited Scottish Milk Limited
The Lake District Dairy Company Limited FMCIRRUS3 Limited
The Little Cheese Shop Limited FMCIRRUS2 Limited
Scottish Highlands and Islands Cheese The Pembrokeshire Cheese Company
Company Limited Limited
The First Milk Cheese Company Limited
Brian Mackie Wertheimer UK Limited AI Wertheimer Holdco UK Limited

AI Wertheimer Midco UK Limited Williams Lea Group Limited
AI Wertheimer Debtco UK Limited Scottish Milk Pension Fund Trustee
Greg Jardine First Milk Energy Limited* Scottish Milk Products Limited
Fast Forward FFW Limited* The First Milk Cheese Company Limited
Carl Ravenhall CER Business Consultancy Limited
*denotes office held as nominated First

Milk director/trustee
The Board has eleven scheduled meetings each year, and meets at other times as required. At each meeting, it receives reports
which enable it to review the Group’s performance. In addition to financial, commercial and operational information and regular
reports on safety, health and environment, the Board considers strategic matters and other issues that affect members’ interests.
The Board meetings (excluding conference calls between meetings) held in the year to 31 March 2018 and director attendance at
each meeting was as follows:
2017 2018
26/4 24/5 28/6 26/7 23/8 27/9 1/11 29/11 22/1 28/2 28/3
Clive Sharpe yes yes yes yes yes yes yes yes yes yes no
Nigel Evans yes no yes yes yes yes yes n/a n/a n/a n/a
Robert Craig n/a n/a n/a n/a yes* yes* yes* yes yes yes Yes
Jim Baird yes yes yes no yes yes yes yes yes yes yes
Brian Mackie yes yes yes yes yes yes yes yes yes yes yes
Carl Ravenhall yes yes yes yes yes yes yes yes yes yes yes
Shelagh Hancock yes yes yes yes yes yes yes yes yes yes yes
Owen Shearer yes yes yes yes yes no n/a n/a n/a n/a n/a
Greg Jardine n/a n/a n/a n/a n/a yes* yes yes yes yes yes
*as attendee prior to appointment as a director
The implementation of strategy and day-to-day operational matters are delegated to First Milk’s Executive Team, which operates
under terms of reference set by the Board. However the matters for which the board is responsible, as noted above, are reserved to
the Board.
In order to be able to devote sufficient time to strategic issues, the Board delegates certain tasks to its standing committees, which
operate under set terms of reference. Each committee comprises non-executive directors only.
First Milk’s board committee structure comprises the following committees:
Audit, Finance and Risk Committee

The Audit, Finance and Risk Committee is chaired by Brian Mackie and also comprises Jim Baird and Robert Craig.
The committee’s roles include overseeing the annual external audit, the annual internal audit plan, reviewing the effectiveness of
internal controls and risk management and monitoring First Milk’s budget process, ongoing forecasts of financial performance and
capital requirements. A report on the activities of the Audit, Finance and Risk Committee can be found on page 11.
The committee meetings held in the year to 31 March 2018 and director attendance at each meeting was as follows:
2017 2018
24/5 18/9 26/2
Brian Mackie yes yes yes
Nigel Evans* no no n/a
Jim Baird yes yes yes
Robert Craig** n/a n/a yes
*Ceased to be a member of the committee in November 2017

**Became a member of the committee in November 2017
In addition, Scott Calderwood attends committee meetings as Member Council representative.
Nomination and Remuneration Committee

The Nomination and Remuneration Committee is chaired by Carl Ravenhall and also comprises Clive Sharpe and Jim Baird.
Its roles include identifying and nominating, for Board approval, candidates for Board vacancies, considering succession planning
and the structure, size and composition of the Board and approving remuneration policies for the First Milk Group and specific
remuneration packages for senior executives. A Remuneration report can be found on page 12.
The committee meetings held in the year to 31 March 2018 and director attendance at each meeting was as follows:
2017 2018
26/4 27/9 22/1 28/2 28/3
Carl Ravenhall yes yes yes Yes yes
Clive Sharpe yes yes yes Yes yes
Nigel Evans Yes yes n/a n/a n/a
Jim Baird n/a n/a yes yes yes
In addition, Willie Campbell attends committee meetings as Member Council representative.

Sustainability committee
The Sustainability committee’s role is to review First Milk’s compliance with legal requirements on health & safety, environment and
employment matters and to review and approve First Milk’s Health and Safety strategy.
Currently the board fulfils the remit of the committee.
Member appeals committee
The Member Appeals Committee is chaired by Jim Baird and also comprises two Council Members (nominated by the Council
when an appeal is submitted), the membership Director, the Company Secretary and the Responsible Sourcing Manager.
Its role is to make decisions on matters raised by individual members relating to their membership. The board may also refer
matters to the committee. The committee meets as required when an appeal is submitted.
Board and council training and evaluation

First Milk’s Rules provide that the board and the chair of Council must ensure that a formal and rigorous evaluation of the board
and Council’s performance takes place annually. This evaluation must include a review of working practices, information flows, the
interaction between the Council and the board and must make recommendations for developmental requirements that arise from
the evaluation.
Individual performance and development reviews for the chairman and other board directors took place in December 2017. Similar
reviews took place for the Council chair and Council members the first half of 2018.
A review and evaluation of the board’s and Council’s effectiveness took place during July and August 2017. This included a review
of how the board and Council work together.
Newly appointed directors and Council members go through a comprehensive induction process. The Board also receives periodic
training as a group on areas such as health & safety and directors’ general legal duties.
First Milk’s compliance with the Corporate Governance Code for Agricultural Co-operatives
The Corporate Governance Code operates on a “comply or explain” basis, meaning that its provisions are not binding but that an
organisation that has adopted the Code should provide an explanation if it does not comply with a particular provision of the Code.
The board of First Milk monitors its compliance with the Code and is compliant with all its provisions under exception of the
following:
Code Provision 60 recommends that in order to safeguard the democratic status of the board, a co-operative should ensure that
external (non-member) directors and management directors should not exceed 49% of the board.
External (non-member) and management directors comprise five of the seven board positions. However First Milk’s democratic
status is safeguarded by the member Council having substantial powers as noted above.
Code Provision 65 states that the board should appoint, from its own number, a chair and at least one vice chair.
Appointments of the chair and vice chair are made by the board. However their appointments are then recommended by the
Council for approval by members at the Annual General Meeting.
Code provision 78 states that the secretary’s main reporting line should be to the board.
First Milk’s Secretary reports to both the board and the chief executive due to his additional roles of general counsel, administration
of member capital and provision of secretariat support to the Executive Team.
For and on behalf of the Board
Angus Waugh
Secretary
25 July 2018
AUDIT, FINANCE AND RISK COMMITTEE REPORT
Audit, finance and risk committee report
The Board has overall responsibility for internal controls, including the scope of both external and internal audits, the management
of risk and financial matters. It delegates these tasks to the Audit, Finance and Risk Committee under agreed terms of reference.
External audit
The Audit, Finance and Risk Committee meets with the external audit firm at least twice in the course of the year, first to review the
scope of the external audit plan and then to receive and discuss the audit report and financial statements. The Committee also
makes recommendations on the appointment of the external auditors, the fees payable for work carried out by the audit firm and
reports to the Board in respect of non-audit services carried out by the auditors. In considering all of the above, the Committee has
due regard to the cost effectiveness, independence and objectivity of the audit function.
Deloitte LLP was re-appointed by members as First Milk’s external auditors at the Annual General Meeting in November 2017.
Their report on the financial statements can be found on page 13 and 14.
Risk and controls

The Audit, Finance and Risk Committee monitors internal control procedures and reviews their effectiveness on an ongoing basis.
There are inherent limitations in any system of internal control, which can provide only reasonable, and not absolute, assura nce
with respect to the preparation of financial information and the safeguarding of assets.
The key features of the internal control system that operated throughout the year covered by the financial statements are:
 A control environment based on a clearly defined organisational structure;

 The identification and evaluation of business risk, control actions and monitoring activities to manage risk and establish
priorities for the allocation of resources;
 The operation of control procedures covering financial transactions, verification and reconciliation procedures,
commitment and authorisation limits, asset recording and protection; and
 A monitoring process particularly through the operating plan, forecast review and trading reporting processes, which
highlights the key business performance indicators, risks and significant variances from expectations.
The Audit, Finance and Risk Committee and the Board review the key risk areas and relevant controls to ensure that, as far as
possible, controls are being operated in line with the established procedures. Risks are monitored through the maintenance and
review of a risk register that identifies the key risks faced by the business and actions to control and reduce these risks. On an on-
going basis, steps are taken to deal with areas of improvement which come to the attention of management and the Board.
The Audit, Finance and Risk Committee, in consultation with management, reviews key risk areas and relevant controls across the
Group periodically. The Committee then decides which areas of the business should be the subject of internal audit reviews to
ensure that appropriate controls are in place and working.
Financial reporting, budget process, forecasts, financial performance and capital requirements
Under Terms of Reference approved by the Board, the Audit, Finance and Risk Committee also reviews and monitors First Milk’s
financial reporting, budget process, on-going forecasts of financial performance, capital requirements and pension matters.
Although the Board retains primary responsibility for these matters, the committee is able to give detailed consideration to such
matters and report to the Board on key issues.
For and on behalf of the Audit, Finance and Risk Committee
Brian Mackie
Chairman of the Audit, Finance and Risk Committee
25 July 2018
REMUNERATION REPORT
Remuneration report
First Milk’s Rules provide that the member Council has the power to set director remuneration.
The Board has overall responsibility for remuneration and has delegated its duties relating to their remuneration to the Nomination
and Remuneration Committee under agreed terms of reference. The Nomination and Remuneration Committee sets the
remuneration of Council members.
The member Council has delegated the power to set executive remuneration to the Nomination and Remuneration Committee.
Executive remuneration
The following principles are applied to executive remuneration within First Milk:
 Total remuneration for all executives should be sufficiently market competitive in total annual cash terms to attract and
retain the calibre of executive required, bearing in mind that this must also reflect the nature and purpose of First Milk
Limited as a member owned co-operative; and
 The overall remuneration policy is to operate a clear, consistent and easy to communicate remuneration structure based
around competitive salaries and a bonus scheme that rewards excellent corporate and individual performance. In
particular the bonus scheme must take account of the absence of any share option scheme. The bonus scheme must also
align the interests of employees with that of members of First Milk. This is achieved by basing a significant proportion of
the rewards potentially payable under the scheme on improvements in First Milk’s milk price relative to the published milk
prices of other milk buyers.
These principles apply to executives across the Group.
Details of the remuneration of the Chief Executive and Group Finance Director/Chief Financial Officer in the years to 31 March
2018 and 31 March 2017 can be found in note 5 to the financial statements.
All employees of the Group are given the opportunity to participate in a defined contribution pension scheme. First Milk Limited
participates in the Scottish Milk Limited Retirement Benefits Plan and the Milk Pension Fund, both of which are defined benefit
schemes and are closed to new entrants and future accrual.
Non-executive remuneration
The Council, in consultation with the Nomination and Remuneration Committee, reviews the fees of non-executive directors to
ensure that the level of fees paid is appropriate for the duties, responsibilities and time commitment of directors. These reviews also
ensure that non-executive directors’ fees are not out of step with fees paid in comparable businesses.
Currently the annual fees paid to the non-executive chairman, vice-chairman (who is also a farmer director) and other non-
executive directors of First Milk are £90,000, £50,000 and £35,000, respectively.
The Council reviewed non-executive directors’ fees in early 2018, taking into account available benchmarking information and the
fees paid to directors of comparable businesses. Following that review, the Council agreed not to make any changes to non-
executive remuneration but to review such remuneration on an annual basis.
Brian Mackie receives £10,000 per annum in respect of work he carries out on behalf of First Milk in relation to the Scottish Milk
Limited Retirement Benefits Plan and the Milk Pension Fund in addition to his director’s duties. This additional payment began on 1
October 2017. In the year to 31 March 2018, he received £5,000 for this work in addition to his remuneration as a director.
No changes to the fees currently paid to the chairman, the vice-chairman, the other non-executive directors and council members
are proposed at present. However the level of these fees will be kept under review and appropriate benchmarking of fees will be
undertaken.
For and on behalf of the

Nomination and Remuneration Committee
Carl Ravenhall
Chairman of the Nomination and Remuneration Committee
25 July 2018
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF FIRST MILK LIMITED
Independent auditor’s report to the members of First Milk Limited
Report on the audit of the financial statements
Opinion
In our opinion the financial statements of First Milk Limited (the ‘society’) and its subsidiaries (the ‘group’):
 give a true and fair view of the state of the group’s and of the society’s affairs as at 31 March 2018 and of the group’s and
of the society’s profit for the year then ended;
 have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including
Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”; and
 have been prepared in accordance with the Co-operative and Community Benefit Societies Act 2014.
We have audited the financial statements which comprise:

 the consolidated and society profit and loss account;
 the consolidated and society statement of comprehensive income;
 the consolidated and society balance sheets;
 the consolidated and society statements of changes in equity;
 the consolidated and society cash flow statement; and
 the related notes 1 to 26.
The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting
Standards, including Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the UK and Republic of
Ireland” (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor's responsibilities for the audit of the financial statements
section of our report.
We are independent of the group and the society in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard, and we have fulfilled our
other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern

We are required by ISAs (UK) to report in respect of the following matters where:
 the directors’ use of the going concern basis of accounting in preparation of the financial statements is not appropriate;
or
 the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant
doubt about the group’s or the society’s ability to continue to adopt the going concern basis of accounting for a period of
at least twelve months from the date when the financial statements are authorised for issue.
We have nothing to report in respect of these matters.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual
report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover
the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we
are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the society’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless the directors either intend to liquidate the group or the society or to cease operations, or have no realistic alternative but to
do so.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF FIRST MILK LIMITED
Audiotr’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Report on other legal and regulatory requirements
Matters on which we are required to report by exception

Under the Co-operative and Community Benefit Societies Act 2014 we are required to report in respect of the following matters if, in
our opinion:
 a satisfactory system of control over transactions has not been maintained; or
 the society has not kept proper accounting records; or
 the financial statements are not in agreement with the books of account; or
 we have not received all the information and explanations we require for our audit.
Use of our report

This report is made solely to the society’s members, as a body, in accordance with section 87 of the Co-operative and Community
Benefit Societies Act 2014. Our audit work has been undertaken so that we might state to the society’s members those matters we
are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the society and the society’s members as a body, for our audit work, for this report,
or for the opinions we have formed.
Deloitte LLP
Statutory Auditor
Glasgow
25 July 2018
PROFIT AND LOSS ACCOUNTS
Profit and loss accounts for the year ended 31 March 2018
2018 2017
Note Group Society Group Society
£'000 £'000 £'000 £'000
Turnover - continuing operations 2 252,715 219,527 206,468 168,897

Less: share of joint ventures' turnover 12 (4,561) - (3,878) -
Total turnover 248,154 219,527 202,590 168,897
Cost of sales (233,848) (210,303) (181,437) (158,716)
Gross profit 14,306 9,224 21,153 10,181
Administrative expenses
- Recurring (7,679) (6,804) (9,426) (7,198)
- Exceptional items 3 (1,496) (1,056) (2,309) (3,175)
(9,175) (7,860) (11,735) (10,373)
Operating profit
- Continuing operations 5,131 1,364 9,418 (192)
Share of operating profit/ (loss) in joint ventures

- Continuing operations 12 377 - 470 -
Profit before interest 5,508 1,364 9,888 (192)
Finance income 7 20 20 21 21
Finance costs 8 (2,097) (1,127) (3,439) (1,242)
Profit/ (loss) on ordinary activities before taxation 3,431 257 6,470 (1,413)
Tax on profit/ (loss) on ordinary activities 9 (275) (249) (425) (425)
Profit/ (loss) for the financial year 3,156 8 6,045 (1,838)
Statements of other comprehensive income for the year ended 31 March 2018
2018 2017
£'000 £'000 £'000 £'000
Profit/ (loss) for the financial year:
Group/Society 2,779 8 5,575 (1,838)
Associates and joint ventures 377 - 470 -
3,156 8 6,045 (1,838)
Other comprehensive income:

Actuarial gain/ (loss) relating to the pension schemes 23 494 494 (8,254) (8,254)
Third party contribution to defined benefit pension scheme - - 487 487
UK deferred tax attributable to actuarial (loss)/ gain 9 (393) (393) 1,324 1,324
Other comprehensive income/ (expense) for the year net of tax 101 101 (6,443) (6,443)
Total comprehensive income/ (loss) for the year 3,257 109 (398) (8,281)
BALANCE SHEETS
AT 31 MARCH 2018
COMPANY NUMBER: IP29199R
Balance sheets as at 31 March 2018
2018 2017
£'000 £'000 £'000 £'000
Fixed Assets
Intangible fixed assets 10 - - - -
Property, plant and equipment 11 31,202 262 32,717 333
Investments in subsidiary undertakings 12 - 32,470 - 32,853
Investments in joint ventures 12 931 826 554 826
Total fixed assets 32,133 33,558 33,271 34,012
Current assets
Inventories 13 50,672 - 43,462 122
Trade and other receivables 14 30,243 30,334 27,940 27,952
Cash and cash equivalents 396 269 4,607 2,930
81,311 30,603 76,009 31,004
Trade and other payables amounts falling due
within one year 15 (32,488) (22,420) (32,086) (23,242)
Net current assets 48,823 8,183 43,923 7,762
Total assets less current liabilities 80,956 41,741 77,194 41,774
Trade and other payables amounts falling due

after more than one year 16 (43,743) (1,497) (41,599) -
Provisions for liabilities and charges 19 - - - -
Total net assets employed excluding pension

liability 37,213 40,244 35,595 41,774
Pension liability 23 (9,777) (9,777) (13,554) (13,554)
Net assets 27,436 30,467 22,041 28,220
Capital and reserves

Share capital 21 75,508 75,508 73,886 73,886
Profit and loss reserve (48,072) (45,041) (51,845) (45,666)
Total capital and reserves 27,436 30,467 22,041 28,220
The financial statements on pages 15 to 45 were approved by the Board of Directors on 25 July 2018 and signed on its behalf by:
Shelagh Hancock – Director Greg Jardine – Director

GROUP STATEMENT OF CHANGE IN EQUITY
Group statement of change in equity for the year ended 31 March 2018
Share Income &

Note Capital Expenditure Loan Capital Total
£'000 £'000 £'000 £'000
Balance as at 1 April 2016 8,616 (52,555) 61,305 17,366
Profit for the financial year - 6,045 - 6,045
Other comprehensive income for the year:

Actuarial loss relating to the pension schemes 23 - (8,254) - (8,254)
Third party contribution to defined benefit pension scheme - 487 - 487
UK deferred tax attributable to actuarial gain - 1,324 - 1,324
Total comprehensive (expense) / income for the year - (398) - (398)
Shares issued 1,504 - - 1,504

Shares cancelled (1,108) 1,108 - -
Capital repaid to members - - (9) (9)
Increase in year (member contributions) - - 1,404 1,404
Transfer of 'B' Preference shares, Members capital 64,874 - (62,700) 2,174

accounts and debentures to 'C' Preference shares
Total transactions with owners recognised directly in capital 65,270 1,108 (61,305) 5,073
Balance as at 31 March 2017 73,886 (51,845) - 22,041
Profit for the financial year - 3,156 - 3,156

Actuarial gain relating to the pension schemes 23 - 494 - 494
Third party contribution to defined benefit pension scheme - - - -
UK deferred tax attributable to actuarial loss - (393) - (393)
Total comprehensive income for the year - 3,257 - 3,257

Shares cancelled (516) 516 - -
Capital repaid to members - - - -
Increase in year (member contributions) - - - -
Total transactions with owners recognised directly in

capital 1,622 516 - 2,138

SOCIETY STATEMENT OF CHANGES IN EQUITY
Society statement of changes in equity for the year ended 31 March 2018
Income & Total capital

Note Share Capital Expenditure Loan Capital and reserves
£'000 £'000 £'000 £'000
Balance as at 1 April 2016 8,616 (38,494) 61,305 31,427
(Loss) for the financial year - (1,838) - (1,838)
Other comprehensive income for the year -

Actuarial loss relating to the pension schemes 23 - (8,254) - (8,254)
Third party contribution to defined benefit pension scheme - 487 - 487
UK deferred tax attributable to actuarial loss - 1,325 - 1,325
- (8,280) - (8,280)

Shares cancelled (1,108) 1,108 - -
Capital repaid to members - - (9) (9)
Increase in year (member contributions) - - 1,404 1,404
Transfer of 'B' Preference shares, Members capital
accounts, and debentures to 'C' Preference shares 64,874 - (62,700) 2,174

capital 65,270 1,108 (61,305) 5,073
Profit for the financial year - 8 - 8

Actuarial loss relating to the pension schemes 23 - 494 - 494
Third party contribution to defined benefit pension scheme - - - -
UK deferred tax attributable to actuarial loss - (393) - (393)
Total comprehensive income/ (expense) for the year - 109 - 109

Shares cancelled (516) 516 - -
Capital repaid to members - - - -
Increase in year (member contributions) - - - -

capital 1,622 516 - 2,138

STATEMENTS OF CASH FLOWS
Statements of cash flows for the year ended 31 March 2018
2018 2017
£'000 £'000 £'000 £'000
Net cash from operating activities 22 (5,029) (6,482) (2,494) 5,784
Taxation paid - - - -
Net cash (used in) / generated from operating activities (5,029) (6,482) (2,494) 5,784
Cash flow from investing activities

Finance income 20 20 21 -
Purchase of property, plant and equipment (3,179) (67) (3,772) (176)
Proceeds from sale of investment - - 242 -
Proceeds from sale of property, plant and equipment 250 - 202 -
Movement in loans with joint ventures 686 686.00 - -
Net cash used in investing activities (2,223) 639 (3,307) (176)
Cash from financing activities

Finance costs (1,171) (453) (2,588) (391)
Net proceeds from members 2,138 2,138 2,899 2,899
Drawdown / (repayment) of loans 2,074 1,497 9,747 (5,297)
(Decrease)/ increase in debt facilities - - - -
Net cash generated from/ (used in) financing activities 3,041 3,182 10,058 (2,789)
Net (decrease) / increase in cash and cash equivalents (4,211) (2,661) 4,257 2,819
Cash and cash equivalents at the beginning of the year 4,607 2,930 350 111
Cash and cash equivalents at the end of the year 396 269 4,607 2,930
NOTES TO THE FINANCIAL STATEMENT YEAR ENDED 31 MARCH 2018
1. Accounting policies
General information
First Milk Limited is a dairy farmers’ co-operative registered under the Co-operative and Community Benefit Societies Act 2014 and
is incorporated in Scotland. The registered office is Cirrus House, Glasgow Airport Business Park, Marchburn Drive, Paisley PA3
2SJ.
The principal activities of the Group and Society are the marketing of milk on behalf of its members and the manufacture and sale
of dairy and lifestyle nutritional products.
Statement of compliance
The Group and individual financial statements of First Milk Limited have been prepared in compliance with United Kingdom
Accounting Standards, including Financial Reporting Standard 102, ‘‘The Financial Reporting Standard applicable in the United
Kingdom and the Republic of Ireland’’ (‘‘FRS 102’’) and in accordance with the Co-operative and Community Benefit Societies Act
2014 and the Co-operative and Community Benefit Societies (Group Accounts) Regulations 1969.
Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated and separate financial statements are set out
below. These policies have been consistently applied to all the years presented, unless otherwise stated.
Basis of preparation
These consolidated and parent company 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 Co-operative and Community Benefit
Societies Act 2014 and the Co-operative and Community Benefit Societies (Group Accounts) Regulations 1969.
The preparation of financial statements in conformity with FRS 102 requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying the Society’s accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are
disclosed in ‘Critical accounting judgements and key source of estimation uncertainty’ section of this note.
Going concern
The consolidated financial statements have been prepared on a going concern basis.
Current Trading and Borrowings

The year to 31 March 2018 saw a second profitable year at both the Operating Profit level and Profit level, with profits delivered in
line with plans. The Group’s operating profit before exceptional items was £6,627k (2017: £11,727k). Finance interest and
exceptional costs reduced further in the year to 31 March 2018, resulting in a net profit for the year of £3,156k, compared to a profit
of £6,045k in 2017. In the first months of the year to 31 March 2019 trading is tracking in line with the projections set at the
beginning of the year.
The Group’s net bank debt increased from £38,626k to £44,911k during the year, mainly as a result of changes in the value of
cheese stocks due to market price movements. Overall borrowings have remained broadly at the same level in the first months of
the year to 31 March 2019.
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 £2.1m.
The business is in the second year of a 4-year facilities agreement with a debt provider, Wells Fargo. 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 and The First Milk Cheese Company Limited. There are financial covenants applicable to these facilities, with which we
have been in compliance since the inception of the facilities which are repayable on 31 January 2021. The maximum facility
available to the Group is £60 million, with the amount available at any time depending on the value of stock and debtors and is
based on a percentage draw-down specified in the facility agreement. The amount available from the facility at 25 July 2018 was
£58,377 k (31 March 2018: £56,648k). In addition to the facility there is a term loan based on fixed asset values which at 25 July
2018 was £4,300k(31 March 2018: £4,700k). The Board’s forecasts show that there is adequate headroom within this level of debt
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 price paid for milk supplies and other costs will fluctuate with returns available to the business to ensure the projected
profitability is achieved;
 there is no material diminution in the bank facilities available to the Group as a result of the market value of stock falling,
given this is a factor in establishing the amount of the borrowing facilities available to the Group, or other adverse working
capital movements;
Accounting policies (continued)
 key customer and supplier contracts continue as per their existing commercial arrangements over the contractually agreed
periods.
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 financial projections and the existence of debt
facilities which will be available until 31 January 2021, the Group will have sufficient funding to continue as a going conce rn for at
least the next twelve months.
Exemptions for qualifying entities under FRS 102

FRS 102 allows a qualifying entity certain disclosure exemptions if certain conditions, have been complied with. 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. First Milk Limited can take exemptions in its standalone financial statements.
As a qualifying entity, the Society has taken advantage of the following exemptions:
i) from the requirement to present certain financial instrument disclosures, as required by sections 11 and 12 of FRS 102.
Basis of consolidation
The Group financial statements incorporate the financial statements of First Milk Limited and its subsidiary undertakings made up to
31 March 2018.
A subsidiary is an entity controlled by the Group. Control is the power to govern the financial and operating policies of an entity so
as to obtain benefits from its activities. Where the Group owns less than 50% of the voting powers of an entity but controls the
entity by virtue of an agreement with other investors which give it control of the financial and operating policies of the entity it
accounts for that entity as a subsidiary.
Where a subsidiary has different accounting policies to the Group, adjustments are made to those subsidiary financial statements
to apply the Group’s accounting policies when preparing the consolidated financial statements.
A jointly controlled entity is a joint venture that involves the establishment of a corporation, partnership or other entity in which each
venture has an interest. The entity operates in the same way as other entities, except that a contractual arrangement between the
ventures establishes joint control over the economic activity of the entity.
In the consolidated financial statements, shares in joint ventures are accounted for using the equity method. The consolidated
income statement includes the Group’s share of the pre-tax profits or losses and attributable taxation of the joint venture based on
the latest available financial statements for these undertakings.
The Group’s share of the net assets of these undertakings is shown in the consolidated balance sheet. The Group’s share of joint
venture revenue is included in total revenue in the income statement.
Any subsidiary undertakings sold or acquired during the year are included up to, or from, the dates of change of control.
Where control of a subsidiary is lost, the gain or loss is recognised in the consolidated income statement at cost. The cumulative
amounts of any exchange differences on translation, recognised in equity, are not included in the gain or loss on disposal and are
transferred to income and expenditure. The gain or loss also includes amounts included in other comprehensive income that are
required to be reclassified to profit or loss but excludes those amounts that are not required to be reclassified.
All intra-Group transactions, balances, income and expenses are eliminated on consolidation.
Foreign currency
i) Functional and presentation currency
The Group financial statements are presented in pounds sterling and rounded to thousands.
The Society’s functional and presentation currency is the pound sterling (£).
ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the spot exchange rates at the dates of the
transactions.
At each period end foreign currency monetary items are translated using the closing rate. Non-monetary items measured at
historical cost are translated using the exchange rate at the date of the transaction and non-monetary items measured at fair value
are measured using the exchange rate when fair value was determined.
Foreign exchange gains and losses resulting from the settlement of transactions and from the translation at period-end exchange
rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement
within ‘finance (expense)/ income’. All other foreign exchange gains and losses are presented in the income statement within ‘Other
operating (losses)/gains’.
Revenue recognition
Group and society

Revenue, which is stated net of value added tax, represents amounts invoiced to third parties for goods or services supplied during
the year, and is recognised on the sale of milk and other ingredients products at the point of collection and on dispatch of cheese.
Revenue and operating surplus relate to the continuing operations of the Group and are all attributable to the principal business
activity, being the marketing, manufacture and sale of milk, cheese and other dairy and lifestyle nutritional products.
Society
The revenue and operating surplus relate to continuing operations within the UK. For the Society, these include intra group
transactions which are eliminated on consolidation in the Group figures.
Exceptional items
The Group classifies certain charges or credits that have a significant impact on the Group’s financial results as ‘exceptional items’.
These are disclosed separately to provide further understanding of the financial performance of the Group.
Employee benefits
The Group provides a range of benefits to employees, including annual bonus arrangements, paid holiday arrangements and
defined benefit and defined contribution pension plans.
i) Short term benefits
Short term benefits, including holiday pay and other similar non-monetary benefits, are recognised as an expense in the period in
which the service is received.
ii) Defined contribution pension plans
The Group operates a defined contribution plan for its employees. A defined contribution plan is a pension plan under which the
Group pays fixed contributions into a separate entity. Once the contributions have been paid the Group has no further payment
obligations. The contributions are recognised as an expense when they are due. Amounts not paid are shown in accruals in the
balance sheet. The assets of the plan are held separately from the Group in independently administered funds.
iii) Defined benefit pension plans
The Group operates two defined benefit plans for certain employees. A defined benefit plan defines the pension benefit that the
employee will receive on retirement, usually dependent upon several factors including age, length of service and remuneration. A
defined benefit plan is a pension plan that is not a defined contribution plan. Both plans are now closed to new members.
The liability recognised in the balance sheet in respect of each defined benefit plan is the present value of the defined benefit
obligation at the end of the reporting date less the fair value of the plan assets at the reporting date.
NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 MARCH 2018
Employee benefits (continued)

iii) Defined benefit pension plans (continued)
The defined benefit obligation is calculated using the projected unit credit method. The actuarial valuations are obtained at least
triennially and are updated at each balance sheet date. The present value is determined by discounting the estimated future
payments using market yields on high quality corporate bonds that are denominated in sterling and that have terms approximating
the estimated period of the future payments (‘discount rate’).
The fair value of plan assets is measured in accordance with the FRS 102 fair value hierarchy and in accordance with the Society’s
policy for similarly held assets. This includes the use of appropriate valuation techniques.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to
other comprehensive income. These amounts together with the return on plan assets, less amounts included in net interest, are
disclosed as ‘Remeasurement of net defined benefit liability’.
The cost of the defined benefit plan, recognised in profit or loss as employee costs, except where included in the cost of an asset,
comprise the cost of plan introductions, benefit changes, curtailments and settlements.
The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair
value of plan assets. This cost is recognised in profit or loss as ‘Finance expense’.
Taxation
Taxation expense for the period comprises current and deferred tax recognised in the reporting period. Tax is recognised in the
income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this
case tax is also recognised in other comprehensive income or directly in equity respectively.
Current or deferred taxation assets and liabilities are not discounted.
i) Current tax
Current tax is the amount of income tax payable in respect of the taxable profit for the year or prior years. Tax is calculated on the
basis of tax rates and laws that have been enacted or substantively enacted by the period end.
ii) Deferred tax
Deferred tax arises from timing differences that are differences between taxable profits and total comprehensive income as stated
in the financial statements. These timing differences arise from the inclusion of income and expenses in tax assessments in periods
different from those in which they are recognised in financial statements.
Deferred tax is recognised on all timing differences at the reporting date except for certain exceptions. Unrelieved tax losses and
other deferred tax assets are only recognised when it is probable that they will be recovered against the reversal of deferred tax
liabilities or other future taxable profits.
Deferred tax is measured using tax rates and laws that have been enacted or substantively enacted by the period end and that are
expected to apply to the reversal of the timing difference.
Business combinations and goodwill

Business combinations are accounted for by applying the purchase method.
The cost of a business combination is the fair value of the consideration given, liabilities incurred or assumed and of equity
instruments issued plus the costs directly attributable to the business combination. Where control is achieved in stages the cost is
the consideration at the date of each transaction.
On acquisition of a business, fair values are attributed to the identifiable assets, liabilities and contingent liabilities unless the fair
value cannot be measured reliably, in which case the value is incorporated in goodwill. Where the fair value of contingent liabilities
cannot be reliably measured they are disclosed on the same basis as other contingent liabilities.
Goodwill recognised represents the excess of the fair value and directly attributable costs of the purchase consideration over the
fair values to the Group’s interest in the identifiable net assets, liabilities and contingent liabilities acquired.
On acquisition, goodwill is allocated to cash-generating units (‘CGU’s’) that are expected to benefit from the combination.
Business combinations and goodwill (continued)

Goodwill is amortised over its expected useful life. Where the Group is unable to make a reliable estimate of useful life, goodwill is
amortised over a period not exceeding 5 years. Goodwill is assessed for impairment when there are indicators of impairment and
any impairment is charged to the income statement. Reversals of impairment are recognised when the reasons for the impairment
no longer apply.
Property, plant and equipment

All property, plant and equipment are stated at historical cost less accumulated depreciation and impairment. Historical cost
includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s
carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits
associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance
expenditures are charged to the income statement during the financial year in which they are incurred.
Depreciation is calculated to write off the cost or valuation of property, plant and equipment by equal annual instalments over their
estimated useful lives.
The useful lives assumed for buildings vary between 20 and 50 years and for plant, equipment and vehicles between 4 and 15
years. Land is not depreciated.
Tangible assets are derecognised on disposal or when no future economic benefits are expected. On disposal, the difference
between the net disposal proceeds and the carrying amount is recognised in profit or loss and included in ‘Other operating
(losses)/gains’.
Leases
At inception the Group assesses agreements that transfer the right to use assets. The assessment considers whether the
arrangement is, or contains, a lease based on the substance of the arrangement.
i) Operating leased assets
Leases that do not transfer all the risk and rewards of ownership are classified as operating leases. Payments under operating
leases are charged to the income statement on a straight-line basis over the period of the lease.
ii) Lease incentives
Incentives received to enter into an operating lease are credited to the income statement, to reduce the lease expense, on a
straight-line basis over the period of the lease.
Impairment of non-financial assets

At each balance sheet date non-financial assets not carried at fair value are assessed to determine whether there is an indication
that the asset (or asset’s cash generating unit) may be impaired. If there is such an indication the recoverable amount of the asset
(or asset’s cash generating unit) is compared to the carrying amount of the asset (or asset’s cash generating unit).
The recoverable amount of the asset (or asset’s cash generating unit) is the higher of the fair value less costs to sell and value in
use. Value in use is defined as the present value of the future cash flows before interest and tax obtainable as a result of the
asset’s (or asset’s cash generating unit) continued use. These cash flows are discounted using a pre-tax discount rate that
represents the current market risk-free rate and the risks inherent in the asset.
If the recoverable amount of the asset (or asset’s cash generating unit) is estimated to be lower than the carrying amount, the
carrying amount is reduced to its recoverable amount. An impairment loss is recognised in the income statement, unless the asset
has been revalued when the amount is recognised in other comprehensive income to the extent of any previously recognised
revaluation. Thereafter any excess is recognised in profit or loss.
If an impairment loss is subsequently reversed, the carrying amount of the asset (or asset’s cash generating unit) is increased to
the revised estimate of its recoverable amount, but only to the extent that the revised carrying amount does not exceed the carrying
amount that would have been determined (net of depreciation or amortisation) had no impairment loss been recognised in prior
periods. A reversal of an impairment loss is recognised in the income statement.
Goodwill is allocated on acquisition to the cash generating unit expected to benefit from the synergies of the combination. Goodwill
is included in the carrying value of cash generating units for impairment testing.
Investments - society
i) Investment in subsidiary company
Investment in a subsidiary company is held at cost less accumulated impairment losses.
ii) Investment in joint venture entities
Investment in joint venture entity is held at cost less accumulated impairment losses.
At each reporting date investments are assessed to determine whether there is an indication that the asset may be impaired. If
there is such an indication the recoverable amount of the investments is compared to the carrying amount of the asset.
If the recoverable amount of the investments is estimated to be lower than the carrying amount, the carrying amount is reduced to
its recoverable amount. An impairment loss is recognised in the income statement immediately.
Government grants
Government grants relating to property, plant and equipment are treated as deferred income and released to the profit and loss
account over the expected useful lives of the assets concerned. Other grants are credited to the profit and loss account as the
related expenditure is incurred.
Inventories
Inventories of milk are valued at the lower of cost and estimated selling price less costs to sell. Cost is the prevailing monthly
payment for milk purchased. Inventories of cheese and other inventories are valued at the lower of cost and estimated selling price
less cost to sell. Where applicable, cost includes direct costs, direct labour and an attributable proportion of manufacturing
overheads based on normal levels of activity. Provision is made for obsolete, slow moving or defective items where appropriate.
Cost is determined on the basis of standard cost, adjusted for production and price variances.
At the end of each reporting period inventories are assessed for impairment. If an item of inventory is impaired, the identified
inventory is reduced to its selling price less costs to complete and sell and an impairment charge is recognised in the income
statement. Where a reversal of the impairment is required the impairment charge is reversed, up to the original impairment loss,
and is recognised as a credit in the income statement.
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.
Provisions
A provision is recognised when the Group has a legal or constructive obligation as a result of a past event and it is probable that an
outflow of economic benefits will be required to settle the obligation; and the amount of the obligation can be estimated reliably. If
the effect is material, expected future cash flows are discounted using a pre-tax rate that reflects, where appropriate, the risks
specific to the liability.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by
considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one
item included in the same class of obligations might be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax
rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the
provision due to passage of time is recognised as a finance cost.
Financial instruments
The Group 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.
Financial instruments (continued)
i) Financial assets (continued)
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.
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.
2. Turnover
Group
Turnover, which is stated net of value added tax, represents amounts invoiced to third parties for goods or services supplied during
the year, and is recognised on the sale of milk and other ingredients products at the point of collection and on dispatch of cheese.
Turnover and operating surplus relate to the continuing operations of the Group and are all attributable to the principal bus iness
activity, being the marketing, manufacture and sale of milk, cheese and other dairy and lifestyle nutritional products.
The majority of turnover is to the UK with £36.4m (2017: £32.1m) being to Continental Europe. Sales to the rest of the world were
£0.2m (2017: £0.2m).
Society
The turnover and operating surplus relate to continuing operations within the UK and include intra group transactions which are
eliminated on consolidation in the Group figures.
3. Exceptional items
Total exceptional costs of £1,496k in the Group profit and loss account for 2018 comprise professional fees of £80k, redundancy
costs of £906k, £407k in relation to the sale of the Mauchline site and £103k in other costs.
Total exceptional costs of £2,309k in the Group profit and loss account for 2017 comprise professional fees of £554k, redundancy
costs of £948k, £783k in relation to the disposal of the CNP business and £24k in relation to depot closures.
The exceptional costs of £1,056k in the Society profit and loss account for 2018 comprise professional fees of £80k, redundancy
costs of £480k, £11k in relation to the disposal of the Mauchline site, £102k in sundry costs and £383k in relation to the impairment
of the investment in Scottish Milk Products Limited.
The exceptional costs of £3,175k in the Society profit and loss account for 2017 comprise £1,274k impairment charge on
investments in subsidiaries, professional fees of £423k, redundancy costs of £817k, £11k income in relation to the disposal of the
CNP business, £25k in relation to depot closures and £647k write off of CNP investment.
4. Operating profit
2018 2017
Group Society Group Society
£'000 £'000 £'000 £'000
Operating profit is stated after charging/(crediting):

Depreciation and impairment of property, plant and machinery (note 11) 3,894 138 3,927 241
Impairment of investments (note 12) - 383 - 1,024
Loss on disposal of subsidiary undertaking - - 783 1,430
Loss on disposal of property, plant and equipment 549 - - -
Operating lease rentals 292 203 304 203
Auditor's remuneration:
Audit Services:
-audit of society and group financial statements 66 66 60 60
-audit of subsidiary companies 60 - 60 -
Non-Audit services:
-tax services 27 27 26 26
Government grants released (182) - (119) -
5. Directors’ remuneration
The executive directors are all employed by the Society and their remuneration, excluding pension contributions, was as follows:
2018 2017
Salary Benefits in kind Bonuses Total Total

£ £ £ £ £
Mike Gallacher - - - - 602,488
Brian Mackie (to 31 October 2016) - - - - 108,266
Owen Shearer (to 30 September 2017) 57,563 4,699 - 62,262 55,611
Shelagh Hancock 220,000 13,619 108,240 341,859 -
Greg Jardine (from 1 October 2017) 62,500 5,497 15,458 83,455 -
340,063 23,815 123,698 487,576 766,365
During the year to 31 March 2018, a termination payment of £110,908 was paid to Owen Shearer in addition to the remuneration
noted above.
5. Directors’ remuneration - continued
The remuneration received by the non-executive and farmer elected and selected directors, who were all employed by the Society,
was as follows:
2018 2017
£ £
Clive Sharpe 90,000 90,000

Nigel Evans (to 2 November 2017) 35,000 60,000
Jim Baird 41,250 35,000
Brian Mackie 40,000 14,584
Carl Ravenhall 35,000 35,000
Robert Craig (from 2 November 2017) 14,583 -
255,833 234,584
In the year to 31 March 2018, Brian Mackie received £5,000 in addition to his remuneration as a director for the work he carried out
in relation to the Scottish Milk Limited Retirement Benefits Plan and the Milk Pension Fund.
The aggregate emoluments paid to directors in the year to 31 March 2018 were £854k (2017: £1,555k).
No directors (2017: none) accrued benefits during the year under defined benefit pension schemes. No directors (2017: none)
accrued post-employment benefits under defined contribution pension schemes.
Key management includes the executive directors and members of the Executive team. The compensation paid or payable to key
management for employee services is shown below:
2018 2017
£'000 £'000
Executive Team (excluding executive directors listed above) 747 862
6. Employee Information
Staff costs and the average monthly number of persons (including executive directors) employed by the Group and Society during
the year was:
2018 2017
£'000 £'000 £'000 £'000
Staff costs
Wages and salaries 9,545 3,288 10,663 3,907
Social security costs 970 367 1,126 463
Other pension costs 512 198 593 223
11,027 3,853 12,382 4,593
Employee numbers
Selling and distribution 16 16 19 19
Administration 73 45 71 46
Production 171 - 202 -
260 61 292 65
7. Finance income
2018 2017
£'000 £'000 £'000 £'000
Interest on short-term deposits with banks 2 2 - -

Interest from Joint Venture 18 18 21 21
Total finance income on financial assets not measured at fair value through
the profit and loss account 20 20 21 21
Total finance income 20 20 21 21
8. Finance costs
2018 2017
£'000 £'000 £'000 £'000
Bank loans, overdrafts and revolving credit facilities 1,423 453 2,588 391
Pension scheme net finance cost (note 23) 674 674 851 851
Total finance costs 2,097 1,127 3,439 1,242
9. Tax on profit/ (loss) on ordinary activities
2018 2017
£'000 £'000 £'000 £'000
Current tax 37 - - -
Deferred tax
Reversal of timing differences 266 279 500 500
Effect of changes in tax rates (28) (29) (75) (75)
Total deferred tax 238 249 425 425
Total tax per income statement 275 249 425 425

9. Tax on profit/ (loss) on ordinary activities
Tax (income)/ expense included in other comprehensive income:
2018 2017
£'000 £'000 £'000 £'000
Deferred tax current year charge / (credit) 393 393 (1,324) (1,324)
The standard rate of tax for the year, based on the UK standard rate of corporation tax, is 19% (2017: 20%). The actual tax charge
for the current and the previous year differs from the standard rate for the reasons set out in the following reconciliation:
2018 2017
£'000 £'000 £'000 £'000
Profit/ (loss) on ordinary activities before tax 3,431 257 6,470 (1,413)
Tax on profit/ (loss) on ordinary activities
at standard rate of 19% (2017: 20%) 652 49 1,294 (283)
Expenses not deductible 135 93 405 464

Income not taxable (36) (1) (83) (41)
Deferred tax not provided (485) 65 396 360
Utilisation of tax losses not recognised 37 72 (1,512) -
Tax rate changes (28) (29) (75) (75)
Total tax charge 275 249 425 425
The UK corporation tax rate fell from 20% to 19%, effective from 1 April 2018.
In addition to this change in rate, a further change to the UK corporation tax system has been substantively enacted in UK Budget
statements. The main rate of corporation tax is to be reduced from 19% to 17% from 1 April 2020.
The rate used in these Financial Statements is 17% (2017: 17%), since this is the expected rate that will apply when the deferred
tax timing differences reverse.
10. Intangible fixed assets - Group
2018 2017
£'000 £'000
Goodwill
Cost/Valuation
At 1 April 10,637 10,637
At 31 March 10,637 10,637
Accumulated amortisation and impairment

At 1 April 10,637 10,637
Amortised in year - -
Impairment - -
At 31 March 10,637 10,637
Net book value

At 31 March - -
11. Property, plant and equipment - Group
Freehold land Plant, equipment and vehicles

and buildings owned leased Total
£'000 £'000 £'000 £'000
Cost/Valuation
At 1 April 2017 7,278 56,292 1,180 64,750
Additions - 3,178 - 3,178
Transfers 306 (306) - -
Disposals (1,091) (155) - (1,246)
At 31 March 2018 6,493 59,009 1,180 66,682
Accumulated depreciation
At 1 April 2017 2,023 28,830 1,180 32,033
Charge for the year 433 3,461 - 3,894
Transfers - - - -
Disposals (429) (18) - (447)
At 31 March 2018 2,027 32,273 1,180 35,480
Net book value

At 31 March 2018 4,466 26,736 - 31,202
At 31 March 2017 5,255 27,462 - 32,717
There are no outstanding liabilities in respect of leased assets.

11. Property, plant and equipment – Society
Land and Plant, equipment

buildings and vehicles Total
£'000 £'000 £'000
Cost/Valuation
At 1 April 2017 - 1,279 1,279
Additions - 67 67
Reclassification 34 (34) -
At 31 March 2018 34 1,312 1,346
Accumulated depreciation
At 1 April 2017 - 946 946
Charge for the year 1 137 138
At 31 March 2018 1 1,083 1,084
Net book value

At 31 March 2018 33 229 262
At 31 March 2017 - 333 333
Property, plant and vehicles amounting to £31.2m (2017: £32.7m) are pledged as bank borrowings.
Land and buildings of the Group and Society were valued on an open market basis at 31 October 1994. The Group elected to
adopt the transitional rules of FRS 102 for its revalued assets and consequently these valuations have not been updated.
2018 2017
£'000 £'000 £'000 £'000
Freehold land and buildings 7,399 - 7,093 -

12. Investments
Shares in subsidiary Investment in Joint

Society undertakings Ventures Total
£'000 £'000 £'000
Cost
At 1 April 2017 40,446 2,420 42,866
Disposals - - -
At 31 March 2018 40,446 2,420 42,866
Provisions
At 1 April 2017 7,593 1,594 9,187
Impairment 383 - -
Disposals - - -
At 31 March 2018 7,976 1,594 9,187
Net book value

At 31 March 2018 32,470 826 33,679
At 31 March 2017 32,853 826 33,679
Details of the subsidiary undertakings in the Group at 31 March 2018 are as follows:
Proportion of ordinary
Registered Office Address shares held
Cirrus House, Glasgow Airport Business Park, Marchburn Drive,

Scottish Milk Products Limited 100%
Paisley, PA3 2SJ
Scottish Milk Dairies Limited 100%
Paisley, PA3 2SJ
The Lake District Creamery, Station Road, Aspatria, Wigton,
The First Milk Cheese Company Limited 100%
Cumbria, CA7 2AR
Kingdom Cheese Company Ltd 100%
Paisley, PA3 2SJ
Kingdom Dairy Company Ltd 100%
Paisley, PA3 2SJ
KCSUBCO 1 Limited 100%
Paisley, PA3 2SJ
FM CIRRUS1 Limited (previously CNP Professional The Lake District Creamery, Station Road, Aspatria, Wigton,
100%
Limited) Cumbria, CA7 2AR
12. Investments (continued)
Details of the joint ventures in the Group at 31 March 2018 are as follows:
Registered Office Address Proportion of ordinary shares held
Fast Forward FFW Limited The Lake District Creamery, Station Road, 49%
Aspatria, Wigton, Cumbria, CA7 2AR
First Milk Energy Limited Cirrus House, Glasgow Airport Business 50%
Park, Marchburn Drive, Paisley, PA3 2SJ
The holding of 49% of Fast Forward FFW Limited is classed as a joint venture as First Milk Limited has equal voting rights with the
51% shareholder Fonterra (Europe) Coöperatie U.A.
The investment in First Milk Energy Limited is £nil (2017: £nil).
All subsidiary undertakings and joint ventures are incorporated in the UK. The directors consider the value of investments to be
supported by their underlying assets.
Fast Forward FFW Fast Forward FFW

Limited Limted
Group 2018 2017
£'000 £'000
Total assets 4,186 4,891

Total liabilities (2,286) (3,761)
Net Assets 1,900 1,130
Society share of net assets (49%) 931 554
Turnover 9,308 7,914

Profit / (loss) 770 960
Share of turnover in the year (49%) 4,561 3,878

Society share of profit in the year (49%) 377 470
13. Inventories
2018 2017
£'000 £'000 £'000 £'000
Raw materials and consumables 3,172 - 2,653 -

Finished goods and goods for resale 47,500 - 40,809 122
50,672 - 43,462 122
Inventory is valued on the basis of standard cost, adjusted for price and production cost variances.
The amount of inventory recognised as an expense during the year was £235,934k (2017: £176,785k) for the Group and
£210,181k (2017: £181,220k) for the Society.
14. Trade and other receivables
2018 2017
£'000 £'000 £'000 £'000
Due within one year:
Trade receivables 26,429 9,754 22,966 8,027
Amounts owed by subsidiary undertakings - 17,225 - 15,465
Amounts owed by joint ventures 540 540 1,226 1,226
Other receivables 46 7 105 14
Value added tax 476 200 513 255
Prepayments and accrued income 1,079 946 826 661
Deferred tax (note 19) 1,673 1,662 2,304 2,304
30,243 30,334 27,940 27,952
The directors consider that the carrying amount of trade and other receivables approximates to their fair value.
15. Trade and other payables: amounts falling due within one year
2018 2017
£'000 £'000 £'000 £'000
Amounts due to debt providers (note 17) 1,200 - 1,200 -

Trade payables: amounts due to members 13,489 13,489 14,976 14,976
Trade payables: other 6,719 4,736 5,526 2,323
Amounts owed to subsidiary undertakings - 26 - 440
Other taxes and social security 276 276 318 318
Other payables 910 744 816 643
Value added tax - - - -
Provisions - - 667 667
Corporation tax 37 - - -
Accruals and deferred income 9,857 3,149 8,583 3,875
32,488 22,420 32,086 23,242
Trade payables: amounts due to members represents purchases of milk at the prevailing monthly price, which are payable
according to standard terms of trade. The directors consider that the carrying amount of trade payables approximates to their fair
value. There are no fixed repayment dates for amounts owed to subsidiary undertakings or joint ventures.
16. Trade and other payables: amounts falling due after more than one year
2018 2017
£'000 £'000 £'000 £'000
Amounts due to debt providers (note 17) 43,286 1,497 40,960 -

Deferred income 457 - 639 -
43,743 1,497 41,599 -

17. Borrowings
Amounts due to debt providers are repayable as follows:
2018 2017
£'000 £'000 £'000 £'000
Within one year 1,200 - 1,200 -

Due in more than one year 44,107 1,497 42,033 -
Unamortised issue costs (821) - (1,073) -
44,486 1,497 42,160 -
Borrowings at 31 March 2018 of £45,307k (2017: £43,233k) are secured by fixed securities over certain Group assets, a floating
charge over Scottish Milk Products Limited and a debenture over First Milk Limited and The First Milk Cheese Company Limited.
These facilities are subject to financial covenants.
The directors consider that the carrying amount of bank borrowings approximates to their fair value.
18. Financial instruments
The Group has the following financial instruments:
2018 2017
Note Group Group
£'000 £'000
Financial assets at fair value through profit or loss

Derivative financial instruments - -
Financial assets that are debt instruments measured at amortised cost

Trade receivables 14 26,429 22,966
Amounts owed by joint ventures 14 540 1,226
Other receivables 14 46 105
27,015 24,297
Financial liabilities measured at amortised cost

Amounts due to debt providers 15, 17 44,486 42,160
Trade payables: amounts due to members 15 13,489 14,976
Trade payables: other 15 6,719 5,526
Other trade payables 15 910 816
Accruals 15 9,857 8,583
75,461 72,061
Derivative financial instruments – forward contracts
The Group has previously entered into forward foreign currency contracts to mitigate the exchange rate risk for certain foreign
currency receivables. No such contracts were outstanding as at 31 March 2018.
19. Provisions for liabilities and charges
Deferred tax asset
The movement on the deferred tax asset account for both the Group and the Society is shown below. The asset is presented
within debtors (note 14).
2018 2017
£'000 £'000 £'000 £'000
Opening balance (2,304) (2,304) (1,404) (1,404)

Profit and loss account charge (note 9) 238 249 425 425
Deferred tax charge in OCI for the period 393 393 (1,325) (1,325)
Closing balance (note 14) (1,673) (1,662) (2,304) (2,304)
2018 2017
£'000 £'000 £'000 £'000
Deferred tax (assets) recognised

Recoverable within 12 months (1,673) (1,662) (2,304) (2,304)
(1,673) (1,662) (2,304) (2,304)
Deferred tax (assets) not recognised at the closing rate of 17%

(2017: 17%)
Fixed assets (1,188) (383) (1,599) (359)
Timing differences - trading (48) (160) 14 (89)
Losses (7,754) (3,241) (7,300) (2,924)
(8,991) (3,784) (8,885) (3,372)
Except in relation to pensions (balances shown as recoverable after 12 months above) no deferred tax balances have been
recognised due to the uncertainty of the timing of the recoverability of these amounts.
20. Financial commitments
The Group and Society had the following future minimum lease payments under non-cancellable operating leases for each of the
following periods:
2018 2017
£'000 £'000 £'000 £'000
Commitments under non-cancellable operating leases not provided in the
financial statements:
within one year 292 203 292 203
within two to five years 744 550 958 675
later than five years 20 - 99 78
1,056 753 1,349 956
21. Share and loan capital
Ordinary shares of Ordinary shares of New Preference C' Preference Shares of

Share capital (Group and Society) £5 each £10 each Shares of £1 each £1 each Total
No. '000 £'000 No. '000 £'000 No. '000 £'000 No. '000 £'000 £'000
Called up, allotted and fully paid
At 1 April 2017 1 2 1 6 7,500 7,500 66,379 66,379 73,887
Shares issued 0 - 0 - - - 2,138 2,138 2,138
Share cancellations (0) - (0) (1) (516) (516) - - (517)
At 31 March 2018 1 2 1 5 6,984 6,984 68,517 68,517 75,508
First Milk Limited is a Society established under the Co-operative and Community Benefit Societies Act 2014. It is governed by its
rules that require all members, on joining, to purchase a £10 ordinary share (previously a £5 ordinary share). Each member s hall
be bound but only entitled to hold one ordinary share. The £5 Ordinary shares and £10 Ordinary shares rank pari passu. When a
member leaves, their ordinary share is cancelled. The ‘adjustment to member’s capital’ disclosed in the table above refers to those
share cancellations.
Each member has a capital target (currently 7 pence per litre) based on annual volume supplied averaged over three years.
Member can reach their capital target through monthly contributions, lump sum investment or by buying capital from former
members. Monthly contributions and lump sum investments are paid to loan capital accounts that are then converted immediately
to C Preference Shares. Most members also hold New Preference Shares that were allocated as bonus shares in 2013 on the
basis of capital held at that time
Members and former members have certain rights to trade capital. In particular, former members are entitled to sell their New
Preference Shares for a period of three years at which point, if not sold, they are cancelled.
The Board has discretion as to the interest that is paid to members and former members on their Capital balances.
22. Reconciliation of operating profit/ (loss) to operating cash flows
2018 2017
£'000 £'000 £'000 £'000
Operating profit / (loss) 5,131 1,364 9,418 (192)
Depreciation and impairment charges 3,894 521 3,676 1,911
Loss on sale of property, plant and equipment 549 - - -
Pension contributions (3,957) (3,957) (2,865) (2,865)
Decrease in provisions falling due more than one year - - (833) (833)
(Increase) / decrease in inventories (7,210) 122 (6,166) (27)
(Increase) / decrease in receivables (3,620) (3,710) 1,407 12,435
Increase / (decrease) in payables 184 (822) (7,131) (4,645)
Net cash (outflow) / inflow from operating activities (5,029) (6,482) (2,494) 5,784
23. Pension schemes
First Milk Limited operates the Scottish Milk Limited Retirement Benefits Plan (“the Scottish Plan”), and also participates in The Milk
Pension Fund (“the Milk Fund”), an industry scheme in which all participating employers report only their share of assets, liabilities
and obligations while legally holding joint and several liability for the scheme as a whole. Both schemes are closed to accrual of
benefits.
In the event of participating employers ceasing to participate in the Milk Fund, the assets and liabilities previously associated with
this employer are allocated to the remaining employers.
Both are defined benefit pension schemes funded by sponsoring employers and (up to the date of closure to future accrual) by
contributions from employees.
The Scottish Plan is structured such that the Society and other participating Group companies cannot separately identify their share
of the underlying assets and liabilities of the scheme. As a consequence the deficit of this scheme was previously only reflected in
the Group financial statements. Under FRS102 rules there is a requirement to estimate the share of the deficit for each participating
employer, and since the majority of the liabilities of this scheme relate to First Milk Limited, the decision was made to allocate 100%
of the deficit to the Society.
Following the March 2015 actuarial valuation of the Scottish Plan , the schedule of contributions was updated and a definitive
statement was signed by the company and the Trustees and submitted to the Pensions Regulator. As well as paying shortfall-
correction contributions of a minimum of £1.5m per annum from 1 July 2016 -31st May 2031 (increasing by RPI each year) the
trustees and First Milk also agreed that additional contributions will be paid to the plan contingent on business performance in 3
areas:
 Relative Milk Price

 Member capital inflows
 Business profitability
In the year to 31 March 2018, total contributions of £2.8m (2017: £1.8m) were paid to the Scottish Milk Limited Retirement Benefits
Plan.
The Milk Pension Fund

The Schedule of Contributions agreed following the 31 March 2015 actuarial valuation of the Milk Fund, requires minimum annual
contributions of £1.1m (increasing by RPI each year) to be paid to the fund. In the year to 31 March 2018, total contributions of
£1.2m (2017: £1.6m) were paid to the Milk Pension Fund.
The Group also operates a defined contribution scheme, a Stakeholder Group Pension Plan with Standard Life.
The contributions to the defined contribution scheme charged to the profit and loss account in the year ended 31 March 2018 were
£0.7m (2017: £0.9m).
The figures below for the defined benefits schemes have been based on the most recent actuarial valuations at 31 March 2015,
updated to the current year-end by qualified independent actuaries. The major assumptions used for the actuarial valuation were:
Assumptions at 31 March Scottish Plan Milk Fund

% pa % pa
2018 2017 2018 2017
Discount rate 2.6 2.5 2.7 2.5
Rate of increase in pensions in payment 2.7 2.6 1.8 to 2.1 1.8 to 2.1
Rate of increase in pensions in deferment 2.2 2.1 2.1 2.1
Inflation assumption (RPI) 3.2 3.1 3.2 3.2
Inflation assumption (CPI) 2.2 2.1 2.1 2.1
Mortality
Longevity at age 65 for current pensioners

Men 23 23 23 23
Women 25 25 25 25
Longevity at age 65 for future pensioners

Men 24 24 25 25
Women 27 27 27 27
23. Pension schemes (continued)
The fair value of assets in the schemes and the present value of liabilities in the schemes at each balance sheet date were:
Scottish Plan Milk Fund

Assets
£'000 £'000
2018 2017 2018 2017
Equities, diversified growth and
hedge funds 2,625 2,563 18,900 19,700
Gilts/LDI funds 43,220 42,607 12,000 11,100
Bonds - - 12,300 12,000
Property - - 4,900 4,800
Unrecognised asset - - (1,500) -
Cash 3,062 2,875 900 500
48,907 48,045 47,500 48,100

Liabilities £'000 £'000
2018 2017 2018 2017
Opening (60,299) (50,438) (49,500) (42,300)

Interest cost (1,474) (1,722) (1,200) (1,400)
Benefits paid 2,646 2,473 2,200 1,900
Settlements - - - -
Actuarial gains / (losses) 443 (10,612) 1,000 (7,700)
Closing (58,684) (60,299) (47,500) (49,500)


£'000 £'000
2018 2017 2018 2017
Total market value of assets 48,907 48,045 47,500 48,200
Present value of scheme liabilities (58,684) (60,299) (47,500) (49,500)
Deficit in the scheme (9,777) (12,254) - (1,300)
Related deferred tax asset 1,662 2,083 - 221
Net pension liability (8,115) (10,171) - (1,079)

Assets £'000 £'000
2018 2017 2018 2017
Opening 48,045 43,136 48,200 41,800

Expected return on scheme assets 900 1,071 1,100 1,200
Actuarial (losses)/gains (198) 4,559 700 5,500
Benefits paid (2,646) (2,473) (2,200) (1,900)
Unrecognised asset - - (1,500) -
Employer contributions 2,806 1,752 1,200 1,113
Third party contribution - - - 487
Closing 48,907 48,045 47,500 48,200
Cumulative actuarial gains and losses recognised in the statements of other comprehensive income (“SOCI”) are:
2018 2017 2016

Scottish Plan Milk Fund Scottish Plan Milk Fund Scottish Plan Milk Fund
£'000 £'000 £'000 £'000 £'000 £'000
Opening cumulative SOCI: (16,667) (14,100) (10,614) (11,900) (13,547) (17,900)
Actuarial gains/(losses) 245 249 (6,053) (2,200) 2,933 6,000
Closing cumulative SOCI (16,422) (13,851) (16,667) (14,100) (10,614) (11,900)

2018 2017
Analysis of movement in the scheme deficit during the year:
Scottish Milk Scottish Milk
Plan Fund Plan Fund
£'000 £'000 £'000 £'000
Past service cost - - - -
Total included within operating surplus - - - -
Contributions 2,806 1,151 1,752 1,600
Amounts included as other finance income:

Expected return on pension scheme assets 900 1,100 1,071 1,200
Interest cost on pension scheme liabilities (1,474) (1,200) (1,722) (1,400)
Gains on curtailments and settlements - - - -
Net finance (cost)/income (574) (100) (651) (200)

Analysis of the actuarial gains and losses in the
statement of comprehensive income:
Actual return less expected return on

pension scheme
assets
Amount (198) 700 4,559 5,500
Percentage of scheme assets 0% 1% 9% 11%
Experience gains and losses arising on the
scheme liabilities
Amount - - - -
Percentage of present value of scheme liabilities 0% 0% 0% 0%
Changes in financial assumptions underlying
the scheme liabilities
Amount 443 (451) (10,612) (7,700)
Percentage of present value of scheme liabilities -1% 1% 18% 15%
Total actuarial gains and (losses)

recognised in the statement of
comprehensive income 245 249 (6,053) (2,200)
Deficit at 1 April 2017 (12,254) (1,300) (7,302) (500)

Movement in year:
Employer contributions 2,806 1,151 1,752 1,113
Third party contribution - - - 487
Net finance cost (574) (100) (651) (200)
Past service cost - - - -
Actuarial gain/(loss) 245 249 (6,053) (2,200)
Deficit at 31 March 2018 (9,777) - (12,254) (1,300)

24. Related party transactions
During the year, the directors supplied raw milk from their farms to the Group and the Society at normal commercial rates totalling
£2,906k (2017: £892k). The outstanding balance owing to the directors at 31 March 2018 was £185k (2017: £127k).
During the year, the Group supplied Fast Forward FFW Limited (“FFW”), a joint venture between First Milk Limited and Fonterra
(Europe) Coöperatie U.A, with liquid whey amounting to £5.5m (2017: £4.7m) and invoiced FFW for manufacturing costs totalling
£5.5m (2017: £4.7m). The outstanding trading balance owed by FFW at 31 March 2018 amounted to £562k (2017: £551k). The
outstanding trading balance payable to FFW at 31 March 2018 amounted to £313k (2017: £550k). The outstanding loan balance
owed to the Group by FFW at 31 March 2018 was £540k (2017: £1,226k).
During the year the Group made payments to its two related pension funds of £4.0m (2017: £2.9m). For a breakdown, of these
amounts, between the pension funds see note 23.
Amounts due to members at 31 March 2018 and 31 March 2017 for the purchase of milk are disclosed in note 15.
25. Capital and other financial commitments
2018 2017
Group Group
£'000 £'000
Contracts placed for future capital expenditure not provided in the financial statements 4,339 551
26. Post balance sheet events
On 1 April 2018, the board announced plans to simplify its previous payment schedules to two schedules, First Milk liquid and First
Milk manufacturing, and to harmonise its standard litre price for the two schedules.
On 17 April 2018, the board announced plans to offer the creameries on Arran and Campbeltown for sale.

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Annual Return and Accounts

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ANNUAL REPORT

the farmers’ business

Review of the year 2018

 Group turnover £252.7m (2017: £206.5m)

Chairman statement (continued)

Strengthening our customer relationships

Fresh milk business

CEO statement (continued)

Strengthening our operational performance

Strengthening our culture and our people

We have also focused on developing the right

After a period of considerable change at First

This is absolutely critical, as having a clear

Strengthening membership engagement

CEO statement (continued)

Post-year end we have rationalised and

When it comes to absolute milk price during

Building for the future

Balance sheet, cash flow and net debt

CFO statement (continued)

The constituent elements of the interest charge comprised:

2018 Group 2017 Group

Officers and professional advisers 1

Officers and Professional Advisers

Directors Registered Office Solicitors

Debt Providers Independent Auditor

The business and principal activities

Key financial performance indicators

Financial KPI 2018 2017

Operating profit (before exceptional items) £6,627k £11,727k

Profit/(loss) for the year £3,156k £6,045k

Total capital and reserves £27,436k £22,041k

Net bank debt (external borrowings less cash) £44,911k £38,626k

Prospects and strategic aspiration

Review of the business – key events timeline

Post balance sheet events

Principal risks and uncertainties

Strategic report (continued)

Principal risks and uncertainties (continued)

Input cost risk

Interest rate risk

Approved by the Directors

Business performance and future developments

The board of directors

Clive Sharpe - non-executive director and chairman

31 March 2018 31 March 2017

Jim Baird 178,153 17,179 158,153 17,179

Post balance sheet events

Directors’ report (continued)

Current Trading and Borrowings

Conclusion on Going Concern

Disclosure of information to auditor

Statement of directors’ responsibilities

Directors’ report (continued)

Statement of directors’ responsibilities (continued)

By order of the Board

Corporate governance report

A copy of the Code can be found at http://www.soas.coop/member-services/

Members’ powers include the power to:

The Council has a range of powers, including:

- Holding the board to account on behalf of members;

Corporate governance report (continued)

- Motivating and retaining the executive management;

Other directorships held by directors of First Milk are noted below: