Milk link announces long term funding proposal
Milk Link has announced to its members that it is working on proposals to allow it to refinance the business in 2006, putting its borrowings on a more permanent "revolving" basis and reducing its debt repayments each year. If the proposals are adopted this will enable it to reduce substantially or even stop completely the monthly MCA levy paid by Milk Link members who will therefore be able to receive the profits from their processing business sooner than first thought.
The outline proposals, which were given a positive welcome by the Milk Link Council at a meeting held last week, are as follows:
Membership certificates will be issued to all members consigning milk and not under notice to leave Milk Link on 1st October 2005. One certificate will be issued for every £1 in the member capital account on 30th September 2005. Membership certificates will define the ownership of the business. In future processing profit will be distributed not only on the litres consigned in any given year, but a portion will also be paid out to member certificate holders proportional to their holding. This will ensure a fair return to those who have built Milk Link to its current position and who may in future supply less milk or even retire completely.
Members will be invited to convert any Capital Proceed Loan Notes (issued to replace members' Milk Marque Preference Shares) that they hold into their Member Capital Accounts. Balances transferred will receive 2 membership certificates for each £1 transferred. Those who convert their Loan Notes will increase their share of processing profits.
Members will be invited to contribute additional money into their Member Capital Accounts on top of the normal levy for 2005/06. Money subscribed will attract membership certificates at a rate of 2 for every £1 invested. Assuming Milk Link is successful in raising £15 million (equivalent to 1ppl on one years milk supply to Milk Link) by March 2006 it anticipates being able to reduce the monthly MCA levy to a nominal figure
from April 2006 or even eliminate it completely. Furthermore Milk Link would be in a position to start to pay out the share of processing profits on Membership Certificates in respect of the 2006/07 milk year. This means that members who invest additional capital will receive an increased share of processing profits.
Commenting on the proposals Nairn Glen, Milk Link Group Finance Director, said:
"Both the issue of membership certificates and the invitation to subscribe additional capital are in response to member requests.
"Membership certificates reflect the investment members have made in creating Milk Link as a vertically integrated dairy business. They define ownership and will ensure that, as our business grows, their pioneering role will be recognised and rewarded.
"Increasing total member capital in the business will allow us to reduce our bank borrowings, thereby reducing debt-servicing costs in future years. It will allow us to refinance the business in 2006, putting our borrowings on a more permanent revolving basis. Members would therefore benefit from a substantially reduced levy or potentially even no levy at all and from the share of processing profits attached to their Membership Certificates."
A working group consisting of representatives from the Milk Link Governing Board, Council and Executive has been established. A formal prospectus giving details of the refinancing proposal will be developed and issued to members following further consultation with Milk Link's lawyers, financial advisers and banks.
