Milk volume helps Cavan co-op boost profits by 50% to €6.85m

Lakeland Dairies has reported pre-tax profits of €6.85m to Dec 2011, up more than 50% from its €4.5m profit in 2010.

The Cavan-based dairy also reported an 18% increase in revenues to €472m in 2011, the result of around 7% higher milk volumes delivered by its members and favourable dairy market prices.

Ireland’s second largest dairy co-op after Glanbia, Lakeland processes milk from farmers in 15 counties on both sides of the border. Food service enjoyed a 13% rise in revenues to €146m.

With its members projecting output increases of 35%-55% in the post-quota era, Lakeland has put a lot of energy into new product development. Among other innovations, it is partnering on a new infant formula product with Chinese food company Yilli and the Irish Dairy Board.

Lakeland chief executive Michael Hanley said: “The food service gains were a result of our focus on the value-added side of the business, with a renewed business development programme, moderate margin improvements and higher sales to our extensive client base compared to the previous year.

“Our food ingredients revenues increased by 21% to €282m driven by continuing strong global demand where we are well positioned in international markets as a leading European provider of high-quality dairy ingredients, with multiple product lines in the milk powders, proteins and butterfats categories.”

Lakeland’s agri-trading turnover also increased to €44m, up13%, boosted by increased sales in line with generally positive dairy market conditions. Lakeland supplied over 140,000 tonnes of high-quality feeds during the year to its milk producers, independent stores and farmers. These gains were aided by growth in overseas EU markets for Lakeland’s specialist products to the global food service, confectionery, bakery and other food industry sectors, with notable growth in restaurant and retail product sales.

The Cavan co-op has also built strong relationships with leading multinational corporations, including applications for Irish ingredients in infant nutritionals, confectionery, cream liqueurs and retail food products.

However, Lakeland predicts that significantly increased outputs in New Zealand and the US will push down the milk price it pays to its members in the coming 12 months.

Lakeland is paying farmers 34.5c per litre for milk, having started 2011 at around 30cpl. The global butter price has already fallen by around 6cpl in recent months, with the Dutch auction price falling from €4,300 to around €3,000 per tonne.

“Dairy markets have softened markedly,” Mr Hanley said. “There is a much softer tone to the markets. There is a lot of extra milk out there, with New Zealand’s output up by around 14%.

“We will always return as much per litre as possible to our members, but the global oversupply will place significant pressure on milk processing returns throughout the year. A weaker euro is required to make Irish exports more competitive. However, with continuing sales and volume increases, we still anticipate further solid progress by Lakeland Dairies.”

In 2010, Lakeland shed around 50 jobs when it closed its facility at Lough Eglish, Co Galway. Those redundancies were aligned to Lakeland’s €21m investment in a milk powder plant in Bailieborough.

The co-op believes it has more than enough processing capacity to deal with the 35%-55% extra milk output its members expect to produce from 2015.

Mr Hanley added: “We closed down the Lough Eglish site in 2010, but we did not decommission it. That site was always a safety net for increased output. With around an €8m-€10m investment in a new drier, that facility can handle a further 50% increase in milk supply.”