Dairygold milk volumes soar but profits fall back

Dairygold’s capital investments have fuelled its expansion in milk processing to 1.34bn litres in 2018, up 500m litres since 2009, with plans to exceed 1.65bn litres by 2023.

Dairygold milk volumes soar but profits fall back

Dairygold’s capital investments have fuelled its expansion in milk processing to 1.34bn litres in 2018, up 500m litres since 2009, with plans to exceed 1.65bn litres by 2023.

While certainly not immune to Brexit and likely challenges in the UK consumer market, the company’s revenues are solidly founded upon supplying some of the world’s biggest nutrition companies with high-quality ingredients, notably infant formula ingredients.

In terms of future strategy, Dairygold has plans to develop new powder and cheese products to respond to global market trends in life-stage nutrition, thereby increasing the proportion of higher margin ingredients produced by its members’ milk.

In its 2018 accounts, the North Cork-based co-operative reports record revenues of €992.9m, up €27.4m on 2017.

Dairygold reported operating profits of €28.9m, down €3.5m on 2017 as the company kept its milk price high to soften the economic impacts of the year’s extreme weather conditions on its farmer suppliers.

The soaring volumes have been made possible by the €188.7m invested over the past five years in the processing plants in Mallow, Mitchelstown and Mogeely, of which €130m was invested in 2018 on phase two of its post-EU dairy quota expansion programme. In all, it will have invested €300m from 2012-20.

Jim Woulfe.
Jim Woulfe.

Jim Woulfe, CEO of Dairygold, said the company expects the milk price to remain relatively stable for the remainder of 2019, with Brexit looking like its main challenge. A hard Brexit with WTO tariffs would add €50m in Dairygold’s costs to the 300 million litres of milk used in its cheese sold into the UK market.

“Brexit is overhanging the market,” commented Mr Woulfe. “No level of planning could insulate any EU organisation, trading with or through the UK, against the implications and consequences of a hard or no-deal Brexit.

“That is why it is critical, no matter what the final outcome of the negotiations, that there is a sufficient transition period, to fully prepare for the future trading relationship between the EU and UK. Even then, the dairy Industry will suffer serious consequences in the event significant tariffs applying.

Brexit is bringing complexity in a narrow-margin business.

"The challenge will be to recover those costs, and we are working on that all along the supply chain. The truth is that there is no good Brexit.”

Dairygold’s 2,850 milk suppliers expanded milk production by 2.7% during 2018. The average farmer has gone from supplying 270,000 litres in 2009 to supplying 470,000 litres today.

The company’s net asset value is €337.9m for 2018, up €2.4m. Net bank debt stood at €111.4m last year. Ebitda for 2018 was €448.6m, down €4.2m on 2017.

“In a year of extreme weather challenges, we made the decision to reduce our profits in order to support the milk price paid to our members by €15m above market returns for the year, around 1c to 1.5c per litre,” said Michael Harte, Dairygold chief financial officer.

Dairygold’s milk price was only down around 1.5cpl on average for the year, while the Ornua index for 2018 was down around 3cpl.

While maintaining the milk price was partly driven by policy, the high quality of milk delivered by members also played its part. Dairygold paid an average 31.8cpl quoted milk price, and a paid milk price of 36.1cpl with 3.53% protein and 4.17% butterfat, including Vat and bonuses.

Dairygold Food Ingredients Ireland’s turnover for 2018 was €569m. Its B2B cheese businesses in the UK and Germany contributed to the €156m turnover in its overseas food ingredients business.

Dairygold’s Agri business turnover was €261.6m, up by €40m or 19%, driven by higher feed sales volumes due to unsuitable grazing weather and the consequent shortage of fodder, while retail sales also up.

As well as supporting its tillage farmers through last year’s extreme weather events, Dairygold’s grain prices for 2018 harvest cereals were circa 40% higher than 2017, and the highest it has paid since 2012.

Dairygold recently launched a new fixed price milk scheme, a voluntary tool to help milk suppliers manage market volatility and running from March 2019 to November 2021. The model follows the models endorsed by members in 2016, 2017 and 2018.

All of its milk suppliers are participating in Bord Bia’s Sustainable Dairy Assurance Scheme. Farmer buy-in has been key to the company’s sustainability drive, including its Leanfarm partnership with Teagasc, its Origin Green commitments, the Dairy Sustainability Framework and the Agricultural Sustainability and Support Advisory Programme.

“We are working closely with our members, who know the importance of delivering on good practice models,” said John O’Gorman, Dairygold chairman, a dairy farmer based in Clogheen, Co Tipperary. “The milk recording and herd health monitoring have been very important from a farmer perspective. Farmers have been quick to adapt to new farm technologies and make the most of the labour-saving benefits. They are very innovative, resilient and respond positively to challenges.”

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