From milk to money…
THE restructuring of Dairygold Co-op, with a turnover of nearly e1bn a year, is one of the most drastic in the Irish dairy industry.
Plants have been sold, activities outsourced, work practices changed and 830 jobs cut to reduce costs and improve profits.
The workforce reduction was brought about through redundancy, retirement, the transfer of jobs on the sale of businesses and the outsourcing of operations previously undertaken within the society.
A downturn in markets, falling European Union supports and a currencies turnaround all went against Dairygold in the 2002 financial year.
It lost €3.4 million on its business operation and its profitability dropped by €20m. In its core business of dairy processing, it lost €13m.
Dairygold, with nearly 7,593 active shareholders and more than 3,200 employees in Ireland and overseas, felt the effects.
The co-op, with a new chief executive Jerry Henchy, who came from the Kerry Group, and a new chairman, John Walsh, identified what it saw as the primary reasons for the co-op’s losses.
Tough decisions are being taken; the task of building a new Dairygold into an efficient and profitable business, geared less on producing commodity-type products and more towards the higher value-added foodstuffs demanded by consumers on the move, has begun.
But the survival process based on a philosophy of ‘fix it, outsource it, sell it or shut it’ caused pain and upheaval, as jobs were lost and a new way of doing business was introduced.
The first phase of a restructuring plan cost €46.5m, the largest ever one-off cost incurred by the society, which was formed in 1990 out of the merger of Mitchelstown and Ballyclough co-ops. It involved:
500 redundancies, which were achieved in administration, dairy processing, agri-trading, consumer foods and retail operations.
The sale of non-profitable meat processing plants in Charleville and Kilbeggan as going concerns with 250 jobs. Galtee Meats Holland was retained.
The outsourcing of the transport division, which employed 170 people, with a saving equal to 1.5c per gallon of milk. Today, 29 independent haulage companies collect milk on 38 routes.
The sale of three pig farms at Cahir, Killeagh and Roscrea along with the leasing of two others at Mitchelstown and Kilworth, all as going concerns with a total of 22 employees.
The cessation of yogurt production at the CMP plant in Cork city with the loss of 18 jobs and the production requirement outsourced to Town of Monaghan Co-op.
The outsourcing of the AI technician service.
The closure of branch stores, while Mallow Mart was also closed and the site sold for development.
The reduction of staff in the consumer foods division by 150. A 50% stake in Aeron Valley Creamery in Wales was sold, but a 100% stake in its cheese packing facility was maintained.
Dairygold recorded a turnover of €964m for 2003, and achieved operating profits of €15.6m, an increase of 114% on the 2002 figure.
Activities with losses of €3.3m were eliminated and exceptional costs of €46.5m arising on the termination, re-organisation and restructuring of businesses were incurred.
Net debt at year-end was reduced by €5.8m to €126.3m after incurring significant once-off rationalisation costs. Shareholder’s funds stood at €254m.
Yet, further job losses are on the way as the process of turning the society around continues with ongoing refocusing and consolidation aimed at making the business more competitive.
All of this will take place against a rapidly changing market environment, including a growth in the scale of pan-European retail multiples, which tend to put downward pressure on the prices they pay for supplies.
A strategic plan for the co-op’s four dairy processing plants in Mitchelstown (2), Mallow (1) and Mogeely (1) will be published shortly. They employ around 600 people in total.
Production will be carried out on two sites or possibly one and the product portfolio will be restructured.
Dairygold will benchmark consideration of processing its 180 million gallon milk pool in its existing facilities against the costs of co-processing it in conjunction with other Irish processors in joint-venture relationships.
It is also going to look closely at its Galtee pig processing operation, which kills about 10,000 pigs a week but only utilises 35% of the pig carcases in its rashers, ham and sausage products.
The question of closing slaughtering operations and simply buying in the 35% of the pig that it needs to supply its consumer foods brands has been raised. And so has the idea of a joint venture with Glanbia or Dawn or both.
Challenges facing CMP in Cork city, as the liquid milk business for the first time faces intense competition from imported product, will also be monitored closely.
The co-op, which has 13 superstores and 26 agri-trade outlets, has also embarked on the development of its new 4Home brand for some of its larger stores in urban areas.
Dairygold said it accepts that the exit of many staff as the co-op is being restructured is unfortunate.
But it said this is unavoidable and the society would be negligent not to take the hard decisions now to safeguard the business in the best interests of its farmer suppliers and shareholders and the maximum number of sustainable jobs into the future.
Jerry Henchy said 2003 was the year in which Dairygold began to put in place a disciplined process and winning capability.
“We have set ourselves the goal by 2008 of being the leading value added dairy processor in Ireland, the leader in our chosen consumer food segments across Ireland and Britain and to be beating industry standard returns on the society’snon-food related assets of home hardware and property.
Mr Henchy said the new Dairygold will appear little different to the old.
Its core business will still be dairy processing and it will have a major consumer foods division and a major co-op superstores business, alongside its milk processing operations.
But internally, almost everything will be different. Dairygold will be a world-class business operating to world-class standards of efficiency and quality.
“We will aspire to be the leanest, most flexible and most innovative in every product line we choose to engage in,” he said.
