Client News > Release
21-04-2010
Lakeland Dairies reports profit of €1.4 million on turnover of €325.7 million
New €20 million milk processing investment completed on schedule
Ireland’s second largest dairy processing co-operative Lakeland Dairies has reported operating profits of €1.4 million on turnover of €325.7 million for the year ended 31st December 2009.
In the most challenging of market conditions, Lakeland Dairies delivered a strong business performance, underpinned by further achievements in organisational efficiency and the continuing implementation of a least cost dairy processing model.
A €20 million investment in new milk powder processing facilities at Bailieboro has been completed on schedule and this new site is currently being commissioned. In addition to the rationalisation of its processing operations, Lakeland also transformed its technology systems and reduced these costs across the group. The group exported high quality dairy products to over 70 countries worldwide across its foodservice and food ingredients operating divisions. Lakeland closed the year with a strong balance sheet and shareholders’ funds of €71 million.
In his commentary, Lakeland Dairies Chief Executive Michael Hanley said that while the worst of the downturn can reasonably be expected to be over, market conditions will improve gradually throughout 2010.
“There has been massive volatility in key dairy markets throughout the year which did not favour Irish exporters. Poor exchange rates and heavy competition from other dairy producing countries led to circumstances where only the leanest of operations could reap a positive return from the markets. Lakeland Dairies performed robustly in this climate and did well to declare a stable operating profit. This is satisfactory bearing in mind our imperatives to support milk price, in line with market conditions, while at the same time reinvesting in the strategic long term development of the business.
Foodservice Division
Dairy foodservice markets were directly affected by adverse consumer sentiment throughout the year where out of home food & beverage consumption declined significantly. Retail and catering foodservice customers reported lower sales, reduced spending and greater pressure on margins with a consequent focus on price reductions. This was offset somewhat by resilience in the fast food restaurant sector. An intensely competitive market environment was further impacted by negative currency exchange rates, most notably for sterling where the UK is a key market for Lakeland Dairies.
The Foodservice division performed strongly in spite of these conditions while recording a 5.5% per cent reduction in turnover at €114 million, accounting for 35% of group revenues. Towards the latter half of the year there were measurable signs that consumer confidence is improving in a number of foodservice export markets, including the UK. If this continues it should have a more positive effect on sales this year.
Food Ingredients Division
The global financial markets crisis had its fullest impact on the dairy sector in 2009. Globally, consumers cut back their spending on household grocery, food consumption and retail food product purchasing across all categories where dairy food ingredients are required. This impacted food manufacturers who altered their buying patterns, reduced stock holding levels, sought price reductions and also moved to non-dairy alternatives at a generally lower cost. World prices for food ingredients had spiked to all time highs in 2007/08, they plummeted in the first half of 2009 with only a marginal improvement as the year progressed. Along with depressed global demand, this had a significant impact on food ingredients revenues which reduced by 33% to €177.6 million for the year.
Taking these developments into account, Lakeland has moved strategically to address its overall market position. The co-operative has rationalised operations and is developing a far more efficient food ingredients manufacturing capability that is well geared for the future. The technologically advanced new milk powder plant at Bailieboro is the single most modern plant in Ireland and Europe for non-whey milk powders. With a production capacity of 70,000 tonnes of high quality milk powders, the site will maximise milk throughput during the year and yield new economies of scale. Bailieboro will also process 25,000 tonnes of butter products which further streamlines overall milk utilisation and logistics at this location. It has enabled the closure of the Lough Egish milk drying facility with substantial cost savings which will be realised in the current year.
Agri-Trading Division
With lower raw material prices, the Agri-Trading Division was able to transfer the benefits of these reductions directly to its customers throughout the year. Given the very poor weather conditions and generally lower fodder supplies, feed sales volumes remained high throughout the year and this division performed robustly in spite of the pressures on cash at farm level. However, the downward pricing trend has affected divisional revenues with a 27% reduction in turnover to €33.9 million for the year.
Lakeland Dairies’ Chief Executive, Michael Hanley commented:
“The past year has been one of incredible market volatility, economic strife and radical milk price cuts which have challenged the livelihoods of dairy farmers. Bearing that in mind, it is inspiring that the vast majority of Lakeland Dairies milk producers see a future for themselves and are prepared to persevere in dairying. Management are continuing to pursue new efficiencies in every corner of the organisation and this very focused approach will continue without fail. The continuation of the milk quota trading scheme and co-op ring fencing of quota are also absolutely essential to ensure that our dairy producers have the best possible opportunity to develop their businesses for the future. This is particularly the case now as quotas will be abolished in favour of free market conditions after 2015.
“While a sustained market recovery will be gradual in nature, we are confident that the worst of the downturn is over. I am cautiously optimistic around a gradual improvement in dairy market conditions as the current year progresses. Consumption of dairy products will improve gradually as the EU and its global trading partners emerge slowly from the recession. However, it is also the case that severe price swings will still take place in the years ahead given the unpredictable state of the markets.
“World butter and milk powder prices have gradually increased, spurred on by improved demand in India, China and the Middle East. Prices have also been helped by concerns of declining milk output from the EU and only a modest growth in output from the USA, whereas dairy output from Australia, New Zealand and South America is expected to be higher in the current year.
“While global stocks of dairy produce are not excessive they continue to overhang the markets. The significant volumes of butter and skim milk powder which were taken into intervention by the EU will need to be gradually resold and this also may have a softening effect on dairy markets.
“By restructuring our organisation and operations successfully to date, by taking hard decisions when they were necessary and by implementing a strategic approach to our future growth and development, Lakeland Dairies has boosted its competitiveness.
“We are achieving success based on high standards of operational efficiency and business excellence. With strong performance as our only benchmark, we will continue to be an engine of growth and development in the interests of our shareholders, stakeholders and milk producers in the northern half of Ireland,” Mr. Hanley concluded.
Lakeland Dairies is the second largest dairy processing co-operative in Ireland. The co-operative markets a wide range of value added dairy products and food ingredients worldwide. Lakeland operates across fifteen counties on a cross border basis processing some 800 million litres of milk annually through its facilities.
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