Irish Dairy Board Results on Target in Tough Environment

The Irish dairy leader reported an unflappable performance in the most challenging environment ever. A significant profit improvement in stock from both the consumer and ingredients divisions saw a significant profit improvement in the second half.

23/04/09 The Irish Dairy Board (IDB) has reported that turnover in 2008 was €2.09 billion, down 0.7% on the previous year. High priced stock, carried forward from 2007, had a negative impact on first half-year profitability but the second six months saw a significant profit improvement from both the consumer and ingredients divisions. “This improvement has contributed considerably to the overall recovery to profitability for the Group but it has not been enough to avoid a reduction in the full-year operating surplus to €24.3 million, which is the basis for calculating year-end bonuses to our member co-operatives”, said Dr. Brady, Interim CEO.

IDB Chairman, Michael Cronin, commented “Price volatility will be a feature of dairying for the coming years and this will affect dairy farmers throughout the world. We must not however lose sight of the fact that Ireland remains one of the world’s most efficient milk producers, is part of a protected EU market of 500 million consumers and employs a grass-based output model that is appreciated by discerning and environmentally aware customers around the globe”.

Group debt to equity ratio stood at 58% while bank borrowings, net of cash, were €207 million (€159 million in 2007). A considerable amount of that period-end debt related to the financing of stock held for consumer markets over the winter period. However, this debt also includes the financing required for the construction of the new Kerrygold Company packing facility in Leek, Staffordshire, and the development cost of a world class butter packing plant in Neukirchen-Vluyn in Germany serving this, the largest market for Kerrygold butter, and other markets to the east.

The net assets of the Board at the end of 2008 were €359m, down €37m on the previous year due mainly to the translation of foreign assets and pension revaluation. Nevertheless, the strength of its balance sheet demonstrates that the IDB is well positioned to grow existing markets and to develop new routes to market despite the current challenging environment.

The IDB paid out €7.6 million with respect to redeemable loan stock during the year. In addition, it declared a cash bonus to its member suppliers of €3.5 million, bringing the total payments to €11.1 million. €4.5 million has been allocated to the annual bonus fund in 2008.

Dr. Brady pointed out that 2008 had shown just how important a contribution was made by the diversified product portfolio, strong customer base and the Board's subsidiary network, which services the key market channels, to the overall success of the IDB Group during the year.

“The Board's international subsidiaries, in general” he said, “reported satisfactory results while the USA division, DPI Specialty Foods in particular, performed exceptionally well in a market which was acutely affected by the financial crisis, the weaker dollar and a serious drop in consumer confidence”.

The Commercial & Food Ingredients Division, with three business units in the UK (Adams Food Ingredients (AFI), Dairy Ingredients UK (DIUK), Meadow Cheese and one business unit in the USA, Meadow Ingredients USA LLC, had a satisfactory year overall. Volume sales of IDB dairy powders, both as direct sales to food manufacturers and as ingredients in AFI blended products, increased by 30%.

Turnover at DPI Specialty Foods, in the USA, grew for the sixth consecutive year and recorded a 7.6% increase over 2007. Escalating fuel prices over the summer and high food inflation in the second half of the year proved challenging. Despite these market difficulties, DPI continued to develop its excellent relationship with national retailers and expanded the range of services it offers to both existing and new customers. As a result of these efforts, 2008 operating surplus at DPI Specialty Foods exceeded the previous year by 4.7%. This specialty food category is expected to perform well in 2009 despite the economic challenges.

The Consumer Foods Division, responsible for the sales and marketing of the consumer range worldwide, reported a good year. Its product portfolio includes the Kerrygold and Pilgrims Choice brands and route to market is provided by a number of wholly owned subsidiary companies based in the UK, Belgium, France, Germany and the USA. Other international markets are served by locally based distributors and agents.

The Kerrygold brand had a challenging year with an overall sales volume decline of 3.5% in difficult trading conditions, particularly in the first half of 2008. In Germany, Kerrygold retained its market leadership position although volume sales showed a modest fall off. Two new products, a fresh cream and a butter/yogurt based spread, were launched during the year with further brand extensions planned for 2009.

Branded sales in the US grew by 3%, which was an excellent achievement given all the variables affecting the market during the year. Kerrygold Dubliner cheese maintained its impressive growth while Kerrygold butter held its position as the number one imported butter brand in the US.

In the UK, Kerrygold branded butter sales had another good year showing volume growth in the key packet and softer butter categories despite a difficult trading environment against seriously heavyweight activity from competitors. A combination of TV advertising and promotions saw Kerrygold packet butter achieve a 7.6% market share and Pilgrims Choice, with new reclosable packaging, re-establish its position as the number two cheese brand in the UK market.

The Board’s consumer business elsewhere was good. In Africa, overall sales increased by almost 6% and the Board continued its expansion strategy with the launch, in late 2008, of Kerrygold whole milk powder in Algeria. The Board plans to invest further in marketing and promotional activity in that market and throughout the African continent in 2009.

The Board, as part of its strategic development plan, is placing increasing emphasis on the expansion of its consumer market and distribution capability in both developed and emerging markets worldwide with sales and marketing personnel appointed in the Middle East, Russia and China to expand distribution and drive sales growth. It continues to invest in information technology across the Group in order to deliver increased efficiencies.