Lakeland: turnover up but profits down

Lakeland Dairies has reported an 8% increase in turnover to €443 million for the financial year to 31 December, 2004. However, profits fell by €2.3m to just €1.4m, representing an operating margin of just 0.3%.

A statement issued to accompany the results claimed that the fall in profits "arose directly from the co-op's policy to support milk price on behalf of its producers.''

The Lakeland statement said that the €32m increase in group turnover for the year is attributable to ongoing business development initiatives plus a full year's contribution from LE Pritchitt, the major dairy foodservice firm which Lakeland acquired in the middle of 2003.

Lakeland Dairies operates across 15 counties on a cross- border basis, processing over 850 million litres of milk annually.

Lakeland Chief Executive Ed Prendergast made the following comments to accompany the results:

"The results for the year reflect our deliberate decision to support milk price in the interests of our producers. They show strong performance in spite of volatile market conditions and the savage EU cuts which to date have seen over €110 million wiped off of Irish dairy industry revenues."

"By further rationalising our operations, with the closure of our Omagh milk drying facility, we have ensured maximum plant utilisation and milk processing throughput within the group."

"We have also initiated a research and development programme with Teagasc to identify optimum milk production techniques specifically for our producers across the northern region. Throughout the year we lobbied at government level to ensure the retention of a sensible national quota policy to support producers in the northern region. All of our initiatives are aimed at ensuring a strong business in the future interests of our milk producers,"'' he said.

Foodservice division

The foodservice division contributed 20% of total Lakeland group revenues in 2004, compared to a 12% contribution in 2003. Turnover of €90 million almost doubled on the previous year, driven by a full year's revenues from Pritchitts, the dairy foodservice firm which Lakeland acquired in 2003.

New capital investments in core product lines and plant upgrades have also delivered increased sales volumes. Lakeland also successfully launched HB Ice Cream manufacturing operations at its Killeshandra processing centre, under contract with Unilever plc. The budgeted revenue of the foodservice division in the current year will exceed €100 million.

Food ingredients division

The Food Ingredients Division achieved a turnover of €295 million in 2004. The global market for dairy products was strong, particularly in the protein ingredients category where casein reached record production levels and also achieved record prices. However, this was offset by serious currency fluctuations and casein aid was reduced in swingeing cuts by the EU. A new ultra-filtration plant was commissioned for Whey Protein Concentrate (WPC).

"The move within this division to reduce operating costs with the reorganisation of milk drying operations, from four sites to three, involved the closure and sale of the Omagh facility. Production of full cream milk powders has been transferred to other facilities, which have been upgraded to handle additional volumes and to meet the needs of the customer base from this facility. This move will deliver significant operating savings in 2005.

BL Ingredients LLC, Lakeland Dairies' US-based joint venture has proven very successful and the company performed well throughout the year. While the strength of the euro against the dollar continues to affect the returns from this arm of the business, the outlook for 2005 remains positive.

Lakeland said that research and development facilities were significantly enhanced in 2004 through the opening of a dedicated R& D centre in Newtownards.

Northern Ireland operations

"Northern Ireland supplies 40% of Lakeland Dairies' total milk processing requirements. Supplies of milk from Northern Ireland are forecasted to increase this year from producers currently supplying the co-op. This is in addition to milk bought at auction and the supplies drawn from other processors for use in Lakeland facilities.''

Agri-trading division

"Turnover in this division at €57 million was steady, however, the effects of the Fischler reforms look set to impact on performance in the years ahead. Retail stores, under the Town & Country brand, performed very well and recorded an increase in revenues. This steady progress will be maintained in the current year. The Lakeland branch stores reported continuing solid performance for the year.

"As a result of the Fischler reforms of the Common Agricultural Policy (CAP) and the drive towards world market prices, the Irish dairy industry continues to experience considerable pressure on margins. The supports which heretofore have underpinned the European dairy industry are being reduced and intervention is much less a factor in the market than in previous times. The effect of EU cuts has been somewhat offset in the market by higher prices. However, particularly in the US, there is a trend towards substitution into alternative, cheaper products by the major dairy buyers,'' said Ed Prendergast.

"Lakeland Dairies' goal to maintain milk prices at the highest possible levels must remain contingent on market conditions and the requirement to grow the business in the interests of the co-operative in general."

"Lakeland is also actively exploring the benefits that could accrue to the business through further co-operation with other processors in our region. Specifically, we have approached and have held discussions with other processors in a constructive and open manner. Where efficiency can demonstrably be enhanced and costs further reduced, such agreements will be pursued in everyone's interests suppliers, processors and customers."

"Lakeland is committed to ensuring that the dairy industry remains viable in the northern half of the island. The co-op is achieving this through the growth in our milk pool, streamlining of operations, diverting processing capacity into higher value products and expanding foodservice operations. We are enhancing research and development resources and implementing focused marketing activities."

"At policy level, we will continue to strongly represent the interests of our producers at national level. We will continue to grow strongly and strategically for the future, in the long term interests of all our producers and shareholders," Ed Prendergast concluded.