Donegal Creameries reports increased turnover and profits

Donegal Creameries has reported higher turnover and profits in 2006. Once again, a big share of the company's profits came from property disposals - but the core trading activities did have a far better year in 2006 and enjoyed a return to modest profitability after just breaking even in the previous year.

In all, Donegal's preliminary accounts show pre-tax profit of €4.1 million on turnover of €118,585. This compared with pre-tax profit of €3.6 million on turnover of €111,677 in 2005.

Donegal's profits on property disposals are shown midway down the profit and loss account.

All figures above this, including turnover, operating costs, operating profit, etc, relate to its core trading activities in milk, feed, agribusiness, etc.

The company has three trading divisions: dairy products, agribusiness and "other'' which lumps together activities such as confectionery, mushrooms and property rental, etc. The breakdown of turnover is shown in table 2. Shareholders are not given a breakdown of operating profit for each division.

Value added milk

The dairy division had a 6% increase in turnover from added value products, managing director Ian Ireland said this week. However, this was offset by a reduction in commodity dairy product prices during most of 2006. Donegal processes some 12m of its 25m gallons into value added product, ie liquid milk or UHT, the balance is sold to Connacht Gold or other processors.

The short term outlook for the dairy division is better, chief executive Ian Ireland commented in the annual report. Donegal re-launched its branded liquid milk range in June 2006 and claims to be growing market share in its catchment.

Turnover in agribusiness rose by 10.6% in 2006 which would have lifted it over €60m. The increase was driven by buoyant feed sales in the difficult spring of 2006 while Donegal's two potato businesses also lifted output. Feed sales in particular would have been a big driver of 2006 profits for Donegal.

Turnover in the "other'' division was down. The group's shareholding in Monaghan Mushrooms had a difficult second half reflecting over supply of mushrooms across the EU. Donegal's confectionery business grew turnover by 3% in a difficult market. Rental income rose by 20%.

Low profitability

AT €2.5 million operating profit was well ahead of the €120,000 of 2005. It still means a net margin of just 2.1% which is a very low level of profitability.

But that is in line with the company's current philosophy which is to offer farmer shareholders the most reasonable deal it can on milk prices, feed prices, etc, while looking to property disposals for the bulk of profit.

The company is also hoping to develop an added value operation on food and confectionery - but going by these latest figures progress here is slow.

Property sales

And so it was property sales which once again delivered a big chunk of the company's profits.

The year saw one major sale of property giving profit of approximately €2.1 million. This is down on the €3.9 million profits on property disposals in the year before.

It's not all sales - during 2006 the company invested €4.9 million in acquiring new property and other investments.

Coillte lifts profits

Coillte lifted profits in 2006, helped by good demand and prices for timber. It made pre-tax profit of €27.2m on turnover of €213.8m in 2006. This compared with profit of €26.3m on turnover of €217.9m in the previous year.

In all it was a busy year for the company. It purchased Medite Europe Ltd in November for €66 million - its largest acquisition to date. It closed a number of underperforming businesses and it carried out a re-organisation of its divisions.

The dip in turnover in 2006 was partly a result of lower sales in the US by its OSB subsidiary SmartPly plus the businesses closures. Meanwhile, the acquisition of Medite is expected to increase the company's 2007 turnover by some 50% to over €300m. Based in Clonmel the company was formerly known as Weyerhaeuser Europe.

Coillte has now reorganised into three operating divisions: Coillte Forest, Coillte Enterprise and Coillte Panel Products. The Forest division had revenue of €94 million in 2006 from sales of 2.69 million cubic meter of timber.

opportunities

Coillte Enterprise aims to develop opportunities outside of the forest and wood sectors, eg energy. It is also responsible for sale of surplus land, disposing of 373 hectares in 2006, and the company's nursery stock operations. In 2006 it acquired the assets of Greenwood Trees in Scotland, which is intended to allow it expand its UK revenues.

Coillte Panel Products comprises SmartPly in Waterford and the newly acquired Medite Europe Ltd business in Clonmel. The company says that the enlarged panel operation is now a significant player in the European sector and well placed to benefit from rising European demand for MDF and OSB.

SmartPly sales increased by 12.5% in Ireland, 18.5% in the UK and 10% in Continental Europe. Production output was 309,000 cubic meter.

Medite employs 150 people and as well as supplying the Irish market, exports MDF to the UK, mainland Europe and beyond for a wide huge range of uses.

Looking to 2007, Chief Executive David Gunning said Coillte was now more international in scope and outlook, following the acquisition of Medite in particular.

"Fifty percent of the €300 million sales revenue forecast for 2007 is expected to come from outside Ireland.

"The future growth of the company will be focused on maximising the returns from its current assets and evaluating growth opportunities which fit with our strategic objectives.''