Aurivo Co-op has reported operating profits of €5.25m, a rise of 199% on 2012 results. Turnover increased by 11% to €454m, a record sales figure for the group.

During 2013, Aurivo processed record milk volumes and paid out its highest ever milk price of 39.5c/l to suppliers.

The strong results come after Aurivo successfully completed its group restructuring programme which it began last year when the group changed its name from Connacht Gold to Aurivo.

Commenting on the results, Aurivo chief executive Aaron Forde said it had been a transformational year for the business in terms of both financial and operating performance.

The record turnover generated both in Ireland and internationally across 46 countries was driven by a combination of added milk volumes in strong dairy markets, increased feed volumes in the agri business, and strong investment performance.

Net debt at year end reduced by 33% to €12.9m. Net Debt:EBITDA fell from 2.4 times at year end 2012 to 1.1 times at year end 2013. Shareholder funds increased by 13% to €38.7m.

Aaron Forde was positive about the outlook for 2014, saying that the year has started well for Aurivo. He said: “We look to future years with a renewed confidence.”

Aurivo chairman Padraig Gibbons said that it was an excellent year of progress for the co-operative, adding that “our members delivered record volumes of milk and received a record price”.

Over the next five years, they plan to invest €36m.

By Division

Dairy ingredients

Sales in the dairy ingredients division grew to €125m, an increase of 34%. This was due to increased consumer demand, coupled with stronger retail prices. Aurivo expects its milk suppliers to increase their production levels by 20% post 2015 and is well positioned with the capacity to process the increased milk volumes.

At the end of last year, Aurivo invested €5.25m in a new biomass fuel system in their dairy ingredients plant in Ballaghaderreen. The new energy system will run on 30,000 tonnes of woodchip per annum, sourced from the group’s subsidiary timber production business ECC Teo, and reducing the usage of heavy fuel oils by almost five million litres. With energy the single biggest costs in milk processing, this investment will be paid back within three years.

Lean management has added capacity for free, according to Forde.

Consumer Foods

Aurivo’s consumer foods division, holding a strong market position in liquid milk and butter, recorded sales of €75m, an increase of almost 8%. Aurivo’s butter brands showed strength with sales up by 15% during the year and was mainly driven by value. The liquid milk market remained challenged.

This growth was partially due to the group’s strong investment in brand promotion through high-profile national advertising campaigns. The group says it is actively pursuing export opportunities for the brands such as Connacht Gold. The consumer foods division turnover has increased from €40m in 2009 due to the Donegal acquisition.

Agribusiness

Turnover in the agribusiness division grew by 10% to €125m in 2013. This was largely driven by the fodder crisis in the first half of 2013, which saw record volumes of feed sold. During the year, the animal feed range was rebranded as Nutrias and Aurivo is currently in the process of renaming its 39 retail stores under the new Homeland banner.

Marts

Turnover at Aurivo’s four marts in the west of Ireland was €84m, down 6% on the previous year. This was due to the combination of a marginal decrease in throughput and a decline in cattle prices by €50 per head on average compared to 2012. Sheep numbers were up 10%.

Analysis

Aurivo has turned a corner and faces the post quota era with a tailwind behind it. After successfully delivering robust results this year and with significant debt paid down, the balance sheet is in a much stronger position. The co-op also holds a significant share portfolio, with investments in companies such as Aryzta.

With low operating margins, economies of scale and efficiency will play a key role in the dairy business, where the liquid milk market refuses to offer an adequate return for either the processor or the farmer.

Aurivo is somewhat unique in that it offers a wide range of services to farmers across a very large geography. While this can add to milk collection costs, the co-op says it is committed to providing an excellent service through it stores and marts to its diverse customer base.

Having successfully integrated the Donegal business, and with the biomass plant bringing cost savings, the co-op is well positioned for the opportunities and growth in the post-quota era.