Dairygold had an excellent year in 2013 and saw operating profits on core activities rise 33% to €27.3m. This represents a €7m increase when share trading is included.

Turnover increased €116m to €847.4m – a 16% rise. Turnover was up €24m in agri, €90m in food ingredients Ireland and €2m overseas.

Earnings before interest, taxation, depreciation and amortisation (EBITDA) of €45.4m on core activities were up 19% on 2012. Net asset value increased €23m to €274m.

Commenting on the results, Jim Woulfe, chief executive, said: “All businesses contributed to the performance, which was driven on two fronts: value in the product portfolio and driving processing and operating efficiencies. This was made possible by the high level of investment in the business.”

He added that the “waste of the past is the driver of the future” as Dairygold optimises the product mix to increase added value.

These figures were net of the year-end bonuses paid to milk suppliers and trading customers, which amounted to €7.5m.

Borrowings at year end consisted of bank debt of €60.9m and member funding of €5.2m. A key driver of the net debt increase from €56.8m to €60.9m was the increase in working capital requirement.

A five-year syndicated banking facility of €240m, to include €70m for capital expansion and €110m for working capital, was put in place last year.

The co-op processed 960m litres in 2013, an increase of 14% since 2009. Dairygold anticipate that they will process 550m additional litres by 2020.

The 2013 performance continues the strong recent trend which has seen the operating profit more than double since 2009. Turnover has increased significantly, considering no acquisitions were made. €113m cash has been invested in the business over the last five years, while at the same time net debt reduced by €17m to €60.9m at year end 2013. The net debt: EBITDA fell from 1.5 times to 1.3 times in 2013, reflecting the stronger balance sheet.

Commenting on the results, Bertie O’Leary, chairman, said that Dairygold had its post quota strategy “overwhelmingly endorsed by its members and the co-op took the leading role in responding to the fodder crisis”.

Agri business

Turnover was up 11% to €250m. This is despite an almost 30% drop in the price paid for cereals –a reflection of global grain markets. The growth was mainly driven by volume, where feed and fertilizer sales volume grew 12% and 22%, respectively.

The fodder crisis drove demand, with Lombardstown mill producing record volumes. Jim Woulfe said: “This put additional pressure on working capital, but the record milk price helped during the summer months.”

Food Ingredients Ireland

This business was a key contributor to the improved performance. Turnover increased by 25% (€90m) to €455m, driven by an increase in volumes (4%) reflecting the increased milk supply. The milk price increased from 30.9c/L to 38.1c/L in 2013. A year-end bonus of 0.5c/litre was paid on all contracted milk in 2013.

Woulfe commented that an extra €82m was paid out to farmers over 2012. €16m of this reflected the additional volume, while €66m was due to the increased milk price.

Food Ingredients Overseas

Turnover increased by 2% to €138m. The business was challenged by higher raw material costs as a result of increased dairy commodity prices. Woulfe explained that the main challenge was to recover these higher raw material costs in the competitive sector, adding that “they took a strategic decision to forego volume, enforcing the price increases”.

Commenting on the French cheese business, Woulfe said that they are “keeping the business under review.”

Subsidiaries and JVs

Dairygold acquired Reox’s property assets in a ‘debt for asset’ swap in March this year. 18 properties written down to €24m were acquired in return for the release of the €16m loan note plus a cash payment of €0.5m.

Munster AI, of which Dairygold owns 66%, had another successful year, and opened the new bull stud facility in Mallow.

The Malting Company of Ireland became a 50:50 JV with Glanbia as a result of IAWS exit.

The Reox swap further strengthens Dairygold’s balance sheet, removing the financial exposure to Reox and allowing them to focus on growth. It is likely that these assets will be earmarked for sale when the time is right.

The core cheese and IMF ingredients products are paying dividends. They have built strategic customers like Danone – their second largest customer. With no consumer foods division dragging management and performance in this highly competitive sector, the co-op can focus with clarity on its business to business strategy which it has built up strong capabilities in recent years with large food groups.

Dairygold is set to invest €200m in its business over the next 6 years where the modular expansion provides flexibility and minimises risk.

With internal housekeeping complete and sweating existing assets as it expands, the leaner business is now in prime position for expansion and ready for the post quota era.

It is also now in a position to leverage the balance sheet and has the potential to make a suitable acquisition.

On milk price, Jim Woulfe said that with the global markets softening at the moment, international customers are retracting. This is the danger of volatility and the downside of the abandonment of quotas, going to an unregulated era. In simple terms he concludes it will be world demand and world supply that will dictate price.

Woulfe explains that the combination of member funding and bank borrowings ensures that the society will not become over exposed to external debt.

With the increased movement in suppliers between processors as the industry is in a state of flux, Woulfe commented that this will initially be driven by price, adding that Dairygold will remain farmer owned and controlled and will pay a leading price.