A dramatic turnaround has been achieved at Town of Monaghan Co-op, with operating profits of €4.96m in 2013 following an operating loss of €4.58m the previous year. 2013 saw record turnover of €219m, with dairy product sales income up by almost 20% in spite of the loss of significant supplies of milk in Northern Ireland.

Reporting what he described as excellent results, Monaghan chair Hugo Maguire acknowledged that “the main driver was the dramatic improvement in market returns as a result of strong global demand for dairy products”.

To illustrate the market volatility of the past two years, Maguire quoted butter trading as low as €2,400/tonne in 2012 and reaching a high of €4,200/t in 2013.

After a pre-tax loss of €3.1m in 2012, Monaghan’s pre-tax profit in 2013 was almost €10.5m, including the sale of around €5m worth of shares in Arytza plc. This left the company with quoted shares valued at €26.27m at the end of 2013.

The quoted shares are in the balance sheet at a cost of €0.494m, so they are scarcely reflected in the €34.38m net current assets of Town of Monaghan.

Aryzta shares are the main part of the investments held by Town of Monaghan. Dividend of around €0.2m and around €1m profit from sale of shares in 2012 offset part of the operating loss in that year, when the company used those assets to bolster its milk price paid to producers.

In 2013, the milk price was at record levels, but Hugo Maguire stresses that Monaghan did not play the game of paying inducements to individual producers to try to retain their supplies in the face of offers made by other milk buyers in Northern Ireland.

“Many of our producers accepted these inducements and moved on,” said Maguire. “We operate on co-operative principles, where all producers are treated equally.”

Strong balance sheet

Town of Monaghan has a remarkably strong balance sheet. The business could fund the building of its proposed new dryer at Artigarvan in north Tyrone, costing around £20m (€25m), without any borrowing.

The decision to invest at Artigarvan was paused last year, when several milk producers quit supplying Monaghan and switched to Fane Valley Co-op.

Now a survey is under way in Northern Ireland to determine whether suppliers who have remained loyal to Monaghan are prepared to commit their future milk supply, which would underpin the investment.

Expressing confidence in the ability of Town of Monaghan to serve its members’ needs, Hugo Maguire questioned the opinions of “some commentators and experts [who] tell us that rationalisation of co-operatives is vital”. He argues that rationalisation can mean elimination of competition and asks: “Is that what dairy farmers want?”

Liquid milk

On liquid milk, Maguire sees supermarkets continuing to fight for market share and tighter margins will be the norm. Town of Monaghan will continue to hold a small share with its Champion brand and some private label milk such as the recent deal to supply nine Aldi stores locally.

Profit at farm level

Hugo Maguire warns producers they should not attempt to expand unless the increased herd size and milk output will generate higher profits for the producer.