The improvement in performance was across the three businesses: manufacturing/dairy ingredients, liquid milk, and agri trading.

There was a notable pickup in performance in the second half, following dairy market recovery in the back end of the year. As a result, the co-op carried a lower level of stock at year end.

Despite milk supplies from farmers being up 6% to 330m litres, less milk was processed in 2016. This was a decision taken by the co-op, as it pulled back from third-party processing to run its plants more efficiently.

The liquid milk plant at Kilconnell saw volumes increase 18% to 65m litres as a result of winning a significant contract to supply Tesco from the middle of last year. Nenagh processed 277m litres – 7% less than 2015.

Total turnover decreased 3% to €199.7m during the year, with dairy turnover down 2.7% to €145m, due to lower market prices. The agri-trading turnover fell 1.7% to €55m as a result of lower feed and fertiliser prices. Feed volumes increased 2% to 128,000t, while fertiliser volumes were up 2%.

Overall operating expenses increased 6% to €49.5m. Wages and salaries increased 10% to €16.1m, driven by 26 additional employees.

Key management remuneration, relating to 15 employees increased 10% to €1.8m, due to retirements and staff transitions. Gas and electricity costs fell €1.3m in 2016, which was on top of a €0.75m saving in 2015.

Operating and distribution costs increased 10% to €19.2m after the co-op stopped charging farmers for collecting milk.

A new retail store was opened at Tyone, in Nenagh, after an investment of €1m. It also sold the Athenry town centre site for a €1.1m and purchased land to develop a new retail site on the outskirts of the town.

The co-op invested €3.8m upgrading the Nenagh site in 2016, with the majority of this spent on the main evaporator with a smaller portion on the effluent plant. In Kilconnell, €1.5m was invested in a packaging machine and upgrading the effluent plant.

Earnings (EBITDA) increased 48% to €9.5m. Net debt fell by €3.2m to €12.6m. Net debt to earnings is 1.3 times, which is manageable and gives the co-op strength to expand.

Long-term view

Conor Ryan, CEO, said that all three divisions – manufacturing, liquid and agri trading – performed well in the year and contributed to overall performance.

He says: “We are now taking a much longer view in relation to our investments.”

Arrabawn will have the capacity to process up to 550m litres in Nenagh and 200m litres in Kilconnell by the end of 2018, according to Ryan.

He says supply will come from existing suppliers expanding but also from growth in the liquid supply base in the catchment area. He added that what Arrabawn now has is a well-invested large-scale liquid milk plant that can service the western market efficiently.

Arrabawn paid a liquid milk bonus of 14c/l bringing the price to 44c/l for the past four months. Its most recent fixed milk price scheme at 30.6c/l saw suppliers cover up to 40% of their milk into the future.

Comment

This is Arrabawn’s best operating performance in the last five years. Operating profits have increased from €1.1m five years ago, to €4.6m last year, while margins have expanded from 0.6% to more than 2.3%. In the past, Arrabawn was mainly a skim producer. The improvement in performance is a result of developing the sites to allow more product to be moved to higher-returning milk proteins.

Net debt levels are €1.5m less than five years ago. Meanwhile, the co-op has grown its balance sheet 30% while at the same time it has invested more than €25m expanding and upgrading its factories. The co-op has been prudent around its expansion and the financing of it. It is welcome to see it taking a longer-term view on its investment strategy.

With a further €10m to spend to complete the expansion projects, the co-op will be well invested, and farmers should start to see the benefits flowing back in the milk price.

Arrabawn paid an average milk price of 27c/l in 2016, down 3.4c/l on 2015. While the milk price paid did improve and move up the ranks in the second half of the year, in the peak months Arrabawn paid in the middle ground, while some processors in division one, paid 1-1.5c/l more.