Relatively new Dairygold chief executive officer Conor Galvin sets out his stall early in the interview: “The purpose of our organisation is to process our members’ milk. That’s our North Star – our ambition in managing this business must fit with this. We must deliver on the ambition of our suppliers.”
Galvin is confident and clear in the mission after a rough and tumble start to his career as Dairygold CEO. He wasn’t yet named as the next CEO as news broke that the co-op was going to sell ‘some’ cheese in a Norwegian wrapper on the US market with its partners in Mogeely, TINE. Ornua shareholders’ eyebrows were raised and some cross words were exchanged.
Recently retired CEO Jim Woulfe was still in situ, but, as he said himself he was in the departure lounge. When asked this week about the relationship with Ornua, Galvin was doubling down.
He said: “Our relationship with them is stronger than ever. We have never done as much business or trade with Ornua, and will improve on trade with them again this year. They are our biggest customer. They are expanding Kerrygold Park on the basis of the relationship we have with them. They are our route to market for cream for a premium segment of the market.”
Galvin got the top job in after a period in sales for Dairygold overseas following financial and accountancy stints with both Proctor and Gamble and DCC.
His overseas groundwork is starting to pay off. In October last year Dairygold introduced a range of premium canned milk powders for the Asian market under the Aerabo brand. Galvin says Aerabo is the first Irish milk powder to carry the Bord Bia verified Grass Fed accreditation logo. It’s an introductory product in a market segment Dairygold wants to grow and Galvin is confident the co-op will have a pipeline of new products in this space coming soon.
For years Dairygold farmers have been complaining they need to start seeing a better return on the milk they are producing. Infant formula direct to market has long been talked about as a potential way to add value for Dairygold powders, but the focus was on getting the processing capacity in place first. Rather than dip into a competitive infant market, it now looks like Dairygold is starting at the other end with this canned milk powder in the adult health and nutrition space.
For now, Dairygold milk suppliers will be comfortable they have the capacity to continue to supply more milk as milk price reaches new heights. Dairygold has backed the grass curve as the best supply pattern for their members. Galvin is clear: “It costs us money as the processing cost is more expensive, but, when we include the cost of production for our members, and the brand associated with grass-fed milk then it is the right decision for shareholders to put the processing capacity in place. We asked our members if they agreed with matching the processing capacity to the grass-fed curve and they backed it.”
Dairygold has processing capacity for 52m litres per week at peak and a small further investment in an evaporator in Mallow will lift this to 55m litres per week. The old casein plant will be upgraded as it is heading for 40 years old. That will also help capacity. Volumes processed in Dairygold reached a new high of 47m litres at peak in 2021, totalling 1.49bn litres for the year.
The survey results from members suggest a modest 2.5% increase per year is in the works. The roadmap suggests there is processing capacity to 2025 and then small investment will take it to 2030. In essence, this is Woulfe’s legacy and now Galvin and the team at Dairygold are reaping the rewards.
The numbers all point upwards for 2021. Revenue was up 15% to €1.17bn. Most of the revenue (63%) comes from the dairy business. Agribusiness delivered 23.6% and the UK business accounted for 11.8%. EBITDA was up 7.2% to €58m, operating profit was up 17% to €30m with the net asset value of the business up to €422m, a lift of 9%. Net bank debt sits at €108m, down €11m on 2020. This leaves the net bank debt to EBITDA ratio at 1.9 to 1. Chief finance officer Michael Harte is comfortable with this and suggests the ratio is well back from the 2.8 to 1 ratio in 2019. Debt in 2019 was €158m.
In the annual report Dairygold calls out the quoted milk price at 36c/l incl VAT (34.1c/l ex VAT). The co-op said this was up 6c/l on 2020 and puts the 10-year average quoted milk price at 32c/l incl VAT at 3.3% protein and 3.6% fat (30.3 c/l). The price paid out is much higher as the solids are very good at 3.59% protein and 4.23% fat. Dairygold says this puts the price paid at 41c/l incl VAT (38.9 c/l ex VAT).
Dairygold has options on milk processing as it has butter, cheese and powders in the mix. This means the co-op also has casein and whey powders.
In total, 64% of the whole milk is used in either cheese or butter, with the balance in powders. Other processors would love to have these options on the shoulders when they can decide to move milk in one direction or another depending on market prices.
Will technology advances mean artificially grown protein products overtake natural products like milk and meat?
I think they won’t. I’ve learned from experience that there are two moments of truth – the first moment is when someone buys for the first time and tastes the product. The second moment of truth is when they stay buying after experimenting, and I believe consumers of artificial products are not reaching the second moment of truth.
Where are you on hedging the energy market?
The current high prices mean we are buying short and we have to be flexible.
Where is milk supply at the moment?
It’s back 3% for March and it looks like in 2020 we got two years expansion lift in one year. It’s early days in the season and supplies are picking up, but running behind.