Carbery Creameries Ltd, the West Cork co-op, improved its turnover by 11.2% to €289m last year while operating profits were up by 35.7% to €12.3m, according to the latest set of accounts just published.

Carbery is owned by Lisavaird, Bandon, Barryroe and Drinagh, who share 91% of the co-op.

Its strategy of diversifying and investing in non-dairy activities, which has seen the co-op invest heavily in expanding its product capability, product range, and global sales footprint, continues.

The co-op is building new manufacturing facilities in Cork, the USA, Brazil and Thailand.

This expansion phase has trebled profits in recent years and has enabled Carbery’s owners to consistently pay Ireland’s leading milk prices to its dairy suppliers.

Carbery processes 90% (37,000 tonnes) of its milk into cheese.

“Carbery will stick with cheese production and increase added value,” chief executive Dan Mac Sweeney told the Irish Farmers Journal this week.

“It is a continuous process as we constantly evolve our product range. Cheese is always slower to react to price changes compared to other dairy commodities, as cheese contracts are of a longer term nature with our customers.” he pointed out.

He also explained that cheese prices and market share are positioned to maximise Carbery’s market penetration post 2015.

Carbery sells its cheese through the Irish Dairy Board. Its Dubliner brand continues to make good progress in the US market.

Overall, Carbery’s dairy business had a solid year as the company continued to focus on pursuing its added value strategy in cheese and ingredients.

Expansion on schedule

During 2012, Carbery commissioned its new plant in Ballineen in Cork to produce advanced nutritional fractions for infant formula and sports nutrition products.

And it is currently building a whey processing facility in Southern Brazil as part of a 50:50 joint venture with Brazil Foods, at a cost of €40m.

Brazil Foods is one of South America’s leading food companies, with the largest regional milk pool.

This plant is expected to be operational by autumn of next year and has the potential to open up significant new markets in this rapidly developing region.

Synergy Flavours is the jewel in the Carbery crown, and while no financials are published for this division, MacSweeney says it has very strong performance in Europe, South East Asia and the Americas.

Carbery’s consumer sports nutrition brand, Kinetica, continued its growth in the Irish market by expanding both product and market reach.

The focus last year in the United States was on integrating the two American businesses which Carbery acquired two years ago – Census in Ohio and Green leaf in Chicago – and its existing business there into a single plant in Asuncion, Illinois.

The co-op has also established a development and manufacturing facility close to Sao Paulo in Brazil and has commissioned a flavour development and manufacturing facility in Bangkok to develop its Asian markets.

As part of Carbery’s planning for the post quota era, its milk supply share scheme will require all suppliers to invest in the co-op so they have 16 shares per 1,000 litres for their existing milk quota and 25 shares per 1,000 litres for any “new milk” post 2015.

Carbery’s most recent survey showed that farmers expected to increase milk supplies by 40% between 2015 and 2020. The current expansion programme has the capacity to deal with this projected increase in milk supplies.

Financials

Following the two acquisitions in the US, net debt levels increased from €5.8m in 2010 to €51.8m in 2011, but this was reduced to €43.8m by the end of last year.

Despite this significant debt level, Carbery is modestly geared (24%) with a net debt to EBITDA ratio of two times and an interest cover of 12.3 times.

The return on capital during the year came in at 6.4% (down from 7.1% in 2011) and its profit margin increased by 22% to 4.24% for 2012 (2011: 3.47%).

Overall, Carbery’s balance sheet, cashflow, profit and loss account and financial ratios remain healthy.

“Dairy markets remain solid and the outlook is positive for 2013”, Mac Serenely told the Irish Farmers Journal this week

“However, processor returns need to catch up somewhat with the price farmers are currently paid. Cheese is not the most exciting business, but in the long term we are satisfied with our positioning,” MacSweeney added.

Key points

Revenues up 11% to €290m

Operating profits up 36% to €12.3m

Profit margin up 22% to 4.24%

Net debt down 15% to €43.8m

Significant market and product expansion under way

Shareholder funds up 4.4% to €207m