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Strong butter prices along with a 12% rise in milk supplies saw profits more than double at Lakeland Dairies in 2017. Operating profits rose by €9.7m to €16.9m for the year ended 31 December 2017. The 2017 results for the first time also include a full year’s contribution of Fane Valley after the business was acquired in early 2016. Lakeland’s 2016 results only included eight months of a contribution from Fane Valley.
Revenues increased 28% to €769.8m and were boosted by the rise in dairy prices. Profit before tax was €15.9m in 2017. The co-operative, which has more than 2,500 milk suppliers, closed the year with a 15% increase in shareholders’ funds at €117.6m. Earnings before interest, depreciation, tax and amortisation (EBIDTA) were €32.6m, increasing significantly from €18.9m in 2016. Profit margins (operating) expanded from 1.2% to 2.1%.
Following the acquisition of Fane Valley for €13m, which brought around 240m litres of milk, the additional volumes have enhanced the overall efficiency. Milk volumes increased 12% during the year to over 1.2bn litres. A tangible impact of the efficiencies gained in the business is the removal of milk collection charges in 2017. This provided an overall benefit of €5m to milk suppliers. Net debt increased by €9m to €59.7m at year end as a result of higher working capital and investment in the business. The co-op received €757,000 from Enterprise Ireland for development at the Bailieborough and Killeshandra sites last year.
Michael Hanley, group chief executive, said the co-op was able to take advantage of the positive trading conditions which were helped by a reduction in global milk supplies and product availability.
He said that given the investments Lakeland has made, it is now in a position to process more milk than ever before. He added: “Our five-year strategic plan envisages Lakeland Dairies achieving sustainable, profitable annual revenues of over €1bn by 2021 ... The business has established customers ready to take more product in the future.”
Heavy lifting
He added that the business had the heavy lifting done and now it was about driving more value out of every litre. He said this would put more product down the infant formula route but this was only one leg of the business. He sees growth across all areas and growth will be balanced across both food service and ingredients. He said the Asian market is a huge opportunity for the business. According to Hanley, the Fane Valley business has bedded in and, as intended, the butter plant at Banbridge will operate on a seasonal basis again to facilitate the milk peak.
Research undertaken by the co-op last year indicates its milk producers will continue to expand output by 4-5% annually over the next five years. An additional 30 new entrant suppliers began supplying Lakeland last year.
This brings the total to 200 new entrants since 2013. While there is no requirement to share up, the co-op has opened the share register on a voluntary basis.
Sales in its largest division, food ingredients, rose 32% to €468.4m. The increase was driven by strong markets and increased demand from manufacturers.
The Bailieborough Dryer No 3 development was officially opened in 2017 with additional upgrades to R&D, milk intake, storage and separation facilities at the site. Overall, the Bailieborough site produced record volumes of over 200,000t of milk powders and butter products.
Sales in the food service business increased 23% to €239.8m during the year. Both Killeshandra and Newtownards sites produced record levels of butter, ice-cream, cream and cream blends. Despite volatile dairy commodity input costs, the need to increase selling costs and intense competition, the key markets of the UK, Middle East, Europe, Asia and China performed well, according to the co-op.
Sales in the agri-trading division increased 16% to €61.7m and were driven by record sales of over 200,000t of feed and 25,000t of fertiliser. Last year, the co-op started an investment programme to upgrade and expand the Lough Egish Mill.
With Lakeland suppliers expecting to continue to expand, it will mean a further 300m litres of milk is yet to come. Following the acquisition of Fane Valley and the investment in its own plants, Lakeland is confident it has the capacity to process this milk. Lakeland has invested in its processing capacity without the need for levies or sharing up. The solely dairy based co-op continues its policy of “if farmers invest inside the farm gate, the co-op will continue investing outside it”. Of course, this is acceptable once it does not come at the expense of the milk price.
Brexit poses a threat to the business given that half of its milk comes from Northern Ireland. While the co-op hopes to see as much free trade as possible, it has the advantage of holding processing and export operations, both north and south, regardless of how free any new trade agreements will end up being.
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