Operating profit up almost a third at Ornua as German appetite for Kerrygold increases
Ornua, Ireland’s largest exporter of dairy products, has today announced record revenues of €2.1bn for 2017, an 18pc increase year-on-year.
Operating profit at the group, which is funded by 33 dairy co-ops, was €35m, up almost a third on the 2016 performance, according to the group’s financial results published today. Meanwhile profit before tax increased by 84pc to €29.1m.
The performance was driven on the back of a record year for Kerrygold in Germany and the US, were the brand recorded double-digit volume growth in each market.
During the year, the group expanded its German production facility, with total investment in the facility now standing at €60m, while in North America, Ornua reported a record year for its ingredients division.
Describing 2017 as "a year of significant growth" Kevin Lane, CEO of Ornua, said that the group’s financial performance for the year was "excellent."
"Product innovation continued at pace and allowed us to unlock new routes to market to ultimately drive value for our members, Ireland’s dairy processors and Irish farmers," Mr Lane said.
The group purchased 338,000 of product from members – a record year, and the group said that it “paid strong product prices for those”.
In terms of service it its members, Ornua said that it was trying to reduce the volatility that is increasing in the markets, “from that point of view we have increased our volumes that are managed under fixed price contracts, we have also increased our trading expertise in-house that is to enter into the derivates markets and also physical trading to try and reduce the volatility that our members are experiencing.”
Milk Prices for 2018
Ornua said that it was budgeting 28-30c per litre including VAT for 2018 but the group warned that there was a health warning on this in the form of market volatility.
“An average milk price of around 30c per litre is sustainable from a consumer stand point, sustainable from a farmers production and income stand point, and sustainable in terms of what banks will back the industry for,” Ornua said.
Announcing the results, Ornua said that it was declaring a €15m members’ bonus, up from €9.5m in 2016.
Overall, the group launched 34 new product innovations in 2017, including a Kerrygold shredded cheese range in Germany.
In the UK, Ornua acquired and integrated F.J. Need (Foods) into group operations, and expanded the business’s production capabilities in order to "strategically build scale at a time of uncertainty for the UK market."
Today’s results mark the first year of Ornua’s new five-year growth plan, ‘Ornua 2021’, which aims to position the business as a leading global dairy organisation that delivers results for its customers, consumers and stakeholders.
On the issue of Brexit, the group, which exports to around 110 countries worldwide, said that it is reviewing a range of strategic measures to help minimise any potential negative impact.
The group went on to say that it’s five UK businesses are maintaining a "rigorous focus" on production efficiency and quality, customer service and new product development to ensure that it remains a supplier of choice in the UK market.
"As we look out, Ornua will continue to capitalise on its established market leading positions in major export markets such as the US and Germany and to accelerate its development in key emerging markets such as Africa, China, Europe and the Middle East," the group said.
In addition, Ornua said that it intends to continue to invest in new routes to market, in-market presence and new product development in order to deliver value for its members and farmers in Ireland.
Looking forwards Mr Lane, who will leave Ornua later this year, said that a major emphasis on building scale and capability within Ornua’s core business last year, coupled with the integration of recent acquisitions, leaves the group well placed to drive further growth.
"Despite volatile market conditions and Brexit uncertainties, we remain on track to deliver our 2021 vision of a €3bn revenue business with a sustainable earnings before interest, tax and amortization margin of 3pc."
In December last year Ornua announced that it had secured new five-year syndicated bank facilities of €610m, replacing its existing €420m syndicated bank facilities from February 2014.
The new facilities will extend to November 2022, and Ornua’s early refinancing of the existing facilities took advantage of positive bank market conditions.
Speaking today Ornua said that about €300m would be used to fund the industry reverse discount facility, which gets drawn down by members.
The rest of the €610m is being used for the group’s own working capital purposes and investments. At present very little of funds had been drawn down at this state.
On the subject of GM foods, Ornua said that in some of its key markets there are GM free products but that they are not selling for any premium over Kerrygold today,
“It is something we are having a look at because of Ireland’s position on imported feed ingredients, it is something of a challenged in declaring all of Kerrygold GM free, but it is something that we are evaluating at this time.”
“It is clear that there would be additional costs in terms of replacing things like soya in the diet, there is no added return in the market place for a GM free product at this time, unless we can find a new market position for that.”