Kerrygold delivers €18m to farmers

For the first time, Ornua has published the brand premium delivered by Kerrygold. Ireland’s largest exporter of dairy products said the continued growth and strength of the brand delivers a premium of €18m to members of Ornua and ultimately dairy farmers.

The value was included in the co-op’s annual results statement this week in which Ornua reported a 15% rise in operating profits to €40.4m in 2018.

The strong performance was delivered on the back of a marginal increase in sales (up 0.6%) to €2.1bn. Sales pricing was solid. However, overall sales volumes were down as a result of the late milk production season, particularly at the back end of the year.

Given that it purchased a record volume of Irish dairy products last year, stocks held at year end therefore increased by €190m (35%).

Ornua said the market since then has held at a level which has allowed this stock move through. There was also some build-up of stock due to Brexit planning with customers in the UK.

Overall, the late production season and Brexit planning, which resulted in the group carrying additional stock over the year-end, increased net debt to €110m compared to €0.3m net cash in the prior year. Group earnings (EBITDA) increased 12.5% to €60.5m, which saw the group with a net debt to EBITDA ratio of a comfortable 1.8 times.

Speaking exclusively to the Irish Farmers Journal, CEO John Jordan said the increased profit levels were driven by the group’s international ingredients business and particularly the US alongside tight cost controls and driving operational efficiencies.

Challenging

He added that “the strong performance was achieved against a challenging global environment characterised by highly volatile butter prices, drought conditions in Europe, economic uncertainty due to Brexit and global trade wars”.

Ornua purchased a record 342,000t (60% of total Irish dairy output) of Irish dairy products from its members which include Arrabawn, Aurivo, Carbery, Dairygold, Glanbia, Lakeland, North Cork and Tipperary. This is the equivalent of 3.4bn litres of milk (or 45% of Ireland’s total milk pool).

The group returned €19m as a year-end bonus/dividend to its members. This was up 27% on the year prior, mainly as a result of the increased performance across the business.

Ornua also facilitated its members to deliver the equivalent of 570m litres of milk in fixed milk price contracts last year. Ornua also provided €350m of working capital to its members during the year.

The group said that Kerrygold had a standout year, with volumes increasing 25% in the US during the year.

Ornua’s ingredients business, which offers cheese and dairy solutions to global food manufacturers and the foodservice sector, delivered strong results last year.

The US ingredients business in particular drove performance, with double-digit volume growth.

Brexit

Jordan said that any change to the status quo will have an impact on the industry’s competiveness. Some 18% of Ornua’s volume goes to the UK market. He said that the UK imports 100,000t of cheddar annually, 80% of which comes from Ireland. He added that no other market can fully replace the UK in volume or product value terms.

He said Ornua has been preparing but that planning where the outcomes are still unclear has been a significant challenge.

He added that Ornua has been working closely with key customers in the UK to ensure security of supply and to minimise the short-term impacts on business.

How is Ornua creating value for farmers?

Last year Kerrygold, absorbed some 1bn litres of milk. In an era which has seen 50% growth in milk supply since the lifting of quotas (and no sign of it slowing), finding markets of value for this milk is a key challenge for the industry. Kerrygold is delivering a market for this additional milk and one which is adding value.

This brand premium was not built overnight and growth in the brand is not accidental. It follows more than 55 years of investment in the brand by farmers. Today, Ornua continues to invest in the Kerrygold brand and last year it says it invested €40m in hard marketing.

This investment is necessary to maintain and grow market share. It is the market leader in butter and cheddar cheese in Germany. And despite the overall decline in the German butter market, Kerrygold continues to grow volumes in its main market, Germany, and gain market share. It is notable that Kerrygold now sells faster than any other food and drink brand in Germany. Across the pond, it is also experiencing huge growth, with volumes up 25% in 2018 cementing it as the second-largest butter brand in the US. Kerrygold is not just a rock solid brand – it is a rock solid route to market that is delivering a premium on milk it receives from farmers.