Profits up 18% at Ornua in 2016

Ornua, which exports 60% of Irish dairy products, saw an 18% rise in profits (EBITDA) to reach €43.1m last year. Operating profits surged 46% to €26.6m as it saw turnover on a like-for-like basis increase 9% to €1.75bn, once its US distribution business was excluded. Ornua sold this business (DPI) in December 2015 for €67m.

The growth in turnover was driven mainly by volumes where product purchases rose 7% year-on-year, outstripping the rise in Irish milk supply of 4%. Currency also had a positive effect on turnover.

Group earnings increased 18.4% to €43.1m as a result of the higher turnover but also saw margins expand from 2.3% in 2015 to 2.5% in 2016, as the business continued to focus on adding more value to sales.

Operating profits increased 46% to €26.6m, driven by operating margins increasing from 1.1% to 1.5% in 2016.

It was a historic year for Ornua with the opening of its first processing site in Ireland – the 50,000t butter production and packing facility in Mitchelstown, Co Cork – after a €38m investment.

It also commissioned a cheese plant in Riyadh and integrated its Shanghai-based Ambrosia Dairy acquisition into the business. It acquired US powder ingredients business CoreFX too.

Ornua CEO Kevin Lane said: “Excellent performances in established markets such as Germany and the US were accompanied by continued expansion in our developing markets of Africa, China and the Middle East. These results were achieved against a backdrop of significant market volatility and political uncertainty.”

He said the results could not have been achieved without the dedication of almost 2,000 employees globally.

The business, owned by the majority of dairy co-ops, ended the year with net cash of €57.2m compared with net debt of €17.3m at the end of 2015. This has been delivered through improved working capital management, including collecting monies owed faster and holding less stock.

The group has developed a five-year strategy with the aim to almost double sales to €3bn by 2021 along with delivering a 3% margin (EBITA).

Lane said these targets are ambitious and will be challenging in the context of a new US administration, the Brexit vote and ongoing volatility.

During the year, the group invested €51m, including a further €6m in brand development. Ornua had net assets in excess of €500m at year end. The co-op supported prices to the tune of €15m in 2016.

This year Ornua acquired FJ Need (Foods), a UK-based cheese ingredients company, strengthening its presence in the UK ingredients sector.

A members’ bonus of €14.5m was declared, which included a final bonus of €5m to the co-op members from the gain on disposal of DPI Specialty Foods. This is on top of the €15m paid out to member co-ops for the sale of DPI last year.

Suspended milk levy

In May 2016, Ornua suspended the monthly Ornua milk levy in recognition of the on-farm challenges experienced by dairy farmers due to the global dairy market downturn. Usually the levy collected €7m, and in 2016 due to the suspension it collected €2m. When the €9.5m bonus payout, net of the DPI bonus, is added to the reduction in levy money collected, the net benefit to co-op members is €15m, similar to the bonus payout of €14m in 2016.

By division

Ornua foods, which includes the Kerrygold brand and accounts for 47% of the business, had another strong year of growth. Kerrygold reached global retail sales of €900m during the year. The US market, which is Ornua’s third-largest market, achieved 20% growth in branded Kerrygold volumes year on year.

Kerrygold butter has maintained its top position as the No 1 imported butter and the No 3 butter brand in the US.

Kerrygold cheese in the US is also performing strongly, according to the company.

In its second largest market, Pilgrims Choice strengthened its position as the No 2 cheddar brand in the UK and gained market share, increasing sales volume by 3%. Kerrygold is the fastest-growing brand in the UK butter category.

In its largest market, Germany, butter volumes grew by 3%, extending its market leading position. Cheese volumes also grew 42% in Germany.

Last May, Kerrygold extended the brand into yoghurts and in the first six months, more than 10m pots have been sold, demonstrating the ability to extend the brand to other dairy products.

Also during 2016, it saw cheese and butter volumes in Asia increase by 46%, albeit from a low base.

Lane says the ambition is to continue to extend the Kerrygold brand to new dairy products in the coming years.

Ornua ingredients

The division handled record volumes in 2016 and is an important route to market in a post-quota environment. The company said that during the year dairy market volatility saw prices swing by over 70% across a six-month period. In 2017, this division will manage about 300m litres of fixed milk price schemes. The Spanish business, which manufactures mozzarella and processed cheese for the food service market, saw a 9% volume growth during the year. Sales volumes in its UK butter trading division increased 36% year on year.

The company said milk fats have been strong in the past year but at the same time milk proteins have been weak.

Comment

Over the last four years, Ornua has purchased 33% more Irish dairy product. This means it is capturing an increasing amount of Irish milk and reflects its strong product price returns and ability to provide a working capital type finance for member co-ops at a time of huge expansion. It is particularly impressive also that it has managed to find new markets for this milk. However, it is not just focused on selling product at any price, but achieving an improved return, reflected in the continued expansion of margins.