The Annual General Meeting for Tipperary Co-operative was held on Monday, 30 September, where shareholders and suppliers were presented with the annual report for 2023.

The numbers on those pages would have made difficult, if unsurprising, reading for those present. The co-op reported an operating loss of €6.85m for the year, a full reversal of the €6.9m operating profit made in 2022. To add a little salt to that wound, there was also additional taxation and charges of €2.185m, plus a loss of €193,000 on a minority interest – which together took the loss attributable to shareholders for the year to €8.773m.

During 2023, the co-op took in 244.4m litres of milk, a drop of almost 13% from 2022’s level. This drop was well ahead of general fall-off in milk deliveries across the country and was due to Tipp’s purchases of milk from outside its own pool, dropped by a third to 54m litres. Deliveries from Tipp’s own pool dropped 5% to 190m litres. The number of milk suppliers dropped by seven to 385.

Taking the loss for the year and the milk deliveries together, the co-op lost 3.6c/l in 2023.

Production of both butter and milk powders was lower, while cheese production increased 37% to 5.7t.

Sales for the year dropped by €115m to €304m, which was substantially driven by weakening global dairy markets during 2023. While there was a significant drop in energy costs from over €15m to €10.3m, the wage bill rose and interest costs almost doubled to €4.05m. That rise in interest was driven by higher bank borrowing costs and an increase in bank debt at the co-op from €51.8m to €56.1m.

One bright spot in the operation’s trading during the year was the performance of its French cheese business, Tippagral. That company, and its cheese agency in Spain, were described by interim-CEO John Hunter in the annual report as having “another bumper year of record growth”. He added that the business “continued to deliver excellent returns on investment”.

The AGM heard that the co-op will have losses of less than €1m this year and is projected to return to profit in 2025. This will be driven by cost reduction plans, which have progressed during 2024, including a reduction in staffing levels and restructuring work shifts, as well as reducing costs in supply chains and refocusing on “production fundamentals”.

Of course, the future of Tipperary Co-op will be more governed by the results of merger talks with Arrabawn than by any hope-filled projection for future trading.

On those talks, the AGM heard that suppliers would be invited to information meetings over the coming weeks to hear about progress, with a view towards holding a vote on a proposal by the end of October.

This timeline is important, as Tipperary suppliers who wish to hand in their notice to the co-op will have to do so by 1 November.

Any vote on a proposal will have to be passed by 75% of supplier shareholders, with at least that number needing to be present for the vote to be valid. The AGM was told it is expected that a merger, were it to be agreed, would be all wrapped up before the end of the year.

Comment

Tipperary Co-op is a victim of circumstances, bad timing and bad luck. The global market for dairy products turned against some of the co-op’s key products in 2023. While every processer in the country found themselves in a similar position, the timing of Tipperary’s investment in expansion of facilities meant debt peaked just as cashflow came under pressure.

Further adding to the difficulties were the problems encountered during the commissioning of some of the new plants last year, which reduced capacity during peak months.

A larger co-op might have been able to trade through these difficulties, but Tipperary’s scale means that it almost inevitably has the majority of its eggs in one basket, so when there are problems with that, the whole business will find itself in difficulty. If size is the problem, then a merger with its larger – and mostly debt-free – neighbour to the north makes perfect sense for Tipperary. It will be up to Arrabawn shareholders to make up their own minds as to whether it makes sense for them.

It does seem clear, however, that Tipperary does not have the scale to easily trade through its current difficulties, despite management forecasts for a return to profitability in 2025. For suppliers to the co-op, there will also be a point where they will run out of patience with being paid what is regularly the lowest price for milk in the country.

Should negotiations with Arrabawn fail to come to a conclusion, nobody would blame suppliers for seeking another processor. And if some leave, then those that are left would likely have little choice about staying.