Dale Farm profits up 18% despite shadow of Brexit

The largest farmer-owned dairy co-op in the UK, Dale Farm, recorded an 18% increase in operating profits to £14.3m for the year ending March 2019. Speaking to the Irish Farmers Journal, Dale Farm CEO, Nick Whelan said the financial performance was not at the expense of milk price.

“Dale Farm has paid the leading milk price as per the 12-month rolling milk price league in Northern Ireland throughout this past financial year.”

That increase in performance was driven by a rise in turnover – up 5.6% to £509m. Margins were 2.8%.

Pre-tax profits rose 19% to £12m. Earnings were up 15% to £20.9m.

As those figures show, the co-op and its 1,300 milk suppliers across Northern Ireland, England and Scotland had a strong year across all divisions.

Brexit

Whelan says the strong financial performance was delivered despite all the distraction with Brexit.

“A no-deal Brexit is a serious threat to Northern Irish agrifood and consequently farmers,” he says.

Almost 14% of all food and drink produced in the UK is exported to the EU – a no-deal Brexit will force much of this trade to remain stuck in the UK and in turn collapse the market for everyone in Britain and Ireland, according to Whelan.

Dale Farm, he says, is working closely with the British government through the Northern Ireland Food and Drink Association to find a solution.

Whelan wants to see a deal reached to allow British businesses to plan for a post-Brexit trading landscape. A no-deal exit come October will make it very hard for businesses to plan for both short- and long-term.

In spite of the uncertainty, Whelan believes there is still opportunity for businesses to grow, as evidenced by the performance of Dale Farm.

The co-op’s balance sheet strengthened during 2018 and at year end had a net asset value of £73.6m.

Net debt at year end was down £3m to £64m, while net debt to earnings was just below three times.

A large factor for the relatively high debt to earnings level is down to cheese stocks, following the decision a number of years ago to focus on mature cheeses which take 12-18 months to ripen.

Milk prices

While strengthening the balance sheet, the co-op is still managing to pay the best milk price possible – the main reason behind Dale Farm’s ability to attract a significant number of new milk suppliers over the past year, according to Whelan.

During the year, Dale Farm grew its milk supply by 7% to 850m litres.

Over the last three years it has reversed a trend which saw the co-op lose over 300m litres of annual milk supply over the previous 10 years.

Whelan attributes the reversal in fortunes to consistent profitable growth, a leading milk price which is the result of an ambitious strategy which focuses on product and process efficiency and innovation while also building partnerships with major customers across the UK, EU and beyond.

“The co-op continually assesses and reinvests into every step of the production process to increase operating efficiencies. Dale Farm has invested £30.2m into its facilities and operations over the last four years,” says Whelan.

In doing so, the co-op has achieved a return on capital employed (ROCE) of 15.8% – well above the industry average.

Cheese

The majority of Dale Farm’s milk ends up in cheese and last year it produced 55,000t worth.

One of the highlights of 2018 came when Dale Farm won a major contract to supply cheddar cheese to German retailer Lidl across 22 countries in Europe.

Looking to the future, Whelan says the co-op is now operating at capacity and is not looking to take in more milk just for the sake of being the biggest.

Whelan says now it is about utilising current assets and investing to add more value to the co-op’s milk pool rather than just getting bigger.