Lakeland CEO Michael Hanley described the financial numbers for Lakeland 2021 as ‘robust’.

He was modestly underplaying the numbers because, similar to other dairy processors, 2021 has been a good year for Lakeland farmers and the dairy business.

Lakeland now processes over 2bn litres of milk supplied by it’s 3,200 dairy farmers. The co-op crossed the border into Northern Ireland in 1995 and now between 55% and 60% of the Lakeland milk pool is from Northern Ireland.

Three weeks ago, Lakeland management announced they were introducing a peak penalty for April, May and June over a reference period.

Capacity

The co-op suggested processing capacity was nearing its limits and hence it was also introducing an out-of-season bonus to further level the supply pattern.

No suggestions on potential investments by the co-op were proposed to alleviate the capacity issues. This has occupied the minds of many Lakeland suppliers since.

Milk has to cross the border back into the South for processing so everyone is asking the question why Lakeland wouldn’t invest in processing in the existing site at Banbridge.

Hanley is quick to suggest there hasn’t been any investment on the site for years so any investment is going to have to be a big investment.

Debt

Long-term debt is not holding back Lakeland. In fact, long term loans slightly reduced from €32m down to €27m last year. Net debt stands at €89m, down from €103m last year.

Group chief financial officer Peter Sheridan suggests net debt at 1.8 times EBITDA is well within an acceptable range.

Financials

Lakeland’s working capital requirement is big and lifted considerably in 2021 as the price of everything rose.

The co-op doesn’t do much business with Ornua (less than 10% of product), so working capital financing must come from the business, unlike some of the other big milk processing players that utilise Ornua’s funding model.

For Lakeland, it’s the dairy ingredients business that continues to set the pace and create the core revenue for the business as a whole.

Of course, Hanley is quick to point out there are three and maybe even four legs to the Lakeland stool. However, there is one very big leg and three smaller legs. Turnover of what Lakeland calls ‘food ingredients’ has grown from €584m in 2019, to €691m in 2020, rising to €831m in 2021. For Lakeland, food ingredients really means powders and butters. There is a small bit of cheese from Ballyrashane and seasonal butter in Banbridge, but powders are the big play. All the recent investment in Bailieborough, Artigarvan and Lough Agish have been in powders.

The first of the three smaller legs to the stool is food service, which includes what comes out of Killeshandra such as the small pots of milk etc. Turnover in this segment was €223m in 2021.

The second small leg is consumer foods, the liquid milk piece of the business, based in Monaghan and Ballyrashane. Turnover in 2021 for this was €170m.

Agribusiness is the third smaller leg of the stool, with turnover of €86m. So in summary for 2021 the powders are 63% of the total revenue, food service is 17%, consumer foods is 13% of revenue and agribusiness is 6.5% of total revenue.

Profits

EBITDA for 2021 was €55.4m, which is up 9.7% or up by €4.9m on 2020. Operating profit is up by €2.1m (8%) to €28.2m. The numbers show the business is doing well. However, somewhat overshadowing all this is what farmers are asking me all week: 1 What is the objective behind the peak penalty? 2 Where or when will Lakeland have a discussion on shareholding? 3 What’s the vision for investment to diversify or improve capacity?

Management don’t owe me an explanation, but, shareholders and members of Lakeland rightly deserve clarity and vision of purpose. This is not to takeaway from all the good investments and decisions already taken in recent years, but a co-op and co-op members need unity of purpose and vision. More to follow in the coming weeks.