Carbery, headquarted out of Ballineen in west Cork – the processing mother ship for the four west Cork co-ops Drinagh, Lisavaird, Barryroe and Bandon – has just posted increased revenues and profits for 2021.
The cheese specialist company that is underpinned by a taste and flavours business called Synergy has this week posted another healthy set of accounts.
Carbery is a relatively small player in the Irish dairy game, processing 612m litres in 2021, about a third of the size of Dairygold and Lakeland, and 20% the size of Glanbia.
Its limited capacity for dairy growth in the west Cork hinterland, hemmed in by the Atlantic Ocean and Dairygold Co-op above it means Carbery has always strived to add value rather than major scale.
Major acquisition
In 2021, it further developed on this with another €27m spent on capital development bringing total cap ex spending to €168 over the last five years, excluding acquisitions.
The major acquisition in 2021 was announced in May when Carbery Group acquired Innova, which brought additional savoury flavour capability, two new facilities and 100 new employees under the Carbery umbrella.
To cut a long story short, it means debt levels have never been as high for the company with net debt peaking at €80m in 2021, up from €59m the previous year.
Speaking with the Irish Farmers Journal, CEO Jason Hawkins and CFO Colm Leen are comfortable that the business is strong after a period of significant capital development.
Investing in research
Hawkins said: “We have been investing more in research, the dairy nutrition business and the mozzarella plant in line with our strategy. Debt is a multiple of 1.6 EBITDA which is reasonably good after an investment period like we have had.” Colm Leen is quick to add: “We have just finished refinancing and that’s in place for the next five to six years so we are in a good position re our capability.”
Does this relative high debt load mean investments will be restricted in 2022 and beyond? Hawkins is not phased.
Capital investment
“We will spend another €30m on capital investment this year, about a third of that in the dairy processing business at home, a more normalised level, and the balance in the taste business in America, R&D and business integration.
“If there is an area of focus on investment it will be in the green energy space such as anaerobic digestion, solar or other tools to reduce energy costs and improve environmentally long term. We have a number of exercises near completion to target net carbon zero on our processing sites by 2035.”
So how does Carbery continuously improve on value creation? Hawkins attempts to explain.
“The simple one is the milk price comparator, what we return to farmers and what we retain as profits. Our objective as a cheese business is to move up the value-added cheese chain and that means getting more and more of our cheese into the higher premium mature cheddar cheese markets through brands like Dubliner, etc.
“Three or four years ago, we had about one-third of our cheese volume in the mild cheese market and last year that was about 10%. Our plan with the mozzarella plant is to again take cheese out of the lower-value cheese markets into a value-add mozzeralla.”
Carbery is a relatively small player in the Irish dairy game, processing 612m litres in 2021, about a third of the size of Dairygold and Lakeland.
The dependence on cheddar probably held the Carbery business back a bit in 2021. Cheddar cheese markets were slower to react to the rising commodity markets in 2021 with the butter and powder mix outperformed the cheese markets in the first half of 2021.
This probably tested Carbery more than previous years. Carbery didn’t blow the milk price lights out as much as other years. However, cheddar returns improved in the second half of 2021 and it allowed Carbery pay an end-of-year bonus which made up some of the lost ground in the first half of the year to suppliers of the west Cork co-ops.
In 2021, revenues were up 17% to €536m leaving an EBITDA of €50.1m, which is up 12% on 2020. Milk volumes were up 2.7% to 612m litres processed at Ballineen. Revenues have risen over €100m since 2019, but debt levels have also increased significantly. If we go back to 2017, net debt was almost non-existent at €12m. Now it’s €80m.
The consolidated income statement shows the gross profit at €130m which left an operating profit of €25m once administrative expenses were taken away.
This left a profit before tax of €24m and a profit for the financial year of €17.4m, up from €17m the year previous.
The balance sheet increased in value and Colm Leen puts it down largely to a combination of retained profits carried from profit and loss and a strengthening dollar giving a paper uplift.
Food inflation – when will the consumer feel the pinch?
So at farm level, costs are up 6c/l to 7c/l at least, and the gas price rise alone at processing level is a 2c/l to 3c/l of an annual cost increase.
Dairy markets have improved to allow for this but they can’t stay at all-time highs forever. Yes, we are only starting to see inflation now on the shop shelf.
I’m in the food industry over 23 years and over the next 12 months I feel food inflation could be high. There is a delay in passing it on to consumers and the demand burn off from food inflation is probably still not with us.
Is there a place where milk price will just have to reach a new higher level?
It’s a good question – will it grow stronger than a 31c/l to 32c/l long-term average? Global peak supply has always been coming.
Estimates suggest New Zealand will produce 10% less milk by 2030. The US is suffering from lack of resources such as water.
I’d say you’ll see easing of demand in developed markets but ongoing consumption in developing markets. So the question is, does the 32 become 36 or 38 or 44 to 46? Time will tell.
Jason Hawkins, Carbery CEO. \ Chris Bellew, Fennell
Could the mozzarella market be flooded, given the level of investment in this type of cheese ongoing?
Yes, I think a surplus was on the cards, but, now with the supply issue limiting and the skim milk and butter market delivering on the spot market it might not happen.
Globally, we were expecting surplus mozzaralla in 2023 and 2024 with a long-term a positive trend. In 2021, we made 10,000 tonnes and in 2022 it will be 14,000 tonnes to 15,000 tonnes.
Looking ahead for Carbery in 2022 and 2023 – milk supply flat, pay down debt, make more mozzarella and invest in green energy. What about the flavours piece?
Where we see opportunity, we will continue to invest. Our savoury flavours business will grow organically and we will have new assets in different regions.
Nutritional ingredients and what we could add to that portfolio will always be open to optimise returns and grow the taste portfolio.
You have to admire the resilience of the west Cork model. It can make as much profit in a year as some of the big Irish processors with a fraction of the milk.
Of course, it is not only milk that makes Carbery successful, but other processors have investment choices also. It’s fair to say milk price for the west Cork co-op in 2021 was second division for most of the year. A late surge helped it stay near the top but it definitely didn’t lead the milk price in 2021.
There are challenges ahead for Carbery and food inflation could yet bite the business hard
The two major developments in 2021 were the fact the mozzarella plant got up and going and it made over 10k tonnes of this type of cheese.
The second was the acquisition of Innova, an add-on to the US flavour business.
Both have left Carbery with more debt than they ever had. However, when you hear the strategy conversation and where Carbery want to play the game in the future it brings comfort. Yes, of course, there are challenges ahead for Carbery and food inflation could yet bite the business hard.
The UK or North American customer buying west Cork cheese might decide to buy less of a high-value cheddar cheese. The result will be realised in time but Carbery is clearly investing in both key business units for the future.
Carbery, headquarted out of Ballineen in west Cork – the processing mother ship for the four west Cork co-ops Drinagh, Lisavaird, Barryroe and Bandon – has just posted increased revenues and profits for 2021.
The cheese specialist company that is underpinned by a taste and flavours business called Synergy has this week posted another healthy set of accounts.
Carbery is a relatively small player in the Irish dairy game, processing 612m litres in 2021, about a third of the size of Dairygold and Lakeland, and 20% the size of Glanbia.
Its limited capacity for dairy growth in the west Cork hinterland, hemmed in by the Atlantic Ocean and Dairygold Co-op above it means Carbery has always strived to add value rather than major scale.
Major acquisition
In 2021, it further developed on this with another €27m spent on capital development bringing total cap ex spending to €168 over the last five years, excluding acquisitions.
The major acquisition in 2021 was announced in May when Carbery Group acquired Innova, which brought additional savoury flavour capability, two new facilities and 100 new employees under the Carbery umbrella.
To cut a long story short, it means debt levels have never been as high for the company with net debt peaking at €80m in 2021, up from €59m the previous year.
Speaking with the Irish Farmers Journal, CEO Jason Hawkins and CFO Colm Leen are comfortable that the business is strong after a period of significant capital development.
Investing in research
Hawkins said: “We have been investing more in research, the dairy nutrition business and the mozzarella plant in line with our strategy. Debt is a multiple of 1.6 EBITDA which is reasonably good after an investment period like we have had.” Colm Leen is quick to add: “We have just finished refinancing and that’s in place for the next five to six years so we are in a good position re our capability.”
Does this relative high debt load mean investments will be restricted in 2022 and beyond? Hawkins is not phased.
Capital investment
“We will spend another €30m on capital investment this year, about a third of that in the dairy processing business at home, a more normalised level, and the balance in the taste business in America, R&D and business integration.
“If there is an area of focus on investment it will be in the green energy space such as anaerobic digestion, solar or other tools to reduce energy costs and improve environmentally long term. We have a number of exercises near completion to target net carbon zero on our processing sites by 2035.”
So how does Carbery continuously improve on value creation? Hawkins attempts to explain.
“The simple one is the milk price comparator, what we return to farmers and what we retain as profits. Our objective as a cheese business is to move up the value-added cheese chain and that means getting more and more of our cheese into the higher premium mature cheddar cheese markets through brands like Dubliner, etc.
“Three or four years ago, we had about one-third of our cheese volume in the mild cheese market and last year that was about 10%. Our plan with the mozzarella plant is to again take cheese out of the lower-value cheese markets into a value-add mozzeralla.”
Carbery is a relatively small player in the Irish dairy game, processing 612m litres in 2021, about a third of the size of Dairygold and Lakeland.
The dependence on cheddar probably held the Carbery business back a bit in 2021. Cheddar cheese markets were slower to react to the rising commodity markets in 2021 with the butter and powder mix outperformed the cheese markets in the first half of 2021.
This probably tested Carbery more than previous years. Carbery didn’t blow the milk price lights out as much as other years. However, cheddar returns improved in the second half of 2021 and it allowed Carbery pay an end-of-year bonus which made up some of the lost ground in the first half of the year to suppliers of the west Cork co-ops.
In 2021, revenues were up 17% to €536m leaving an EBITDA of €50.1m, which is up 12% on 2020. Milk volumes were up 2.7% to 612m litres processed at Ballineen. Revenues have risen over €100m since 2019, but debt levels have also increased significantly. If we go back to 2017, net debt was almost non-existent at €12m. Now it’s €80m.
The consolidated income statement shows the gross profit at €130m which left an operating profit of €25m once administrative expenses were taken away.
This left a profit before tax of €24m and a profit for the financial year of €17.4m, up from €17m the year previous.
The balance sheet increased in value and Colm Leen puts it down largely to a combination of retained profits carried from profit and loss and a strengthening dollar giving a paper uplift.
Food inflation – when will the consumer feel the pinch?
So at farm level, costs are up 6c/l to 7c/l at least, and the gas price rise alone at processing level is a 2c/l to 3c/l of an annual cost increase.
Dairy markets have improved to allow for this but they can’t stay at all-time highs forever. Yes, we are only starting to see inflation now on the shop shelf.
I’m in the food industry over 23 years and over the next 12 months I feel food inflation could be high. There is a delay in passing it on to consumers and the demand burn off from food inflation is probably still not with us.
Is there a place where milk price will just have to reach a new higher level?
It’s a good question – will it grow stronger than a 31c/l to 32c/l long-term average? Global peak supply has always been coming.
Estimates suggest New Zealand will produce 10% less milk by 2030. The US is suffering from lack of resources such as water.
I’d say you’ll see easing of demand in developed markets but ongoing consumption in developing markets. So the question is, does the 32 become 36 or 38 or 44 to 46? Time will tell.
Jason Hawkins, Carbery CEO. \ Chris Bellew, Fennell
Could the mozzarella market be flooded, given the level of investment in this type of cheese ongoing?
Yes, I think a surplus was on the cards, but, now with the supply issue limiting and the skim milk and butter market delivering on the spot market it might not happen.
Globally, we were expecting surplus mozzaralla in 2023 and 2024 with a long-term a positive trend. In 2021, we made 10,000 tonnes and in 2022 it will be 14,000 tonnes to 15,000 tonnes.
Looking ahead for Carbery in 2022 and 2023 – milk supply flat, pay down debt, make more mozzarella and invest in green energy. What about the flavours piece?
Where we see opportunity, we will continue to invest. Our savoury flavours business will grow organically and we will have new assets in different regions.
Nutritional ingredients and what we could add to that portfolio will always be open to optimise returns and grow the taste portfolio.
You have to admire the resilience of the west Cork model. It can make as much profit in a year as some of the big Irish processors with a fraction of the milk.
Of course, it is not only milk that makes Carbery successful, but other processors have investment choices also. It’s fair to say milk price for the west Cork co-op in 2021 was second division for most of the year. A late surge helped it stay near the top but it definitely didn’t lead the milk price in 2021.
There are challenges ahead for Carbery and food inflation could yet bite the business hard
The two major developments in 2021 were the fact the mozzarella plant got up and going and it made over 10k tonnes of this type of cheese.
The second was the acquisition of Innova, an add-on to the US flavour business.
Both have left Carbery with more debt than they ever had. However, when you hear the strategy conversation and where Carbery want to play the game in the future it brings comfort. Yes, of course, there are challenges ahead for Carbery and food inflation could yet bite the business hard.
The UK or North American customer buying west Cork cheese might decide to buy less of a high-value cheddar cheese. The result will be realised in time but Carbery is clearly investing in both key business units for the future.
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