2020 Annual Results Press Release
Dairygold delivers a strong financial performance despite COVID-19 challenges
Dairygold Co-Operative Society Limited has announced its financial results for 2020. The Co-Operative delivered an EBITDA of €53.8 million and an operating profit of €26.0 million for the year, along with reducing its net bank debt by €38.7 million, reflecting improved performances by its core Dairy and Agri businesses, despite the challenges of the COVID-19 pandemic.
Dairygold recorded turnover for the year of €1.017 billion, generally in line with 2019’s turnover of €1.020 billion. EBITDA was €53.8 million, with the Core Business performing ahead of 2019. Overall, there was an EBITDA reduction of €2.8 million (4.9%) on 2019, as a result of 2019 benefitting significantly from non-core property activities. The Society recorded an operating profit of €26.0 million for the year, a reduction of €9.8 million (27.4%) on the 2019 level, primarily due to the reduction in EBITDA and an increase in the depreciation, impairment and amortisation charge of circa €7.0 million in 2020, following the completion of the significant capital investment programme.
Following a decade of significant capital investment, Dairygold substantially reduced its bank debt to €119.2 million in 2020, a 24.5% decrease on the previous year’s level of €157.9 million. This has resulted in a manageable Net Debt to EBITDA ratio of 2.2 : 1. At the end of 2020, the net asset value of the Society stood at €387.7 million, an increase of €14.7 million (3.9%) on 2019.
Lockdowns across the globe during the first half of the year led to a sharp fall in dairy prices. However, as government supports were rolled out, the huge collapse in demand in foodservice channels, which were largely closed, was mitigated by a surge in retail channel demand and prices recovered somewhat from mid-year. Trade challenges continued to overhang the market during 2020, including from an Irish perspective, the EU and US trade dispute and Brexit.
Looking ahead, the expectation is that global milk supply will grow more modestly in 2021 at circa 1%, with increased feed costs in the US and EU expected to impact production. The positive demand outlook hinges on the appetite of governments to provide continued supports, while the impact of the pandemic continues. It is reasonable to expect more positive returns from Dairy Markets in 2021.
Dairy Ireland Business
Dairygold collected and processed 1.43 billion litres of milk from its Members in 2020, an increase of 2.7% on 2019. A five-year Milk Planning Census carried out in Q1 2020, forecasted that milk production from Dairygold’s Milk Suppliers will grow at a modest level, circa 2.6% per annum, up to 2025. Milk growth into the future is expected to be delivered from increased output per cow, through improving genetics and herd management, rather than through an increase in herd size. Dairygold now has the weekly peak processing capacity in place, to process the forecasted milk growth, by its Member Suppliers, to 2025.
Over the past decade, €425 million has been invested by Dairygold and its partners across its four processing sites, transforming the business into a world-class dairy ingredients’ provider. 2020 saw the completion of three strategically important dairy processing projects, including the infrastructure to support the new Jarlsberg Cheese Manufacturing Complex, in Mogeely, in partnership with Norwegian dairy co-operative TINE SA, the redevelopment of the Demineralised Whey production facility at the Castlefarm Dairy Complex and the establishment of another new milk evaporator and dryer at the Mallow Nutritionals Campus.
In 2020, Dairygold conducted a comprehensive End-2-End review of its dairy business and support functions. The rapid and significant milk expansion of recent years had resulted in a greater number of customers and associated product specifications, as Dairygold drove to secure markets for the increased milk volumes. This Transformation Programme has reduced complexities and costs by reorganising the business into primary processing and higher margin business units, to enhance efficiency and maximise returns from Dairygold’s dairy product portfolio and providing clear direction and focus to the newly created higher margin Health & Nutrition business.
Dairygold’s overseas’ businesses in the UK and Germany have a significant presence in the foodservice and hospitality sectors and as a result were severely challenged by COVID-19. Despite the significant COVID-19 impact, both businesses performed very well in 2020. The key focus during the year, was to mitigate the business impact of COVID-19, by reviewing operational costs, in the context of the reduced activity and seeking new commercial opportunities.
New Health & Nutrition Business
Dairygold’s strategic ambition is to build a business that will deliver incremental growth and higher margins than the current core activities. This ambition now has a clear focus on execution, following the establishment of the new Health & Nutrition business. This Business’s total focus is on the delivery of growth and value for the Society and provides Dairygold with a transformational opportunity to leverage its strong core asset base and to expand into higher margin business opportunities, while building its capabilities in the food, health and nutrition sectors.
Dairygold’s Agri Business delivered a strong performance in 2020. In a year that saw COVID-19 impact every aspect of the economy and society, the business continued to provide an essential service to all customers, while adhering to all COVID-19 requirements, with the Retail business experiencing a very significant increase in Sales. The Store Investment Plan is nearing completion and Dairygold now has 26 modern, well invested and strategically located stores across the catchment area, delivering a best-in-class retail experience to its customers.
Dairygold continues to progress the delivery of its ambitious sustainability targets, operating transparently and responsibly throughout its supply chain to ensure continuity for future generations. The Society is on a journey to achieve a reduction in farm-based carbon intensity by 40% by 2030 and to be carbon neutral at farm level by 2050. To facilitate this, Dairygold became the first Irish milk processor to provide Milk Suppliers with the carbon footprint number for their farms on their monthly milk statements.
At farm level, Dairygold will continue to build on the already established emissions reduction, nutrient planning and watercourse protection programmes. It will also work with all stakeholders throughout its supply chain to meet its targets, improve profitability and preserve Ireland’s reputation as a world leader in grass fed dairy production.
Financing into the Future
A mix of Member Funding and bank debt continues to underpin the Society’s financing model. In 2020, an €8 million voluntary Loan Note Scheme for Members and Employees was fully subscribed, which provided the option of either a 3-year or a 5-year Loan Note with a 3% per annum or 3.5% per annum interest rate, respectively. The Society has introduced a new voluntary 5-year Revolving Fund for 2021 to 2025 inclusive and will introduce a second voluntary Loan Note Scheme for Members and Employees in August 2021.
Reflecting on the business, Dairygold Chief Executive, Jim Woulfe said: “2020 saw the culmination of a decade of significant expansion and growth. It was a project driven decade of carefully managed expansion, while simultaneously laying the foundation for future high value business opportunities. We concluded the decade of growth with a comprehensive End-2-End review of business operations to optimise performance within the dairy business for the future. We now turn our focus to higher margin driven activities.
As we head into a new decade the Society is in a good financial and operational position, with a strong balance sheet, manageable bank debt and a Member Funding mechanism established. Our core dairy and agri businesses are now well invested with clearly aligned operational management structures. We have established a new Health & Nutrition business to deliver on our new strategic focus. As a result, Dairygold is in a strong position to reap the rewards of the improved trading environment which should emerge as the global economy rebounds. We are well prepared for the next chapter of higher value/margin growth.”
Dairygold Chairman John O’ Gorman paid tribute to the Dairygold employees who played a key role in the Society’s performance and success during 2020. “I would like to thank all of our employees for their tremendous efforts during the year. In a year which saw circa 350 people working from home for much of the year due to the pandemic it was both inspiring and uplifting to witness how staff responded, ensuring milk was collected and processed, feed was manufactured, fertiliser delivered, and retail services maintained.”
He added “Dairygold and its Milk Suppliers recognise their responsibility to manage and minimise their environmental impact. Every aspect of our operations is governed by a deep understanding that the actions we take today will have implications for the sustainability of all our businesses and the land we leave for the generations to come.”
Please click here to view 2020 Annual Results and Financial Statements