15 April, 2008 - 2007 will long be remembered as a year of extraordinary volatility in respect of the supply, demand and pricing of dairy products on export markets.
Despite fluctuating dairy market prices, removal of EU export refunds, and an increasingly uncompetitive currency position, the Irish Dairy Board reported a turnover of EUR 2,111 million, an increase of 2% over 2006. The operating surplus came in at EUR 35.5 million with revenue reserves at year-end reaching EUR 344 million and Members’ Funds increasing to EUR 396 million.
The Group debt to equity ratio stood at 40%. Bank borrowings of EUR 159 million, net of cash, related to the additional working capital required for the purchase of stocks at higher prices and the cost of retaining stocks of product for consumer markets over the winter period. Bonus payments amounting to EUR 13.5 million were paid to members during the year, EUR 6 million in year-end cash payments and EUR 7.5 million in redeemable loan stock. These bonus payments arise mainly from the performance of the Kerrygold brand, profits generated by IDB subsidiaries, and from non-member trading.
All of the Board’s international subsidiaries reported satisfactory results in 2007. DPI in the US had a very good performance, while the UK and European subsidiaries generally performed well.
Internationally, there was strong organic growth in demand for dairy products, helped by good economic fundamentals, particularly in resource rich importing countries. Coupling that, there were supply constraints in a number of key producing regions, including the EU, for much of the year. World stocks of dairy products were depleted and EU intervention warehouses emptied quickly. This demand peaked in the third quarter of the year but tailed off rapidly before year-end as buyers held back from purchasing.
The Consumer Foods division was challenged by both the fluctuating raw material costs and the timing of increases in selling prices to recover margin in all markets. The Kerrygold brand grew by 1.8% in 2007 across all international markets and share growth in key markets was again secured. In Germany the brand performed well and maintained a volume share growth of 0.5%, thus retaining its clear leadership position. Two newly developed products will be launched in Germany in 2008 extending the product range.
Branded sales in the USA in 2007 increased by 7%, with strong performances from Kerrygold Dubliner, butter and cheddar. A key driver of this success was an increase in consumer focused marketing and public relations campaigns. Cost price pressure, and the weaker dollar, required a supplementary price increase mid-year which slowed volume growth for the full year.
In other international markets modest sales growth was recorded, although the higher prices particularly impacted on branded milk powder sales to African countries. The eastern European markets of Poland, the Czech Republic, Hungary, and Austria performed well with an annual sales growth of 20%. A presence for Kerrygold has also been secured in China and efforts are underway to provide the food service range there in advance of the Beijing Olympics. The brand was launched in Russia in 2007, with distribution of the foil packed butter initially centred in Moscow and plans are in place to extend this to other major cities and launch Kerrygold cheeses there in 2008.
The Food Ingredients division saw sales increase in value in 2007, although the unprecedented price volatility of dairy commodities affected the Irish dairy product mix with a resulting drop in the cheese volumes produced. The three business units in the UK namely, Adams Food Ingredients, Dairy Ingredients UK, and Meadow Cheese performed strongly with AFI perfectly placed to respond to the demand for alternative blends in the face of increasing dairy raw material costs during the year.
The DPI division in the US significantly exceeded both its budgeted profit and turnover targets in 2007, demonstrating strong growth for the fifth year in succession. A leading specialty food distributor, with emphasis on perishable products, the division now has six strategically located distribution centres in the US and has developed key partnerships with US retailers by emphasising value added programmes in a market hugely focused on price.
The fundamentals underpinning the strong global demand for dairy products in 2007 are expected to continue over the long run. However, the record prices experienced in 2007 have had a negative effect on consumer demand in many markets and have also encouraged increases in milk supply both in Europe and the U.S. This has resulted in a significant correction in dairy markets which we are currently experiencing.
“The removal of EU export refunds now means that Ireland is no longer insulated from the vagaries of international dairy markets. In order to build a strong dairy industry for the future we will need to be more innovative and responsive to the realities of the marketplace in this new era. Product development will be very important with a specific focus on added value and consumer convenience,” IDB Chief Executive, Noel Coakley said.
Looking forward, Noel Coakley indicated that increased volatility in dairy markets will be a fact of life, posing significant challenges for the IDB and the dairy industry in general and requiring flexible solutions in order to cushion primary producers from the impact of the more severe cycles.
IDB Chairman, Michael Cronin commented, “The Irish Dairy Board Group is well positioned to meet the challenges of the marketplace and will continue to expand its business through subsidiary companies in the EU, and the USA, to generate maximum return for the company’s stakeholders.”