Annual Report 2009 - Dairygold

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Dairygold Co-Operative Society Limited Annual Report and Accounts 2009 Management I was appointed Chief Executive in July 2009 and I feel privileged to have been selected by the Board to take on this role of responsibility within the Society, only the third to do so since Dairygold’s establishment through merger in 1990. I would like to thank the Board for its ongoing encouragement and support during my tenure to-date as Chief Executive. I accepted the position knowing full well the challenges that lay ahead. Dairygold’s success is largely reliant on international market factors outside of our control. I am confident that the new management team with its skillset and the organisation structure put in place will help ensure that the hard work required to succeed is delivered. The new structure will see each person take full responsibility for their functional areas across our entire business both in Ireland and overseas where applicable. The changes are also designed to facilitate clear lines of responsibility and accountability while creating a single point of ownership and focus on growing the business. ERP In 2009 the Society successfully implemented an integrated business information system, covering all Financial, Sales, Procurement, Inventory, Payroll, Point of Sale, Milk Management and Share Management activities for its Irish operations. The new business information system provides management with enhanced capability to optimise the performance of the business. Dairy Markets For all dairy processing businesses the continuing slump in returns from international dairy markets presents the most severe of challenges. The well documented fall in international demand for dairy produce resulted in milk price returns being forced down to 25 year lows for most of 2009. The supply side is now slowly correcting itself with production easing back in most geographies. The EU will be under quota by as much as 5% in this current quota year to March 2010. The global demand for dairy produce remains weak, as buyers are slow to commit to longer term contracts or to invest in stocks. Underpinning all expectations for a sustained recovery in dairy prices is the expectation of some form of economic recovery globally. Consumer confidence will not return without it. Despite all of these factors, Dairygold remains cautiously optimistic about an improvement in market returns in 2010. As a Co-Op, milk price is at the core of our commitment to Members and we will continue to strive to pay the best milk price possible within prevailing market conditions. Dairygold Food Ingredients Dairygold’s strategy in milk utilisation is to follow the European model by directing more milk away from butterfat and towards cheese and added value dairy ingredients, both products which are on the growth curve globally. Our dairy processing business, Dairygold Food Ingredients, is now firmly focussed on providing cheese and dairy ingredient solutions to the international food processing, baby food and ready meals sectors. Over the past number of years we have invested in modernising plant and operations to target these product areas and provide greater flexibility in manufacturing customised products to deliver on individual customer needs. These investments have put Dairygold in a very strong position to compete for an increased share of these markets. In our ingredients business the Castlefarm, Mitchelstown site has one of the largest demineralised whey manufacturing plants in Europe and is the foundation for Dairygold’s focus on the premium Baby Food market. The delivery of this strategy was made possible by significant investment in the Castlefarm facility. Our ingredients business has a particular focus on the infant milk formula sector and Dairygold has developed strong commercial relationships with a number of key players. The business is developing a foothold in the Asian market where there is significant growth potential. In China alone some 18 million babies are born each year - more than the total born each year in Europe and the Americas combined. In our cheese business the Clonmel Road, Mitchelstown site has one of the most efficient cheddar cheese plants in Britain and Ireland whilst our Mogeely site remains a dedicated producer of speciality cheeses for export, including the leading brands Jarlsberg and Regato. Meanwhile our Mallow site continues to provide the additional capacity needed to manage peak milk intake and ingredient processing during the summer season. In the UK, our Dairygold Food Ingredients businesses, based in Leeds and in Crewe, are both profitable and growing businesses. They have established Dairygold as a leading supplier of a range of formatted cheeses and soft cheeses to the UK’s Ready Meals and Food Manufacturing sectors. Following an investment programme at both facilities during 2009, the manufacturing capability now exists to meet significant increases in demand from their industrial customer base over the coming years. In September, Dairygold acquired the French based cheese ingredients supplier, Solailoire. The company, based near Nantes, offers customised cheese solutions to industrial customers in the ready meals and snack sectors. The acquisition provides Dairygold with access to the French and broader European markets while the technology allows us to extend our overall value added product offering. 10
Dairygold Co-Operative Society Limited Annual Report and Accounts 2009 Ms Andrea Coleman - in Dairygold’s Centralised Product Testing Laboratory The acquisition, coupled with our existing commercial operations based in Germany and Spain will help Dairygold in realising its ambition of replicating and extending our successful UK cheese solutions business in the wider European market. Dairygold Food Ingredients in the UK, Dairygold Germany and now Solailoire in France are examples of modest but very successful businesses that are utilising Dairygold’s expertise in cheese to find higher value sales avenues. They are helping to strengthen and consolidate our relationship with all the leading operators in the Ready Meals and broader Food Manufacturing sectors. These businesses are also benefiting from the support and skillset offered by Dairygold’s Innovation Centre in Mitchelstown, in terms of Product and Process Re-engineering, Research and Development and New Product Development. 2009 represented the first full year of operation for our new Innovation Centre in Mitchelstown. The Centre is focussing on the development of new solutions for our Food Ingredients business and its industrial customers. The Centre is also active in industry collaboration, working with Enterprise Ireland’s Food Health Ireland initiative, involving four dairy processors, Teagasc, and a number of universities. Overall, the level of efficiency of our dairy processing division combined with our clear strategy to drive higher value sales has enabled Dairygold Food Ingredients to maintain its performance in what has been one of the worst years for the dairy industry. We recognise that there is scope at industry level for further improvement in the Irish dairy processing and marketing sectors. Your Board and management team is conscious of this challenge and any proposal that can deliver improved returns to our Members will be given serious evaluation and consideration. Dairygold Agri Operations The operating environment for Dairygold Agri remained challenging during the year. 2009 marked the third consecutive year of extremely unfavourable weather conditions for farmers and the Society worked hard to lessen the impact of this on Members in a number of ways. During the year Dairygold Agri made a particular effort to offset the volatility in international fertiliser prices through its management of purchasing and stocking arrangements. This deliberate strategy combined with price reductions in the latter part of the year enabled us to close the year in a very competitive position. In June, Dairygold took account of the very unfavourable weather conditions and gave our customers a rebate on dairy feed purchases to the value of €400,000 in order to support their milk production operations at this critical time of the year for dairy farming. The tough conditions for dairy farming created feeding challenges at farm level. Recognising this issue, Dairygold Agri expanded its feed range to offer greater flexibility and choice. The feed range available over the year covered the full spectrum of product specification and price. This allowed our customers the flexibility to make the feed investment decisions that best suited their individual farming operations knowing that there was no compromise on product quality. On a like-for-like basis Dairygold’s feed prices remained very competitive throughout the year, maintaining good throughputs in the feed mills. Dairygold Agri exists to service our farming Members’ needs. To fulfil this objective the management team is focussed on constantly driving out cost and consolidating the business in a highly competitive and shrinking market. The strategy also seeks to maintain a modest operating profit that will allow the operation to remain an asset to our farmer Members into the future. With that in mind we would encourage all Members to support the business. In doing so, you will help us achieve our aim to continue to grow your Society’s position as the leading Agri supplier in Munster. 11
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Annual Report 2009 - Dairygold

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