Strathroy Dairy Ltd (UK) recorded an operating profit of £183,246 (€247,000) for the year ending 31 July 2014 – a 17% decrease on the previous 12 months. This is after depreciation charges of £760,562 (€1.04m) (previous year £677,121 (€912,000)) and after taking a foreign exchange loss of £197,139 (€265,000) (previous year exchange gain of £55,028 (€74,000)).

Revenues at the dairy processor increased by 17% to reach £56.5m (€76.2m), with growth driven by volumes and prices. Similarly, cost of sales, which includes the cost of milk purchases, rose 18%. The company is believed to purchase more than 130m litres per year.

Gross profits increased 8% to £6.6m (€8.9m). However, gross profit margin fell from 12.6% to 11.6% during the year, reflecting the tougher market conditions.

While Strathroy pays a competitive price for milk, once distribution costs of £4.5m and administration costs of £1.9m are deducted, operating profit margins fell from an already thin 0.45% to 0.32%.

Net debt stood at £4.99m (€6.72m) at year end, down from £5.66m (€7.62m) 12 months earlier. The company has tangible fixed assets of £6.58m (€8.87m), while net assets were £3.92m (€5.28m) at year end. Employee numbers were up to 152 from 131, although employment costs for the year were down marginally at £3.39m (€4.57m).

It is important to note that these accounts for Strathroy Dairy Ltd only tell part of the story as the group also includes a private unlimited company registered in the Republic of Ireland called Strathroy Dairy (ROI). This company is controlled by Patrick and Ruairi Cunningham, both of whom are directors of Strathroy Dairy Ltd, the UK company. During the financial year, the UK company made sales of £21.7m (€29.24m) to the Irish company.

Since April 2014, Strathroy has increased its purchases of milk in the south. This reduces the company’s exposure to currency and mitigates risk acting as a hedge for its customers, such as Aldi and Lidl. It is also important to customers in the south that the company is supplying milk produced on farms in the Republic of Ireland.

Strathroy, which also buys milk directly from a small number of large suppliers in Northern Ireland, has grown its base in the south to 130 suppliers with an estimated annual supply of 50m litres.

Comment

As it mainly serves a competitive retail liquid milk market, these are a solid set of results for Strathroy, especially in a 12-month period that saw dairy commodity prices at high levels sustaining high prices for ex-farm milk. Along with this, strong local competition for milk supply was not reflected in the price achieved in the liquid milk market. This would suggest a high level of efficiency and lean management with strong customer relations. As Strathroy processing operations include separation of cream from the liquid milk, the sales of cream on commodity markets may have bolstered returns during 2013/’14.

Other than the reported £21m (€29m) sales from Strathroy Dairy Ltd (the UK company) to Strathroy Dairy (ROI), there is little known about the financial performance of the operation based in the Republic of Ireland.