Dairygold reports increased earnings

Dairygold Co-operative Society Ltd announced an operating profit of €37.1m on a turnover of €1.4bn for 2024, up from €23.9m and €1.39bn respectively in 2023.

The co-op processed 1.38bn litres of milk during the year, a 2.1% drop from 2023. Milk supplied during peak week was 43m litres, back 5.7% on 2023’s peak.

Dairygold described 2024 as being a year of two halves, with a challenging start milk supply driven by a late spring and poor summer weather, which impacted grass growth, giving way to a significant improvement in autumn with milder weather, an extended growing season and stronger dairy market returns.

The society’s year-end net bank debt was €157.3m, an increase of €12.9m. EBITDA (earnings before interest, taxation, depreciation and amortisation) increased to €65.4m, giving a net bank debt to EBITDA ratio of 2.4:1. This financial performance was in compliance with all the co-op’s financial covenants.

Dairygold said that it paid a “reasonably competitive” milk price and a “strong” grain price during the year. It said that the milk price was impacted by lower-than-usual market returns for its key demineralised whey product, which had been a top-performing revenue source for many years.

Demineralised whey is a major ingredient in infant formula and Dairygold said that the drop in the birthrate in China led to a reduction in demand. This meant that demineralised whey faced a market with oversupply issues.

Michael Harte, CEO of Dairygold, outlined the size of the drop to the Irish Farmers Journal, saying: “In 2022 there was a price differential of €1,150 for demineralised whey, over and above sweet whey powder. That differential dropped to €600/t in 2024. That difference of €540/t on 50,000t is €27m, which is nearly 2c/l.”

He added that Dairygold remains confident in its position in demineralised whey.

“We have the biggest plant in Europe, so from an economies of scale perspective we can produce it cheaper than anybody else. We also have strong sustainability credentials, so when we are talking to [large multinational] customers, they are happy with the story from our farms.”

He said that based on where the market is, and competitor rebalancing and exiting, he can see the margin improving overall in the coming years.

China pullback

In other China developments for the co-op, the decision was made to stop producing the Aerabo product for that market.

Dairygold started selling the Aerabo range of nutritional products in the Chinese market in 2021, with further products added in 2023 which were launched by then Minister for Agriculture Charlie McConalogue in Shanghai in 2023.

During the year, Dairygold undertook a census of its milk suppliers, which showed that at least 300 of its milk suppliers will be retiring over the next five years.

Harte noted that many of the farmers who indicated that they would be retiring are generally smaller dairy operations, with an average supply of 170,000l. Overall, the 20% of suppliers with the smallest herds only have an average of 32 cows.

Amid unhappiness from shareholders and suppliers around the proposed changes in Dairygold’s loyalty scheme, which were rescinded, there was an increase in termination notices lodged with the co-op.

Dairygold chair Pat Clancy said that co-op currently has 23 suppliers on notice and that around double that number had rescinded the notice they had submitted. There is a two-year termination notice period for the suppliers to the co-op.

Capacity

Harte said that while Dairygold’s processing facilities are forecast to be at 95% capacity across peak week this year, overall capacity utilisation during the year as a whole would be around 60%.

“That does provide us with flexibility from a product mix point of view, but it also provides us with opportunities to see if we can develop nutritional products to dry in our dryers. This is a key focus for us going forward.”

The co-op is evaluating the commercialisation of a potential business-to-business vegetable plant protein powder offering. Harte explained that this is a protein product developed from fava beans which he said Dairygold’s growers are already growing.

“We’re looking at developing a fava protein. We have produced the product; got it contract manufactured and we’re currently trialling that with customers.”

He said that the fava protein could replace soya protein in many food products, adding that soya doesn’t have a great reputation from an environmental sustainability standpoint.

On other capital projects, Harte said the significant investment in casein facilities, where there is still €13m to be spent for completion, will be the last of the major projects for dairy processing for now.

“No big new cap-ex there, we want to put the investment in dairy processing behind us for a while.”

Harte said that Vita Actives, which the co-op purchased a majority shareholding of in mid-2023, continues to grow.

“We’ve integrated it into the business, we’ve relocated it to a new facility in Tallaght, and it is delivering in line with our expectations.”

During the year the co-op paid €13.1m, on top of the €46m paid previously, to complete the purchase of its 59% holding of the company. This payment was part of the original purchase agreement, but was subject to performance of the Vita Actives.

Under the term of the purchase deal Dairygold has an option to purchase the balance of the shares in Vita Actives from June of this year. Harte said that both parties want to stay in the business and that the other party is “very, very committed to the overall business”.

He said that rather than having a “drop-dead buyout”, it would be a more staged process over a period of time and subject to negotiation.

Future

On wider industry developments during 2024 the completion of the change at Kerry co-op was noted.

When asked if this could mean greater co-operation between the neighbouring processors, Clancy gave the caveat that “Kerry Co-op are only a new organisation and will need to find their feet”, while also saying that it might make sense for Dairygold to process milk for Kerry, whether through a joint-venture or a toll arrangement.

Harte said that “as an industry we all need to collaborate more. We’re open to any discussions around partnerships or consolidation or anything like that”.

Dairygold is on track to finish near the bottom of the milk league for 2024 (see page 3).

According to the CEO the key driver was the lower price achieved for demineralised whey during the year. Harte expressed optimism for the long-term prospects for that product, but he also showed ambitions to do more with the processing capacity the co-op has.

This points to a key constraint on the co-op. With a debt-to-EBITDA ratio of 2.4, Dairygold has little room for further investment at this time. Harte made clear that the days of investing in processing are over for now.

With no sign of an increase in milk supplies any time soon, this makes perfect sense.

However, it also means that Dairygold will have to make the most of the products it is currently set up to produce.

Debt-levels aside, this is likely to be a common story across the other dairy producers in Ireland. With the industry here facing threats from Trump tariffs, nitrates actions and an aging supplier base, it is no wonder that Harte – and most likely other co-op CEOs – is open to discussions around co-operation and consolidation.

Moves which would allow milk to be pushed through the highest returning product on an all-island basis would give the best returns to the farmer, and after all, isn’t that what the whole co-op movement is about?