As Chairman, I am delighted to report on an excellent financial and trading performance by the IDB in 2014. Group Turnover in 2014 was up 10% to €2.3 billion, while Operating Surplus (EBIT), at €30.3 million, was up 17% and Profit Before Tax grew 23% to €28.1 million. This positive outturn was in addition to IDB’s strong product price performance, as reflected in the IDB Purchase Price (PP) Index, the IDB’s monthly indicator of market returns.
The Group’s net debt position at year-end reflects the number of strategic capital investment and acquisition projects on-going and also the commitment of the IDB to support its members’ working capital requirements in the lead up to quota abolition in 2015 and dairy sector expansion. The Society’s balance sheet remains strong, with net assets up 4%.
A members’ bonus of €12 million was declared from the 2014 results, comprised of a cash element of €7.5 million and a €4.5 million allocation to the annual bonus fund for redemption in five years’ time.
Key strategic highlights during the year were the commissioning of expanded facilities in Thiel Cheese & Ingredients in Wisconsin and in IDB Deutschland, the commencement of construction of a new facility by IDB Saudi Arabia in Riyadh, two acquisitions - FoodTec in the UK and IDB España in Spain and the IDB board’s decision to invest in a new world class packing plant for Kerrygold butter in Ireland.
IDB’s Business Transformation Strategy delivered another year of positive results. Excellent brand performances in both IDB Deutschland and IDB Inc helped off-set the competitive challenges experienced by Consumer UK and International. Our Dairy Trading & Ingredients division also performed well in 2014, with positive performances noted in particular in our trading operation and in our UK subsidiary The Cheese Warehouse. I’m also delighted to report that our US distribution business, DPI Inc., reported an exceptionally strong trading performance in 2014, well ahead of the prior year.
The strong market returns in 2014, and IDB’s own excellent performance, were reflected in the IDB’s PP Index which is a monthly indicator of market returns on products sold by the IDB, relative to a base year (2010). The PP Index for 2014 averaged 117.7 and, coupled with the 16% volume increase in purchases from members, is evidence of the strength of the Society’s brands and the route to market benefits of IDB’s recent investments in market expansion, innovation and people.
While dairy margins per litre in Ireland remained on par with the previous year, 2014 was characterised by declining month-on-month product price returns. High opening milk prices, excellent production conditions across the world’s major dairy regions and lower input expenditure, led to a strong growth in global milk supply in 2014, not least in Ireland where production was up 4%. As this increased supply exceeded what a faltering global demand could absorb, prices fell heavily from the Spring, with some dairy commodities losing up to 50% of their value by year-end.
The end of the year brought some early signs that dairy markets were beginning to stabilise, albeit at low price levels. Milk output was constrained in both the EU and Oceania in the first quarter of 2015. The low product prices from 2014 stimulated some buying activity and stock replenishment and a more competitive currency led to an improvement in the EU’s export performance. Both the output response from EU milk producers when the EU quota is removed on 1st April and the meaningful return of Chinese buyers to the market later in the year will be important determinant factors for the outturn of 2015.
While 2015 will undoubtedly be a more challenging year for Irish dairy farmers, we should not lose sight of the importance of the year in the context of the strategic development of the industry. After more than 30 years, milk quotas are being removed and the IDB is committed to playing its role in the future of the industry through the development of premium routes to market and, by paying leading product prices and helping manage volatility. Volatility is a reality of competing on global markets, however, we have a number of tools in place to help manage it, not least of which are our brands portfolio, the development of value-added, differentiated ingredients, our sales into diversified markets and sectors, and contract management.
IDB is a business that touches and impacts on the lives of many people and we depend on the patronage of our customers and consumers around the globe. Whilst consumers experience the business through our many brands, our customers experience it through our corporate brand Irish Dairy Board Co-Operative Limited. In 2014, the IDB board decided that a new corporate identity, Ornua Co-Operative Limited, was needed for the Society for the next phase of our journey - a new identity which reflects who we are and where are we going. We have transformed our business over the past number of years and we have steadily built a global commercial infrastructure to ready our business for post quota expansion. Our new name, Ornua, is still rooted in our heritage and is connected with our iconic Kerrygold brand but it signals where we are going. Looking to the future, we are seeking to build a robust and valuable diversified asset for the Irish dairy industry that delivers strong sustainable returns for our members.
I would like to thank my fellow board members once again for their support in electing me Chairman of the board and a special word of thanks to Vice-Chairman Jim Russell for his support. A new board was constituted in June 2014 for the next four years. I would like to thank the six retiring members from the board, Kevin Kiersey, the former Vice Chairman, Jackie Cahill, Vincent Gilhawley, Liam Herlihy, Sean McAuliffe and John O’Brien, for their contribution to the Society during their time on the board. We welcome five new board members, John Comer, Martin Keane, Sean O’Leary, Pat Sheahan and Donal Tobin and wish them well in their stewardship of the IDB. The board is on a journey of governance review and improvement which will support the business as it continues its growth.
In addition to acknowledging our customers throughout the world, I would like to thank the Irish Government, Bord Bia, Teagasc and the other state bodies and agencies for their work in promoting and facilitating the export of Irish dairy products. The support of the Department of Agriculture, Food and the Marine and of Minister Coveney T.D. and his officials is much appreciated. Special thanks once again to the National Dairy Council for their partnership in the NDC Kerrygold Quality Milk Awards which are going from strength to strength.
Finally I would like to extend my appreciation to Kevin Lane, to his management team and to all employees of the IDB Group throughout the world for their hard work and dedication. I would also like to acknowledge the commitment of Ireland’s dairy farmers to the Society and to commend them for the quality of the raw material we are so proud to market on their behalf. Our ambition for Irish dairy across the globe is great and we are confident that the markets we are building will generate strong and sustainable returns, which in turn will enable our farmer suppliers to invest for the long term.