Annual Report 2014

Continued investments in brand growth and NPD have strengthened the position and offering of Kerrygold and other brands.

Kevin Lane
Chief Executive

Group Operating Surplus

to €30.3 million

Chief Executive’s Statement

Over the past number of years IDB has been strategically developing a global infrastructure to take advantage of the opportunities the removal of EU milk quotas will bring to the business. The Group is now ready to enter this period of momentous change – a new era for dairying.

The Group’s Business Transformation Strategy is today deeply embedded within the organisation and is successfully steering the business into a period of great growth and opportunity. On behalf of the Group I am very pleased to report in 2014, the business continued to make excellent progress in investing in a sustainable future while also achieving a very strong business performance.

Business Performance

Group Operating Surplus increased by 17% to €30.3 million, delivering an excellent performance. This was achieved despite considerable investment across the business including a €36 million spend in brand development and market support. Group Turnover for the year was €2.34 billion, up 10% year-on-year. The IDB closed the year with €99.3 million debt as significant investment was made through M&A, Capital Expenditure and Working Capital as part of the development of our global infrastructure. The Group’s Balance Sheet is very strong with net assets of €436 million.

This strong performance delivered a Members Declared Bonus of €12 million, including a cash element of €7.5 million, up 15.4% on 2013. In addition to the bonus paid to members, IDB Irish operations increased member volume purchases by 16% on 2013.

Despite pronounced weakening of dairy markets from early in 2014, the IDB PP Index returned an average value of 117.7 for the year. This was five points ahead of the three-year average for the period 2011-13 and a strong performance when compared to EU and world market prices in 2014.

2014 - A Year of Investment

2014 saw a continuation of the already substantial investment which IDB has made in recent years in brand, New Product Development (NPD), in-market expansion, acquisitions, operational efficiency and developing its people.

A Strong Brand Performance

Against a backdrop of lower dairy prices, it is now more important than ever that we ensure Irish dairy continues to be marketed as a premium product and that IDB continues to add value through our brands and innovation.

Continued investments in brand growth and NPD have strengthened the position and offering of Kerrygold and other brands such as Pilgrims Choice and Dubliner. Retail sales of the Kerrygold brand are now in excess of €600 million.

2014 was a year that saw some large-scale NPD projects completed and successfully launched across international markets. Some highlights included the launch of Kerrygold Irish Cream Liqueur in the US and Kerrygold UHT under the new Kerrygold Chinese trade mark, 金凯利, pronounced ‘Jin Kai Li’ in China.

In-Market Expansion

In June 2014, Minister Simon Coveney T.D. officially opened the new facility at Thiel Cheese & Ingredients in Hilbert, Wisconsin. The development of this state-of-the-art facility completed an $80 million investment in our US Food Ingredients business and provides the business with greater scale in the value-added cheese ingredients sector.

IDB Deutschland completed a €14 million investment in expanded storage, packing and NPD facilities in Neukirchen-Vluyn. The modernised facilities will help meet the increased demand for Kerrygold products in Germany and the surrounding regions.

Ambitious targets clearly require expansion beyond the existing core markets and that is why we have been focusing a lot of our energies in developing opportunities in emerging regions such as Africa, MENA (Middle East & North Africa) and China. In the past 18 months alone we have placed 35 new people in-market, where they can react quickly to the markets’ needs.

Mergers and Acquisitions

IDB has a proven track record of expansion through the careful identification of strategic acquisitions. We invest in high profit growth businesses, often in milk deficit regions, that deliver route to market and to value and leverage shared IP and expertise.

In Spain, the Group acquired a Spanish cheese business which is now trading as IDB España. The business now complements the cheese solution technologies we continue to develop in our other international businesses. Its central location also provides a trading and sales hub to service our growing Southern European customer base. And importantly for Irish farmers, it is an immediate route to market for Irish dairy products with further growth post 2015.

IDB’s wholly owned UK subsidiary Adams Food Ingredients Limited acquired the business and assets of FoodTec UK Limited, a specialist ingredients business.

Delivering Operational Excellence

The latest and most exciting of our strategic investments has been the decision to build a Centre of Excellence for Kerrygold butter production and packing in Mitchelstown, Co. Cork. The new development will ensure a world-class supply chain to meet the evolving needs of Kerrygold customers and consumers around the world. This facility will process up to 40,000 tonnes of packet / tub butter a year, and will go a long way towards streamlining our production activities in Ireland. We are planning to be in production in Spring 2016.

Developing our People

The success of our business is underpinned by our people. The Group regards the delivery of development opportunities as an investment in the future of our organisation, and in the Irish dairy industry. We seek to provide opportunities for each member of our team to enable them to maximise their potential and develop a rewarding career.

Ensuring our Financial Strength

Building our capacity to take advantage of the coming increase in milk supply has already seen substantial investment in new infrastructure and strategic acquisitions. Making this investment requires the availability of financial resources. In 2014 we successfully secured a new five year syndicated bank facility. This new increased facility provides IDB and the Irish dairy industry with significant funds to meet domestic expansion and international growth requirements.

Protecting our Competitive Edge

We have built our business on the premiumisation of Irish dairy products. Critical to this is a premium quality product, only made possible with a premium quality raw material.

To preserve the extraordinary value of our industry, we must continue to maintain a sharp focus on production, process, supply efficiency and the quality of the dairy products we produce in all respects. In addition to providing quality assurance to our customers we must also leverage the sustainability of our grass-based production system. That is why we have so strongly supported the Bord Bia Sustainable Dairy Assurance Scheme.

A New Identity

Our business has been steadily building a global infrastructure to take advantage of the opportunities post quota will bring. A business with such reinvigorated ambition needs an identity that is fit for this new purpose - one that reflects our proud dairy heritage whilst clearly embodying our vision for the future. 12 months ago, we began a review of our identity and we are very pleased with the outcome of this project. We believe our new corporate identity, Ornua, represents a modern transformative business.

Building for the Future

All of these investments are being made to secure long-term returns which will be beneficial to our members’ dairy farmers. It is our firm belief at the IDB that these developments will provide the right outlets for Irish dairy products, and will generate strong and sustainable returns, so that Irish farmers can be confident that their sustainably produced, high-quality milk will find a home in international markets.

Finally, the success of IDB is based on the hard work and commitment of a team of people. I would like to thank our Chairman, Aaron Forde, our Board of Directors, our staff, the members that we represent and the broader community of Irish dairy farmers for their ongoing support. Their unwavering commitment to the Irish dairy industry is what will shape the future growth of the sector.

Over the past number of years, IDB has been on a momentous journey. We have implemented a strategy which will ensure our preparedness to take full advantage of the opportunities ahead. We look forward to working with the entire Irish dairy industry as we begin a new journey as Ornua, The Home of Irish Dairy.

Kevin Lane
Chief Executive

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