Chief Executive’s Report

A measured performance in a post-quota environment...

Kevin Lane, Chief Executive Officer

2015 was a year of momentous change for our business, and indeed the Irish dairy industry, with the long awaited removal of EU milk quotas opening up a new era of opportunity. While market conditions were, and still remain, challenging, the optimism that surrounds the future of dairy is still well founded. In tandem with the removal of quotas, the Ornua identity was unveiled, delivering a clear statement about our ambition to grow as a leading global dairy organisation.

On behalf of the Group, I am pleased to report another year of very strong performance, in terms of both revenue generation and further business development, enabling us to deliver new routes to market for increased Irish dairy output.

Financial Performance

Group EBITDA* increased by 18% to €58.8 million. This result includes a €9 million increase in brand and market development which now totals €45 million and significant product price support. Group Turnover increased by 9% to €2.5 billion. The Group closed the year with net debt of €17 million and a very strong Balance Sheet with net assets of €526 million, up 21% on year prior. Product purchases from members rose by 16% to a record 286,000mt. This reflects the impact of Ornua’s work in opening new routes to market for Irish products and delivery of strong product price returns.

Reflecting this strong performance a Members Bonuses of €14 million, up 17% on 2014, were declared to our members including a cash element of €10 million. An additional special cash bonus of €15 million was declared from the gain on the divestiture in DPI in late 2015, achieving a total bonus for the period of €29 million.

Investing in Future Growth

Ornua has, over the last five years, delivered a Business Transformation Strategy which has prepared our business for the expansion in Irish dairy output. We have invested in new facilities, upgraded existing factories, acquired new businesses, invested heavily in our research and development capability, invested in new staff, upskilled existing teams and enhanced our management structure. The outcome is a leaner, more agile business with a stronger foothold in many more global markets.

Growth Strategy for the Future

Our Business Transformation Strategy encompasses four core pillars. These are:

Operational Excellence

Value Added Growth

In-Market Expansion

Our People & Culture

This translates into six key areas of focus - Brand Growth, New Product Development, In-market Expansion, Capital Expenditure, M&A & Route to Market, and Dairy Trading Expertise.

This strategy is deeply embedded within our organisation and is successfully steering the business into a period of great growth and opportunity.

Strong Brand Performance

Ornua’s brand portfolio continues to perform well. In 2015 Kerrygold retail sales reached a record c. €740 million. Our focus is on showcasing the premium nature of Irish dairy products and ensuring that our brands take a leading position in premium key markets. In 2015, we launched a number of new products across both our Foods and Ingredients divisions including a new foodservice brand called Palatina Taste Partners (Palatina) for the European, North American and the Middle Eastern markets.

In-Market Expansion

2015 saw further investment in emerging markets, including Africa, Middle East and China. To strengthen our foothold in Africa, Ornua Africa opened a new Kerrygold packing facility in Nigeria in a joint venture with Fareast Mercantile Company Limited. The facility will provide a new route to market for Irish powdered milk, which will be exported to Nigeria and then packed and marketed under the Kerrygold brand.

Routes to Market

2015 saw the advancement of our Chinese investment with the acquisition of the Shanghai-based, Ambrosia Dairy. This acquisition provides Ornua with a manufacturing base in China, one of the most important dairy growth markets.

In late 2015, we took the opportunity to sell a majority stake in DPI, our US distribution business. This yielded significant proceeds for the business, some of which will be invested into opening new routes to market for Irish dairy. The balance will facilitate the payment of a cash bonus to members of €15 million in April 2016.

Operational Excellence

Our challenge in this new period of growth is to achieve the expansion we are targeting in an economically and environmentally sustainable manner.

Since 2010, continuous improvements in how we operate have delivered savings of over €10 million. Building on this initial success, Ornua has launched ‘The Ornua Way’, an operational excellence programme. The programme is built upon international best practice with the aim to nurture, facilitate and support self-sustaining operational excellence strategies throughout our global activities.

Investment in Our People

The success of our business depends greatly on a hardworking and committed team based both in Ireland and across the globe. We seek to provide opportunities for each member of our team to enable them to maximise their potential and develop a rewarding career. The investment in a performance management portal, Bloom, is already delivering tangible benefits in terms of improving the performance of our teams and our understanding of their training needs and career goals.

Building for the Future

The unveiling of the new Ornua identity on the eve of EU milk quota removal marked the next step in our growth as a global dairy business. Trading in over 110 countries, the new Ornua identity has been received positively by audiences around the world. I would like to acknowledge the tremendous effort made by all of our staff to bring our new identity to life and introducing it to our suppliers, customers, consumers and wider stakeholder groups.

I would like to thank our Chairman, Aaron Forde and our Board of Directors for their excellent ongoing support. I would like to extend my sincere appreciation to my Executive team for their continued hard work, commitment and loyalty. I would also like to acknowledge the incredible work of our dedicated staff. Finally, thanks are due to our members and to the farmers we represent. Ornua is owned by Ireland’s dairy farmers and we look forward to continuing to deliver for them.

Kevin Lane
Chief Executive Officer