Positive Farmers 2017
Our Ambition for the Future
Kevin Lane, Ornua CEO
Today I will share with you
1. An update about Ornua – The Home of Irish Dairy
2. From Transformation to Ambitious Growth
3. Market Outlook
4. Our New World
– Life Post EU Milk Quota
– Volatility in Global Dairy Markets
– The Fast Changing Political Landscape
5. Our Ambition for the Future
We are building a global business
Exporting to over
110 countries
worldwide
Ireland’s largest
exporter of Irish
dairy products
Evolution of
Kerrygold from
butter to dairy
brand
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Ornua’s product mix
Product Breakdown
• 80% Irish Cheese
• 70% Irish Butter
• 50% Irish Powders
• In 2016, Irish volumes record 327k MT, up 7% year-on-year (with Irish milk
supply growth up c.4.5%)
• Irish purchases up 33 % over past 4 years
Growth in volumes evidence of strong price returns.
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A journey of
Transformation
to a period of
Ambitious Growth.
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A Journey of Transformation
•
Were we fit for purpose?
– Building profitable routes to market?
– Developing new products to meet consumer needs?
– Efficient across all our operation sites?
– Delivering the best returns to our members?
Importantly, were we relevant to the industry as it prepared for 2015 and beyond?
The Next 5 Years
Strengthening our Global Infrastructure throughout Africa, China, EU, MENA, UK & US
Investing in our Brands, Technology & Scale
The green image of Ireland – a reality
Marketing Ireland’s Grass Fed Message
Kerrygold Cheeses, USA
•
•
•
•
No. 3 butter brand
No. 1 imported butter
3 million tastings a year
20,000MT to an ambitious 30,000MT target
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Expanding our Global Footprint
‘Our feet on the street’
working alongside consumers, customers, distributors and local partners
USA
Acquisition of
CoreFX
Ingredients
IRELAND
Butter production
facility Ireland
Strengthening global
infrastructure – China,
Middle East & Africa
SAUDI ARABIA
Cheese manufacturing
facility in Riyadh
AFRICA
Kerrygold powder
packing facility in
Nigeria
CHINA
Acquisition of
Ambrosia Dairy
A world class facility to support the future growth of Kerrygold
A fully integrated butter production & packing facility (€40m)
50,000 tonnes of packet / tub butter a year
A Global Home for Kerrygold
How is our strategy delivering?
1. 2016 Revenue growth on a like-for-like basis despite weak dairy prices
2. Irish purchases at 327k MT, up 7% year-on-year
3. Brand growth –plans to grow Kerrygold to €1 billion in coming years
4. Delivery of strong product prices and annual bonus to members
5. Significant Working Capital funding provided to Members
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Market Outlook
Supply
•
Milk supply has reduced in recent months driven by the EU, Argentina & Oceania
•
Stronger output from the US managed by internal demand and strong US dollar
•
Voluntary Reduction Scheme - minor impact on volumes, greater on sentiment
•
Record low grain prices a concern. Allows intensive players in EU and USA to react
faster to the expected recovery milk prices in the coming months
•
UK farmer structure has been damaged – but may recover faster than expected
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Demand
•
Global demand solid on back of renewed interest in dairy at very low prices
•
Demand will be tested at higher prices in both developing and developed markets
•
Oil prices below 60 us$ a barrel are a challenge. Higher oil price improves buying
power and currencies for key powder importers in MENA
•
Brexit is negatively impacting on product returns and UK demand
•
Concerns Trump’s election will impact global trade e.g. increased quotas and tariffs
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Will the recovery be sustained?
Some doubters have emerged on the speed of the recovery
•
Recovery has been supply led with sharp increases in a short period over Q4, notable
in fat
•
Demand and buy activity needs to be maintained post seasonal demand events
•
China H2 2016 demand pickup needs to be sustained, still below 2013 levels
•
Further supply constraint required to reduce legacy stocks of powder (US & EU)
•
The Commission ‘a buyer’ of SMP in 2016 will be ‘a seller’ in 2017
•
Globally weather has been supply positive in recent months
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Our New World – The Challenges
1.
Life Post EU Milk Quota
1.
Volatility in Global Dairy Markets
2.
The Fast Changing Political Landscape
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1. Life Post EU Milk
Quota
We have more milk!
Small volumes in a global context
Production of cow's milk, 2014 (Source: IDF)
100
90
80
Billion Litres
70
60
50
40
30
20
10
0
Extra milk volumes being produced are exactly
as forecasted and predicted
2. Volatility in
Global Dairy
Markets
Increase in volatility, 1990-2016
Weather Shocks
Hedging, auctions
and futures
Stock Policies
Data availability
and speed
Trade Policies
EU Free Market
How we are managing volatility
1. Fixed milk price schemes
– Ornua have been operating with this tool since 2011
– Today c.220m litres locked into longer term deals, to increase by 100m in 2017
– Utilise the product in our brands and some long term blue chip customers
2. Growing our brands – strong returns
3. Developing differentiated value added ingredients
4. Diversifying our markets through acquisitions
5. Investment in trading expertise
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3. The Fast Changing Political Landscape
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Brexit – the Potential Risks
Currency Risk
Food inflation
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Compliance
Trade agreements
Potential effects of new US Administration
Work Visas
Protectionist Measures
against imports
TTIP Agreement
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Closing comments
For consideration…
1. Responsibility of entire industry to deliver value – farmers, processors and dairy
companies
2. Farm Management Survey 2015 showed income difference of €57k between top
and bottom 20pc of farmers – needs to be addressed
3. Importance of SDAS to international customers cannot be underestimated. The
industry needs 100% participation
4. Industry must protect our grass based family farm advantage – increases in
concentrates are damaging
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Our Ambition for the Future – the Next 5 Years
•
Continue to deliver strong year-on-year Group Performance
 2016 – a strong performance despite weak dairy prices – revenue & profit
 Debt-free at end-2016, giving flexibility to fund future growth
•
Help to protect our business and members from volatility of global dairy markets
•
Manage downside of fast changing political and economic environment
•
Implement Ornua’s ambitious 5 year growth agenda
Ultimately, help to continue to build a sustainable and
vibrant dairy industry for all.
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Thank You
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