Lakeland looks to Far East ahead of Brexit as profits halve

The State’s third largest dairy processor is seeking to increase exports to markets such as China ahead of Britain’s exit from the EU as operating profits at the company more than halved last year.

Lakeland Dairies, which is a co-op based in Co Cavan, reported operating profit of just €7.2 million in its annual report last year, which was down from €15.5 million in 2015.

The reduction in overall profit margins for the year was said to be “directly” due to global dairy market volatility and the co-op’s commitment to “underpin milk price in line with these market conditions”.

Turnover at the company increased from €588 million in 2015 to €601 million last year. The cost of sales also went up, however, increasing from €501 million to €521 million. The company generated an EBITDA of €18.9 million.

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Profit on ordinary activities before tax fell significantly, from almost €13 million in 2015 to just €1.2 million last year. Meanwhile, overall milk volumes processed increased to 1.1 billion litres for 2016, equivalent to a fifth of the State’s entire output.

Lakeland acquired neighbouring co-op Fane Valley’s dairy business for an undisclosed sum last May. It also acquired the trade and assets of the Banbridge milk processing site of Armaghdown Creameries around the same time. This involved restructuring costs of €2.1 million.

Remuneration

Staff numbers increased from 696 to 780, with total remuneration totalling €44.1 million, up from €41.6 million. Despite the drop in profits, total compensation of “key management personnel” in the year went up more than 11 per cent from €1.6 million in 2015 to €1.8 million last year.

Separately, the report shows the company received a grant in excess of €4 million from Enterprise Ireland, of which €3.6 million was for a new dryer project at a Bailieboro site and €469,000 for development projects at a Killeshandra site.

About 20 per cent of the company's exports go to the UK. Speaking to The Irish Times on Wednesday, Lakeland chief executive Michael Hanley said the company would seek to further develop alternative markets.

"Brexit has the potential to cause major damage to the food industry in Ireland. The worst possible scenario is a bad deal or no deal for the UK, and a hard Brexit with World Trade Organisation tariffs on products going into the UK.

“We are planning for all scenarios, including the worst case. We currently sell product in 80 different markets across the world. We already have markets developed, and what we’re doing now is putting more product into those markets.

Good partnership

“Last week I was in China meeting our distributor. The prospects for that particular part of the world look quite positive. We have a good partnership over there, and a route to market in China that is working quite well for us. We see more product going that way.

“The issue will be about being efficient and being prepared. The ongoing strategy is to diversify the market and put product down different channels and spread it out across the different regions.”

On the prospect of customs and tariffs, Mr Hanley said the “biggest concern” was the “administrative burden” involved, with the company’s goods passing through the UK en route to other markets.

“We would look for a seamless border because we have lorries crossing the Border on a daily basis. We can handle it as long as there are no customs posts. We don’t want to go back to the days of the 1970s.”