LAKELAND Dairies, the sixth largest Irish dairy group, has reported a sharp drop in profits from £4 million to £1.6 million last year, after paying £3 million to farmers in higher milk prices.
Co op chief executive, Mr Daniel Buckley, said the payment reflected the current realities of the market place but warned that such high payments cannot be sustained indefinitely.
"The market will have to come to terms with this. Commercial considerations such as the returns from international dairy markets should have ideally necessitated significant milk price reductions throughout the dairy industry in 1996" according to Mr Buckley.
Apart from the £3 million paid to milk producers, Lakeland Dairies suffered falling revenues in many of its export markets due to fluctuations in the relative currency values on international exchanges. Its earnings from milk products were also affected by the ongoing revaluation of the Green Pound, Mr Buckley said, adding that this factor alone will remain a "major source" of concern for the future for the group.
The co op's sales fell from £135 million in 1995 to £128 million last year. Turnover at its dairy division slipped from £101.8 million to £94.8 million, mainly due to lower dairy prices and the strength of the pound on the currency markets.
Sales at it agri trading division were also slightly down, falling from £33.7 million to £32.9 million over the 12 month period. Weaker trading in this division was attributed to a drop in sales of its animal feedstuffs and fertilisers because of the continuing affect of the BSE crisis on purchases of farm inputs.
The group remains in a strong financial position with no borrowings on its balance sheet and relatively good cash flow.
Mr Buckley said the co op's range of products leaves it in a competitive position with demand for its full cream milk powder, butter and lactic butter expected to be relatively strong over the coming year.
The co op is keen to expand and will be concentrating on making further investments in its existing operations while looking for potential acquisitions.
Its preferences, in terms of acquisition targets, Mr Buckley said, lie in the food ingredients sector, particularly in Europe. It also sees a lot of scope to increase its milk quota in Northern Ireland, he said.
To date, Mr Buckley said the group had not received any approaches about a possible takeover or merger from any of its competitors in the Irish dairy sector. But he believed rationalisation was the right direction for the dairy industry. "We have been saying, that for the past four years.
Lakeland does a lot of business with Waterford Foods which has become the subject of a possible takeover by its neighbouring rival Avonmore.
The Co Cavari based co op is the main supplier of cream to Waterford's subsidiary, Virginia Milk Products, which is used to manufacture Baileys Irish Cream Liqueur.
Mr Buckley said that, should the takeover go ahead Lakeland would continue to supply Virginia Milk Products and has received assurances in that regard from the company.
