'Challenging year' for Lakeland Dairies as revenues drop £300million

Cross-border dairy processing co-operative Lakeland Dairies had a ‘challenging year’ leading to a £300 million drop in turnover to £1.4 billion in 2023 compared to £1.7 billion reported in 2022.

The co-op also reported a slump in operating profits from £28.7m reported in 2022 to £12.8m ‘before exceptionals’ last year.

Lakeland Dairies’ latest annual report release today (Wednesday) details that during the year, there were also one-off exceptional expenses as a result of workforce redundancy and facility restructuring costs of £12.6m. It is set to close its century-old creamery in Banbridge this June.

According to the co-op, it processed two billion litres of milk collected from 3,200 farmers in 17 counties across the island of Ireland last year.

And despite global market uncertainty nearly £694million was issued in milk payments to farmers throughout 2023 supporting economic development.

But Lakeland Dairies said in the report that its latest set of financial results had been heavily impacted by the “global dairy market collapse significantly influencing revenue and profit” last year.

Some 15% of its trade goes through the Suez Canal and the Red Sea where there have been repeated attacks on commercial vessels.

The co-op’s group chief executive officer Colin Kelly, continued: "2023 was a difficult year for the dairy industry. Nobody, from farmer to processor, was disappointed to see the back of a year that challenged us at all levels.

"Global markets collapsed, costs at farm and processor level remained stubbornly high, interest rates reached levels not seen for decades, and inflation impacted every one of us both inside our homes as well as inside the business.

"However, despite all these challenges, the financial strength of the co-op and our robust balance sheet ensured that we were well-placed to navigate this volatility. Our Revenues, EBITDA and operating profit before exceptionals all show a strong and resilient co-op.

"Notwithstanding these global trade issues, 2023 was truly a defining year for the co-op in our 130-year history, as we commenced our new strategy entitled Foundations for a Better Future.

"This strategy is focused on our business being fit for growth and embracing value-add opportunities that will benefit the co-op, our farmers and our people sustainably for the future. We are making strategic decisions that will benefit the co-op in the short, medium and long term."

Lakeland Dairies chairperson Niall Matthews, added: "In what was one of the most challenging years for the dairy industry, farmers and processors both demonstrated tremendous resilience in the face of enormous pressures. Whether it is inside the farm gate or at processing level, we are all committed to maximising efficiency to ensure that we were as lean as possible.

"Thankfully the global markets in 2024 have been more positive which is critical given the very challenging weather conditions we have endured since the end of 2023.

"At all times, we are fully committed to returning the best possible price to our farm families who do huge work producing world-class, safe and sustainable milk. This forms the bedrock of our 240 products which are enjoyed by customers and consumers in over 100 global markets.

"We paid out £694million in milk price last year which supports farm families as well as driving a balanced regional economy. The economic importance of the dairy industry cannot be underestimated.

"Given the recent market volatility as well as huge regulatory and policy uncertainty, it is more important than ever that we look to the future in a very strategic manner. Following rapid dairy industry growth and the expansion of milk production and processing over the past decade, the industry is transitioning from a supply volume perspective into more value-added product positioning.

"This is our key strategic focus as a Board and as a co-op. We are making very definite steps to move up the value-add chain to support the long-term operations of our farm families."

Lakeland Dairies reports in euro. Sterling figures are converted from euro at the relevant year-end exchange rate.

Group revenues - £1.4bnGroup revenues for 2023 were £1.4bn compared to £1.7bn reported in 2022, resulting in an operating profit of £12.8m before exceptionals, in line with significant market volatility experienced throughout 2023.During the year, there were once-off exceptional expenses arising from strategic decisions to restructure the co-operative's processing footprint. This includes workforce redundancy and facility restructuring costs of £12.6m.EBITDA (Earnings before Interest, Tax, Depreciation & Amortisation) was robust in the circumstances at £37.6m. The co-operative retained a very strong balance sheet with shareholders' funds of £220m and the capability to generate strong earnings even in a year of very significant market uncertainty and turbulence.Food Ingredients - £828.4mIt was a challenging year for the Food Ingredients division which was most exposed to the collapse in global dairy markets, reporting revenues of £828.4m in 2023.The market downturn started during the third quarter of 2022 with buyers sitting on stock which had been bought at record high prices. This resulted in a dramatic demand reduction as the market moved to work through these higher priced products. The market pressure continued into 2023 with a gradual recovery in global markets commencing only in the second half of 2023.Foodservice / Consumer Foods - £460.6mRevenues of £460.6m in 2023 comprised of £281m from the Foodservice segment and £179.6m from the Consumer Foods segment. In terms of consumer demand, domestic markets across Ireland and the UK held steady. The Middle East continued its recovery post-pandemic. Chinese demand for foodservice products, albeit relatively modest, growth was stable throughout the year. For Consumer Foods, the market was steady with solid demand throughout the year on the domestic front and inroads being made internationally.Agribusiness - £97mThe Lakeland Agribusiness Division, increased feed sales while market prices reduced in 2023. A total of 235,000t of high-performance products was supplied to the co-op's loyal customers at the most competitive rates.Fertiliser prices also reduced, tracking national and EU trends and there was a modest reduction in turnover within this category. This reduction in price is positive for farmers and it is hoped this trend can continue throughout 2024. The Agribusiness division implemented a support programme for farmers introducing a £20/t feed discount in November 2023. This has increased to £30/t and continues to operate into April 2024.