Ornua says strong 2019 will help with coronavirus challenges

By Jim Cornall

- Last updated on GMT

 Ornua said its biggest challenge is to keep its supply chain operating to ensure markets for Irish dairy remain open.
Ornua said its biggest challenge is to keep its supply chain operating to ensure markets for Irish dairy remain open.

Related tags ornua coronavirus kerrygold

Ornua, Ireland’s largest exporter of dairy products, has published its operating and financial results for year ended 2019.

In 2019, Ornua’s group turnover increased by 11.5%, reaching €2.3bn ($2.5bn), group EBITDA of €71.8m ($78m) was up 18.7% and operating profit of €49.1m ($53.4m) was a rise of 21.5%.

In 2019, Ornua purchased 340,000 MT of Irish dairy products from Irish coops. It paid a total members' bonus of €26m ($28.3m), up 36.8% year-on-year. Four hundred million liters of milk equivalent were purchased by Ornua under fixed price contracts.

Ornua said this places it in a strong financial position to manage the unprecedented challenges presented by COVID-19.

Commenting on the 2019 results, John Jordan, Ornua’s CEO, said, “We are pleased to report a strong trading performance for 2019, despite a challenging global environment characterised by economic uncertainty due to US tariffs, Brexit and market volatility. Post year-end this trading complexity has increased significantly due to the impact of the global COVID-19 pandemic.

“Kerrygold had a standout year in 2019, becoming the first billion-euro Irish food brand. The strength and impressive growth of Kerrygold allowed Ornua to pay a brand premium of €18.5m ($20.1m) to our Member Co-ops for Kerrygold butter, cheese and milk powders. 2019 was a special year for our ingredients business too, as it marked the rebuild and opening of our €30m ($32.6m) state-of-the-art pizza cheese facility in Ávila, Spain.”

COVID-19 issues

As with most businesses, Ornua expects COVID-19 to negatively impact on its business. The business uncertainty and disruption it is causing is severely impacting market sentiment. Consumer usage occasions have changed overnight with people at home cooking and baking.

As a result, in retail, Ornua is seeing an increase in demand for its branded and private label cheese and butter. Meanwhile, demand for Ornua’s foodservice products have fallen sharply caused by the temporary shutdown of the foodservice and hospitality sectors in Europe and the US.

The net impact of COVID-19 is a decrease in consumption of dairy products worldwide.

Operationally, Ornua said its biggest challenge is to keep its supply chain operating to ensure markets for Irish dairy remain open at a time of great uncertainty. A huge COVID-19 response effort is under way to mitigate risk, keep markets open and serve customers.

Despite the expected drop in global dairy demand, Ornua said it will continue to purchase product from member coops in line with 2020 agreements, equating to more than €1bn in dairy product purchases.

Measures also include keeping all Ornua factories operating and running safely. Should there be severe disruption or closure to Kerrygold factories, in Germany or Ireland for example, this would have a detrimental impact on the Irish dairy supply chain overall - resulting in a shortage of Kerrygold on supermarket shelves.

Ornua said the number of people on-site has been minimized, with no site visits allowed and, where possible, people are working from home. Physical segregation of shifts and the offsetting of shift patterns have been implemented.

The company said it is also maintaining and securing additional storage facilities to spread risk locally and internationally, as well as securing additional international shipping containers at a time of global shortage.

It is also reallocating staff from its ingredients business into its consumer business in order to ensure increased demand can be met.

Commenting on the impact of COVID-19, Jordan said the key focus for 2020 is to support its workers, customers, member coops and farmers as it remains focused on keeping factories running safely to serve customers and ensuring markets for Irish dairy remain open.

“This will see Ornua carry the risk and cost of stockholding on behalf of our Members, going some way towards providing a level of security in these uncertain times,”​ Jordan said.

“We are also working hard to maximise Kerrygold premium returns to enable us to continue to deliver strong product prices to our Members, and in turn Irish dairy farmers.”

Looking ahead, Ornua said it has successfully diversified its product portfolio and geographical spread in recent years which will offset against some risk factors associated with the fallout of COVID-19.

It said the outlook remains cautious until such time as the full scale and impact of the pandemic is known.