Dairy Farmers profit surges, innovation to drive future growth

Posted by Daniel Palmer on 2nd September 2008

Following the announcement of the National Foods proposal to acquire Dairy Farmers last week, the Australian dairy co-operative has posted strong double digit earnings growth at the higher end of earnings guidance despite incurring an additional $170 million in costs during the period.

Dairy Farmers Chief Executive Rob Gordon said a 25 per cent surge in earnings before interest, tax, depreciation and amortisation (EBITDA) during fiscal 2008 to $71 million was achieved in a particularly hostile operating environment. “During fiscal 2008, Dairy Farmers needed to absorb an additional $170 million in costs – primarily as a result of record farm-gate milk prices,” Mr Gordon reported. “The lift in earnings can be primarily attributed to Dairy Farmers’ turnaround strategy of investing behind high-margin branded products across key channels – which has been underpinned by a strong innovation pipeline, sustained cost-out initiatives and continued price recovery from the marketplace.”

“During the period, Dairy Farmers posted an 11 per cent increase in sales revenue from $1.18 billion in fiscal 2007 to $1.31 billion in fiscal 2008. This trend was particularly evident in the retail channel, where sales increased by 17 per cent and in the route channel where an 11 per cent uplift was achieved,” Mr Gordon added. “In fiscal 2008, Dairy Farmers achieved double digit value growth in each of the four retail categories in which it participates – cheese by 15.5 per cent, flavoured milk by 15.3, everyday yogurt by 14.6 per cent and white milk by 10 per cent.”

Innovation in packaging and dairy products is set to ensure the coming year is as positive as the last. “In fiscal 2009, Dairy Farmers will launch a number of exciting new products and innovations including a new dairy drink, Rise, as well as a significant packaging advance in the cheese category,” Mr Gordon advised.

The Board of Dairy Farmers last week recommended a takeover offer from National Foods, which valued the dairy co-op at $910 million. The deal is still to be approved by Dairy Farmers shareholders, with a formal announcement expected at the end of November.