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On the back of its recent business turnaround, a resurgent Dairy Farmers today reported its results for the first half of fiscal 2008 (1H08) – and is on track to post strong double digit growth in full-year earnings despite having to absorb approximately $130 million in additional farm-gate milk costs.
Dairy Farmers Chief Executive, Rob Gordon, said the Co-operative’s standout performance during the six months to 31 December 2007 – including net revenues increasing by 17.5 per cent in the retail (supermarket) channel and 11.6 per cent in route and convenience – has Dairy Farmers positioned to post 15 to 25 per cent growth in full year EBITDA1, given the current dairy industry outlook.
“Despite returning an additional $48.9 million to farmer shareholders in the form of increased farm-gate milk prices during 1H08, Dairy Farmers’ EBITDA1 for the period increased to $39 million,” Mr Gordon said.
“This was achieved despite the inevitable lag in recouping costs from the marketplace, with the benefit of additional price recovery to flow through in the second half of fiscal 2008. Based on current sales, the price increases already achieved during the first half will deliver nearly 80 per cent of that required to recoup the additional milk and cheese input costs forecast for the full year.
Dairy Farmers 1H08 EBITDA1 excludes $3.2 million in costs related to a liquidity event this year and represents a $0.5 million increase on the $38.5 million EBITDA result posted in the prior corresponding period.
“Across all channels, Dairy Farmers’ 1H08 sales revenues were $654.2 million in total – a 14 per cent value improvement and 3.6 per cent volume increase on that achieved during the prior corresponding half – as consumer demand for the Co-operative’s products continued to grow,” Mr Gordon said.
“Dairy Farmers’ net profit after tax (NPAT)2 increased to $11.2 million compared with $0.1 million achieved during the prior corresponding period.”
Brands strategy drives growth
“During the period, Dairy Farmers’ powerful consumer brands gave it an advantage in recouping higher farm-gate milk costs from the marketplace,” Mr Gordon said.
“Dairy Farmers’ strong revenue result in the aisles of the nation’s supermarkets was driven by a combination of improved market share positions, higher pricing and a 13 per cent lift in retail sales volumes.
“Pleasingly, Dairy Farmers continued to outgrow the market in the key retail categories in which it operates – milk, impulse beverages, cheese and everyday yogurt.
“According to a recent ACNielsen report, Dairy Farmers is now the nation’s fifth largest umbrella brand based on annual sales – two places higher than the seventh position it held in fiscal 2005.
“To ensure Dairy Farmers maintains its growth momentum, we have a strong innovation pipeline and are scheduled to bring a number of new dairy innovations to market in the current half and in fiscal 2009,” Mr Gordon said.
“In March 2008, Dairy Farmers will launch a new range of Thick & Creamy yogurt products, underpinned by a further $23.6 million investment at our Wetherill Park facility in Sydney. Thick & Creamy production capacity will be quadrupled – allowing the brand to build on the $40 million share of the sweetened flavoured yogurt market snared since its launch early last year.
Liquidity options update
“Dairy Farmers’ Board previously signalled that it would consider a range of options broader than just an ASX-listing to provide its shareholders access to the market value of their equity in the Co-operative,” Mr Gordon said.
“In line with this commitment, the Board has conducted a preliminary analysis of the available liquidity options including unlocking significant synergies and other benefits.
“Given its unique heritage, strong momentum and upside potential, Dairy Farmers represents a compelling investment proposition – and is attracting interest from domestic and international players alike.
“To accurately assess the relative benefits of a range of options, the Board will undertake a formal evaluation process in coming months and will then recommend to shareholders an option that stands to deliver the greatest value. Clearly, there is a variety of potential options available including a merger or trade sale.
“We’re now in the box-seat to ensure shareholders receive full value for their equity in the business,” said Mr Gordon.
1. Statutory Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) excluding costs related to a liquidity event
2. Statutory Net Profit After Tax (NPAT) including costs related to a liquidity event
