Ornua s Approach to Managing Volatility. Making Risk Management Work for Farmers Seminar 4 May 2016

Size: px
Start display at page:

Download "Ornua s Approach to Managing Volatility. Making Risk Management Work for Farmers Seminar 4 May 2016"

Transcription

1 Ornua s Approach to Managing Volatility Making Risk Management Work for Farmers Seminar 4 May 2016

2 Today s agenda 1. Our Business 2. Volatility in Dairy Markets 3. How is Ornua Managing Volatility 4. Looking Forward 2

3 We are a Global Business 3

4 We are a Global Business ICELAND NORWAY SWEDEN LATVIA LITHUANIA ROMANIA CANADA IRELAND DENMARK POLAND UK GERMANY HUNGARY NETHERLANDS BELGIUM CZECH REP. SWITZERLAND AUSTRIA SLOVAKIA JAPAN PORTUGAL FRANCE GREECE BULGARIA USA BERMUDA GIBRALTAR SPAIN ITALY ALBANIA CYPRUS UZBEKISTAN KOREA REP. OF DOMINICAN REP. MOROCCO LIBYA TUNISIA MALTA TURKEY IRAQ IRAN CAYMAN ISLANDS MAURITANIA ALGERIA LEBANON KUWAIT BAHRAIN CHINA TAIWAN MEXICO BARBADOS BAHAMAS SIERRA LEONE GUINEA MALI EGYPT QATAR AFGHANISTAN HONG KONG BELIZE TRINIDAD & TOBAGO SENEGAL LIBERIA CHAD SAUDI ARABIA UAE PAKISTAN BANGLADESH COSTA RICA BRITISH VIRGIN ISLANDS GAMBIA TOGO GHANA NIGER JORDAN ISRAEL INDIA VIETNAM EL SALVADOR JAMAICA IVORY COAST GUINEA CENTRAL AFRICAN REP. YEMEN SRI LANKA THAILAND BENIN EQUATORIAL GUINEA NIGERIA KENYA VENEZUELA MALDIVES BURKINA FASO GABON TANZANIA MALAYSIA PHILIPPINES GUYANA CAMEROON ANGOLA MALAWI SEYCHELLES & DEPENDENT SINGAPORE INDONESIA SAO TOME & PRINCIPE CONGO MOZAMBIQUE PERU D.R.C ZAMBIA MADAGASCAR ZIMBABWE MAURITIUS SOUTH AFRICA AUSTRALIA CHILE NEW ZEALAND 4

5 Ornua s job is to develop markets for Ireland s extra milk 5

6 Continuing to Expand our Global Footprint Brand Growth NPD Inmarket Cap Ex 200m 300m M & A Dairy Trading Growth Strategy

7 It has enabled us to deliver to our members 1. Delivery of strong product price returns and significant price support 2. Delivery of an annual Members Bonus - in 2015 a 29 million was declared including a 15 million special bonus 3. Funding of members working capital to free up cash flow for members c 370 million in Delivery of volatility management mechanisms to members e.g. Fixed Term Contracts 5. Suspension of milk levy in response to difficult market situation 7

8 Volatility in Global Dairy Markets 8

9 Dec-90 Nov-91 Oct-92 Sep-93 Aug-94 Jul-95 Jun-96 May-97 Apr-98 Mar-99 Feb-00 Jan-01 Dec-01 Nov-02 Oct-03 Sep-04 Aug-05 Jul-06 Jun-07 May-08 Apr-09 Mar-10 Feb-11 Jan-12 Dec-12 Nov-13 Oct-14 Volatility has been increasing Max move: +/-24cpl Max move: +/-10cpl Irish Milk Prices

10 Why are dairy markets more volatile? EU dairy has moved from a regulated market to free market As global demand grows areas more vulnerable to weather shocks are being used for milk production Trade policies impacting demand - Russia s ban on EU food imports vs. free trade agreement Stock policies impacting on price movements Data availability and speed Hedge funds, dairy auctions and futures Irish seasonality further exacerbates volatility 10

11 Volatility Management at Ornua 11

12 How is Ornua managing volatility? 1. Fixed milk price systems 2. Growing our brands 3. Developing differentiated value added ingredients 4. Diversifying our markets through acquisitions 5. Strengthening supply chain partnerships 6. Investment in trading expertise 12

13 1. Fixed milk price systems Ornua is the primary counter party for co-ops fixed milk price offers Ornua has been involved in fixed price milk schemes since 2011 We have 227m litres of fixed price milk on our books Primarily allocated against: - The brand in order to remove volatility from brand earnings - Long term ingredient contracts with blue chip customers Important to note - it can be difficult to find willing counter parties 13

14 2. Growing our brands Approx. 33% of our volumes are through the brand Difficult to maintain this proportion given the increase in absolute terms Kerrygold s retail sales reached a record c. 740 million Record sales volume in Germany Kerrygold, the No.1 butter brand Record US Kerrygold sales volumes No. 3 branded butter in US Record market share for Pilgrims Choice No. 2 in the UK 17

15 Recent new products to market Dubliner Triangles USA / ME Milk shakes / Cheese dippers / Cheese pods Middle East Flavoured butters Germany Irish Cream Liqueur USA & Europe 18

16 3. Developing differentiated added value ingredients Provides protection from commodity swings Typically difficult to achieve with members products (production push system) Need differentiated product offering which requires investment Ornua s investment in cheese processing technology

17 Ingredient technologies 5 core areas of focus Cultured Dairy Innovative Cheese Core Dairy Range Functional Beverages Life Nutrition Functional Ingredient Blends

18 Highly integrated collaborative research programme between Ornua & Teagasc Pioneering technology recombines dry milk ingredients to produce fresh white cheese Pilot kitchen built at Teagasc Moorepark in Ireland and shipped to Saudi Arabia Developing bespoke white cheeses for the bakery sector, retail deli & foodservice customers Innovation hub to help drive the creation of new products for MENA

19 4. Diversifying our markets through acquisitions Ornua UK Retail, ingredients and foodservice presence in core dairy ingredients Ornua Germany and US Retail branded presence through the Kerrygold brand Ornua US, UK and Spain Added value processed cheese ingredient business Ornua Saudi Arabia Recombined technology to service local requirements Ornua Africa and Ornua MENA Investments in sales infrastructure to drive branded and ingredient sales 19

20 4. Diversifying our markets Our feet on the street working alongside consumers, customers, distributors and local partners Strengthening global infrastructure China, Middle East & Africa AFRICA Kerrygold powder packing facility in Nigeria SAUDI ARABIA Cheese manufacturing facility in Riyadh CHINA Acquisition of Ambrosia Dairy 20

21 5. Strengthening supply chain partnerships We build mutually beneficial relationships with strategic partners We understand our customer needs We provide excellent service Excellent service builds customer loyalty which reduces volatility. 21

22 6. Dairy Trading Strategies Predictive Models VTT Team Insights Supply Chain / Procurement Insights Trading Strategy Hedging Tools Trading/Sales Identify Opportunities & Risks Trading Limits/Policy 22

23 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar Ornua s volatility management is delivering Ornua PPI vs. GDT WMP Ornua PPI GDT WMP 0 23

24 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Ornua s volatility management is delivering 150 Ornua PPI Index vs Fonterra Price Index (Jan 2010 Milk Price=100) Ornua PPI Fonterra 0 Presentation Title 24

25 Measuring Delivery 1. Brand growth today Kerrygold is retails at c. 740 million 1. Delivery of significant product support to members - coops are putting more product through Ornua purchases up 16%, a record 286,000mt 1. Delivery of an annual Members Bonus of 29 million in cpl: 1. Record 14m Ornua trading bonus 2. 15m DPI bonus disbursement 2. Suspension of the milk levy, while remaining committed to same level of investment in brand 3. Funding of members working capital to free up cash flow for members c 370 million in

26 Looking Forward 26

27 Looking to the future Market volatility is a reality of competing in global markets A very difficult year ahead but the medium to long-term outlook remains positive Ornua has strategies in place to best manage volatility Ornua will continue to pay its Members a leading product price Our ambition for Irish dairy across global markets is great We are building a robust and valuable diversified asset for the Irish dairy industry that delivers strong sustainable returns. 27

28 Thank You Presentation Title 28