FDBusiness.com

Dairygold Co-op, one of Ireland’s largest dairy processors, has confirmed its post quota strategy. As a farmer owned co-operative Dairygold has committed to accept all the milk that its Members would produce post quota. Through comprehensive surveys Dairygold’s milk suppliers have themselves forecast of a 63.5% increase in milk production from 941 million litres in 2011 to 600 million litres a year extra by 2020.

In order to facilitate that expected increase, the Society has agreed a carefully planned and phased investment of Eur120 million over the next eight years to incrementally expand its weekly processing capacity by 18.5 million litres by 2020.

Dairygold’s product strategy is firmly established in cheese and dairy ingredients and its expanded product profile will focus on these core products. Dairygold’s three existing processing sites at Mitchelstown, Mogeely and Mallow have capacity for varying degrees of expansion. Sweating these existing facilities makes absolute sense for Dairygold as they offer established infrastructure, which will reduce the capital cost of expansion.

Dairygold is already investing from its existing cash reserves to increase its weekly processing capacity by 4.3 million litres (15%) by 2014. This comprises expansion at its speciality cheese plant at Mogeely and its Cheddar plant at Mitchelstown, the latter is one of the largest in Britain and Ireland.

Dairygold plans to invest Eur120 million to add another 18.5 million litres weekly capacity up to 2019. This will comprise of an upgrade of the existing dryer in Mitchelstown and the development of two 7.5 tonne/hour dryers in Mallow, one in 2015 and one in 2019 or earlier if required.

In addition to Eur120 million capital investment required for expansion an associated Eur50 million increase in working capital will also be required to accommodate the extra volumes of product with long lead times before customer payment. The Dairygold board has agreed that the investment required cannot be funded from operating surpluses, existing reserves or entirely from bank debt and an element of Member funding is required. Based on projected financials and corporate finance evaluation the Member funding required is in the order of Eur50 million.