The chief executive of Milk Link says the UK dairy co-operative has had a “solid” 12 months and, with sales and profits rising in tough trading conditions, the business has posted impressive results. In this month’s just-food interview, Milk Link CEO Neil Kennedy discusses the company’s performance and its plans over the next year and beyond.
“We’d like to be a bigger, broader version of what we are now.”
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Neil Kennedy, the CEO of UK dairy co-operative Milk Link, does not want the company to rest on its laurels. Over the last 12 months, Milk Link has navigated tough trading conditions in the dairy sector (think volatile commodity costs and high promotional activity) and managed to grow sales and profits.
Earlier this week (8 June), Milk Link published its full-year financial results and, talking to just-food, Kennedy takes a moment to outline the company’s medium-term ambitions – and much of the vision was to build on the group’s current strategy.
“We think being represented directly or indirectly across the spectrum of dairy products is important so we don’t see ourselves changing in that respect. We’d like to get bigger across the sectors. We are a scale business but we’re up against some much bigger competitors,” Kennedy says
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Milk Link, a co-op owned by over 1,500 dairy farmers across the UK, has branded, own-label and dairy ingredients operations. The company’s brands include Tickler mature Cheddar, its private-label business takes in supply agreements with the likes of Sainsbury’s and Waitrose, while the group also sells ingredients to companies including Premier Foods plc, Kerry Group and Kraft Foods.
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The company is the UK’s largest cheese manufacturer and Kennedy describes own-label cheese as its “core” business. “The biggest brand that we actually sell is the Sainsbury’s brand – we are their biggest cheese supplier. Our second biggest brand would be the Waitrose brand. That’s where we are different to the Dairy Crests and the Lactalises of this world, which are more branded specialists. We are a customer-branded specialist,” he says.
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By GlobalDataMilk Link’s cheese business, despite some tough competition, was a factor in its sales growth over the last 12 months. In the year to 2 April, Milk Link’s turnover rose 6.6% to GBP586m. Milk volumes increased, sales of the company’s premium branded cheeses improved and it also benefited from the increase in prices of dairy commodities.
Kennedy believes Milk Link’s “balanced economy” helps the business. Cheese and whey – which Milk Link groups together – accounts for around GBP300m of the company’s revenue. A further GBP80m in sales comes from liquid milk, while the rest is in other commodity products like skimmed milk powder and raw-milk brokering to the likes of Premier and Kraft and specialist cream manufacturers like Rodda’s. “Whilst we’re a big cheese maker, we’re not just a big cheese maker,” Kennedy says.
Milk Link added to its cheese portfolio in January, with the acquisition of Country Cheese Larder, a maker of soft cheeses. At the time of the acquisition, Kennedy said Milk Link wanted to become “the leading British value-added dairy processing business”. Expanding on this vision, he now reveals that Milk Link has a “full programme” of expansion for the year ahead, with “big investments going in” but he hints that, perhaps, this year, the focus would be on organic growth.
“Our refinancing last autumn does put us in a position where we’ve got access agreed financial support to make further acquisitions,” Kennedy says. “I wouldn’t rule out us doing other similar or even slightly larger scale acquisitions over the medium term but, as far as this year is concerned, I think we’ve got a pretty full agenda.”
It may not happen next year but, in the medium term, Milk Link could also look to further expand outside the UK’s borders. Kennedy surprisingly mentions, without prompting, Milk Link’s ambition to become “at a point in the future” a more international business.
The company’s revenues outside the UK amount to around GBP18m. Kennedy describes Milk Link’s international business as “modest”, with the sale of “value-added products” in export markets – including Stilton in North America, which he describes as “small by volume but quite interesting in terms of value” – and shipments of commodity products.
“We think there are opportunities for some of our products to have a much bigger international presence but, to do that well, you really need the infrastructure in those markets, which is putting it in yourself or working with somebody that has that – and that’s what we would see over the longer term,” Kennedy explains. “In the nearer term, there’s quite a big agenda closer to home.”
And trading conditions at home remain tough. Milk Link’s core cheese business operates in a market in which, over the last 12 months, there has been, the company says, “unprecedented deep and sustained branded Cheddar promotions”. Despite the competition, Milk Link’s retail sales of cheese grew by 11.8% last year. In its results announcement, Milk Link pointed out that sales of its Tickler Cheddar brand jumped 32% in volume terms over the last 12 months. Notable growth but is that an indication of Milk Link participating heavily in that promotional activity?
“Actually, on that one, I’m pleased to say no,” Kennedy says. “The promotional melee has been very much around the more ordinary, everyday, mature Cheddars. The sort of stuff you stick in a cheese sandwich. We do much more modest levels of discounting [on Tickler] to keep the profile up and recruit new consumers. We don’t need to and don’t want to enter the buy-one-get-one free arena.”
Kennedy, however, is aware that consumer confidence in the UK remains low. Economic conditions are, he argues, “as bad as I’ve ever known them”. Rising taxes, uncertainty around jobs and inflationary pressures are hitting consumer confidence, the Milk Link chief says. “Consumers are being much more careful about what they buy. We see it in a change of in the mix of products that we sell. We see much more promotional activity and more volume sold on promotion. I don’t see that changing certainly for the next year. It’s probably going to take a couple of years before the British economy shows any material recovery.”
And, for a dairy company, when thoughts turn to future trading conditions, they also include attempts to forecast commodity prices. For Milk Link, rising commodity prices can act to the benefit and to the detriment of different parts of the company. In the last 12 months, Milk Link saw “significant” cost inflation in its processing operations and looked to alleviate that pressure through efficiency programmes and other initiatives. The company’s cost base, for example, was helped by Arla Foods joining the Westbury Dairies venture that Milk Link had in place with fellow UK dairy co-op First Milk. However, on the other side of the coin, Milk Link’s ingredients business has been helped by the higher prices, for example, of whey. Higher commodity prices have also indirectly set the environment for firmer value-added dairy products, the company has indicated.
Any forecast of commodity prices is a moveable feast. The Milk Link chief believes that dairy commodities will remain “firm”. Prices, he says, will be “at the high end” of the historical average seen over the last five to seven years but, he adds, with some volatility.
However, Kennedy is aware that, as a co-operative, Milk Link is owned by farmers that have faced their own rising input costs. “We’re a farmer-owned business. Our job is to collect our members’ milk, add value to it and transmit that value back down the supply chain to them. There are always two sides to the equation. One is our financial results but also what we’ve been able to return to our members.”
Kennedy says Milk Link has improved returns but says commodity pressures on farmers have offset the milk price the company could pay.
“Feed, fuel and fertiliser have all gone up probably by as much or maybe even more than the milk price that we’ve been able to pay. There’s pressure on farm-gate margins, which means we’re still trying to make further improvements to deliver some benefits to our members,” Kennedy explains.
Since the end of the financial year, Milk Link has increased the price it pays its farmers for milk and stopped a levy deduction that its members had to pay to invest in their businesses in the last eight years, two ways which, Kennedy claims, has made some “material improvements on farm”.
Of course, the work Kennedy and Milk Link will look to carry out over the next 12 months – in terms of expansion and driving sales of those “value-added products” – should, in theory, have a benefit to its farmer-members.
Kennedy, meanwhile, is set to welcome a new member to Milk Link’s management team, with Adams Foods MD Carl Ravenhall to join the business in September in a “key executive role”, although, the CEO adds, the company had yet to announce “the structure that he will become part of”.
just-food could not let Kennedy go without asking him if the oft-speculated combination with First Milk was back on the agenda. In 2008, the two companies abandoned a plan to merge but, with a wave of consolidation in Europe’s dairy sector since then, could the co-operatives return to the table?
“We said at the time when we broke off ‘never say never’,” Kennedy responds. “I suppose I’d stand by that but I wouldn’t like to give you any suggestion that there is anything active, let’s put it that way.”
