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DMK GROUP continues with cost-cutting

June 27, 2016
Consumer Packaged Goods

In a market environment that has posed severe challenges to the dairy industry in the past months, the DMK GROUP is continuing with the consistent and systematic implementation of its current business strategy.

Because of the low market prices for milk and dairy products, DMK shows a fall in revenues to 4.6 billion euros (2014: 5.3 billion euros). To ensure that every possible eurocent went to the dairy farms, the company paid out 30 million euros of profit to the farmers through the milk price in the course of 2015.

In the same year, the DMK GROUP launched a Group-wide cost reduction programme that is to free up a sum of up to 60 million euros by the end of 2016. Against the background of falling prices and volatile markets that are suffering world-wide from an oversupply, DMK’s executive bodies have affirmed the company’s existing strategic direction. “The crisis-torn year in 2015 has shown that the DMK GROUP’s long-term strategy is the right one, even if every possible cent needs to go, and is going, to the farms at the moment,” says CEO Dr Josef Schwaiger. The strategy continues its rigorous focus on strengthening the branded products business, developing and introducing innovations and internationalising the company’s arena. With attractive products and marketing concepts aligned with the customers’ wishes, the MILRAM brand made a positive contribution to profit despite the adverse market conditions. Oldenburger, the export brand, developed well in the international market and even saw an increase in volume in the reporting period. DMK also succeeded in generating a positive profit contribution in the ingredients sector with the long-term strategy combining a broad portfolio with the further development of its product range. Another important pillar is Research and Development.

Stability for a secure future
“The equity ratio of around 37 percent, which has remained stable year on year, shows that the DMK GROUP is on safe ground for the future and is well positioned, even against the background of extreme market fluctuations,” says Dr Schwaiger. With a processed volume of 6.7 billion kilos of raw milk (2014: 6.8 billion kilos), the DMK GROUP was able to pay the dairy farmer members of its cooperative, some 8,300 in number, an average milk price of 27.57 eurocents per kilo (in 2014 the figure was 36.86 eurocents per kilo). The reason for the unsatisfactory milk price at all dairy companies across Europe lies in the crisis-related trend in the prices of milk and dairy products in the year under review.

Increasing competitiveness: merger with DOC Kaas
The merger with DOC Kaas, the Netherlands’ second-largest cheese manufacturer, came into force on 1 April. The objective is to leverage synergies without high direct investments, expand access to international markets and increase value added with new products. DOC Kaas is also a cooperative-based organisation, employed around 230 employees in 2015 and made 1 billion kilos of raw milk supplied by around 1,050 dairy farmers into cheese in that year. The German and Dutch dairy farmers alike will reap benefits from the merger because of synergy effects in the production and sale of cheese and fresh dairy products.

Efficient corporate organisation
“Following the successful completion of the factory structure concept for the 26 DMK sites, the corporate organisation will be adapted to future market requirements in the second half of 2016 following a good year of preparation. The rigorous implementation of an organisation that supports and adds value to the strengths of the current factory structure is essential to the successful future of the DMK GROUP,” says Ingo Müller, DMK GROUP’s Managing Director for Ingredients and Agricultural Affairs/Raw Materials, who is the Management Board member in charge of the future corporate organisation. He adds: “In addition to the ongoing cost reduction programme, with which DMK is helping to bridge the liquidity problem for the farmers in the current crisis, a secure future for the cooperative shareholders and employees can only be achieved by successful structural changes”.

Dividend of 7 million euros
The executive bodies of the 8,300 dairy farmers are involved in all business decisions, including the decision made together with the shareholders to adhere in future to the long-term strategy for the further development of the company. DMK paid around 30 million euros in profits directly to the farms as part of the milk price in 2015 in order to contribute to the viability of the farms against the background of falling market prices. Even in the current period of low interest rates, DMK is paying its shareholders a dividend of around 7 million euros – a 4 percent return on the members’ paid-up capital contributions.

Current market situation
The market is expected to remain difficult in the current fiscal year. DMK assumes that structural change will accelerate in 2016 because of the drastic market situation. More and more farmers are giving up dairy farming to concentrate on other areas of the business. DMK’s income will be under less of a strain than in the reporting period because its major capital investments have now been completed. Synergies from these projects will have a positive impact on earnings in 2016. The new facilities in Zeven, Georgsmarienhütte and Erfurt have already gone into operation, and helped to improve competitiveness in 2015. For example, the milk powder factory in Zeven can produce qualities that will open up new markets with higher value added to DMK. In view of the saturated domestic market, new markets will make a crucial contribution to securing the company’s future earnings. At the same time, the company is continuing with the rigorous implementation of cost-saving measures. The share of exports is currently around 40 percent of the total turnover and will continue to grow profitably.

Source: DMK

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