Donal Tierney has a lot on his plate. The former chief financial officer of Aurivo, the cross-border agribusiness stretching across the north-west, was suddenly promoted to the role of chief executive on January 13 after his predecessor Aaron Forde unexpectedly resigned over the Christmas holidays.

Within weeks, global food supply chains faced the threat of Covid-19. The challenge has been steeper for the Sligo-headquartered co-op than for its competitors in the dairy heartlands of the south and east: not only is Aurivo a milk processor, it also runs four livestock marts in counties Mayo, Sligo and Leitrim, where 160,000 cattle and sheep are sold every year. All have been closed for the past two months to avoid virus transmission between buyers and sellers.

On Thursday, Aurivo published summary financial results for 2019. Its full annual report has yet to come out because no AGM of its 10,000 farmer shareholders can take place under current restrictions. Just like I reported last week for the wider dairy processing sector, Aurivo is a solid company and it entered the pandemic period with a balance sheet fit to withstand the storms of the Connacht coast where it is based.

Donal Tierney
Aurivo CEO Donal Tierney.

Let’s get the bad news out of the way first. The main drag on Aurivo’s finances last year was a €5.96 million write-down off the value of its 2015 UK acquisition My Goodness, which sells sports nutrition protein shakes under the brand For Goodness Shakes. At the time of Forde’s resignation, I wrote about the overvaluation of this subsidiary

Aurivo sold ECC, a profitable sawmill in Co Galway, for €20 million to spend €43 million on My Goodness five years ago. At the time, Aurivo paid for expected growth. The valuation reflected the belief that My Goodness’s profits would at least double by now. Instead, accounts filed so far show that the UK subsidiary has seen profits stagnate around the £1 million mark. The bet was too optimistic and this has made many farmer shareholders angry. 

My coverage of their concerns and analysis of the figures backing them up did not please Aurivo headquarters earlier this year. However, the co-op’s board has now accepted the facts and written 14 per cent off the value of My Goodness. “The loss of a key customer and competition from alternative brands has resulted in profit erosion for the brand, which has resulted in an impairment charge of €5.96 million. For Goodness Shakes remains a very profitable and valuable brand,” Aurivo’s results statement explains.

If Tierney’s track record as CFO shows one thing, it is that he will manage the overall business prudently.

Aside from this exceptional charge, Aurivo did grow both turnover and operating profit last year, even as its management suffered tensions that led to the departure of its CEO. It collected 4.5 per cent more milk, grew turnover slightly to €446.8 million and operating profit more significantly from €3 million to €3.2 million.

Remember that this is a farmer-owned co-op, where paying a high price to members for their milk is more important than returning a big profit. Yet its Ebitda margin rose from 1.8 per cent in 2018 to 2 per cent last year.

To deal with growing milk supply, Aurivo continued to invest – €12 million, the final third of a three-year programme that saw the completion of a €26 million new, larger milk drier as well as increased capacity in fresh products and animal feed production. All this has been happening in a region where the lack of infrastructure makes things more difficult. The Ballaghadereen drier, for example, is not collected to the gas grid, but Aurivo is now starting to fuel it with innovative liquid natural gas trucked to the Co Roscommon plant in an attempt to lower costs and greenhouse gas emissions.

Power-hungry milk cooling and treatment equipment at its Killygordon, Co Donegal plant now uses heat pumps as part of a €6 million investment cutting out four fifths of the plant’s fossil fuel consumption. These are remarkable, future-proof engineering and financial achievements in counties where very few others invest.

Still, after completing this programme, Aurivo’s net debt rose to just €18.89 million or 2.1x Ebitda. If Tierney’s track record as CFO shows one thing, it is that he will manage the overall business prudently.

More diversified, less focused

His next challenge and that of the farmers represented on his board is to devise a strategy that will continue to sustain the business into the future. By virtue of its location and its importance for the communities it serves, Aurivo is more diversified and less focused than the sector’s champions – and even Glanbia is not immune from the ups and downs of the cut-throat competitive market that is international sports nutrition.

Marts are a prime example of this dilemma. Suckler cattle raised for beef production, as well as sheep, sustain as many farmers as dairy in Aurivo’s catchment, and they need an outlet. Yet marts were the division suffering the strongest setback last year, with a €2.5 million drop in turnover. This business has been plagued by high insurance costs and falling cattle prices – down €31 per head for the 100,000 or so sold through Aurivo marts last year.

The past few years’ crazy butter prices have helped Aurivo shore up cash, whether through its own Connacht Gold brand or by feeding into Ornua’s Kerrygold exports. These days are now coming to an end and the other fraction of the milk – protein turned into powder in the co-op’s all-new drier – is again becoming crucial in extracting value. 

While the My Goodness misadventure has shown how elusive success can be in high-end consumer brands, Aurivo’s ingredients division posted a 10 per cent increase in turnover to nearly €170 million, on trend to represent the majority of its business in the coming years. This is where the likes of Kerry Group have made their fortune, and Aurivo, much like its neighbour Lakeland, has quietly but successfully been exporting milk powders to markets with huge potential where few other exporters venture, including sub-Saharan Africa.

Shipping bulk bags of enriched milk powder to the growing middle classes of Nigeria and Mexico may not be as glamourous as appearing on the Instagram feeds of European fitness enthusiasts. But for the thousands of farmers and the 650 employees who depend on Aurivo, it may be a more sustainable way of making a living. 

New opportunities will also arise as national and European policy turns towards steering marginal lands such as some of those farmed by Aurivo’s members away from beef production and into more climate-friendly businesses, including forestry and renewable energy. In that respect, the shareholders lamenting the sale of ECC have a point. But there will be other chances.