A keen eye on the future
The lower market prices for our important products led to a decline in Group sales in 2018 and thus to a reduced milk payout. Nevertheless, the Uelzena Group is still optimistic about the long term - and is gradually implementing the projects of its ongoing investment plan. They are the foundation for securing the economic future of the company.
The business year 2018 was a good year for the Uelzena Group in terms of safeguarding the future. The net profit for the year amounted to almost 9 million Euros, which again strengthens the equity ratio and secures the independence of Uelzena. Against the background of the comprehensive investment program, this is an important basis, because it is only an economically healthy company that is able to implement the necessary expansion and modernization projects at the production sites and in the plants.
From the milk producers’ point of view, the milk payout was barely satisfactory. Over the entire year Uelzena eG only generated a payout price of 33.68 cent/kilogram of raw milk; this is down from last year’s price of 36.54 cent/kilogram. Nevertheless, the milk payout at Uelzena eG is above that which many dairies in most Federal States are paying. It was only the dairies in Bavaria, Baden-Württemberg and Thuringia that paid a milk price above the Federal average price. In addition to the decline in milk payouts, the drought-related crop losses also put a strain on agricultural businesses in northern Germany. Some of these effects can still be felt in 2019.
Decline in sales due to a difficult market
In 2018, the Uelzena Group was not able to repeat the extraordinary good results from business year 2017. Although sales remained just below the previous year's level, the turnover fell by 44 million Euros. The primary cause for this lies in the mixed development of prices for milk fat, milk powder and cheese:
- In 2018, the prices for milk fat could not maintain the record high of 2017, even though the overall development was still satisfactory.
- The prices for milk powder started at a very low level and only recovered towards the end of the year.
- The prices for cheese started with a decrease, rose in March 2018 to a satisfactory level before dropping again towards the end of the year.
In the long run our aim is at continuous growth and at securing our commitment to purchasing milk from our members. In 2018, the collecting cooperatives in close consultation with Uelzena eG accepted new farmers as members. This increased the raw milk quantities delivered to us by more than 11 percent. In this way the raw material basis of the Uelzena eG is growing even despite the fact that our company is also affected by the structural change in the milk production sector and the losses of farms which happens every year due to the termination of their businesses.
In line with development targets, existing production capacities in both the milk and non-milk divisions are to be modernized, additional capacity is to be constructed and new customers acquired. The Uelzena Group, by enabling itself to produce more products of even better quality, is effectively developing its value creation capacities for important product groups such as cheese and skimmed milk powder. This is of course accompanied by extra costs. In the current investment plan (2018 to 2022), 120 million Euros have been allocated for the expansion of the corporate group. The goal is to create sustainable and durable structures for a regional, medium-sized dairy company. See also “our sustainable corporate strategy”.
“We secured the financing of the multi-year investment plan by concluding a syndicated loan agreement.”
Christoph Bonmann, Managing Director Finances and Human Resources, Uelzena
Investment projects that have already implemented
At the Uelzen site, construction of the new and fully automated high-bay warehouse was completed in 2018. The warehouse offers room for almost 13,000 pallets. The connection to the electronic data processing system was completed in the first months of 2019. The investment into the new warehouse including outside facilities amounted to about 20 million Euros. The Uelzena Group expects that the construction costs will be amortized after about ten years, especially since there will be no more rental of external warehouses and transportation by truck between external warehouses and production sites will no longer be necessary. It is also expected that there will be less damage during storage and improved quality assurance owing to short and protected paths.
14 million Euros for a modern milk drying plant
The Uelzena Group has invested about 14 million Euros in the expansion and upgrade of milk drying facilities. This will enable the company to expand its milk drying capacities in Uelzen significantly by 4,000 tons of milk powder to a total of 22,000 tons. The investment includes the construction of a huge filter plant for air pollution control according to the latest standards in order to achieve higher energy efficiency, lower dust emissions and lower noise emissions. The packaging center - which was moved to the Uelzen site - began operation at the end of 2018. The company expects that this move will increase efficiency because it will improve and simplify workflows at the production site.
During 2019, company expansion will continue:
- Two new evaporators in the milk drying plant will start operation.
- At the Uelzen site, planning for the construction of the new tower no. 12 has begun. The tower will be equipped with the latest spraying technology for vitamins and minerals.
- The construction works for the expansion of the cheese making plant in Bismark, which has been in operation for 25 years (Saxony-Anhalt) will start; in the first step production capacities shall be increased from 32,000 tons of cheese per year to 48,000 tons.
- Planning the expansion of the agglomeration capacity at the Ratzeburg site (H. Schoppe & Schultz GmbH & Co. KG) will start. Production capacities are planned to expand by 5,500 tons per year.
The Uelzena Group is a dairy that faces one key challenge, namely the heavily fluctuating prices for its main products of milk powder, butter and cheese on national and international markets. The Group is replying to this challenge with a strategy of diversification and differentiation. The primary objective is to compensate for fluctuations in milk prices and to provide farmers with a competitive milk payout.
A lot depends on the business success of the Uelzena Group; the milk payout for the members as well as the employee wages, capital expenditure and taxes. It is therefore the company’s responsibility to maintain and expand corporate performance in the long run and to continuously invest into its future viability.
The Uelzena Group is a medium-sized cooperative enterprise with around 750 employees and consolidated sales of 648 million Euros, which processes almost 625 million kilograms of liquid dairy raw materials at four production sites in northern Germany. The business purpose of Uelzena eG is the support of its member cooperatives and their milk producers. See also: Company profile
The main focus in the action field ‘company’ is economic performance. Systematic planning and hard work are the foundations for the business success of the Uelzena Group. In its efforts, the Group is supported by various management systems and processes such as strategic multi-year planning, risk management, compliance and management by targets.
Corporate management defines long-term goals, plans implementation measures and monitors their effectiveness. Norms and standards are constantly further developed and require adaptation in corporate management, for example, the change from ISO 9001:2008 to ISO 9001:2015 that took effect in 2018.
Our sustainable corporate strategy – overview on targets and measures
- Uelzena eG aims at generating a competitive milk payout for its members and guaranteeing reliable purchases
- The goal is not short-term profit, but rather continual good corporate results
- The independence of the Group must be maintained in the long term
Reliable and guaranteed sales
The Uelzena Group has made a commitment to its members to reliably buy all of their milk. The company fulfills this obligation every year, again and again to 100 percent. This is achieved by ensuring that processing capacities and sales opportunities – i.e. access to customers - are always in line with the amount of raw milk delivered by the members. Starting in 2017, a medium-term strategy and investment plan (multi-year investment plan) was developed for the entire Uelzena Group that involved all business divisions, sites and executives. The plan includes the further development and modernization of the corporate sites and the individual lines of business. First results: see Key Topic 2018
Balanced use of financial resources
Economic performance is expressed as the ability to generate appropriate revenues on the markets and to act cost-consciously. The generated revenues make it possible to pay the member companies and their milk producers a competitive milk price (operational costs) while at the same time strengthening equity with the surplus. It is important to have a sufficient amount of our own capital, otherwise the Uelzena Group, with growing capital requirements would have to rely disproportionately on external financing, for example, for investments. Added to that, the equity also acts as a buffer in difficult market situations.
The Uelzena Group uses diversification to create several earning pillars that allow it to generate appropriate results. This enables the Group to better counterbalance unfavorable developments in market prices or sales in individual business or product fields. In total, it decreases the economic risk for the company and its member enterprises.
When it comes to products and services, the Uelzena Group is a strong partner to its customers. The Group reliably takes care of the requirements from demanding customers and market segments. This creates added value for the customers and a basis for, very often, many years of partnership – this makes a significant difference in a competitive environment.
Strategy and management systems
The Uelzena Group has implemented various management systems in order to ensure proper management and control of the company. There are clearly defined work instructions, procedures, responsibilities and process descriptions in place:
- Strategy and sustainability process
- Systematic risk and crisis management
- Quality management based on ISO9001 and a continuous improvement process
- Energy management based on ISO 50001
- A team responsible for occupational safety that reviews accidents and implements improvement measures
- Reviews of IT systems in terms of data protection and privacy issues
- Compliance officer who receives and checks information on violations of the Code of Conduct and, if necessary, initiates measures