COMMENTS BY THE CEO
A year for positive growth and regained stability
We’ve just experienced a year that began hesitantly before growing faster than many of us had anticipated.
Farmers endured difficult years in 2015 and 2016, and were unable to make larger investments due to uncertain market conditions. 2017 was the year when the markets regained stability and farmers felt more comfortable about growing their businesses again.
The automatic milking trend
The automatic milking segment is taking a large share of this growth, even though many large farms continue to invest in conventional milking systems.
The installed base that we have in the conventional milking market has also helped us maintain stability in our aftermarket products and services. This segment also saw a significant upturn in growth.
The growth spurt, however, did not occur simultaneously across the globe.
There were not just differences between continents but even between regions. Northern Europe grew early in 2017 while Central and Southern Europe experienced swift improvements in the middle of the year.
The Dutch market performed ahead of expectations. Forecasters predicted a reduction in milk production of 10 per cent due to new phosphate legislation, but in the end, production levels remained stable and similar to the previous year.
The positive market situation has been reflected in DeLaval’s figures. The year ended with net invoicing of €979 million in prevailing currencies, up 4.8% compared with the previous 12 months.
What we now see is double-digit growth in Europe for order intake and similarly positive developments globally. Japan continues to grow strongly and we are increasing market share there. The North American market took off early in the year for us and Latin America has been exceptional in terms of sales growth.
Some markets, however, have remained hesitant, such as Oceania and China. China is experiencing extensive farm consolidation resulting in fewer overall investments. Additionally, the Chinese government has introduced much stricter environmental controls. These restrictions are also an opportunity as many of our solutions can contribute to China’s ambitious sustainability targets.
“The positive market situation has been reflected in DeLaval’s figures. The year ended with net invoicing of €979 million in prevailing currencies, up 4.8% compared with the previous 12 months.”
Sustainability at the forefront
Sustainability continues to be one of the key cornerstones of our business. We are convinced that our vision We make sustainable food production possible is right not only for the greater good, but for the wealth and well-being of our customers and their animals.
Sustainable farming practices is in everyone’s interests and improving the productivity of every animal in a herd is central to our work. It lowers the environmental impact on farms per litre of milk produced while enabling farmers to take even better care of their animals and deliver better results.
We have worked in several developing countries where small measures can result in doubling a cow’s daily milk yield. Our cooperation with the Tetra Laval Food for Development Programme is a case in point.
As a market leader we have both an obligation and an opportunity to contribute to better milking practices in all parts of the world.
“2018 has begun with much higher milk production volumes than the preceding year. Price pressure is emerging as a result, but also a positive margin between feed and milk. We believe that this positive market growth will continue for at least the first half of 2018 and expect strong growth in both capital goods and aftermarket products and services.”
Structural changes internally
Internally, three major projects have taken place that have been both rewarding and challenging.
Our extensive investment in research and development continued and evidence of these efforts will emerge later in 2018 and into 2019 even if other evidence already exists. For example, the German Agriculture Society (DLG) ranked DeLaval number one in Livestock Technology in 2017 based on their annual survey of 650 German farmers.
The second major project for us was moving our main distribution centre in Europe from Glinde, a suburb of Hamburg, Germany, to a new site in nearby Gallin. The Gallin facility is a state-of-the-art operation with a LEED gold certificate and a small environmental footprint.
The move was challenging, however. The cumbersome transition led to delays in our supply chain. For a company that prides itself on focusing on its customers, this was a difficult period for everyone involved. We are grateful to our customers for their professionalism, understanding and loyalty as we worked to fix the problems associated with the move. Our own employees worked tirelessly to address these issues and succeeded in doing so by the end of the year. This will result in more efficient and sustainable operations in the future, thanks to the Gallin centre.
The third major project for us was to transform the IT system infrastructure from an in-house to an outsourced managed system. This creates more agility in our IT infrastructure and helps pave the way for the increased digitalisation of our operations. Complex IT transformations are always challenging and there were, of course, unforeseen hurdles as this project was executed also. Thankfully, we have managed to deal with these comprehensive changes and look forward to the benefits in the year ahead.
After several investments in these and other non-recurring items, we see that the underlying business is showing significant productivity improvements.
These large-scale projects are a continuation of our transformation program that began in 2016. Further activities will take place in 2018 and we view the year ahead with optimism.
2018 has begun with much higher milk production volumes than the preceding year. Price pressure is emerging as a result, but also a positive margin between feed and milk. We believe that this positive market growth will continue for at least the first half of 2018 and expect strong growth in both capital goods and aftermarket products and services.