DMK GROUP reacts to crisis year with far-reaching measures

Bremen, 29 June 2017. A new action plan enabled the DMK GROUP to launch a successful realignment of the Group for dairy farmers and employees in the past fiscal year, despite a global milk crisis that brought the most difficult year in the company's history. "The DMK GROUP has got moving," said CEO Ingo Müller at the Annual Press Conference in Bremen. "We're aiming to future-proof DMK with a sweeping structural programme. We've learned from our mistakes". Germany's largest dairy cooperative has clearly defined goals: to regain trust and to earn competitive milk prices for all the cooperative's milk suppliers. 
•    Turnover of 5.1 billion euros in 2016
•    Management Team dissatisfied with milk price levels
•    Equity ratio remains stable at 34 percent
•    Sweeping structural changes launched

CEO Ingo Müller dissatisfied with business developments in 2016

Ingo Müller (CEO) was dissatisfied with the 2016 reporting period: "We clearly fell short of our most important goal – to pay competitive milk prices. There's no way to gloss over that fact". In actual fact, turnover increased from 4.6 to 5.1 billion euros and net earnings of 13.5 million euros were attained due to one-time effects. However, the 11 percent rise in turnover was primarily achieved due to the full consolidation of Dutch company DOC Kaas B.V. The equity ratio is stable at 34 percent. Ingo Müller said: "The company is sound. We have a stable foundation. Now we have to make the DMK GROUP competitive again with our sweeping structural programme".

2016 saw a trough in milk prices – upturn in sight
According to the current outlook, the year 2016 was the bottom of the trough in milk prices due to a world-wide dairy market crisis. This trend was amplified by the DMK GROUP's poor business performance. The average milk price for the dairy farmers in the reporting period, at 25.2 eurocents per kilo (4.10% fat, 3.41% protein), fell below the German national average (26.7 eurocents/kilo) and DMK's set goal. Ingo Müller: "Milk prices were not what the members of our cooperative expected as its owners – either in absolute terms or by comparison with competitors".
DMK to increase milk price to 36 eurocents in July
The current outlook leads to expectations of a more positive market overall. "The signs for the dairy markets in 2017 are positive. We will therefore be able to increase the price to 36 eurocents in July. Paying our members competitive milk prices remains our goal. Following a resolution of the cooperative's Annual Assembly, we are paying a dividend of 4% on the members' paid-up capital contributions for the year 2016, despite the current low interest rates," said the CEO.

33.6 million euros for animal welfare
Despite the economic challenges of the 2016 fiscal year, DMK made the "Milkmaster" animal welfare and sustainability programme binding on all DMK dairy farmers. The programme is an ambitious one in the German dairy industry setting. A resolution of the Annual Assembly was implemented by this action. The impact of product manufacturing conditions on animal welfare and the environment plays an ever greater role for consumers. With the Milkmaster Programme, DMK is in a sense embedding relevant goals right at the farm. The company rewarded the achievements of those dairy farmers who have improved their performance, particularly in the areas of cow comfort, animal health, feed cultivation and feeding, with Milkmaster bonuses totalling 33.6 million euros in 2016. To achieve far-reaching progress and strengthen local dairy farming, it would help if these activities were appreciated and rewarded by the retail trade for the long term.

Reorganisation bears initial fruit

"MOVE – that means we have to get moving," was how Ingo Müller explained the choice of name for the DMK change programme launched at the end of 2016. The realignment entered the implementation stages in March 2017. It pursues four goals: a leaner organisation, better raw materials planning, a focused portfolio and an optimised expenditure structure. "The change processes are sometimes painful, but they are putting our company on course for the future. Initial ratios for 2017 show that we're on the right track," said Ingo Müller.

Site restructuring planned
As a consequence of the dramatic turn in the market in 2016, many farmers have given up dairy farming. Members leaving Deutsches Milchkontor eG will mean the loss of around 1.7 billion kilos of milk in the next two years. The DMK GROUP is planning to respond to this situation with a new concept for its sites and for milk processing. This concept will involve stopping production at three sites: Rimbeck/North Rhine-Westphalia, Bad Bibra/Saxony-Anhalt and Bergen on the island of Rügen. There are also plans to discontinue slicing and packaging at an additional site, Nordhackstedt/Schleswig-Holstein.
The factory closure in Bergen is a special situation. The DMK GROUP has been producing the "Rügener Badejunge" camembert under contract to Peter Jülich GmbH & Co. KG at this site. The DMK GROUP has given due notice to terminate the contract, having recently suffered an annual deficit of two million euros here.

The planned measures will affect a total of 270 out of the Group's 7,200 jobs. If the Supervisory Board approves the measures, DMK will conduct  negotiations with the employees' representatives to reach the balance of interests required by German law, and the two parties will discuss redundancy plans and supporting measures. With a leaner structure and further improvements in raw materials planning, DMK aims to remain competitive and efficient even when the milk volume declines.

Articles of association will change to make delivery relationships more flexible
With a vote of 94.1 percent, a overwhelming majority of representatives at the Annual Assembly, the cooperative's supreme executive body, came out in favour of the possibility of reducing a farmer's obligation to supply milk after giving notice from two years to one. This amendment to the articles of association has been under discussion since 2016. It now offers every member the possibility of reducing the two-year obligation to supply milk to DMK to one year, enabling a farmer who decides to leave to market his milk elsewhere after just 12 months. In return, DMK's guarantee to accept milk deliveries from the farmer in question will lapse during this exemption period. Heinz Korte, Chairman of the Supervisory Board, says: "A landmark decision. The cooperative model is not obsolete. Halving the period for which farmers have a duty to supply milk puts the desired flexibility in place for some of the members. Dairy farmers who want long-term protection for their company still have the option of a two-year guarantee to supply milk and have it accepted".