For 2019, we can’t pretend otherwise: DMK faces challenges that we have to overcome and there is no way around that. There is a gap in our performance and we have to close it. But the signs are good that we will finally manage that in 2020, after all, we have completed DMK’s fundamental restructuring. You can’t just turn a tanker like DMK in the blink of an eye – such a transition takes time to steer, and long levers, and we said that back in 2017 as we set out on this journey to refocus DMK. When we have finally turned our tanker around, then we can also use these long levers. We now face the consolidation phase without new investments.
So what are the good reasons? We know what caused the shortfall in our performance. The 2019 gap is obviously due to massive yet necessary investments we made in DMK. We are still mainly focused on standard products which are more exposed to price fluctuations than brand products. We had hoped to see a price upturn after the drought, particularly for standard goods, but this didn’t happen, so we didn’t have special effects in 2019 as we did in 2017, when our standard products benefited from market prices.
Then there were the measures we took to boost our competitiveness in the long term. These were not completed so the construction of the Strückhausen plant, where we are in the start-up phase, is still generating high costs. That applies to the plant wage agreements as well which also needed investments during 2019. However, we will finish these major yet necessary investments in our restructuring at the end of 2019 and start of 2020. That means costs of more than € 200 million from the last few years that won’t apply as of 2020, for projects such as Strückhausen, the plant wage model, the DVN purchase, the takeover of the Alete brand, building a new plant in Russia, a new spray tower in Beesten or the plant closures that also cost us a one-time payment. We are all aware of the drastic situation on the farms. We know the struggles that our farmers face as individual entrepreneurs and that we experienced as a cooperative — and partly are still experiencing. We know that we were under the Federal Office for Agriculture and Food average in 2019. Even if we feel the shortfall more keenly than it actually is, either way you look at it, 2019 was not a good result and in no way reflects our ambitions.
But as I described, the result is clearly affected by the investments we had to make and we have set a clear direction with Vision 2030, which will protect us from making unwise investments or lacking focus. Another thing I want to say is that our team is really committed. For many, DMK is not “only” an employer – we want to prove that together, we can manage to drive DMK forward. I can’t tell you how much I value that in these times when we see so many headwinds.
I’d also like to comment on a question that people keep asking me: We often tend to calculate how many employees we should have theoretically. But the thing is, given our extensive product portfolio, the number of our locations and our many national and international businesses, we can’t be compared to smaller competitors. For example, we have DP Supply, Sanotact, Ice Cream, Baby, F&S, Russia: that alone means 2,900 of 7,700 employees and very few of them process even a liter of milk. By this model calculation, we come to 4,800 employees who process milk. And then we have IT, internal audit, data protection, ASI/ environment, agriculture and personnel. We need these company structures because we are so big. It is our responsibility to make the best out of these, and we are working on that. Our new CFO Frank Claassen has a clear plan for that in 2020.
“DMK faces challenges that we have to overcome and there is no way around that”
That’s why we, as DMK, have a vision, called Target Image 2030. All of the measures we take, whether they are investments in the Strückhausen plant or the Alete purchase, our plant wage models or the development of our business abroad, all of that is part of our concept for the future. In June, we presented clear roles as part of our Target Image 2030 in order to position our different business areas as best we can. Why was that necessary? Because nutritional trends are changing in a way that is fast, surprising and extensive. We have to be prepared and flexible in order to react. Nonetheless, we also have to follow a clear route otherwise we will fritter our efforts away. As one of the largest suppliers to Germany’s food trading business, we are like a tanker and at the same time, we have to show the agility and speed that the market demands of us. Issues such as sustainability or animal welfare, new nutritional trends, regionalism or convenience, all these must guideour actions. There are barely any companies nowadays that can escape change.
We are watching not only the German market but also global developments. That includes Russia. As the business in Russia developed so well, we raised our stake in the Russian RichArt Group to 100 percent. We are not focusing on standard products at the plant in Russia, but producing Tilsiter, cooking cheese, blue cheese, Mascarpone, mozzarella and soft cheese there. That good business justified building a second dairy. The primary production of specialty cheeses expands DMK’s product portfolio and will also generate growth. We invested a sum in the low double-digit millions in market processing on site so we can systematically expand local business and also this area’s contribution to our international business. That is also the context for our 100 percent takeover of DV Nutrition: The DMK Group has bought a flourishing whey derivatives business with highly efficient production which means we can look to rapidly growing international markets, particularly in Asia, and supply them with high quality whey derivatives. For anyone who comments that I said no more acquisitions, let me say that taking over the remainder of DVN is not a merger and DVN is not a dairy. This move secures valuable market cultivation that fits perfectly with our future vision. And we must do better with our own brands. The first indicators show that we are able to do that. Together with Baileys and Bahlsen, we have developed new ice cream products. And with MILRAM, we have brought “Kalder Kaffee” to stores, with lactose-free milk and without additional sugar or artificial ingredients. That puts us right at the heart of current trends and we can profile ourselves as a brand producer.
As Germany’s biggest dairy, we want to move away from working as a volume player in the dairy business and become a provider of select products with natural origins that suit everyone. This is where our acquisition of the Alete brand fits into the overall picture (editor’s note, see page 38). You see the puzzle is slow but all these individual pieces are gradually coming together to create a bigger picture.