Milk producers have lost 47% of their
turnover between 2008-2013
13 May 2015 Author: Manageranticriza.ro
DAIRY PRODUCTION SECTORIN ROMANIA – GENERAL MATTERS
+ POSITIVE MATTERS
- NEGATIVE MATTERS
Turnover increase by 7.9% in 2013 vs.
Turnover decrease by 47% between
1
1
2012
2008 - 2013
Turnover per company increase by
11.4% decrease in the number of
2
2
8.2% in 2013 vs. 2012
companies between 2008 - 2013
Decrease in days sales outstanding for
Decrease in earning companies’
the companies between EUR 20 - 50M
weight in the total number of
3
3
from 73 days (2004) to 50 days (2013)
companies sector-wide, from 46.1%
(2004) to 34.4% (2013)
25.5% increase in the number of
Leverage ratio increase from 68.4%
4 employees for the companies between
4
(2008) to 78.9% (2013)
EUR 0 and 100K in 2013 vs. 2008
Improved net profit margin for
Extension of days sales outstanding
5 companies between EUR 20 - 50M
5
from 60 days (2008) to 65 days
from -24.7% (2004) to -0.4% (2013)
(2013)
Decrease in the loss-making
8.9% increase in the absolute loss
companies’ weight in total number of
value of loss-making companies in
6 companies, for the segment between
6
2013 vs. 2012
EUR 20 - 50M, from 1.3% (2008) to
0.4% (2013)
Optimisation of days inventory
Increase in the days sales of inventory
outstanding for companies between
from 32 days (2004) to 37 days
7
7
EUR50 and 100M, from 28 days
(2013)
(2004) to 20 days (2013)
Over the period from 2008 to 2013, the dairy farming and processing companies reported 47%
decline in activity, at an annual average pace of ~12%, as a consequence of external competition
and the decrease in the number of domestic producers due to the low value of subsidies per head
of cattle and high VAT rate as compared with other EU countries.
The information provided reflects data reported by companies in the following business
segments: operation of dairies and cheese making, manufacture of ice cream.
A major cause of the decline in the Romanian Milk Production and Processing Market is the
price of milk as raw material. Thus, when competing with the external players who receive
higher subsidies from the State, the local producers are forced to deliver milk at lower prices
than in 2012, while both the fuel and electricity costs and the production, transport, milk analysis,
pasteurising, packaging and warehousing charges are higher. The Romanian Dairy market
features a lack of cooperation between producers and processors, many processors choosing to
terminate the agreements concluded with tens of Romanian farms to bring milk from Hungary
and Poland, at a smaller price per litre. The Romanian internal production capacity remains thus
unexploited, the milk market issues also influencing the livestock sector, triggering a decrease in
the number of milk cow breeders.
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
THE ROMANIAN DAIRY PRODUCTION SECTOR – 2008-2013 EVOLUTION
2008
2012
2013
2013 vs.
2012
Number of companies
791
687
685

Turnover (EUR)
1,838,033,535
902,347,951
973,906,667

Turnover per company (EUR)
2,323,683
1,313,461
1,421,762

Net profit (EUR)
-26,806,155
-9,250,818
-21,469,331

Number of earning companies
365
258
237

Number of earning companies/ total
46.1%
37.6%
34.6%

number of companies
Earning companies’ profit (EUR)
75,033,729
28,619,947
19,763,294

Earning companies’ profit / number
205,572
110,930
83,389

of earning companies (EUR)
Number of loss-making companies
426
429
448

Number of loss-making
53.9%
62.4%
65.4%

companies/Total number of
companies
Loss-making companies’ loss
101,839,884
37,870,765
41,232,624

(EUR)
Loss-making companies’ loss / no.
239,061
88,277
92,037

of loss-making companies (EUR)
Number of employees
27,868
14,216
14,145

Turnover /Number of employees
65,955
63,474
68,852

(EUR)
Days sales outstanding (days)
60
66
65

Net profit margin (%)
-1.5%
-1.0%
-2.2%

Leverage ratio (%)
68.6%
76.2%
78.9%

Indicators
2013 vs.
2008

















significantly by the reduced consumption (considering the reduction of the purchasing power
among the population) as well as by the problems faced by the local processors in creating a
competitive advantage in terms of price.
The development of Dairy and Cheese Production and Processing industry in Romania
depends on factors relating to the evolution of consumption power among the population, the
legal measures aimed at reducing the grey market, the capacity of local players to adjust to the
European standards regarding the quality of products and consumer protection, unemployment
rate – as a driving factor of decreased demand, the investments made by the international players
operating on the local market, the change in consumers’ behaviour (choice of a healthy lifestyle
and increased preference for the acquisition of products directly from local producers), the
development of livestock sector towards obtaining powerful breeds to increase milk production.
Companies’ development also depends on how a series of factors, such as: quality and
diversity of product portfolio, making cash flow available for brand building, creation of an
organised distribution chain and strengthening the relationships with the distributors, are
reflected in the strategy of their own organisations. An analysis performed among all
Romanian companies that declared to carry out business in the Milk Production and Processing
sector showed that the total sector turnover decreased from 2008 to 2013 at an annual average
pace of about 12%, at the end of said period being 47% below the level recorded at the
beginning thereof, influencing the vertical integration (to raw material suppliers or local
distributors), the capacity to manufacture dairy products in large quantities so as to achieve cost
savings, the increased efficiency and quality of production processes, the adjustment thereof to
market demands, the acquisition of packaging, labelling, storing and transportation equipment.
The Dairy market is a market having a high degree of concentration, being dominated by some
large players (1.5% of the total number of companies), including the companies between EUR
20-500 M, that in 2013 contributed with 59% to the sector’s turnover, providing jobs for 28% of
total active employees in this sector.
The companies having a turnover between EUR 0-500 K is the most fragmented segment of the
Dairy Production market. These companies dominate the sector as number in 2013 representing
52.1% of the total number of companies, obtaining 3.6% of the total turnover of the sector,
holding 13.4% of the manpower on this market.
Fig. 1 - Structure of the turnover obtained in the Dairy production sector –
by company size groups - 2013
Source: calculation made by www.manageranticriza based on the data provided by the National
Trade Register Office
The companies having a turnover between EUR 0-500 K reached in 2013 an average leverage
ratio (112.2%) much higher than the one of the sector (78.9%), indicative of problems related to
attracting funds for supporting and optimising the business. Besides that there are also the debt
collection problems, evident in the days sales outstanding, i.e. 176 days, much higher than the
sector average between 2008-2013 (64 days).
The large companies had no major problems in keeping the debts under control, taking
advantage of their power on the market. Thus the companies having a turnover between EUR
100-500 M had the best days sales outstanding, between 2008-2013 the average being 21 days,
higher than the sector-wide value (64 days).
Fig. 2 – Days sales outstanding 2008-2013
Source: calculation made by www.manageranticriza based on the data provided by the National
Trade Register Office
Considered globally, the profit margin on the Dairy Market features big differences between
the company size groups. Thus, the lowest net profit margin was recorded in 2013 by the
companies between EUR 0 - 100 K (-84.6%),while the maximum value was reached by the
companies with a turnover ranging between EUR 10 and 20M (+5.1%). The evolution of profit
margin is given below:
Fig. 3 – Net profit margin 2008 - 2013
Source: calculation made by www.manageranticriza based on the data provided by the National
Trade Register Office
The economic environment pressures in the last years, after the economic downturn, have been
also evident in the evolution of the Dairy Market where the number of companies active in this
field decreased by 13.4% in 2013 compared to 2008. Also the percentage of loss-making
companies in the total number of active companies increased from 53.9% (2008) to 65.4%
(2013) - a percentage higher than the one at the level of economy - 59.5%), due to the reduction
of the purchasing power and the lack of protection measures for the local producers and
distributors against the global competitor players present on the local market. The effect of these
factors can be also seen in the dynamics of the number of employees that decreased by
approximately 49.2% between 2008-2013 and in the decrease in the turnover/ company by
38.8% in 2013 vs 2008.
Also, the number of companies under insolvency proceedings in the Dairy sector showed a
persistence of the recession period influences, increasing over the 2008-2013 period from 1 to 59,
the weight of insolvent companies in total companies in this sector reaching its peak in 2013
(8.6%).
In this sector, a large number of insolvencies were due to factors such as: decrease in the
number of own brands launched by retailers at a low price – a level that cannot be supported by
the local farmers without any major reduction of profit, the difficult access to funding/bank loans,
the high level of fees and taxes, the absence of working capital, the decreased consuming power
among population.
The Dairy Production market is assessed to have a very high risk, namely 9.5 (on a scale from 1
to 10), which reveals a vulnerable economic sector when examining the volatility of key
economic performance indicators.
This risk level is also due to the significant pressures the milk processors are exposed to and
which come from the suppliers’ power of negotiation, as even the large processors are
influenced by the impact of an increase in the price of milk. The competitors present on this
market entail an average level of threat as the efforts and costs related to a change of supplier
are not high for buyers; some players may enhance competition by strengthening their brands.
Industrial dairy production requires special equipment; therefore, a possible business
reorientation would create significant barriers to exit from this market. Also, the barriers to
entry are high for the processors because of the sanitary regulations regarding the products, the
high investment expenses, the high level of production, the need to have in place a very thorough
organisation of the supply and distribution chains due to product perishability. Some retailers
may have exclusivity for the dairy products of specific producers, increasing the clients’ power
and reducing the competition level to some extent. At the same time, the consumers’
negotiation power is also influenced by the fact that dairy products are an important part in the
diet of most consumers and the traders are strongly motivated to include them in their stocks.
In 2013 the aggregate turnover of the top 10 players in the Dairy Production sector increased by
7.7% compared to 2012 and by15.2% compared to 2008, showing the evolution of the local
processors Albalact and Covalact, which between 2008-2013 had increases by 84.6% and 50%,
respectively.
The market leader in 2013, according to the turnover criterion, was the company Danone,
accounting for 19% of the turnover of the top 10 players. The company’s turnover dropped by
4.2% compared to 2012, with a days sales outstanding number of 25 days, much better than the
average value across the companies that declared to carry out business in the Dairy Production
industry (65 days) and better days sales of inventory (16 days) than the sector-wide average (37
days).
The net profit margin for the main 10 companies on the market ranged in 2013 between-8.5%
(Dorna Lactate) and11.9% (Simultan), while the average value for the top 10 companies was 1.0%.
The most intense activity in Dairy industry was recorded in 2013 by the companies based in Cluj,
Bucharest and Alba, being among the top companies in 2013 having in view the turnover
criterion (Fig. 4).
Fig. 4 – The turnover achieved in the Dairy Production sector – by county
Source: calculation made by www.manageranticriza based on the data provided by the National
Trade Register Office
Another effect of the crisis is also evident in the evolution over this period of the number of
earning companies. Thus only approximately 34.6% of total companies operating in the Dairy
Production sector had profit in 2013 (below the level of total economy - 40.5% of the total
number of active companies), decreasing as compared to their weight in 2008 (46.1%).
The net profit margin calculated globally for the whole area of business reached its peak in
2010 (2.2%), in 2013 being -2.2%, below that of 2012 (-1%) and 2008 (-1.5%).
As to the companies acting in the Dairy Production sector and having reported losses, the
aggregate value of loss increased in absolute value by 8.9% in 2013 as compared to the
previous year, but it was 59.5% lower than the absolute value reached in 2008. The following
figure shows how the net loss is formed on the Dairy Market:
Fig. 5 – Net Loss 2013
Groups of company (turnover criterion)
Source: calculation made by www.manageranticriza based on the data provided by the National
Trade Register Office
In 2013, the highest ranking counties in terms of the net profit margin reached by the companies
(Fig. 6) were Dolj (14.6%), Caras-Severin (14.4%) and Calarasi (11.9%).
Fig. 6 – Net profit margin -Dairy Production sector by county
Source: calculation made by www.manageranticriza based on the data provided by the National
Trade Register Office
The problems related to the recovery of receivables Dairy Production sector were more
significant in 2013 in the companies based in the counties Satu Mare (276 days), and Arad (262
days), the values recorded for days sales outstanding being above the sector-wide aggregate
value of the indicator (65 days). This reveals the need to optimise the debt collection process, by
developing proactive tools of receipt monitoring and customer selection created within the
companies.
The leverage ratio across the sector increased from 68.6% in 2012, to 78.9% in 2013, being
influenced by the progress of weight of short term debts in total debts, which increased from 67%
in 2012 to75.5% in 2013.
The key success factors of a company operating in the Dairy Production sector include: building
a strategic alliance with major distributors which do not have any production unit – in order to
consolidate the image in the market and increase regional coverage, an aggressive management
of costs, an increased degree of automation for higher efficiency of operations, diversity of
customer portfolio by taking part in auctions organised by end consumers (schools, kindergartens,
retirement homes) and implementation of an adequate system of performance indicators, having
in view the employees’ behaviour and market situation.
The information provided in this material is selected from an extensive set of detailed market
studies and analyses on the evolution of this sector – prepared by the management consulting
and market analysis platform ManagerAnticriza (www.manageranticriza.ro). We have taken
all due diligence to ensure collection and processing of data as correctly as possible but the
authors undertake no liability whatsoever for any potential negative consequences or losses
caused by accessing this summarising analysis and taking some management decisions in
reliance on it.