The entire dairy value chain has been through a very difficult year beset by market and political uncertainty as well as volatile prices.
While we knew 2016 would be challenging, it was difficult to foresee the scale of the difficulties our customers have endured due to the unstable situation.
At the very start of 2016 the market enjoyed significant growth in Europe only to witness an even bigger decline towards the end of the year. As a consequence, milk prices varied more dramatically than ever over a twelvemonth period.
This has also affected DeLaval, resulting in a single-digit decline in sales on the previous year, leaving 2016 with net sales of €935 million in prevailing currencies. The market decline in 2016 resulted in DeLaval responding quickly to the existing conditions. The company went through an organisational transformation, including a restructuring of the market organisation from 8 regions into three clusters, in order to move even closer to customers.
I’m personally proud of how our employees managed to embrace the change and re-organise to meet these new market demands.
Approximately 10 per cent of our employees have been affected by the transformation we have undergone and at the same time our existing staff have shown resilience and strength despite the challenges.
Despite the transformation and the unusually difficult market situation, we have increased our market share. It puts us in a strong position to meet our customers’ needs today and in the future. Our transformation took place to create a more agile organisation with increased customer focus. We believe that the swift transformation has given us an edge over our competitors, as we can focus fully on our customers in 2017.
The farming community prefers stability in order to make long-term investments and ensure professional and sustainable food production. The political and market uncertainties of 2016 have postponed many of our customers’ investments. Most customers feel compelled to wait, given the extent of the investment needed when transforming a dairy farm operation. This kind of market volatility makes it extremely difficult for our customers to make long-term investment decisions.
Despite the challenges, there were a number of growth areas. The Russian, Chinese and Japanese markets all grew in 2016. Sales of our aftermarket products were stable in all markets and grew in some, indicating brand loyalty to DeLaval as well as a highly competitive, competent and forward-leaning DeLaval sales force.
We are investing more than ever before in the R&D pipeline that will result in a range of new innovations. These are not just in the area of capital goods, but we also see many opportunities in improving milk quality and animal health with new aftermarket products, as well as new ways of working with preventive maintenance.
The interest in robotic farming has also spread to new arenas. While the DeLaval voluntary milking system VMS™ was originally designed to meet the needs of smaller family farms in Europe, it has been transformed to fit the farm practices of megafarms all over the globe. We are very proud to have installed the largest operating voluntary milking facility in the world in 2016 with the Ancali family in Chile. This highly professional farm is one of the best-performing DeLaval VMS™ farms in the world, in terms of milk quality and milk yield per cow.
Another example of megafarms choosing our voluntary milking system is the decision by Select Dairies and Fair Oaks farm in the USA to choose DeLaval VMS™ as they move over to robotic farming. The owners of Fair Oaks megafarm have been long-time advocates of sustainable dairy farming and have chosen DeLaval for that reason.
We introduced a range of new innovations in 2016, including organically approved teat dips, the award-winning DeLaval Cleaning Analysis DCA as well as a Stanchion barn app and a new cleaning control unit.
In the past 20 years, we have accrued some 250 patents and that commitment to R&D continues. 2017 will be no exception with several new innovations coming to the market from DeLaval.
As always, we embrace new technology when it comes to servicing our customers. Our continued commitment to making big data work for our customers has become increasingly relevant as digital technologies occupy a larger part of all our lives.
We have used our technology lead to develop into new markets. Our Dairy Data Warehouse has partnered with Cargill, a global leader in advanced nutrition and productivity solutions for dairy cattle, providing them with data services for the animal nutrition industry. The data collected can now be used to improve technologies in related businesses and help farmers improve operational efficiency, sustainability and profitability.
We also see that larger industrial players are moving into the dairy sector with significantly larger operations than what the industry is used to. They have the potential to drive the industry and challenge us as a market leader. We are looking closely at these segments with positive interest.
We believe that part of the reason for our increasing market share has been our deliberate and sustained customer focus. We are in constant dialogue with our customers and learning all the time from their challenges, so that we can better meet their needs with innovative solutions. ‘We live milk’ is the phrase that guides our brand and affects the way we work and think. We will continue to work closely with our customers and listen to their needs in 2017.
The outlook for 2017 looks to be improving, but we still expect a challenging year. We estimate that our customers will start to generate positive cash and improve their businesses by mid-2017, barring further surprises.