Strategic Report

Principal Activities

Dale Farm Cooperative Limited is a members’ voluntary cooperative registered under the Industrial and Provident Societies Acts (Northern Ireland) 1969 and 1976. The principal activities of the Group include manufacturing an extensive range of dairy products for the retail, food service and food ingredients sectors and marketing and distributing these products to both domestic and international markets. The Group also collects and markets members’ milk, supplies animal feed to farmers, and provides a range of other farm inputs and services.

Financial Performance

The key performance indicators (“KPI”s) for the Group are:

KPIs 2020 £000 2019 £000

Group turnover

504,528 509,363 Profit before taxation 9,772 12,007 Average milk price paid to members (pence per litre) 27.26 29.00

Group turnover decreased by 0.9%. The Group profit before tax decreased by £2,235k to £9,772k primarily reflecting weather related pressures on the United Feeds and ice cream divisions. The average milk price paid to NI members decreased by 1.74ppl (6%) in 2019/20 reflecting the lower dairy market returns during the year.

Operational Performance

MILK SUPPLY 2020 Litres

2019 Litres Average output per member 676,000 641,000

Sales Development

The Group is committed to profitably growing its dairy processing business. Increases in sales volumes and dairy product returns resulted in the following growth in turnover:

TURNOVER GROWTH

Dale Farm Group 2020 %

(0.9) 2019 %

5.6

Risk Management

The Board actively monitors and manages the risks it faces through an appropriate risk policy and risk register. The key risks which management face are detailed as follows:

BUSINESS PERFORMANCE RISK

The Group faces a number of business performance risks due to internal and external factors including competitive pressures in markets in which it operates. These risks have been identified and are managed through a number of measures: ensuring the appropriate management team is in place; business planning and regular forecasting; financial controls; key performance indicators; monthly reporting and timely corrective action when variances occur.

BUSINESS CONTINUITY RISK

While there is a reliance on physical infrastructure, the Group operates 9 geographically autonomous production facilities, which helps mitigate business continuity risks. The Group also ensures that there is adequate knowledge throughout the management team and sufficient IT support and back up capability available should an unforeseen event occur. Management maintain and regularly update business continuity and IT disaster recovery plans and participate in industry-wide crisis management exercises.

BREXIT

The current Brexit position remains uncertain. Where possible, we have taken steps to address any such areas by identifying and implementing solutions as applicable. Our plans are still active as the Brexit situation unfolds.

HEALTH & SAFETY RISK

The Group is committed to ensuring a safe working environment. These risks are managed by the Group through the strong promotion of a best practice health and safety culture, risk management, extensive safety training and well-defined health and safety policies.

MANAGEMENT DEVELOPMENT

The long-term success of the business depends on the Group’s ability to attract, retain and develop talent. This risk is managed through succession planning and the pursuit of best practice in HR and Group wide development plans, which are regularly reviewed and updated. These are accompanied by specific policies in areas such as recruitment, training, management development and performance management.

FINANCIAL & BUSINESS CONTROL

Strong financial and business controls are necessary to ensure the integrity and reliability of financial and other information on which the Group relies for day-to-day operations, external reporting and for longer term planning. The Group exercises financial and business control through a combination of qualified and experienced financial personnel, performance analysis, budgeting and cash flow forecasting and clearly defined policies and approval limits.

ENVIRONMENTAL RISK

The Group is committed to minimising its impact on the environment. It has clearly defined policies and procedures to enable compliance with environmental best practice and legislation. COVID-19

The Group has recognised the impact to operations as a result of the COVID-19 pandemic and has taken mitigating actions to address this based on government advice and scenario planning. The safety and wellbeing of personnel is of paramount importance and required actions have been taken to ensure that all Group sites provide a safe working environment. This is being regularly reviewed. There are increased logistical and operational challenges, and volatility in market prices. The foodservice market has been particularly challenged by COVID-19 due to the interruption of operations for most foodservice customers. The risk around this market is being carefully managed as part of extensive scenario planning across all markets the Group operates in. Other markets, in particular retail, have noted an increase in demand.

Financial Risk Management Policy

The Group’s principal financial instruments comprise cash, trade debtors and creditors, bank loans and certain other debtors and accruals. The main risks associated with these financial assets and liabilities are set out below.

FOREIGN CURRENCY RISK

The Group’s exposure to foreign currency risk arises primarily from revenues from customers denominated principally in Euro and US Dollars. When customers place major orders of this type, the Group has a policy of immediately entering into a forward currency contract to eliminate this risk. CREDIT RISK

Credit risk arises principally on third party derived revenues. Group policy is aimed at minimising such risk through the application of satisfactory creditworthiness procedures, including where appropriate taking out credit insurance cover. The Group monitors the levels of credit to individual customers within their approved credit limits, so as to ensure the company’s exposure to bad debts is minimised.

LIQUIDITY RISK

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Group aims to mitigate liquidity risk by managing cash generation by its operations and applying cash collection targets throughout the Group. The Group also manages liquidity risk via revolving credit facilities and long-term debt.

CASH FLOW RISK

Cash flow risk is the risk of exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability such as future interest payments on variable rate debt. The Group manages this risk, where significant, by use of derivatives as explained under ‘foreign currency risk’.

By order of the Board

Mike Dawson

Secretary Date: 6 July 2020

Strategic Report

Section 172(1) Statement

The Directors, having prepared the strategic report, have complied with s414CZA (1) – Section 172(1) statement of the Companies Act 2006 (“The Statement”). The Statement has been prepared for the Group as a whole and provides that a Director must act in a way consistent to promoting the success of the Group while having due regard to the various stakeholder groups engaged. The key factors considered throughout include:

■ The likely consequences of any decision in the long-term; ■ The interests of the Group’s employees; ■ The need to foster the Group’s business relationships with suppliers, customer and others; ■ The impact of the Group’s operations on the community and the environment; ■ The desirability of the Group maintaining a reputation for high standards of business conduct; ■ The need to act fairly between members of the Group. OUR STRATEGY

The long-term strategy of the Group is to pay a competitive milk price and add sustainable value to our members’ milk through supply chain excellence, consumer-led branded and own label innovation and building added value positions in the consumer and nutrition markets. The strategy has been directly developed to align with the interests of the key stakeholders of the Group. The inclusion of milk price and group profitability as key performance metrics and the focus on collaboration with our stakeholders to achieve these metrics underlines the commitment of the Group to delivering for our stakeholders.

BOARD MATTERS

The Board charges the Executive Leadership Team with the dayto-day management and decision making of the Group, however the Board retains control over key strategic decision making and considers these at the monthly Board meetings throughout the year. Key decisions in the 2019/20 financial year are summarised, with reference to Section 172(1) as follows:

KEY DECISION MADE IMPACT

Agreeing the Dale Farm Red Tractor base milk price for milk payments at each Board meeting

Review and approval of capital expenditure projects presented by the Executive Leadership Team at each Board meeting The Board makes the ultimate decision on this price as the milk payment is a key element in fostering the Group’s relationship with its main suppliers i.e. the farmer members. The volume and quality of the milk supply is vital to the success of the Group.

Board review and approval of these projects is a vital part of the long-term decision-making responsibilities of the Board. This ensures the Board fulfils the requirements of contributing to the short and long-term success of the Group.

Conducting of an annual review into the banking facilities and loan renewals of the Group

Approval of the 2018/19 Annual Report & review, update and approval of the Group risk register through the Audit Committee process

The Board also considered, at each of its regular meetings, reports from the Executive Leadership Team on the commercial, financial and operational performance of the Group, as well as applications for new members and various business requiring Board consideration throughout the year

The Board also considered the impact of a ‘no deal’ Brexit on both the Group and its farmer members. This review by the Board ensured the circumstances of all arrangements were in the interests of each Group company and the Cooperative. The Board also received regular updates on the Group’s banking positions throughout the year, ensuring the long-term funding requirements of the Group were met. This enabled the Group to maintain its reputation for high standards of business conduct.

This process and approval by the Board is key in ensuring compliance with the Board’s responsibilities under Section 172(1) of the act. The Annual Report and Group risk review encompass all operations across the Group and, as such, are relevant to each factor the Board is responsible for ensuring.

These regular agenda points ensured that the Board considered all relevant matters in the discharge of its duties with regards to all factors of Section 172(1) of the Act.

These ongoing reviews ensures that proper consideration is given to any risk around Group operations, cashflow and milk price paid to farmer members. STAKEHOLDERS AFFECTED

Suppliers & Shareholders

A range of stakeholders are affected by this decision making across various projects, including shareholders, customers, suppliers, employees and wider communities

Indirectly affected all Group stakeholders

Some level of impact on all Group stakeholders

Some level of impact on all Group stakeholders

Some level of impact on all Group stakeholders

Strategic Report

Section 172(1) Statement (Continued)

STAKEHOLDER ENGAGEMENT

The Group recognises that effective engagement with key stakeholders, including farmer members, suppliers, customers, employees and communities, is vital in achieving the overall Group strategy. The Group has actively engaged with these stakeholders throughout the year across a variety of platforms.

EMPLOYEES

The Group identifies that its employees are the keystone of the Group’s strategy and, as such, employee engagement is a key element of successful achievement of this strategy.

Throughout the year, there has been continued rollout of the Group’s employee health and wellbeing programme, Dale Farm ‘Thrive’. This programme is designed to communicate, engage and promote workplace wellbeing in order to support employees’ physical and mental health. In addition to the Thrive initiatives, in February 2020, ‘Connected’, a Dale Farm App, was launched, with the aim of informing, engaging and connecting with employees across the Group. This App allows messages to reach all employees across the Group, ensuring maximum engagement.

The Group also finalised the rollout of the Human Resources Management Information System ‘Success Factors’ and in this year, ensured all employees participate in continuous performance management discussions, providing increased opportunities for coaching, mentoring and timely feedback. CUSTOMERS

Exceeding the expectations of all our customers is key to having a sustainable and profitable business.

To manage this process, the company has categorised its customers into four groups and has developed an appropriate engagement plan for each. The customer groups are strategic customers, key partners, key accounts and trading customers.

The level of engagement and resource is defined for each customer group, including level and frequency of contact, level of account management and planning, the approach to new product development, and risk management.

In addition to current customer engagement and development, there is a programme of new customer and business development to support the growth of the business.

FARMER MEMBERS

Effective engagement with our farmer members is key to the successful operation of the Group’s supply chain and achievement of the Group’s strategic objectives.

On a micro level, the Group has a dedicated Producer Services team, who actively engage with the members providing our milk pool on a day-to-day basis, assisting them with milk quality issues, preparing for Red Tractor farm audits, attending member meetings and other general enquiries. On a macro level, the Board of Directors is largely made up of dairy farmers representing our members who, as such, provide a vital link for engagement with the wider cooperative membership. Communication with members is given the highest priority by the Board and the Annual General Meeting is utilised to have open dialogue with members. The Group has four Area Councils elected by the membership, which meet approximately four times a year with the elected Directors for their Area to discuss the affairs of the Society. In addition, open Area Council meetings are held, to which all members in the relevant Area are invited. The Society also keeps in touch with members through the issue of the bi-monthly magazine, Dale Farm View, and via the Group website www.dalefarm.co.uk.

SUPPLIERS

With regard to our wider supplier base, these stakeholders are key to the provision of ingredients, packaging, energy and any other required inputs. Dale Farm continues to collaborate with our network of suppliers, ensuring that a high standard is maintained across all areas including health, safety, environment, ethics and labour. We are proud to be accredited with the internationally recognised Sedex Ethical Trading standards.

COMMUNITY

As a Group, we are fully committed to ensuring we create a positive environment for the communities in which we operate, both in terms of an environmental and social impact. The Group has continued to undertake various activities to ensure effective engagement with stakeholders from these communities throughout the year 2019/20.

Our employees have once again shown their commitment to local communities through their participation in a wide range of activities supporting local charities over the year. At Christmas, employees kindly supplied a range of gifts and donations in support of Cash for Kids, which supports the needs of children in our communities. Our employees engaged with several fundraising activities in aid of the Welcome Organisation, which helps people experiencing, or at risk of, homelessness.

We are an active member of Business in the Community and are working towards their CORE standard, which is Northern Ireland’s only corporate responsibility accreditation. We have continued an employersupported volunteering programme, which aims to provide teams of employees with practical opportunities to give back to our communities.

We remain a keen member of Arts & Business NI, which connects the arts and business sectors for mutual benefit. Two of our managers are on the Boards of arts organisations as part of Arts & Business NI’s Young Professionals on Arts Boards Programme, a valuable development opportunity for our people. We also remain a committed Corporate Patron for the Prince’s Trust. Group employees have participated in many of the Trust’s training and support programmes targeting young people across Northern Ireland. Our role in the Food and Drink Sector Skills Council’s Tasty Careers campaign remains an important one. Our trained ambassadors have worked closely with local schools and teachers, providing practical examples and real-life insights into what career opportunities exist within the agri-food sector. We are extremely proud to work closely in partnership with schools, universities and colleges. As we seek to continually identify and nurture future talent, we have provided several one-year undergraduate work placements for students across a range of functions including laboratory/ development, finance and IT. We have also provided a range of short-term work experience opportunities for GCSE and A-level students.

ENVIRONMENTAL

During the year, Dale Farm and the Northern Ireland Environment Agency (NIEA) formally entered into a Prosperity Agreement. This represents a voluntary commitment from both Dale Farm and the NIEA to deliver significant environmental benefits beyond legal requirements, develop a more strategic approach between business and regulator and to help Dale Farm realise environmental gains whilst increasing our competitiveness.

From an environmental infrastructure perspective, the Group implemented several improvements, including: ■ The upgrade of the Dromona effluent treatment plant, enabling Dromona to maintain discharge consent levels while securing the sites processing capabilities. ■ Dunmanbridge boiler gas conversion significantly reducing carbon dioxide emissions per Kw of energy consumed. ■ A new high efficiency chiller unit was installed at

Dunmanbridge. ■ A new high efficiency boiler was installed at Mullins Ice

Cream.

The Group has also maintained high levels of compliance, including; ■ All of Dale Farm’s manufacturing sites successfully maintaining the industry leading environmental ISO 14001 accreditation standard.

■ The Dunmanbridge site successfully complied with the

EU Emissions Trading Scheme (EU ETS). ■ All Dale farm sites have successfully met the target for the second reporting year of the climate change agreement. ■ The Energy Savings

Opportunity Scheme (ESOS) audits were completed and we are compliant with the scheme.

By order of the Board

Mike Dawson

Secretary Date: 6 July 2020