31 August 2012

3 minute read

Europe

Under the proposed transaction, the new joint venture, to be known as Glanbia Ingredients Ireland ("GII") will be 60 per cent owned by the Glanbia Co-operative Society Limited and 40 per cent owned by Glanbia.

The existing DII business is the largest dairy ingredients processor in Ireland, assembling a milk pool of 1.6 billion litres and processing it into c.180,000 tonnes of dairy ingredients largely for export to over 50 countries worldwide. In 2011, DII generated revenue of €738 million, operating profit of €33 million and EBITDA of €44 million. As at 31 December 2011, DII had gross assets of €313 million.

There is a compelling strategic logic for the creation of the joint venture for both parties as it facilitates the expansion of dairy processing in Ireland in advance of EU milk quota abolition in 2015, while also ensuring that Glanbia's financial resources are directed towards business segments that deliver the highest return on capital for all shareholders.

The opportunity to expand milk production is underpinned by a positive long-term outlook for global dairy markets and the comparative advantage that Ireland enjoys as a grass-based system. It is envisaged that GII will seek to increase existing peak dairy processing capacity by up to 60 per cent; a total investment programme of €180 million to 2020.

Planning permission is progressing for a new greenfield facility at Belview, Co. Kilkenny. The Board of GII will reflect the relative shareholding of the joint venture partners and the existing management will remain in place. The financing of GII will be independent of the joint venture partners.

Separately, but related to the joint venture transaction, the Society has today announced that it is seeking approval from its members to reduce its shareholding in Glanbia to below 51 per cent.

IFA President John Bryan has said the plans represented significant progress in sustainably returning dairy processing back into farmer control. On initial examination, the proposals went a long way towards minimising farmers’ legitimate concerns by ticking a lot of the boxes on issues such as the debt left with the proposed new entity.

Mr Bryan said: “The plans to build a state-of-the-art, stand-alone processing facility in Belview to facilitate expansion efficiently is welcome”.

Mr Bryan welcomed the extended period for discussion among shareholders and said the Association will take the time to get into the proposals in detail and consult widely with members affected over the coming weeks. In addition, IFA will seek independent advice on aspects of the deal as appropriate.

“The proposal to reduce the co-op shareholding in the Plc below 50 per cent is a preferable approach to the alternative of high debt levels which could leave the new entity having to dispose of co-op assets at a later stage in less favourable circumstances. Also, it is critically important that all co-op shareholders can benefit: the spin out of €120m plus worth of shares gives farmers the option to hold the shares or sell them to help with expansion, or other financial needs.”

Mr Bryan said the new Glanbia Plc/Co-op JV must leave the door open to achieve greater integration and co-operation in the sector: “This proposal must be used to further progress detailed discussions on collaboration with neighbouring processor Dairygold and facilitate greater levels of constructive co-operation between those two processors and also with the smaller societies. Farmers will not tolerate anything less than the very most efficient use of their scarce resources,” he said.

IFA National Dairy Committee Chairman Kevin Kiersey added: “Earlier this week, IFA has had an initial internal briefing with of our elected officers in the Glanbia region to discuss the proposals, which were broadly welcomed”.

“However, there were many issues such as the position on future merchant credit from the trading division, dealing with future milk price volatility, and repayment of the revolving fund raised at the meeting, about which the Association will seek clarification.”

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