Dairygold unveils €50m fund plan
The co-op’s board of management has agreed that the investment required cannot be funded from operating surpluses alone, from existing reserves, or entirely from bank debt — so member funding is required.
A sustainable member funding plan has been agreed that will ensure that bank debt is kept at a level that will not put either the processing business or milk price competitiveness at risk, while also providing for share redemption for retiring members. In addition to bank and cash-flow funding, Dairygold has brought together an optional member’s loan note, a revolving fund, minimum shareholding and deferred payment mechanisms.
Each of the four instruments is a form of deferred payment where all member contributions will be utilised efficiently and ultimately repaid to members. The maximum payment that is retained for longer than one year is less than one cent per litre (cpl) of milk supplied.
* From 2013, the optional member’s loan note will offer members the opportunity to invest in the business through a five-year loan note which will be repaid in full after five years with accumulated interest comprising the three-month EURIBOR rate plus 4%. The Society hopes to raise €15m from members over three years, 2013, 2014 and 2015, and the investment opportunity will close, once the €15m investment target has been achieved.
* From Jan 2013, the revolving fund will see members contribute to the funding of the society’s expansion over seven years.
No deduction will apply to the first 75,000 litres of milk supplied in any one year, and thereafter, if the milk price is 27cpl or higher, 0.5cpl will be deducted from the monthly milk payment. Contributions and accumulated interest will be repaid annually from the start of year eight at an interest rate of three-month EURIBOR plus 2.5%. Revolving fund deductions will be made in a maximum of 60 months over the course of seven years.
* Minimum shareholding will also be introduced in 2013. Members will be required to achieve and maintain a shareholding equivalent of 4cpl of milk supplied — that is, 4,000 co-op shares per 100,000 litres of milk supplied. The current member average stands at 5 cpl of milk supplied.
Where a supplier holds less than 4cpl at the end of any year, a 0.5cpl deduction will be made in the following year. This will be converted into shareholding in the Society, until the required threshold of 4 cpl of milk supplied is achieved. This funding instrument, in addition to building equity shareholding in the Society, will provide funds to strengthen the Society’s share redemption policy. The annual amount available for share redemption will be increased from €1.5m to €3m. Share redemption payments will be accelerated and phased over four years, 40% in year one and 20% in each of the three successive years with interest paid on the outstanding redemption value at the end of each year. New entrants will be required to acquire a minimum shareholding in the society, yet to be determined, before supply begins.
* Deferred payment will be introduced in 2015. The forecast increase in milk volume will increase the Society’s working capital requirement. In order to reduce the impact of same, the Society will introduce a deferred payment mechanism.
The deferred payment will apply in respect of 20% of the value of incremental milk supplies above the supplier base volume in the five months from May to September, commencing in 2015. The sum of the deferred payment contribution in each year (referred to as the 13th payment) will be paid out to the contributing member in the month of March, the following year.
