Friday 20 October 2017

Glanbia set to cream it if Bergin's purple streak continues

Jim Bergin CEO of Glanbia Ingredients Ireland (GII)
Jim Bergin CEO of Glanbia Ingredients Ireland (GII)
Darragh McCullough

Darragh McCullough

IT is exactly one year ago that thousands of Glanbia dairy farmers voted to make Jim Bergin CEO of their new co-op, Glanbia Ingredients Ireland (GII).

And what a 12 months it has been for the newly minted CEO.

Mr Bergin took the helm at GII at the cusp of a new era of optimism in dairying.

Irish farmers believe in their ability to produce milk as cheaply as almost any other country in the world. While beef, sheep, pig and tillage farmers all bemoan the competition from cheaper imports, recent figures from Dutch agri-banking giant, Rabobank, show that the cost of producing milk in Ireland is second only to Australia in terms of competitiveness.

So when EU milk quotas are finally scrapped in 2015, Mr Bergin (right) is expecting a wave of increased output that should culminate in a 50pc surge over the next seven years. That's great news for GII as the biggest player in the Irish milk market.

It is the main driver behind the construction of a €180m state-of-the-art dairy plant at Belview near Waterford Harbour.

This investment has burdened GII with significant debts from the get-go, but the company has led a somewhat charmed life so far.

Dairy markets have never been better. Despite increased output from the big global players, the inability of China to develop any sustainable domestic supply base has effectively put a floor under prices that even the most optimistic dairy forecasters would have been reluctant to predict.

GII's scale allows them to process milk more efficiently than almost any other processor in the country, and that, combined with record high market returns, has lined the piggy bank nicely during their first year of trade.

But the icing on the cake for Mr Bergin's 2013 has to be the sweet deal he has just secured for GII's first purchase -- Wexford Creamery.

That deal was signed off by the 326 farmers who voted for the offer last week.

However, it was a close-run thing. A full 43pc of shareholders voted against the sale of the local cheese plant and 107-million-litre milk pool to GII for €20m.

Opposition largely centred on the fact that over 80pc of the offer was in the form of preference shares that are only payable in 10 years' time. Only €3.7m is being put on the table up front.

In addition, some farmers queried the €22m balance sheet value that was attributed to the cheese plant, and the absence of any valuation for the use of the 107-million-litre milk pool for the next 15 years.

An analysis carried out by Martin and Rea agricultural consultants claimed that if the value of €13m cheese stocks that go with the plant were included, GII was effectively getting the 17,000-tonne cheese plant for free.

It highlighted the comparatively higher value that farmers in Cork's Newmarket co-op had received from Kerry only three years previously.

However, as Mr Bergin emphasised to the Wexford men on the night of the vote, the Wexford plant has only half the capacity of the Newmarket plant and would require an additional €20m to bring it up to a comparable level.

The fact that the deal would net the farmer shareholders an additional €12-17m in higher milk prices over the coming 15 years was another trump card for Bergin's offer.

At the end of the day, the farmer shareholders make a living from selling milk, and anything that boosts the monthly cheque is hard to ignore.

When that milk bonus was added to the bottom line, it meant that Wexford farmers were getting close to €31m for their plant and the use of their 107-million-litre milk pool until 2028.

Who knows what the dairy production landscape will be like here then?

But it's looking likely that if Mr Bergin's purple streak continues, GII will be sitting pretty.

Irish Independent

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