Farm Ireland

Wednesday 17 January 2018

Connacht Gold seals €20.9m Donegal deal

Co-op finally lands 120m litres of extra milk and 11 stores

Darragh McCullough

Darragh McCullough

Connacht Gold has sealed a deal with Donegal Creameries that sees the co-op finally bag the additional milk supplies it had been hunting for the past few years.

Since last year, the company has attempted to buy at least one of Kerry's liquid milk operations in Limerick and Galway and, more recently, Tullamore Dairies.

In each case, it was out-gunned by rival bids from Glanbia and Arrabawn.

The €20.9m deal agreed over the weekend is broken down into €13.5m cash along with another €7.4m subject to the performance of the business until the end of 2012.

The price tag may surprise some analysts, given that businesses included in the deal only returned a net profit of €1.85m last year. But the businesses will be seen as a perfect fit for Connacht Gold, increasing its milk pool by 48pc or 120m litres.

The 280 new suppliers also bring added efficiencies to Connacht Gold, given that they are nearly 50pc bigger than the average existing Connacht Gold supplier.

The deal also includes the processing plant at Killygordon and 11 retail stores. Nine of these are in Donegal, with two in Northern Ireland.

The sale of the businesses will more than halve Donegal Creameries' annual turnover, and effectively end its involvement in the dairy industry, although it is holding onto the organic dairy based in its 2,000ac Grianan farm.

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This latest move follows an eight-year period under current CEO Aaron Forde that has seen the co-op invest €70m in its businesses, particularly in its 30 agri-stores across the midlands and northwest. It had a pre-tax profit of €5m on a €300m turnover last year.

The agreement is subject to regulatory approval from the Competition Authority, which is expected to take a month.


Meanwhile, Dairygold suppliers are to be surveyed once again to establish what their supply plans are post-2015. While the co-op has already established that its supplies will increase by 20pc by 2015, it now wants to know what farmers' expansion plans are up to 2020 so it can plan capital expenditure on extra processing capacity.

"We know that we can cope with up to 4.5m litres extra per week at peak if we invest in our existing facilities, but now we need to know where to go next with additional milk," said Dairygold's member relations manager, Gerry O'Sullivan.

"These figures will form the basis of an agreement with suppliers for us to process their extra milk. Obviously there will be some flexibility built into that agreement but if suppliers fall very short or shoot way over their predicted amounts, there could be some type of charge imposed," added Mr O'Sullivan.

On the issue of whether the cost of expansion would be levied on all suppliers, just those who were expanding, or a combination of both, Mr O'Sullivan said that the co-op would be holding a series of area meetings starting at the end of this month to assess what the members views were on the subject.

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