The 2017 accounts shed some light onto the financial troubles at the co-op.

Not only did the day to day business of purchasing and processing milk and selling dairy products come under pressure to be profitable during 2017, the co-op also saw a significant strain on its cashflow owing to its high debt position relative to profits.

Despite turnover increasing 29% (mainly thanks to rising global dairy markets) to €302.7m, operating profits fell 46% to €1.6m in 2017. Therefore operating margins were a wafer thin 0.5% and down from 1.2% in 2016.

Overall the co-op made a pre-tax loss of €0.9m last year, however thanks to a deferred tax gain arising from previous years of €2.7m saw the co-op ending the financial year with a profit after tax of €1.8m. The co-op took a €1.9m hit on its listed investment stocks (mainly Aryzta). At year end it had some €7.6m in Aryzta stocks. Since then it sold €5m of Aryzta shares. Given the fall in Aryzta share price since the start of the year it holds approx. another €1.5m of shares in the embattled bakery plc. The co-op also took a €1.1m charge from changes in exchange rates. Interest charges rose by 58% to €0.9m.

Cashflow and debt

Stocks increased €16m to €27m at year end while at the same time the amount owing to creditors within the next year rose 32% or €14m to almost €58m. The co-op saw its cash reserves depleted by €4m during the year and ended the year with a cash balance of less than €84,000.

Net debt at year end stood at €47m. With profits (EBITDA) of €4.8m, the co-op was highly borrowed given the level of profitability (almost 10 times). This level of debt could not be sustained at these profit levels.

The problem came to a head in April, when LacPatrick set prices for March and placed it well behind others. The Artigarvan investment meant the co-op didn’t have the cash reserves to support price in the spring (like other co-ops).

With fears of losing a significant amount of its milk pool, especially in Northern Ireland, it kept milk prices up which resulted in the losses being made in 2018.

At the end of 2017, the structural debt stood at €28m, with €24m of this relating to the investment in Artigarvan along with an outstanding €4m arising from the Ballyrashane merger. The balance (€19m) relates to overdraft and working capital.

Almost €15m of Lacpatrick’s total loans of €28m are repayable after 5 years with some €9m due in 2-5 years with €3m owed before the end of 2019.

Key management remuneration which includes all members of management and the company secretary was €1.2m for the year. The net assets at year end increased marginally (€100,000) to €75m.