Farmer Business Developments, the investment holding company with roots going back to the foundation of FBD Insurance in the late 1960s, will not pay a dividend to its shareholders this year due to the business uncertainty created by COVID-19.

Speaking to the Irish Farmers Journal, Farmer Business Developments chair Padraig Walshe said 2019 had been a great year for the group.

Overall, Farmer Business Developments made pre-tax profits of €13m last year, which was up almost 50% on the previous year.

However, the COVID-19 pandemic had forced the company to show prudence when it came to managing its finances in the current environment.

“We had a great year in 2019 between all our investments. But we have to show prudence right now due to COVID-19. It’s a pity because we were in a position to pay our shareholders a strong dividend for 2020,” said Walshe.

“Our hotels business had a great year in 2019 and was on track to do even better up to March when the pandemic hit. Looking forward, it’s very difficult to know how things will evolve. But the company has a very healthy balance sheet with strong cash reserves,” he added.

The annual dividend paid out by Farmer Business Developments is not insignificant. The company paid a total dividend of 16c per share last year, which amounted to more than €8.4m being issued to its 4,500 shareholders.

However, the ongoing uncertainty created by COVID-19 along with the decision by FBD Insurance to withhold paying its dividend in 2020 has resulted in the board of Farmer Business Developments to hold back on any dividend payout to shareholders this year.

FBD Insurance was due to pay a dividend of €1 per share this year, which would have seen more than €8.5m paid out to Farmer Business Developments as it is the largest shareholder in the insurer, with a 25% stake.

On top of this loss of dividend income from FBD Insurance, COVID-19 has created major uncertainties for some of Farmer Business Developments’ other investments, particularly its subsidiary business FBD Hotels & Resorts.

Travel restrictions

FBD Hotels & Resorts enjoyed a bumper year in 2019, with turnover in the business rising by 17% to almost €64m. Earnings in this business grew by 8.5% last year to €13.7m, meaning it has a very strong earnings margin of 19%.

FBD Hotels & Resorts is the single largest investment of Farmer Business Developments, accounting for 44%, or €97m, of the group’s total asset portfolio. FBD Hotels & Resorts comprises a portfolio of three hotels in Ireland – Castleknock hotel, the Heritage and Faithlegg, and two resorts in the Costa del Sol in Spain.

One of these resorts, the Sunset Beach Club, had a standout performance last year with profit margins at 30% for the year. Farmer Business Developments said the strong performance of FBD Hotels allowed the business to return €2m in dividends to its parent company.

COVID-19

However, the outlook for FBD Hotels has changed utterly since the outbreak of COVID-19 in Europe. The impact of widespread travel restrictions since March on the tourism and hospitality sector has been a major blow to FBD Hotels’ business.

The business was forced to close all its hotels in Ireland and Spain from mid-March in line with Government regulations in both countries. While FBD Hotels has reopened its hotels in Spain and Ireland since June, the group said it is not possible to predict the full extent of the impact COVID-19 will have on the business.

Berlin development land

During 2019, Bulberry Properties, a subsidiary company that Farmer Developments has a majority stake in, struck a deal to sell 55 acres of development land it holds adjacent to the new airport being built in Berlin in Germany for a total of €88m. The group said it will receive a total of €26m net of tax from the Berlin sale.

Investment portfolio

At year-end 2019, the overall value of Farmer Business Developments’ investment portfolio stood at €219m, which is up €9m on the previous year (Figure 1). The rise in asset value is down to an increase in the share price of FBD Insurance during 2019, as well as the addition of the Heritage Hotel in Killenard, Co Laois, to its portfolio of hotels last year.

Farmer Business Developments’ single largest investment is its 100% ownership of FBD Hotels & Resorts, which it carried at a book value of €97m at year-end 2019. The group’s second largest investment is its 25% stake in FBD Insurance, which was valued at €76.8m at year-end.

The group has also invested in a 10-year loan note in FBD Insurance valued at €20m with an annual interest rate of 5%, bringing the value of Farmer Business Developments’ total stake in the insurer to €96.8m.

Outside of this, Farmer Business Developments values the remaining lands held by Bulberry Properties at Berlin airport at just over €24m.