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We are on holiday getting a bit of sun with the kids this week. The AI is finished at home and the bulls are out, looking after the last few weeks of the breeding season. We might go back in with a few days of AI again if they come under pressure, but so far things seem to be quiet enough, with the majority of the herd holding in-calf after six weeks of breeding.
Hopefully this system will help to keep all of the bulls sound and in good condition for the whole season
We have a team of four bulls out working with the herd. Two strong Hereford bulls, an Aubrac and a Red Angus. They operate in pairs, with a team on for a couple of days and the other team getting a rest in a nearby paddock.
Hopefully this system will help to keep all of the bulls sound and in good condition for the whole season. We were going to breed for 10 weeks in total, but we might keep the bulls out for a week or two longer to give us options with cows. We will still keep calving to 10 weeks at home but some April-calving cows could be sold off in December.
A second team of three Angus and two Aubrac bulls are working away with the heifers. The Friesian bulls that were out with them for three weeks are sold on now to tidy up a herd of cows.
Glanbia
Off farm, the Glanbia Co-op AGM was held in Kilkenny last week. The issue of Glanbia Ingredients Ireland’s guaranteed margin after tax of 3.2% was raised. For the last five years in Glanbia, we have been supplying milk to a business that guarantees to have 3.2% of its turnover left over for distribution after tax every year. Some 50% of this profit is retained in the company to directly fund expansion – 30% goes to the co-op and 20% to the plc.
In 2018, for example, GII struggled to pay a base milk price to suppliers but still had a profit after tax of €57.8m or 3.2% of the €1.8bn turnover of the company left over for distribution. This profit after tax (PAT) means we paid tax of €9m, then we add €11m of interest and €30m of depreciation from our expansion programme and we get an EBITDA of €105m or 5.8% of turnover.
This means we have to constantly dip into co-op funds to prop up this base price
Glanbia pre-2014 ran with an EBITDA of 5% with interest and depreciation used to minimise a tax bill. The move to 5.8% last year and at least 6% EBITDA in 2019 is worrying to say the least, but is also making it increasingly difficult to generate a competitive milk price within the GII entity. This means we have to constantly dip into co-op funds to prop up this base price. As Glanbia potentially embarks on another round of expansion with extra borrowings and increased depreciation, maintaining this 3.2% PAT will make it difficult for GII to deliver a direct return to its suppliers and the co-op funds will be depleted further trying to keep up with the other processors on the KPMG/Irish Farmers Journal Milk Price Review.
Is there a fairer model out there for GII to run with through this unprecedented expansion phase?
This PAT model, combined with the increasing depreciation figure and increased borrowings and interest in the company over the next few years, will see the EBITDA margin grow further up to 2022 at least. As turnover grows over the same period, we should see GII’s valuation (a multiple of EBITDA) grow rapidly to well over €1bn over the same period.
One would have to wonder if the endgame will see the co-op, with its depleted funds from supporting price, having to sell more plc shares to pay an inflated price to purchase the remaining 40% of GII from the plc. Or is there a fairer model out there for GII to run with through this unprecedented expansion phase?
We have a great company, and we have seen amazing growth over the last few years. A stitch in time now could prevent a lot of damage over the next few years.
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