Early last year, Tirlán Co-op the biggest purchaser of milk and grain in the country, has transformed into 100% co-op ownership. Essentially, this is the same operating structure to most of the milk processors in Ireland, except for Kerry. Kerry Group plc owns the milk processing assets in Kerry and sets the milk price. Across Europe, about 50% of the milk is purchased by co-ops, the balance by private companies. Well-managed co-ops offer advantages for milk suppliers.

Not alone is Tirlán 100% a co-op, buying 36% of the milk produced south of the border, but it is also back open for business to take in more milk to help fuel Kilkenny Cheese, the joint venture with Dutch company Royal A-ware that should be operational in 2024. Similar to Lakeland, the new milk shutters came down for a period, but now that milk supply is down and outside policy is forcing milk supply reductions, new entrants are welcome once again. The once-off retirement scheme offered to the 200 suppliers or so is costed at circa €5m in the first set of 2022 Tirlán accounts.

Think back to December 2021 when Glanbia shareholders voted overwhelmingly to buy the 40% shareholding that the plc had in what was then called Glanbia Ireland for €307m. There were a number of key votes passed. The biggest was to approve the transaction to buy the plc shareholding in Glanbia Ireland giving the co-op 100% ownership. Alongside this the board was looking for authority to potentially reduce the Glanbia plc shareholding from 32.4% to 17%. This sell-down was to be effectively divided into three parts – a 4% member spin-out of shares (€170m), another 4% shareholding (€170m) sold to part-fund the deal, and another 4% of plc shares (€170m) to be used as an investment fund.

Board decision

The decision on whether to actually sell the shares to part-fund the deal and for the investment fund was to be left to the board at a later stage. Essentially, the board and management were looking for permission. In the end, the shares for two out of the three permissions granted were not sold, but they were used as security for a bond. So the dividend from the plc shares is still coming into Tirlán and essentially the cost of doing this is the interest rate on the bond.

The 4% allocated to an investment fund is also still sitting in the co-op so the alternative investment arm is on hold for the moment. Management confirmed this week again that it would not be spent on similar assets to what the co-op owns, and at the moment the plc dividend sets the bar for the return so it must be greater than that. So, long story short, Glanbia plc is still very important to the co-op, ultimately as an investment vehicle for many Tirlán milk suppliers.

The third part, a 4.4% share spin-out, happened in September 2022, delivering approximately €150m to shareholders.

The sweetener in the deal for the milk suppliers was the ability to banish the profit after tax requirement threshold of 3.2% self-imposed on Glanbia Ireland. This threshold was limiting what could be paid out on milk price. The first set of accounts for Tirlán shows this profit measure dropped to 1.5% in 2022.

Has the share sale worked for the plc? The potential positive for the plc was the exit from a relatively low-margin Irish business, allowing investment into other more profitable businesses. On a five-year look back, Glanbia plc share price peaked at €19.38 in March 2019, with a low of €11.05 in July 2022, and currently shares are trading around €14. So in short it’s more steady as she goes than any significant value gain if we look at share price.

Suppliers

Has the move worked for milk suppliers? Firstly, to be fair, 17 months after the vote was taken to move to 100% co-op is hardly enough time to judge. Secondly, the best time to test a co-op structure is when the milk price pressure is on – that wasn’t 2022. Next week we will compare all processors on milk price and summarise the financial accounts.

The business seems to be on the right track as we digest the numbers announced yesterday. Milk suppliers would take more years like 2022. The future will deliver a more complete answer to the question as management and the board of co-op directors get their feet under the table and make bigger calls. Great progress in a short space of time so far.