Proposed Kerry deal could cost farmers 3.4c/l for seven years, meeting hears

The Kerry deal to be voted on by shareholders next week could cost the co-op’s suppliers the equivalent of 3.4c/l for seven years, a meeting in Co Limerick has heard.

Brian Leslie, an independent financial adviser who was previously approved as Kerry Co-op CEO but never commenced the role, outlined that based on his calculations, the first seven years of the deal would cost the average 500,000l supplier €17,000 per annum or the equivalent of 3.4c/litre.

At the beginning of the meeting Leslie read out a disclaimer stating that he was at the meeting as an independent advisor to provide general information about the proposed deal. He stated that the views were his own and suppliers should consult their own advisors on their individual circumstances. “This presentation is for informational purposes only and I disclaim any liability for decisions made based on this content,” he added.

The deal proposes that initially Kerry Co-op would buy 70% of Kerry Dairy Ireland from Kerry Group and then subsequently buyout the remaining 30%.

The long-running leading milk price dispute is also included in the deal, with 5.4c/l to be paid out on average annual solids from 2015 to 2020 on contracted milk.

Phase two

In years eight to 14 if the proposed deal is ratified, buying out the remaining portion of the business would take the equivalent of between 2.5c/l and 2.6c/litre from the business, Leslie claimed.

In total, the calculations presented to shareholders at the meeting in Newcastle West - organised by the Munster Dairy Producers’ Organisation (MDPO) - estimated that over the 14 years, paying back the buyout of Kerry Dairy Ireland would cost an average 500,000l supplier €213,547.

“In years one to seven, the annual costs on this business are as follows: the first seven years are €34m a year [total cost to suppliers annually]. On an average cent-per-litre basis, it’s about 3.4c/l.

“At the end of the day, it’s your business. All these extra costs have to come out of the potential milk price this business is paying,” he said.

The second portion of the deal - eight to 14 years post - Leslie said, would cost suppliers €23m collectively each year.

“When you value the business so highly and when you’re carrying so much costs on debt, it has to come out of this business going forward.

“There’s only one lever here and that’s milk price, because everything else has a fixed cost and is going to have to be paid,” he added.

Calculations

Leslie, who is CEO of Finance for You, alongside other business interests, said his calculations are based on the level of debt the new entity would have, associated costs with the deal and projected profits for Kerry Dairy Ireland.

A shrinking Kerry milk pool was also factored into these figures. Leslie assumed a 5% drop in milk pool in 2026, when suppliers’ current contracts will terminate, and a 2% to 3% reduction annually thereafter.

Leslie noted that he had to estimate the level of interest on the repayments, as Kerry Co-op said this information could not be provided due to confidentiality.

Valuation

An alternative valuation of Kerry Dairy Ireland was also presented by Leslie at the meeting.

The valuation for Kerry Dairy Ireland under the deal is €500m. Leslie said he worked out that the business is worth half of this - €250m.

The earnings before interest, taxes, depreciation and amortisation (EBITDA) figure for Kerry Dairy Ireland was €53m in 2023 and €70m in 2022.

Averaging this at €62m and multiplying between three and five based on profit percentage - Leslie said he took an average of four - the financial adviser said the business is worth €248m.

“But this business is being valued at €500m, which is eight times EBITDA. Yet it is a low-profit, low-growth, highly capital-intensive business, with sustainability and carbon challenges and the industry faces a difficult challenge because of declining milk volumes and excess processing capacity,” he said.

The MDPO said the meeting, held in the Longcourt Hotel in Newcastle West on Monday night, was an independent information meeting on the deal.

Kerry Co-op held 14 ‘townhall’ information meetings across Kerry, Limerick and Clare in recent weeks outlining the terms of the proposed buyout.

‘Bully boy tactics’

MDPO chair James Doyle said that Monday 16 December - the day the vote will be held for the deal in Killarney - “is going to be a sad day for democracy”.

“We’re going into Killarney next Monday and milk suppliers, if they want the €50m [leading milk price payment], they have to vote for this deal. That’s no freedom to vote.

“The B and C shareholders, if they want their money, have to bury the A shareholders under the bus. That’s not freedom.

“These are bully boy tactics that are being used in this thing,” he added.

MDPO comprises a group of current Kerry suppliers that have indicated they will not enter into a new milk supply contract with Kerry once the current contract terminates in April 2026. They may decide to negotiate with Kerry or another co-op to supply their collective milk production.