The valuation of €500m put on Kerry plc’s dairy processing arm – Kerry Dairy Ireland – is excessive.
The Kerry Co-op board is doing its best, but is inexperienced and out of its depth in such high-stakes business negotiations with Kerry plc.
Shareholders need to press pause by voting no on the 16 December and demand that this is renegotiated to purchase the business for no more than €250m, along with the €50m milk price payment owed to Kerry milk suppliers.
Kerry Dairy Ireland is a low-margin, capital-intensive business, with little to no growth prospects, facing real and substantial environmental/carbon challenges.
This business is largely worthless without the milk pool, which it does not own.
Milk supplies
The milk pool supplying this business is set to reduce over the coming years due to increasing nitrates derogation restrictions, farmer age and succession challenges and milk leakage to other co-ops.
In addition, the wider dairy-processing industry in Ireland is best characterised by declining milk supplies, and increasing costs.
Valuing this business at €500m places significant debt-funding pressures and costs in the years ahead, which will severely and negatively impact the milk price it will pay it suppliers for the next 14-15 years, if approved.
Kerry Dairy Ireland generated a profit before tax (PBT) of €32m and an EBITDA of €53.4m in 2023.
That equates to a PBT margin of 2.5% and EBITDA margin of 4.1%.
Given the characteristics of this business and the wider challenges facing the industry going forward, it is impossible to justify a valuation on this business of over €250m.
At €250m, that’s 7.8 times the business’ 2023 PBT.
In addition, I understand the Listowel plant alone requires potential capital investments of €60m to €100m during the first seven years. There are six other plants to be maintained and invested in.
Rebrand
In years one to seven, this business must repay debt of €99m plus interest of €17m. It must pay Kerry plc an annual dividend of €7.5m per year and replace its entire IT systems and rebrand everything.
In years eight to 14 it must repay a debt of €80m, plus interest of €13.7m, and raise a further €20m to purchase the remaining 30%. Scare tactics are being used to force and rush this acquisition through, such as:
Other buyers: Kerry plc has been actively trying to sell this business for the past four to five years and has found no other buyer than Kerry Co-op. Kerry Co-op is the only potential buyer.Kerry plc will cease milk processing: Edmond Scanlon, CEO Kerry plc, reassured investors recently of their continued supplies of dairy ingredients going forward, which is a critical aspect for Kerry plc’s food ingredients business.Selling the consumer foods division separately: The consumer foods division utilises around 20% of the Kerry milk supplies and is integrally connected to both the milk supply base and processing facilities.Press pause
When you look at this from the perspective of Kerry plc, regardless of the price it received for Kerry Dairy Ireland, this is an excellent development for Kerry plc.
It increases its profit margins by 1.4%, which is transformative and has a greater impact on its profit margin than any previous acquisition.
It also increases its growth profile +0.3%, improves its sustainability profile and share register. I urge shareholders to press pause, by voting no on 16 December.
Brian Leslie
Brian Leslie is the CEO of Finance For You Ltd. He is a former agribusiness editor of the Irish Farmers Journal and was previously approved as Kerry Co-op CEO but never started the role.
The valuation of €500m put on Kerry plc’s dairy processing arm – Kerry Dairy Ireland – is excessive.
The Kerry Co-op board is doing its best, but is inexperienced and out of its depth in such high-stakes business negotiations with Kerry plc.
Shareholders need to press pause by voting no on the 16 December and demand that this is renegotiated to purchase the business for no more than €250m, along with the €50m milk price payment owed to Kerry milk suppliers.
Kerry Dairy Ireland is a low-margin, capital-intensive business, with little to no growth prospects, facing real and substantial environmental/carbon challenges.
This business is largely worthless without the milk pool, which it does not own.
Milk supplies
The milk pool supplying this business is set to reduce over the coming years due to increasing nitrates derogation restrictions, farmer age and succession challenges and milk leakage to other co-ops.
In addition, the wider dairy-processing industry in Ireland is best characterised by declining milk supplies, and increasing costs.
Valuing this business at €500m places significant debt-funding pressures and costs in the years ahead, which will severely and negatively impact the milk price it will pay it suppliers for the next 14-15 years, if approved.
Kerry Dairy Ireland generated a profit before tax (PBT) of €32m and an EBITDA of €53.4m in 2023.
That equates to a PBT margin of 2.5% and EBITDA margin of 4.1%.
Given the characteristics of this business and the wider challenges facing the industry going forward, it is impossible to justify a valuation on this business of over €250m.
At €250m, that’s 7.8 times the business’ 2023 PBT.
In addition, I understand the Listowel plant alone requires potential capital investments of €60m to €100m during the first seven years. There are six other plants to be maintained and invested in.
Rebrand
In years one to seven, this business must repay debt of €99m plus interest of €17m. It must pay Kerry plc an annual dividend of €7.5m per year and replace its entire IT systems and rebrand everything.
In years eight to 14 it must repay a debt of €80m, plus interest of €13.7m, and raise a further €20m to purchase the remaining 30%. Scare tactics are being used to force and rush this acquisition through, such as:
Other buyers: Kerry plc has been actively trying to sell this business for the past four to five years and has found no other buyer than Kerry Co-op. Kerry Co-op is the only potential buyer.Kerry plc will cease milk processing: Edmond Scanlon, CEO Kerry plc, reassured investors recently of their continued supplies of dairy ingredients going forward, which is a critical aspect for Kerry plc’s food ingredients business.Selling the consumer foods division separately: The consumer foods division utilises around 20% of the Kerry milk supplies and is integrally connected to both the milk supply base and processing facilities.Press pause
When you look at this from the perspective of Kerry plc, regardless of the price it received for Kerry Dairy Ireland, this is an excellent development for Kerry plc.
It increases its profit margins by 1.4%, which is transformative and has a greater impact on its profit margin than any previous acquisition.
It also increases its growth profile +0.3%, improves its sustainability profile and share register. I urge shareholders to press pause, by voting no on 16 December.
Brian Leslie
Brian Leslie is the CEO of Finance For You Ltd. He is a former agribusiness editor of the Irish Farmers Journal and was previously approved as Kerry Co-op CEO but never started the role.
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