EU dairy co-ops to merge
Two European dairy co-operatives are set to merge and create a €14 billion business.
The co-operative is looking at strengthening its balance sheet through retained earnings to ensure long-term sustainability.
Farmlands chair Rob Hewett told Rural News that they studied similar co-ops and their dividend modelling around the world.
He says Farmlands has adopted the policy used by co-ops in Denmark.
"We're very focused on reducing input prices and increasing value to our farmers and growers, as well as investing to strengthen Farmlands - with our strength matched by a strong balance sheet.
"We finalised an equity policy in September 2024 that offers shareholders guidance on the financial conditions under which Farmlands will consider paying a distribution to shareholders in the future.
"We know asking shareholders for more capital isn't the answer. Our strategy is to strengthen Farmlands' balance sheet through retained earnings."
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As a co-op Farmlands has limited options to fund growth. These include borrowing, capital raising from shareholders and re-investing earnings back into the co-op.
Hewett says their goal is to retain profits to strengthen the balance sheet, enabling them to make future investments that benefit the business.
"The plan is to pay the banks first and reduce our debt. If our financial position is good, then we can look at a distribution to shareholders."
A low equity ratio means that the company primarily used debt to acquire assets, which is widely viewed as an indication of greater financial risk.
Farmlands is targeting an equity ratio above 30%. An equity ratio of 30-35% could lead to 25% distribution of profits to shareholders; a higher equity ratio would translate to a higher dividend.
"We fully expect to be profit-making again in the future and want to be responsible in the way that is distributed," says Hewett.
Farmlands recently announced a $14.3m net loss for 2024.
Hewett says that while disappointing as a result, despite a very hard year of effort at the co-operative, it's an annual result that's in line with a promise and strategy to deliver greater value to farmers and growers and to invest in strengthening the co-op itself, while also managing through a tough market environment.
The loss resulted from lower revenue (down $68.2m), reflecting farmer and grower spending, and was exacerbated by a one-off accounting adjustment to previously recognised tax losses of $12.3m. Farmlands says it provided more value back to customers through price and rebates throughout the year as well.
"If we remove the impact of the tax adjustments, our net loss would been $2m and slightly below the previous year," says Hewett.
"When you then consider that we have paid $92m in shareholder rebates, it demonstrates the underlying strength of the co-op and our ability to support farmers and growers through these tough times."
