Michael Hanley, the CEO of Lakeland Dairies, has stated that the company is “very comfortable” taking on LacPatrick Dairies €28 million debt as the two companies merge to become the second-largest dairy processor in the country.
However, he cautioned that job losses could ensue as part of the rationalisation process.
Speaking tonight (Thursday, November 8) on episode 10 of FarmLand, Hanley reflected on last month’s overwhelming decision by shareholders, on both sides, to support the merger.
After months of talks between the parties and consultation with stakeholders, Lakeland shareholders passed the motion with a majority of over 97%; while LacPatrick shareholders backed the vote by 95%.
The registered name of the new co-operative will be Lakeland Dairies Co-Operative Society Limited.
Owned and controlled by farmers, the extensive new co-op will consist of over 3,200 milk suppliers and a collective milk pool of some 1.8 billion litres.
Although the dairy giant is currently awaiting approval on the merger from competition authorities both in Northern Ireland and the south – it is expected that the authorities will rule over the next two to three months – Hanley is confident that the deal will get the green light.
Also Read: Merger gets ‘green light’ from Lakeland shareholders“It’s a merger of the two businesses. The LacPatrick business, plus the old Lakeland business, into a new company called Lakeland Dairies.
“Once the merger goes through, and once its agreed by the competition authorities, the milk pool will be 1.8 billion litres of milk – so it will be quite a large milk pool, the second-largest on the island.
“That will drive a lot of synergies, a lot of cost savings, a lot of efficiencies and it should help sustain a higher milk price for both Lakeland farmers and LacPatrick farmers out into the future,” Hanley said.
He highlighted the potential for greater effectiveness in relation to overlap on milk collection.
“There is scope for efficiencies and cost savings from a volume point of view and from a customer point of view, it gives access to a wide portfolio of dairy products and to a larger number of markets.”
Lakeland Dairies currently serves over 80 markets across the world.
Better late than never
For him he says the deal makes a lot of sense.
“This should have happened 25 or 30 years ago – but better late than never.
“On the LacPatrick debt, there is a core debt there of about €28 million and it’s very manageable. There is also working capital requirements in there as well, and all those figures have been shared with all the shareholders of Lakeland and of LacPatrick so the financial figures are out there in the open.
We’re very comfortable with the level of debt that the new entity will be taking on.
“The LacPatrick business in the first half of the year has not been making money, it has been losing money; so, we have shared that with our shareholders and with our farmers.
“We have to now change, drive efficiencies and run the business differently than the way it has run in the past,” he said.
When asked about the possibility of job losses down the line as the merger progresses, Hanley said he couldn’t guarantee that there would be no casualties.
We’re not saying there is going to be job losses; we’re not saying there is not going to be job losses.
“What we are saying is we’re going to run the business in an efficient manner; we’re going to run it in a sustainable manner; we’re going to sweat the assets; we’re going to invest in the parts of the business that are going to make a return for Lakeland farmers and for the milk price.”
LacPatrick was formed in July 2015 as a result of the merger of Ballyrashane and Town of Monaghan Co-ops.
When asked about the future of the LacPatrick plants, Hanley said, “there are pros and cons to a number of the sites”.
“We will evaluate everything on a truly open basis, LacPatrick has a strong record of performance over the years. It’s an old co-op, it has a long history, but it’s all about the sustainability. We will invest in areas that are performing. Areas that are not performing we won’t be investing in.
“Any business or portfolio of products that is making a contribution, that will be good. Likewise, on the other side of that, if something is taking away from that, or reducing milk price, we’ll be taking no prisoners inside in the new business,” Hanley said.
“We’re aware that there was a hiccup somewhere along the lines, I suppose there was a lot of activity in relation to the merger.
“At this stage all LacPatrick farmers have been paid for their milk and everybody has been paid in the system so whatever hiccup was there has been freed up at this stage,” he said.
Brexit buffer
He said the biggest positive about the merger is how it will shield the company from the pending consequences of a hard Brexit outcome.
“It gives us a fantastic safety net and hedge against whatever comes out of Brexit. We have a lot of milk in Northern Ireland, so now we have a lot of facilities in the North.
So regardless of how the Brexit pendulum swings we will be able to handle milk and maximise the equation for our farmers.
However, he is aware that Lakeland Dairies could potentially lose some suppliers in the cross hares.
“We love milk suppliers – regardless of whether they are from Northern Ireland or southern Ireland.
“Historically, yes there is a risk we could lose suppliers. If you don’t perform in your business why should farmers supply you their milk, so there is always the risk.
“But, from a Lakeland perspective, our track record is of losing very few milk suppliers. We’ve consolidated the Fane Valley business into Lakeland and we lost three or four suppliers out of 240.
“Our record is of gaining milk suppliers; we’ve added on new entrants – approximately 200 new entrants for the last four to five years. If you perform, you won’t lose,” he concluded.