News Member financing
FrieslandCampina wants to link capital to milk
FrieslandCampina (RFC) is introducing a new member financing system, in which financing is linked to the milk supplied via so-called delivery certificates. The cooperative will discuss this proposal, which should strengthen the equity capital of the dairy group, with its members in the coming months.
The Members' Council will decide on the renewed member financing on 16 June. If approved, the new system will take effect on January 1, 2022. An aging membership and an imbalance in marketability were issues that led to internal questions about the future-proofing of the current member financing system, explains Frans Keurentjes, chairman of the FrieslandCampina cooperative in an explanation to the trade press. "Members quit or leave, leaving the financing of the company on the shoulders of fewer member dairies. In addition, many of our dairies are also growing."
FrieslandCampina identified 3 dilemmas: the tradability of the free member bonds, skewed growth in the capital invested by members and the qualification of the current member financing as pure equity. For example, credit rating agencies such as Standard & Poor's regard member bonds as debt and not as pure equity.
The cooperative comes up with an integrated solution. In the new proposal, capital and milk are linked. This means that the extent of FrieslandCampina's financing by a dairy farmer depends on the milk volume he supplies annually. The number of delivery certificates that members receive is determined on the basis of the milk supplied. The proposal is also to cancel the 'Balanced growth' scheme. "The delivery certificates take over the function that this arrangement had," says Keurentjes.
€8 per 100 kilos of milk delivered
In FrieslandCampina's proposal, the nominal value of a delivery certificate is €8 per 100 kilos of milk. This amount is based on the current active funding of the members. For determining the first issue of delivery certificates, the quantity of milk delivered in the period from 1 October 2020 to 30 September 2021 applies.
Members have a free choice in how they obtain delivery certificates, says David Tillmanns, Director Corporate Treasury at FrieslandCampina. They can exchange the member certificates and fixed and free member bonds once and assist with cash. They can also make use of a loan issued by the cooperative if members have insufficient resources - in the form of fixed member bonds and/or member certificates - to obtain sufficient supply certificates.
This loan can be written off automatically by withholding an amount annually, but early repayment is also possible. FrieslandCampina states, however, that about 70% of the members certainly have sufficient member certificates and fixed/free bonds to exchange them and therefore do not need a loan, reports Keurentjes.
Member bonds will continue to exist
In addition, there will be a cooperative solution for the tradability of free member bonds. The fixed and free member bonds will not disappear in the new system. However, it is expected that a large part of the fixed member bonds will be converted into delivery certificates, reducing the pressure on the free member bonds.
More to general reserve
Changes are also made in the reservation policy. The current reserve policy distributes the net profit as follows: 55% of the profit goes to the general reserve of FrieslandCampina, 10% is paid out in permanent member bonds and 35% is paid out as cash supplementary payment. In the new system, the payment in fixed member bonds will disappear. The distribution will be 60% towards the general reserve and the cash supplementary payment will be scaled up to 40%.
At the online press meeting, Keurentjes emphasized that the new member financing is not aimed at increasing shareholders' equity or controlling milk deliveries. "We see it as a shift in the way in which our members finance the company, which strengthens the foundation under equity. In addition, each member of our cooperative is in charge of his own company and therefore also the volume of milk he sells. FrieslandCampina delivers."
During the Spring Members' Dialogue, online conversations that will take place from April 12, the members will be asked for input on the proposal before the Members' Council decides on it on June 16.
Chanti Oussoren
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