News Member financing
FrieslandCampina adjusts plan for member financing
FrieslandCampina has discussed the proposal for the new member financing, whereby the financing is linked to milk supplied via delivery certificates, with the members. The dairy company says it has listened carefully to them. Here are a number of changes to the proposal.
At the beginning of April, FrieslandCampina presented a proposal for a new member financing system. The proposal, which is primarily intended to resolve the imbalance in capital investment and the tradability of member bonds, has now been discussed with members. Jan Pieter Tanis, Director Cooperative Affairs, says that the members have been listened carefully and that the proposal has been jointly optimized.
The amended proposal continues to respond to the 3 dilemmas identified: 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. According to Tanis, these dilemmas were also the spearheads in the discussions with the members. The proposal was subsequently adjusted based on the feedback that was obtained.
The principle remains the same and the delivery certificates will still be introduced as of January 1, 2022. The nominal value of a delivery certificate remains unchanged at €8 per 100 kilos of milk. Members can exchange the member certificates and fixed and free member bonds once and assist with cash. No changes have been made to this in the proposal.
Loan Adjustments
What has changed, however, is the option to use a loan from the cooperative to obtain sufficient supply certificates if they do not have sufficient financial resources themselves. In the original proposal, the loan had a term of 10 years with an interest rate.
In the amended proposal, the term is extended to 12 years and no interest is charged. The repayment in the first 8 years is linked to the cash supplementary payment from FrieslandCampina. This means that when the dairy group performs well, repayments can be made more quickly. After a period of 8 years, the remaining amount is repaid on a straight-line basis.
Financing at a later time
In principle, members can only exchange the member certificates and member bonds for delivery certificates once, but this resulted in a focus on growth opportunities. For example, it will be decided later whether dairy farms that already have sufficient member financing can use it at a later date to purchase delivery certificates when their milk production has grown. In September 2022, the Members' Council will decide whether the situation in the internal market allows for the use of fixed member bonds through sales to finance delivery certificates for growers.
Cooperative solution for tradability of free member bonds
The new proposal also provides more explanation for the cooperative solution to the tradability of member bonds. Free Member Bonds that are not traded during the trading days are under the plan jointly purchased by the members and converted into fixed bonds. The members of the cooperative indicated that they wanted to control this conversion up to a certain ceiling.
The proposal is now to limit the cooperative conversion of free member bonds into fixed bonds on trading days to a maximum of 3 times in a period of 2 consecutive years. During that period, a maximum of €75 million can be converted, or €25 million per trading day. When the maximum is reached, the board looks at other options to prevent the market from stalling.
Members who purchase free member bonds in the single market this year and also use them to purchase delivery certificates will receive a 2% premium. For example, FrieslandCampina wants to encourage the exchange of free member bonds to relieve pressure on the internal market. This premium is particularly interesting for members who already have sufficient member financing. Members who have a deficit can take out a loan.
Reservation Policy
Members gave mixed feedback on the reservation policy, said David Tillmanns, Director Corporate Treasury. "A number of members wanted a higher cash arrears and other members went for a higher percentage to the general reserve to strengthen the company." In the new proposal, the distribution remains as in the original proposal: this means that 60% of the net profit will go to the general reserve and 40% will be paid in cash.
Further process of the proposal
The amended proposal will be webcasted to members next Monday (May 31). This can also be viewed later. Subsequently, each district is given the opportunity to attend information meetings when the need arises.
The decision is still set for June 16. The Council of Members will then decide whether the proposal will be approved. FrieslandCampina itself has great confidence that the proposal will pass the Council. "We are moving towards the decision-making process with a good feeling. We have listened carefully to our members and I am convinced that we have made the proposal even better. The majority of the districts are happy with the process. Not 100% is in favor of voting , but we are confident that the proposal will win a two-thirds majority," Tanis said.
Chanti Oussoren
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