For the first time in decades, there is no Glanbia tent at this week’s National Ploughing Championships. The farmers’ co-op that spawned the global listed nutrition group has changed its name to Tirlán and regained control of all domestic activities, from historic milk and grain processing to its latest venture, the home delivery service MyMilkman.ie.

The €300 million deal that allowed the co-op to acquire the 40 per cent share of the Irish agribusiness from Glanbia closed in April, as reported at the time. It valued Tirlán at around €750 million. The business grew revenue by 18 per cent to €2.2 billion last year, pushing both volumes and prices. Its chief executive Jim Bergin says revenue is on track to top €3 billion this year. Its profit before tax and exceptionals increased in similar proportion to €82.3 million. With over 2,200 staff, it is one of the very largest private employers in rural Ireland.

The Tirlán brand is the one now on display at the Ploughing, and this week also marks the arrival of the first employees at its new corporate headquarters in Kilkenny city. This is where The Currency met Bergin last Friday on the first outside visit allowed into the building. While the birth of Tirlán has been over one year in the making, this is the moment when it is becoming real.

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There is perceptible relief emanating from Bergin when he explains the streamlined structure that has emerged from the separation between Glanbia and Tirlán. “We had Glanbia PLC, we had Glanbia Ireland, which was a joint venture between the PLC and the co-op, and we had the co-op itself,” he says. “The JV was a very material business in Ireland obviously but, as regards public persona, was still an internal organisation. And the co-op was effectively a dormant holding company. It was difficult to explain the relationship to people.”

On the day before this interview, the co-op that now owns the entire domestic businesses of the former Glanbia group officially changed its name to Tirlán. “The biggest change, first of all, in all of that, is simplicity,” Bergin says. “Now we have a single board that oversees everything to do with one organisation, we have a single management team, and we have a single name.”

More importantly, Tirlán now has a single shareholder – the co-op of farmers supplying its milk and grain – instead of two with competing interests. “PLC returns are in the form of growth in EPS and share appreciation, plus a dividend. That’s very, very simple. That’s what PLC shareholders want,” Bergin says. By contrast, co-op members are looking for returns through their products’ pricing, he adds. “It’s very difficult to reconcile maximising the product returns with the profit requirements.” Bergin says the new objective for Tirlán’s management is much simpler: “We exist to maximise the return to farmers.”

In the past, the joint-venture agreement obliged the business to return a 3.2 per cent net profit after tax, and to pay half of this in dividends – 40 per cent of which went to Glanbia PLC. As a shareholder in both the PLC and the joint venture, the co-op also collected dividends from the wider Glanbia group and used them to pay top-ups to farmers on the milk, grain and inputs they traded with the group. The financial flows between the various entities were messy and caused resentment among farmers.

Instead of that constant balancing act, Tirlán is now aligned with other farmer-owned co-ops in its target to maximise farmgate prices. “We have said that we will pay the best possible milk price – and we will – while we maintain strong financial discipline,” Bergin says, adding that the same applies to grain prices – Tirlán is the largest buyer of both in Ireland.

He explains that the business must return a 1.6 per cent net margin to cover its cash needs and will continue to target an internal 3.2 per cent return but, instead of crystallising it into profit, will give it back to farmers through higher prices. This flexibility was instrumental in obtaining approval from co-op members for the transformation at the end of last year.

Bergin defines Tirlán’s purpose as restoring the “co-op ethos” that prevailed prior to Glanbia’s partial flotation in 1988, but with “no implication in that that anything that we’re doing would deteriorate – so the operational standards, the ambition for the business, the focus on strategy, the financial discipline, all of those must remain and progress”.

Hearts and minds

Asked how the changes have impacted his own work, Bergin says: “It’s not the same job. It’s a far more enjoyable role now, actually.” As CEO of Glanbia Ireland, he says his responsibility was solely about the operational performance of the business. “All the skills for dealing with external stakeholders rested within the PLC,” he says, with anything from regulatory compliance to ESG criteria managed by Glanbia.

Meanwhile, the co-op had its own shareholder base to manage among farmers but no real staff to do it. Now Bergin says he has delegated the management of the operating business to two executives and taken a step back. He adds that this is part of succession plans as he will turn 60 at the end of this year. For the time being, he is focusing on “co-op affairs” and investment management instead.

Governance and finance are less visible aspects of the new Tirlán than its branded tent at the Ploughing, but they are those where most change is happening now and into the future.

While he argues that Tirlán is in good financial shape after investing €353 million since the abolition of milk quotas in 2015 and ploughing another €200 million in its new Belview cheese factory, Bergin also says: “Our challenge has been, because of the contrasting objectives of the two parents and other history, that we don’t have the hearts and minds of all of our farmers. And our objective is to achieve as much unity and loyalty to the organisation as possible in a positive and constructive way.”

On the one hand, Bergin says Tirlán is preparing to overhaul the elective structures whereby over 700 of its 11,000 co-op members sit on a pyramid of committees, an advisory council and ultimately its board. He is supported in this work by the co-op’s vice-chair Brendan Hayes on the farmers’ side, and corporate affairs director Pat O’Keeffe on the management team.

They have compared notes with co-ops around the world, Bergin says, “and more importantly, we are consulting deeply with our own representative structure and indeed with groups of young farmers and females”. They want to come up with a representation system that reflects age and gender diversity while acting as an “academy” for future board members.

“Whatever we invest in has to give a higher return than the return we’re getting today from the PLC.”

Jim Bergin

Tirlán must also build its own capacity on the finance and investment side. As it separated from Glanbia last April, the company announced two appointments in that function. Michael Horan, who was the PLC’s company secretary, became Tirlán’s chief financial officer. He replaced Frank Tobin, who is now chief investments officer.

The co-op not only now owns the full milk and grain processing business previously shared with Glanbia in Ireland, along with its B2B ingredients supply chain, consumer brands such as Avonmore and Kilmeadan, and the Country Life retail chain. It also remains the single largest shareholder in Glanbia PLC, with a 27.6 per cent stake, having sold it down by €70 million to part-fund the €307 million transaction.

“We are a long-term investor in the PLC,” Bergin says, and Tirlán firmly intends to continue reaping returns from Glanbia. He puts at €883 million the value returned to farmers through share spin-outs, dividends and patronage payments in the 34 years since the business entered the stock market. Meanwhile, the latest valuation of its current shareholding in the PLC is around €900 million.

Of this, Tirlán is duty-bound to hold on to its Glanbia shares – except for a block representing a 4 per cent holding in the PLC, which is earmarked as an “investment fund”. It was worth  over €140 million at the time of the decision, though its value has dwindled to around €130 million in the poor general stock market of recent weeks. The board of Tirlán has the power to sell the Glanbia shares in this fund to make investments elsewhere. 

“The question is, can we use that to create a further income stream for our shareholders and perhaps to create something that becomes valuable in the future?” Bergin says. “We have external help on it and we’re working hard on creating a framework within which we can look at that because, if a target or an objective presents itself on a particular day, we need to be able to move.”

With this strategy yet to be defined, he won’t be drawn on what exactly such targets or objectives might be, but he is happy to circle around it. The investment fund won’t go towards Tirlán’s existing dairy and agribusiness activity, which is independently funded, he clarifies.

Any new opportunities would be through acquisitions or “internal investments that would be considered step-outs or adjacencies to our current business,” Bergin says, adding: “Whatever we invest in has to give a higher return than the return we’re getting today from the PLC, otherwise we shouldn’t do it.”

He is very much aware that Tirlán will need to support its farmers in meeting higher environmental requirements. “There is a different world of emerging, so for example, at farm level, it’s pretty obvious today given the way regulation has gone that the farm income model of the future will be more diversified than it is today, particularly in the areas of renewable energy and perhaps carbon credits,” he says. While the co-op’s role in this area ranges from technical advice to lobbying, Bergin says it could also include investment.

He mentions an existing scheme for farmers to install solar panels through Tirlán and, when prompted on other capital-intensive activities now expected of farmers, such as generating biogas, rewetting bogs or planting trees, he confirms that they are all potential options for collective investment through the co-op.

Bergin also says new investment could be either domestic or international. “A lot of the product that we sell is sold in an ingredient, business-to-business format,” he says. “If we wanted to go closer to the customer and be more flexible in front of the customer, then we could choose to do that in market or back in Ireland.”

Tirlán may invest in new businesses through joint ventures, which it already does for butterfat, malting barley, livestock genetics and animal health, and now for its new cheese factory in Belview with its Dutch partner Royal A-Ware. Bergin adds that the company could invest in businesses connected to its farmers, but operated by others. “We’re not experts in everything. So for example our CHP [combined heat and power] plant in Ballyragget, for many, many years, has been owned and run by somebody else and we get the benefit of the service,” he says. “We can collaborate, network and build. We’re very open to that.”

Bergin highlights the expanding market for plant-based foods and Tirlán’s growing oats milling business in Portlaoise, which supplies anything from porridge to oat drinks ingredients to brands as far as the US. “We have spent €15 million on our R&D centre. Within that, there are 50 technologists, and a number of those technologists are grain experts,” he says.

The company has integrated commercial teams to supply either dairy or plant-based ingredients to customers looking for particular functions, such as cheese with specific stretch, browning or digestibility. “For example, if you take our WPI [whey protein isolate] and our milk protein concentrate, we understand what customers need for those products to succeed in a clinical nutrition drink, in an infant formula mix or in a sports nutrition drink and we are bringing the same expertise to our grains,” Bergin says. “We are experts in food, a lot of it happens to be dairy but we’ve built good expertise on the plant side. And if there are other complementary offerings that make sense to us, we’re open to that.”

A new office to mirrors new ways of working

Tirlán is headquartered in Kilkenny, the historic home of the farmers’ co-op that initiated Glanbia. The city’s former Smithwick’s brewery is being redeveloped as the new Abbey Quarter by a joint venture between Kilkenny County Council and the Ireland Strategic Investment Fund (ISIF). Tirlán’s head office occupies two thirds of what used to be the old brewhouse. 

The Currency visited on the last working day before staff began to move in. A new bridge over the river Nore connects the train station to the site, where the last steel tanks of the old brewery lie on their side on the car park, next to the ruins of the medieval abbey’s church. Inside the brewhouse, fit-out workers were connecting new computers and putting the finishing touches to the office space amid the scent of sawdust – natural wood is everywhere, from wall panelling to desk surfaces for many of the 250 workstations.

The disruption caused by the pandemic came mid-way through the commissioning of Tirlán’s office, which allowed the company to adjust the space to new ways of working. Bergin says the plan to bring together teams managing agribusiness, consumer products and head office functions from several sites dates back to 2017 and was formalised one year later: “We had to have a headquarters where we could bring everybody together and get the synergies and the collaboration that we aspire to, while at the same time recognising that we needed to have a base in Dublin,” Bergin says. The company is keeping its commercial outpost in Citywest. 

Tirlán ultimately selected Abbey Quarter for Kilkenny’s attractiveness to a workforce expecting to live and work near urban amenities, and for the new development’s balance between office space, planned shops and restaurants as well as a hotel, and green space in a new park along the Nore.

The inside layout of the building illustrates the new shape of office life, with a minority of traditional individual workstations. Instead, space is used in a variety of collaborative formats – from phone booths for one worker to isolate themselves on calls with remote colleagues, to breakout rooms for teams of two, four or more, with or without screens to share. Real estate is allocated on a hotdesk basis, with staff booking rooms or workstations through an internal online system in advance of showing up at the office.

Bergin says that the business experienced no drop in productivity when office staff were locked down at home. “We have embraced the blended working approach,” he says. “There hasn’t been a rush back to offices, we haven’t pushed people back to offices. But there seems to be a trend emerging that people want the energy of everybody being back.”

To avoid individuals finding themselves isolated in a near-empty office at first, Tirlán now encourages clusters of connected people to come to the office at the same time on given days. “We’ll play that as it unfolds. We would like to get the energy of full teams being back together and working together,” Bergin says. “But we haven’t mandated it.”

The move leaves the company’s existing office building at its Ballyragget milk processing plant available for use by local factory staff, while leases will terminate on other rented satellite offices. Tirlán continues to own Glanbia House, its former joint head office with the PLC on Kilkenny’s outer ring road, and Bergin says it remains leased to Glanbia under a long-term contract.

More debt than other co-ops – but also more assets

To regain full control of its business, Tirlán has borrowed a lot of money. In January, the co-op raised €250 million in bonds backed by a portion of its Glanbia shares representing a stake of around 5.5 per cent in the PLC, as covered in detail at the time. The debt issuance allowed the co-op to leverage its Glanbia shares without selling too many of them at a time when the stock price was relatively low.

The transaction allowed Tirlán to raise the funds from bondholders at a fixed interest rate of 1.875 per cent over five years before the recent rate hikes. But it also doubled the business’s debt pile: As of the start of this year, the co-op had finished repaying a similar €100 million bond raised in 2016, while its operating business owed €260 million in bank debt, according to accounts recently closed as at April 2 and seen by The Currency. 

The Tirlán group’s new combined liabilities to banks and bondholders therefore stand at over €500 million – higher than their previous peak of around €460 million at the end of 2018, as the business completed a large industrial investment programme to expand processing capacity on the back of the 2015 abolition of milk quotas.

On paper, this makes Tirlán more indebted than comparable farmer-owned milk processors in Ireland. The key metric to compare a dairy co-op’s value is its milk pool. Tirlán collects 3 billion litres annually and therefore owes €167 million per billion litres. At just half this volume (1.49 billion litres), Dairygold reports a comparatively smaller debt of €136 million, or €91 million per billion litres. And the 2 billion-litre co-op Lakeland Dairies has much smaller debt again of just €27 million or €13 million per billion litres.

The big difference, however, is that Tirlán has something on the asset side of its balance sheet that none of these competitors have: nearly €1 billion worth of Glanbia PLC stock.

“It was done at the right time, in January, before we had a huge amount of turbulence.”

Jim Bergin

“We’re happy with the terms of the bond,” Bergin says. “It was done at the right time, in January, before we had a huge amount of turbulence and before we had a war.” He also lists a number of safeguards protecting the business from the burden of this new debt.

The bond was raised at the level of the co-op – the top holding entity in the Tirlán group – which continues to draw dividends from its Glanbia shareholding. Bergin points out that these have increased by 10 per cent this year: “There is an income stream there and the expectation and the projections within the co-op are that the cash balance within the co-op will increase as we go along.”

The bonds are convertible, giving bondholders the right to redeeem them in the form of Glanbia shares currently held by the co-op if the value of that stock increases by 35 per cent or more at any point in the next five years. Bergin says Tirlán would be happy to part with the portion of its Glanbia stake pledged to bondholders in that case, because the rise in stock value would be extremely good news overall. “The logic behind that is that if the PLC shares get to into that zone where they will be convertible, the value of the co-op will have increased substantially, by €400 million to €500 million, so everybody is gaining,” he says.

As the new debt was contracted by the co-op and is secured on its Glanbia shareholding, Bergin adds that this liability is completely independent of the industrial business. “It has no impact whatsoever on the performance of the operating business. And because of the creation of the investment fund, it actually doesn’t have an impact on our ability to invest,” he says.

“Not a pure co-op”

There has been concentration among dairy co-ops in the past, such as Lakeland’s acquisition of LacPatrick in 2019 or last month’s announcement that Arrabawn’s fresh milk business would transfer to Aurivo, resulting in the closure of a plant in Kilconnell, Co Galway. With its financial capacity, would Tirlán be interested in leading another merger between co-ops now that it is no longer tied into a cumbersome joint venture with Glanbia?

“You never say never,” Bergin says. “But as we stand, we believe that we have a business of the scale that can prosper and succeed in the world and grow in itself.” If a merger happened, it would be as a result of “attrition”, he adds – with a smaller player likely seeking a rescue from Tirlán in a difficult situation, like LacPatrick did when it sold itself to Lakeland.

Yet the investment in Glanbia that provides Tirlán with its financial strength would also make it difficult to conduct a merger between equals. While the principle of a co-op is that each share is worth €1, Bergin points out that the latest in a series of spin-outs allowing members to convert co-op shares into Glanbia shares to free up value released €150 million earlier this month, representing a see-through value of over €44 per co-op share.

This is essentially the steep cost members of another co-op would have to pay if they were to join Tirlán and share into its Glanbia treasure chest without diluting existing Tirlán members. “It’s difficult to reconcile that,” Bergin warns. “We’re not a pure co-op in that way that a pure merger could happen easily. But the co-op sector here is very strong, so from that point of view, it’s hard to see what might happen.”

Then he adds: “We’re not setting out on any kind of crusade in terms of consolidating the sector. We have great opportunities to invest from within our own business. And we’ll focus on that.”