Glanbia Co-op launches Advance Payment Scheme

Glanbia Co-operative Society (the Co-op) today announced the creation of a €55 million Glanbia Advance Payment (GAP) Scheme that will offer interest free cashflow support to member suppliers in periods when milk and grain prices are weak.

Participation in this voluntary scheme will allow members to draw down cashflow support from the Glanbia Advance Payment (GAP) Scheme when the market prices for milk and grain fall below specific levels or “price triggers” set annually by the Board of the Co-op. The interest free repayments to the GAP Scheme will be triggered when markets recover above specific levels.

All Glanbia member suppliers of milk and grain will receive an application form for this optional Scheme in the coming weeks.

The Glanbia Advance Payment (GAP) Scheme is a dynamic volatility measure which will be in place between May 2016 and December 2020. The GAP Scheme is the latest in a suite of innovative mechanisms developed by Glanbia to help its member suppliers cope with income volatility. Other mechanisms in place include Fixed Milk Price Schemes, the €100 million MilkFlex Loan Product and the 2016 Member Support Package of €37 million.

The announcement was made today by the Chairman of Glanbia Co-operative Society, Henry Corbally and the Minister for Agriculture Food & the Marine, Michael Creed TD.

Commenting at the launch, Minister Creed said:

"I want to congratulate Glanbia on its "GAP" initiative. Cash flow is a critical issue for farmers at present, in the prevailing difficult market conditions. Price volatility is a reality in commodity markets and it clearly is in the best interests of the dairy and grain sectors that processors take steps to protect suppliers from its worst impacts.

“This innovative scheme provides vital cash flow to farmers in times of market difficulty, with interest free repayments required only when markets recover. It is a positive and practical response to price volatility and I commend Glanbia on its initiative."

Henry Corbally, Chairman of Glanbia Co-operative Society, added:

“One of the core principles of Glanbia Co-op is to support our active members and the Glanbia Advance Payment (GAP) Scheme is the latest initiative developed by Glanbia to help its member suppliers cope with income volatility in this current period of weak market returns. “Through the distribution of over €600 million to our members in Share ‘Spin-Outs’ and Support Funds over the last three years, as well as Fixed Milk Price and the MilkFlex Loan Schemes, Glanbia has been doing what it can to protect our farmers from the extremes of market volatility. “The aim of the GAP Scheme is to deliver interest free cashflow support to members who supply milk or grain to Glanbia. The GAP Scheme has been developed because it became clear to the Co-op Board that the depth and duration of the current downturn in global market prices required additional measures to support our active members at this time.”

The €55m Glanbia Advance Payment (GAP) Scheme is being funded by Glanbia Co-operative Society through the launch of an Equity-Linked Exchangeable Bond. This is an innovative financial product that leverages the strength of Glanbia plc. The Co-op will raise €100 million by issuing a five year Exchangeable Bond linked to a pledge of approximately 4.3 million Glanbia Plc shares. The Co-op retains full ownership of the 4.3 million shares unless the exchange is exercised.

Glanbia Co-operative Society Limited

Glanbia Co-operative Society Limited is Ireland’s largest and most valuable Co-operative, with over 16,000 members and a current value of €1.9 billion. The Co-op is the largest individual shareholder in Glanbia plc, the global nutrition company, with approximately 36.5% of the issued share capital of the Company. The Co-op also owns a 60% shareholding in Glanbia Ingredients Ireland Limited, the number one dairy processor in Ireland, processing 2 billion litres of milk and exporting dairy products to over 60 countries.

For participating milk suppliers who are members of the Co-op the voluntary Glanbia Advance Payment (GAP) Scheme will operate for 2016 as follows:

• The GAP Scheme will automatically advance a maximum payment of 2 cent per litre (cpl) on liquid and manufacturing milk supply (excluding volumes in fixed milk contracts) in any month where the base Glanbia Ingredients Ireland (GII) manufacturing milk price (including VAT) falls below 24 cpl.
• Participating member supplier will not incur any interest charge for advance payments from the GAP Scheme.
• The trigger for interest free “return” payment to the GAP Scheme will be a GII base manufacturing price above 30 cent per litre including VAT. Return payments will be set at a maximum of 2cpl.
• The GAP Scheme is available to all manufacturing and liquid milk suppliers that are members of Glanbia Co-operative Society.
• The “working bands” adjustment will be taken into account when determining the trigger points in the operation of the scheme for liquid milk suppliers.
• During the low-volume/high cost production months of November to February inclusive, participating milk suppliers will not be required to make any return to the GAP Scheme - regardless of the prevailing milk price.
• Any advance payments which are not recovered by the GAP Scheme by the end of 2019 will be recovered over the months of January to December 2020. For participating grain suppliers who are members of the Co-op the voluntary Glanbia Advance Payment (GAP) Scheme will operate for 2016 as follows:
• The advance payment on 2016 grain deliveries is set at €20 per tonne (on a maximum volume equal to the grower’s 2015 harvest supply).
• The trigger for a grain advance payments from the GAP Scheme is a MATIF (Euronext exchange) price of €180 per tonne of wheat. This is equivalent to a green wheat price of approximately €135.
• As this payment trigger for 2016 has been reached, Glanbia Agribusiness will write to members offering GAP Advance and members will have a 1 month window to apply
• Successful applicants will receive payment in September 2016 for green grain or the applicable contract payment date for dried grain.
• The 2016 trigger for a grain “return” payment to the GAP Scheme is a MATIF (Euronext exchange) price of €205 per tonne of wheat. This is equivalent to a green wheat price of €160 per tonne.
• After 31 July 2016, if the trigger is reached, “return” payment to the GAP Scheme is must occur within 12 months facilitated by grain contra or grower cheque at Glanbia’s discretion

Equity-Linked Exchangeable Bond

• The €55m Glanbia Advance Payment (GAP) Scheme has been created by Glanbia Co-operative Society through the launch of an Equity-Linked Exchangeable Bond. This is an innovative financial product that leverages the strength of Glanbia plc.
• An exchangeable bond or exchangeable note or exchangeable loan is a type of loan that the holder can exchange into a specified number of shares in the issuing company or cash of equal value.
• From the issuer's perspective, the key benefit of raising money by selling Exchangeable Bonds is a reduced cash interest payment.
• The Co-op will raise €100m by issuing a five year Exchangeable Bond linked to a pledge of approximately 4.3 million Glanbia Plc shares. The Co-op retains full ownership of the 4.3 million shares unless the exchange is exercised.
• Given the scale of the Co-op the Board felt it was appropriate to issue an exchangeable Bond to a value greater than the €55 million required for the GAP Scheme with the balance available to the Co-op for future general purposes.