Bank of Ireland A Framework for Dairy March 2015 Bank of Ireland Information Classification: Green
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• Dairy Sector Investment Requirements.
• Bank of Ireland Agricultural Market Position
• Typical Information Required.
• Expansion- Key Parameters
• Farm Plans + Cash Flow Planning
• Volatility Management.
Bank of Ireland Information Classification: Green
Commitment and knowledge to build relationships and to tailor solutions for your business
Contents
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Agri Sector Overview - Dairy
Bank of Ireland Information Classification: Green
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Dairy Sector Investment Requirements Research
FH 2020
•••
€1.5bn - €1.9bn likely to be invested.
•••
Prevailing milk price will
determine level of investment
•••
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the country.
• €1.94 bn invested between 2007 – 2013.
• €1.5bn required to achieve FH 2020 ambition.
• Average debt levels on Irish farms about half of EU average.
• All Farms: €24,000
• Dairy Farms: €62,000
• Most Irish Farms have no debt
Bank of Ireland Information Classification: Green
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EU FARM Financials Comparison: Average Debt Levels
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
Tota
l Lia
bili
tie
s €
pe
r fa
rm
Netherlands €803,345 Denmark €1,470,169
•••
Average debt levels on Irish
farms about half of EU average
•••
Bank of Ireland Information Classification: Green
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Achieving the Food Harvest 2020 Target
• 50% more milk relative to the base
– 37% more relative to 2013/14 quota year
• Most of the extra milk will come from existing farms
– Increasing deliveries per cow (no capital cost)
– Converting beef to dairy (moderate capital cost)
– Significant expansion on land base (high capital cost)
• Remainder will come from new entrants
– Substantial capital requirements
FH 2020
•••
€1.5bn - €1.9bn likely to be invested.
•••
Prevailing milk price will
determine level of investment
•••
Commitment and knowledge to build relationships and to tailor solutions for your business
Bank of Ireland Information Classification: Green
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Bank of Ireland Information Classification: Green
Commitment and knowledge to build relationships and to tailor solutions for your business
We will help you assess funding by telling you the information and security that we require to process an application.
Bank of Ireland want to continue to support sustainable investment and growth in dairy farms
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Bank of Ireland – Our Market Position
•••
Funding 400 acres of land per
week.
•••
Introducing new agri manager
teams
t
•••
Regional teams of Agri
Managers working with
250+ local branches
>50% Lending to
Agri Market
Full range of products
from day-to-day banking to lending &
leasing
> 90% Approval
Rate
€1bn Agriculture
Fund
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What type of information do we need?
•••
Information requested to
make the right decision for the
bank and the customer
•••
• Up to date Farm accounts (multiple years )
• Bank statements (if new to bank customers)
• Confirmation of Farm Entitlements
• Profit Monitors/ICBF/ Milk statements
• Confirmation of off farm income & tax affairs
• Projections (especially where future cash flow will differ dramatically
from historic norms)
• Information requested to make the right decision for the bank and
the customer
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How do we assess a loan application?
•••
Ability to repay is the key
consideration
•••
Security is secondary
•••
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• Repayment capacity is the key lending consideration.
• Security Cover is also important, but is secondary to
Repayment Capacity.
• Evidence of cash contribution / recent farm investment
• Financial Track Record and Management Ability are Important.
• On farm efficiency measurement:
• 3 Years Financial accounts interpretation
• Profit Monitors, Milk statements, ICBF Herd Report
Bank of Ireland Information Classification: Green
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•••
Debt Service
Cover
•••
Cash In / Cash Out
= Debt Service
•••
1.2 Times Cover
•••
Stress Test
Interest Rates
•••
CASH IN CASH OUT
Enterprise income (dairy, beef, cereals, etc.)
Drawings (including taxation)
Basic Payment, Area based compensation, AEOS, GLAS, etc.
Existing farm loan repayments
Non farm income (PAYE typically)
Existing home loan / personal loan repayments
Proposed new loan repayments
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Calculating Debt Service Cover (DSC)
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Financial Accounts Analysis
Farm Accounts
•••
We all prepare Farm Accounts.
•••
Do we use them to help run our
businesses?
•••
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Net Profit +
Depreciation +
Interest =
EBITDA
EBITDA - Earnings before Interest, Tax, Deprecation and Amortisation.
EBITDA is available to service bank debt, farm investment, taxation & Living
Expenses
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Security
•••
Ability to Repay is the Key
Consideration
•••
Security is secondary
•••
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• Typically necessary once borrowings > €65k
• First Legal Charge over Land
• Values in line with National and Regional Averages
• 70% Maximum Loan To Value
• Independent access, additional burdens on folios, rights of
residence, etc.
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Farm Management
•••
Animal Breeding
&
Grassland Management
have improved
•••
Financial Management
offers additional productivity
gains
•••
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Herd Management & Productivity
Financial Management
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Why Plan?
•••
Financial Planning
•••
Plan now to benefit in future
•••
Commitment and knowledge to build relationships and to tailor solutions for your business
• Efficient Before Expanding
• Core Costs under Control?
- How many farmers here know their Costs (cent per litre) ?
- How many farmers use Farm Accounts to help plan business?
• Properly Costed Plans - Stress Tested
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2015 versus 2014 (potentially!)
400k litres
€32,000
Milk Sales
Cattle Sales
Essential Costs
Non Essential Costs ??
Overdraft Limit
• Do a cash flow budget for 2015
• Teagasc / Consultant / Accountant :
• It’s your cash-flow
• It should be your budget
•••
It’s your cash
•••
It should be your budget
•••
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Volatility
Volatility
•••
No single Solution
•••
Willingness to take on risk will
determine approach
•••
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Volatility
Fixed Milk Price
Fixed Interest
Rates
Cash Reserve
Agri-Flex
Bank of Ireland Information Classification: Green
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AgriFlex in action
FARM DESCRIPTION
Land 125 acres
Annual Production 415,000 litres
Borrowed in 2013 €200,000
Term 12 years
Rate 5%
Loan repayments €1,850/ month
Repayments Up to date
Assume milk price drop 25% • 34c/l down to 26c/l
= 8c/l Drop
• Impact on cash flow
€16.6k drop in income over 6 months
AgriFlex
•••
Flexible lending product that
reflects commodity price
volatility and impacts on farm
cash flows
•••
With Agri-Flex
• Can apply for 6 months interest only
• Monthly payments reduce to €727.
• Cash Flow saving of €7k.
• After 6 months milk price increases and repayments resume C&I with term extended by 6 months.
• No increase in Loan Interest Rate
Bank of Ireland Information Classification: Green
Please note that the overall cost of credit and loan repayment term will increase by €4,362 and 6 months respectively as a result of Agri-flex in this example.
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Lending to the Diary Sector - Observations
• Major Variations in Efficiency
• Expansion impacts efficiency in early years.
• Profit Monitor : €700 per cow= €56k on 80 cows
• Projections… (Projected Costs versus Historic Costs)
•••
Dairying is the most profitable
main stream farm enterprise.
•••
Bank of Ireland will support
sustainable Dairy Farm Expansion
•••
Bank of Ireland Information Classification: Green
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Conclusions
• Bank of Ireland optimism for agri sector; volatility will play a role.
• Long term commitment means a Long term view.
• Capital & appetite to support the development of the agri. Sector.
•••
Bank of Ireland has a
relationship-based approach to position us as
the leading business bank in
Ireland
•••
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Disclaimer
Warning: If you do not meet the repayments on your loan, your account will go into arrears. This may affect your credit rating, which may limit your ability to access credit in the future.
This document has been prepared by Bank of Ireland Business Banking for informational purposes only. Not to be reproduced without prior permission. Any information contained herein is believed by the Bank to be accurate and true but the Bank expresses no representation or warranty of such accuracy and accepts no responsibility whatsoever for any loss or damage caused by any act or omission taken as a result of the information contained in this document.
Lending criteria, terms and conditions apply. Security and Insurance may be required. Loans are not available to anyone under 18 years.
Bank of Ireland is regulated by the Central Bank of Ireland.
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