Bank of Ireland - ifa.ie · PDF fileDairying is the most profitable main ... to position us as the leading business bank in Ireland ... Bank of Ireland is regulated by the Central

Bank of Ireland

A Framework for Dairy

March 2015

Bank of Ireland Information Classification: Green

BOI information classification : Purple - confidential 2

• Dairy Sector Investment Requirements.

• Bank of Ireland Agricultural Market Position

• Typical Information Required.

• Expansion- Key Parameters

• Farm Plans + Cash Flow Planning

• Volatility Management.


Commitment and knowledge to build relationships and to tailor solutions for your business

Contents


Agri Sector Overview - Dairy




Dairy Sector Investment Requirements Research

FH 2020

•••

€1.5bn - €1.9bn likely to be invested.

•••

Prevailing milk price will

determine level of investment

•••


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



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

•••




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

•••






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


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




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




How do we assess a loan application?

•••

Ability to repay is the key

consideration

•••

Security is secondary

•••


• 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



•••

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


Calculating Debt Service Cover (DSC)


Financial Accounts Analysis

Farm Accounts

•••

We all prepare Farm Accounts.

•••

Do we use them to help run our

businesses?

•••


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


Security

•••

Ability to Repay is the Key

Consideration

•••

Security is secondary

•••


• 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.


Farm Management

•••

Animal Breeding

&

Grassland Management

have improved

•••

Financial Management

offers additional productivity

gains

•••


Herd Management & Productivity

Financial Management


Why Plan?

•••

Financial Planning

•••

Plan now to benefit in future

•••


• 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



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

•••




Volatility

Volatility

•••

No single Solution

•••

Willingness to take on risk will

determine approach

•••


Volatility

Fixed Milk Price

Fixed Interest

Rates

Cash Reserve

Agri-Flex



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


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.


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

•••




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

•••




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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Bank of Ireland - ifa.ie · PDF fileDairying is the most profitable main ... to position us as the leading business bank in Ireland ... Bank of Ireland is regulated by the Central