Analysis Milk
Milcobel divests crown jewels with Ysco sale
As a bolt from the blue, Milcobel announced yesterday that the ice division Ysco is being sold to two investment companies of American and Turkish origin. The Belgian dairy cooperative had already announced plans for a significant reorganization, but it is remarkable that one of the few highlights of the financially challenging years is being divested. Moreover, the dairy farmers who are members will directly share in the sales proceeds.
In the press release, Milcobel lists numerous reasons why it is better to sell its subsidiary Ysco. Perhaps the most striking reason is that the rapidly growing and consolidating ice sector requires significant investments, which can be better managed by investment companies with substantial capital. While it is not directly stated that they lack the funds themselves, the motivation indirectly implies so. This is also evident when looking at Milcobel's balance sheet. The Belgian dairy cooperative has been facing rough waters for years and is underperforming compared to its competitors. In 2023, a new low point was reached with a loss of almost €12 million. The solvency of just over 25% is also tight.
'Turning every stone'
To turn the tide, the strategy needs to be overhauled. Former CEO Nils van Dam was sacrificed earlier this year because his vision no longer aligned with the board. He was replaced by Peter Grugeon, a seasoned professional with experience in the dairy industry. Upon taking office in June, he announced that he would have to 'turn every stone' to achieve positive results again. This remarkable statement already suggested that significant changes were underway at Milcobel and likely more changes are yet to come. Earlier, some poorly performing and outdated drying towers were shut down. The announced sale of the private label player Ysco, which had been one of the few bright spots in the group's results in recent years, is less straightforward.
Using money wisely
Milcobel does not disclose the amount of money the sale will generate. However, it is mentioned that they can make good use of the funds to invest in their own production facilities, which should enhance the valorization of milk. Additionally, reducing debts can boost the milk money. In any case, the members will benefit directly from the sale, as a portion of the proceeds will flow back to them. All of this is subject to approval by the authorities. This is unlikely to pose significant issues, as no other major ice cream maker is taking over Ysco.
Over a quarter of revenue at stake
If the deal goes through, Milcobel will lose over €400 million in revenue, which accounts for more than a quarter of the total. Consequently, Milcobel will undergo significant downsizing and will lose a key player in its product portfolio. Nevertheless, the management consoles itself with the thought that Milcobel was one of the few remaining dairy companies with its own ice division. Therefore, it is not surprising that they are selling off their crown jewels. It is likely that the sale of Ysco will not be the end of it. In the press release, Milcobel casually mentions that they are exploring partnerships to further strengthen their dairy activities for the future.
Bonus for members
Lastly, it is noteworthy that Milcobel allows its members to directly benefit from the sales proceeds of Ysco, which is uncommon in such transactions. Perhaps the dairy cooperative is doing this to retain its members by giving them an extra bonus after years of often meager milk prices. Due to the arrival of Dutch dairy producers, Milcobel saw many members leave, and the competition for milk is still fierce.
