I move: "That the Bill be now read a Second Time".
The purpose of the Bill is to provide for certain matters relating to the restructuring of Siúicre Éireann CPT. The primary function of this legislation is to provide for a restructuring which will enable the company to pass from State to a more widely diffused ownership in partial privatisation.
Before discussing the Bill I would like to set out in general terms the process which has now culminated in the Bill being placed before the House. Because of their concern for the future of the Sugar Company, in early 1989 the Government commissioned a study on the affairs of Siúicre Éireann and on their future development. Consultants were appointed and given the following terms of reference: (1) to review the operations of Irish Sugar; (2) to report on any restructuring or other developments considered necessary to ensure their long term commercial viability and growth; (3) to assess the economic and financial implications of any recommendations; and (4) to complete the review and submit a report by the end of March 1989.
The consultants reported in May 1989 and, in evaluating the options for the future of Siúicre Éireann, concluded that the company could not remain static if their long-term commercial viability and growth were to be ensured. In September 1989 the Government having considered the report decided that further analysis of the future options for the company was required. Accordingly a smallad hoc group were set up representative of my Department, the Department of Finance, the Industrial Development Authority and Siúicre Éireann, to prepare a report on all the options for the company's future, including diversification, with a minimum of financial risk.
The group examined three basic options for the future of Siúicre Éireann. These were: (1) the continuation of the present activities and structure; (2) total privatisation; (3) partial privatisation and commercial development of the company while retaining a degree of State control over their sugar operations and the sugar quota.
Before commenting on the various options for the future of the company I would like to sketch out briefly some facts about Siúicre Éireann.
Siúicre Éireann are, as of now, a public limited company with an issued share capital of £66 million comprising 65.5 million ordinary shares of £1 each and 0.5 million 6 per cent cumulative preference shares of £1 each. The Minister for Finance holds all the ordinary shares save a small number of qualifying shares held by directors. The 0.5 million preference shares are held by various investors.
The main activity of the company is the processing and distribution of sugar. They have almost 100 per cent of the market for sugar in the State and 70 per cent of the market in Northern Ireland and a small market for industrial sugar in Great Britain. The company are also involved in the food sector and in the recent past have made a number of acquisitions in this area, the most significant of which was a 50 per cent share in Odlums Ltd. with options on the purchase of the remaining 50 per cent. Agri-trading is the principal other activity of the company who are also involved in recently commenced joint ventures with private companies, notably in Thurles.
The company have reported net profits on ordinary activities since 1986 and had a record after tax net profit on ordinary activities of £15.353 million in the year ending 30 September 1989 compared with £11.886 million in 1988. During the period of recovery, profits were applied in reduction of borrowings and large accumulated losses which had been incurred prior to 1986.
Turnover in the year ending September 1989 was £216 million made up as follows: sugar division, £125 million; food division, £34 million; and agri-trading division, £57 million.
The turnover consists largely of Irish sales with only £36 million accounted for by sales outside the State.
The financial results of the company for year ending September 1990 are due to be published shortly, and it is expected that they will show an increase in profits over last year's figures.
In the year to 30 September 1990 the company employed 1,757 people compared with 1,556 the previous year. This increase, the first in many years, was essentially as a result of acquisitions during the year. I am happy to report that at the end of 1990, 187 new jobs had been created in the joint venture replacement industries in Thurles and the target of 384 for the end of 1992 is very clearly realisable. I am glad to say also that, as regards the old Tuam sugar factory site, planning permission has been sought for the building of a 20,000 sq. ft. advance IDA factory which will bring a new industry to the area. The Sugar Company will contribute to the cost of this factory, in the context of their commitment to the establishment of new industries in the area following the closure of the sugar factory there.
The company have undoubtedly made substantial financial progress in recent years and have rigorously pursued a programme of cost competitiveness. This programme was a difficult one and tough decisions were taken. The results of these decisions can now be seen in the performance of the company and in their improved financial position. However, apart from the excellent work of the board, management and staff a major factor in turning the company around was the significant capital investment by the Exchequer. The Exchequer contributed £30 million equity in 1982, £20 million in 1983 and £9 million in 1987. This was a major injection which brought the total Exchequer equity up to £65.5 million. There has been and continues to be a considerable cost to the State arising from the provision and servicing of these funds. As mentioned earlier, no dividend has been paid because of the legal ban on any such payment until accumulated losses have been cleared. In addition, because of protracted loss-making, the company have paid little corporation tax.
The proposed legislation, when enacted, will at last enable the State to get some return for its investment. This will be achieved both through the sale of shares and the payment of dividends on the residual Exchequer shareholding following the proposed flotation which I shall refer to shortly.
I would now like to turn to the different options considered by thead-hoc group to which I have referred. I will refer first to the option of continuing the present activities and present structures of the company.
On the basis of the company's excellent performance in recent years they are expected to continue to operate profitably in the medium term. The company could therefore continue with the present range of activities and concentrate on further rationalisation as necessary. On that basis the shareholder could expect a reasonable dividend this year and for some period thereafter. However, this approach would be appropriate only if the company were prepared in the longer term to remain in a static rather than a dynamic position. They are not prepared to do that and in any event the environment in which they are likely to have to operate would not allow them to do so. Possible changes in the Community sugar regime, the outcome of GATT negotiations and the fact that in European terms the company is a moderately sized player in a market tending to be dominated by the large, all point to the need to diversify and expand their base. The future success of the company in their existing activities will thus be dependent on their ability to adapt continually to changes in their business environment.
While a continual reliance on the core business of the company would yield a return to the Exchequer in the form of receipts from dividends in the short to medium term, such a policy would not provide a basis for the growth and development of the company. Acceptance of this option, even for a limited number of years, would place the company on an irreversible course from which they could not generate the resources to recover.
There is also the consideration that the disposal of shares by the State at a later stage, if in the meantime the company were to continue only with existing activities, would fail to maximise the return on the State investment.
The business environment changes affecting Siúicre Éireann make it imperative for the company to embark on a policy of carefully planned expansion away from its existing core business into areas that are complementary and in which their operational, technical and managerial expertise can be applied to good advantage. Indeed the programme of rationalisation that had been undertaken by the company in recent years must be viewed as the first but significant step to ensuring this future prosperity. Continued reliance on the core activities is unrealistic as it offers limited prospects for the long-term future of the company and their employees or an acceptable return to the State on its investment.
The second option — total privatisation of the company — was not considered as suitable. Such a course now could ensure that the Government would realise a short-term Exchequer benefit on its investment in Siúicre Éireann. However, the company would be particularly attractive to other EC companies which would anticipate maximising economies of scale and-or rationalisation. A sale on that basis could have particularly negative effects on employment and on the future of beet growing in Ireland. In addition, there would be no guarantee that any of the profits from future sugar operations would be invested in Ireland.
The restructuring of the company on the basis of partial privatisation and commercial development while retaining a degree of control over their sugar operations and the sugar quota was the final option examined by the group. This was examined in the context of what the group saw then as the future requirements of the company.
They considered various possibilities for the commercial development of the company and concluded that they need to diversify and broaden their commercial base. They took the view that such commercial development should be undertaken largely by means of acquisition and-or joint venture so as to minimise the risk for Siúicre Éireann. However, they recognised that while the development of the company cannot be financed solely from internal resources or by borrowing, the Exchequer should not be required to provide additional equity capital for development purposes. They concluded that funding for development purposes would have to be partially obtained by way of additional equity and that this equity should be raised by the issue of new shares on the stock market following flotation of the company.
The group's recommendation, subsequently accepted by the Government, was to pursue the option of partial privatisation provided that it would be carried out in such a way as to afford reasonable safeguards for the Irish sugar industry, yield a reasonable return to the Exchequer and ensure as far as possible the future viability of the company.
In reaching their decision the Government were mindful that partial privatisation would represent a fundamental change in the status of the company. However, they considered that the conditions which originally existed and justified exclusive State control no longer apply. As indicated, the future success of Siúicre Éireann is dependent on their developing a dynamic and fully commercial approach to the conduct of the business in which they are engaged.
Further commercial development of the company is unavoidable. It is essential that they be in a position to avail of opportunities for growth and expansion that may emerge and be able to explore commercial sources of finance for such purposes. It would not be either appropriate or practicable that the company should be dependent on the State for approval or finance. Therefore, it is desirable to give the company access to equity from the capital markets by way of a flotation on the Stock Exchange. In view of the size and profitability of the company and the potential for further improvements I am confident investors will welcome the opportunity to become involved with them, thereby contributing to their successful launch on the Stock Exchange.
I should stress — and the House will be aware — that the capital markets are a demanding taskmaster and investors demand high standards of performance from publicly quoted companies. A track record of returns by way of dividend and capital appreciation of share values is essential if a company is to expect investors to put up funds for acquisitions and development. Accordingly, once Siúicre Éireann, or to be more correct their proposed holding company, Greenvale plc, is set up and floated on the Stock Exchange, they can expect to be subjected on a continual basis to detailed analysis by investing institutions and individuals. Investors will continue to support the company and meet demands for injections of additional equity as long as they are delivering a satisfactory return on their investment.
Already Siúicre Éireann are in the top flight of agri-business entities operating within the State with higher profits than any other company in the sector. Furthermore, I am satisfied that they have the requisite ability to meet the demands of investors and, as a result of access to market funding, will develop in time into a very substantial food company.
I am mindful of the fact that the employees and the suppliers of raw materials to the company, in particular beet growers, will be anxious to ascertain if the flotation will have significant implications for them.
Neither workers nor suppliers have anything to fear from the flotation. On the contrary, the overall strengthening of the financial base of the company arising from the flotation can be to their advantage only. Beet growers and employees of course, will approach certain individual issues from a different perspective to that of the company. There will always be negotiations on matters such as prices and wages. However, in a growing and profitable company — such as I expect Greenvale to be — these matters should continue to be capable of resolution without particular difficulty.
It is the Government intention that beet growers and employees will be asked to subscribe for shares in Greenvale. I believe this is an important development. These groups, as shareholders, will have an active interest in the company and benefit from its development by way of dividends and the capital appreciation of their holdings. The terms on which shares will be made available to beet growers and employees will be discussed with the two parties involved.
One point on which concern has been expressed since the publication of the Bill is that of the rights of employees following flotation. The position is that workers' interests are already protected under the European Communities — safeguarding of employees' rights on transfer of undertaking — Regulations, 1980. However, in order to reassure workers on this point I intend moving, on Committee Stage, an amendment underlining the rights of employees. This will provide specifically that the rights which employees of Siúicre Éireann or its subsidiaries hold before the date on which the Minister for Finance transfers his shares in Siúicre Éireann to the new holding company will continue to be held by them on and from that transfer date. Provision will also be made to ensure that employees will not suffer any less favourable terms under their pension or superannuation schemes after that transfer date.
In addition, I should add that Siúicre Éireann has indicated to ICTU a willingness to confirm formally a number of commitments, in writing, relating to employees' conditions subsequent to the restructuring of the company. These commitments are as follows: no interruption in continuity of employment; current rates of pay and conditions of employment will continue to apply; continued recognition of existing trade unions; and existing procedures for determining rates of pay and conditions of employment, including redundancy terms, will continue to apply. The company are willing to register these commitments in the Labour Court and with the new Labour Relations Commission.
I would now like to make some comments on the food industry. While Siúicre Éireann, with a turnover of £271 million in the year to September 1990 and over 1,700 employees, is a substantial company in Irish terms, it is quite small by international standards. It is generally accepted that for companies to be viable and internationally competitive in the agri-food business in the long term, they must be of a size which is somewhat greater than Siúicre Éireann as presently constituted.
Given my responsibility for the food industry and its relevance to the future of Siúicre Éireann I would like to take the opportunity to speak in particular about the challenges posed by 1992 for Irish food companies. The future offers the prospect of a general restructuring of the food industry in Europe. There are likely to be an increased number of mergers and acquisitions which in turn should result in lower costs and greatly increased competition. In considering the size of the resultant big EC companies one must remember that they in turn will be smaller than some of their competitors on the world food stage.
Irish food companies will never be as big as the giant European and US companies. However, that does not mean that they cannot succeed in the Europe of the future. There will be plenty of room for relatively small companies, even though they will have to be large in Irish terms as presently understood. The companies that succeed will be those that recognise that the different elements of the European market will no longer be self contained but will be interacting with each other. It can be expected that customer tastes and preference will begin to overflow country boundaries while prices will be increasingly affected by European rather than local considerations.
While the small scale of Irish food companies is a disadvantage, their ability to source high quality raw materials at a relatively low cost is a major advantage. Siúicre Éireann have in recent years displayed abilities which should stand them well in their drive to become a successful food company in the nineties. They have been successful with branded sugar products in Ireland while Odlums is a household name. Developing international brands is an expensive and difficult process. The larger Irish food companies are conscious that apart from the brand route which can be so difficult there are substantial opportunities in Europe for trading directly with other companies.
Sale to other manufacturers, own-label production, joint ventures and supplying the catering industry are but a few examples of the opportunities that exist. Siúicre Éireann have developed markets with other manufacturers for sugar with some considerable skill and are well placed to use this experience in pursuing new developments in Europe over the coming years.
I now turn to the particular provisions of the Bill. Section 1 is the standard definitions section and requires no specific comment.
Section 2 allows the Minister for Finance to exchange his shares in Siúicre Éireann for shares in the new holding company which as I mentioned earlier, is to be called Greenvale plc. It also enables the Minister for Finance to acquire further shares in the holding company with the required funds being advanced from the Central Fund. He may also, following consultation with the Minister for Agriculture and Food sell or dispose of shares in the holding company as he sees fit. Funds received in respect of share sales and dividends must be paid into or disposed of for the benefit of the Exchequer.
This section also allows the Minister for Agriculture and Food to acquire a special share in the holding company. This share is analogous to the "Golden Share" issued in privatisations in other European countries in recent years, notably in the UK and France. The purpose of the special share is to ensure that the State can effectively exercise certain specified control over the sugar operations of the company while reducing its own shareholding below 50 per cent.
The special share is designed principally to ensure that none of the following events can arise without the prior consent in writing of the special shareholder: any change in certain specified articles in the Articles of Association of the company; the winding up of the company; the sale of more than 49 per cent of Siúicre Éireann which, following the Stock Exchange flotation, will be a subsidiary company of Greenvale plc; the disposal of specified sugar assets including the Irish sugar quota held by Siúicre Éireann; the creation of a new class of shares in the company; and the building up by one shareholder or a consortium of shareholders, other than the Minister for Finance, of more than a 15 per cent shareholding in the company after flotation. The above points are dealt with in some detail in the Articles of Association of Greenvale.
I should mention at this stage that it is the intention of the Government that the Minister for Finance will only dispose of sufficient shares on flotation to bring his holding down to 45 per cent.
In conclusion on the special share, I could summarise it as being a device to prevent the disposal of the controlling interest in Siúicre Éireann or the sugar assets and to prevent a shareholder or group of shareholders acting together from gaining control of Greenvale.
A further provision in section 2, which I should mention, is that enabling the Minister for Finance following consultations with the Minister for Agriculture and Food to sell or dispose of his shares to such specified persons and on such terms and conditions as he may prescribe by regulation. The intention of this section is to facilitate the sale of shares to employees and beet growers.
It is as I indicated earlier, the intention of the Government to encourage the employees and beet growers to invest in Greenvale and to this end the Minister for Finance will dispose of some of his shareholding to these groups or alternatively new shares may be issued to them.
Section 3 provides that the two ministerial shareholders may exercise all their rights attaching to the shares in the holding company, which is Greenvale, including, where applicable, the exercise of those rights by attorney or proxy.
Section 4 deals with the allotment of shares and empowers the two ministerial shareholders to appoint nominees and to transfer shares to such nominees to act on their behalf. The section sets out the rights and duties of nominees and the power of the Minister to issue directions.
Section 5 grants relief from stamp duty on any agreement, transfer, conveyance, assignment or lease whereby any business, assets or liabilities of Siúicre Éireann, or shares held by them are transferred to the holding company. This relief is a common feature of group reconstructions.
Section 6 provides for the repeal of the Sugar Manufacture Acts while section 7 is a standard provision relating to any expenses arising under the Act. Section 8 is another standard provision and deals with the laying of orders before the Houses of the Oireachtas. This provides for the orders to apply immediately but states that they may be annulled by either House within 21 sitting days. Section 9 contains the usual citation and commencement provisions. The Act will come into operation on such day or days as the Minister for Finance may determine following consultation with the Minister for Agriculture and Food.
Deputies will understand that I felt obliged to speak at some length on the Bill. It is important legislation and it was necessary to explain the background and the need for changes in some detail. I am sure that Deputies will respond in a positive manner. I will deal with any specific points raised in my reply to the debate.
I commend the Bill to the House.