Food System

Inalpi, Coldiretti and Compral Latte. #CleanSpades

August 21, 2021

188

Inalpi SpA, with the support of Coldiretti, obtained from its first milk suppliers-Compral Latte cooperative society-a gift of 5 million euros. Through agreements to underwrite its venture capital, including offsetting debts on supplies.

The risks to suppliers could further escalate as the ‘Inalpi bond converting 2021-2036-2041‘ may reach 15 million euros in total. On the basis of a balance sheet where heavy debt is the only certain item with no guarantees.

The news exposed by the writer on 7/19/21 (1)-which in other countries would have triggered investigations by the judiciary and supervisory bodies-instead stimulated a press release, on 7/22/21. Ove Inalpi S.p.A. tries to sugarcoat the bitter pill administered to its milk suppliers.

In the shameful silence of the press organs, an in-depth look at a case that could set the standard. #CleanSpades.

Table of Contents

Inalpi SpA, press release 22.7.21

Inalpi’s press release celebrates the resolution of the extraordinary meeting of Compral Latte by which ‘the approximately two hundred members, representing 250 member companies‘ resolved ‘to participate in Inalpi’s investment plan for the second sprayatura tower. Investment plan that, it is pointed out, is not even adumbrated in the regulations of In.Al.Pi.’s bond issue. SpA.

Compral Latte president Raffaele Tortalla, ‘in light of a careful analysis of the opportunities it represents,’ states that ‘the €5 million portion of the convertible bond issued by the Moretta-based company […] will be financed by the transfer of 1 cent for every liter of milk delivered.’ An evocative tale that neglects payment terms, however, to follow.

Inalpi, payment terms

110 days is the average of Inalpi’s invoice payment terms in the period between May 2020 and April 2021 (68.5 is the industry average). Cerved’s analysis, in addition to noting these data, downgraded Inalpi SpA from ordinary to ‘low solvency‘ level, as of 12/31/20, with € 43.1 million in accounts payable and € 172.3 million in total payables.

The euro cent on each liter of milk would take 1,000 days, nearly three years of regular supplies of 5,000 quintals/day, to reach € 5 million. But Inalpi SpA’s financing is expected when the venture capital is subscribed. Therefore, the 5 million euros are those already paid ‘in kind,’ with milk supplies to be paid in 15-20 years (hopefully) instead of 110 days. Or rather, within 30 days of delivery, as prescribed by EU Directive 2019/633.

A case that will set the standard?

”An extraordinary meeting in every sense of the word that the Compral Latte cooperative held in Cussanio,” Inalpi SpA’s press release rants. ‘This is a momentous event, “a case that will set the standard,” noted director [di Compral Latte Bartolomeo] Bovetti. Present at the proceedings, Coldiretti confederal delegate Bruno Rivarossa emphasized the uniqueness of the Piedmont milk supply chain.’

The opening of an investigation by the Public Prosecutor’s Office at the Court of Cuneo could in fact be a case-school where followed by the appointment of a judicial commissioner as an alternative to other precautionary measures, ‘taking into account its size and the economic conditions of the area in which it is located, significant impact on employment’. (2)

The case-school could occur in the event that the prosecutor believes there are serious indications of guilt regarding the crime of false corporate communications, where applicable, committed in the interest of Inalpi S.p.A. In addition to the periculum in mora that could affect a plurality of creditors, including the hundreds of cattle ranchers in Piedmont.

Inalpi 2020 budget, main critical issues

Whatever the development of the matter at hand, it seems incumbent to share the main critical aspects of In.Al.Pi.’s budget. SpA as of 12/31/20.

1) Closing inventory as of 12/31/20.

Closing inventories of raw materials, semi-finished and finished goods reach € 43.8 mln, in 2020, up 142 percent from € 18.1 mln in 2019. The increase of about € 25.7 million in absolute value corresponds to 15 percent of net sales. Inventory, which expressed 10% of net sales as of 12/31/19, thus reached its 25% as of 12/31/20.

The increase in inventories is justified in the notes to the financial statements as an ‘opportunity, due to Pandemic COVID-19, to source raw materials and semi-finished products at prices below market standards‘. (3) However, the same notes to the financial statements show that 68 percent of the increase in inventory is finished products and not raw materials and semi-finished goods.

The management report refers to agreements with dairies in Piedmont made in the first quarter of 2020 for the withdrawal of their surplus. Thus is explained the creation of the ‘strategic stock‘ that is indicated to be intended almost exclusively for 2021 productions. No mention is made, however, of Inalpi’s ability to store this increased stock internally and/or externally.

1.1) The warehouse of miracles.

The physical stock of raw materials and semi-finished goods (as well as finished goods) with a total value of € 43.8 mln deserves the formulation of some assumptions.

– raw materials. Compral supplies about €57 mln/year of fresh milk, equivalent to about 330 t/day. Since the milk must be used within a couple of days, the stock cannot reasonably exceed 300,000 (value of two days’ production),

– semi-finished products. 43.5 million can roughly correspond to 20 thousand tons (800 trucks) of dry product, including butter (itself perishable) and milk powder.

1 million euros in revenue refers to logistics, which, according to some rumors, Inalpi would manage on behalf of Ferrero (milk powder). Is it possible that Inalpi showed the auditors other people’s goods in stock and indicated them as its own?

1.2) The warehouse of mysteries

No information is available on:

– consistency of the physical inventory,

– Its layers of formation. At what time of the year were the goods purchased, presumably being largely perishable goods?

– Evaluation method applied. Presumably the F.I.F.O.(First In, First Out), which, let us remember, brings the budget values closer to that of the last purchases.

Based on the limited data available, however, a well-founded risk of over-valuation of stock commodities can be assumed. A relevant aspect that escapes the notes to the financial statements concerns the perishability terms of goods, which can strongly affect the budget policy.

It is pointed out in this regard that auditors should report important facts arising after the end of the fiscal year. (4) If the goods are perishable in the short term, for example, part of the stock could involve goods to be subjected to obsolescence procedure and its value should be reduced accordingly.

1.3) Inventories and requirements

The significant increase in the closing inventories of Inalpi SpA as of 12/31/20 appears in the financial statements as one of the main requirements for financial resources, financed by taking out short-term loans of almost the same amount (€ 25.9 million).

However, it is not explained why the company has resorted to short-term borrowing in the amount of € 25.9 million, when declared bank and cash balances amount to about half that (€ 12.2 million constant, over the two years 2019-2020).

2) Net working capital

Net working capital (NWC, equal to the difference between current assets and current liabilities) expresses the company’s ability to meet short-term financial commitments. Already as of Dec. 31, 19, net working capital was in the negative at – 29 million euros. And it decreased by an additional € 3.5 million to -35 million.

The negative C.C.N. measure. can express the inability of the enterprise to meet its short-term financial commitments. Not always a pathological sign of monetary imbalance, but certainly a KPI(Key Performance Indicator) worthy of attention. Also taking into account the lack of consistency between Inalpi’s debts and the failure to use declared bank and cash assets.

3) Asset revaluation

In.Al.Pi. S.p.A. took advantage of the revaluation of assets provided for in Decree Law 104/20 (converted with amendments into Law 126/20). The increase in total assets amounts to approximately € 41 million (before 2020 depreciation), including revaluation of approximately € 26 million. Again, as with inventories, it should be checked whether the revaluation is in line with the asset inventory. And most importantly, with the accounting principle of the residual possibility of using the same, to be applied on the balance sheet. The revaluation in each case, it is recalled, must come based on a third-party appraisal.

The revaluation generated the reduction of about 8 percentage points in ROE(Return on Equity), increasing equity. In the presence of a constant business operating income as of 12/31/20 compared to that of the same period in the previous year. In monetary terms, asset revaluation represents one of the company’s main sources of financing (increase in equity). Increased depreciation due to revaluation will be felt in the coming years, which will be detrimental to the company’s future income dynamics.

Conclusions, to whom it may concern.
#CleanSpades.

Dario Dongo

Notes

(1) Dario Dongo. Inalpi calls on milk suppliers to pay its debts. GIFT(Great Italian Food Trade). 7/19/21, https://www.greatitalianfoodtrade.it/mercati/inalpi-chiama-i-fornitori-di-latte-a-pagare-i-suoi-debiti

(2) Legislative Decree. 231/2001. Discipline of administrative liability of legal persons, companies and associations, including those without legal personality. See Articles 45 and 15.1.b. Text updated 7/15/20 on Normattiva, https://bit.ly/3szmjzq

(3) Centrifuge butter in 2020 fluctuated between €3.60 and €3.40/kg, domestic raw spot milk between €0.38 and €0.36/(data 4.1.20-14.12.20 Milan Chamber of Commerce bulletin, dairy surveys)

(4) OIC 29. Changes in accounting principles, changes in accounting estimates, correction of errors, events occurring after the end of the fiscal year. OIC (Organismo Italiano di Contabilità) Foundation. Text updated as of 12/29/17, https://www.fondazioneoic.eu/wp-content/uploads/2011/02/2017-12-OIC-29-Cambiamenti-di-principi-contabili….pdf