Cooperatives–what we expect to see in 2016
Those of you reading this article every year must think we sound like a broken record, not much changes here. Much of what we expected to see over the last year continues to be what we expect over the coming year.
Mergers: The mergers just keeping coming. Across the Midwest (IA, NE, SD, MN & IL) our clients continue to visit with neighboring coops, or even some not so close. This is just going to continue, with no sign of slowing down. The reasons driving these discussions vary, but are primarily related to: retiring managers, strategic trade territories, efforts to leverage a strength or overcome a weakness, smaller cooperatives coming to terms with their opportunities, etc.
Retained Earnings: More cooperatives look to putting more equity in the names of the members. Continued growth of retained earnings (in excess of named equity growth) may begin to slow down. That said, there are plenty of our clients just not interested in slowing down this growth. Reasons we expect are continued capital expenditures, active revolvement of equity and even member complacency as to patronage allocations.
Non-qualified Patronage: We expect to see more clients looking at non-qualified patronage allocations as a means to maximize tax deductions (Section 199, bonus depreciation, etc.), yet not deprive their members of having an allocation made in their names. This goes hand-in-hand with the concerns above with Retained Earnings growth.
Personnel: Seems like we have hit that point of retirement for several of our successful managers. Succession plans are going to be tested, or we are going to see some turning to mergers as an option. This is not limited to general managers/CEOs; it is going to include CFOs, controllers, division heads, and many of your frontline personnel. The struggles to retain qualified individuals is going to continue to give you headaches.
Results: Similar to last year, we do not expect our clients to enjoy the results they had just a few years ago. Opportunities to enhance revenues to offset increased expenses will continue to challenge our cooperative clients. Yet, the balance sheets of our clients continue to be very strong, allowing them to weather the lower income and continue to grow.
Strategic Relationships: Although balance sheets are as strong as ever, strategic relationships (partnerships or joint-ventures) will be considered as a means of continuing the pace of growth. These relationships will allow less strain on balance sheets, and share the increased costs (particularly depreciation and interest) associated with the additional expenditures.
Sophistication of the services you provide members – through technology, mobile apps, etc.
More credit-related concerns – with lower commodity prices
Data processing system evaluations – with the continued growth and mergers, systems will be evaluated to ensure they are appropriate, and staying relevant.