Committee Reports > List of Committees > Joint > 1990 > Committee on Commercial State-Sponsored Bodies (6th Committee) > Report No. 01 - Irish National Stud Company, Limited

SUMMARY

1.The Irish National Stud Company, Limited was established by the National Stud Act, 1945 (No. 31 of 1945) to undertake stud farming and to provide a range of services to thoroughbred horse breeders. The Company’s primary rationale was to ensure that Irish breeders had access to good quality stallions at fees which covered no more than the cost of the purchase of the stallions plus running expenses.

2.In the current year the Company has nine stallions for breeding horses of which seven are for flat racing and two are for breeding for National Hunt racing. In addition to stud farming, the Company engages in conventional tillage and livestock farming. It also keeps mares for breeding foals for sale, keeps horses for racing, and provides a number of services to breeders. It runs a training course in stud management and encourages research into equine health and management. The Company is also a significant tourist attraction, receiving about 80,000 visitors per annum.

3.The primary objective of the Company is to make available good quality stallions to Irish horse breeders. It offers a range of stallions though in general it does not stand stallions at the lower end of the price range. The Company also does not stand very expensive stallions as its Board feels that the private sector caters for this segment of the market. Also, such stallions are beyond the means of the breeders who are the Company’s primary concern. Despite the inevitable limitations on the number and range of its stallions, the Company has been highly successful as a stud and enjoys a high reputation amongst breeders.

4.The Company has tended to be profitable in the past and to have a strong capital structure. However, in 1988 the Company recorded a loss and it is estimated that a further loss was incurred in 1989. Prospects for the current year are uncertain but it seems that a breakeven situation is the best that can be expected. The successful sale of a number of stallions in recent years has kept the balance sheet in a fairly strong condition. But it is unlikely that the Company will be able to finance all of its future booodstock investments without outside capital.

5.A major threat to the future viability of the Company is posed by the planned Kildare by-pass. One proposed route, which appears to be the one favoured by the planning authorities, will cut through the Stud thereby reducing its acreage by perhaps 40%. In the absence of a firm decision on the by-pass the Company is restricted in its ability to anticipate developments and plan accordingly.

6.The 836 acres which the Company occupies at Tully are licensed from the Minister for Agriculture and Food. The rent it pays the Department is fixed from time to time, but has risen sharply in recent years despite protests from the Company. The uncertainty with regard to future rent increases is seen as an unnecessary complication in the Company’s forward planning.

7.The Company’s borrowing powers have been limited by statute to £500,000 since 1976. This amount is totally inadequate in the context of an industry in which the cost of moderately priced stallions amounts to over £1 million and in circumstances where stallions are brought to market and sold in a matter of days. The Minister for Agriculture and Food has accepted the need for an increase in this limit, but so far no proposals for legislation have been published.

Joint Committee’s Recommendations

8.(a)In consultation with the Department of Agriculture and Food, the Company should formally restate its corporate objectives, taking account of the considerable developments in the industry since its establishment and of the views of the Joint Committee on its public service role. (paragraphs 6.3 and 6.14)

(b)The Company should draw up a five year corporate plan along the lines indicated by the Department of Finance. (paragraph 6.4)

(c)The Company should prepare a detailed forecast for the current year. (paragraph 6.5)

(d)The Company should approach FÁS with a view to obtaining finance for its training course in stud management. (paragraph 6.6)

(e)The Company should approach Bord Failte with a view to strengthening the national and international marketing of its tourism activities. (paragraph 6.7)

(f)The Company is urged to increase its complement of stallions in order to maximise the earning potential of the Stud. (paragraph 6.8)

(g)The Company should reconsider its policy of standing National Hunt stallions at the Stud if they are taking up capacity which could be allocated to more remunerative flat stallions. (paragraph 6.9)

(h)In order to enhance further its earning power, the Company should reconsider its policy of not investing in a so called “prestige” stallion. It is acknowledged that because of the financial burden involved, such investment could only be done on a syndication basis. (paragraph 6.11)

(i)The Company should not become involved in the non-thoroughbred horse breeding industry as recommended by the Killanin Commission. (paragraph 6.12)

(j)The statutory limit of £500,000 on the Company’s borrowing powers should be abolished and replaced by a requirement that the Company get Ministerial approval for its borrowings. (paragraph 6.13)

(k)The Joint Committee does not believe that privatisation of the Company, whether in whole or in part, is desirable. (paragraph 6.14)

(l)The Company and the Department of Agriculture and Food should come to a long term agreement about the method by which rent for the Stud land is determined. (paragraph 6.15)

(m)The proposed by-pass for Kildare should not, if possible, be routed through the Stud’s lands at Tully and the final decision on the routing should be seen in the broader perspective of its ultimate destination in Portlaoise. (paragraph 6.16)

(n)The proposal of the Killanin Commission viz. that the National Stud should become a subsidiary of a Thoroughbred Industry Board should not be proceeded with. (paragraph 6.17)

(o)There should be greater liaison between the various breeding, training and racing interests. (paragraph 6.18

1. BACKGROUND

Legislation

1.1The Irish National Stud Company, Limited* was brought into existence in April 1946 by the National Stud Act, 1945. The Act vested the lands of what was known as the National Stud Farm at Tully, County Kildare, in the Minister for Agriculture and Food and empowered him to grant leases or licences of the land. The Act also required the Minister to establish a company under the Companies Acts to be known as the Irish National Stud Company Limited. This Company would be empowered to receive the leases or licences of the National Stud Farm and the Company would have for its object the carrying on of the business of stud farming.

1.2Other provisions of the Act specified, inter alia, that:

(a)its share capital should be 250,000 £1 shares;

(b)its borrowing limit should be £100,000;

(c)it should have not less than three and not more than five directors;

(d)the Company could put into operation special schemes for improvement of the horsebreeding industry (section 30); and

(e)the Minister for Agriculture and Food would be entitled to reimburse the Company for any outlays under (d) above.

1.3Amending legislation was introduced in 1953 to increase the Company’s nominal capital to £500,000 and its borrowing limit to £200,000. In 1969 and 1976 further amending Acts brought the nominal share capital and borrowing limits to their present levels of £5 million and £500,000 respectively. The 1976 Act also increased the maximum number of directors to seven.

1.4The Company’s Memorandum and Articles of Association are consistent with the provisions of the Principal Act but extend considerably the range of activities which it may undertake viz:

(a)standing stallions at centres other than the National Stud Farm;

(b)providing advisory services to breeders;

(c)sponsoring research;

(d)providing prizes for racing or breeding;

(e)racing horses;

(f)general farming;

(g)the development, maintenance or removal of ornamental parks (a clause inserted to facilitate the continued maintenance of the Japanese Gardens which were developed by the original owner of the Farm).

1.5The establishment of the Irish National Stud arose from belief in official and industry circles that the quality of Irish bloodstock was dependent on access to good quality stallions by the small Irish breeders. As far back as 1935, the Report of the Commission of Enquiry into the Horse Breeding Industry noted that there had been a decline in the standard of Irish bloodstock and recommended that the Government should acquire ten stallions to be made available to resident breeders at fees which reflected the cost of purchase and expenses. The Commission further recommended that three of these stallions should be “top class”. The need for breeders to have available to them the services of good class stallions at reasonable fees has been endorsed by other enquiries since then and underlies the basic policy of the Company.

1.6The need for Irish breeders to have support in this form stems from the structure of the Irish horse breeding industry on the one hand and its relative importance to the Irish economy on the other. Thoroughbred horse breeding is a “small man’s” business in Ireland with about 3,800 breeders owning about 7,000 mares and producing about 4,500 foals per annum. Most of the breeders possess one or two mares which they maintain as an adjunct to general farming. In this respect, the Irish breeding industry differs to that in some other countries where thoroughbred breeding is concentrated amongst specialists who are mostly well financed. Table 1 hereunder gives an indication of the small scale characteristics of the Irish industry.

1.7At the same time, the industry though carried on by small operators in the aggregate, is a significant one to the Irish economy, both in absolute and relative terms. According to the Report of the Killanin Commission, published in 1986, about 3,900 full time equivalents were employed in thoroughbred horse breeding and the value of the gross output of the industry was about 85 million in 1984. Appendix B gives some further information about the economic aspects of the industry.

1.8No review of the economic background to the industry would be complete without referring to the current difficulties which confront it. A sharp rise in thoroughbred horse prices occurred in the early 1980s as a result of heavy buying by Saudi Arabian interests. The impact of these purchases has now worn off and recession affects the industry, particularly the middle section which is of most relevance to the activities of the Stud. Apart from a decline in purchasing by Middle East interests, a variety of other factors are at work, many of which were analysed in the Killanin Report. Suffice it to note that since 1988 at least, it has been difficult for studs to attract business from owners and as a consequence nomination fees have been under pressure. However, the £3.5 million which the Government decided to make available in the recent Budget for the development of the horse racing and greyhound racing industries should have a positive effect on the horse breeding industry. It should help attract people to racing, increase prize money and thereby stimulate demand for foals and yearlings.

TABLE 1

SIZE STRUCTURE OF THE THOROUGHBRED HORSE BREEDING INDUSTRY IN IRELAND

(1987)

Source: Weatherbys Ireland

2. OPERATIONS

2.1While the primary purpose of the Company is to make available the services of good quality stallions for Irish breeders, the 1945 Act and the Company’s Memorandum and Articles of Association also enable it to undertake a range of activities ancillary to stud farming and to provide services calculated to be of benefit to the industry. Over the years, these comprehensive powers have been used by the Company to develop an extensive range of services and activities relating to thoroughbred horse breeding.

Stud Farm

2.2In relation to its primary purpose, as of the 1990 breeding season, the Company has a total of nine stallions for breeding horses of which seven are for flat racing and two are dual purpose horses for breeding both for flat and National Hunt racing. As National Hunt thoroughbreds fetch lower prices that flat thoroughbreds, it has not been economical in the past to stand National Hunt stallions at the Stud. Instead, the practice has been to stand these stallions at studs throughout the country where the cost structure is lower and which, in addition, are more convenient for National Hunt breeders. However, the availability of spare capacity at the Stud at the moment means that it makes economic sense for the two existing National Hunt stallions to be accommodated at Tully.

2.3In a new development for the Stud, Flash of Steel stood in Australia during the Irish off-season in 1988. This was repeated in the 1989 off-season with Magical Wonder. In 1989 also, Krayyan stood in a stud in the U.K. during the season. The decision with respect to Krayyan was based on an assessment of his marketing potential in Ireland as against the U.K. The decision to stand Flash of Steel and Magical Wonder in Australia was an effort, which has proved encouraging, to expand the revenue earning potential of the two stallions. The Company intends to extend this practice to other stallions in the future.

2.4The Company is fairly significant in relation to the flat segment of the Irish stud farming “market”. On the assumption that each stallion covers 40 to 60 mares per season, the Stud usually accounts for about 350 mares. (In 1989, however, the Stud covered 413 mares which was a record.) Given that there are about 3,000 foals bred for flat racing each year, (and making some allowance for mares who fail to give birth to live foals) it would seem that the Stud accounts for about 10% of the total number of mares covered by flat stallions in Ireland.

2.5Other Company activities directly related to the Stud function are:

(a)The operation of a private stud in which the Company keeps a number of mares (thirteen at present) of its own for breeding foals for sale as yearlings. This activity helps to generate revenue and to maintain a minimum level of all year round activity.

(b)The preparation for sale of yearlings belonging to other breeders who do not have enough land or staff.

(c)The training of some of the horses bred from its own mares in the Stud. These are raced in the colours of the President of Ireland and help to publicise the Stud’s stallions and racing itself. However, this activity has been run down in recent years. While the Stud had three horses in racing in 1987, this was gradually reduced to none in 1988 and in the current year the Stud has just one horse in training.

(d)The maintenance of a colostrum and plasma bank for breeders.

(e)The operation of a foster mother service whereby breeders whose mares have lost foals can be put in touch with breeders whose foals have lost their mares. About 50 of these transactions occur every year.

(f)Tillage and dry livestock farming are integral parts of the Stud operation. Tillage farming provides feedstuffs for the horses during the season. The livestock are needed to graze with the horses thereby ensuring effective consumption of pasture.

Education and Research

2.6The Company has availed itself of its powers under the Principal Act to undertake a range of education and research activities. The most important services provided under this heading are:

(a)A training course in stud management for 30 young persons between the ages of 18 and 25. This course is run during the season (i.e. mid February to mid July). The students live at the Stud and are given both theoretical and practical training. About one third of the students are foreign and pay a fee of £1,000. The course is free to Irish students. All students are paid for working at the Stud. These courses are heavily oversubscribed.

(b)The provision of facilities to train apprentice farriers.

(c)The provision of a residential centre, Curragh House, for the Racing Centre of Education.

(d)The organisation of field days for stud farm owners and their personnel.

(e)A multi-purpose conference centre, which was built to facilitate the educational functions of the Company, is also made available for conferences and meetings of bodies connected with the horse industry. The facilities are also available for the use of local charitable and voluntary bodies.

(f)Undertaking research into the feeding and management of horses, facilitating research projects undertaken by other bodies, and sponsoring research through the provision of financial assistance.

Tourism

2.7Because of the siting of the Japanese Gardens and of the universal interest in horses, the Company has developed a significant tourism business. The number of visitors to the Stud has grown over the years - though somewhat erratically. In recent years about 80,000 people have visited the Stud annually, making it one of the largest tourist attractions in Ireland. Moreover, the Irish Horse Museum is now an important attraction in this context. For visitors, the Company also provides refreshments and souvenirs and Bonsai plants for sale. An attempt to strengthen the viability of the tourism activities by starting a garden centre some years ago yielded disappointing results, and this aspect is now mainly confined to the sale of bonsai plants. As a step towards improving the viability of the tourism operations, the restaurant, shop and plant sales were all franchised out recently.

Public Relations

2.8Finally, the Company is frequently asked by the Government on an ad hoc basis to host important visitors to the country. It is generally accepted that the physical attractiveness of the Stud, its world wide reputation and its facilities for entertainment and instruction, create positive impressions both of Ireland and its horse industry on visitors.

3. CORPORATE OBJECTIVES

3.1The Company has neither a formal statement of corporate goals and operating strategies nor a long term corporate plan. In its submission to the former Joint Committee, the Department of Agriculture and Food briefly restated the objectives of the Company as enshrined in the legislation, but otherwise confined its observations to a description of the Stud’s activities. Statements by successive Chairmen of the Company in annual reports and statements made to the Joint Committee and to its predecessor in 1978 give some indication of corporate objectives. However, the Joint Committee feels that a more formal expression of objectives is required. (See paragraph 6.3).

Bloodstock Policy: Flat Bloodstock

3.2The most important determinant of the Company’s policy lies in the type of stallions which it buys. The Company has always considered that its primary responsibility is for the “small breeder” (including in that designation the “commercial breeder” to whom breeding is a significant financial activity). In practice this has meant that the Company has tended to purchase stallions costing (in today’s terms) from £250,000 to £1,000,000 and standing at from £1,000 to £6,000. The Company has not concentrated on “cheap” stallions since such a policy, however suitable it might appear to small breeders, would not contribute to the general improvement of the quality of Irish bloodstock. In addition, given the quality of facilities and services available to the Stud, such a policy would not be an economic proposition.

3.3Likewise (with one or two exceptions in its four decades) the Company has not purchased what might be termed “top stallions” or “prestige stallions”. The notable exception to this policy was the purchase of Tulyar in 1953 for £250,000 - then a world record price. At the time the Company’s subscribed capital was less than £200,000 and the 1953 Act was introduced to provide the resources necessary to make the acquisition. Since the acquisition of top stallions has been officially recommended on a number of occasions, both before and after the establishment of the Stud, it is surprising that Tulyar is virtually the only such acquisition the Company ever made. But the apparent unwillingness of the Government to make adequate capital available, and the limits it has placed on its borrowing powers, have meant that the purchase of top stallions has usually been beyond the Company’s financial capacity.

3.4Moreover, the Company has not always accepted that there is a need for it to invest huge sums in a “prestige stallion” believing that the privately owned studs catered adequately for breeders’ needs in this area. A tangible expression of this policy was the Company’s decision to sell Ahoonora. This stallion was acquired in 1979 for £265,000 but proved so successful at stud that he was able to attract a price of over £7 million in 1987. As the Company’s stock of stallions was aging rapidly, it felt that it was faced with the choice of either selling Ahoonora and using the proceeds to purchase new stock or raising his nomination fees beyond the reach of its customers. The Company chose to sell Ahoonora and subsequently purchased a number of younger stallions. As a result, (as mentioned in paragraph 2.2 above) the Company is standing a total of nine stallions this year of which no less than six were purchased in the last two years and all of which were bought since 1986.

3.5It is difficult to pinpoint precisely the segments of the market in which the Company is active. However, some indication is given in Table 2 hereunder. This is based on nomination fees published recently in The Racing Post. The data in this Table make no allowance for the monetary value of the conditions attached to the published fees (e.g. “special live foal”, “no foal no fee”, “straight standing” etc). A further point is that published fees are subject to negotiation. Finally, the list is not comprehensive. However, even with all these deficiencies, the Table does indicate that the Stud covers a fairly wide spectrum of the market. But it is not represented in the very upper reaches of the market.

TABLE 2

NOMINATION FEES OF STALLIONS STANDING AT IRISH STUDS (1990 SEASON)

Source: The Racing Post, 18th January, 1990.

National Hunt Bloodstock

3.6The other segment of the thoroughbred industry is breeding for National Hunt racing. In terms of the number of foals born, this segment is about one half the size of the flat. Moreover, prize money is smaller, breeding potential of males is restricted and National Hunt racing has limited international appeal. However, as there appears to be a growth in international interest in National Hunt racing in recent years, the Company decided to give greater emphasis to this business. Hence the Stud now has two stallions for National Hunt breeding. As noted in paragraph 2.2 above, these two sires will be at the Stud this season.

3.7It is relevant to mention that the Killanin Commission recommended that the Stud should consider standing non-thoroughbred stallions. The Commission based this recommendation on the model of the French National Stud. This proposal is dealt with further in Conclusions and Recommendations in Section 6 (see paragraph 6.12). At this point it can be said that the Joint Committee would not favour such an extension of the Stud’s remit.

3.8It is difficult to assemble statistics to quantify unambiguously the success of an individual stud farm. However, Table 3 hereunder gives some indication of the relative performance of the Stud as represented by results for 1987. This Table is based on the earnings in that year of the progeny of stallions standing at studs in the British Isles and was drawn from the top 170 stallions in terms of such earnings.

3.9As indicated, Coolmore/Castlehyde, with earnings of £1,551,000 was first, while the National Stud, with earnings of £713,000 was second. The Stud’s absolute and relative standing in this Table is, of course, boosted by Ahoonora’s exceptional success. The replacement of Ahoonora by younger stallions means that similar compilations for 1988 and 1989 (when the data becomes available) will probably place the Stud lower down the league. On the other hand, the capital value of the Company’s stock of stallions in this period has also been about one third less than it was in 1987.

TABLE 3

1987 EARNINGS OF PROGENY OF STALLIONS STANDING AT STUDS IN IRELAND AND BRITAIN

3.10Less formal measures of the success of the Stud can be made by reviewing the success of its progeny. Two notable successes in 1989 were the victory of Carroll House in the Prix de L’Arc de Triomphe and Maid of Money in the Irish Grand National. Carroll House was sired by Lord Gayle (which was retired by the Stud last year), while Maid of Money was sired by Crash Course. A further distinction gained by the Stud in 1989 was in winning the nomination of the Kildare and Dublin Region of the Irish Thoroughbred Breeders’ Association as the stud with the best stallions.

Price/Service Levels

3.11The other axis of policy is the level of fees charged to breeders. In the past it appears to have been generally accepted that the Company had a policy of charging somewhat less than commercial prices for its stallions. As a result, demand frequently exceeded supply and mares had to be selected by ballot. More recently, the Company claims to be pitching its fees closer to the commercial level and ballotting is less common. Indeed, under the pressure created by the current difficulties in the industry, the Stud has had to discount its listed prices quite heavily. Thus, if there is any difference between the level of fees charged by the Stud and those charged by the rest of the industry, it is probably quite small.

3.12However, in assessing the level of prices account must be taken of the level of services which the Stud offers. Because of its status as a state owned institution and because of its statutory obligations to cater for the requirements of small breeders, the Company delivers a higher level of service than most studs in private hands. A notable instance is its “special live foal” policy. This means that provided breeders pay their nomination fees before 1st December of the preceeding year, the Company will remit the fee if a live foal is not born. This is more concessionary than the fairly general practice of remitting the fee if the mare is not pregnant on 1st October. It is obviously even more attractive than the practice in some studs of charging on a “straight standing” basis (i.e. irrespective of whether a foal results) or on a half and half basis (i.e. half the fee on a “straight standing” basis). The value of this concession is worth about 10% of the stud fee income (or £91,000 in 1988). The Company is also likely to take a more suppportive approach to breeders in genuine difficulty than would a private stud.

Financial Objectives

3.13The Company has generally been profitable and so has never had to have recourse to the Department for grants to cover operating losses. Nor has the Minister ever availed himself of his statutory powers to reimburse the Company for the cost of the ancillary services it provides to breeders. At the same time, because of these services and of how it perceives its role, the Company’s level of profit has never been very great. However, the Company is satisfied that it should continue to maintain a high level of services with moderate prices and is prepared to accept that the result will be a continuation of modest profits. Measures of the financial performance of the Company are discussed in greater detail in Section 4.

4. FINANCIAL PERFORMANCE

Profit and Loss

4.1Tables 4 to 8 hereunder give summary information about the Company’s financial statements for the last five years. Table 9 hereunder gives summary measures of profitability, liquidity and solvency. Tables covering the same material but over the ten year period 1979-88 are given at Appendix C, Tables C.1 to C.6.

TABLE 4

IRISH NATIONAL STUD: PROFIT AND LOSS 1984-88

(£000s)

TABLE 5

IRISH NATIONAL STUD: TURNOVER BY ACTIVITY 1984-88

(£000s)

TABLE 6

IRISH NATIONAL STUD: PROFITS BY ACTIVITY 1984-88

(£000s)

TABLE 7

IRISH NATIONAL STUD: BALANCE SHEET 1984-88

(£000s)

TABLE 8

SOURCES AND APPLICATIONS OF FUNDS 1984-88

(£000s)

4.2In interpreting these results some points should be borne in mind. First, the Company classifies its bloodstock under current assets where they are carried at book value until they are sold or die. If stallions, or shares in stallions are sold, the difference between the book value and the sale price (i.e. the book profit or loss) is transferred to reserves and is not therefore included in the profit and loss statement. Likewise, when a stallion dies, its book value is charged against reserves. There is no depreciation charge for bloodstock. On the other hand proceeds from the sales of stallions are included in Company turnover.

4.3A further point to note is that during this period, as mentioned in paragraph 3.4, the Company made a substantial profit from the sale of Ahoonora. Initially, some shares in this stallion were sold in 1986 and realised a profit of 0.5 million. In 1987, the remainder of the shares in Ahoonora were disposed of at a profit of 5.3 million. These transactions contributed to the large increase in reserves reported in 1986/87. The receipts also earned interest for the Company during 1987 and helped to boost the Company’s investment income in that year.

4.4Although Table 4 shows that the Company made a loss in 1988, in general the Company has returned profits from its ordinary activities. This can be confirmed by reference to the ten year record of profit and loss shown in Table C.1, Appendix C. In fact the loss in 1988 is only the third annual loss reported by the Company since 1970. It can be seen from the breakdown of gross profit by activity in Table 6 and Table C.3, that the Stud Farm is usually the most profitable activity, while results from the Farm have tended to be rather volatile. The Gardens and Museum tend to make losses. In 1988, this pattern was partly reversed when the Stud Farm made losses and the Garden and Museum made profits. The tendency for racing to make losses continued.

4.5The outcome for the Stud Farm in 1988 is disappointing since this activity is the core of the Stud and normally contributes substantial profits to the Company. This decline was due to a fall of almost 40% in nomination fees which was attributable to a reduction in both the number and average level of the fees. The decline in the number of nominations is due to the fact that there were only nine stallions at the Stud in 1988 (compared with eleven in 1987) and only three of these were wholly owned by the Stud (as compared with six in 1987). In fact the number of mares covered in 1988 was about 240 which is well below the average of around 350 let alone the record of 413 in 1989. The decline in the average level of fees is attributed by the Company to the poor conditions prevailing in the industry in 1988 to which reference was made in paragraph 1.8.

4.6The profit from the Farm, though not a record, was a major improvement on the trend in recent years. The relatively poor performance of the Farm in most years reflects the fact that farming on a stud, while necessary, cannot be developed to its full potential because of the priority which must be given to the Stud activities. (For example, it is not possible to apply nitrogen to pastures because it has an adverse effect on horses’ eating habits). An additional factor depressing the results from the Farm in recent years was the rather subdued trend in livestock prices. Their recovery in 1988 contributed to the return to Farm profitability.

4.7As noted in paragraph 2.5, racing has been engaged in by the Stud mainly for publicity purposes. While it has invariably lost money, the Company believes that the increase in the capital value of the Stud’s racing horses more than compensates for losses. However, with only one horse in training this year, the Company’s involvement in this activity is much lower than in most years.

4.8In the case of the Japanese Gardens and Horse Museum (which include the restaurant, souvenir and plant sales) the losses are attributable to the labour intensive nature of the Japanese Gardens. Paragraph 2.7 referred to measures that have been taken by the Company to reduce the level of the losses in this area by franchising out the restaurant and plant and souvenir sales. In 1988 these efforts bore fruit and together with a substantial recovery in the number of tourists visiting the Stud, the Japanese Gardens and Museum reported a profit of £30,000.

Balance Sheet

4.9Table 7 gives a summarised version of the Company’s balance sheet over the last five years and should be read in conjunction with Table 8, a summary of the Company’s statements of sources and applications of funds. It will be noted from Table 7, that the amount of Exchequer Capital remains unchanged reflecting the absence of new equity investment in the Company during this period. Likewise, with the exception of 1986, long term debt has had no role in financing the Company. Instead, as Table 8 makes clear, investments in bloodstock and to a lesser extent in fixed assets, have been largely financed from the profits from the sale of Ahoonora in 1986 and 1987. Funds from operations, amounting to £822,000 in the five year period have contributed little to the total of almost £6.5 million invested in those five years.

4.10The Company also tends to be highly liquid (as measured by the current ratio) at balance sheet date. There is a large seasonal element in this since breeders intending to send their mares to the Stud must remit their nomination fees before the end of the preceding year if they wish to avail themselves of the special live foal policy. (This effect was, of course, magnified in 1987 by the proceeds of the sale of Ahoonora). However, reference to the amounts paid by the Company in interest on overdraft borrowings indicates that the Company’s peak borrowings in the average year are, in fact, rather modest. At the end of 1988, the current ratio, the ratio of current assets (excluding the value of bloodstock) to current liabilities stood at 4.

Return on Capital

4.11Assessing the profitability of the Company in relation to capital employed is complicated by the impact of profits from the sale of stallions. These tend to occur occasionally and in large amounts. Reference was made in paragraph 4.2 to the Company’s accounting for such profits and to the fact that stallions are not depreciated. Accepting these conventions, the return on capital employed in the last five years has varied a good deal, but on average has been 2.2%. (A ten year perspective is given in Appendix C where it can be seen that the average is 3.2%). These figures are a good deal less than in the quoted private sector of industry and commerce where, in the last few years, the average has been 15% to 20% after allowing for depreciation.

4.12If profits from the sale of stallions are included, the average return on capital employed rises to 11.7%. This result is heavily influenced by the profits from the sale of Ahoonora . Some allowance can be made for the exceptional nature of this stallion by taking a ten year average of the Company’s results, including stallion sales. On that basis, the Company’s rate of return on capital employed works out at 9.5% which, though well below the returns in private industry and commerce is creditable for a company with non-commercial obligations.

TABLE 9

IRISH NATIONAL STUD: RATIO ANALYSIS 1984-88

Conclusions

4.13However, while a long perspective suggests that the Company has a reasonable profit record and that it is highly solvent and liquid, developments in the Company since the last accounts were published suggest that the Company may be entering a difficult period. Although the accounts for 1989 have not yet been prepared, the management estimates that there was a loss last year. This loss is estimated to have been only about half the level in 1988, but it does mean that the Company has made losses in three out of the last four years. This is a sharp deterioration by comparison with the 1970s when no loss was recorded.

4.14Moreover, the management is not in a position to offer a firm forecast for the current year, although it does believe that there will be a further improvement resulting perhaps in breakeven. Management argues that uncertainties in the business make meaningful forecasts impossible. By the same token, divergencies between the actual results and results forecast in the Company’s financial projections for 1987-91 have prompted the Company to abandon these projections and to refrain from making new long term projections.

4.15In the absence of accounts for 1989 it is also not possible to assess the present health of the Company’s balance sheet, but it is likely that some improvement in this has taken place in the last twelve months. For, although the Company made losses in 1989, and continued investing in bloodstock, it also realised a substantial sum from the sale of one stallion. The net effect of these transactions probably amounted to a net inflow of about £1 million. But, after the depletion of the proceeds of Ahoonora, this amount is probably inadequate to fund the Company’s future investment needs given limited profitability and existing constraints on its financing. (See paragraphs 5.7 to 5.11).

5. RESOURCES

Land

5.1The National Stud Farm, comprising 836 acres, has been licensed to the Company by the Minister for Agriculture and Food since 1946. The licence is renewed every five years and the current licence was renewed in 1989. The Stud pays the Department an annual rent. In addition to the original 836 acres, the Company, in 1986, bought the nearby Maddenstown Stud and Stables comprising 122 acres of land and 82 boxes for £500,000. The Company also occupied 500 acres attached to Barretstown Castle from 1977 to 1987. This land, which is the property of the State, was made available to the Stud at nominal rent on a year to year basis. The Company spent about £250,000 improving the land which it used to expand its private stud activities. With the acquisition of the Maddenstown Stud Farm, the Barretstown holding was returned to the State.

5.2In the mid-1970s, Kildare County Council proposed to build a by-pass to the town of Kildare as part of the development of the main Dublin-Cork road. As of now there are three routes under consideration, one of which, the ‘Northerly Route’ would by-pass the Stud altogether. Of the other two, one, the ‘Southerly Route’, would pass through the Maddenstown Stud reducing the capacity of that Stud by 20%, while the third, the ‘Tully Route’ would pass through Tully (i.e. the original Stud) cutting off about 100 acres and isolating some of the paddocks from three stable complexes.

5.3The Company’s objections to the ‘Tully Route’ are principally that it would:

(a)reduce capacity of the entire Stud by about 40% and while in principle monetary compensation would be made, the Company feels that there is no alternative land available contiguous to the Stud to make up for the losses arising from the motorway;

(b)intrude a heavily trafficked motorway into what is now a tranquil environment, thereby greatly reducing the Stud’s attractiveness to breeders;

(c)lighting from the motorway and traffic would disorientate mares and upset their reproductive cycles;

(d)harm could also result from noise and pollution.

(e)the construction period, which the Company thought might last up to four years, but which Kildare County Council said would not take more than eighteen months, would be highly disruptive.

A memorandum from the Company on the matter is at Appendix D.

5.4In its submission, the County Council emphasised that it had developed over a long period, an expertise in, and familiarity with, the problems associated with the routing of motorways adjacent to studs in general. This experience was invaluable to it when presented with the position of the National Stud vis-a-vis the Kildare by-pass. Working within realistic parameters, the County Council had striven to take into account all relevant considerations in order to preserve the integrity of the Stud and also to minimise any repercussions for the Stud arising from what was likely to be the probable outcome of the present routing scenario. In the light of the foregoing, the County Council argued

(a)The “Northerly” and “Southerly” routes would both be more expensive by virtue of, inter alia, alignment, drainage and property compensation considerations,

(b)The proposed “Tully Route” would be less disruptive to the commercial life of the town of Kildare than the alternatives,

(c)The motorway would act as a naturally protective barrier and would reduce the likelihood of trespass on the Stud’s land, and

(d)The motorway would be countersunk through Tully and there would be no noise, pollution or lighting problems.

5.5Obviously this argument raises complex technical questions. However, one adverse aspect of the proposed motorway is already clear and that is the uncertainty which it has created. The project was mooted over a decade and a half ago and although the “Tully Route” has always seemed to be favoured, no decision has been taken, so the Company has not been able to plan redevelopment. This is likely to remain the situation for a number of years yet since the preceding stage, the Newbridge by-pass, has not yet been commenced. The uncertainties created by this project extend not only to the route and the timing of the development, but also to the amount of compensation, if any, which the Stud will be paid. All these considerations prompted the Chairman of the Company in the 1988 annual report, to describe this project as a major threat to the future of the Stud.

5.6The rent paid to the Department for the 836 acres at Tully was £12,100 in 1984. In 1985, this was increased to £55,000 and it has been increased each year subsequently and in 1989 it amounted to £76,000. The Company has complained about the Department’s rent increases noting that it has risen at a time when con acre rents in the vicinity of Tully were falling. In relation to the level of the rent the Company pointed out that some of the land is of poor quality and not suitable for stud farming. The Company has also obtained professional advice to the effect that the rental level is also out of line with rents charged by local authorities for comparable land. However, the Department has not explained to the Company the basis on which they calculated rent thereby making it difficult for the Company to make effective representations.

Finance

5.7Up to 1981 the Company was financed by Government purchase of its shares. These took place annually and together with the Company’s own profits, enabled the Company to develop its bloodstock, lands and buildings without significant recourse on a permanent basis to debt financing. In 1981, however, the Government reduced the size of its subscription and the following year ceased to invest in the Company. The situation now appears to be that the Company can anticipate no further equity capital from its shareholder in the foreseeable future.

25.8After making record profits in 1984, the Company paid a substantial dividend of £75,000 to the Government. In 1985, however, the Company responded to the increase in its rent of £43,000 by reducing the dividend by the same amount. In 1986, a year in which it made a loss, it suspended dividend payments in order to conserve cash. Although there was a profit in 1987, the Company did not resume dividend payments. Obviously, the Company would prefer to retain cash for its own development and return a dividend to the State in the form of improved services to the breeding industry.

5.9The Company’s borrowing powers are determined by statute and in 1976 were fixed at their present level of £500,000. In an industry where moderately priced stallions cost several millions, and where buying and selling decisions are taken in days, the absence of immediate and adequate borrowing facilities is a crucial disadvantage. Since 1976 the Company has made repeated requests to the Department to increase this limit. These requests were endorsed by the Killanin Commission in 1986. In the course of his contribution to the Senate Debate on the Report of the Killanin Commission on 12th July, 1988, the Minister for Agriculture agreed that the limit would be raised to £5 million but the necessary legislation has not yet been published. In the meantime, management believes that as a result of the limits on its borrowing capacity, its position has been fatally compromised in more than one negotiation.

5.10As an alternative to borrowing, the Company has engaged in two other types of financing. For a number of years, the Company has syndicated some of its stallions. Indeed, syndication is becoming progressively more important as owners try to retain an interest in horses sold to the National Stud. The Company would prefer to purchase stallions outright but at the minimum, and with one or two exceptions, the Company engages in syndication on a majority basis. This ensures that it maintains control over the management of the stallion and over the decision to sell, should the occasion arise. In effect, syndication means admitting minority equity partners into certain parts of the business. If engaged in extensively, it would enable the Company to make available a larger number of stallions than it would do if it were exclusively reliant on outright ownership. However, the cost is the loss of revenue from the minority shares and a proportion of the potential capital gain.

5.11In 1986, while still awaiting permission for an increase in its borrowing powers, the Company obtained Government permission to engage in deferred purchase financing with commercial banks subject to an overall limit of £5 million. Eventually, three stallions were acquired under such arrangements. As in the case of syndication or conventional loan finance, deferred purchase enables the Company to acquire horses without using its own capital. However, financing these leases absorbs the stallions fee income in the first four or five years, thus leaving nothing to meet the Company’s overheads. This situation prompted the Company to accelerate redemption of its agreements using the proceeds of the Ahoonora sale to do so. A further considerable disadvantage of this type of financing, as opposed to conventional borrowing, is that the agreements require complicated legal work, thus restricting the Company’s ability to respond rapidly to purchasing opportunities.

Personnel

5.12At present the Company employs 53 people on a permanent basis, and this number has remained virtually unchanged since 1978 when 51 were employed. In the intervening period the level of employment has risen and fallen in response to the Company’s involvement in, and subsequent withdrawal from, Barretstown. The franchising out of the restaurant and the plant and souvenir sales has also kept down the numbers of permanent employees. However, this business is a seasonal one and the average level of employment, at 69, is appreciably higher than the number of permanent employees. Average employment has been unchanged over the last few years.

5.13Remuneration of staff in the Company is determined by Government pay guidelines. The inflexibilities inherent in this system combined with a large competing private sector, mean that difficulties arise from time to time in retaining certain categories of employee. However, it has to be said that Government pay controls notwithstanding, there appear to be no industrial relations problems in the Company. Morale in the workforce at all levels is high and the workforce identify strongly with the success of the Stud.

6. CONCLUSIONS AND RECOMMENDATIONS

Background

6.1The Irish National Stud was set up to make the services of good quality stallions available to Irish breeders. It was also empowered to provide other ancillary forms of assistance to the industry. The Company has built up a good reputation amongst breeders and over the years has enjoyed some notable successes, most recently with the stallion Ahoonora. It has also developed some excellent services for the breeding industry, such as the course in stud management which attracts world-wide patronage. Finally, the Japanese Gardens and the Horse Museum, together with the well kept physical appearance of the Stud, have made it a major tourist attraction.

6.2The Company has tended to be profitable and to have a strong capital structure. However, in recent years adverse conditions in the industry, the cessation of Government investment, and restrictions on borrowings have combined to produce a deterioration in its financial performance and its balance sheet. The Company thus enters the 1990s confronted by rather more uncertainties than it experienced at the beginning of the 1980s. The points which follow are designed to help the Company to build on its undoubted strengths and so continue to fulfil its role as a national stud.

Objectives

6.3The objectives of the Stud were set out in the legislation in 1945. Since then there have been major changes in the industry in Ireland and internationally. However, as described in paragraph 3.1 no statement of corporate objectives and operating strategies has been formulated by the Company. Nor have any been offered by the Department of Agriculture and Food. In its submission on the Company to the former Joint Committee, the Department confined its observations largely to a description of the activities of the Company. In the light of all that has happened in the last forty years, the Joint Committee believes that it is desirable that the Company should, in consultation with the Department, formulate a statement of objectives and strategies. This statement should emphasise the Company’s public service profile in the thoroughbred horse breeding industry in Ireland while at the same time reflecting that profile as enunciated by the Joint Committee in paragraph 6.14.

Planning

6.4All State companies are expected by the Department of Finance to have five year corporate plans. As noted in paragraph 4.14 the National Stud did prepare a set of financial projections for 1987-91 but as these proved progressively less realistic they were abandoned by the Company. The Joint Committee accepts that the horse breeding industry is a volatile one. Nevertheless, corporate planning, however difficult, is essential and the Joint Committee therefore recommends that the Company should formulate a five year plan, incorporating financial projections as well as operating strategies. This should be a rolling five year plan with annual adjustments to ensure on-going relevance.

6.5The Joint Committee is particularly concerned with the absence of a forecast for the current year (paragraph 4.14). Given that most nomination fees should have been paid before the end of last year under the Company’s special live foal policy, it would appear that uncertainties about revenues for 1990 should be relatively limited. The Joint Committee urges the Company to prepare a forecast for 1990 as a matter of urgency.

Profit Improvement

6.6The Joint Committee recognises that the Stud has made considerable progress towards minimising costs and expanding revenues from ancillary activities. Reference has already been made to the temporary “export” of Flash of Steel and Magical Wonder to Australia for the “off season”. The Joint Committee commends two further measures to the management’s attention. The first of these is the possibility of attracting outside financing for the training course in stud management which, as noted in paragraph 2.6, is highly oversubscribed. The Joint Committee understands that the Company approached FAS for assistance towards the cost of this course, but was not successful. The Joint Committee is surprised that FAS felt unable to make funding available considering the importance of the course to the development of the industry. The Joint Committee urges the Company to take up the issue with FAS once more and, if necessary, with the Minister for Labour so that with increased funding, an increased number of students can be accommodated. It should be noted that the Killanin Commission offered a similar suggestion.

6.7The Joint Committee likewise recommends that the Company approach Bord Fáilte with a view to strengthening the marketing of the tourism aspect of the Stud’s activities.

Bloodstock Policy

6.8It was mentioned in paragraph 2.2 that the Stud is standing nine stallions this year. This is five or six less than the maximum that can be accommodated and means that potential for earning revenue is being foregone. The consequences of not maximising the number of revenue earning stallions at the Stud was demonstrated in reverse in the 1988 results when there was a sharp fall in the number of stallions (particularly of wholly owned stallions) at the Stud and a consequential drop in the value of nomination fees. It is appreciated of course that appropriate stallions are not always readily available. Nevertheless, the Joint Committee urges the Company to make every effort to ensure that the Stud always has the largest possible complement of stallions.

6.9The revenue from the Stud can also be maximised by purchasing expensive stallions with a capacity to attract large nomination fees. The Company’s policy with regard to bloodstock was outlined in paragraphs 3.2 to 3.5 where it is noted that the Company believes that it should not stand stallions whose nomination fees are beyond the means of the “small” and “commercial” breeders which it believes it is its purpose to serve. That having been said, the Joint Committee doubts that the Company ought to be standing National Hunt stallions whose nomination fees are below £1,000 if they are taking up resources in the Stud which could be devoted to more “remunerative” stallions.

6.10That dilemma does not arise at present since the complement of stallions is below the Stud’s capacity. But if the Stud does acquire more stallions, as suggested in paragraph 6.8 above, then the dilemma will arise and the Stud may have to abandon the lower end of the “market”. Alternatively, if the Company feels that it ought to offer some National Hunt horses, then the Joint Committee recommends that the Stud revert to its earlier practice of standing these at other studs.

6.11The logical conclusion of this argument is that the Company ought to stand a so called “top stallion” or “prestige stallion”. The possession of one such stallion would not be inconsistent with catering for the needs of the “small” and “commercial” breeders, since the Stud has accommodation for at least another fourteen stallions. On the other hand, it would mean an increase in revenue without any comparable increase in direct costs and overheads. The acquisition of such an animal, which could be expected to cost several million pounds, would pose financial problems for the Stud at the moment. However, given syndication, and a more realistic borrowing limit (see paragraph 6.13 below), such an acquisition would not be beyond the means of the National Stud.

Non-Thoroughbred Horsebreeding

6.12Obviously, the involvement of the Stud in the non-thoroughbred horse breeding industry, as recommended by the Killanin Commission, would be at variance with the proposals in the above paragraphs. The Joint Committee therefore does not accept this part of the Commission’s proposals with regard to the Stud.

Borrowing Powers

6.13If the Company is to meet the challenges of the 1990s, it is essential that its borrowing limit be reviewed as a matter of urgency. Reference has already been made to the submissions on this matter by the Company to the Department and to the supporting recommendations of the Killanin Commission. The Joint Committee fully endorses these claims. However, recognising the inflexibility inherent in a limit which can only be changed by legislation, the Joint Committee recommends that the statutory limit be abolished. It recommends that it be replaced with a requirement that the Company get approval from the Minister for Agriculture and Food, in consultation with the Minister for Finance, for any borrowings it wishes to undertake.

Privatisation

6.14It was noted in paragraph 5.7 that the Government has ceased to invest equity in the Company and that it seems unlikely that it will resume doing so in the foreseeable future. Since it is not improbable that the Company will need to strengthen its capital base at some stage in the future, the question arises as to whether private sector shareholders should be admitted to the Company. In other words, should the Company be partly or wholly privatised. The fact that privatisation of State companies has become something of a trend in other countries, and that it has been proposed for some Irish State companies, gives added point to this question. Consequently the Joint Committee considers that now is the opportune time to identify the reasons it perceives why the Company should be retained in public ownership viz.

(i)The Company is the nucleus around which the horsebreeding industry continues to develop without being subjected to the influences of sectional interests which could arise in a privatisation context.

(ii)The interests of the small breeders which the Company acknowledges and seeks to further are more likely to be taken cognisance of, and validated by, a management structure which sees itself as having a role/responsibility to do so.

(iii)The Company provides a unique service in the area of training and research and is more likely to have an overall view of the industry’s national/international needs and indeed has the experience and expertise to qualify it to do so.

(iv)On a national level, the Company assists concretely in preserving the integrity of the horsebreeding industry in providing, by virtue of being a national institution, a focus which helps to give the industry direction.

Accordingly, the Joint Committee does not see any compelling grounds for recommending that the Company’s shares should be sold to the public, either in whole or in part. Instead the Joint Committee recommends that should the Stud require more risk capital, the existing practice of syndicating stallions should be extended.

Land Rents

6.15The Company has objected to the level of rents charged by the Department for the use of the land at Tully. (See paragraph 5.6). The Joint Committee recommends that the Department should come to some long term agreement with the Company on the methods by which the rent is fixed in order to provide the Company with a reasonable opportunity to make representations and also to facilitate the Company’s long term planning. It should also be accepted by the Department that the rent for the land should obviate any obligation in the future for the Company to pay dividends to the Department.

Kildare By-Pass

6.16In relation to the proposed Kildare by-pass, ideally the Joint Committee would wish that the Stud should not be affected in any way by the by-pass. Nevertheless should the final decision on the by-pass result in it being constructed either adjacent to, or through the Stud, the Joint Committee, while recognising the environmental and economic arguments for so doing in either case, exhorts that the fullest consultation take place between the parties involved to ensure that whichever route is ultimately decided upon the repercussions for the Stud will be minimised both in the short (i.e. construction stage) and the long term. In this connection it might, perhaps, assist the decision making process if the routing were considered in the broader perspective of a motorway to Portlaoise rather than a by-pass of Kildare town.

Organisation of the Industry

6.17Finally, reference should be made to one of the principal recommendations of the Killanin Commission with regard to the organisation of the industry. The Commission recommended that the Irish National Stud should become a subsidiary of a “Thoroughbred Industry Board” which would take over the functions of the Racing Board, and the Tote and have general responsibility for the development of the industry. The case for including the Stud in this structure was not clearly argued by the Commission though the proposed structure appears to resemble that in the U.K. where the English National Stud is a subsidiary of the Horserace Betting Levy Board. Whatever the desirability of setting up the Thoroughbred Industry Board, the Joint Committee believes that the development of the Irish National Stud would be best served by retaining its present status as a State company directly answerable to the Minister for Finance.

6.18It is self evident that the horse industry in all its aspects makes a significant contribution to the economy and plays an invaluable part in enhancing Ireland’s national and international reputation in the industry. From its examination of the Stud and related matters, the Joint Committee feels strongly that there should be greater liaison between the various breeding, training, and racing interests. Increased co-operation can only redound to the benefit of all by establishing with greater clarity and cohesion the problems common to all and as a consequence help the interests involved to formulate purposeful and incisive resolutions to them. In this context, the very welcome £3.5 million which the Government has decided to make available in the recent Budget, for the development of the horse racing and greyhound racing industries provides a timely opportunity and an incentive for greater co-operation between the relevant interests.

Acknowledgements

6.19The Joint Committee wishes to acknowledge the invaluable assistance it received from its consultant, Mr. Jim Dorgan of Trade and Economic Development Services Ltd., in the preparation of the report. The Joint Committee would also like to extend its thanks to the Chairman of the Board of the National Stud, Mr. John Oxx, and his fellow directors, for receiving the Joint Committee at the Stud and discussing in some detail the Company’s performance and future plans. Mr. John Clarke, the Manager of the Stud, and Mr. Lorcan Mooney, the Accountant also gave generously of their time and expertise and the Joint Committee wishes to acknowledge their contribution. Lord Killanin, who was Chairman of the Commission of Inquiry into the Thoroughbred Horse Breeding Industry which reported in 1988, met the Joint Committee and the Board at the Stud and his contribution was also invaluable. The Joint Committee is also indebted to Mr. John Carrick and Mr. Dick Burke, County Engineer and Chief Design Engineer, respectively, of Kildare County Council who helped to clarify certain issues in relation to the proposed by-pass.

13 March, 1990.

*The Company was reported on by the then Joint Committee on State-Sponsored Bodies in 1979 (Prl. 7689)

*National Hunt Stallions

*UK stud. Source: Statistical Record 1987, Weatherbys Ireland