Business Irish

Saturday 22 July 2017

Big food companies push ahead, ignoring the recession

food

Peter Flanagan

Peter Flanagan

THE more things change the more they stay the same. If 2010 saw most business sectors struggle while the food and beverage industry flourished, then 2011 saw more of the same.

While the wider Irish business landscape remained in a state of flux, with the ISEQ Overall Index finishing the year at levels last seen in the 1990s, the food sector, for the most part, continued to surge ahead.

Kerry Group and Glanbia's share price both finished the year higher than at the start of 2011, while other firms such as Greencore and C&C endured tumultuous years for very different reasons.

Once again the sector was defined by merger and acquisition activity, with none more active than Greencore.

The year was an especially challenging one for the ready meals maker. On January 1, Greencore was in the midst of completing a merger with the UK's Northern Foods that would have made Patrick Coveney's company the dominant player in the ready meals sector in the United Kingdom.

The merger would have doubled the size of Mr Coveney's company, which would have been renamed Essenta Foods, and had been backed by the Northern Foods board.

Unfortunately it was not to be. Greencore's bid was ultimately topped by Bolton businessman Ranjit Boparan, despite Mr Coveney's best efforts -- Greencore looked closely at bidding for Northern outright and also making a bid for the company with a private equity partner.

The offer looked like it might be a winner but ultimately Greencore couldn't get the backing of the Northern Foods pension trustees. The trustees would only support an offer if Greencore pledged not to break up the business, something the Irish company, quite reasonably, couldn't do.

By March, Greencore had formally pulled out of the bidding for Northern, allowing Mr Boparan to take Northern private.

Despite Mr Coveney insisting his firm did not need a strategic partner, analysts immediately said Greencore could be vulnerable to a takeover if they didn't get a deal done, setting off a string of rumours about the company's future.

Ultimately Greencore would pay £113m (€129m) for the UK firm Uniq, which was a huge supplier to Marks & Spencer.

Rights issue

While the price was considered a bit on the high side by some the deal was broadly welcomed by the market, even if existing Greencore shareholders were diluted by a new rights issue to finance the deal.

That was not the end of the corporate intrigue around Greencore however.

On the morning of October 25, Greencore shares rocketed more than 10pc, followed by the company announcing it was in talks with an unnamed party, believed to be private equity house Clayton Dubilier & Rice, that could end up with a sale of the business.

Those talks ultimately went nowhere but industry watchers expect the swirl of corporate activity will continue around Mr Coveney's business. This story isn't over yet.

Greencore's shareprice ended 2011 down around a third on its January opening, but the same couldn't be said for the big two, Kerry Group and Glanbia.

Glanbia began the year with the purchase of American sports nutrition business BSN for $144m (€129m).

The deal continued the Killkenny company's move away from its traditional agri-foods business and further into the global nutritionals space, which is a fast-growing area which provides higher margins.

While the BSN deal may have raised suspicions that Glanbia may begin to pull back from the agri business, the company continued to expand its liquid milk division in preparation for the removal of EU milk quotas in 2015, buying part of the Dawn liquid milk sector from Kerry Group.

Company CEO John Moloney ended the year by confirming full-year results would be at the "higher end" of company forecasts and predicted 20pc growth in earnings per share profits. As for Kerry Group, it was a case of "same old, same old" as the company continued to grow relentlessly.

CEO Stan McCarthy continued his strategy of bolt-on acquisitions with the minimum of fuss and the occasional major deal.

This year, the major deal was the $230m (€171m) deal for Cargill Flavour Systems. Kerry told the stock market it was in exclusive talks with Cargill during the summer before agreeing the deal in September, thus cementing Kerry's place as one of the major players in ingredients and flavours worldwide.

Another deal

It was another deal that was greeted with enthusiasm by the market and was reflected in the share price, which was up nearly 10pc by year's end.

There was little movement in the boardrooms of the top companies in the sector, but the notable exception was C&C where John Dunsmore stepped down as chief executive after just over three years in the top job. He was succeeded by chief operating officer Stephen Glancey but, unusually for the industry, the terms of Mr Dunsmore's resignation reportedly included a non-complete clause of only six months.

Mr Dunsmore is expected to resurface in the near future, with Diageo or private equity believed to be the favourites for his services.

The year was also marked by the death of long-time Fyffes chairman and CEO Neil McCann at the age of 77.

One person who will look back fondly on 2011 will be Aryzta boss Owen Killian. The speciality baker had another strong year, with revenues and profits all well up on 2010.

That earned Mr Killian a pay packet worth close to €7m for the year which, while possibly excessive, more or less summed up the fortunes of the wider sector. This year, the recession in many food businesses remained something affecting other people.

Irish Independent

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