Tuesday 25 October 2016

Richard Curran: Kerry is looking like the land of milk and honey

Published 09/08/2015 | 02:30

Kerry Group chief executive Stan McCarthy has seen the value of his 137,087 shares rise to €9.8m
Kerry Group chief executive Stan McCarthy has seen the value of his 137,087 shares rise to €9.8m

Kerry delivered big time - both on and off the pitch - in the last seven days. After handing out a seven-goal annihilation in the GAA football championship quarter final against Kildare, Kerry Group banged out another set of very solid financial results on Thursday.

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Profits, margins and full-year guidance were all up. First half revenue topped €3bn. This is equal to around €1m per hour in sales for every working day between January and June of this year. Kerry has continued to extract cost savings and squeeze profit margin increases in what have been tough international markets.

The company has been rewarded with a record high for its share price during the week of €71.70. To put it in perspective, you could have bought Kerry Group shares in 2010 for €24.90, or in 2012 for €37 or even at the start of this year for €57.

Big winners here are the Kerry farmers, whose 13.7pc co-op shareholding is now worth €1.7bn, up €350m since January. The co-op stake is worth an average of €136,000 per member.

Five years ago the co-op had nearly twice the number of shares it has today. But after distributing €570m worth of Kerry shares to members in 2011 and 2013, the co-op shareholding is still worth almost double its 2010 value.

A co-op member, who held on to a 1,000 Kerry plc share distribution in 2011, would have seen it rise in value from €29,000 to €71,000 today.

Other winners here include senior management. Kerry Group chief executive Stan McCarthy has seen the value of his 137,087 shares rise by €2m since January to €9.8m.

The flavours and ingredients division continued to be the main driving force, chipping in €2.3bn of the group's €3bn revenue. The group extracted another 40 basis points increase in trading margins in that division, bringing it to 12.1pc. Kerry's margins in this division are up almost 300 basis points in the past five years.

As Kerry continued to ramp up its ingredients business in the last decade, the consumer food division has looked a little more out of place.

The food division has been re-positioned following the disposal of pastry manufacturing and direct-to-store business in the UK. Retaining prices is the big challenge. Competition and price discounting are savage. Yet, Kerry continues to make modest margin gains with new product ranges and the benefits of the '1 Kerry' transformational programme.

Declines in the dairy sector have hit everybody but Kerry is committed to paying the highest milk price in Ireland to its farmer suppliers under a long-term agreement.

As with the football team, success fuels expectations, and Kerry don't do complacency. These results benefited somewhat from benign currency exchange rates and from the benefits of the '1 Kerry' re-organisation.

They should both support its growth path for another while at least. After that it will be time for the next big trick. US private equity group Blackrock recently increased its stake from 3pc to 4pc at a cost of €120m and it has got very little wrong buying Irish assets in recent years.

So no pressure, Stan.

Nama chairman 'says No' to an Ulster grilling

IF we think we have problems with our Oireachtas Banking Inquiry, what about those unfortunates north of the border on the Stormont Committee for Finance and Personnel.

They are trying to probe allegations made around events on the periphery of the Nama sale of £4.4bn (€6.2bn) of assets to US investment house Cerberus.

The top civil servant in the Northern Ireland Department of Finance was the latest witness who was unable to attend, due to legal constraints on what he could say.

Other key figures, such as former Nama adviser Frank Cushnahan and Northern solicitor Ian Coulter - the man at the centre of the probe - are unlikely to attend either.

The whole probe has stirred up a huge hornets' nest in Belfast, with party politics playing its own part. In such a charged atmosphere, it wasn't really that surprising that Frank Daly, chairman of Nama, declined to attend the committee.

There may be issues of accountability for Stormont's politicians, but there are also issues of protocol.

Not one for making up feeble excuses, Daly wrote to the committee on July 9 saying he "must decline your invitation. Nama is accountable to the Oireachtas and to committees established by the Oireachtas. It is our view that this is the appropriate forum to which Nama should account for its activities." Thanks but no thanks seems to have been the core message.

Michael Noonan delivered a similar message in a letter he wrote to the committee on July 23.

He echoed Daly's sentiment on where accountability lay and said that following a discussion with Frank Daly on the issue that day: "Mr Daly explained to me that though Nama have refused your request, this does not mean that Nama will not attempt to be helpful to your investigation."

Nama has offered to co-operate and reply to any written questions the committee may have on topics not already covered by Nama's recent lengthy appearance at the Oireachtas Public Accounts Committee.

No doubt, Nama could have given some interesting (and useful) detail about the workings of the northern advisory committee set up to advise Nama on issues pertaining to property in the north.

Nobody is accusing Nama of any wrongdoing but it must have considerable insight into whether or how anybody could have been in a position to influence decisions made in relation to the sale of the portfolio.

Of course, perhaps the northern advisory committee was merely a piece of window dressing with no real power or influence from the start. It might have been established simply to appease archaic concerns of unionist politicians that the commercial property market north of the border could be effectively controlled by an agency of the Irish state.

If it had no real role or influence, perhaps Daly could head up to Belfast and tell them all that straight to their faces.

Come to think of it, maybe not.

Tourism sector mustn't blow it by getting greedy

Tourist visitor numbers are on track to deliver a record year. The sector provides a salutary tale of how complacency and price gouging can undermine an industry. Yet, it can be fixed.

CSO figures show that in the first half of 2015 there were 3.8 million foreign trips to these shores. This was up 405,000 on the same period a year ago and up over 700,000 in just two years.

Marketing campaigns do work, but much of this success has been down to price cuts, lower Vat - plus currency exchange going in our favour, particularly for Americans and British visitors.

Back in the boom years the industry and government were far too complacent about tourism's potential. Up until 2011, Irish people took more trips abroad than we had trips from foreigners to Ireland.

Cutbacks in Irish foreign travel, combined with a proper focus on a competitive and energised tourism product, have reversed that trend. Foreign visitor numbers are now powering ahead.

In 2008, Irish people took 7.87 million trips abroad while 7.83 million trips were made by foreigners to Ireland.

Last year, the figures were 6.5 million and 7.6 million - a massive leap forward. However, we are still too dependent on British visitors, who accounted for four out of every ten visitors. The Germans are coming in very big numbers (557,000 visits last year), despite their tough line on burning bondholders.

It is up to industry players not to blow it.

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