Business Irish

Monday 20 November 2017

A tough year for most sectors but food industry bites back with boom

Peter Flanagan

Peter Flanagan

If 2010 had any enduring image, it was probably Ajai Chopra of the IMF walking past a beggar on a Dublin Street, surrounded by press as he headed for government buildings.

It seemed emblematic of the year the country, and Irish business had had. Finally brought to its knees, Ireland's collapse into the hands of the EU and IMF reflected a wider malaise in Irish business.

A number of firms either went bust or reported huge losses while the ISEQ Overall Index slumped nearly 5pc on the year.

It wasn't all doom and gloom, however. The food and beverage sector was one of the few corners of Irish business that enjoyed something of a boom over the year. By year end the food stocks listed on the ISEQ were up by an average of more than 20pc.

Deals

The theme of the year in food and beverage was deals, both successful and failing, as the sector picked up from where it had finished in 2009.

Perhaps the biggest deal, or at least the one with the most obvious ramifications, was the merger between Greencore and the UK's Northern Foods to form Essenta Foods.

Greencore had been in the doldrums for some time -- while most other companies in the sector were on the up and up, its stock price remained stagnant.

Some sort of deal with Northern Foods -- the maker of Goodfellas pizzas and Donegal Catch frozen fish -- had been mooted since the mid 90s so when the merger was finally announced it was not an enormous surprise. And as the old saying goes, the key to knowing which company is taking over which is who the chief executive of the new company will be.

By that measure it was the smaller Irish company taking over Northern Foods, as Greencore's Patrick Coveney prepared to become the CEO of Essenta while the corporate headquarters will be in Dublin.

There was more to the deal than that, with the new company planning on listing in London.

The merger was roundly welcomed by the market and seen as a feather in the cap of the dynamic Mr Coveney, however it was thrown into doubt at the end of the year when the UK businessman Ranjit Boparan emerged with a potential rival bid for Northern Foods.

Greencore's big splash was a contrast to the likes of Glanbia and Kerry Group, although it was Glanbia that stole most of the headlines in the early part of 2010.

The "will they or won't they" sale of the Dairy Ireland business back to the co-op ultimately did not happen after Glanbia Co-op failed to secure the required 75pc approval from its farmer shareholders.

Since that vote last May the prospective deal has stalled as higher milk prices make the Dairy Ireland business less of a drag on the plc. Last August Glanbia Group MD John Moloney said the deal was "a matter for the co-op and the farmers to reawaken".

Talk of a deal in the New Year has refused to go away, however, despite denials from both sides. As chairman Liam Herlihy said himself, "the logic for the deal still exists for both sides" and with milk quotas set to go in 2015 it would make sense for the farmers to want to own all their assets.

The dominant player in the Irish food industry remains Kerry Group and the company showed no signs of losing that position during 2010.

A near 24pc return for shareholders and a 14pc hike in the dividend for the first six months of 2010 equals a good year for the group's investors as chief executive Stan McCarthy continued his recent strategy of smaller bolt-on acquisitions.

The food ingredients business remains the main revenue generator for Kerry but it continued to expand the agri-business here by completing the drawn out purchase of the cheesemaker Newmarket Creameries for €33m.

The deal first came to light in March but the final price agreed in September saw Newmarket's shareholders receive an average payment of €39,000 each.

It was another busy year for Aryzta and its subsidiary, Origin Enterprises. Like Kerry and Glanbia, Aryzta and Origin were a good investment for anyone who bought stock at the start of 2010, returning gains of 30pc and 45pc respectively.

The Swiss-based but Irish-led Aryzta in particular continued to flourish under Owen Killian, maintaining its strong record since it was formed out of IAWS in 2008. The maker of Cuisine de France forked out €349m to buy out the balance of Maidstone Bakeries in Canada as it looked to consolidate its business there and continued to expand in the Americas and Asia.

Aryzta now has a firm foot hold in the quick service restaurant sector, something which becomes more and more lucrative as coffee and doughnuts become a staple outside of the US and Canada.

It was all action for Origin Enterprises as well, eventually spinning off its consumer foods division, which includes brands such as Odlums flour and Roma pasta, to form a new company with Batchelors, which was sold off by Barry's Tea.

Popular

Valeo Foods, as the new company will be known, was popular with investors as it allowed Origin to focus on its agri-business, but Origin hit a speed bump in December when the Competition Authority announced it was investigating a proposed spin off of Origin's animal-feed business with W&R Barnett in the North.

The CA said it "was unable to conclude that the proposed acquisition will not substantially lessen competition" without a full investigation.

That investigation was not the only bad news for the Irish food and drink business. Cider maker C&C, which sold off its spirits business to the Scottish William Grant & Sons in July, announced further job losses at its Thurles plant while Britvic Ireland raised the spectre of cuts as it "restructures" the Irish business.

To say Britvic's purchase of C&C's soft drink business in 2007 was unfortunate is an understatement. This year writedowns of the Irish business pushed Britvic's worldwide business into a loss, sending the share price through the floor.

Given the state of the wider economy, it's likely investors will be hoping 2011 is as good for the food industry as 2010 was. With no sign of an upturn elsewhere, it will have to be.

Irish Independent

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