Thursday 23 November 2017

McCarthy's Kerry legacy gives successor Asian deals option

Edmond Scanlon, Kerry Group chief executive officer designate, and Stan McCarthy, Kerry Group ceo. Photo: Colin O'Riordan
Edmond Scanlon, Kerry Group chief executive officer designate, and Stan McCarthy, Kerry Group ceo. Photo: Colin O'Riordan
Richard Curran

Richard Curran

Stan McCarthy will hand over the baton of leadership at Kerry Group to Edmond Scanlon in September. Scanlon will become just the fourth chief executive in the history of the €13bn business, and the third Kerryman - three out of four isn't bad, even for Kerry.

McCarthy leaves the company in rude health. Having overseen a massive internal transformation programme shortly after he took over in 2008, he has grown the business and given it real focus. He also made key strides in his dealing with the plc's relationship with the co-op. In 2010 Kerry Co-op had seven directors on the board of the plc who had come through a straight farmer election process. The co-op owned more than 20pc of the plc at the time.

Under McCarthy, the farmer shareholding dropped to 13.7pc through a further multi-million-euro share distribution. New rules also govern who gets appointed to the board. The co-op will put forward eight nominees from which just two will be selected after an interview process conducted by the plc.

It is better corporate governance and should lead to a better calibre of co-op director on the board of Kerry Group. But that doesn't mean it was easy to push through. McCarthy's relationship with the co-op has been frosty at times to say the least. He even resigned from the dual role as chief executive of the co-op, something that had been a tradition at the business.

Kerry Group's balance sheet looks so healthy it is no wonder McCarthy describes the business as being in acquisition mode. Having spent nearly €1bn on acquisitions in 2015, its debt, at €1.3bn, is just one and a half times trading profits. If anything, the company has been overly cautious and is more than ready to kick on with new deals.

Asia is now the fastest-growing part of its business and that is where further deals seem likely, especially given that the incoming chief executive is arriving in Tralee after heading up the Asia Pacific division. He may well have already spotted a number of things he would like to buy there.

Kerry Group's results last year were undoubtedly held back by global market forces. It sold more product but pricing and currency pressures meant revenues were pretty static. Yet, it managed a solid 7pc rise in earnings per share.

The tricky bit is the Americas. Around €2.6bn of the group's €4.8bn ingredients business revenues came from the Americas. It's a game of two halves over there. A stronger "Trump-charged" US dollar is being offset by weaker Latin American currencies. And with Trump around, uncertainty is likely to continue.

Closer to home, McCarthy is adamant that the Kerry Foods business will not be sold. It chipped in €1.3bn in revenue which was down around 10pc while trading profits fell 4.7pc. There has been speculation that Kerry might sell off this division but management remain committed to its role, its brands and its contribution to generating cash. This is in contrast to Glanbia's approach, where these businesses are moving towards the co-op through separate joint ventures. Glanbia wants to streamline to the higher margin nutrition and ingredients sectors.

Brexit will cause some issues for the Kerry Foods division particularly in relation to operations in Ireland. Most of what Kerry puts on UK retail shelves it processes within the UK. That will actually provide opportunities there for the group. But it could come at the expense of its Irish jobs in facilities which currently export to Britain, in the event of high tariffs being applied.

McCarthy has shown that he is no sentimentalist. Look at how he handled the co-op. Yet he appears to have been rock-solid in defending the strategic role the foods division plays in the wider group.

A change at the top could bring about a re-think. It is hard to know what approach his successor might take on the issue especially if a very large merger or acquisition was available down the road - maybe even something like Glanbia perhaps.

Revenue ready to cash in on new warning letters

BEWARE the unexpected letter from Revenue arriving through the post box. The Revenue Commissioners have a long track record of sending out warning letters about undeclared income and getting back buckets of cash from terrified tax evaders.

The latest batch of over half a million letters relates to assets Irish people may have offshore. Revenue is sending out the letters ahead of a May 1 deadline which would enable those with hot money or undeclared income abroad to make a voluntary disclosure and avoid full penalties and the publication of their name. But something about this doesn't quite stack up. There is a massive gulf between the number of people who the Revenue believe could potentially have a liability and the number who have actually come forward to avail of the disclosure.

In answering a parliamentary question Michael Noonan revealed that just 15 people had applied to make the disclosure. Perhaps they had all been waiting to the last minute to flood in with applications anyway. Revenue isn't taking any chances, so it is sending out the letters as a less-than-gentle reminder to anyone who has undisclosed income from foreign assets out there.

Of course, Noonan's tax break for vulture funds which did away with Capital Gains Tax on property acquired and held for seven years, actually incentivised a lot of people to buy property abroad. The EU insisted that the tax break also apply to Irish people buying an investment property anywhere in the EU. No doubt lots of investment homes around the UK and the continent are owned by Irish people who won't owe any CGT when they sell. But they are supposed to pay up on the rental income.

Private Dublin terminal proposal just won't fly

THERE was a bit of nostalgia about transport minister Shane Ross's suggestion of a new privately-run terminal at Dublin Airport. It harped back to the days of the Celtic Tiger.

Remember how we were all packed into the only terminal like sardines, while government ministers who couldn't agree on who should own the new terminal were ushered through to VIP areas without queueing.

Going through Dublin Airport in those days was a test of character, as well as patience. In the end, the state sector won out and we got Terminal 2 just in time for the crash. Now finally we have an appropriate level of capacity to match the recently-achieved record passenger numbers. In fact, we have enough capacity to sustain many more millions of passengers assuming a planning restriction is overcome.

The minister has floated the wrong idea, at the wrong time. Would it be good for consumers though? That is not a given. It would depend on how the private owners would try to get a return on their investment while competing with two other terminals.

If it isn't broken, then don't fix it.

Sunday Indo Business

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