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Sunday 15 July 2018

More growth on the horizon for the ambitious Total Produce

Investor

Carl McCann, chairman Total Produce, a major producer and distributor of fresh produce
Carl McCann, chairman Total Produce, a major producer and distributor of fresh produce

David Holohan

Total Produce, a world leading producer and distributor of fresh produce, was established after a demerger with Fyffes in 2007. Despite its relatively small size, with a market capitalisation of several hundred million, there was nothing small about the size and scale that the leadership team thought it could grow the company to.

From the outset, the management at Total Produce was ambitious, seeking to play a leading role in the consolidation of the global fresh produce market - one that is quite fragmented. The business strategy included making well placed, value-accretive acquisitions across Europe before ultimately focusing attention on the very large North American market.

With sales amounting to just over €1.5bn in 2004, there was a 57pc increase in three years to just over €2.4bn in 2007 - a stellar performance which was augmented through one large deal and several bolt-on acquisitions.

The next two years proved challenging for shareholders. From its high point in 2007, the share price of Total Produce declined by around 80pc. However, despite the impacts of the deepest global recession in the last one hundred years, it was business as normal for the company - which continued to grow both revenue and profitability.

The weakness in the company's share price provided one of the most compelling entry points to a high-quality company - a once-in-a generation opportunity. In 2009, the shares were trading on a price-earnings ratio of just 2.8 times earnings and 0.45 times the value of the equity on the company's balance sheet - a fire sale price for a company that was not only very profitable but was also still growing. To its credit, the management team, while clearly aware of how cheaply the company's shares were trading, continued to focus its efforts on the day-to-day running of the business and consolidating the global market. The share price responded well and increased from as low as 17c in 2009 to over €1 in 2014. This was only the beginning as shares have traded as high as €2.50 in recent months.

The next significant acceleration of Total Produce's growth strategy occurred in late 2012 with the acquisition of a 65pc stake in the Oppenheimer Group, a leading company with exposure to the United States and Canada. In subsequent years, Total Produce's North American revenue has grown to over $1bn and total group sales approach €4bn.

The surprise acquisition of Fyffes by the Japanese company, Sumitomo, in 2016, put to bed the possibility of Fyffes and Total Produce re-combining and raised the prospect of whether or not Total Produce would seek to do a transformational deal of its own, dwarfing any previous transactions. Investors had only to wait one year to get the answer in the form of the Dole Food Company deal which was announced recently. Under that deal, Total Produce will take a 45pc stake in Dole and over time, will likely take overall ownership of the business.

The significance of the transaction is enormous. It makes Total Produce the undisputed king of the industry while also securing the company's future growth - as its ownership of Dole will continue to increase in the years ahead.

Management has performed exceptionally well since listing the company in 2007, exceeding their own very ambitious goals. But I can't help think we are only at the beginning of the growth story that is yet to come for Total Produce.

David Holohan is chief investment officer at Merrion Capital

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