Departure shows group in deep crisis

JERRY Henchy’s removal first as boss of Dairygold in January 2009 and then as chief executive of Reox yesterday points to a deep crisis within the overall group.

Reox is the non-dairy part of Dairygold which was launched in May 2006.

Mr Henchy, who was appointed chief executive of the overall group in 2003, decided to break up the Mitchelstown-based dairy co-op into two distinct units.

His aim was to protect farmer incomes and to ensure a milk price sufficiently good to allow as many as possible to continue dairy farming as the market became more competitive.

Reox then became the holding operation for the food division under Breeo Foods.

Alchemy became the property subsidiary and 4Homes the retail division.

But before those major strategic decisions emerged, Henchy took substantial costs out of the business, which resulted in the workforce being culled dramatically. Today the combined operations employ 1,700 against 3,200 when Henchy took over in 2003.

That was generally seen as a very positive step and Mr Henchy is acknowledged for having broken the stranglehold of the unions.

But for Dairygold and its long history it was downhill after that.

Last year the Reox business saw operating profits plummet from nearly e21m to just under e6m in the year to September 2008.

The 4Homes stores are believed to be seriously under stocked at this stage, while the property business has suffered hugely under the downturn.

For many, however, the most devastating blow for the group was the closure of the Galtee plant in Mitchelstown, which would cost at least e50m to

replace. The farming out of the other consumer areas, such as cheese and butter, to third parties is now regarded as a serious strategic error.

That move in particular prevented the group from being able to fully match the demands of the big multiples.

It has been argued that the slash and burn policy that earned him the title “Jerry Rubble” led to the decision to abandon the development of a major consumer division under what he termed the group’s “twin island” strategy.

The initial aim of that strategy was to build up a substantial presence with the existing and other brands in the Irish and British markets.

Last year Mr Henchy abandoned this strategy to the amazement of some and then sold off the brands developed in the 1930s and 40s to Kerry for e165m.

A ruling on that is due from the commercial court today and could have a pivotal bearing on the future of Reox.

Ned O’Keeffe, Fianna Fáil TD for north Cork, a long-term critic of Mr Henchy, said the “brands historically are part of Dairygold and should be kept within the company”.

“The combined group is facing its toughest challenge ever and I believe Reox will have to be taken back into the full ownership of Dairygold within the next six months,” he said.

There is a real threat to the company at this stage, he warned. The real

problem now is that debts within the dairy co-op and Reox are mounting.

It is believed that Reox has debts of e170m, while borrowings at Dairygold are understood to have soared from e38m at the end 2007 to e70m by the end of last year.

There is now serious concern at board level in both groups that the fall in milk price and the sharp downturn of the Reox operations have left the entire group dangerously exposed.

Questions have been asked about the e55m the group got from the sale of SWS in Bandon two years ago and how it was used within the group. The other chief concern is that the closure of some of the group’s core consumer assets has left the company both cash poor and with assets that the group will struggle to recover. Fireworks are expected at the Reox AGM set for Silver Springs Moran Hotel, Cork, next Monday.