Leadership key to success of agri-food sector

Food and drink companies that are based in Ireland and are quoted on the stock exchange have a combined valuation of €13bn.

That equates to 28% of the ISEQ’s entire worth and is a reflection of their individual success, as well as changes in the complexion of Irish equities.

The effective disappearance of banking shares after the 2008 crash has played its part but I prefer to focus on the agri-food sector’s electric, self-generated performance.

These companies developed from a variety of origins and compete in a broad and eclectic range of products and markets.

One of them — Greencore — was a semi state company before joining the stock exchange. Others, including Kerry, Glanbia, Origin Enterpises, and Aryzta, started life as farmer-controlled co-operatives. Yet others, such as Fyffes, Total Produce, and C&C, were privately owned companies.

All used the stock market to tap equity investors for finance that helped them grow and expand in to major global businesses.

They stand today as credible and financially sound entities in a society where those two terms have been tarnished by repeated company specific and systemic failures.

For an investor, this group of companies offers exposure to a widely differentiated set of strategies and products. You can, for example, own a piece of Europe’s largest banana company Fyffes, which also has interests in the melon and pineapple markets.

In contrast, you can choose to acquire a small part of one of the world’s largest speciality baking companies, Aryzta, which is adding Asia-Pacific and Latin American assets to its existing core North American and European businesses. Or you might fancy a cut off the No 2 cider producer in Britain and Ireland — C&C. Greencore gives you exposure to a leading supplier of chilled foods to the British retail sector.

Glanbia is creating a global nutritionals business alongside its huge cheese and bulk dairy product operations in Europe and the US.

The largest of them all, Kerry, with a market value of €5.9bn, is a true global food ingredients company with a large consumer foods business in Ireland and Britain. Origin is the No 1 provider of agronomy services to farmers in Britain.

The common denominator across these firms is they have not destroyed huge amounts of shareholder value over the past four years. In fact, most have become larger while rewarding shareholders with dividends and, in many cases, growing the company’s share price.

From early 2009, for example, C&C’s share price has advanced by over 350%. Kerry is up 142% in the same period, while Glanbia is 182% higher.

The share prices exclude dividends that were also paid by these companies in the same period. Remember this performance takes place while the global financial crisis erupted, Ireland’s economy went in to freefall, and many other companies at home and abroad have gone bust.

The secret to their success, in my view, lies with management. An effective chief executive that is backed by a trusted and experienced team, can face down the greatest of challenges irrespective of the markets that they serve.

These companies have used prodigious amounts of internally generated cashflow to fund the development of their companies while conservatively managing debt and protecting and rewarding their shareholders.

The ability to do this while a vast range of stock market companies have either imploded of endured huge falls in their share prices is testament to the quality of executives that reside inside Irish companies.

* Joe Gill is director of research with Bloxham Stockbrokers