Kerry Group reaffirms its commitment to milk suppliers

Kerry Group has reaffirmed its commitment to its milk suppliers in Munster amid local surprise at group CEO Stan McCarthy’s decision to step down from his role as co-op chief executive.

Kerry Group reaffirms its commitment to milk suppliers

The group has confirmed that it is to enter mediation with the co-op’s suppliers on its promise to pay “the leading price” for milk.

The co-op has faced criticism from some suppliers in relation to new milk supply contracts, which some have interpreted as a suspension of Kerry’s “13th month” payment for this year.

Traditionally, the co-op has made an extra annual payment to its milk suppliers to make up for any annualised year-end gap between its monthly milk payments and those of rival Irish co-ops.

“Kerry has committed to put in place the appropriate investments to guarantee our milk supply up to 2025,” said Frank Hayes, Kerry Group’s director of corporate affairs.

“We have committed to paying the leading price for milk.

We have a detailed contract which was agreed and approved by the board, and by individual milk suppliers.

“There is no ‘suspension’ of the 13th month payment. We have paid an annualised payment in previous years, and that agreement has not yet been reached for 2015 milk.

“Defining the leading milk price is a complex matter, so the contract allows for mediation on that price.

“We’re honouring that commitment, and the matter has now been referred to mediation.”

Ever since Kerry Group was created in 1986, the group’s executives have provided their services to the co-op free of charge.

Stan McCarthy has decided to step down from his role as CEO of the co-op board, but he will continue to meet milk suppliers, many of whom are also shareholders in the group.

Some Kerry-based milk suppliers have reportedly expressed their anger at this move at meetings with the co-op’s board, much of it focused on the traditional 13th month payment.

Some anger also reportedly focused on Kerry Group’s top four executives, who were paid a collective €10.5m in 2015, up €2m on 2014.

While stepping down from his co-op role, Mr McCarthy retains his role as group CEO, for which he received a total remuneration package of $4.6m (€4m) in 2015; this was up from $4.4m (€3.9m) in 2014. The group’s remuneration committee has recommended a 9% rise in his salary for this year.

Gerry Behan, president and CEO of Kerry Taste and Nutrition, was paid a basic salary of €733,000 and total of €2.54m (up from the 2014 total of €2.31m). Brian Mehigan, chief financial officer, was paid a total of €1.86m (up from €1.62m). Flor Healy, CEO Kerry Foods, was paid €1.89m (up from €1.53m).

“No executive in Kerry Group receives any wages from Kerry Co-op, and the group has never sought any payment for the services it provides to the co-op.

All that has happened here is that Stan McCarthy has stood back from his co-op role, but nothing has changed in the group’s commitment to the co-op.

“We have invested €130m in dairy processing in the past five years, we have purchased Newmarket Creameries to add to our processing capacity, and we continue to engage with our farmers as we do with our shareholders.”

Kerry Co-op still holds a 13.7% stake in Kerry Group, amounting to an estimated 24 million shares, worth about €1.8bn.

It is thought that farmer shareholders also own another 30% of the group’s shareholding following several spin-outs in recent years.

Some co-op suppliers believe they will now find it more difficult to contact Mr McCarthy following his decision to vacate the CEO seat.

However, the group insists it will continue to provide executive support to the co-op, and to meet with suppliers.

Meanwhile, market analysts are predicting continuing steady sales growth at Kerry Group’s various global divisions. Goodbody analysts note that Kerry Group’s like-for-like sales grew by 3.8% during the first quarter of this year.

Goodbody is recommending that its clients buy Kerry Group shares from anything around the €80 mark; the price hovered a little over €80.30 yesterday.

Its valuation ranging from €80 to €81 viewed over the past five years.

“We currently forecast life-for-like sales growth of 4.2% for Kerry’s Taste and Nutrition division for the full year of 2016,” Goodbody stated yesterday.

Goodbody issued a detailed study of Kerry Group’s various divisions, with most anticipating single digit growth.

Latin America saw the strongest growth, up 31% year-on-year including acquisitions.

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