Kerry Group executives deserved pay cut

AS ONE of the most performance driven group’s in any sector it probably should not come as a major shock that Kerry Group’s top four executives had their bonuses cut in 2006.

This follows from the profit warning at its annual general meeting last year, due to higher than expected energy costs and failure to recover rising costs by raising prices.

For a long time Kerry’s leading executives have been remunerated in part through bonuses for achieving their targets in any given year.

It’s a good motivational factor and with Kerry’s outstanding track record over the past 20 years it seemed alien to think that the day would ever come when those who have been the backbone of Kerry’s success for nearly 30 years would ever have to eat humble pie.

Not that any of the senior executives will go hungry in the current year. The chief executive was paid over €1 million last year and his deputy €855,000.

However, Kerry’s non-executive directors, mainly farmers, but also including one former director general of the department of agriculture saw their salaries upped by €92,000 odd.

It seems a bit unfair. Kerry’s success after all is what makes it possible for these non execs to get well remunerated without any real risk.

It seems only right that, if the top executives have their bonuses cut in a given year, that the non-executive directors should show solidarity and not take anyincrease in their remuneration either.

However, it was a first for Kerry and perhaps a sign of the times that the good old days are gone and that the group faces tougher times ahead.

That said, Kerry is still one of the most impressive players in key areas of the global food sector, with one of the biggest footprints in food ingredients internationally, backed up in Ireland and Britain with a substantial consumer food operation that accounts for one third of overall profits.

However, as the top echelons had to live with the raiding of their wage packages last year the markets look to be getting over last year’s profit warning glitch.

Cautious but upbeat was a recent take on the group by one of the toughest analysts in the sector at NCB.

He has since put a buy recommendation on the stock and set a price target of €23 this year for the group.

Kerry might also take some cheer form yesterday’s news that Tate & Lyle paid just over 10 times EBITDA for speciality ingredient group GC Hahn of Germany.

Tate paid €116m for 80% of Hahn, which had historic sales of €102m and earnings of €10m. That deal was done at the lower end of earlier forecasts and might suggest that prices for companies in the sector are becoming more realistic, which if true, should allow Kerry to expand its presence in the ingredients/flavourings market further.

Kerry has resisted the temptation to buy at excessive prices, despite pressure from fund managers to deliver higher growth.

Despite its very strong performance over the decades, Kerry bosses never paid themselves massive salaries by comparison with other Irish executives, which they could have justified on the basis of their performance.

Last year, for example, CRH boss Liam O’Mahony was paid a total of €2.6m, admittedly on the back of an outstanding performance.

Kerry, on the other hand, hit the ground running, and quickly established a track record in terms of the double digit earnings growth.

It has to start moving back in that direction if it is to retain its standing in the sectors it operates in.

Earnings growth of just 5% for this year is unfamiliar territory for the group and it needs to put the recent sluggish period behind it if it is to retain its outstanding record of achievement.

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Wednesday, November 25, 2020

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