Glanbia
The once golden child of the Irish agrifood sector is struggling and the share price has been the worst performing of all agribusiness shares on the Irish stock market this year as investors walk. The profit warning in July was the first sign of cracks appearing in its strategy. The company blamed weak economic conditions in South America and trade tensions between the US and China for the poor performance. But it could be much more significant as consumers shift from buying sports nutrition products from traditional stores to online. Profit margins have been slipping and are now down under 8% as prices have come under increased pressure from intense competitive behaviour. Volumes have also suffered. All eyes will be on how effective price increases have been in the second half of the year and what impact (if any) that has had on volume.
Given the complexities of a market that is characterised by changing consumer habits, a growing awareness of health and wellbeing, the mainstreaming of sports nutrition, the growth in online purchasing and plant-based nutrition, shareholders need to ask does Glanbia have the capabilities to succeed?
Kerry Group
The ingredients and flavours company has had another solid year in 2019. While it may have lost out in the running to buy Dupont’s nutrition division, it may not be a bad thing. This was going to be the largest in the history of the company, which has been growing by small acquisitions in recent years along with organic growth. This deal would have doubled the size of the group, creating a company valued at $45bn.
While it may have widened the breadth of its technology, Kerry had a value as to what that was worth. It is positive to see that under Edmond Scanlon there is huge ambition to grow but that it is measured – something Kerry has always been consistent at. No doubt there will be other deals that Kerry will go after. In the UK it closed a ready meals plant after the loss of a Tesco contract. It is a hugely competitive category and it demonstrates the risk when the majority of production is with one customer.
IPL Plastics (One51)
IPL Plastics, formerly One51, has disappointed since floating on the stock market 18 months ago. Shares fell a further 27% in 2019 and are now down more than 40% since their launch.
The plastics company has been blaming the weak performance over the past year on higher resin costs and bad weather. Performance did improve in the first six months, with profits up 15% and expanded margins and the group is expecting full-year results to be at least in line with 2018.
There has been speculation that the company could be taken private again, with the Canadian investors buying out Irish shareholders. However, a spokesperson for the company says this is not on the cards.
Irish shareholders including farmers and co-ops such as Dairygold, Glanbia, Kerry and Lakeland along with Larry Goodman, own around 45% of the Toronto-listed company and have been waiting patiently for an exit that makes financial sense. Despite being sold an IPO dream that cost upwards of C$37m (€24m) and a share price back to that of four years ago, shareholders may have to continue waiting for the promised landing of their One51 investment.
Origin Enterprises
Shares in the agri-services group have fallen by more than a third over 2019. Seasonality and weather make a big impact usually on performance at the agri inputs provider. This autumn’s prolonged unseasonal weather conditions in the UK have resulted in fewer acres of winter crops being planted compared to normal years. While most of the unplanted winter area is expected to transfer into spring cropping, it typically attracts a lower investment spend by farmers. This resulted in the company issuing a warning that profits for its financial year are likely to be negatively affected.
Brexit is a concern for agriculture overall in the UK and the company has been prudent about allocating capital into its UK business recently. In 2019 it reported operating profits up 14% to €89m. Its European business had a more challenging year, with operating profits falling 15%.
During the year it agreed to sell 31 acres at Cork docklands for €47.5m.
Aryzta
Up to the start of this year, Aryzta has had a tumultuous two years. Numerous profit warnings put questions over the ability of the new management team to stabilise the company let alone turn it around.
During the year it finally cutting loose of its controversial investment in French frozen food company Picard. It was always a questionable fit and it has cost the business dearly. It purchased its stake for €447m and sold the majority of this for €156m, retaining a 4.5% stake. It did receive €91m in dividend incomes over the last two years.
Its US business appears to be still challenged and has been struggling as volumes continue to decline but the company expects to see recovery in 2020.
Last year the baker received a €740m lifeline from shareholders to shore up its finances. It promised a major turnaround and the company says progress is being made thanks to its three-year turnaround programme called Project Renew. The share price has been relatively stable since.
The group said it had stocked an extra €10m to €15m worth of inputs such as nitrogen ahead of Brexit. Increased farmer demand during the mild winter had also driven this.
Donegal Investment Group
Shares in the Letterkenny-headquartered company were one of the best performing Irish agri-food stocks this year, rising almost 50%. Soaring prices for potatoes and seed potatoes drove double-digit profit growth in its 2019 financial year. Net profits more than doubled to €4m last year.
It is currently reviewing its businesses and assets with the objective of maximising value for shareholders.
During the year its subsidiary business, IPM Potato Group, invested in a seed potato startup in India, the world’s second-largest potato-producing country. It also sold its Smyths Daleside Animal Feeds business and Burke Shipping business to Fane Valley Co-op for €17m. Its speciality dairy brand, Nomadic, is performing well and it is currently investing to double capacity at the Killygordon site.
Donegal returned €51m to shareholders last year following the sale of a number of non-core assets. It has bought shares off the market during the year.
Greencore
The convenience food manufacturer has been busy resetting its business since it exited the US last year. It is now refocusing back solely on the UK and Irish convenience food market. Having handed back €509m to shareholders (which it had raised from them a year earlier), the group is pinning its hopes that the UK remains an attractive and growing food-to-go market.
However, it is a market that has become increasingly more challenged in recent months, amplified by the uncertainty of what shape Brexit will take which is denting consumer confidence and therefore demand. Greencore experienced this first hand as slowing top-line momentum and a weaker set of results in the second half of its financial year.
Overall, while the group is refocused on its core market, the market is challenged, it has 75% of its business with six customers and 50% with three. Food to go is seen as the UKs most attractive food category but slowing growth as a result of consumer confidence may dampen the group’s near-term performance.
FBD
Shares in the insurance company rose 9% last year. In October, the company surprisingly announced that CEO Fiona Muldoon was to step down and leave the insurance firm in 12 months’ time. The business has come through a major repair, recovery and refocus operation over the last five years. Profitability has significantly increased and for the first six months this year more than doubled to €39m. The company says this is down to benign weather. Premiums have also risen. The insurance industry is under the spotlight with the EU currently investigating insurers operating in Ireland to assess whether they are operating as a cartel.
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