Kerry adds dash of eastern promise to leadership formula

Analysis: Food giant elevates Asia-Pacific expert and Kerry ‘lifer’ Edmond Scanlon

 

In picking its next chief executive, Kerry Group has opted for a tried-and-tested recipe with a dash of eastern promise.

The ingredients, flavours and consumer foods giant – which started off in 1972 as a one-man show when Denis Brosnan plotted world domination from a rented caravan in a muddy field in Listowel – has named Edmond Scanlon (43) as successor to Stan McCarthy, who is set to retire as he turns 60 in September.

Like McCarthy before him, Scanlon, a fellow Kerry native, started out on the company’s graduate training programme 21 years ago. After periods in the US and China he became chief executive of Kerry Asia Pacific in 2014 and led the establishment of a regional headquarters in Singapore.

“They’ve done it the Kerry way – appointing another lifer,” said Ian Hunter, an analyst with Investec in Dublin. “He’s very experienced – particularly in the key Asia-Pacific market, which is where we’ve been saying for some time that they should be driving growth.”

It’s Scanlon’s experience in Asia that probably clinched it. It’s easy to see why. Asia-Pacific business volumes grew almost 11 per cent in 2016, three times the pace experienced by the wider group. Emerging markets has expanded from being 19 per cent of the business in 2008 to 26 per cent, and would be higher had the US not been the focus of most of Kerry’s €900 million of takeover deals in 2015.

“If you take a three- to five-year guess, Asia could be a much more significant part of our business,” McCarthy told analysts on Tuesday on a call.

The Asia-Pacific unit has agreed to spend €83 million on two flavours and fragrance deals, in China and Australia. McCarthy hinted that a few more deals are in the offing in the same region.

Out with a bang

The outgoing chief executive signalled he plans to go out with a bang, with scope to spend up to €1 billion on acquisitions this year.

“Stan is someone who has fundamentally driven the business forward through strategic acquisitions that have been well integrated in areas that have driven growth,” says Hunter.

Group sales have grown 27 per cent under McCarthy, to €6.1 billion last year. The value of the group has surged by more than 335 per cent, to top €13 billion at one stage on Tuesday.

While Kerry may be best known at home for retail brands including Dairygold, Denny and EasiSingles cheese slices, the consumer foods division’s €1.3 billion of sales last year accounted for a little over a fifth of the group total.

The world-leading taste and nutrition business generated €4.9 billion of sales last year selling ingredients to beverages, confectionery and culinary food companies as well as pharmaceutical firms.

Kerry is spending about €250 million a year on research and development in this division. Its 800 scientists – out of a workforce of 23,000 – devote their days looking into fermentation, enzymes, speciality proteins, emulsifiers and “texturants”.

Foods division

Some observers, including analysts at French equities brokerage Exane BNP Paribas, wonder why Kerry doesn’t sell the lower-margin consumer foods division – potentially unlocking €1.4 billion.

McCarthy has dismissed such talk.

“It is a very good business delivering very good cash flow and will continue to grow,” says McCarthy, adding that having a consumer business is a good calling card, particularly in Asia, when it is selling its flavours and ingredients to other food companies.

The group’s legacy farmer shareholders – with Kerry Co-op still holding an almost 14 per cent stake – would be unlikely to support a sale of the consumer foods unit, according to Hunter.

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