Food industry has right ingredients for success

THE past year has been an altogether better year for Irish food companies than a dreadful 1994 and the prospects for the current year remain positive with dairy prices booming.

Dairy companies have benefited from greatly improved dairy commodity prices and commodity companies in sugar, flour, malt and fertiliser have benefited from strong demand for their products. Only the red meat industry remains in the doldrums with low margins and consumer uncertainty continuing to plague the industry.

And if Denis Brosnan's audacious $400 million (£252 million) takeover of DCA dominated the sector in 1994, it was the turn of Waterford Foods Mr Matt Walsh to take the corporate limelight in 1995 with the £125 million takeover of The Cheese Company. This move catapulted Waterford into the number one position in the British cheese industry.

While Waterford and Avonmore may have suffered from their involvement in the British liquid milk industry, which has been hit by margin pressures since deregulation, Waterford's acquisition of The Cheese Company has the potential to be a master stroke if the group is able to pay down the debt at the rate it has planned.

If Waterford is able to bring its 100 per cent plus gearing back down towards 70 per cent by its 1997 target deadline, then this biggest ever acquisition by Waterford will be a success.

For Mr Malt Walsh, this acquisition will be his first major test as Waterford's new chief executive. The Cheese Company acquisition is very much his brainchild, and he will probably be judged on its success.

Other major companies have been quiet. However, Kerry, of course, does not see itself as part of the Irish food sector and prefers to be compared to international food ingredients companies. Mr Denis Brosnan made it clear that 1995 and 1996 would be quiet on the acquisitions front, with Kerry spending the time integrating DCA and Kerry ingredients businesses and paying down the debt associated with the £250 million DCA acquisition.

The Kerry chief has also indicated, however, that it will not be long before Kerry goes back on the expansion trail with Argentina and the Far East seen as likely locations for more food ingredients acquisitions.

The past year has also seen Kerry continue its process of disengaging from the Irish meat industry, an industry where Mr Brosnan has constantly be moaned the unrewarding margins.

For Avonmore and Golden Vale, 1995 has been a year of recovery after the dismal 1994 performance when both groups, but particularly Golden Vale, suffered from weak dairy prices and also the effects of rationalising, parts of their businesses. Avon more has been inactive on the corporate front, and Golden Vale - after the Vonk disaster which has only been put to right this year - was frustrated by the postponement of its mozzarella joint venture in Northern Ireland with Leprino.

If Waterford is excluded, corporate activity in the food processing industry was virtually non existent but IAWS continued its aggressive expansion through acquisition. IAWS chief executive, Mr Philip Lynch, has made it clear that the group - controlled by the country's agricultural co-ops - has ambitious plans and the funds to realise those plans.

By the middle of 1995, IAWS had spent over £16 million on a series of acquisitions, mainly in its fish meal and fish oil business. Mr Philip Lynch made it clear through his interest in bidding for Lyons Irish Holdings that he sees IAWS expanding further in the downstream food distribution industries. However, most observers believe the group is more likely to expand in the agribusiness industry.

The proposed bid for the Williams Waller malting and animal feed business fits neatly into that category and would be an obvious add on to IAWS's existing business, where malting is notable in its absence.

Avonmore was an unsuccessful bidder for Williams Waller three years ago, when differences between members of the Williams family prevented the sale of the company to the Kilkenny based co op.

And while IAWS has been active on the acquisitions front over the past year, its closest rival, Greencore, has still to come up with the sort of acquisition that former chief executive, Mr Gerry Murphy, spoke so fondly of during his three year tenure at the helm of the former Irish Sugar Company.

And while under the stewardship of its new chief executive, Mr David Dilger, Greencore may still not have come up with the sort of large acquisition that its balance sheet can accommodate, it has not prevented it being one of the most in demand shares on the Irish market over the past year. The settlement of the Comerford/Talmino legal actions on terms favourable to Greencore was an added bonus.

Greencore has benefited from the stability of its core sugar business, where the EU sugar regime has had a benign influence on its operations, as well as high sugar yields and improved efficiencies in its factories.

The European Commission's decision to drop an Article 85 action against Greencore concerning anti competitive practices in Northern Ireland was further good news for the company.

While the Commission continues to pursue an investigation into alleged breaches of Article 86 by Greencore, strong farmer demand for feed and fertilisers has underpinned demand for Greencore shares.

But the question must be asked whether Greencore can retain its enormous popularity in the absence of a significant acquisition. "The group has undoubtedly been successful in consistently increasing its earnings, but the sort of quantum leap that Kerry and Waterford have taken through major acquisitions is unlikely to be achieved simply through expansion of the existing business.

Fyffes is not usually spoken of in the same breath as the Irish food processing companies, but the joint venture takeover of Geest's banana business could be, the most important move by the Irish group since the original Fyffes business was acquired in 1987.

For Mr Neil McCann, it may be the perfect parting shot as he prepares to step down as chief executive of the group he has transformed from a small Irish fruit and vegetable distributor to an Irish multinational that has taken on the likes of Chiquita and won.