RECIPE FOR SUCCESS?
Kevin Toland has his work cut out at Aryzta
GARY McGann holds many job titles but if he ever opts for a change of career, he could try his hand at hosting the Eurovision song contest.
Aryzta, the Swiss-Irish food giant, held its first-ever AGM in Ireland last Thursday and it was very different to the run-of-the-mill Irish AGM. In keeping with Swiss rules, McGann, as the company’s chairman, had to temporarily cede stewardship of the meeting to a man in Switzerland, who was connected to the meeting via video link.
It was reminiscent of the Eurovision judges calling to deliver a jury’s ‘douze points’. And while there were no points offered by the Swiss gentleman last week, there is little doubt that Aryzta has been delivered plenty of drama to the investment community over the past two years.
McGann is a recent appointee and he has brought in Kevin Toland, formerly of the DAA and Glanbia, as chief executive. Together the men are trying to consolidate after a turbulent period for the company, which has seen billions in shareholder value destroyed. “I think we’ve a really, really good business. I’m very excited about it. We’ve lots of issues and challenges to deal with over the coming number of years but we’ve got great customers, we’ve got great products and you can see the evidence of that,” Toland jovially told reporters while patting his stomach.
But even if Toland’s waistline expands as a result of working with the owner of Cuisine de France, his job now is to trim the fat from a company that has overstretched itself. Under Toland’s leadership the plan is to refocus on business-to-business activities in frozen bakery, and on European food solutions. It’s a reversal of a disastrous attempt to start marketing products directly to consumers in the US — which meant it was competing with its customers.
McGann was candid in his opening remarks to shareholders last Thursday.
“In a number of situations Aryzta deviated from its core strengths, with investments in B2C and in retail, and such investments have significantly impacted performance and damaged shareholder value.”
In financial terms the company is looking to deleverage and asset disposals are likely — indeed one came last week with the sale of Irish-based La Rousse foods to Musgrave.
But the standout candidate for disposal is the company’s 49pc stake in frozen food retailer Picard. The purchase of that stake in 2015 is when the market began to sour on Aryzta — with the view being that it was an unnecessary departure from the company’s core strength.
The company has been clear that it would like to exit the business. Advertising that fact so clearly is not ideal if you want to achieve the best price but it certainly helps achieve one of the new regime’s priorities of being open and transparent with shareholders.
Yet it could be a while before any Picard sale is realised. In September McGann told analysts that Aryzta could not sell its stake unless its partners in the company — Lion Capital — approved. That approval was not forthcoming, McGann said.
At the AGM, Toland said the company wouldn’t sell unless it got a fair value. “Whether that’s tomorrow, or some time down the road, who knows?” Shareholders are unlikely to be asked to dip into their pockets. “It’s not in our DNA to take money from the shareholders when there’s things that we as a management team need to do, improve and deliver on,” Toland said.
Another priority for the company is to continue overhauling the board.
McGann wanted to add more food industry experience and one example of that is Jim Leighton — a recent addition to the non-executive line-up with significant experience in the US food industry. The company planned to add German food veteran Jurgen Steinemann too, but then he became embroiled in an insider-trading investigation and didn’t go forward for nomination.
Prosecutors in Germany are probing trades in the stock of German retailer Metro, and Steinemann is one of the individuals being investigated. Metro said there was no insider information available at the time the trades in question were made and no wrongdoing.
Speaking about Steinemann last Thursday, McGann didn’t rule out the possibility of his joining the Aryzta board at a later date.
“He’s an excellent candidate and ticked all the boxes in terms of his food skills, knowledge and B2B experience globally as well as in Europe. That is a gap that we will continue to look to fill. I wouldn’t speculate on what we will or won’t do. The position is very clear. Jurgen was a super candidate and we were very keen to have him and we can’t have him at the moment.”
In the United States, the company has been struggling to recover from a raid on one of its facilities by the immigration authorities which saw it lose hundreds of staff. The workers had been supplied by an external agency, and McGann told shareholders that Aryzta’s contract with the agency stated that sourced workers had to be eligible for employment in the US. Nevertheless the company is continuing to use the agency’s services as it seeks to repair the staff shortage.
“It’s very, very slow difficult progress. We’re continuing to work through. We know what the issues are, we’re working our way through them and it’s going to be a long and a slow process.”
There will indeed be a long road ahead for the group overall. McGann and Toland are saying all the right things, but investors’ patience with the company has already run thin. They are willing to give the new line-up some time — but how much?
Three years ago Aryzta shares were changing hands for more than 80 Swiss francs. These days it’s just over 36 and it could be a long time before they recover all that lost ground — if indeed they ever do.
Toland has been in place since September and has now completed his first AGM, and put out the first trading update covering his tenure. It has been a short honeymoon period and investors will be looking for him to deliver the goods sooner rather than later.