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New legislation which was signed into law last week as a result of an EU accounting directive, will require some of Ireland’s largest food and agribusiness families to publicly file their financial statements for the first time.
Up to now, unlimited companies were exempted from the requirement to publicly disclose their financial statements once they met certain criteria, but at the same time were able to effectively maintain the limited liability of their ultimate owners.
These include some of the well-known family dynasties in Irish agribusiness such as Larry Goodman’s, ABP group, the Browne and Queally-owned Dawn Meats group, and the Keating-controlled Kepak group. These three companies have a combined turnover close to €5bn.
But it’s not just the meat processing companies, the practice of keeping companies private is commonplace across the food supply chain, from feed and animal health inputs, grain traders and merchants, fertiliser importers, primary and secondary meat processors, machinery manufacturing, and distribution. Even at retail level, the family-controlled Dunnes Stores is one of Ireland’s most secretive businesses.
For the business owners, there were significant advantages when weighed up against the risks, the most obvious being the confidentiality an unlimited structure provided, with no obligation to file accounts. Therefore, the state of the company’s financial affairs did not become a matter of public record. This secrecy could have been for many reasons, including providing information on profit levels, margins and financial health of the company to suppliers, competitors or employees.
However, a complex web of creative company structures evolved, which many of Ireland’s largest and most successful agribusiness families took advantage of. These structures protected them from the risks of unlimited liability. This avoided the need to put their hands in their own pockets to shore things up if all went wrong.
Often it involved creating a group structure of unlimited companies incorporated in Ireland which were wholly owned by limited companies usually incorporated outside the EU or the Isle of Man, therefore protecting the shareholders from the risks of an unlimited company structure.
But, under this new law, Irish-registered unlimited companies which have a (direct or indirect) limited liability holding company anywhere within their structures will have to file accounts.
Therefore the only way that a company’s financials can remain completely anonymous in the future will be to go unlimited, bringing with it, its own risks for shareholders.
What the changes mean
There has been a steady increase in the number of unlimited companies being incorporated in recent years, with 197 registered in 2015. According to the Companies Registration Office (CRO), there were 4,506 unlimited companies registered in 2015, which accounted for just over 2% of all companies registered.
Listen to a discussion of the new rules in our podcast below:
Listen to "Beef barons forced to reveal company profits" on Spreaker.
These changes will apply to companies operating these structures whose financial year starts on or after 1 January 2017. For companies whose financial year ends on 31 March, it is expected that information could start to be seen from as early as April 2018. However, if a company has changed its year end date to 30 December, it could be as late as November 2019 before any information is revealed. Expect to see a normal set of accounts being filed at group level, to include profit and loss account, balance sheet, cashflow statement along with any notes.
But this comes with a health warning for those hoping to find out how much profit is derived from processing cattle, importing feed or slaughtering pigs. As the reporting will be at group level, where it may be involved in different industries, analysis and breakdown of profit and turnover across the various business sectors will most likely be impossible.
It is also likely these companies will look for other imaginative ways to minimise their financial disclosures. It could lead to a raft of even more complex property and management companies being set up where rents and fees get charged to reduce the profit levels in the trading companies.
The secretive nature prevalent in many Irish companies when it comes to financial performance is as much a culture as it is a business strategy. In the meat industry for example, the opaque nature of the financial performance of the largest companies has only served to fuel farmer suspicion that these companies are accumulating huge profits at the expense of the farmer.
However, a quick look at the figures of the few meat companies that do disclose financial information, such as Dunbia and Foyle Meats, is enough to confirm that, while turnover is high in meat processing, profit margins are indeed razor thin.
Many may question what business it is of the public or a farmer to know a company’s financial performance, but the EU clearly feels strongly about this and must see a benefit to financial disclosure by imposing this legislation on member states.
After all, agriculture accounts for 21% of all industry turnover, 9% of all employment and contributes 8% to GDP in this country. Therefore, transparency around the financial health of Ireland’s agri-food industry is clearly in the interest of farmers, the Government and the public in general.
In the meat industry alone, Irish farmers sell €3.4bn worth of livestock every year to meat processors who directly employ 10,000 people. In the beef industry, more than 80,000 farmers sell 1.7m cattle annually to beef processors, with the top three (ABP, Dawn, Kepak) accounting for almost 65% of the national kill.
This illustrates the reliance a large number of farmers and employees can have on the success of some of these secretive companies. Should an ABP- or a Kepak-sized company go out of business in the morning, it would not only be devastating for farmers, but the national economy as well. After all, history has shown that this can and does happen.
So, while companies may resist this, the reality is it will provide very little detail or insight into the inner workings and performance of the business. However, the few top-line figures we will see in the future have to be welcomed compared with the total invisibility farmers have had up to now.
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