In his statement in the annual report for Kerry Co-op, chair James Tangney said that the board is actively working on the development of “strategic options for the future success of the society in the context of Kerry Group plc milk contract ending in April 2026.”

He went on to say that “I expect that your board will be in a position later this year to outline future strategy plans to our advisory committees and membership, and to proceed from there to putting our proposals in due course for shareholder consideration.”

This suggests that the new strategic plan for the co-op will be in place by the end of the year.

However, those words from Tangney may sound familiar to any member of Kerry Co-op, as in the 2022 annual report the then chair Denis Carroll said “I expect that we will be in a position towards mid to late autumn to outline our future strategy plans to our advisory committees and membership, and to proceed from there to putting our proposals in due course for shareholder consideration.”

Clearly Carroll’s deadline was missed, and Tangney has, for want of a strategy, gone with a similar deadline for this year.

Among Kerry Co-op members, there had been some talk that a strategy might be announced in time for the annual general meeting, which was traditionally held in the first week of July but this year has been pushed back to the last week of the month.

It is interesting that Tangney decided to include a mention of the ending of the current milk-supply contract with Kerry in April 2026.

Speaking to the Irish Farmers Journal last month, CEO of Kerry Dairy Ireland Pat Murphy said that a new supply contract has been drawn up and would soon be shared with the board of Kerry Co-op and then with farmers.

If the board of Kerry Co-op expect a fresh supply contract to be in place, as suggested by Murphy, then the context for the strategic plans disappears.

In fact, the only way that the board of Kerry Co-op using the end of the supply contract as a context for anything would be if they do not expect a new supply contract from Kerry Dairy Ireland to be forthcoming, or do not expect it to be agreed if it is forthcoming.

Financial performance

The co-op’s main asset is its 11.1% holding of the shares of Kerry Group plc, which was worth €1.55bn at the end of 2023. The value of that holding has dropped by €1bn since 2020, when it was 12.1% of Kerry Group worth €2.53bn.

The drop in Kerry Group’s share price from €118.5 at the end of 2020 to €78.66 at the end of 2023 has been the main driver of that fall in value.

As the co-op accounts for that drop in value in its revaluation reserve rather than in its profit and loss account, the co-op remained profitable in 2023, earning €17.7m on a turnover of €21.6m.

That turnover was almost entirely made up of dividends paid by Kerry plc on the co-op’s shares.

That turnover figure has increased by 20% from €18m since 2020. In the same time, proposed dividends from the co-op to its shareholders have increased by 32% from €3.80 per share in 2020 to the €5 per share which will be voted on at the Annual General Meeting on July 25 in Tralee (see Figure 1).

On operating costs, fees paid to directors and former directors increased to €593,628, while there was a notable jump in legal and professional fees from €342,612 in 2022 to €1,065,720 in 2023.

Those professional fees may have something to do with the strategy planning which clearly ramped up in 2023 as the co-op’s strategy committee doubled the number of meetings it held when compared to previous years.

Comment

Kerry Co-op is, basically, a holding company for shares in Kerry Group plc. Taking a purely pragmatic view of what the company does at the moment, there is no real need for it to be anything other than that.

Over time, the shareholding in Kerry Group will fall as members redeem their shares at the two annual events for such actions. Kerry Co-op will shrink and eventually fade away to nothing.

Obviously, this view completely ignores everything about the history of Kerry Co-op, and also everything that those closely tied to the organisation seem to believe in.

The chair’s statement in the annual report says “the Irish dairy industry has been at the core of our establishment and our continued success...we need to maintain and strengthen our core business for the benefit of all stakeholders of our society”.

Ok, the shareholders of Kerry Co-op are generally dairy farmers, former dairy farmers or their families, meaning the interests of those people may be attached to the success of the dairy industry.

But it is hard to argue that any move by Kerry Co-op to “maintain and strengthen” that business, especially if it involves spending money to increase the co-op’s involvement in the dairy industry, would necessarily be in those shareholders’ best interest.

For dairy farmers that are both Kerry milk suppliers and Kerry Co-op shareholders, the membership of the co-op actually gives them a diversified income stream.

The co-op’s income relies almost entirely on dividends from Kerry plc, and 96% of Kerry plc’s income – and therefore those dividend payments – came from Kerry plc businesses outside the Irish dairy industry.

This means that returns on shares in the co-op have very little correlation to the performance of the dairy industry, as we have seen over recent years where payout per share has increased even as the milk price slumped (again, see Figure 1).

For co-op shareholders who are not dairy farmers, spending money on an Irish dairy industry investment makes even less sense, as they would be backing what is a very-low margin business.

From Kerry plc’s point of view, finding a new home for Kerry Dairy Ireland would be good business. The sale would unlock capital, which then could be put to work in other higher-margin parts of its taste and nutrition business.

It is much harder to argue that any such deal makes as much sense for any potential purchaser of Kerry Dairy Ireland.