British produce companies have traditionally steered clear of listing on the stock exchange. In fact, the potato company Greenvale, in November 2010, became the first fresh food business from any sector to float on the LSE in three years, joining the likes of Fyffes and Total Produce in an elite group of listed produce companies. But examples are few and far between compared to the fmcg sector.
Why is this the case? Many of the big companies like Fresca, Poupart, Albert Bartlett and International Produce have considerable scale, and simply work well as private operations, says Nicholas Saphir, a food industry adviser and former chairman and chief executive of Hunter Saphir, a fresh produce importer which he sold in 1992 for £39m. “Produce companies can generate extremely good cash flow so they are ideally suited to private ownership,” he explains.
Moreover, the arguments against listing are firmly stacked against most fresh produce businesses. “The produce trading world has thin margins; it is very volatile and requires very good trading management,” says Saphir. “It is very difficult to grow consistently in size and in profits as required by the public arena if you are so dependent on the skills of individuals to trade produce. You haven’t got the base of powerful brands - some would say Chiquita is a powerful brand, but it is not in the sense of McDonald’s or Mars - and people don’t generally walk away from a banana because it hasn’t got a Chiquita label on it. So if you are not brand-based, if you are making your profits out of trading a volatile commodity, then you have to be very good at it.”
Many fresh produce businesses are small scale and Liz Bowles, south-west regional manager of EFFP, says many simply aren’t attractive to investors because they are low-margin, family businesses. For the businesses themselves, there are often more straightforward, less costly ways to get access to capital than going through the lengthy process of flotation. “You’ve got to develop a prospectus, get a bank to underwrite the value of the shares; it is a significantly expensive operation, and there are cheaper ways of getting access to money,” she says.
Angus Armstrong, managing director of Greenvale AP, says the fact that so many fresh produce businesses are born out of family-owned farming and growing businesses, or an amalgamation of such businesses, means “there has never been a desire or appetite to make such a move. Lack of scale may be another factor, although as the produce industry consolidates in future years, this may become less of an issue”.
There are of course exceptions. Fyffes and Total Produce are public companies, listed on both the Irish and London markets. Total Produce was formed as a public company in 2007 after demerging from Fyffes, leaving the latter as a banana importer only. Total Produce was listed on the IEX market of the Irish Stock Exchange and the AIM of the London Stock Exchange. According to Saphir, the reason these companies can function as public companies is because they have a wide customer base, unlike many of the fresh produce businesses that rely solely or heavily on UK supermarkets.
“They have a global reach,” he says. “Supermarkets are constantly challenging the role of the produce trader and all of them are seeking to remove unnecessary margins from traders. The pressure, particularly in the late 1990s and early 2000s, was immense.”
Greenvale’s story as a listed company has been newly written. In November 2010, Greenvale Produce Investments Ltd (PIL), the holding company of Greenvale AP, was floated. Greenvale PIL is where the equity is held, while Greenvale AP is the trading company.
So what was the motivation for floating PIL? “The main reason was to create a model that had access to additional cash and tradable equity, thus allowing the business to fulfill its growth aspirations,” says Armstrong. “The business is committed to growing both organically and by acquisition.” The listing generated “considerable inward investment with no capital exiting the business”, adds Armstrong. “In fact some of the existing shareholders at the time of float actually invested in more equity at float. The net result has been a considerable strengthening of the balance sheet which, given today’s economic climate, can be no bad thing. The cash has been used to pay down debt and strengthen the balance sheet, therefore better positioning the business to capitalise on all future growth opportunities.”
Armstrong plans to grow Greenvale through acquisitions, and he argues this can be more easily achieved with the access to equity made possible through the flotation. “One of the benefits of having floated the business is that the equity in PIL now has a valuation and can be bought and sold. While there may be a lack of liquidity currently compared to businesses of a larger scale, there is a market and equity in trading. The business is acquisitive and as such having access to the equity markets to raise funding or partial funding in order to execute future acquisitions is, in our belief, a desirable place to be. From discussions that have been had to date, it would appear there is an appetite within the city to support a good, sound acquisition strategy, and as such the growth of a business such as PIL.”
Armstrong acknowledges there are irritations associated with being publicly listed. “The negatives mainly involve the additional accounting and reporting obligations that are statutory for listed businesses. There is more work at certain times, particularly from a financial reporting perspective, but also in keeping existing and prospective investors updated on company performance and strategy. However, it is our belief in PIL that the positives greatly outweigh the negatives and this will become increasingly evident in the years to come.”
It is far more common for fmcg companies to be publicly listed, which Bowles argues is because the industry is far more consolidated. “In so doing they have become far removed from their original family start-ups,” she says.
This may be the direction the fresh produce industry will move in over time, according to Bowles, but currently there is little to suggest more favourable conditions for fresh produce stock market flotations. -
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