The Phoenix Vol.38 No.13

whopping €10m in goodbye money
between them.
Unfortunately, Gazza appeared to have
no plan B in place, as it was not until May
2017 that he announced the appointment
of Kevin Toland as the new CEO, although
the latter could not start until September.
For six vital months, therefore, Aryzta
was rudderless apart from the chairman’s
direction.
While sales only fell 2% in the year to
the end of July 2017, the group trading
profit imploded by a hefty 43% to €277m,
driven down by North America, where
returns collapsed by no less than 59%.
In his first chairman’s report, McGann
advised worried shareholders, “We have
characterised 2017 as a difficult year,”
adding that “as a board, we are committed
to making the right strategic decisions…
and preserving and creating shareholder
value”. Anyone willing to decipher the full
accounts, however, would have realised
that, after exceptional write-offs, Aryzta
made a record pre-tax loss of €1bn. Maybe
McGann should have mentioned that.
There was little sign of creating
shareholder value the following year,
covering the 12 months to July 2018,
when sales fell 10% and the trading profit
dropped by a further 40% to €164m. After
taking exceptional items into account,
there was an improvement from the
previous year’s pre-tax loss to ‘only’ €½bn,
with the chairman advising, “The 2018
financial year has been a difficult one.”
There was good news, however: Aryzta had
come up with a cost-reduction plan called
‘Project Renew’, which was designed to
deliver annual savings of €90m by 2021, at
a cost of €200m.
EQUITY DESTRUCTION
On the back of two disastrous years,
McGann and his board came up with
a plan to cut the group’s then €1.9bn
of borrowings by raising €800m equity
through a 10-for-one rights issue, with the
shares offered at a 90% discount of 88c.
(The shares were then trading at €8.50.)
This left shareholders shell-shocked at
the practically unprecedented level of
equity destruction. Hence, the significant
opposition from Francisco Paramés and
others to that fundraiser.
The fact that Aryzta had moved its
base from Ireland to Switzerland did not
help small shareholders. Under Swiss
regulations, they were only given just over
a week to exercise their rights, which
involved transferring funds in Swiss Francs
to a UBS bank account in Zurich – a tall
ask. Those infuriated shareholders are
likely to let loose at the upcoming EGM,
with McGann right in the firing line.
Those same shareholders will also have
been angered by the cack-handed disposal
of Aryzta’s minority 49% stake in Picard,
which had been bought for €450m in 2015
and was sold for €156m last year.
Although Aryzta has managed to slow
down the loss of sales and stabilise earnings,
the group ended up with a net attributable
loss last year of €68m. In the latest half
year to January 2020 (ie before Covid-19
kicked in), sales were down a further 3%
and trading profits fell 16% to €74m.
Taking into account the loss incurred on
the Picard sale and assorted write-offs, the
bottom line, after interest, showed a loss
of a €921m. To lose a billion euro once is
unfortunate…
CEO SELECTION
One of the most important tasks of
any chairman is the selection of the CEO
and, in picking Kevin Toland, McGann
has failed to inspire. Toland’s most recent
experience in the four years to taking up
the Aryzta post was in running Dublin
Airport. Maybe this appealed to the Aryzta
chairman (who headed up Aer Lingus
himself for seven years in the 1990s), but
the reality is that it was a pretty cushy
number, essentially based on charging
passengers passing through the airport
€9.50 a head, landing retailers with huge
rents and making a mint out of car parks.
Rocket science it ain’t.
Francisco Paramés
From the time Gazza joined the Aryzta
board in December 2015, the company
was already in trouble. On becoming
chairman at the end of 2016 and then
clearing out the top management in March
2017, McGann should have had a clear
understanding of the issues, but there is no
sign of the necessary strategy being put in
place – like immediately floating or selling
off Picard to get Aryzta out of a retailing
business about which it knew nothing.
The two giant Cloverhill production
facilities in Chicago and Cicero should
have been sold and the number of bakeries
the group has worldwide should have
been dramatically rationalised (it is still
operating 53 separate plants today). The
big Otis Spunkmeyer cookies and muffins
business, which had been bought in
2006 for $600m, should also have been
offloaded. It sells to 62,000 retail customers
and, because of its huge brand recognition
in the US, would attract significant interest.
Having faced a 47% vote against the
resolution to implement the dreadful
€800m rights issue back in November
2018, McGann made a point in his October
2019 chairman’s review of highlighting
his desire to “restore an open, trusted and
transparent dialogue between Aryzta and
its shareholders… and build a constructive
dialogue with all shareholders”.
It is unclear if the chairman considers
the current siege by Veraison and its
allies as reflecting “transparent dialogue”.
THE PHOENIX JULY 3, 2020 15
Following the formal request for an EGM
on May 20 to oust most of the board,
McGann kicked the can down the road to
mid-August. Veraison has described this as
a “deliberate delay” to facilitate a strategy
review ahead of the EGM.
The dissident shareholders go on to say:
“Since 2017 the existing board of directors
has failed to set the right strategic course to
focus and reduce the complexity of Aryzta.
This has led to enormous value destruction
for shareholders. It is unacceptable that
before a renewal of the board and without
taking all stakeholders into the account, the
strategy review, rejected for a long time, is
now to be concluded on short notice with
an investment bank [Rothschild].”
With sales down 24% in the most recent
quarter (clearly affected by Covid-19), and
sales in the first three weeks in May down
an even greater 33%, Aryzta is certain
to deliver absolutely diabolical results
for its full year to end July 2020. Unless
Rothschild comes up with some audacious
get-out-of-jail card in the next few weeks,
the dissident shareholders are going to rout
the board and Gary McGann will be booted
out.
His 70th birthday party on August 25
could be a sombre affair.
GARY McGANN’S
BUSY DIARY
Gary McGann is business royalty – a former
president of Ibec and regularly one of the
highest-paid suits in the country – having
taken out €20m in his last three years at
Smurfit Kappa, up to his resignation in
August 2015. In 2014, Gazza was officially
the best-paid executive in Ireland with a
total package of an eye-watering €7.2m,
including share options and bonuses.
After his retirement from Smurfit,
McGann remained on the board as a nonexecutive
director, as well as holding a seat
on the board of US giant Multi-Packaging
Solutions, although he stood down from
both as the brown stuff started to hit the
fan at Aryzta, where he was paid €323,000
in the year to July 2019.
Another board where the busy director
popped up was Green REIT, where
McGann was in situ until its sale at the
end of last year. And today he is to be
found on the boards of AON Ireland
insurance and building giant Sisk Group (as
chairman).
If that doesn’t look like spreading
himself pretty thin, McGann also finds
time to chair the gambling conglomerate
Paddy Power-Betfair, now called Flutter
Entertainment. He picked up €400,000
here last year by the way.
Up to the Aryzta debacle, the biggest
blot on McGann’s CV was the directorship
of Anglo Irish Bank from 2004 up to its
€30bn collapse in 2009. Although he was
a non-executive director, the fact that the
board did not seek to temper the orgy
of property lending after a 16-year-long
economic boom reflects poorly on all of
the well-rewarded members.
Happily, it did not prevent Gazza going
on to pick up other lucrative directorships.