Karro Food Group’s lean measures paying off
Seamus Carr has been at the helm of Karro Food Group since December 2012 when the company was formed following the management buyout of Vion’s pork division.
And while he talks freely about the firm’s long-term efficiency strategy, his efforts to ramp up profitability towards the levels enjoyed by rivals Cranswick and Tulip, and his desire to see the business develop a more entrepreneurial streak, you get the impression dealing with the press isn’t his favourite activity.
That’s not to say he’s abrupt or evasive, far from it, but he seems less than impressed with how some reports have failed to put the firm’s activities into context or convey the “nuances” of what Karro is doing.
This time, he’s determined to get across his message to the industry.
“The key points we want to convey is that we have come through our first year, we are stable and we have held on to our management. We are more committed than ever to deliver for our customers, be they onward manufacturing customers or retail customers,” he says. “We believe we have a role in this market and we intend to succeed in it.”
So that’s his agenda ticked off, now let's get down to the nitty gritty.
Put simply, Carr and his management team, including Dutchman William de Klein who heads up operations at its largest English site in Malton, North Yorkshire – and is present for the interview – have quite a job on their hands.
Efficiency agenda (Return to top)
And it is one neither of them shy away from. In fact, they are somewhat evangelical about the efficiency agenda they need to drive home for the firm to succeed, both in terms of servicing retail customers for its fresh meat and manufacturers for onward processing.
Key to this is a relentless focus on efficiencies in the operational processes at its key bases in Malton and Cookstown in Northern Ireland.
The Malton site, for example, acts as a hub for its other English processing sites, in terms of slaughtering pigs and the initial butchery.
De Klein is clear what the site needs to achieve to contribute to the overall business plan.
“The longer-term priority here is to drive continuous improvement so we can become the leanest and meanest in the industry. It’s a penny business, so we need to grab every penny we can,” he says.
With pig prices soaring in the second half of 2012, this is more important than ever.
“This means it is more important than ever that we increase volumes, improve efficiencies and get things right first time,” adds de Klein.
“Over the last year we have brought in more production targets and been clearer with people about what we expect from them.”
Finance (Return to top)
In financial terms, Carr says this strategy will drive home his two-year plan to “normalise” the books.
“Our main priority is to use the very substantial and well-invested asset base that we have to get back to normalised financial returns by improving all aspects of our business. For us, I am defining normalised financial returns by comparing them with our peer group of Cranswick and Tulip,” he adds.
Cranswick enjoys 8% earnings before interest, tax, depreciation and amortisation (EBITDA) returns on sales while Tulip is in the region 6%.
“Our ambitions are maybe not as grand at that,” admits Carr, “but we certainly want to be at the 4% or 5% level by the end of 2015.”
It is impossible to gauge how Karro is performing so far, because Carr refuses to give any figures due to “commercial confidentiality”.
Challenging year (Return to top)
What he will say, though, is that the year “has been very challenging, but very much on plan”.
It is a plan that he is keen to stress was begun by Vion in the year before the buyout. And with the management team that signed up to it still in place, transferring the efficiency and entrepreneurial agenda to the new firm was seamless, according to Carr.
The buyout appears to have been relatively stress-free, too. With the backing of private equity group Endless, its access to funds meant the deal was quickly concluded, adds Carr.
That’s not to say, however, that everything has been plain sailing.
In July Carr announced the closure of a slaughter and butchery site in Wiveliscombe, Somerset, which resulted in the loss of 113 jobs.
While he says no similar tough decisions are likely – “although you can never say never” – it is clear he is well aware of his extra responsibilities and obligations under the new outfit.
“We have to be cognisant that we are quite a big business and we are trying to effect a transformation for 3,500 people and their related families, so we take these responsibilities very carefully,” he says. “We are also handling substantial amounts of invested money.”
Culture (Return to top)
There has also clearly been a shift in the operational culture of the new business.
Carr no longer has anyone else to “hold accountable for the decisions” he is making.
Under Vion, the decision-making process was long and bureaucratic, whereas now the management team holds a board meeting every Friday where decisions are made there and then.
For Carr and de Klein, this is a fundamentally new approach.
“[In the past] the decisions didn’t get taken as you would have wanted and it was often management by committee, but that escape valve or safety net is no longer there. We have to live or die by our own decisions. That doesn’t worry me, but it is a change,” says Carr.
For de Klein, who is at the sharp end of operations, it's a breath of fresh air.
“I worked for Vion for 13 years so I have warm feelings for them, but this is really putting us on the front foot in terms of customer service.”
It is this quick decision-making which Carr hopes will strengthen the company’s innovation, customer relations and entrepreneurial culture.
Each site now has its own md, plan, and development strategy so it is responsible for “its own destiny”.
“My role, and that of the board, will be to support that entrepreneurial flair,” says Carr.
He cites the decisions to spend £2.5M on additional slicing capabilities at the Scunthorpe plant and increasing the herd in Scotland from 8,500 sows to 10,000 as examples of decisions taken to reflect the situation on the ground.
Improved operations (Return to top)
“These are the kind of decisions that could have taken forever but which can now be taken in a very short time frame,” says Carr.
This also shows that while efficiency is the buzzword, Karro is not counting the pennies when it comes to investment in order to improve its operations.
At Malton, £14M has been spent by both Vion and Karro since 2009 on slaughter, slicing and packaging equipment, with more planned for 2014 around chilling and boning processes – projects which will be partly paid for thanks to a £60M funding deal with GE Capital signed in July.
Looking further ahead, Carr says he is optimistic that more jobs will be created as operations are expanded, partly, he hopes, due to rising volumes of exports.
The firm already has good business in China and the US, and is hoping to be one of the first to get a foot in the door next year in Russia.
“There will be scope for more jobs and to expand our operations, especially in Cookstown. Also, in the fullness of time we’d like to see us processing more volumes in Malton too. However, we will only do this from a solid platform,” he adds.
And while the current focus is on its core primary processing capabilities – as revealed by the sale of sausage and meatball manufacturer Snowbird Foods to its management in April 2013 – Carr is too canny to rule out a venture into more secondary manufacturing ventures further down the line.
For now, an ultra-competitive marketplace, rising raw material prices and a full-scale turnaround plan for its main operations is more than enough to keep him, and his team, busy.
“Our big advantage is that we have a broad and experienced management team, backed by a strong board, that know where our advantages lie in terms of pig meat processing,” says Carr.
“Perhaps that wasn’t deployed as much as it needed to be under Vion, but it is now.”
Watch our exclusive video in which de Klein reveals how the management buyout has changed the way the Malton facility operates.
