PIC International Group PLC

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PIC International Group PLC

100 George Street
London W1H 5RH
United Kingdom
(0171) 486-0200
Fax: (0171) 935-3120
Web site: http://www.pic.com

Public Company
Incorporated: 1884 as Dalgety and Company, Ltd.
Sales :£215 million (US$358 million) (1997)
Stock Exchanges: London
SICs: 0751 Livestock Services, Except Veterinary

PIC International Group PLC is the world’s leading supplier of genetically improved breeding stock to the pig industry. It sells pigs as breeding stock to farmers, who raise the offspring for sale to the market. With activities in more than 30 countries, PIC leads the market in North America with a share in excess of 30 percent and the market in Western Europe with about ten percent. The company has also established a presence in such emerging markets as Central Europe, Asia, and South America. PIC is the successor company to Dalgety PLC, which, prior to its transformation into PIC in mid-1998, had a number of interests in addition to pig breeding: agricultural supplies, food ingredients, consumer food, pet food, and food distribution.

Origins As a Wool Trading Firm in the 19th Century

Dalgety was founded by Frederick Dalgety, a Scotsman who emigrated to Australia in 1833 at the age of 16. Dalgety apprenticed with a Sydney merchant until 1840, when he moved to Melbourne and found a job as the manager of a wool trading firm. Dalgety soon secured a partnership in the business, and, when his partners left the firm, he formed his own company in 1846. Dalgety and Company outfitted sheep ranchers with supplies and financed them in anticipation of yearly wool sales. The firm then shipped wool to England, where it was sold to the textile industry.

The Australian wool market collapsed in the late 1840s, and Dalgety would have been hard-pressed to continue had it not been for the discovery of gold in Australia in 1851. Dalgety and Company made a fortune supplying prospectors with food and digging equipment. The company also bought gold from the miners and then sold it abroad for a substantial profit. Although the gold rush brought Frederick Dalgety sudden wealth, he did not abandon his original business. The wool market recovered from its slump and Dalgety expanded his firm’s activities throughout the continent and to New Zealand. Dalgety’s connections with the wool trade became so pervasive that sheep farmers nicknamed the company and its representatives “Uncle Dal.”

In 1854 Dalgety established an office in London to expedite his overseas transactions and thereafter managed his business from England. As Dalgety’s firm came to dominate the Australian and New Zealand wool market, it became apparent that incorporation was necessary to supply the needed capital. Thus, in 1884 the business was floated as a public limited company—Dalgety and Company, Ltd.—with a capital of £4 million. The share issue was a great success, and Frederick Dalgety acted as the company’s first chairman until his death in 1894.

First Diversification Moves in the 1890s

The new company experienced a number of hardships in its early years. In 1893 an Australian banking crisis led to financial contraction on that continent. Then, Australia’s agrarian economy was devastated by the Great Drought, from 1895 to 1902. Dalgety’s new chairman, Edmund Doxat, saw fit to charter a new course for the company. Dependence on wool had left Dalgety vulnerable to the drought, so Doxat began a policy of diversification.

The new process of refrigeration allowed Dalgety to tap into New Zealand’s farming communities. Lamb and mutton as well as butter and cheese could now be transported safely to European markets. Refrigeration gave rise to a New Zealand dairy industry which eventually rivaled Europe’s. Entry into the food business helped Dalgety weather the Great Drought, and the company began the 20th century with newfound strengths.

The early years of the new century were a prosperous time for Dalgety. World War I later stimulated wool production, for uniforms, and the postwar economic boom increased the demand for Australian and New Zealand food products. Dalgety benefited greatly from the prosperity of the 1920s, but, like many other businesses, was caught unawares by the stock market crash of 1929. The Great Depression was a lean time for the company, marked by losses and employee pay cuts. Although the outbreak of World War II in 1939 ended the Depression, wartime price controls and regulations prevented Dalgety from reaping the full benefits of the economic upswing.

The Allied victory in 1945 inaugurated a period of unprecedented growth for Western business generally, but not for Dalgety and the wool trade. In the decade following World War II, the advent of synthetic fibers such as rayon and orlon greatly undermined the wool industry. Because of falling profits during the 1950s, Dalgety attempted to narrow its field of competition by acquiring rival wool firms. The company’s amalgamation policy culminated in the 1962 merger with the New Zealand Loan and Mercantile Agency, making Dalgety the largest wool broker in the world. Near monopoly status, however, could not protect the company from seasonal swings in the wool market or fluctuations in the Australian climate.

Wide-Ranging Diversification: 1960s-80s

During the 1960s drought once more wreaked havoc on the Australian wool industry. Dalgety had survived drought in the 1890s through diversification, and the company’s management again decided to expand into other fields. From the late 1960s through the late 1980s, a series of acquisitions brought Dalgety into a vast range of agricultural and food businesses that eventually resulted in the multinational conglomerate of the early 1990s.

In 1966 Dalgety bought the two Balfour Guthrie companies of North America. This acquisition consisted of a Canadian trading company, with a major interest in western Canada’s lumber industry, and a poultry business in the United States. Dalgety next acquired two British firms: the feed company, Grossmith Agricultural Industries, in 1969, and a pig-breeding concern called the Pig Improvement Company (the company that would become the core of PIC International Group), in 1970. In 1972 Dalgety purchased Associated British Maltsters, Britain’s largest malting firm, for £19 million. With these acquisitions, the company moved away from its original base in Australia and New Zealand so that by 1976, the vast majority of Dalgety’s profits came from activities in England, Canada, and the United States.

Dalgety underwent a marked shift of direction into the food business during the 1970s and 1980s. In 1977, food processing and distribution accounted for only 16 percent of Dalgety’s product sales, but by 1981 this sector had risen to 45 percent, while the company’s agribusiness sector became less important. The shift toward food began in 1977, when Dalgety initiated a hostile takeover of Spillers, the British flour milling, pet food, and grocery giant. There was a fierce battle between the two companies, both of which waged heated press campaigns to win the support of Spillers’ shareholders. Dalgety finally acquired Spillers in 1979 for £76.5 million, giving the company a leading role in grocery product manufacture. That same year Dalgety purchased the American company Martin-Brower, one of the world’s largest distributors of fast food and supplier to McDonald’s restaurants in the United States and Canada. Dalgety once again increased its food product holdings in 1985 with the acquisition of the Anglo-American firm Gill & Duffus, the world’s largest trader of cocoa.

During the 1980s Dalgety became a major supplier of ingredients to food manufacturers. In addition to its flour, malt, and cocoa businesses, Dalgety acquired the ingredients firms James Fleming of England and Modern Maid Food Products of America. These companies produced flavorings, coatings, and glazes for baked goods and frozen foods.

In 1987 Dalgety initiated a vigorous rationalization program to reduce company debt from previous acquisitions and concentrate on its core food business. Dalgety therefore sold a number of subsidiaries, including Balfour Guthrie and Associated British Maltsters. By late 1987 the company’s asset disposal had raised some £150 million for continued expansion into the food industry.

Dalgety next moved into the lucrative snack food business, purchasing in 1987 the four Golden Wonder companies of England and Holland, producers of a popular line of potato chips and processed snacks. The following year Dalgety acquired Continental Savouries, a British company that manufactured frozen pizza. The addition of Hunters’ Foods in 1989 gave Dalgety the leading role in British snack foods.

In 1989, under the leadership of Chairman Peter Carey and new Chief Executive Maurice Warren, Dalgety conducted a major review of its businesses and strategy. Seeking to reduce debt and focus on its core businesses in the United Kingdom and continental Europe in the value-added areas of food and agribusiness, the company sold Gill & Duffus in October 1989. Dalgety also substantially reduced its holdings in Australia and sold its business in Zimbabwe.

Company Perspectives

PIC’s mission is to be the world’s leading pig breeding business. This will be achieved by delivering a continually improving range of breeding stock and support services to meet the needs of local markets.

Major Changes in 1990s: From Dalgety to PIC

In 1992 John West was appointed chairman but had to resign in February 1993 due to sudden illness. Maurice Warren was appointed his replacement, with Richard Clothier taking over as chief executive. During 1993 Dalgety purchased two companies from Unigate that bolstered its food ingredients and agribusiness sectors. Morton Foods, a supplier of batter and crumb coatings to the food industry, was added in the food ingredients area, while Oldacre, which managed eight animal feed mills, joined the agribusiness sector. Also in 1993 the company spent £42 million to buy Paragon Petcare from British Petroleum, giving Dalgety about 12 percent of the European pet food market.

By 1995 Dalgety had decided to trim its activities somewhat by focusing on pet food, food ingredients, agribusiness, and food distribution. That year the company sold its consumer food operations, Golden Wonder and Homepride Foods (cooking sauces and baking mixes). Dalgety added further strength to its pet food business in 1995 by acquiring the European pet food business of Quaker Oats for £442 million (US$700 million). The purchase increased Dalgety’s share of the European pet food market to 21 percent. Integrating this acquisition led to special charges of £33.4 million (US$52.9 million) for fiscal 1995, cutting into the company’s profits. Meanwhile in April 1995 Dalgety’s Pig Improvement Company (abbreviated as PIC) acquired the National Pig Development Company, increasing its dominance of the industry. For the year, PIC sold more than one million breeding pigs to farmers.

Dalgety was seriously thrown off course in 1996 and 1997, in part by the crisis in British agriculture stemming from worries over Bovine Spongiform Encephalopathy (BSE) in cattle and its link to so-called “mad cow disease” in humans who eat beef from infected cows. The BSE crisis affected Dalgety’s agribusiness sector as well as its pet food area. Writeoffs associated with BSE and the continuing reorganization in the pet food area were largely responsible for a steep drop in net profits in fiscal 1996 to £59.2 million and for a net loss of £89.3 million in fiscal 1997. In the midst of these troubles, Warren retired from his position as chairman in July 1996 and was replaced by Denys Henderson, former chairman of Imperial Chemical Industries. In September 1997 Clothier resigned as chief executive, succeeded by Ken Hanna, who had only joined Dalgety in May 1997 as finance director, having come to Dalgety from United Distillers.

Within a matter of months, all that would remain of Dalgety would be the Pig Improvement Company, as Dalgety management determined that making significant divestments would be worth more to shareholders than attempting to right the current ship. In early 1998 the company sold the bulk of its food ingredients business to Keny Group PLC of Ireland for £335 million (US$560 million), with the unit’s research activities and intellectual property related to wheat-based food ingredients going to E. I. DuPont de Nemours & Co. for £24.5 million (US$41 million). Next to go were the pet food business, sold to Nestlé S.A. for £715 million (US$1.2 billion), and Martin-Brower, which was bought by Illinois-based McDonald’s supplier Reyes Holdings, Inc. for £120 million (US$200 million). Dalgety had initially intended to remain in the pet food business, but essentially received an offer from Nestle that it felt it could not refuse. Finally, on May 1, 1998, Dalgety announced that it had agreed to sell its agricultural supply business through a management-led buyout for £50 million (US$84 million). Out of the more than £1 billion pounds raised through these divestments, Dalgety planned to return about £675 million (US$1.13 billion) to shareholders in late June 1998, use about £300 million (US$500 million) to repay debt, and retain the balance.

Also in June 1998 the name of the company was changed to PIC International Group PLC, reflecting its position solely in pig breeding. PIC was increasingly active outside of Europe, initiating operations in China and Vietnam in 1997, and acquiring Pig Improvement Canada Ltd. (renamed PIC—Canada Ltd.) in April 1998. In May 1998 PIC increased its share of a joint venture in Brazil called Agroceres PIC from 12.3 percent to 49 percent. PIC had activities in more than 30 countries—15 of them through partnerships—and appeared to have a bright future as the world’s undisputed market leader.