The 2017 All-Europe Executive Team

Overview

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Cardboard boxes would hardly seem likely to be the latest business craze taking Europe by storm.

But in the hands of Smurfit Kappa Group, an Irish paper and packaging manufacturer, the cardboard box has been transformed from the humblest of commodities into an innovative sales and marketing tool. So much so, reports stock analyst Barry Dixon of Davy Research, that Smurfit is revolutionizing the way retailers are displaying and selling consumer goods across Europe.

Led by discount grocers like Aldi, Lidl, and Tesco, giant European merchandisers are using shelf-ready packaging to sell goods and save money. From beverages and foodstuffs to household cleaning agents, Smurfit’s redesign has landed the Dublin-based company a top spot in Institutional Investor’s 2017 All-Europe Executive Team ranking.

“If you walk into a supermarket chain like Tesco,” Dixon says, “you’ll see bottles of shampoo still in a corrugated box. The box sits on the shelf, it’s attractive, and it helps advertise the product.”

Shelf-ready packaging also helps retailers hold the line on labor costs. “Rather than have a store clerk taking products out of a container” and stacking wares on the shelf, Dublin-based Dixon adds, “you just tear off the front of the box, and you don’t have a lot of people shelving. All the paper producers [in Europe] are copying Smurfit now.”

Such creativity and innovation are among the reasons that Smurfit is ranked the No. 1 company in its sector in the small- and mid-cap category in Institutional Investor’s latest survey of top European companies. To compile this year’s list of most honored companies, we asked a mix of credit and equity analysts as well as institutional investors to rate the highest-quality European companies and top executives. Weighting the numbers by company size, II ranked the best companies along with the leading chief executives, chief financial officers, and investor relations managers across 31 sectors.

The magazine also asked a small cohort of II’s top-tier European analysts to comment on four top companies from Ireland, France, Italy, and Switzerland.

By all accounts, it takes a superior CEO to make a great company. “Management matters a great deal,” says Eduardo Lecubarri of J.P. Morgan, II’s top analyst covering small- and mid-cap European companies. “But I think management quality matters a lot more at a small company. In a large organization, there’s usually a much deeper bench, with a lot more senior people making decisions and building consensus.”

“Smaller enterprises,” says Lecubarri, who follows between 150 and 200 companies across Europe, “are typically at an earlier stage in the development cycle and can be thrown off course. The worst Formula One driver never wins, so you’re never going in the right direction with the wrong person at the top.” He adds, “Younger and more inexperienced companies have more frequent cases of fraud. When you see a team that says one thing and does another, run away.”

Having a sturdy vision for the future and the willingness to make and execute decisions are key as well. Anthony Smurfit, the 54-year-old chief executive and scion of the paper company’s founding family, is credited for his skill at not only reinventing the cardboard box but pushing it into new markets in Latin America. Smurfit is now the No. 1 player in Colombia and Venezuela, and No. 2 in Mexico.

“Historically, the paper and packaging sector was a serial destroyer of capital,” says Dixon. “Like the airline industry, it was cyclical — characterized by fantastic, earth-shattering upsides and jaw-dropping downsides. In the last 20 years, that has changed. Profit margins have increased structurally, and Smurfit has been in the forefront.”

Along with returning value to shareholders, Smurfit’s CEO earns kudos for being “pragmatic,” Dixon says. The company transferred its primary stock listing to the London Stock Exchange in March 2016. “After 40 years in the Irish [stock] market, it’s a bold move,” Dixon says, adding, “Tony will do what it takes to improve business performance and not be bound by emotion or sentimentality.”

Beyond cardboard boxes, management skill and prowess also played a key role in making Intesa Sanpaolo the most honored European bank in II’s survey. To claim that status, Intesa, which is headquartered in Turin, had to outshine 600 banks in the Italian market, where it holds more than a 20 percent market share in each of its business lines. The bank beat out a gaggle of global powerhouses, including Banco Santander of Spain and BNP Paribas of France, both of which tie for second place.

In Italy, notes banking analyst Alastair Ryan of Bank of America Merrill Lynch, Intesa outstrips its main competitor, UniCredit, on every front, boasting fewer bad loans and nonperforming assets, stronger deposit performance, and more growth in its nonbanking income. By adding insurance and wealth management to its mix of products and services, it has also succeeded at wooing high rollers as depositors and clients. “Italy is a wealthy country,” says Ryan, co-head of BofA Merrill’s London-based banking research team, “and Intesa has been very good at cross-selling.”

Intesa is “stable, well capitalized, and has fewer bad debts” than competitors, helping the Italian bank create “a virtuous circle” in capital flow, Ryan adds. As the bank’s depositor base expands, Intesa has greater access to cheaper funding and can profit by making more loans. At the same time, its swelling depositor base forms a built-in audience for its fee-based products and services. Over the past three years, Intesa has increased assets under management by 30 percent even as many of Italy’s banks have seen assets decline or, like UniCredit, have sold them to raise needed capital, according to Ryan.

He attributes much of Intesa’s success to the wise, circumspect, and stable management team that has steered the bank through a financial crisis and a euro crisis over the past 15 years. He credits both 55-year-old Carlo Messina, the chief executive since 2013 and a 22-year veteran at the bank, and a previous CEO, Corrado Passera, who headed Intesa from 2002 until 2011. Under their guidance, Ryan says, Intesa was “able to stay out of politics and resist the political pressure for growing market share with acquisitions” that resulted in trouble for competitors like UniCredit.

Shareholders have benefited from its success. In 2016, Intesa paid out a cash dividend of €3 million ($3.3 million), or 90 percent of the Italian banking sector’s dividends. Not too shabby for a bank with just 16 percent of the country’s overall banking assets. Meanwhile, its stock price, Ryan notes, has appreciated by 60 percent over the past five years, while rival UniCredit’s shares slumped by 30 percent.



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