Coup de Cuisine

This week's purchase of Cuisine de France for £51 million puts agribusiness group IAWS firmly into the consumer foods market. It also gives the low-profile - although active group - a strong brand name.

The acquisition is the biggest in IAWS history, but it will not prevent the group from making further acquisitions in the short term, according to its chief executive, Mr Philip Lynch. One of the next items on its shopping list will be Dalgety Foods' flour arm when it comes up for sale, possibly early next year.

Dalgety, the British-quoted foods company, has issued a series of profit warnings. Mr Lynch believes the flour arm will cost between £50 million and £70 million. "We've looked at Dalgety and we would be very interested in its flour arm," he says. "We are already in the flour business through Bolands and there would be good synergies there."

It also raises the possibility of two Irish publicly-quoted companies battling to win parts of the Dalgety group. Recently the Kerry group signalled a strong interest in buying Dalgety's food ingredients division, while Greencore has also said it would look at the company.

For IAWS, however, the next task is to bed down Cuisine de France. Mr Lynch is clearly very impressed with his latest buy. He thinks the concept of par-baked bread being finished off in retail outlets, no matter how small, is a tremendous one.

There is a greater appetite for the product and the concept than Cuisine can currently supply, he points out, "so we have to move very quickly".

IAWS will invest up to £15 million in the products, including building a factory in Britain. It is expected that the investment will create at least another 100 jobs.

Although firmly established in Ireland, Mr Lynch says Cuisine de France, whose team will remain in place, and which he describes as "second to none" can quickly make major inroads into Britain. This will soon be followed by a major push into mainland Europe, in 1998-99.

He believes there are enormous synergies between IAWS and Cuisine de France. For example, he says, the group can handle distribution for Cuisine. "Hopefully it will also enhance flour milling in Bolands," he says.

At present, Cuisine uses several hundred tonnes of flour per week, which it does not currently source from IAWS. "There is some common ground we will be looking into," he says.

Mr Lynch says the IAWS approach is to do something major, stop, get the synergies and go after opportunities as quickly as possible. He says Cuisine had probably got to the stage where further investment was needed to capitalise on further opportunities.

Ironically, IAWS expressed an interest in Cuisine two years ago, but at that stage the owners showed no interest in selling. When the company was put on the market two months ago, IAWS stepped in, but had to fend off stiff competition to succeed in its bid.

When pressed, Mr Lynch concedes that the fact that IAWS is an Irish company may have been a contributory factor in the owner's decision to sell to them. They are paying £40 million up front, but there is an £11 million earn-out clause, involving further payments provided the company reaches its profits targets.

Mr Lynch is confident that the management team will reach the targets set by IAWS, including one that they make £5 million pre-tax profits in the current year.

IAWS, which posted pre-tax profits of £6.1 million for the six months ending January 31st last - a 27 per cent increase on previous figures - is due to announce full-year results shortly. Goodbody stockbrokers is forecasting that the company will post pre-tax profits of £20.8 million this year, compared to £18.5 million last year.

However, analysts say the results may be ahead of expectations. Earnings per share are forecast at 13p compared to 11.8p last year.

IAWS, although not a household name, is a company whose interests are expanding rapidly. It is already involved in food, feed, fertilisers, proteins and oils. Among its brands are Shamrock Foods, Irish Pride, Gouldings Fertilisers and Power Seeds.

It also has the Mars Agency in Ireland, through Master Foods, distributing well-known brands such as Mars, Snickers, Bounty, Galaxy, and even Uncle Bens Rice.

Mr Lynch says IAWS food division is growing at around 10 per cent per annum and it has been boosted by the Master Foods distribution deal.

Already this year the company has been active. In January it made its first move into continental Europe through a £6.7 million investment for 45 per cent of French fertiliser manufacturer Group IKEM. It is the fourth biggest company in the French compound fertiliser industry.

IAWS has an option to buy-out the remainder in five years. Mr Lynch believes the group will exercise this option. France is the biggest grain grower in the EU, while Britain is the second biggest. This is very good for IAWS, for its fertiliser business, he says.

In May, IAWS bought the British specialist fertiliser manufacturer PB Kent for £9 million sterling. It is the second largest manufacturer of horticultural fertilisers in Britain. It had profits of £1.2 million for the year to the end of June 1996.

As with Cuisine de France, Mr Lynch says IAWS firmly believes in the importance of investing in the businesses it buys. It has recently carried out a major capital investment programme.

If IAWS has been on the acquisition trail, it has also been selling. It sold its by-products manufacturing facility in Northern Ireland, Lisburn Proteins for £8.3 million.

It also decided to abandon an option to increase a 5 per cent stake in the Chilean company Pacific Proteins for an $8 million (£5.09 million) to $12 million investment. It got its money back.

Mr Lynch says demand is very predictable in the markets that IAWS is in. "It is about us getting more share in those markets and that's what we are particularly good at. Whatever businesses we are in, we grow them. Then when we run out of steam or space we look to the next best market."

In the 1998-1999 financial year, Mr Lynch foresees that around 45 per cent of IAWS profits will be generated from outside Ireland, mainly from its operations in Britain. As for monetary union, he says: "The sooner we get there, the better. We need one currency operating across all EU borders."

He is not phased by the almost near certainty that Britain will not join the first wave. "I think they'll join fairly shortly afterwards."

Nor will it affect IAWS operations. He says the group is not a major exporter from Britain. "The imbalances in sterling have never had any effect either - we buy and sell in sterling in Britain."

FOR Lynch the most important task for the group is to ensure a good return for shareholders. A cursory glance at the company's annual results over the past three years shows this has been achieved. Year-on-year improvements of the order of 27 per cent increase have been recorded.

Mr Lynch says the company has one of the highest P/E's of any Irish company at 19 times earnings. "We are content at justifying that level of earnings." He says the company is very focused on being a public company "and we apply it to everything we do". Asked what IAWS does best he replies: "Information. Our information is second to none. We have invested a lot in our information technology operations. That's the key to making better decisions."

And he adds: "And we're good at getting the simple things done."