THE agribusiness group IAWS has the capacity to make an acquisition of over £100 million, its chief executive Mr Philip Lynch has stated.
Speaking after the publication of full-year results which comfortably exceeded market forecasts, Mr Lynch said that IAWS's low gearing and new-found access to equity fund-raising "puts us in a very strong position to take on something major if the opportunity arises".
He said that IAWS would probably prefer four smaller acquisitions in its various divisions to maintain the spread of earnings from the four divisions but could spend over £100 million if the opportunity arose.
The company's gearing at the end of July was just 15 per cent with net debt of £9 million. And with the restructuring, which takes the co-op stake down from 55 per cent to 45 per cent, due to be completed in the next couple of months, IAWS will now have the option of funding any acquisition through debt, equity or a combination of both.
Given IAWS's presence in thee Republic, Northern Ireland and Britain, Mr Lynch said that in the long-term, the company may have to switch its acquisition focus towards continental Europe. IAWS has the option to buy a 50 per cent stake in a fish oil venture in South America - this option has another year to run and would cost between $6 million and $15 million to exercise, based on the profitability of the venture.
"It's all about value for money and enhancing earnings. There are a lot of businesses out there but who's a seller," he added.
Earlier this year, IAWS walked away from a bid from Lyons Irish Holdings - Unilever subsequently bought a 75 per cent stake from £73 million. While neither side has ever made any comment, it is understood that IAWS held, takeover discussions with the Allegro distribution group earlier this year but nothing transpired.
Mr Lynch would not comment on the discussions with Allegro, but conceded that the absence of, any comment will merely add to the speculation about a bid for Allegro, which itself failed in a bid for Lyons. Allegro has a number of institutional shareholders headed by Mercury Asset Management and there has been speculation that these investors would favour a takeover.
The full-year results from IAWS were well ahead of forecasts, with pre-tax profits up 14 per cent to £18.5 million - £2 million ahead of most conservative forecasts - while sales were up almost nine per cent to £553.9 million. Operating margins were largely unchanged at 10 per cent of turnover.
IAWS shareholders are to benefit from the strong performance with a 10 per increase in the gross dividend to 2.923p. The inclusion of a full 23/77 tax credit for the first time means, however, that the net dividend is up 31 per cent on the 1995 dividend.
Mr Lynch said that IAWS will be looking to grow its food business with the acquisition of the Mars franchise.
Mars gives IAWS a presence in virtually every shop in both the Republic and Northern Ireland.
The BSE crisis will not affect IAWS's operations, said Mr Lynch. "There are a lot more cattle in Ireland than there ever were and they're all going to need to be fed. The good weather in August and September could have a bigger effect on our feed volumes than BSE."
