Acquisitive Kerry still on the lookout for targets to grow group


With free cash of well over #100 million (£78.8 million) a year, gearing in the "comfort zone" below 70 per cent and interest costs covered almost five times by operating profits, Kerry Group chief executive Mr Denis Brosnan has ambitions to drive the group forward with yet another "big step".

Money might be burning a hole in his pocket, but he concedes, that finding another big acquisition - something like the Beatreme, DCA and Dalgety deals that have transformed Kerry in the past 10 years - is becoming increasingly difficult and that, in the short-term, Kerry may have to content itself with smaller acquisitions which bring new food ingredients technologies to the group.

But when a major acquisition opportunity comes around, finance will not be an impediment, although the Kerry chief added that anything costing more than $1 billion (#1.04 billion) would require a share issue, a move that would reduce the Kerry Co-op holding in the plc from its current 36 per cent.

"We need another big step and we won't be afraid to spend. We have to have the guts to go for something if we think it's right. In the short term, those sort of opportunities are not there, but there are plenty of smaller opportunities," he said.

"We have an eye on companies with technologies we like," he said, but added that many of these companies were public and trading on high earnings multiples, making it difficult to get a return.

Kerry's strategy is to be, if not the number one supplier, at least the number two supplier in its area of food ingredients technology. "We can then take that technology and those products anywhere in the world where others find it difficult to imitate us," said Mr Brosnan, citing the expansion into the ingredients market in South America through its investment in Brazil.

"So we are shifting attention back to Latin America and Asia. We can spend very little buying companies there but then spend a lot of money building up the businesses," he said. On the Far East, where Kerry operates manufacturing plants in Malaysia, Australia and New Zealand, he said forecasts for economic growth varied from a low of 3 per cent in Indonesia up to 7 per cent in countries like Taiwan and the Phillipines - growth that should fuel demand in the region for Kerry's range of ingredients.

Kerry's Irish dairy operations were unlikely to do anything more than break even, Mr Brosnan said. But he made it pretty clear that Kerry is unlikely to be part of any rationalisation in the Irish dairy industry. "Twenty years ago we liked the idea but we found it just wasn't going to happen and 20 years later, people are still talking about it," he commented.

Kerry recently cut its milk price by 3p to 100p a gallon, a move that takes the group back to the industry average. "Milk price is important to Kerry farmers, but the co-op will get £7 million in dividends this year and between £5 million and £6 million of this will be passed on to co-op members. Farmers are also getting plc dividends," he said, adding "I can't remember milk price ever being an issue among Kerry farmers."

On Kerry's sluggish share price, Mr Brosnan took consolation that, while the price was little changed from this time last year, many other so-called old economy companies had fallen significantly as money flooded into investments. "Once the emphasis on goes, maybe good companies will get back their true valuations, but maybe that's wishful thinking," he mused.