Higher margins the key to bumper profits at IAWS

The continuing shift towards higher-margin consumer foods products was the main factor behind another bumper performance by IAWS in the year to the end of July, with pre-tax profits up 29 per cent to €42.6 million (£33.5 million).

IAWS's food division, which takes in Cuisine de France and Delice de France as well as flour milling, now accounts for two-thirds of profits. This compares with the position six years ago when food accounted for only one-third of profits, with lower-margin fertiliser and animal feed accounting for two-thirds.

As a result of this repositioning, IAWS has been able to drive up its operating margins from 3.5 per cent six years ago to 4.6 per cent in 1998 and 5.5 per cent in the year to last July. The improvement last year is reflected in the fact that pre-tax profits rose by 29 per cent, while total sales across the group were just 5 per cent higher on €850 million (£669 million) on continuing operations.

The 1999 results include a full year's contribution from Cuisine de France, which now sells 200 products to a total of 4,800 retail outlets, 2,500 of these in the Republic. Since the end of its financial year, IAWS has bought the British group, Delice de France for €53 million (£35 million sterling) - a move that will consolidate IAWS's transformation to a consumer-based foods group. Delice sells largely to the food service industry and is complementary to Cuisine's retail-focused operations.

IAWS will not use its strong cash flow to reduce its year-end debt of €72 million. The strength of its cash flow gave the capacity to continue its expansion and substantial acquisitions should present no problems to the group, said analysts.

As regards capital expenditure, IAWS is at the final tender stage for its new £18 million flour mills in Dublin's dockland, the cost of which will be more than offset by the future sale of the existing Bolands mill. IAWS has valued this site - in one of the most sought after housing areas in Dublin - at around £25 million.

Overall, IAWS has surplus property in Dublin, Cork and Waterford that the group has valued at about £80 million. One acquisition that IAWS will not make is that of IFI, the fertiliser company owned jointly by NET and ICI. Chief executive Mr Philip Lynch admitted that IAWS made a "paltry" offer for IFI when it was offered for sale, but now has no interest in buying the fertiliser group.

IAWS shareholders are to benefit from the strong performance, with a 15 per cent increase in the dividend to 5.2 cents (4.07p) per share. IAWS shares were 5p higher yesterday on €4.40 - just off their €4.45 all-time high.