IAWS interim profit surges 25% to ú7.6m

Current trading was described as "satisfactory" by agri-business group IAWS, when it reported a strong 25 per cent rise in pre-tax profits to ú7.6 million for the six months to the end of January.

The latest results include a one-month contribution from Cuisine de France. Sales and profit growth came mainly from organic businesses and contributions from associates such as Irish Pride and Cedest in France, which was included for the first time. With profits from Cuisine de France on target for the year to February 1st, 1998, the vendors, Mr Ronan McNamee and Dr Pat Loughrey are to get a payment of ú3 million under the terms of the earn-out deal. This is in addition to the ú40 million up-front payment they shared last year when IAWS acquired Cuisine. The vendors are to get an additional ú8 million over the five years to 2003, if profit targets are met. Turnover at IAWS was 11 per cent higher at ú299 million. Operating profits rose by 15.4 per cent to ú8.9 million, giving the group an operating margin of 2.98 per cent, up from 2.87 per cent.

IAWS generates about 30 per cent of its profits in the first half because of the seasonal nature of animal feed and fertiliser sales. The latest results were marginally ahead of market expectations and put the group in a strong position to meet the full-year target of around ú25 million.

First-half post-tax profits were up to ú5.9 million from ú4.7 million while earnings per share rose 24 per cent to 4.81p. Shareholders are to get a 10 per cent increase in their interim dividend to 1.684p per share.

Finance director, Mr David Martin said the group was very pleased with the latest results. The animal feed, fertiliser and food businesses in Ireland and Britain performed well, he said. The fertiliser division consolidated its position in Britain after the integration of PB Kent, which was acquired in May 1997.

The food division benefitted from rationalisation of flour milling and the establishment of the new food distribution centre at Ballymount in Dublin. Cuisine de France, which is an important engine for growth in the food division, is expanding the volume of sales in the British market and in Northern Ireland and Scotland. The total number of outlets has increased by 600 to almost 3,000. IAWS is still talking to Tesco about the supermarket's plan to stop offering the Cuisine brand at its Irish outlets. "At the moment we supply those stores with our branded product," Mr Martin said. He insisted that the loss of the Tesco chain would not be significant. "Our focus is on developing the UK market. Tesco is not a major issue."

The Cuisine operation is important to IAWS because it is high margin business producing margins of about 10 per cent compared with just under 3 per cent from its other businesses. IAWS is currently investing about ú15 million to expand the Cuisine production facilities in Dublin and plans to spend some ú15 million in 1999/2000 on extending facilities in Britain. Total shareholders funds fell to ú35.4 million from ú71.3 million at the end of July 1997, reflecting the write-off of ú40.8 million goodwill on the Cuisine acquisition. Mr Martin said IAWS took a cautious approach to the goodwill - the excess of the purchase price over the fair value of the net assets acquired.

At the interim stage, net debt had risen to ú85 million reflecting borrowings for the Cuisine acquisition and working capital requirements. But Mr Martin plans that interest cover will be 4.3 to 4.5 times by the end of the financial year when net debt is expected to be back to about ú60 million.

Despite the goodwill write off and the increase in borrowings, the company remains in a strong position to consider other acquisitions with a cash flow per share 8.66p up from 7.05p.