IAWS profits up 16% despite rising costs

Bakery and convenience food group IAWS reported a 16 per cent increase in full-year profit yesterday, but warned that higher commodity prices were making business challenging.

The company, which owns bakery brands including Cuisine de France and La Brea, reported pretax profit before intangible amortisation and exceptional items of €143 million in the year to the end of July.

Revenue was up 23 per cent at €1.9 billion. Adjusted earnings per share (eps) were up 15 per cent at 94.17 cent.

Chief executive Owen Killian said it had been an excellent and transformational year for IAWS, but acknowledged that the high levels of food inflation in the market - grain prices increased 25 per cent in August alone - would affect the trading environment for all food companies.

"We are now entering into a new era of food inflation," he said, adding that the challenge now was to protect the company's business model.

However, Mr Killian was quick to state that, for the time being, IAWS was managing to pass on higher prices to its customers. As a result, he remained confident that the company was well placed to succeed.

During fiscal 2007, IAWS made its biggest acquisition to date, buying Otis Spunkmeyer in the US for €450 million. It also listed its agri-nutrition business as Origin Enterprises, generating €256 million in cash for IAWS, and successfully placed $450 million of long-term debt on favourable terms.

Analysts welcomed yesterday's "strong" figures, which came in slightly ahead of expectations, and shares rallied almost 6 per cent, to close up 85 cent at €15.60. Goodbody analyst Liam Igoe said he would be upgrading his forecasts for the current financial year on the back of IAWS's confidence that its business model would continue to deliver growth despite the new food inflation environment.

Paul Meade, an analyst at NCB, said he was maintaining his forecast for 2008 earnings per share of 106.7 cent, saying he believes IAWS is capable of delivering mid-teen growth despite significant currency headwinds and input costs. (The decline in the dollar reduces US profits when converted to euro.)

Mr Killian said IAWS was well placed to take advantage of a changing trend in the market that was seeing a switch away from long-life products in favour of freshly and partially-baked goods.

He said half of every dollar in the US was spent on food outside the home, and the same trend was becoming evident in Europe.

Mr Killian also said that, while the main growth in the business so far has been organic, he was still open to acquisition opportunities, adding that in the current market climate it may become easier to make acquisitions.

Sales and operating profit in the North American business more than doubled, with sales of €369.1 million and operating profit of €41.7 million. Both were boosted by a nine-month contribution from Otis Spunkmeyer.

In Europe, revenue rose 7.9 per cent, to €649.1 million, while operating profit was up 10 per cent to €66.6 million.

The company's final dividend was 7.8 cent.