Kerry confirms its interest in buying Bush Boake Allen


Kerry Group has confirmed that it is interested in acquiring the US flavours and fragrances group Bush Boake Allen, which is expected to be sold by its controlling shareholder International Paper. Bush Boake Allen has a current market value of just over $800 million (€896 million), but any successful bidder is likely to have to pay substantially more for the business.

Confirming Kerry's interest, chief executive Mr Denis Brosnan cautioned that the sale of BBA is still at a very early stage with indications of interest having only been invited recently by investment bank Goldman Sachs.

"It's an interesting company. What we're looking at is whether there are adequate synergies with Kerry. It's early days, we're going through phase one along with other companies. I've no opinion yet on whether there will be a phase two for us."

He added that BBA comprises three businesses with total sales of $500 million - $100 million from aroma chemicals, $120 million from fragrances and $280 million from food flavours. Mr Brosnan declined to speculate on whether Kerry would sell the fragrances business if it was a successful bidder for BBA.

Mr Brosnan was speaking after Kerry turned in another solid set of half-year results, which saw strong growth in operating profits - boosted partly by the strength of the dollar. Kerry's total sales rose 10.3 per cent to €1.27 billion (£1 billion), while operating margins were over 14 per cent higher at €101.3 million The operating margin rose from 7.7 per cent to 8 per cent and Kerry is on target to reach its target of increasing margins by 0.5 of a percentage point each year, Mr Brosnan said.

Pre-tax profits were 20 per cent higher at €71.4 million, earnings per share were up 17.4 per cent to 35.1 cents while the half-year dividend is being increased by 15 per cent to 2.92 cents. Kerry shares were unchanged after the results at their all-time high of €15.00 - the shares have risen sharply in the past couple of weeks in anticipation of good results, but it was taken as a good sign that there was no profit-taking after the results were confirmed.

Mr Brosnan said that Kerry's balance sheet gives "plenty of capacity for suitable acquisitions and capital expenditure". Net debt at the end of the half-year was €569.2 million - down from €607.4 million, but interest cover rose from 5.2 times to 5.9 times while gearing fell from 80 per cent to 67 per cent.

After buying the Swiss group Shade Foods in late 1999 for $80 million, Kerry made two more small ingredients acquisitions in the first half of 2000 - York Dragee in the UK for around $10 million and Harald in Brazil for around $20 million. Mr Brosnan added that there are still some acquisitions to be completed and an ingredients acquisition in the US with sales of about $40 million should be completed shortly.

Once again, Kerry's ingredients business in the Americas was the driving force behind the good first half performance although 14 per cent sales growth in the US was given a boost by the strength of the dollar. Stripping out currency effects, North American sales were 8 per cent higher.

On the South American margins, Mr Brosnan said: "I believe Brazil, Argentina and Chile will be for us now what the US was for us 10 years ago. We're looking for a lot of growth there."

Margins came under pressure in the European operation, where multiples attempted to impose zero price inflation on their suppliers, who in turn tried to do similar to their own suppliers like Kerry Ingredients. "We had to work hard to keep our operating margins intact and there was a small margin slippage in the first half," said Mr Brosnan.