Kerry Group looks to Far East market
A QUARTER of the profits from Kerry Group's food ingredients business will be coming from emerging markets in the Far East and South America within the next five years, its chief executive, Mr Denis Brosnan, has stated.
Speaking after the group's annual general meeting in Tralee yesterday, Mr Brosnan said expansion into the Far East and South America was likely to come through a series of smaller acquisitions rather than the major acquisitions that Kerry had made to build up its food ingredients business in North America and Europe.
Mr Brosnan said Kerry could handle an acquisition of over £100 million without raising money through a share issue. But the restructuring of the coop holding in Kerry Group meant Kerry had the flexibility to look at very substantial acquisitions. No acquisition was likely this year, but in 1998 there would probably be substantial moves on the acquisitions front.
He said mergers in the food industry could throw up opportunities for companies like Kerry. There had been speculation that one outcome of the Guinness/ GrandMet merger could be the sale of Pernod Ricard's Sias food ingredients business in Europe.
On the markets in the Far East and South America, Mr Brosnan said: "These markets are the fastest growing and have the highest margins. I would be disappointed if 20 to 25 per cent of operating profits from ingredients is not coming from these regions within five years."
In countries like Indonesia and China, Kerry might include a local partner in its expansion, he said.
Acquisition of food ingredients companies was the preferred route, but Mr Brosnan did not exclude setting up greenfield operations in these new markets, given the success of the greenfield operation in Mexico.
Kerry also aimed to expand its consumer loud operations to continental Europe and he identified the Benelux countries as possible locations. "The supermarkets we supply in the UK are expanding into Europe. Marks & Spencer is in France, Tesco is in the Czech Republic. The logical next step for us is to move across the English Channel. We're seeing the evolution of a European food market."
Earlier, at the annual meeting, Mr Brosnan told shareholders that the high raw material prices which affected margins in the food ingredients business last year had largely been reversed. Margins fell last year from 9.7 per cent to 9.2 per cent, but should be back over 10 per cent in a normal year, he said.
Mr Brosnan welcomed the recent weakness of the pound. "I'm happy to see sterling at 92p and the dollar at 51.50," he said. Kerry would be happy to see the pound move towards the 2.41 deutschmarks central rate in the exchange rate mechanism in the runup to European monetary union.
At the meeting Mr Brosnan was reluctant to be drawn on Kerry's share price. However, he said the current price reflected that people were waiting to see the co op/plc share exchange completed. "It should move back to a more normal pattern after that," he said. That transfer of 13 per cent of the group's shares to coop shareholders is expected to be completed next month.
Mr Brosnan had words of comfort for Kerry's milk suppliers. Kerry's milk price, which was cut by 10p earlier this year, has been maintained to the end of the year. He expected milk prices to remain at current levels into next year and beyond.
Mr Brosnan felt there was little danger in the continuance of the EU quota system for milk. "The German Minister for Agriculture says quotas must be kept. Since Germany pays for most of the EU agricultural support, if he says quotas must stay, I'd be betting on that."