Kerry Group has met the market's most optimistic forecasts for its 1997 results with an increase of more than 25 per cent in pre-tax profits to £78.6 million. The strong growth resulted from a substantial improvement in operating margins and 9 per cent growth in sales to £1.34 billion.
The Kerry results are relatively unimportant, given that the acquisition of Dalgety Food Ingredients is the major recent event for the group. But they do show how successfully Kerry has been able to restore operating margins in its North American ingredients business and reduce the debt associated with the £250 million acquisition of DCA in 1995.
Kerry has also confirmed what has been an open secret for some months - its first move into South America, the £7.3 million investment for full control of Star & Arty Ingredientes Alimenticios in Brazil. This follows the £6.6 million acquisition in Malaysia late last year.
Kerry's ingredients business accounts for a majority of sales and profits and this pattern is set to increase over the next year as the £286 million Dalgety acquisition is digested. Last year, ingredients sales were almost 11 per cent higher on £706.7 million, but a sharp improvement in margins produced a 17 per cent increase in operating profits from the division to £76.1 million.
Margins in 1996 were affected by substantially higher raw material costs but, with margins last year of 9.7 per cent, Kerry has fully restored its operating performance. Last year, ingredients accounted for more than 58 per cent of Kerry's sales and almost 73 per cent of operating margins, indicating the higher margin nature of the ingredients business. This proportion of sales in likely to rise towards 80 per cent this year with the addition of the Dalgety businesses.
Kerry Foods, the consumer foods business in Ireland and Britain, also improved sales, margins and profits. Turnover was up just over 9 per cent to £516.6 million, while operating profits were up more than 15 per cent to £28.2 million. Margins improved from 5.2 per cent to 5.5 per cent. Consumer foods accounted for 38 per cent of sales and almost 27 per cent of group profits last year.
The small agri-business operations in Ireland saw lower sales and profits. Sales fell from £53.5 million to £44.4 million while profits were halved from £1.1 million to £612,000.
Kerry remains a phenomenal cash generator, with net cash flow of more than £150 million last year compared to £138 million in 1996.
Even with capital expenditure and acquisitions of more than £37 million (compared to more than £91 million in 1996), Kerry was able to knock £24 million off its debt last year, bringing it down to £281 million. And this debt figure would have been a further £50 million lower, were it not for the negative impact of exchange rates, with debt in pound terms down £75 million before adjustments were made for currency changes.
Since then, the Dalgety purchase and Brazilian acquisition will add a further £207 million to the debt figure, once the £101 million proceeds of the Spillers disposal and the £66 million institutional and employee share placings are taken into account. A post-acquisition debt figure of around £488 million gives a gearing of 107 per cent, but interest cover will remain comfortable and Kerry's cash-generative ability should allow the group to drive the debt substantially lower over the next couple of years and down to around £420 million by the end of 1998.
