Acquisitions boost Kerry sales

Record spending on acquisitions boosted Kerry Group's sales and operating performance in the first half of the year, but write-offs partly associated with the same spending spree left profits flat at the Irish food and ingredients group. Pre-tax profits of €88 million were just fractionally up on €87.2 million last year.

The company yesterday reported that total turnover in the six months to the end of June increased 8 per cent to €1.955 billion from €1.802 billion in the same period in 2003.

The total included a €73 million contribution from acquisitions made during the first half. Stripping out that figure, sales from continuing operations during the first six months were €1.882 billion, a 3.8 per cent increase on 2003.

First half operating profits before accounting for amortisation and exceptional costs grew over 10 per cent to €146.8 million from €133.2 million last year. However, goodwill amortisation of €30.3 million and exceptional costs of €6.7 million left operating profits at €109.7 million, an increase of a little over 1 per cent on last year's first half operating earnings of €108.5 million. Pre-tax profits were similarly flat.

Kerry's accounts state that the exceptional costs stemmed from the acquisition of Quest Food Ingredients and a number of other purchases completed during this year and 2003. The group spent a record €674 million on buying up businesses during the period.

Basic earnings per share (eps) after amortisation and exceptionals dropped by 0.1 per cent to 33.1 cent from 33.4 cent. Diluted eps, after write offs, dipped by a similar amount to 32.9 cent from 33.3. The company has declared an interim dividend of 4.5 cents per share, up 11 per cent on the same period in 2003, to be paid in November.

Group chief executive Mr Hugh Friel described the results as excellent and said that the group was confident of achieving a good outcome for the year. Mr Friel said that the group was unlikely to repeat first-half spending on acquisitions, but pointed out that it was eyeing a number of small bolt-on purchases, which it hoped to complete during the latter half of the year.

He told analysts that Kerry could afford to spend between €200 million and €300 million, but if anything substantial arose, this would require a share issue.

A spokesman subsequently told The Irish Times that the group did not have any takeover targets that would require funding from the equity markets.

The results left analysts divided yesterday. Mr Liam Igoe of Davy, the group's Dublin-based stockbrokers, rated Kerry a "buy" at €17.30, its opening quote on the Irish Stock Exchange yesterday.

Mr Igoe pointed out that while profits in this country were only marginally ahead, the rest of Europe saw "absolute sales and profits up circa 11 per cent", while in the Americas sales increased 6 per cent and profits grew 9 per cent on a like-for-like basis.

Mr Paul Meade of NCB Stockbrokers said the firm had upgraded its 2004 and 2005 full-year eps forecasts to 123.8 cent and 135.7 cent respectively. He predicted that the benefits of the higher margin Quest products would begin feeding into the group's results.

However, Smith Barney, part of Citigroup, which also acts as broker to Kerry Group, yesterday set a target price of €15.60 for its shares, a considerable discount to last night's Dublin closing price of €17.10 and its final London quote of €17.05. Smith Barney rated the group a "sell".

Smith Barney's analysts argued that it should be trading at a multiple of 13.2 times 2004 earnings. Irish analysts pitched it at a multiple of 13.7.