Kerry can spend €250m a year on acquisitions

KERRY Group’s strong cash flow gives it the scope to spend a minimum of €250 million a year on acquisitions without increasing borrowings, according to chief executive Stan McCarthy.

Kerry Group reported better than expected half year results yesterday. Its shares rose on the news and the company has improved its 2009 earnings growth target. The company said it expects annual earnings to be at the “upper end” of its forecast range.

The shares in Ireland’s third largest listed company traded up by close to 3% yesterday but closed up 1.12% at €18.05, giving the company a market value of €3.16 billion. The shares have has gained 38% this year.

Davy Stockbrokers John O’Reilly, regarded as the doyen of food analysts, said: “We would say that the results are impressive. We continue to rate the stock ‘outperform’.”

NCB’s Paul Meade said they expect Kerry’s share price to benefit from the strong results given that it trades on a discount to its peers and reiterated their buy recommendation and target price of €19.50.

Analyst Joe Gill at Bloxham Stockbrokers in Dublin said the results are reassuring in a turbulent market and highlight a company battling the recession while growing, investing and delivering on expectations.

Kerry chief executive Stan McCarthy told the Irish Examiner that the company can handle acquisitions of €250m a year at current borrowing levels and retains the ability to spend far more if the right deal came along. However, he does not expect to be able to buy quality businesses cheaply.

“I can see us doing some more deals this year but nothing huge, we are especially interested in expanding in Asian countries such as India,” he added.

Kerry has already spent €245m on acquisitions this year, including €140m for Breeo Foods from Reox Holdings plc at the end of March 2009. Costs associated with integration of Breeo Foods and Kerry Foods plant restructuring came to €21m, Kerry revealed yesterday.

Kerry also said that it is determined to defend its High Court victory over the Competition Authority on its acquisition of Breeo, and will resist the authority’s appeal to the Supreme Court.

Mr McCarthy conceded that it has been a very difficult year for dairy farmers and said that while he does not see any improvement in the near term he is disappointed that milk production has actually fallen by 10% because of poor summer weather.

The company plans to pay an interim dividend of 7.7 cent per share, up 11.6% on the prior year.

The company’s interim statement also disclosed that the net recognised defined benefit pension schemes’ deficit (net of related deferred tax) at 30 June 2009 was €165.75m.