AVONMORE Foods will spend over £100 million over the next two years on acquisitions in its British and US dairy businesses and in expanding its British and Irish meat activities. Avonmore chief executive Mr Pat O'Neill said that with its gearing down to 40 per cent and with free cash flow of over £20 million a year, the group aims to expand aggressively between now and the end of the century and shift the balance of its business towards the US and UK.
Finance director Mr Geoff Meagher said the objective is to bring Irish sales down from 62 per cent to 45 per cent of the total and substantially increase the proportion of sales coming from the UK and the US.
"We aim to build scale in cheese, food ingredients, liquid milk and added value meats," said Mr O'Neill. In the British liquid milk market where Avonmore has 8 per cent of the national market and 35 per cent of the market in the Midlands, Mr O'Neill sees likely rationalisation.
"In our geographic area, as well as Unigate and Northern Foods, we also have MD, the co ops, Dairy Crest and Lord Rayleighs - all of those can't stay independent."
Avonmore wants to double its current national market share from 8 to 16 per cent, increasing its milk pool from 95,000 gallons to nearly 200 million gallons. This could involve spending £60 million, based on the 60p a gallon previously paid for businesses which generated returns of 5 to 6 per cent.
Analysts expect a continued rationalisation in the British liquid milk market post deregulation and Avonmore is gearing up to move from number five in the industry to number three, behind Unigate and Northern Foods, through acquisition. "The price being paid for milk is being sorted out, the situation has been very topsy turvy since deregulation in 1994, but the industry is getting to grips with the pricing issue," said Mr Meagher.
Intending to increase its US turnover from the current 14 per cent to 25 per cent of turnover, Avonmore is also aiming to develop its Idaho and Wisconsin cheese and food ingredients business. A $20 million capital investment programme has already begun and analysts forecast a further concentration on an area which is experiencing strong growth. A shortage of milk, however, is likely to mean that expansion may take place further west in the US.
And despite currently pig prices, Avonnore is also planning to increase the scale of its Irish and British pigment business. Since Unigate took over a pig processing plant in Ballymoney, Co Antrim, pig prices in Ireland have been driven up to what most analysts believe are unrealistic levels.
Chief executive Mr O'Neill has no doubts that pig prices will come down and warned: "We will meet the competition and protect our position, nobody will take our market position away from us." He added that the current aggressive pricing by Unigate is unsustainable.
"Unigate were paying up to 145p a kilo when prices in Europe were 100p to 115p a kilo. Prices have come back 15p a kilo and will probably fall further," he added.
