Kerry Group is planning a major expansion of its international fragrances business and is being tipped as a bidder for the Haarman & Reimer business in Europe. That business is expected to be put up for sale by German chemicals giant Bayer.

In the past few years, Kerry has bought fragrances companies in Europe and North America, but a company the size of Haarman & Reimer would be a major push to its ambitions to add a global fragrances business to its existing substantial flavourings business.

It is understood that while there has been speculation on a sale of Haarman & Reimer for almost three months, Bayer has not yet sought formal bids. Goodbody analyst Mr Liam Igoe expected Kerry to be one of the interested parties, together with competitors like Givaudan, IFF and Danisco, for a business that had sales last year of €750 million (£590.6 million). Industry sources suggested Haarman & Reimer may have a price tag of around €1.5 billion.

While one informed source said Kerry was not involved in any major move, managing director Mr Hugh Friel said: "We have to keep our pencil sharpened for bigger opportunities."

With the balance sheet in solid shape - interest charges covered seven times by EBITDA and gearing of 66 per cent - as well as free cash flow running at more than €100 million a year, Kerry is in good shape even for an acquisition as big as Haarman & Reimer.

Mr Friel was speaking as the group reported full-year results that were in line to slightly lower than analyst forecasts. He added, however, that Kerry was comfortable with the full-year consensus forecasts which are EBITDA of more than €400 million, pre-tax profits of around €230 million and earnings per share of €1.07.

Last year, Kerry sales were more than €3 billion for the first time while pre-tax profits were almost 10 per cent higher on €189.7 million. There was a substantial slowdown in annual earnings growth from the previous average of almost 18 per cent to just short of 11 per cent as a result of the growing consolidation and competition in the global food industry and weaker economies.

The results were also impacted by difficult trading at Golden Vale, the dairy group acquired for almost €400 million. Mr Friel maintained that Golden Vale's future was solid with "good prospects". He said once-off costs had hit Golden Vale's margins last year and that while there would be an improvement this year, it would be next year before Golden Vale got near the 5.9 per cent margins in Kerry's consumer foods business.

Kerry took a restructuring charge of €8 million in relation to Golden Vale last year - balanced out by exceptional gains on the sale of assets and subsidiaries. But this year will see this restructuring charge rise to €52 million.

There was steady growth across Kerry's divisions. Sales in Ireland were up from €646 million to €687 million - not including a €196 million contribution from Golden Vale. Operating profits in Ireland rose from €37.3 million to €40.5 million. While most analysts said they would not be changing their forecasts and repeated their "buy" or "hold" recommendations, Ms Rebecca Wood at ABN Amro downgraded her 2002 earnings forecast slightly partly to reflect the Golden Vale restructuring charge.