SINCE Kerry Group came to the stock market in 1986, the diversification into food ingredients and prepared foods has produced extraordinary growth. To continue that growth, further expansion will be required and the Far Fast is the region that is likely to provide that expansion, according to chief executive Denis Brosnan.
"Over the next two years, we will get the growth by fine-tuning what we have acquired in the past few years. We're good at that, and I think it's better to let our people do that than by crowding them with more acquisitions," Mr Brosnan said.
"But from 1998 onwards Kerry will require more companies - food companies in the UK and ingredients companies further afield," he said, adding that in the longerterm, Kerry will simply have no option but to follow its major customers into whatever new markets they develop. The move into the Far East will be channelled through the ingredient business in Australia, which Kerry bought as part of the £250 million DCA acquisition.
"McDonalds is planning to open between 500 and 600 outlets in China alone and there comes a time when customers like that want to know when we are going to follow them into those markets. We have to follow our customers," he said.
"Now we can simply supply Far East markets out of the US, but at some stage we are expected by the host countries and the companies we supply to start local manufacturing. The question is when," he added. Setting up local manufacturing operations is a capital-intensive process, but the freedom that the new corporate structure will bring will mean that funding any manufacturing operation in China or anywhere else will not be a problem.
Whether Kerry buys an existing ingredients business or starts a greenfield operation will largely be dictated by what is available to buy. "If we are to buy something it has to be of a certain size and quality, otherwise we would start from a greenfield operation," Mr Brosnan said.
The need to change Kerry's corporate structure by removing the need for Kerry Coop to have a controlling stake was emphasised by the £53 million Cirprial acquisition in France and Italy earlier this year. "We would have been happier if Ciprial came in late 1996 or 1997, but it came on offer and it had to be bought because it gave us size and scale in fruit ingredients.
"Companies like that don't come on the market very often, and when they do you have to move. Taking Ciprial has stretched us, we don't have unlimited resources," he said, emphasising Kerry's current priority of getting to grips with the recent bout of acquisitions before making any more big moves.
Mr Brosnan said Kerry has not had to walk from any potential acquisition because of money, but it seems clear that in the case of the £250 million spent on DCA, Kerry would have preferred to use more than £25 million of equity funding.
"We have always been willing to leverage highly," said finance director Hugh Friel but he admitted that for DCA, Kerry would have preferred to have used a greater level of equity funding, if it had not been limited by the co-op 51 per cent rule."
The £300 million-plus worth of ingredients acquisitions in the past two years may have dominated the headlines for Kerry, but the chief executive would also like to develop the foods business further. "We would love to get another Mattessons Walls," he said, referring to the chilled meats business bought from Unilever two years ago for £25 million.
One area where they will definitely not expand is in the Irish milk business. "I see no point in expanding in a business which is restricted by quotas," said Mr Brosnan, once again dismissing suggestions that Kerry might be interested in expanding its Irish milk pool.
