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February 22, 2011

On the money: Kerry indicates interest in Danisco assets

Kerry Group has indicated that it is interested in some of the ingredients assets owned by Danisco, the Danish company that has accepted a US$5.8bn takeover bid fom US chemicals group DuPont.

By Dean Best

Kerry Group has indicated that it is interested in some of the ingredients assets owned by Danisco, the Danish company that has accepted a US$5.8bn takeover bid fom US chemicals group DuPont.

Danisco’s board agreed to DuPont’s takeover offer last month, with the US firm said to be particularly keen on the Danish company’s enzymes business.

The deal, which has yet to secure the backing of all Danisco’s shareholders, prompted analysts to suggest that the likes of Kerry and Tate & Lyle could pounce for Danisco’s food-ingredients assets, should DuPont in time look to dispose of those businesses.

Speaking to analysts after Kerry published its 2010 results, Stan McCarthy, the Irish company’s CEO, said that the firm would be interested in Danisco’s cultures and enablers divisions.

“Danisco, as a very good competitor, would have been on our radar screens. The most valuable in some respects but the least attractive for Kerry was the enzymes piece because it would have taken us into a lot of areas where our strategy is not,” McCarthy said.

Kerry competes with Danisco in a number of categories, including emulsifiers and stabilisers, and McCarthy hinted that the company would be interested in the Danish firm’s assets in another area – cultures.

“In the cultures side, they are quite good, they are number two to Chr. Hansen and to a certain extent that would be quite attractive,” McCarthy said. However, he added: “DuPont has made it known that they are committed to that business but it remains to be seen.”

Kerry has indicated that it is looking for bolt-on acquisitions. McCarthy set EUR200-300m as a “rough rule of thumb” for the amount the company would spend on acquisitions in 2011 and suggested the business will target the flavourings sector and emerging markets.

“It might be a little bit higher but certainly that’s the type of level that we think would happen in 2011,” McCarthy said. “We have said in the past that we want to continue to invest in flavours technology. In light of all the political turmoil, we still believe that emerging markets will drive growth in the future. We approach it with a degree of caution – it may be volatile, it may not be linear – but in emerging markets, we will continue to invest.”

Nonethless, McCarthy added that Kerry would be prepared to make a larger acquisition. “If something came up that was very large and that fit either the ingredients and flavours strategy and the branded side of the chilled business, we’re in a position where we can react. We don’t to rush but we need to be ready,” he said.

Like most food manufacturers, Kerry is facing rising commodity costs and forecast that its raw materials bill would rise by 8% this year.

McCarthy added that Kerry had the “process in place” to manage the situation. “We have got good visibility and we are very comfortable with the first six months and with a number of positions into the back six months. The price increases will carry us through into the back half of 2011. However, the recent run-up may force us to revisit that in the middle of the year.”

Within its ingredients division, Kerry had seen an acceleration in its sales volumes in the fourth quarter of 2010 as customers stocked up ahead of the company’s planned price increase this year. However, McCarthy said the division – Kerry’s largest – had seen its “momentum continue into January and February”.

Kerry’s ingredients business – like its consumer foods operations – saw margins grow in 2010. McCarthy said the margin improvement in Kerry’s ingredients business was driven by efficiency, investment in technology and innovation.

The company’s consumer foods division enjoyed “very good growth” in the UK, McCarthy said, but he admitted that Ireland had been “very challenging”, although he said the company was seeing signs of its domestic market “stabilising”.

Kerry’s consumer business saw sales volumes rise 3%, which McCarthy said was due “primarily” to the UK. Margins, he explained, were improved by Kerry’s brand strategy, which had looked to meet consumer demand for value.

Shares in Kerry closed down 0.5% at EUR26.25 in Dublin today.

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