Kerry Achieve Good Ingredients Performance

27/02/07 The Kerry Group has reported that total Group sales revenue in 2006 increased by 4.9% to €4.65 billion. On a like-for-like basis this reflects revenue growth of 3.6% year-on-year. Earnings before interest, tax, depreciation, amortisation and non-trading items increased by 1% to €487m. The unprecedented surge in energy and energy related cost inflation in 2006 limited trading profit growth to 1% to a level of €384m. Despite good margin recovery in the second half of the year, the time-lag in cost recovery particularly in European markets resulted in a Group trading margin of 8.3%, 30 basis points below the prior year level. Trading margins in ingredients businesses were held at 9.4% but margins in consumer foods, exacerbated by the difficulties in the poultry and frozen ready meals sector, declined from 7.1% to 6.5%.

Non-trading items (acquisition integration, business disposals, plant closures and restructuring costs) for the year amounted to €73.4m which reduced profit after taxation by €59.2m to €178m. Adjusted earnings per share increased by 1.7% to 133.9 cent. The Board will recommend to the Annual General Meeting a final dividend of 12.5 cent per share. This will bring the total dividend payment for the year to 18 cent per share, an increase of 12.5% on the previous year.

Commenting on Kerry’s results, Hugh Friel, Chief Executive, said “While 2006 was a challenging year for the Group, I am pleased by the improved trading performance in the second half benefiting from successful innovation and on-going business restructuring and cost saving programmes. The Group has made a good start to 2007 and we are confident of an outcome for the full year in line with market expectations.”

Overall Kerry’s food ingredients businesses achieved a good performance in 2006 notwithstanding significant cost pressures. Total sales revenue increased by 3.7% to €3.13 billion, reflecting like-for-like growth of 4%. Trading profits increased by 3.3% to €293m, maintaining a trading margin of 9.4% similar to the level over the previous two years. Despite the time-lag in recovering cost increases in particular in European markets, the trading margin in the second half increased to 10.7% offsetting the 20 basis points reduction in the first six months of 2006. This performance benefited from the on-going focus throughout all Group ingredients operations on cost savings and on restructuring programmes for optimum asset utilisation. Excellent results were also achieved through the Kerry Ingredients, Mastertaste and Kerry Bio-Science innovation programmes focused on customer requirements for enhanced health, natural, convenient product solutions and improved delivery formats.

In American ingredients markets progress and development in 2006 accelerated, with an improved growth and innovation performance relative to the prior year. Sales revenue increased by 5.2% or 4.9% on a like-for-like basis to €1.28 billion. In North America, building on the ingredients business ‘integrated business unit’ structure, a new Go-To-Market strategy was initiated in 2006. The rapid expansion of Kerry’s technology base in recent years necessitated a realignment of business units around core technologies – providing industry-leading customer service through applications and product solutions developed across multi-technology platforms. Encouraging results have already been achieved through this strategy and prospects are for higher growth rates as a result in 2007.

In the U.S. food and beverage industry development continues to focus on consumer demands for healthy ‘good for you’ products, convenient formats and the continued expansion of organic lines. Good growth was achieved in meeting market demands for new nutritional and functional food and beverage offerings, assisted by Kerry’s Proteins and Nutritionals range of dairy and soy technologies. Successful product launches were achieved with innovative ingredient systems including high protein crisps in nutrition bars and premium inclusions in ready-to-eat cereals and ice cream categories. Progress in the cereal and sweet ingredients sectors continues to meet growth expectations. In 2006, this led to the acquisition of Custom Industries and Nuvex Ingredients. Complementing Kerry’s existing facilities in the U.S. and Canada, both acquisitions added valuable production capacity and proprietary technologies. Nuvex Ingredients; operating from a modern organically certified production facility located in Blue Earth, Minnesota; further strengthens Kerry’s industry leading extrusion technology and enhances its market positioning in the cereal and nutritional sectors. In the sweet sector, Custom Industries; operating from modern manufacturing facilities in St Genevieve, Missouri and Toronto, Canada; significantly strengthens Kerry’s portfolio of inclusion products in particular into the bakery category.