Kerry Earnings Up 7.1% 

04/09/07 Kerry, the global ingredients, flavours, and consumer foods group reported a strong performance in the first half of 2007. Good organic growth and margin improvement was achieved in Kerry’s food ingredients and consumer foods businesses.

In the first six months of 2007 total Group revenue amounted to €2,332m. This reflects like-for-like growth of 5.6% relative to the first half of 2006 when account is taken of acquisitions, business disposals and exchange rate effects due mainly to the weaker US dollar.

Group trading profit increased by 6.2% to €172.4m despite significant input cost increases, adverse currency rates and the impact of business disposals. Trading margins in the period advanced by 20 basis points to 7.4%. Group profit after taxation, finance charges and non trading items increased by 5% to €105.8m.

Adjusted earnings per share increased by 7.1% to 58.8 cent. The interim dividend of 6.1 cent per share reflects an increase of 10.9% over the 2006 interim dividend. Commenting on the results Kerry Group Chief Executive Hugh Friel said; “During the first half of 2007, Kerry delivered solid organic growth across all Group businesses and territories. Group food ingredients and consumer foods businesses generated 5.6% organic revenue growth and 20 basis points margin improvement. We have successfully managed continued input cost inflation through cost recovery and business efficiency programmes and expect a good outturn for the full year.” Kerry also announced that Friel will retire at the end of this year. He will be replaced by Stan McCarthy, who currently heads the group's American ingredients business.

The Group’s food ingredients, flavours and bio-science businesses all performed robustly in the first six months of 2007. Total sales revenue increased by 4.1% to €1,611m reflecting like-for-like growth of 5.9% when adjusted for currency translation, acquisitions and business disposals impact. Trading profits in ingredients markets grew by 5.8% to €130m. The trading margin improved by 10 basis points to 8.1%. Against a background of energy driven input cost inflation, this performance was achieved through cost recovery programmes and the on-going successful development of Kerry’s ‘go-to-market’ strategy. Good results have been achieved through this programme dedicated to the provision of industry leading customer service through innovative product solutions and applications developed across the Group’s broad based science and technology platforms.

In American ingredients markets sales revenue in the period reported at €644m represents 6% like-for-like growth. Good progress was achieved in all market segments of the U.S. market. The speciality dairy and lipids sector has recovered from the challenging sectoral market conditions of 2005/2006. Building on Kerry’s leading cheese and dairy flavour technologies, good volume growth was achieved in frozen complete sauces. Trans-fat replacement also provided good growth opportunities. The demand for enhanced nutritional offerings continues to drive development in the ready-to-eat cereal and nutrition sector.

Kerry achieved strong volume growth in the granola bar sector which is exhibiting double digit growth year-on-year. While progress continued through sweet inclusions in the bakery market, volumes were slightly lower in the ice-cream sector due to the impact of dairy raw material prices on sectoral growth. Kerry’s savoury technologies performed well in the U.S. and Canadian markets in particular through meat seasonings in the red meat market and coating systems for poultry and seafood applications.

Kerry continues to achieve excellent progress in the foodservice sector across American markets through sweet and savoury applications. Beverage syrups and sweet inclusions again recorded good growth through coffee house and restaurant chains and successfully extended market development into Latin American and Central American markets. New product lines were successfully launched during the period in the Jet Smoothie, Jet Blended Beverage Base and Oregon Chai product ranges.

Strong volume growth was achieved through meat seasonings and savoury application in South American markets.

Kerry Bio-Science again grew satisfactorily in American markets in the first half of 2007 with strong growth in culinary, cell nutrition and excipient markets, and also continued development of dairy, meat and beverage ingredient applications. The increased trend towards all-natural labelled products and ingredients continues to provide good growth opportunities for Kerry Bio-Science technologies. In addition the progressive development of key customer accounts in Latin American markets is leading to strong double digit growth in the sub-region.

Despite unprecedented raw material cost inflation, Sheffield Pharma Excipients achieved strong first half growth through innovative anhydrous product launches and the commencement of a global sales and marketing agreement. In the pharma cell nutrition segment growth was in line with overall sectoral growth rates. Innovation through novel processes for protein hydrolysis has produced good results and patents have been submitted.

Mastertaste flavours, benefiting from growing demand for salt reduction and calorie reduction, recorded strong development through its taste modulation technologies in savoury and beverage applications in American markets. Manheimer Fragrances achieved excellent results in the first half of 2007, with significant new product launches through new and existing accounts in the home environmental and personal care sectors.

In European markets, sales revenue increased by 4% to €656m, reflecting like-for-like revenue growth of 3.6%. While cost recovery in European markets lagged other regions, nevertheless significant progress was achieved and the focus on cost saving programmes continues. Culinary applications again provided good growth for Kerry’s sauces, purees, bouillons and broths. In the UK market sales increases in the chilled savoury sector proved satisfactory but the difficulties in the frozen sector continued to impact volume and margin growth. Supply chain efficiencies assisted business development in Germany and Italy but market conditions in the French savoury sector proved challenging. Satisfactory market development was achieved in Eastern European markets. The foodservice sector throughout European markets continued to provide good growth opportunities for Kerry’s food and beverage ingredients.

In line with global dairy market developments, conditions in European markets in the first half of 2007 improved significantly relative to the difficult market situation in 2006. The increasing demand for dairy products and dairy ingredients globally coupled with a reduction/elimination of inventories has led to much improved returns to milk producers and a recovery in dairy processor margins. Kerry Dairy Ingredients has also continued to benefit from on-going development of milk proteins in the nutritional and functional food and beverage sectors.

Kerry recorded a good first half performance in the European fruit and sweet ingredients sector. Product innovation and supply chain efficiencies contributed to satisfactory improvement in fruit applications into the yoghurt and fruit smoothie sectors. Fruit and sweet ingredients also benefited from increased demand in Europe for enhanced nutritional offerings in the breakfast cereal and confectionery sectors.

In Europe, Kerry Bio-Science achieved good growth in beverage, bakery, dairy and confectionery markets. Additional capacity arising from the major investment programme at the Menstrie yeast production facility in Scotland facilitated good growth in the European beverage sector and in the U.S. cell nutrition sector. Excellent progress was achieved in the European bakery market as functional solutions offered through the Kerry Bio-Science portfolio, including enzymes, fermented ingredients and emulsifiers, are increasingly adopted in preference to competitor offerings. Functional ingredients also outperformed market growth rates in the confectionery sector as manufacturers strive to enhance product texture and consumer appeal. Similarly in the dairy sector, due to the increased focus on health and wellness, the Kerry Bio-Science range of Sherex, Myvatex and Durafresh products achieved excellent results as manufacturers focus on production of added value products with enhanced taste, texture, shelf life and convenience attributes.

Mastertaste flavours made solid progress in Europe. Strong growth was achieved in UK chilled savoury markets in particular through core supplier accounts in the culinary sector. Strong gains were also achieved through major branded product launches in the Italian confectionery market. Mastertaste natural products division also continued to successfully advance its market positioning in the European beverage sector.

In Asia Pacific markets Group ingredients businesses continue to achieve excellent results in food and beverage applications. Sales revenue increased by 14.3% (like-for-like 14.6%) to €199m. Kerry’s branded flavoured beverage offerings achieved steady growth throughout the region’s fast growing consumer and foodservice markets. Progress in development of speciality nutritional products for ‘growing diets’, in particular for the Chinese market, again achieved double digit market growth rates. The rate of growth in regional savoury markets slowed – most notably in Australia.

Kerry Bio-Science also grew steadily in Asia Pacific markets, particularly in Japan, China and India, through its range of beverage, meat, dairy, bakery and confectionery technologies. The Esterol emulsifier facility in Malaysia continues to make excellent progress despite increased input cost pressures. Considerable growth was also achieved through Sheffield Pharma Excipients due to the expansion of regional pharmaceutical manufacturing coupled with manufacturing shifts by major branded pharmaceutical companies into the region. Kerry’s Pinnacle bakery business unit achieved strong growth in Australia boosted by the successful introduction of speciality lifestyle bakery offerings for in-store, franchise bakery and foodservice outlets.