Kerry Group Results Boosted by Ingredients, to Sell Australian Bakery Pinnacle
24 Feb 2015 --- Kerry has reported 2014 group revenue of €5.8 billion reflecting 2.4% continuing volume growth. Ingredients & Flavours (€4.3 billion) was up +3.4% on continuing volumes, while Consumer Foods (€1.5 billion) was down -0.7% on continuing volumes. The company also announced that it has commenced negotiations, which are now at an advanced stage, in relation to the sale of the Pinnacle lifestyle bakery business in Australia (annual revenue €160m).
Commenting on the results Kerry Group Chief Executive Stan McCarthy said; “We recorded another year of good growth, business margin expansion and an 8.1% increase in adjusted earnings per share in 2014. The consumer environment across developed and developing markets is changing rapidly but Kerry is well positioned to capitalise on global growth opportunities. We expect to achieve another year of good growth in 2015”.
“Kerry Group achieved another year of good underlying growth ahead of our markets and sustained business margin expansion in 2014. Despite a challenging macro-economic landscape and the impact of geopolitical issues – particularly in developing markets, the Group continued to successfully develop across its three strategic pillars – Taste, Nutrition and Developing Markets. Changing consumer demographics and shopping behaviour are driving a paradigm shift in food and beverage consumption trends, impacting industry, retail and foodservice developments. In particular increased urbanisation, millennial growth and life-stage requirements continue to increase demands for innovation to meet convenience, snacking, functionality and health / wellness trends. Demand for clean-label, enhanced nutrition, natural, ‘free-from’ – in particular gluten-free offerings, and wider flavour profiles continued to provide solid growth opportunities for Kerry’s leading taste, nutritional and functional ingredients & actives technology platforms. Partnerships with the Group’s global and regional customers were further advanced – benefiting from the Group’s 1 Kerry capabilities and expertise provided by Kerry Global Technology & Innovation Centre and Regional Development & Application Centre developments.”
“While showing early signs of recovery, increased fragmentation and polarisation in the Irish and UK consumer foods markets contributed to increased competitiveness. Kerry Foods performed satisfactorily against this background whilst continuing to progress its business repositioning strategies.”
In 2014 Group businesses grew ahead of our markets delivering 2.4% continuing business volume growth. In a relatively benign input cost environment, pricing decreased by 0.5%. Group sales revenue at €5.8 billion on a reported basis was 1.4% lower, reflecting the adverse translation impact of currency movements, acquisitions net of disposals and business rationalisation volume loss. Despite weaker overall market conditions and lower industry inventory levels, Kerry’s ingredients & flavours businesses achieved good volume growth and a strong trading performance. Continuing business volumes increased by 3.4% and net pricing declined by 0.5%. Kerry Foods continued to successfully progress its business repositioning, with continuing business volumes reduced by 0.7% and net pricing 0.6% lower.
The Group’s trading performance maintained a strong positive momentum benefiting from Groupwide business operational improvements due to the 1 Kerry Business Transformation Programme and portfolio repositioning in Kerry Foods. Group trading profit increased by 4.1% to €636m reflecting 5.3% like-for-like [LFL] growth. The Group trading profit margin increased by 60 basis points to 11.1%. This reflects an 80 basis points improvement in trading margin in ingredients & flavours to 13.7% and a 30 basis points improvement in Kerry Foods’ margin to 8.3%.
Adjusted profit before tax, brand related intangible asset amortisation and non-trading items increased by 7.1% to €570m. Adjusted profit after tax before brand related intangible asset amortisation and non-trading items increased by 8.2% to €490m. Basic earnings per share increased to 273 cent from 48 cent, as the prior year number was impacted by non-trading items. Adjusted earnings per share increased by 8.1% to 278.9 cent (2013 : 257.9 cent). The Board recommends a final dividend of 31.5 cent per share, an increase of 12.5% on the 2013 final dividend. Together with the interim dividend of 13.5 cent per share, this brings the total dividend for the year to 45 cent, an increase of 12.5% on 2013.
Expenditure on research and development increased to €197m (2013 : €186m). Establishment of the Kerry Global Technology & Innovation Centre in Ireland is well advanced and on schedule to be fully operational by mid-year 2015. This development will also include the Group’s Global Centre of Excellence for Nutrition. Net capital expenditure in 2014 amounted to €257m (2013 : €177m). The Group achieved a free cash flow of €303m (2013 : €412m).
Kerry provides the largest, most innovative portfolio of Taste & Nutrition Systems and Functional Ingredients & Actives for the global food, beverage and pharmaceutical industries. Challenging macro-economic trends and changing consumer shopping behaviours meant that developed markets overall were relatively weak but provided good scope for innovation in health / wellness and niche growth sectors. While industry growth was weaker in some developing markets due to political or currency related issues, nevertheless Kerry continued to achieve solid growth and development – in particular in Asia. Group technologies grew favourably through successful partnership and alignment with customer / consumer needs for natural, authentic ingredients & flavours delivering enhanced nutritional values, functionality, convenience, quality and product safety.
Sales revenue on a reported basis at €4,337m reflects continuing business volume growth of 3.4% and 0.5% lower net pricing. Trading profit grew by 6.1% to €593m reflecting an 80 basis points increase in divisional trading margin to 13.7%. In 2014 ingredients & flavours accounted for 74% of Group revenue and 83% of Group trading profit.
Economic growth in North America was positive in 2014 but lower than expected. Increased raw material and food price inflation limited growth opportunities for food and beverage manufacturers. In addition traditional grocery formats experienced lower sales as consumers increasingly utilised different channels and more convenient shopping formats. Packaged food and beverage demand in Mexico was also impacted by tax changes, including a new tax on high-calorie food and beverages. Consumer confidence in Brazil declined due to mounting concerns about high inflation and sluggish economic growth. Despite the overall weaker industry environment, Kerry performed well in the Americas in 2014 – in particular through clean-label, all-natural and health / wellness solutions. Revenue in the American region at €1,901m reflects 3.3% continuing volume growth and 0.4% lower pricing. Beverage systems & flavours delivered good growth in particular through aseptic offerings in nutritional segments. Tea and coffee applications maintained good growth momentum in foodservice chain accounts and through Kerry’s branded products. Development in the soft drinks sector was subdued but good innovation opportunities were realised in the alcohol spirits categories and through brewing application solutions. Da Vinci Gourmet and Big Train branded beverage portfolios achieved solid growth particularly in Latin America. Savoury, Dairy & Culinary systems & flavours performed well in particular in the meat industry and through foodservice applications. Performance in the North American meat sector was highly favourable through Kerry’s seasonings and coatings technologies, and excellent progress was achieved through clean-label solutions. Growth in North American culinary segments was assisted by Wynnstarr Flavors acquired prior to year-end 2013. Culinary technologies also grew in Central America and the Andean region of Latin America. The savoury snack sector continued to provide good growth opportunities and Kerry’s market reach was further extended in Latin America. In November the Group acquired Junior Alimentos, a leading provider of culinary and sweet systems, and complete solutions to the foodservice market in Brazil. Based in Cotia, Sao Paulo, Junior provides a complete portfolio of sauces, seasonings, dairy products, sweet ingredients and beverage systems to leading QSR chains and casual dining, restaurants and hospitality outlets in Brazil. Cereal & Sweet technologies performed well despite industry conditions. Fermented ingredients’ technologies consolidated Kerry’s position as a preferred supplier of clean-label solutions to leading bakery companies in North and South America. Innovative snack offerings provided growth opportunities in the cereal and confectionery sectors. The Group’s cereal manufacturing business in Argentina was disposed of in Q3. Pharma ingredients recorded strong growth, in particular through cell nutrition and excipient applications. Cell nutrition growth was driven by increased global demand for therapeutic drug and vaccine solutions. Excipients grew across all regions with solid growth in Asian markets. Pharmaceutical applications also provided favourable opportunities for Kerry’s flavour systems.
The slow pace of economic recovery in Europe and continued frugal spending patterns at consumer level intensified competitiveness, particularly in developed markets. Youth unemployment levels remain a concern in many markets impacting consumer confidence. Geopolitical tensions and currency related pressures impacted growth in EMEA developing markets. While the Middle Eastern and South African markets showed some improvement in the second half of 2014, Russia and Eastern European markets progressively weakened due to the economic impact of the political situation in the region. Overall EMEA market conditions remained challenging with limited growth opportunities. However Kerry continued to record good development progress and greater business efficiencies. Realignment of business structures and customer service capabilities ahead of the transition to the new Kerry Global Technology & Innovation Centre in Ireland was significantly advanced. Revenues in the EMEA region reported at €1,549m reflect a 0.5% reduction in continuing volumes and 0.8% lower pricing. Beverage systems & flavours maintained solid progress through leading beverage accounts and in the foodservice channel. In line with customer demand for low calorie and zero calorie variants, Kerry flavour systems and citrus capabilities recorded good growth. In Western Europe and Sub- Saharan Africa successful development was achieved through Kerry taste solutions and enzyme technology – in particular in the brewing and wine sectors. In the branded foodservice segment the Da Vinci and Big Train brands continued to successfully extend penetration across new geographies in the speciality coffee and related beverage sectors – achieving significant growth in the Middle East.
Savoury, Dairy & Culinary systems maintained good growth in EMEA developing markets but market conditions in Western European markets remain challenging. Kerry recorded good growth in the savoury snacks sector throughout the region. Dairy and culinary systems also performed well in the foodservice channel with good growth through Kerrymaid branded offerings. Performance in the meat category was mixed in 2014. Coatings technologies continued to achieve good growth in developed markets. Seasonings and functional systems progressed market development in developing markets. However, the strong growth recorded in Russia in 2014 slowed in Q4 due to the prevailing market situation. Since year-end the Group has acquired the trade and certain assets of Dairygold Co-operative’s French food ingredients business. Cereal & Sweet systems & flavours were impacted by sectoral competitiveness issues. However strong growth was achieved in the bakery and cereal bar categories – leveraging Kerry’s all-natural functional solutions and low-water activity fillings. New inclusions and coatings lines achieved good growth in the ice cream and frozen desserts markets. Kerry also outperformed market conditions in the confectionery sector. South African markets, while extremely competitive in H1 2014, stabilised in Q4.
Functional Ingredients & Actives maintained a strong performance particularly in nutritional applications. Proteins benefited from strong demand for protein enriched foods globally. Expansion of the Utrecht (Netherlands) facility provided increased capacity to meet customer requirements for nutritional and functional hydrolysates. Enzymes delivered good growth in bakery and beverage markets. Nutritional ingredients and systems grew across all life-stage end-use-markets, particularly in the infant sector. Ongoing investment at the Charleville site in Ireland included commissioning of new nutritional production and packing facilities in Q1 2014. Primary Dairy market price returns progressively weakened in H2 2014 due to increased output in key exporting countries and a build-up of inventories. In May, the Group opened a new Regional Development & Application Centre in Durban, South Africa to serve Sub-Saharan African markets and, in October, a new Centre was opened in Moscow to serve the Russian and CIS markets.
Asia-Pacific developing markets provided excellent growth opportunities in 2014 where Kerry outperformed food and beverage market growth rates – benefiting from the increased Group resources deployed to market development in the region. Regional developed markets, in particular Australia and New Zealand, were impacted by intense competition due to retail pressures and industry profitability issues. The expanding foodservice channel continued to provide solid development opportunities for Kerry solutions throughout all regional markets. Localisation of taste and speed of innovation are key drivers of growth and development throughout all Asia-Pacific food and beverage markets – enabling Kerry to exploit its broad technology and applications capabilities. Reported Group revenues in the region grew to €807m, reflecting 11.8% growth in continuing volumes and 0.3% lower pricing. Beverage systems & flavours maintained good growth in dairy, tea, coffee and nutritional beverage segments. Rollout of Kerry’s Da Vinci, Café D’Amore and Big Train branded offerings was further extended across regional markets. Savoury & Dairy technologies benefited from increased consumption trends in Asian markets but performance in Australia, New Zealand and Japan was impacted by industry competitive issues. Kerry’s ‘Dairy Complete’ offerings recorded solid growth in confectionery, bakery and beverage markets – particularly in bakery and snack applications in China and Indonesia. Dairy technologies also continued to grow in India and the Philippines. Culinary systems performed well in foodservice applications throughout Asian developing markets. Phase 1 of a major upgrading and expansion programme at the Group’s Nantong, China production facility was significantly progressed. Sweet technologies continued to grow through Kerry Pinnacle in the Australian lifestyle bakery sector and through further market development in Asia.
Functional Ingredients & Actives maintained good growth in Asian nutritional, pharmaceutical and beverage markets. Benefiting from Kerry’s expanded production facilities in Ireland and sustainable dairy raw materials, excellent market development was recorded in premium infant nutrition markets, particularly in China and Vietnam. Establishment of the Group’s Technology & Innovation Centre in Singapore was completed prior to year-end. A new Regional Development & Application Centre was opened in Bangalore, India and a Regional Application Centre was established in Manila, the Philippines.
