Kerry Increases FY Guidance After Solid First Half

Kerry Group delivered a strong financial and operating performance in the first half of 2012 despite the difficult global economic situation. Consumer confidence remains weak across developed markets resulting in constrained retail and foodservice spend.

9 Aug 2012 --- Kerry has reported a solid business performance for the half year ended 30 June 2012 and increases guidance for full year. Sales revenue increased by 10% [2.5% LFL] to €2.9 billion and trading profit increased by 12.6% to €241m.

Commenting on the results Kerry Group Chief Executive Stan McCarthy said; “Kerry achieved a strong financial and operating performance in the first half of 2012 which augurs well for the full year. We have a strong innovation pipeline and continue to make good progress in implementation of our 1 Kerry Business Transformation programme. The Group is confident of delivering our full year growth objectives and has revised adjusted earnings per share guidance upwards. We now expect to achieve eight to twelve percent growth in adjusted earnings per share in 2012”.

Kerry Group delivered a strong financial and operating performance in the first half of 2012 despite the difficult global economic situation. Consumer confidence remains weak across developed markets resulting in constrained retail and foodservice spend. However Kerry performed well against this background and continued to make good progress in aligning and optimising our business infrastructure and resources for today’s market requirements and positioning for continued growth through our strong customer alliances. Group ingredients and flavours businesses continued to benefit from our market leading technologies, innovation capabilities and speed to market – assisted by the 1 Kerry strategies and Kerry Centres of Excellence. Good progress was also made in further deployment of resources to meet the Group’s growth objectives and customer requirements in developing markets. Performance in the period under review also benefited from the impact of acquisitions completed in 2011. While the UK and Irish consumer foods markets remain intensely competitive due to the prevailing economic situation and consumer’s pursuit of value offerings, Kerry Foods innovation and efficiency programmes have continued to deliver greater product differentiation supporting development of the division’s leading brands and growth in selected private label categories.

Group sales revenue on a reported basis increased by 10% to €2.9 billion, reflecting like-for-like (LFL) growth of 2.5% when account is taken of acquisitions net of disposals and currency translation. Continuing business volumes increased by 1.8% and pricing / mix increased by 1.1%. Cost recovery programmes proved successful offsetting input cost increases where necessary.  As outlined in the Preliminary Statement of Results for 2011, business intersegment trading was realigned during 2011 to reflect changes in management responsibility for some European manufacturing facilities. This does not impact Group revenue, trading profit or trading margin. The H1 2011 comparatives have been re-presented on a similar basis. Trading performance progressively improved in Q2 2012. Ingredients & flavours business volumes increased by 2.4% relative to the first half of 2011. Allowing for a 1.5% rationalisation volume loss due to restructuring of production across consumer foods’ sites, continuing business volumes in the division were 0.7% ahead of the same period last year. Group trading profit increased by 12.6% to €241m.

Ingredients & Flavours sales revenue in the half year reflects solid growth of 14% as reported and 3.7% LFL growth. Business volumes increased by 2.4% and pricing / mix increased by 1.3%. Kerry’s innovation pipeline remained strong driven by its integrated solutions approach and technology layering capability across food, beverage and pharma end-use-markets. Performance during the period also benefited from the impact of acquisitions completed in 2011 including Cargill’s flavours business, SuCrest, FlavourCraft, EBI Cremica, IJC Fillings, General Cereals S.A. and the business and assets of Lactose India. Trading profit grew by 10.9% LFL to €213m with the division’s trading margin improved by 30 basis points to 10.3%.

Revenue in the Americas region increased by 15% on a reported basis to €876m, reflecting 3% LFL growth. Continuing business volumes grew by 1.5% and pricing / mix increased by 1.5%. Whilst the North American marketplace proved challenging, Kerry outperformed market trends and business performance improved encouragingly during the second quarter – benefiting from the strength and breadth of our technology portfolio and applications expertise spearheaded through the Kerry Centre in Beloit [WI]. Progress in Latin American markets was assisted by strong innovation driven from the Kerry Centre in Campinas, Brazil and the recently commissioned new Kerry Centre in San Juan del Rio, Mexico.

Overall business performance in the region was also boosted by the successful integration of 2011 acquisitions, in particular Cargill’s flavours business, and also by business efficiency improvements accruing from the ongoing 1 Kerry Business Transformation programme. Savoury, Dairy & Culinary systems had a mixed performance due to marketplace sectoral issues. Dairy systems continued to perform well in the yoghurt and frozen desserts sectors. Meat systems benefited from successful product launches incorporating Kerry’s all-natural shelf life extension technology. Coatings maintained good growth in the added value poultry segment. Snack systems continued to perform well in Latin American markets.

Cereal & Sweet systems and flavours recorded good progress in all end-use-markets. Despite the relative weakness of the ice cream sector, Kerry achieved good growth through application of its inclusion technologies in new product launches. Demand for all-natural, clean label solutions provided a strong platform for growth in the confectionery and bakery sectors. Argentina based General Cereals S.A. achieved encouraging growth in the Latin American ready-to-eat cereals market.

Beverage systems and flavours benefited from health and wellness trends and ‘life stage’ product launches. Caffe D’Amore recorded solid growth in the branded foodservice segment. The ongoing investment programmes at Kerry’s aseptic beverage facilities in Savannah [GA] and in Sainte Claire, Quebec has significantly increased Kerry’s capability to provide complete shelf-stable beverage solutions including nutritional product ranges. The Group’s expanded beverage flavours capability assisted delivery of solid growth through key global accounts. Pharma ingredients continued to record excellent progress in developed and developing markets. The Lactose India business and assets acquired in 2011 were successfully integrated providing a strong platform for growth. Development in Asian markets also benefited from the new tablet coatings and applications facilities in India. A US$10m programme to establish a new Cell Science Facility also commenced at the Kerry Centre in Beloit [WI].

Kerry Ingredients & Flavours achieved a satisfactory performance in EMEA markets despite the prevailing weak economic landscape and fragile consumer confidence. Reported revenue increased by 11.8% to €820m, reflecting 1.6% LFL growth. Continuing business volumes were 0.7% ahead of the same period in 2011 and pricing/mix increased by 0.9%. Savoury, Dairy & Culinary systems & flavours achieved a mixed performance due to the challenging marketplace. Good volume growth was achieved through culinary systems due to continuing demand for solutions offering lower sodium, authenticity in taste and cleaner ingredient declarations - in particular in prepared meals, snack and soup/sauce end-usemarkets. Progress in developing markets benefited significantly from the Durban, South Africa based FlavourCraft business acquired prior to year-end. Dairy systems volumes were negatively impacted due to challenging conditions in the soups, sauces and confectionery markets but dairy flavours recorded good growth in dairy and bakery applications. Development in the meat sector also proved difficult but Kerry’s core business in the sector improved by the end of the half year – particularly in coatings applications and through ‘clean label’ solutions. Good growth was achieved in the Russian and Middle Eastern markets.

Cereal & Sweet technologies recorded a strong performance. Sweet systems saw good growth in the dairy sector and, despite the weather-related poor ice cream season in Europe, Kerry achieved good growth through development of novel inclusions for the premium ice cream market. Performance in sweet ingredients & flavours was significantly strengthened by the SuCrest business acquired in October 2011. The SuCrest business is now integrated into the Group’s 1 Kerry customer service strategy broadening our technology platform for development of superior solutions. Strong growth was achieved in the cereals and bars markets through key accounts. Encouraging market development was also recorded in EMEA developing markets.  Beverage systems & flavours is progressing integration of the Cargill flavours acquisition. Performance in the beverage sector continued to benefit from the demand for cost effective beverage solutions and Kerry’s fmtTM flavour technology. The UK and Irish private label beverage sectors provided good flavour development opportunities in the soft drinks sector. In developing markets Kerry saw continued growth through global accounts in the African brewing market.  Functional ingredients again grew strongly in EMEA markets due to 1 Kerry ‘go-to-market’ opportunities and integration of Kerry’s portfolio of technologies into wider application areas and integrated solutions. The new emulsifier plant in Zwijndrecht, the Netherlands, was commissioned as planned enabling further cost optimisation within the Group’s global emulsifiers’ footprint. Enzymes recorded good growth in the bakery and beverage sectors in Africa and the Middle East.  Primary Dairy markets weakened considerably during the first half of 2012 due to significant growth in production and export volumes in key exporting countries.

Kerry continued to perform well throughout Asia-Pacific markets. Sales revenue on a reported basis increased by 16.7% to €342m, reflecting 9.8% LFL growth. Continuing business volumes grew by 8.1% and pricing / mix increased by 1.7%. Savoury, Dairy & Culinary systems performed well throughout the region. Lipid systems recorded a strong performance in the nutritional sector in particular in China and Indonesia – utilising the additional production capacity from the newly commissioned plant in Penang, Malaysia. Culinary systems won significant new approvals in both retail and QSR applications. Dairy systems benefited from market recovery in Japan and achieved continued growth in snack applications in South East Asian markets. Meat systems maintained good growth in Australia and New Zealand and won new QSR listings in Asian markets. Construction of a new coatings plant commenced in India. In June, agreement was reached to acquire Angsana Food Industries – a customised food coatings and culinary systems business serving food manufacturing and foodservice markets in Asia. With modern manufacturing facilities located in Selangor, Malaysia and in Shanghai, China, the acquisition significantly extends Kerry’s capability to service key industry growth sectors and customer requirements in Asia. The transaction in Malaysia was completed before the end of the period and is scheduled to be completed in China in August, subject to local regulatory approvals. Sweet technology performance progressively improved during the period. Kerry Pinnacle won new listings in the Australian bakery sector. IJC Fillings acquired prior to year end was successfully integrated – extending Kerry’s technology base in ice cream and bakery markets. Since the end of the period Brisbane, Australia based Food Spectrum Group Pty Ltd was acquired – strengthening Kerry’s capability to meet added value dairy, nutritional and infant food / beverage product development and specialist aseptic processing / packaging requirements throughout Asia-Pacific markets. Functional ingredients continued to record good growth. Proteins grew strongly in confectionery markets. Emulsifiers extended market development in the UHT beverage sector.

Group businesses continue to align and optimise our business resources and capabilities for today’s marketplace and future growth opportunities. We are successfully progressing our 1 Kerry business excellence programme across all operations and functional areas to leverage Kerry’s global expertise whilst optimising manufacturing, scale and efficiency benefits. We remain confident of achieving our strategic growth objectives for the full year and, taking current trading conditions into account, the Group has revised adjusted earnings per share guidance upwards. We now expect to deliver eight to twelve percent growth in adjusted earnings per share in 2012.