Kerry Posts 7% Rise in 08 Earnings, Net Profit Declines

The Group’s on-going focus on operational efficiencies and cost recovery programmes contributed to the 10 basis points improvement in the Group trading profit margin to 8.5%. Ingredients & Flavours businesses delivered a 10 basis points increase in trading margin to 9.5% and margins in consumer foods advanced by 10 basis points to 6.7%.

24/02/09 Kerry has said that Group sales revenue in 2008 at €4.8 billion reflects an increase of 6.3% on a like-for-like (LFL) basis when account is taken of currency translation, acquisitions and business disposals. Despite the adverse impact of a further 7% increase in raw material and energy related input costs, trading profit increased to €409m, reflecting an 8% increase on a like-for-like basis. The Group’s on-going focus on operational efficiencies and cost recovery programmes contributed to the 10 basis points improvement in the Group trading profit margin to 8.5%. Ingredients & Flavours businesses delivered a 10 basis points increase in trading margin to 9.5% and margins in consumer foods advanced by 10 basis points to 6.7%.

This performance also reflects the benefits of Kerry’s capital investment programmes in recent years. The net cost of the Group’s capital expenditure programme in 2008 amounted to €145m (2007: €89m). Profit before tax and non-trading items increased by 2.3% to €317m. Profit after tax before intangible asset amortisation and non-trading items increased by 4.4% to €269m. Adjusted earnings per share increased by 7% to 153.9 cent. Basic earnings per share decreased to 101.3 cent per share. At the Annual General Meeting to be held in Tralee on 12 May, the Board will recommend a final dividend of 15.6 cent – an increase of 12.2% on the prior year final dividend. This will bring the total dividend for the year to 22.5 cent per share, an increase of 12.5% on the total 2007 dividend.

Commenting on the results Kerry Group Chief Executive Stan McCarthy said; “I am pleased to present a good set of results for 2008. Despite tremendous cost pressures and trends towards more value conscious food and beverage consumption – particularly in the second half of the year, we achieved good organic revenue growth and margin improvement. Kerry is well positioned from a technology and consumer understanding standpoint to lead industry product development needs in this time of change. In addition the Group is well resourced financially to benefit from the business expansion opportunities which will inevitably emerge. We are confident of delivering earnings growth in 2009 to a range of 160 to 165 cent per share”.

Kerry’s world leading ingredients & flavours technologies performed well across food and beverage enduse- markets in all territories in 2008. Good progress was achieved in re-alignment of the Group’s ingredients, flavours and bio-science businesses. The programme, to fully leverage Kerry’s total technology base and end-use-market application expertise in an industry-leading integrated approach to meeting customer product development requirements, was successfully initiated in the Americas Region and will be implemented in the EMEA and Asia-Pacific Regions in 2009. Total ingredients & flavours sales revenue in 2008 increased by 7.5% (LFL) to €3,388m and trading profits increased by 8.9% (LFL) to €320m reflecting a 10 basis points improvement in trading profit margin to 9.5%.

In American markets Kerry’s ingredients & flavours applications again achieved strong growth. Sales revenue reported at €1,343m reflects 6.7% (LFL) growth. Incorporating flavours with our total ingredients offering through the ‘go-to-market’ strategy delivered encouraging results and a strong customer response. This progress was recognised in 2008 through awards such as ‘innovation leaders’ or ‘supplier of the year’ by six key accounts. Demand for natural ingredients and flavours and ‘clean-label’ continued to grow, as did applications to meet the requirements of quick-serve-restaurants and value offerings for retail brands.

The growing demand for complete meal solutions provided good growth opportunities for Kerry’s savoury and dairy systems and flavours. Culinary market growth, in particular, soups, stocks and broths presented strong development targets for Kerry’s clean-label ingredient & flavour options, low sodium technologies, yeast extracts and aseptic processing capability. The division’s dairy ingredient & flavor solutions and frozen sauce technology grew in both retail and foodservice channels through complete meal, chilled side dish and frozen sandwich applications. Despite a difficult North American meat market environment Kerry technologies achieved satisfactory sectoral growth as processors increasingly focused on value-added menu solutions. Sales to seafood and appetiser markets declined in line with the slow down in the full-service-restaurant trade. Kerry’s ability to develop new flavours to meet consumer trends in the savoury snack sector led to further growth in particular through regional accounts. The sweet and cereal industry segments proved more challenging in 2008, as the ice cream, cereal and nutrition bar end-use-markets slowed relative to the prior year. However Kerry achieved above average sectoral growth through innovative concepts and value menu offerings as a result of the Group’s unique integrated technology and systems approach to development. Following a major capital investment programme at the Group’s Affton facility in St Louis (MO), a new sweet technology campus and multiprocess facility was commissioned in 2008, consolidating technologies and expertise acquired through a number of acquisitions in the sweet technology sector in recent years.

Kerry’s beverage ingredients & flavours experienced good growth in 2008 driven by ready-to-drink tea, energy drink and new customised beverage foodservice applications. Despite the slowdown in sales through coffee-chain outlets, Kerry continued to achieve satisfactory growth through blended beverages, smoothies and nutritional beverage concepts. To meet the growing demand for nutritional beverages an aseptic facility was acquired and upgraded in Savannah (GA). X-Café LLC, located in Portland (ME), was also acquired in 2008. A producer of premium coffee flavours and extracts, X-Café provides a strong platform for further expansion in the beverage sector.

Business development across South and Central American food and beverage markets continued to benefit from growth in value-added products and exports in 2008. Vittaflavour LTDA, a Brazilian based flavour company was acquired to complement our ingredients & flavours development capability in the South American beverage sector. Functional and fermented ingredients recorded good progress in American markets in 2008. Emulsifiers recorded double digit growth in core bakery, confectionery and dairy markets in the region. Enzymes delivered strong growth in the USA and LATAM nutrition, meat and dairy markets. Proteins achieved strong volume growth in cell nutrition and nutritional applications.

The sale of the Group’s Manheimer Fragrances business in the USA was concluded prior to year-end. In European markets, despite significant input cost pressures, Kerry’s Ingredients & Flavours businesses performed well with sales revenue of €1,245m reflecting 4% (LFL) growth. A strong focus on business efficiencies and cost recovery meant trading profit margins were maintained despite the significant raw material and energy related cost inflation.

Kerry’s savoury and culinary systems achieved a good performance particularly in the UK meat sector. A state-of-the-art culinary facility was commissioned in Hartlepool (UK). Demands for cleaner label and natural savoury products provided a significant increase in demand for yeast extracts. This led to further expansion in production capacity at the Group’s Menstrie fermented ingredients production facility in Scotland. Meat seasonings and culinary systems in France performed well but coating systems had a challenging year in recovering costs. Applications into the poultry and seafood sectors in Germany had a strong performance and Kerry also continued to make good progress in Italy in 2008. Business development in Eastern European markets slowed in line with the downturn in economic development. The growth in demand for natural flavours continued to provide good growth for Kerry’s snack seasonings throughout all European and Middle Eastern markets.

Demand conditions throughout international dairy markets weakened considerably during 2008. As the year progressed this led to a significant reduction in returns to European dairy processors and milk suppliers. Nutrition, confectionery and snack applications however continued to provide market development opportunities for Kerry’s dairy ingredient systems and flavours. Proteins achieved double digit growth across nutrition and cell nutrition applications. New products in the Hyprol proteins range were successfully launched in selected nutrition market segments. The range of products focussed on clinical nutrition development was expanded and considerable success was also achieved through specific products addressing allergen reduction in infants. Enzymes also achieved satisfactory growth in dairy and confectionery markets.

The challenging conditions in European dairy markets also adversely impacted Kerry’s French fruit preparations business. Development of a premium range of fruit preparations for the UK foodservice channel provided good growth and a strong performance was also achieved in Central European markets. Demand for new health/wellbeing offerings continued to provide good opportunities for Kerry’s sweet ingredient systems, particularly through coated cereals and cluster systems in the breakfast cereal sector. A new range of low-sugar and health fruit cereal clusters was successfully launched. Fruit nuggets exhibited continued growth in 2008, capitalising on increased demand for fruit inclusions in premium confectionery retail products. Strong volume growth was achieved across the Ravifruit branded products range but trading margins were reduced due to exceptional key fruit raw material cost increases.

Syrups and smoothie applications continued to achieve strong growth in the European foodservice sector. Bakery systems also achieved solid growth but volumes in dessert sauce markets were reduced due to the poor summer weather conditions. In the beverage sector the Da Vinci syrups range continued to achieve double digit growth. Enzymes also recorded good growth in Central and Eastern European brewing markets. Enzyme sales in the European bakery sector also grew strongly due to increased demand as a result of challenges posed by higher cereal raw material costs.

Asia-Pacific markets continued to provide an excellent growth platform for Kerry’s ingredients & flavours systems. Despite more challenging economic conditions and increases in key input costs, Kerry achieved a strong business performance across all its core technologies and regional end-use-markets. Sales revenue increased to €478m reflecting growth of 19.3% (LFL) year-on-year. In Asia market development and growth was strong in nutrition, snacking and quick-serve-restaurant applications. Lipid systems enjoyed excellent growth particularly through beverage applications in the Malaysian and Vietnamese markets. Nutritional beverages continued to provide good growth opportunities for Kerry’s ingredients & flavours in China. With heightened awareness of food safety issues, market development was focused on provision of quality products providing a strong platform for Kerry’s full range of technologies including nutritional ingredients and flavours, dairy proteins, enzymes and emulsifiers. Kerry’s Business and Technical Centre in Shanghai has been expanded to service customer requirements for the Group’s full range of technologies and applications expertise.

Kerry said that with the weakening economic landscape during 2008 and the significant depreciation of the sterling/euro exchange rate, trading conditions in the UK and Irish consumer foods markets became increasingly challenging as the year progressed. By and large consumer trends in the first six months continued in line with previous years as food categories gained growth within their more premium offers. As the credit crunch began to impact consumer spending since mid-year, a significant contrast in consumption patterns quickly emerged as shoppers became ever more price and value conscious. This led to a marked increase in promotional activity and double digit growth of value retail brand ranges. Kerry Foods positioning in chilled foods growth categories and the division’s ability to respond quickly to consumer trends contributed to a satisfactory business performance against such a challenging background. Sales revenue increased by 5.4% (LFL) to €1,774m and divisional trading profit at €120m reflects growth of 5.1% on a like-for-like basis, giving a 10 basis points improvement in trading profit margin to 6.7%. Kerry Foods achieved a robust all-round performance in the UK market. Following significant raw material cost inflation, the overall sausage market remained relatively flat in volume terms but grew satisfactorily in value terms. However Kerry’s branded portfolio outperformed the market, recording good volume and value growth.