Kerry Profits Rise in H1, Despite Drop in Sales

Profit before tax and non-trading items increased by 5.2% to €136.8m.Sales revenue for the first six months of the year totalled €2,269m, a decrease of 3.2% on a like-for-like (LFL) basis versus the same period in 2008.

25 Aug 2009 --- The Kerry Group has reported that trading profit increased to €180m in H1 2009, reflecting a 4% (LFL) increase. The Group trading profit margin increased by 60 basis points to 8%, driven by the on-going focus on business efficiency and lean manufacturing programmes. Ingredients & flavours businesses delivered a 60 basis points increase in trading margin to 8.7% and margins in consumer foods advanced by 30 basis points to 6.7%. Profit before tax and non-trading items increased by 5.2% to €136.8m. Profit after tax before intangible asset amortisation and non-trading items increased by 7.2% to €118m. Adjusted earnings per share increased by 7% to 67.2 cent. Basic earnings per share decreased from 60.1 cent to 53.5 cent. The interim dividend of 7.7 cent per share represents an increase of 11.6% over the 2008 interim dividend.

Sales revenue for the first six months of the year totalled €2,269m, a decrease of 3.2% on a like-for-like (LFL) basis versus the same period in 2008. Allowing for elimination of non-core activities associated with the Group’s on-going ‘go-to-market’ business restructuring programme, improvements to product mix, lower pricing and the adverse impact of trading currency changes, overall continuing business volumes were 2.6% ahead in ingredients & flavours, back 1.5% in consumer foods and 1.3% ahead on a Group-wide basis.

Kerry Group Chief Executive Stan McCarthy commented; “Kerry technologies and brands performed well in the difficult economic environment throughout global markets in the first half of 2009. Good progress was made in aligning product development, innovation, marketing and promotional strategies to the changing marketplace. Our Group trading profit margin increased by 60 basis points, with ingredients & flavours contributing a 60 basis points improvement and consumer foods achieving a 30 basis points margin improvement in a highly competitive market. We expect to maintain the positive margin momentum in the second half of the year and to increase earnings for the full year to the upper end of the range of 160 to 165 cent per share forecast at the start of the year.”

Total ingredients & flavours sales revenue was broadly flat on a reported basis at €1,656m. This represents a decline of 1% (LFL) and net volume growth of 1.7% (allowing for business restructuring volume loss of 1%) offset by 3% lower pricing due to favourable raw material costs. Primary dairy and wheat raw material costs were approximately 25% lower relative to H1 2008. Despite the challenging economic situation throughout global markets and resultant shift in consumer demand, Kerry Ingredients & Flavours ‘go-to-market’ strategy achieved excellent results and customer satisfaction in delivery of integrated solutions for global and regional food and beverage companies and foodservice providers. Divisional trading profit grew by 4.5% (LFL) to €144m reflecting a 60 basis points improvement in trading profit margin to 8.7%.

The Americas region sustained a good business performance with revenue of €655m (-1.9% LFL). This reflects 2.8% lower pricing and 1% net volume growth after 2% business restructuring volume loss. Aggregate consumer demand was weaker during the period. In North America ‘store brand’ applications grew at the expense of premium and mid-tier branded offerings and out-of-home consumption. However quick-serve-restaurant applications continued to enjoy good growth. Kerry’s ‘go-to-market’ strategy continues to achieve excellent results in delivering customer-specific innovation requirements – leveraging the Group’s entire ingredients & flavours technology portfolio. The recently commissioned US$50m Innovation and Technical Center in Beloit (WI) has already achieved high customer acclaim and will spearhead customer product commercialisation into the future. The Group’s market development in Central America was considerably strengthened during the period through the acquisition of Prima S.A. – a Costa Rican based savoury ingredients & flavours business.

Against the background of reduced consumer spending due to the recessionary pressures, market conditions in the EMEA region were challenging in the period but Kerry’s ingredients & flavours businesses performed well with reported revenue of €557m (-1.3% LFL). This reflects 2.6% lower pricing and 0.8% net volume growth after business restructuring volume loss. In particular reported revenue was adversely impacted by the downturn in primary dairy markets and trading currency impact on fruit preparations. Kerry said that the Dera Holding NV savoury flavourings business acquired during the period is performing in line with expectations. Wet dairy ingredient systems suffered considerable negative price pressure due to the significant reduction in dairy pricing.

Kerry’s Asia-Pacific ingredients & flavours businesses delivered solid market growth, despite a slow start to the year. Revenue increased to €202m (+8% LFL). This reflects 10% volume growth in the region and 2% lower pricing.

The challenging economic environment in Ireland and the UK impacted all consumer food categories during the first half of 2009. Consumption trends changed significantly as shoppers traded down to more value offerings and responded to the increased level of promotional activity. Sales in the UK market held up well. Total fresh & chilled food categories in the ROI declined while ambient grocery sales increased. The depreciation of the sterling/euro exchange rate led to considerable contraction of sales from Ireland to the UK market and restructuring of affected processing operations. Kerry Foods reported sales of €857m (-7.7% LFL) for the period. This reflects a volume decline of 1.5% in continuing business, a 1.6% volume reduction due to the aforementioned business restructuring, 2.7% lower pricing and an adverse 1.9% trading currency impact. Divisional trading profit at €57m was unchanged relative to the first half of 2008 on a like-for-like basis. This represents a 30 basis points improvement in trading profit margin to 6.7% due to supply chain and business efficiency programmes - including the lean manufacturing programme.