Kerry Profits up 2% in "Extremely Challenging" First Half 

06/09/06 Global ingredients, flavours, and consumer foods group, the Kerry Group has announced pre-tax profit of €216m for the first half of 2006, an increase of almost 2%. The ingredients and food group said it had experienced growth in sales revenue of 7%, to almost €2.3bn.

Whilst cost recovery programmes proved successful in most territories, the unprecedented impact of energy related cost increases (180 basis points on margin or €40m) limited trading profit growth to 1.5% to a level of €162m in the period. This resulted in a Group trading margin of 7.2%, 40 basis points below the same period of 2005. Profit after taxation was maintained at €101m with earnings before intangible asset amortisation and non-trading items increased by 2.3% to €103m. Adjusted earnings per share increased by 2% to 54.9 cent. The interim dividend of 5.5 cent per share reflects an increase of 10% over the 2005 interim dividend.

Total Group sales revenue throughout European markets in the first half of 2006 grew by 5.2% to €1.5 billion. In American markets, the Group’s ingredients and flavours businesses increased sales revenue by 10.9% to €635m. Sales revenue in Asia Pacific markets grew by 9.1% to €174m.

Kerry Group Chief Executive, Hugh Friel said; “As previously signalled, the first six months of 2006 have proved extremely challenging. The delay in recovering the significant energy related cost increases slowed growth during the period. However, we have full confidence in our growth strategies and our longer term growth performance will benefit from critical attention to on-going cost recovery programmes, supply chain efficiencies, increased investment in product innovation and asset optimisation – including elimination of non-core activities. Earnings for the full year are expected to be in line with current market expectations”.

Despite the prevailing market difficulties, Kerry’s food ingredients businesses recorded successful results in the period delivering a satisfactory like-for-like revenue growth rate of 5% (total growth adjusted for acquisitions, disposals and currency translation). Total sales revenue increased by 6.5% to €1,548m. Trading profits grew by 4% to €123m. The 20 basis points reduction in the trading margin to 8% reflects the time lag in recovery of cost increases particularly in European markets. Kerry said that in the face of significant pressures, the Group’s performance throughout food and beverage ingredients markets reflects the resilience of Kerry’s ingredients, flavours and bio-science businesses operationally and technically.

In American ingredients markets the Group’s strong nutritional focus, leveraging its broad technological base delivered 5.5% like-for-like revenue growth with encouraging roll-out of new product developments and line extensions through major accounts. Total revenue in the region during the period grew by 10.9% to €635m.

In the USA, Kerry’s ingredients businesses have been successfully re-organised into Integrated Business Units to better meet market needs for healthy convenient food and beverage offerings and to support growth through integrated platforms for delivery of added-value solutions. Kerry said that demand for nutritional functional foods and specialty food and beverage products continues to grow at encouraging levels.

In the sweet sector strong progress has been recorded in 2006 in the cereal, ice-cream, confectionery and nutritional categories. During the period, the Group’s technical capabilities in nutritional and wellness food categories was further advanced through the acquisition of Custom Industries and Nuvex Ingredients.

Progress was also achieved in the savoury ingredients sector, in particular through regional snack processors and added-value meat processors. Market conditions in the speciality dairy sector remained challenging but development initiatives in functional nutritional lines and proprietary liquid formats are achieving encouraging results. A new Proteins and Nutritionals business unit was established to support development through soy systems, dairy proteins, hydrolysed proteins and nutritional/fortified beverage systems across nutritional categories including the medical and infant nutrition sectors.