Kerry Reports Strong Rise in Profits Despite Sluggish Market
08 Aug 2013 --- Kerry Group achieved a strong financial performance in the first half of 2013. Group sales revenue increased by 1.1% to €2.9 billion. Continuing business volumes increased by 2.7% and pricing increased by 1.8% - broadly offsetting input cost inflation of approximately 4%.
Results across the core ingredients & flavours and consumer foods business segments were very encouraging against the backdrop of a relatively sluggish overall market environment - particularly in developed markets. Solid growth and business development continued in the Group’s developing markets.
Commenting on the results Kerry Group Chief Executive Stan McCarthy said; “The Group achieved a strong financial performance in the first half of 2013 and continued to invest in enhancing the quality of our businesses. Adjusted earnings per share in the period increased by 11.7% to 108.9 cent. Our global ingredients & flavours technologies and core consumer foods businesses are performing well. We remain confident of achieving our growth targets for the full year and delivering 7% to 11% growth in adjusted earnings per share to a range of 250 to 260 cent per share.”
Volume growth and trading performance in ingredients & flavours’ markets improved in Q2 relative to Q1 which was impacted by an increase in customer inventories in the final quarter of 2012. Ingredients & Flavours continuing business volumes increased by 3.9% relative to H1 2012 and pricing increased by 2%. Continuing business volumes in Kerry Foods decreased by 0.3% and pricing increased by 1.2% relative to the same period in 2012.
Group trading profit increased by 9.8% to €267m. Ongoing added value business development which is improving product mix, coupled with the benefits accruing through the 1 Kerry Business Transformation Programmes and the positive impact from exiting non-core business activities, contributed to a 70 basis points improvement in the Group trading profit margin to 9%. This reflects an 80 basis points improvement in trading margin in Ingredients & Flavours to 11.1% and a 30 basis points improvement in Consumer Foods’ margin to 7.7%.
Adjusted profit before tax, brand related intangible asset amortisation and non-trading items increased by 10.2% to €225.2m. The income statement charge arising from investment in the EMEA Global Technology & Innovation Centre, integration of acquisitions, restructuring / reorganisation costs and loss on disposal of non-current assets/businesses amounted to €66.1m (net of tax) resulting in a net cash outflow of €12.3m after tax.
Adjusted profit after tax before brand related intangible asset amortisation and non-trading items increased 11.7% to €191m. Adjusted earnings per share increased 11.7% to 108.9 cent (2012 : 97.5 cent). The interim dividend of 12 cent per share represents an increase of 11.1% over the 2012 interim dividend.
Ingredients & Flavours achieved good underlying value growth through innovative product developments in all end-use-markets and channels driven by Kerry’s complete technology positioning. Sales revenue grew by 4.1% on a reported basis to €2,159m reflecting 2.9% likefor- like (LFL) growth. Continuing business volumes increased by 3.9% and pricing increased by 2%. Trading profit grew by 11.6% to €239m with the division’s trading margin improved by 80 basis points to 11.1%.
Kerry continued to make good progress throughout the Americas Region, despite weaker market conditions in some industry segments. Performance was driven by leveraging joint market growth opportunities through strategic customer alliances, assisted by integration of recent acquisitions which further strengthened Kerry’s leading technology portfolio. Revenue in the region increased by 6.2% on a reported basis to €931m, reflecting 4.5% LFL growth. Continuing business volumes grew by 4.3% and pricing increased by 2.1%.
Beverage systems & flavours recorded an excellent performance including strong development of the Group’s global beverage brands in the foodservice channel. California based Big Train, a global foodservice branded speciality beverage provider acquired prior to year-end 2012, was integrated as planned – strengthening the Group’s branded portfolio dedicated to the foodservice channel across American and global markets. Building on the successful integration of Cargill’s flavours business acquired in late 2011, continued growth was achieved in Latin American and North American markets through beverage syrups, tea & coffee applications and nutritional beverage applications.
Savoury, Dairy & Culinary systems performed satisfactorily despite industry sectoral issues. Kerry continued to advance product innovation with industry leaders in particular through application of all natural flavours and shelf-life extension technologies, and wider menu concepts for the foodservice channel. The encouraging product development pipeline is expected to lead to further new product launches in H2 2013. Cereal systems were negatively impacted by poor retail sales in a highly competitive marketplace.
Sweet systems recorded satisfactory progress despite the late ice cream season. Increased demand for shelf-life extension and clean label offerings provided solid growth opportunities in the bakery and confectionery sectors. Kerry continues to leverage its technology positioning with key accounts in Latin American developing markets with good results to date in the fast growing snacking and convenience sectors.
Pharma ingredients continued to achieve a strong performance through cell nutrition applications developed in conjunction with key pharmaceutical companies serving developed and developing markets. Excipients achieved slower growth during the period. Functional proteins and functional dairy systems achieved strong growth through nutritional applications particularly in developing markets.
While economic or political pressures continue to impact market conditions across EMEA markets, Kerry again achieved satisfactory progress underpinned by close collaboration with global and regional food & beverage accounts and foodservice providers. Reported revenues reduced by 2.8% to €798m reflecting a decrease of 1.2% LFL. Continuing business volumes in the region grew by 1.5% and pricing increased by 2%. The division has continued to successfully expand its platforms for growth in EMEA developing markets and to realign its regional business operating footprint through the Group’s 1 Kerry Business Transformation Programme. Work has commenced on the establishment of a Kerry Global Technology & Innovation Centre in Ireland to serve global and regional customers in the EMEA region.
Culinary systems & flavours benefited from increased demand for low sodium and clean label solutions. Savoury flavours achieved good growth in the snack seasonings sector. Integration of the FlavourCraft business in South Africa continued to drive growth in particular through innovative flavour solutions in the soup, sauces and dressings sectors. Dairy systems recorded good volume growth in confectionery markets. Development in the European meat industry proved challenging due to industry sectoral issues, but Kerry’s Savoury systems continued to record good growth in the foodservice sector.
Cereal & Sweet systems & flavours maintained good growth. While demand conditions in the ice cream sector were sluggish during the half year – until recent weather related improvement in overall demand, nevertheless Kerry achieved continued growth through inclusions and coatings’ applications in the premium sector. Progress was also recorded through Kerry’s ‘Bakestable’ technologies in the bakery sector. Despite challenging conditions in the RTE cereals sector satisfactory results were achieved in niche growth sectors of the market. South Africa based Orley Foods, a leading supplier of sweet ingredient solutions to food manufacturers and foodservice providers, was acquired during the period further strengthening the Group’s capabilities to meet customer requirements in regional developing markets.
Beverage systems & flavours achieved good growth in EMEA developing markets in particular through beverage flavours and brewing ingredients in the Middle East and African markets. Kerry beverage systems recorded solid growth in the juice sector in Northern Europe. In the foodservice sector Da Vinci branded hot coffee solutions achieved strong growth. Kerry’s frappé and smoothie systems launched in early 2013 also achieved encouraging results.
Functional ingredients achieved solid growth in developing markets. Emulsifiers continues to benefit from the new production facilities commissioned in Zwijndrecht in 2012. Primary Dairy market prices increased significantly during the half year due to tighter supply conditions and continued growth in demand in importing countries.
Kerry made further progress in extending its market and technology positioning in Asia-Pacific markets. The increased resources deployed to meet the Group’s growth objectives in Asian developing markets continues to achieve excellent results. Sales revenue on a reported basis increased by 15.4% to €394m, reflecting 8.7% LFL growth. Continuing business volumes increased by 8.8% and pricing increased by 2%. Savoury, Dairy & Culinary systems & flavours achieved strong growth through innovative offerings for the fast growing regional foodservice sector and a strong focus on nutritional applications across all end-use-markets. Lipid systems again performed well throughout the region, with strong growth through nutritional applications in China. Dairy systems recorded good growth in Indonesian snack markets. Culinary systems grew strongly through foodservice applications. Despite issues in the regional meat industry Kerry technologies achieved satisfactory volume growth through coatings and seasonings. Sweet technologies continued to make good progress in the region – in particular through Kerry Pinnacle in the Australian lifestyle bakery sector.
