Final Results - Year Ended 31 December 1999

Kerry Group PLC 14 March 2000 Annual Results 1999 Kerry, the global food ingredients and consumer foods group, reports preliminary results for the year ended 31 December 1999 Financial Highlights * Sales increased by 11.7% to EUR2.5 billion * EBITDA increased by 14.7% to EUR258.7m * Operating margin up from 7.9% to 8.3% * Profit before tax and exceptional items increased by 25.2% to EUR149.2m * Basic earnings per share before goodwill and exceptionals increased by 20.5% to EUR73.6c * Final dividend per share up 20% to EUR5.33c * Capital expenditure EUR92.4m, restructuring costs EUR30.0m net * Expenditure on research and development increased to EUR44.3m Commenting on the results, Kerry Group Managing Director, Denis Brosnan said; 'I am pleased to report Kerry's fourteenth successive year of double digit growth in earnings and dividends since becoming a public company in 1986'. 'Operating margins were again enhanced in a year in which Group earnings before interest, tax, depreciation and amortisation (EBITDA) surpassed the EUR250 million threshold. Strong organic growth was achieved in all geographical markets, whilst the Group continued to invest and extend its core technologies to strongly developing markets in South America and Asia Pacific'. For further information please contact: Frank Hayes Director of Corporate Affairs Tel no +353 66 7182304 Fax no +353 66 7182972 Kerry Web Site: www.kerrygroup.com KERRY GROUP PLC PRELIMINARY STATEMENT Results for the year ended 31 December 1999 Kerry Group plc today announced its results for the year ended 31 December 1999 and reported another excellent year of growth and achievement by the Group. The results are a continuation of the Group's excellent performance which has produced compound growth in earnings per share over the past five years of 19.8% per annum and 19.1% since Kerry's stock market flotation in 1986. Expenditure on capital projects and in research and development was substantially increased, ensuring that the Group is well positioned to capitalise on the significant sectoral growth opportunities in Kerry's global ingredients markets and consumer food categories. The restructuring and rationalisation of production facilities in Europe and Australia, subsequent to the acquisitions of Dalgety and Burns Philp, was completed as planned, whilst Group debt was reduced by EUR85.5m before currency translation adjustment. Results _______ Profit before tax and exceptional items increased by 25.2% to EUR149.2m. Basic earnings per share before goodwill amortisation and exceptionals increased by 20.5% from EUR61.1c in 1998 to EUR73.6c. Exceptional items amounting to EUR35.4m relate to costs associated with the rationalisation and restructuring programme, announced at year end 1998, consequent to the acquisitions of the Dalgety ingredients business in Europe and Burns Philp in Australia. The exceptional costs incurred comprise EUR10.8m in respect of redundancies and contract compensation, EUR9.7m relating to plant closure and relocation expenses, EUR9.8m in connection with plant and assets written off, EUR2.2m on standardisation of information systems and EUR2.9m in related costs. Basic FRS3 earnings per share amounted to EUR43.9c for the year. Group turnover increased by 11.7% to EUR2.5 billion (1998: EUR2.2 billion). Adjusted for currency exchange effects arising from the strengthening of Sterling and the US Dollar versus the Euro, 1998 disposals, and full year sales from the Dalgety and Burns Philp ingredients businesses, like for like Group sales increased by 6.3% in 1999. Earnings before interest tax depreciation and amortisation (EBITDA) increased by 14.7% to EUR258.7m. The significant increase in the Group operating profit margin from 7.9% in 1998 to 8.3% in 1999 reflects the continuous development of Kerry's unrivalled range of ingredients technologies, its global market presence, the flow through of synergies from recent acquisitions, and continued investment in Kerry's consumer foods' brands. Operating margins increased satisfactorily in all regional markets. This strong growth in sales and profitability in 1999 was achieved whilst successfully extending Group operations in Brazil and Asia Pacific markets, together with record Group investment totalling EUR136.8m in capital projects and R&D. Operations Review _________________ Kerry benefited from its strong market positions in North America and Europe in 1999 and also recorded excellent progress through recent Group investments in Asia Pacific markets and South America. Ireland and Rest of Europe The Group's Irish based operations continued to out perform the market, yielding underlying growth of 4.5% in sales to EUR613.7m and a 6.8% increase in operating profit to EUR34.5m. Kerry's Rest of Europe businesses grew very satisfactorily reflecting the major investments undertaken in ingredients markets and successful category growth initiatives in consumer foods markets. Rest of Europe operations increased turnover by 13.1% to EUR1.1 billion whilst operating profits grew by 19.1% to EUR85.8m. At constant exchange rates like for like sales increased by 4.4% and the operating margin increased from 7.5% in 1998 to 7.9% in the year under review. Developments in European ingredients markets continue to be driven by consumer demand for greater choice, freshness and convenience which contributed to the strong growth of the 'home meal replacement' market including ready meals and meal centres during 1999. Kerry's European ingredients business is focused on meeting product development needs to match such trends and the growing requirements within the snacking market, the nutritional sector, plus the fast growing 'quick service restaurant' market across Europe. Eastern European markets have also experienced a steady introduction of added value products, as convenience increasingly becomes a major market driver. The Group's position in snack seasonings was consolidated with the acquisition of Tukania Proca GmbH, based in Rodgau, Germany. Of the total restructuring costs of EUR35.4m incurred during the year, a substantial portion related to the streamlining of manufacturing and technical facilities in Europe consequent to the acquisition of the Dalgety ingredients business. Production was transferred from Aylesbury (UK), Fareham (UK), Bingham (UK) and Kerganet (France) to other Group processing plants in the UK, France and Germany. In consumer foods markets, Denny; the leading brand of meat and savoury products in Ireland; Low Low, Kerrymaid and Move over Butter spreads, Kerry Spring Water, and in the UK, Walls' and Richmond sausage and bacon products and Mattessons cooked meats, all grew share of their respective market segments reflecting the success of innovative product launches and targeted communications. Strong growth was also achieved throughout convenience foods markets, including chilled ready meals and ready to cook ranges for major UK retailers. In the independent and convenience sector in both the UK and Ireland, Kerry continued to consolidate its position as the leading supplier of chilled snacks and prepared foods. Americas 1999 was an extremely successful year in Kerry's American markets, with sales increased by 6.1% to EUR615m and operating profits growing by 14.3% to EUR76.3m. The 5% currency impact due to the appreciation of the US Dollar was offset by the disposal of Bakers' Aid in the US. The Group's core technologies and product development strengths, assisted by Kerry America's culinary and sensory evaluation expertise, continue to provide new commercialisation opportunities in foodservice and food processor markets. In the US and Canada strong growth was recorded with ready to use systems and new technology concepts targeted at 'quick service restaurant' chains have already proved highly successful, which augurs well for development within this fast growing market segment. In Mexico good progress was achieved in servicing the snack food industry, the bakery sector, and the food processor sector which continues to develop, particularly in the prepared meals sector. The Group's multi-processing and technical facility at Tres Coracoes in Brazil was commissioned in August. Encouraging market development progress has already been achieved in Argentina, Brazil and Chile. Asia Pacific Substantial progress was achieved in developing Group business in the Asia Pacific region in 1999. Turnover doubled to EUR135m and operating profits grew from EUR2.3m in 1998 to EUR7.0m. The Group is well focused on continued profitable growth in the region through its facilities in Australia, New Zealand and Malaysia. Following the acquisition of Burns Philp in Australia in mid 1998 it was decided to rationalise processing to two world class facilities in Murrarie (Brisbane) and Altona (Victoria). Kerry has already achieved significant growth in savoury flavours and coating systems in the poultry and prepared foods sectors in Australia and New Zealand and speciality lipids technologies were also successfully introduced. In Malaysia manufacturing capacity was expanded at the Johor Bahru facility to facilitate provision of Kerry's cheese and dairy flavourings, speciality lipid systems, savoury flavourings and coating systems. Excellent progress has been achieved in servicing the snack industry and in supplying 'quick service restaurants' and foodservice groups. Exports to ASEAN markets were significantly increased and new sales offices were established in Shanghai and Tokyo. Development ___________ Capital expenditure in 1999 increased to a record level of EUR92.4m (1998: EUR68.6m). In Europe the Bristol technical centre was significantly expanded to become Kerry's European Development Centre for coating systems, savoury flavourings and functional ingredients. The EUR6.3m project to add a new cheese and dairy flavourings manufacturing facility at the Listowel (Irl) site was completed and a new savoury ingredients and coatings processing facility was completed in Poland. In consumer foods, phase 2 of the development of the Shillelagh (Irl) pre-packed chilled snack products facility commenced and a new ready meals manufacturing facility at Burton on Trent (UK) was completed. In Brazil, a state of the art processing and technical facility was commissioned at Tres Coracoes, Minas Gerais. A further US$20 million investment programme to expand its processing and development capabilities in the area of food coating systems and flavourings is currently under development. The planned AU$20m development of two large world class production facilities at the Murrarie and Altona sites in Australia was significantly advanced during 1999. Completion of the Murrarie project is scheduled for April 2000 and the Altona development will be completed in early 2001. Development of corporate offices and a central research and development facility in Sydney is also well advanced. In Malaysia, a US$5m project at the Johor Bahru plant to facilitate introduction of Kerry's core ingredient technologies to the region was completed. A new technical centre was also established at the site in 1999. Production capacity at the plant will more than double again on completion of a further US$12m project now underway. Expenditure on research and development increased to EUR44.3m in 1999 (1998: EUR32.4m). Finance _______ Net cash flow from operating activities for the year amounted to EUR262.3m, which represents a substantial increase on the prior year level before adjustment for movements in working capital. The exceptional restructuring costs of EUR35.4m give rise to a tax credit of EUR5.3m. The disposal of the DCA bakery mix business in the US and Canada since year end incurs a deferred tax charge of EUR9m, bringing total exceptional costs for the year to EUR39.1m. The Group taxation charge at EUR38.4m (1998: EUR24.4m) again showed a significant increase in 1999 in line with the continuing shift in the relative rate of profits growth between the Group's Irish and overseas operations. The Group's effective tax rate before exceptionals increased to 23.2% from the 1998 level of 20.5%. Net debt at year end, incorporating an adverse translation adjustment of EUR64.3m, stood at EUR544.5m compared to the 1998 year end level of EUR565.7m. Before currency adjustment this represents a reduction of EUR85.5m in Group borrowings in 1999. The level of year end debt expressed as a percentage of equity amounts to 68% (1998: 79%) as measured by our Banking and Bondholder covenants. When measured as a percentage of market capitalisation, the level of debt has decreased from 28% to 27%. At year end the Kerry Group share was quoted at EUR11.90 (1998: EUR11.62) and market capitalisation at EUR2 billion was equivalent to the prior year level. The basic weighted average number of shares in issue in 1999 was 172.047m. Dividend ________ The Board has declared a final dividend of EUR5.33c per share, an increase of 20% on 1998. This together with the interim dividend of EUR2.54c per share raises the total dividend payment for the year to EUR7.87c, an increase of 19.8% on the 1998 dividend. The final dividend will be paid on 30 May 2000 to shareholders registered on the record date 2 May 2000. Post Balance Sheet Events _________________________ Since year end Kerry has completed the purchase of the SFI Group of speciality food ingredients businesses comprising Shade Foods Inc. in the USA and Speciality Food Ingredients (SFI) in Europe for a total consideration of US$80m. Leaders in food ingredients particulates technology, Shade Foods and SFI provide flavoured particulates, high protein inclusions and speciality chocolate and compound coatings to leading manufacturers of ready to eat cereals, confectionery, dairy, ice cream, bakery and nutraceutical products. The business employing 400 people operates from three plants in the USA, located in Kansas City, San Jose, California and Hudson, Iowa, and one plant in Europe based in Tilburg, the Netherlands. In the year to 31 December 1998 the acquired businesses achieved sales of US$90.7m. In February the Group announced the sale of its DCA bakery mix business in the US and Canada to Pillsbury Bakeries & Foodservice. The transaction comprises manufacturing plants located in Vancouver, BC; Mississauga and Trenton, Ontario; Hillsdale, Michigan; New Orleans, Louisiana and City of Industry, California. Acquired by Kerry as part of the food ingredients business of DCA Food Industries Inc. in December 1994, the business manufactures bakery mixes, fillings, icings and glazes for the bakery business in the US and Canada, and had sales of US$102m in the financial year ended 31 December 1999. Proceeds of the disposal completed on 18 February 2000 will be applied in the further expansion and development of Kerry's global ingredients operations. Year 2000 and Euro Issue ________________________ In 1997 the Group commenced a programme to ensure Y2K compliance of all business systems and support technology. This programme was successfully completed during the year. As at the date of this report, there were no material Y2K issues affecting the activities of the Group. However, the Group continues to be alert to the potential risks and uncertainties surrounding Y2K issues. Future costs associated with Y2K compliance are expected to be immaterial. The Group is currently preparing for Euro trading. The costs associated with Euro conversion are not material and largely relate to modifications to existing information technology systems. Board Changes _____________ Mr. Michael Gabbett was appointed as a non-executive Director to the Board, filling the vacancy created following the death of Mr. Michael Fitzgerald. Annual Report and Annual General Meeting ________________________________________ The Group's Annual Report will be published at the beginning of May and the Annual General Meeting will be held in Tralee on 30 May 2000. Future Prospects ________________ Kerry's development of a range of ingredient technologies to meet the product development requirements of global customers in food processor and foodservice markets, and its successful establishment of manufacturing and technical facilities in major consumer markets and strongly developing markets, has delivered sustained double digit profitable growth. Group EBITDA per share has more than doubled in the past five years. Our focus on understanding, anticipating and responding to changing consumer needs has served us well in the Group's consumer foods markets and ingredients markets, in building strong working partnerships with our customers. The Group's major customers are growing market share in global markets. Kerry's investment across such geographic markets, and the continued development of its management capability throughout the organisation, means that it is well positioned to grow in line with such global developments. Major acquisitions have been the hallmark of Kerry's rapid growth and profitable development. Significant opportunities exist for further acquisitions to complement Kerry's position and planned growth in global markets. The Board is confident of a further strong performance in the year 2000. KERRY GROUP PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 31 December 1999 Year ended 31 December 1999 ___________________________________ Pre Exceptional Exceptional Items Items (Note 4) Total 1998 EUR'000 EUR'000 EUR'000 EUR'000 Turnover Continuing operations - Note 1 2,456,352 - 2,456,352 2,200,001 ========= ======= ========= ========= Operating profit - continuing operations Before goodwill amortisation and exceptional items 203,614 - 203,614 173,379 Goodwill amortisation 12,103 - 12,103 9,573 Exceptional restructuring costs - 35,359 35,359 - ------- ------- ------- ------- Operating profit - Note 1 191,511 (35,359) 156,152 163,806 Profit on sale of businesses - - - 112 Interest payable and similar charges 42,309 - 42,309 44,744 ------- -------- ------- ------- Profit before taxation 149,202 (35,359) 113,843 119,174 Taxation 34,662 3,703 38,365 24,380 ------- -------- ------- ------- Profit after taxation and attributable to ordinary shareholders 114,540 (39,062) 75,478 94,794 ======= ======== Dividends: Paid 4,369 3,974 Proposed / Declared 9,170 7,646 ------ ------ Retained profit for the year 61,939 83,174 ====== ====== Earnings per ordinary share (cents) - Note 6 - basic before goodwill amortisation and exceptional items 73.6 61.1 - basic after goodwill amortisation and exceptional items 43.9 55.5 - fully diluted after goodwill amortisation and exceptional items 43.6 55.1 KERRY GROUP PLC CONSOLIDATED BALANCE SHEET as at 31 December 1999 1999 1998 EUR'000 EUR'000 (Restated) Fixed assets Tangible assets 607,347 540,104 Intangible assets 234,153 241,352 ------- ------- 841,500 781,456 Current assets Stocks 272,354 245,247 Debtors 332,976 277,057 Cash at bank and in hand 13,261 12,734 ------- ------- 618,591 535,038 Creditors: Amounts falling due within one year (566,512) (446,756) --------- --------- Net current assets 52,079 88,282 --------- --------- Total assets less current liabilities 893,579 869,738 Creditors: Amounts falling due after more than one year (521,060) (584,555) Provisions for liabilities and charges (20,394) (6,606) --------- --------- 352,125 278,577 ========= ========= Capital and reserves Called-up equity share capital 21,846 21,846 Share premium account 190,694 190,694 Profit and loss account 114,712 42,709 ------- ------- 327,252 255,249 Deferred income 24,873 23,328 ------- ------- 352,125 278,577 ======= ======= KERRY GROUP PLC CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 December 1999 1999 1998 EUR'000 EUR'000 Operating profit before goodwill amortisation and exceptional items 203,614 173,379 Depreciation (net) 55,078 49,955 Change in working capital 3,779 45,782 Exchange translation adjustment (149) (1,973) ------- ------- Net cash flow from operating activities 262,322 67,143 Return on investments and servicing of finance Interest received 536 751 Interest paid (39,993) (45,495) Taxation (28,137) (26,571) Capital expenditure Purchase of tangible fixed assets (91,059) (68,586) Proceeds on the sale of fixed assets 7,986 1,737 Development grants received 3,701 1,709 Acquisitions and disposals Purchase of subsidiary undertakings (5,712) (443,734) Proceeds on the sale of businesses - 11,086 Deferred creditors paid (4,562) (49) Exceptional restructuring costs (19,692) - Consideration adjustment on previous acquisitions 12,101 - Issue of share capital - 83,295 Equity dividends paid (12,015) (10,091) -------- -------- Cash inflow / (outflow) before the use of liquid resources and financing 85,476 (228,805) Financing (Decrease) in debt due within one year (35,756) (17,493) (Decrease) / increase in debt due after one year (49,193) 253,846 --------- -------- Increase in cash in the year 527 7,548 ========= ======== KERRY GROUP PLC RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT for the year ended 31 December 1999 1999 1998 EUR'000 EUR'000 Increase in cash in the year 527 7,548 Cashflow from debt financing 84,949 (236,353) ------ --------- Change in net debt resulting from cash flows 85,476 (228,805) Exchange translation adjustment (64,273) 20,010 -------- --------- Movement in net debt in the year 21,203 (208,795) Net debt at beginning of year (565,735) (356,940) --------- --------- Net debt at end of year (544,532) (565,735) ========= ========= KERRY GROUP PLC STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES for the year ended 31 December 1999 1999 1998 EUR'000 EUR'000 Profit attributable to the Group 75,478 94,794 Exchange translation adjustment on foreign currency net investments 10,064 (8,018) ------ ------- Total recognised gains and losses relating to the year 85,542 86,776 ====== ======= KERRY GROUP PLC NOTE OF HISTORICAL COST PROFITS AND LOSSES for the year ended 31 December 1999 There are no material differences between the results reported and those prepared on a historical cost basis. KERRY GROUP PLC FINANCIAL NOTES for the year ended 31 December 1999 1. Analysis of results by region _____________________________ 1999 1998 ___________________________ ___________________________ Operating Net Operating Net Turnover Profit Assets Turnover Profit Assets EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 (Restated) By geographical market of origin: Ireland 613,671 34,506 105,963 586,975 32,312 105,180 Rest of Europe 1,092,613 85,836 591,176 965,877 72,055 556,656 Americas 615,025 76,305 167,760 579,742 66,740 151,029 Asia Pacific 135,043 6,967 31,758 67,407 2,272 31,447 --------- ------- ------- --------- ------ ------- 2,456,352 203,614 896,657 2,200,001 173,379 844,312 ========= ========= Goodwill amortised (12,103) (9,573) Exceptional restructuring costs (35,359) - Group borrowings (net) (544,532) (565,735) ----------------- --------------- 156,152 352,125 163,806 278,577 ================= =============== Turnover by destination: Ireland 394,344 368,649 Rest of Europe 1,224,234 1,101,504 Americas 675,255 636,270 Asia Pacific 162,519 93,578 --------- --------- 2,456,352 2,200,001 ========= ========= 2. Accounting Policies ___________________ The audited accounts have been prepared using the same policies as detailed in the 1998 annual financial statements with the exception that two new financial reporting standards have been adopted, FRS13 - Derivatives and other Financial Instruments and FRS15 - Tangible Fixed Assets. FRS13 did not have a significant impact on the Group's financial statements. On the adoption of FRS15 the carrying value of previously revalued fixed assets has been restated to depreciated historical cost. The 1998 balance sheet has been restated to reflect the change in accounting policy. There was no material effect on the Profit & Loss account in the current or prior year. 3. Basis of preparation and reporting currency ___________________________________________ The financial information set out in this document does not constitute full statutory accounts for the years ended 31 December 1999 or 1998 but is derived from same. The 1999 and 1998 accounts have been audited and have received unqualified audit reports. The 1999 financial statements were approved by the Board of Directors on 13 March 2000. The financial statements are prepared under the historical cost convention. The 1999 financial statements and the 1998 comparative figures are presented in Euro. 4. Exceptional items _________________ Exceptional restructuring costs The exceptional items relate to the major restructuring programme the Group has undertaken consequent to the significant acquisitions in 1998. The costs arise from the rationalisation and closure of manufacturing facilities together with the restructuring of administration and management functions along new more focused market lines. The exceptional restructuring costs can be analysed as follows: 1999 1998 EUR'000 EUR'000 Redundancies and contract compensation 10,813 - Plant closure / relocation expenses 9,654 - Plant and other assets written off 9,759 - Standardisation of information systems 2,240 - Other 2,893 - ------ ------ 35,359 - ====== ====== The taxation credit arising on the exceptional restructuring costs is EUR5,325,000. Sale of business The Group has disposed of a business post year-end, which has given rise to the reversal of a deferred taxation timing difference resulting in a taxation charge of EUR9,028,000 (See Note 5). 5. Post balance sheet events _________________________ Since the year end the Group has purchased the businesses and assets of Shade Foods Inc. (US), Solnuts Inc. (US) and SFI Netherlands B.V., all speciality food ingredients businesses. The total consideration for the acquisitions was approximately US$80.0m. In the year to 31 December 1998 the businesses acquired achieved sales of US$90.7m. On 16 February 2000 the Group announced the sale of its DCA bakery business in the US and Canada to Pillsbury Bakeries & Foodservice for US$100.0m. The business manufactures bakery mixes, fillings, icings and glazes for the bakery sector in the US and Canada and had sales of US$102.0m in the financial year ended 31 December 1999. The proceeds of the sale, which approximates to book value including goodwill previously written off to reserves, will be used to fund the further expansion and development of the Group's global ingredients operations. The transaction has caused the reversal of goodwill timing differences and as a result, a provision for deferred taxation has been created in the current year. 6. Earnings per share __________________ EPS 1999 EPS 1998 Cents EUR'000 Cents EUR'000 Profit after taxation, before goodwill amortisation and exceptional items 73.6 126,643 61.1 104,367 Goodwill amortisation 7.0 12,103 5.6 9,573 Exceptional items 22.7 39,062 - - ---- ------- ---- ------- Profit after taxation, goodwill amortisation and exceptional items 43.9 75,478 55.5 94,794 Share option dilution 0.3 - 0.4 - ---- ------ ---- ------ 43.6 75,478 55.1 94,794 ==== ====== ==== ====== The basic weighted average number of ordinary shares in issue for the year was 172,047,213 (1998 : 170,804,999). The diluted weighted average number of ordinary shares in issue for the year was 173,076,245 (1998 : 171,801,637). The dilution arises in respect of executive share options outstanding.

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