Interim Results
Kerry Group PLC
02 September 2003
Kerry Group plc
Press Announcement
Tuesday 2 September 2003
Kerry Group plc Interim Report
Half Year Ended 30 June 2003
Kerry, the global ingredients, flavours, and consumer foods group, reports
interim results for the half year ended 30 June 2003.
Financial Highlights
• Like-for-like sales growth of 5.9%
• Operating profit* increased by 4.1% to €133m (a
like-for-like increase of 9.3%)
• Operating margin* up from 7.1% to 7.4%
• Adjusted profit after tax* up 10.6% to €85.6m
• Adjusted earnings per share* increased by 10.3% to 46.1 cent
• FRS3 earnings per share increased by 65.3% to 33.4 cent
• Interim dividend per share up 11% to 4.05 cent
*before goodwill and exceptionals
Commenting on the half-year 2003 performance, Kerry Group Managing Director,
Hugh Friel said; 'Against a background of significant currency movement in the
Group's major markets, Kerry outperformed industry growth rates delivering a
strong operational performance and good financial results. Like-for-like sales
increased by 5.9% relative to the first half of 2002 and the Group operating
margin advanced by 30 basis points. Awareness of health and dietary issues is
providing a positive stimulus for innovation across our ingredients, flavours
and consumer foods business units. The Group has a busy pipeline of acquisition
opportunities and is confident of a good out-turn for the full-year in line with
market forecasts'.
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
Chairman's Statement
For the half year ended 30 June 2003
Results
Against a background of significant currency movement in the Group's major
markets, in the first half of 2003 Kerry again demonstrated the Group's inherent
strengths by producing a strong operational performance and good financial
results. Following two years of sustained business expansion and technical
development through a programme of over twenty acquisitions, in the period under
review the Group focused considerable attention on the enhancement of
operational effectiveness and innovation to meet ever-changing consumer
requirements, while continuing to seek out further growth opportunities.
Satisfactory progress and good organic growth was achieved throughout the
Group's ingredients, flavours and consumer foods markets. Notwithstanding the
significant shift in dollar and sterling exchange rates versus the euro, total
Group turnover reported was similar to the same period of last year at €1.8
billion. This reflects like-for-like sales growth of 5.9% compared with 5.0% in
the first half of 2002. Through successful integration of acquired businesses
and an on-going focus on manufacturing efficiencies, the Group operating margin
increased to 7.4% in the first half of 2003 from 7.1% in the same period of
2002.
Operating profit before goodwill and exceptional items increased by 4.1% to
€133.2m, reflecting a like-for-like increase of 9.3% versus the comparable
period. Adjusted profit after tax increased by 10.6% to €85.6m. Equivalently,
earnings per share increased by 10.3% to 46.1 cent. Basic FRS3 earnings per
share increased by 65.3% to 33.4 cent.
Operating Reviews
Ireland and Rest of Europe
Sales originating from Irish based operations again grew encouragingly to
€655.6m, reflecting like-for-like sales growth of 8.9%. Operating profit
increased from €26.9m to €31.6m.
Due to the relatively lower sterling to euro exchange rate, sales originating
from the Group's European operations (excluding Ireland) were slightly lower at
€621.4m. On a like-for-like basis European operations increased sales by 5.1%
and operating profits grew to €47.2m, reflecting a like-for-like increase of
10.9%.
The values of Kerry Foods' branded portfolio and the benefits of the division's
relentless focus on development of consumer-led innovative products were again
demonstrated in the period. Assisted by its technical, marketing and
distribution network, the division grew market share in all key categories
organically and through successful new product developments in a highly
competitive environment. In Ireland, major advances were achieved in the cheese
snacking, sandwich, premium sliced meat and food-to-go sectors. Freshways,
acquired in late 2002, made excellent progress in the foodservice, travel and
retail sectors through its range of pre-packed sandwiches, breakfast baps,
bagels and wraps. The €14m project to expand its Dublin manufacturing facility
will be completed and commissioned prior to year-end. In the cheese and cheese
snacks sectors, progress through the Cheestrings, Charleville, Coleraine,
EasiSingles and Cheestrings 'Attack-A-Snak' range - launched in late 2002, was
most encouraging. Stage 1 of a €14m capital investment programme to quadruple
production capacity across the Cheestrings range has commenced at the
Charleville production plant.
In the Irish and UK poultry sectors, escalating costs and competitive pressures
gave rise to difficult trading conditions in the period. Margin recovery was
adversely impacted due to a time lag in securing necessary market price
increases. In the UK market, Kerry Foods made further progress in the prepared
meals sector and through the Walls', Richmond and Mattessons branded ranges.
On-going investment to expand production capacity and product range in the ready
meals sector is proceeding as planned. Excellent progress was again achieved
through Kerry Foods Direct To Store in the UK convenience sector, including the
addition of a number of new national accounts. However, the rationalisation and
relocation of all pastry production to the Poole site (following the Pork Farms
Bowyers transaction concluded in 2002) led to significant once-off costs, which
impacted performance of the business during the period.
Performance across the Group's European ingredients businesses was well ahead of
the prior half-year level. This reflects efficiencies accruing from the capital
development programmes concluded in 2002 and on-going success in leveraging the
range of Kerry technologies, culinary systems and ingredients range -
particularly in fast growing sectors such as prepared meals. Building on the
acquisitions of Voyager Foods (UK) and Aromont (France) the business focus is to
continue to leverage synergies and business potential in the prepared foods and
meat industries - particularly into Southern and Eastern European markets. The
division's performance in European food coatings markets was significantly
improved through benefits from supply chain improvement projects, increased
production efficiencies and synergies across manufacturing facilities. The UK
based EBI Foods business, acquired in late 2002, exceeded budgeted business
targets for the period across added-value coatings markets in European, Middle
Eastern and Far Eastern markets. While conditions in European coatings markets
remain highly competitive, the division expects to realise recent cereal raw
material cost increases through product price increases and further
manufacturing synergies. In the European snack-seasoning sector, Kerry made
further gains in line with market trends - in particular in Eastern European
markets. In the specialist dairy ingredients, sweet and fruit ingredients
sectors continued progress was achieved in nutritional, health, confectionery
and indulgence product categories.
Following the launch in 2002 of Mastertaste, the Group's international flavour
division, considerable progress has been achieved in establishing flavour
development capabilities and business structures to support the division's
strategic development and core supplier programmes. In Europe, the UK and
Italian based businesses performed ahead of industry growth rates. The
businesses are now focused on further development of sweet, savoury and beverage
flavour applications and broadening the division's pan-European customer base.
Americas
The significant shift in the exchange rate of the U.S. dollar versus euro
impacted translation of sales and profits in American markets. Sales in
American markets of €453.5m in the period and operating profits of €48.9m
reflect a 3% increase in sales and profits on a like-for-like basis. However,
the heavy acquisition and business development programmes in American markets in
recent years (with completion of 8 acquisitions in 2001, 9 acquisitions in 2002
and 3 acquisitions to-date in 2003) coupled with establishment costs of the
Mastertaste flavour division and decentralisation costs associated with
restructuring of the food ingredients Strategic Business Units in the USA meant
that the reported operating margin in the period fell by 30 basis points
relative to the first half of 2002 to 10.8%. Management are addressing improved
business efficiencies in response to the rapid business development in the
region and the requirement to match cost increases with appropriate market price
increases in some sectors.
In the USA and Canadian markets, Kerry's seasonings and foodservice businesses
performed well with sustained growth of meat seasonings applications and a
broadening of the snack customer base. Again, performance in the fast growing
beverages sector proved satisfactory with strong growth in coffeehouse chains.
In the area of sweet ingredients the Group gained substantial new business
through 'NSA' - no sugar added - applications and in the premium ice-cream
sector. Cost increases in the speciality ingredients and coatings sectors were
not matched in the marketplace. Recovery in both sectors is on-going which,
with enhanced business efficiencies and restructuring of operations, is expected
to deliver a satisfactory outcome by year-end. The increased focus on dietary
and health concerns in the USA and Canadian market has provided a significant
stimulus in terms of new product development. All Kerry businesses are well
placed to deliver innovative ingredients and application specific solutions to
meet such requirements and have a well-proven industry record of leading
development in terms of health and nutritional concerns. The division's
dedicated nutritional products business 'Nutriant' has benefited strongly from
such trends through its high-protein soy isolates and organic systems.
Synergies across the Group's specialist dairy proteins, flavours and other North
American business units are focused on meeting the evolving dietary requirements
and rapidly differentiating demographic trends. Progress was again satisfactory
in Mexico and Latin American markets, in particular through promising market
development initiatives in the Andean region. Economic conditions in South
American markets remain difficult, which has had a negative impact on new
product rollout. While the dairy and ice-cream industries have struggled,
nevertheless, Kerry has enjoyed success due to a momentum to more technological
ingredients - in particular in the area of beverages. Progress was also again
recorded through meat seasonings and through sweet ingredients for the
cereal-bar market.
In American markets, a new Mastertaste business structure serving beverage,
sweet and savoury flavour applications has been established. The flavour
businesses acquired in 2001 and 2002 were successfully restructured in line with
the new Mastertaste business structure and management are focused on exploiting
the synergies of the combined businesses, while also exploring complementary
acquisition opportunities.
Asia Pacific
Business development in the Group's Asia Pacific markets in the period was again
very encouraging. Sales in the region at €71.6m reflect like-for-like sales
growth of 7.4% compared to the first half of 2002. Operating profits grew to
€5.4m, reflecting a like-for-like increase of 34.8%.
In Australia, progress continued through seasonings and marinades in the
added-value poultry sector. Kerry Pinnacle had a strong performance - extending
its 'healthy' ranges of bakery mixes through retail chains. New Zealand again
produced good growth through snack and meat seasonings.
In Asia, beverage applications grew satisfactorily in all markets. Nutritional
products achieved solid growth in Malaysia, Thailand and China, whilst snack
seasonings recorded strong growth in the Philippines and Malaysia. With the
growth of the prepared foods, seafood and foodservice industries in Thailand,
prospects are good for Kerry's seasonings and marinades manufacturing business
acquired in late 2002.
Development
As previously announced, the Group completed three acquisitions in the USA at a
total cost in the period of €125m - furthering its flavours, sweet ingredients
and seasonings business development in North American markets.
(a) Ingredients Businesses
Guernsey Bel, a leading innovator and provider of value-added ingredients and
inclusions technology for the premium ice-cream, breakfast cereal, bakery,
nutritional bar, frozen dessert and confectionery industries - operating from
two modern manufacturing facilities located in Chicago and in Hayward,
California.
Pacific Seasonings, a leading manufacturer of seasonings and spices for the
meat, prepared foods and snack food industries - operating from manufacturing
facilities in Seattle (organic certified) and Detroit.
(b) Flavours
SunPure, a leading producer of primary citrus ingredients and flavour molecules
- located at the centre of the North American citrus industry in Lakeland,
Florida. The business, which is also a significant producer of apple essence
and beverage flavours and bases, currently services the requirements of a large
customer base in the USA and Japan - including leading flavour houses, branded
beverage companies and private-label beverage producers. Mastertaste, in
integrating the acquired business, will focus on the significant growth
opportunities in wider flavour and beverage growth markets across Europe, Latin
America and Asia, as well as its established market base.
Finance
Net cash flow from operating activities increased by €21.2m to €97.3m. Group
borrowings amounted to €852.2m compared to €897.6m at the end of the first half
of 2002. Debt to EBITDA fell to 2.2 times (H1 2002 : 2.5 times). Interest
charges decreased by €4.4m to €22.3m, with EBITDA to interest covered 8.6 times
(H1 2002 : 6.9 times).
During the period the Group also successfully concluded the placement of US$650
million Senior Notes with U.S. institutional investors, lengthening the Group's
debt maturity profile. The average maturity of net debt is now 7.5 years.
The basic weighted average number of ordinary shares in issue for the period was
185,631,612 (half year ended 30 June 2002: 185,184,512; year-ended 31 December
2002: 185,363,778).
Dividend
The Board has declared an interim dividend of 4.05 cent per share, an increase
of 11% on the 2002 interim dividend of 3.65 cent per share. The interim
dividend will be paid on 28 November 2003 to shareholders on the record date 31
October 2003.
Current Trading and Outlook
The Group's first half results underline the capability of Kerry businesses to
outperform industry growth rates, notwithstanding currency movements and
sectoral issues in some geographic markets. Heightened awareness of health and
dietary issues is providing a further stimulus for continued innovation in the
food ingredients, flavours and consumer foods industry. Coupled with on-going
requirements for convenience and ease-of-cooking, such trends will continue to
present good growth opportunities for Kerry's business units.
The Group remains firmly focused on supply chain improvements and operational
efficiencies. While we continue to seek acquisitions of size, the Group will
continue to expand and broaden its technology and core business base in all
territories through a busy pipeline of small to medium sized acquisition
targets. Notwithstanding currency fluctuations, prospects for the full-year are
good, with an expected out-turn in line with market forecasts.
Kerry Group plc
Consolidated Profit and Loss Account
for the half year ended 30 June 2003
Half year ended Half year ended Year ended
30 June 2003 30 June 2002 31 Dec. 2002
Unaudited Unaudited Audited
Notes €'000 €'000 €'000
Turnover
Continuing operations 1 1,802,092 1,799,838 3,754,808
Operating profit - continuing operations
Before goodwill amortisation and exceptional items 133,155 127,963 305,410
Goodwill amortisation 24,661 20,202 41,401
Exceptional restructuring costs - 25,524 56,602
Operating profit 1 108,494 82,237 207,407
Profit on sale of businesses - 1,789 1,744
Profit / (loss) on sale of fixed assets 1,017 (31) 279
Interest payable and similar charges 22,281 26,652 50,238
Profit before taxation 87,230 57,343 159,192
Taxation - current tax 20,063 17,819 46,605
- deferred tax 5,234 2,206 8,684
Profit after taxation and attributable to ordinary
shareholders 61,933 37,318 103,903
Dividends 7,520 6,802 21,377
Retained profit for the period 54,413 30,516 82,526
Earnings per ordinary share (cent)
- basic before goodwill amortisation and exceptional 2 46.1 41.8 101.8
items
- basic after goodwill amortisation and exceptional 2 33.4 20.2 56.1
items
- fully diluted after goodwill amortisation and 2 33.3 20.0 55.7
exceptional items
Kerry Group plc
Consolidated Balance Sheet
as at 30 June 2003
30 June 2003 30 June 2002 31 Dec. 2002
Unaudited Unaudited Audited
€'000 €'000 €'000
Fixed assets
Tangible assets 843,264 844,418 870,406
Intangible assets 821,433 690,074 765,384
1,664,697 1,534,492 1,635,790
Current assets
Stocks 427,453 406,769 363,545
Debtors 550,994 570,101 500,606
Cash at bank and in hand 32,013 30,521 46,584
1,010,460 1,007,391 910,735
Creditors: Amounts falling due within one year (877,751) (883,191) (821,823)
Net current assets 132,709 124,200 88,912
Total assets less current liabilities 1,797,406 1,658,692 1,724,702
Creditors: Amounts falling due after more than one year (858,223) (815,102) (824,134)
Provisions for liabilities and charges (57,197) (46,562) (64,571)
881,986 797,028 835,997
Capital and reserves
Called-up equity share capital 23,211 23,180 23,202
Capital conversion reserve fund 340 340 340
Share premium account 363,574 361,333 362,974
Profit and loss account 465,266 378,804 418,012
852,391 763,657 804,528
Deferred income 29,595 33,371 31,469
881,986 797,028 835,997
Kerry Group plc
Consolidated Cash Flow Statement
for the half year ended 30 June 2003
Half year ended Half year ended Year ended
30 June 2003 30 June 2002 31 Dec. 2002
Unaudited Unaudited Audited
€'000 €'000 €'000
Operating profit before goodwill amortisation and exceptional 133,155 127,963 305,410
items
Depreciation (net) 43,174 45,040 84,952
Change in working capital (79,160) (93,399) 48,786
Exchange translation adjustment 84 (3,538) (2,691)
Net cash inflow from operating activities 97,253 76,066 436,457
Return on investments and servicing of finance (21,633) (25,438) (49,832)
Taxation (13,549) (15,941) (43,612)
Capital expenditure
Purchase of fixed assets (38,670) (48,673) (96,183)
Proceeds on the sale of fixed assets 1,923 69 3,584
Development grants received 236 264 398
Acquisitions and disposals
Purchase of subsidiary undertakings (124,896) (124,985) (237,539)
Proceeds on the sale of businesses - 34,034 33,199
Deferred creditors paid (2,027) (2,754) (8,883)
Exceptional restructuring costs (8,892) (13,591) (33,717)
Consideration adjustment on previous acquisitions (97) - (393)
Equity dividends paid (14,571) (12,513) (19,293)
Cash outflow before the use of liquid resources and financing (124,923) (133,462) (15,814)
Financing
Issue of share capital 609 3,515 5,178
Increase in debt due within one year 43,703 112,025 81,677
Increase / (decrease) in debt due after one year 66,040 28,649 (44,251)
(Decrease) / increase in cash in the period (14,571) 10,727 26,790
Reconciliation of Net Cash Flow to Movement in Net Debt
for the half year ended 30 June 2003
(Decrease) / increase in cash in the period (14,571) 10,727 26,790
Cash flow from debt financing (109,743) (140,674) (37,426)
Change in net debt resulting from cash flows (124,314) (129,947) (10,636)
Exchange translation adjustment 35,910 51,275 65,756
Movement in net debt in the period (88,404) (78,672) 55,120
Net debt at beginning of period (763,804) (818,924) (818,924)
Net debt at end of period (852,208) (897,596) (763,804)
Kerry Group plc
Statement of Total Recognised Gains and Losses
for the half year ended 30 June 2003
Half year ended Half year ended Year ended
30 June 2003 30 June 2002 31 Dec. 2002
Unaudited Unaudited Audited
€'000 €'000 €'000
Profit attributable to ordinary shareholders 61,933 37,318 103,903
Exchange translation adjustment on foreign currency net (7,159) (27,920) (40,722)
investments
Total recognised gains and losses relating to the period 54,774 9,398 63,181
Prior year adjustment - deferred tax - (36,063) (36,063)
Total gains and losses recognised since last annual report 54,774 (26,665) 27,118
Reconciliation of Movements in Share Capital and Reserves
for the half year ended 30 June 2003
Capital
Share Capital Conversion Profit & Loss
and Premium Reserve Fund Account Total
€'000 €'000 €'000 €'000
At beginning of period 386,176 340 418,012 804,528
Retained profit - - 54,413 54,413
Share issue 609 - - 609
Exchange translation adjustment - - (7,159) (7,159)
At end of period 386,785 340 465,266 852,391
The Profit & Loss Account figures comprise the following:
Intangible Assets Retained Profit & Loss
Written Off Profits Account
€'000 €'000 €'000
At beginning of period (479,699) 897,711 418,012
Retained profit (24,661) 79,074 54,413
Exchange translation adjustment - (7,159) (7,159)
At end of period (504,360) 969,626 465,266
The exchange translation adjustment arises on the retranslation of the Group's opening net investment in its
overseas subsidiaries.
Kerry Group plc
Notes to the Interim Report
for the half year ended 30 June 2003
1. Analysis of results by region
Half year ended Half year ended Year ended
30 June 2003 30 June 2002 31 Dec. 2002
Unaudited Unaudited Audited
Operating Operating Operating
Turnover Profit Turnover Profit Turnover Profit
€'000 €'000 €'000 €'000 €'000 €'000
By geographical market
of origin:
Ireland 655,641 31,640 627,115 26,887 1,373,681 62,637
Rest of Europe 621,373 47,225 628,318 43,900 1,293,154 109,586
Americas 453,499 48,904 473,514 52,769 944,767 120,473
Asia Pacific 71,579 5,386 70,891 4,407 143,206 12,714
1,802,092 133,155 1,799,838 127,963 3,754,808 305,410
Goodwill amortisation - (24,661) - (20,202) - (41,401)
Exceptional - - - (25,524) - (56,602)
restructuring costs
1,802,092 108,494 1,799,838 82,237 3,754,808 207,407
Turnover Turnover Turnover
€'000 €'000 €'000
By destination:
Ireland 351,298 322,400 766,027
Rest of Europe 862,449 868,939 1,788,914
Americas 487,501 503,961 1,002,942
Asia Pacific 100,844 104,538 196,925
1,802,092 1,799,838 3,754,808
Turnover and operating profit as presented above, are stated net of intra Group transactions.
2. Earnings per share
Half year ended Half year ended Year ended
30 June 2003 30 June 2002 31 Dec. 2002
Unaudited Unaudited Audited
EPS EPS EPS
cent €'000 cent €'000 cent €'000
Adjusted earnings * 46.1 85,577 41.8 77,410 101.8 188,707
Goodwill amortisation 13.3 24,661 10.9 20,202 22.3 41,401
Exceptional items (net of (0.6) (1,017) 10.7 19,890 23.4 43,403
tax)
Profit after taxation, 33.4 61,933 20.2 37,318 56.1 103,903
goodwill amortisation and
exceptional items
Share option dilution 0.1 - 0.2 - 0.4 -
33.3 61,933 20.0 37,318 55.7 103,903
The basic weighted average number of ordinary shares in issue for the period was 185,631,612 (half year ended
30 June 2002: 185,184,512; year ended 31 December 2002: 185,363,778). The diluted weighted average number of
ordinary shares in issue for the period was 186,224,863 (half year ended 30 June 2002: 186,439,440; year ended
31 December 2002: 186,389,840). The dilution arises in respect of executive share options outstanding.
In addition to the basic and diluted earnings per share, an earnings per share before goodwill amortisation and
exceptional items calculation is also provided, as it more accurately reflects the Group's underlying trading
performance.
* Adjusted earnings is calculated as profit after taxation, before goodwill amortisation and exceptional items.
Adjusted earnings per share is the adjusted earnings divided by the weighted average number of ordinary
shares.
3. Businesses acquired
The Group completed a number of acquisitions during the period at a total cost of €125m.
The acquisitions of Guernsey Bel and Pacific Seasonings, both based in the US, were completed in March 2003.
Guernsey Bel operates from two modern manufacturing facilities located in Chicago and in Hayward, California and is
a leading innovator and provider of value-added ingredients and inclusion technology for the premium ice-cream,
breakfast cereal, bakery, nutritional bar and confectionery industries. Pacific Seasonings is a leading
manufacturer of seasonings and spices for the meat, prepared foods and snack food industries and operates from two
manufacturing facilities in Seattle and Detroit.
SunPure, a leading manufacturer of natural citrus flavours and ingredients, was acquired in February 2003. Located
at the centre of the North American citrus industry in Lakeland, Florida, SunPure is also a significant producer of
apple essence and beverage flavours and bases.
4. Accounting policies
These accounts have been prepared using the same accounting policies detailed in the 2002 annual financial
statements.
5. Post balance sheet event
In July 2003 the Group completed the sale of its Bridgend Dairy business in Wales, which had been acquired as part
of the Golden Vale acquisition.
6. Interim accounts
These accounts are not full accounts and except where indicated are unaudited. Full accounts to 31 December 2002,
which received an unqualified audit report, have been filed with the Registrar of Companies.
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