Interim Results
Kerry Group PLC
30 August 2005
Press Announcement
Tuesday 30 August 2005
Interim Report
Half Year Ended 30 June 2005
Kerry, the global ingredients, flavours, and consumer foods group, reports
interim results for the half year ended 30 June 2005.
Financial Highlights
• Sales revenue increased by 8.3% to €2,117m
• Trading profit up 6.2% to €160m
• Adjusted earnings* increased by 7.1% to €101m
• Adjusted earnings per share* increased by 6.5% to 53.8 cent
• Interim dividend per share up 11.1% to 5 cent
*before intangible amortisation and non-trading items
Kerry Group Chief Executive, Hugh Friel said; 'In a highly competitive trading
environment, exacerbated by energy and raw material cost increases and adverse
currency movements, the Group performed well in the first half of 2005. We
expect further business improvements in the second half, with an outcome for the
full year in line with market expectations.'
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 2005
Results
Kerry delivered solid operating and financial results in the first half of 2005
despite significant input cost pressures and highly competitive trading
conditions in international food and beverage markets. While the trading
environment proved challenging and adverse currency movements were again
significant relative to the same period last year, Group businesses performed
well - benefiting from the continuing trends towards convenient, nutritional
products.
Group sales revenue grew to €2,117m, an increase of 8.3% over January - June
2004. The continued depreciation of the US dollar and sterling exchange rates
versus the euro again impacted reported sales and profit performance. On a
like-for-like basis total sales grew by 3.4% relative to the same period of
2004.
Input cost inflation also impacted on performance, in particular as energy costs
continued to surge to ever higher record levels throughout the first half of
2005. Trading profit increased by 6.2% to €160m. While all core Group
businesses performed satisfactorily notwithstanding the difficult trading
environment, the adverse trading currency impact together with input cost
inflation led to a reduction of 10 basis points in the Group trading margin to
7.6%.
Group accounts for the period are reported in line with International Financial
Reporting Standards. Adjusted earnings grew by 7.1% to €101m. Earnings per
share before intangible amortisation and non trading items increased by 6.5% to
53.8 cent.
Business Reviews
Food Ingredients
Kerry's food ingredients businesses increased sales revenue by 12.1% relative to
the first half of 2004 to €1,453m, reflecting like-for-like sales revenue growth
of 3.8%. Trading profits increased by 10.1% to €118m, reflecting a trading
margin of 8.2%.
In European ingredients markets sales revenue increased by 15.2% relative to the
prior year period to €614m, reflecting like-for-like sales revenue growth of
3.1%. The continued growth of premium categories in the prepared meals sector
again provided solid development opportunities for Kerry's ingredients, flavours
and culinary offerings. The increased focus on nutritional values of menu lines
in the quick-serve-restaurant sector also contributed to sustained growth. The
UK, German and Italian markets delivered strong underlying growth. France
remained difficult where conditions particularly in the fruit preparations
market again proved highly competitive.
Development of dairy proteins and speciality ingredients from the Listowel and
Charleville operations continued to yield good results. Despite the major
changes in EU Institutional dairy market supports and significant energy cost
increases, continued investment and a strong focus on operational efficiencies
across both sites contributed to a satisfactory performance in the sector.
Further advances were achieved through protein hydrolysate applications in
infant foods and in nutrient therapy. The Sports and Lifestyle Nutrition
commercial business unit achieved good progress in European sports, dietetic,
health and wellness markets. Cremo Ingredients, based in Glamsbjerg Denmark
acquired in 2004, performed well through its specialist lines of dairy
ingredients and flavourings in the European and Asian savoury, convenience and
snack food industries. Kerry Ingredients continued to achieve good growth in
Russian and Middle Eastern snack markets.
The Kerry Bio-Science division, established on acquisition of Quest Food
Ingredients in 2004, performed well across all markets. The division has
refocused its business activities across core product groupings and markets.
Continued progress has been achieved through fermented ingredients in European
markets. An expansion programme is underway at the Menstrie facility in
Scotland in response to increased demand for speciality yeast products. Enzymes
grew satisfactorily in the meat and dairy markets. Emulsifiers also continued to
grow satisfactorily in European markets.
Mastertaste, the Group's international flavour division performed well in
European markets, in particular in the UK and Italy. The acquisition of
Fructamine in Italy, completed in 2004, has given a significant boost to
Mastertaste in servicing the flavour requirements of savoury processors and
carbonated beverage producers. In the UK, Mastertaste has continued to benefit
from the expansion of the premium prepared meals and culinary categories.
In American ingredients markets sales revenue increased by 6.5% to €573m,
reflecting growth of 2.6% on a like-for-like basis relative to the same period
of 2004. In the USA, development in many food and beverage categories recovered
slowly in the first half of 2005 following the decline in the low-carb
phenomenon in 2004. By the end of the period demand for functional ingredients
had returned to prior year levels. In particular, demand for soy-based systems
and nutritional lines improved to encouraging levels. Kerry continued to
re-organise its operations and technologies in the speciality ingredients sector
due to the prevailing competitive market conditions. While conditions in the
sweet ingredients category also proved highly competitive, Kerry continued to
make good progress in the premium ice-cream and ready-to-eat cereals sectors.
Added value meat processors and regional snack processors again provided a good
platform for growth through Kerry's complete sauces, coatings and seasonings
offerings.
Kerry's strong development into high growth segments of the U.S. foodservice
industry and through customised food and beverage creations for retail / private
label markets again progressed satisfactorily in the first half of 2005. The
Oregon Chai and JetTea brands acquired in 2004 performed well. Syrup lines for
cold and hot beverage applications with major coffeehouse chains again benefited
through category growth and new store openings.
Market development through Kerry's Mexican facilities continued with good growth
recorded in Central America and the Caribbean. Expansion of the meat sector in
South America provided good growth for Kerry Brazil's meat seasonings lines. In
Brazil, the continued development of the artisan ice cream sector delivered
solid growth for Kerry's sweet ingredients business.
Kerry Bio-Science made good progress in American markets through its fermented
ingredients and cultures product development programmes, particularly in the
dairy sector. In the bakery sector consumer demand and new labelling
requirements for trans-fat-free products has provided increased market
opportunities for the Kerry Bio-Science product range. Solid progress was also
achieved in the pharma sector in the first half of 2005. Kerry Bio-Science
successfully launched new functional ingredients designed to enhance
pharmaceutical manufacturing capabilities of complex therapeutic drug delivery
systems. In cell nutrition, the introduction of new products under the
Sheffield Pharma Ingredients brand was significantly increased during the period
under review. Addressing evolving industry requirements, these novel systems
are utilised in pharmaceutical fermentation, cell culture and diagnostic media.
In American markets Mastertaste consolidated its flavours and fragrance market
positioning following the acquisitions of U.S. based Manheimer and Flavurence
acquired in 2004. In line with competitive pressures on U.S. based branded food
manufacturers, flavour businesses found difficulty gaining necessary price
increases to compensate for input cost increases. As a result, returns on
savoury flavours were static relative to the first half of 2004. However,
Mastertaste continued to achieve good growth through functional and enhanced
flavoured beverage applications and new product introductions in American
markets. Manheimer fragrances maintained its market positioning in the home
environmental and personal care markets.
In Asia Pacific markets, Kerry continued to make excellent progress. Sales
revenue grew by 26.5% to €160m, reflecting like-for-like growth of 10.5% over
the same period of 2004. Good growth was recorded through seasonings and sauces
in the prepared foods and quick-serve-restaurant sectors in Australia and New
Zealand. Kerry Pinnacle again strengthened its market position through
application of specialist bakery ingredients with in-store bakeries in major
retail chains in Australia. Kerry Ingredients Asia achieved further growth
through nutritional bases and beverage lines and through specialist nutrient
lines for infant/young adult diets. The division's core technologies also
proved successful in development of new menu items for the developing
quick-serve-restaurant chains in the region. A major focus for the division in
the period under review was the successful roll-out and establishment of Kerry's
branded specialist flavoured beverage offerings across major consumer markets in
the Asia Pacific region. Uptake to-date of the Da Vinci, Oregon Chai and JetTea
branded lines of flavoured syrups, chocolate and caramel sauces, frappe mixes,
smoothies and speciality tea latte mixes has progressed encouragingly.
In January 2005, the Group announced details of a €20m investment programme in
China. The acquisition of Hangzhou Lanli Food Industry Company ('Lanli')
located in Hangzhou in the Zhejiang Province was completed in March. Through
this acquisition and the establishment in 2006 of a new multi-processing
ingredients manufacturing facility and technical centre on a 16 acre greenfield
site in the adjacent HEDA economic zone, Kerry will be well positioned to meet
the significant sectoral ingredients requirements in the nutritional, dairy,
flavoured noodle, brewing, flavoured beverage, snack and baking segments of this
fast growing consumer marketplace.
Kerry Bio-Science continued to progress its market development in Asia Pacific
markets through its enzyme, fermentation, protein and emulsifier technologies.
The division's Malaysia and Philippines based production and technical
development facilities performed well.
Mastertaste flavours has continued to make good progress in Australia and has
established flavour production and technical facilities in China to meet the
requirements of its international and local customer base in Asia.
Consumer Foods
Kerry Foods performed well in the first half of 2005 despite input cost
inflation and an increasingly competitive retail environment in the UK and Irish
markets. Benefiting from its positioning in growth categories and its strong
branded presence, the division increased sales revenue by 1.5% to €820m - which
represents 3.1% growth in sales revenue on a like-for-like basis when account is
taken of the currency translation impact. The division achieved trading profits
in the period of €55m in line with the first half of 2004, notwithstanding the
impact of currency and cost inflation.
Good volume growth was achieved in Kerry's branded, convenience and food-to-go
categories. In Ireland, Charleville Cheese continued to out-perform market
growth rates. Denny consolidated its brand leadership position in the premium
cooked meats and sausage categories. In the convenience sector the division's
range of sandwiches, salads, desserts, juices and mineral waters performed well.
In addition the Kerryfresh chilled foodservice business continued to grow its
dedicated offerings to the food-to-go deli sector and specialist convenience
outlets.
In the UK market, Kerry Foods leading brands - Wall's, Richmond, Mattessons and
Cheestrings - all performed satisfactory in their respective categories.
Cheestrings continued to increase market share in the UK and is making
encouraging progress in the French market under the Ficello brand. In the UK
adult snacking sector, Brunchettas, launched prior to year-end 2004, gained
solid market support for its offering of wholesome nutritious cheese snacks for
eating on-the-go. While conditions in the frozen ready meals sector remained
competitive, Rye Valley Foods recorded a satisfactory performance through
further operational efficiency advances and new business development.
The premium sector of the chilled ready meals category continued to grow
satisfactorily. Kerry Foods achieved solid growth in the sector but profit
growth in the first half of 2005 was impacted by once-off start up costs
associated with the new production facility in Hartlepool. In the UK convenience
store marketplace, while Kerry Foods Direct to Store continued to grow its range
and food-to-go service capability, performance in the business was impacted by
higher distribution costs in the period under review.
Geographic Markets
Total Group sales revenue throughout European markets in the first half of 2005
increased by 7.2% to €1.38 billion. In American markets the Group's ingredients
and flavour businesses increased sales revenue by 6.5% to €573m. Sales revenue
in Asia Pacific markets grew by 26.5% to €160m.
Finance
Earnings before interest, tax, non-trading items, depreciation and amortisation
(EBITDA) increased by 7.6% to €212m. Working capital increased by €77m in the
period reflecting seasonality and growth of the business. The higher finance
cost payments in the first half at €29m (H1 2004: €21m) reflect the finance cost
of acquisitions, rate increases and the impact of pension finance costs.
Expenditure on Group acquisitions during the period amounted to €38m (€36m
cash). Notwithstanding a currency translation adjustment of €81m, net debt at
the end of the half year reduced to €1,265m, compared to €1,334m at the end of
the first half of 2004. The ratio of debt to EBITDA reduced to 2.8 times (H1
2004: 2.9 times). Debt to market capitalisation reduced from 42% at the end of
the first half of 2004 to 34% at the end of June 2005.
Dividend
The Board has declared an interim dividend of 5 cent per share, an increase of
11.1% on the 2004 interim dividend of 4.5 cent per share. The interim dividend
will be paid on 25 November 2005 to shareholders registered on the record date
21 October 2005.
Events after the Balance Sheet date
Since the end of the period, the Group has announced a major expansion of its
chilled ready meals business in the UK through the acquisition of Noon Group
Limited. Noon is market leader in the development and production of authentic
Asian chilled ready meals in the UK. Operating from three modern production
facilities located in the Great Western Industrial Estate in south-west London,
the acquired business produces a range of premium quality Indian, Oriental, Thai
and other Asian and international cuisine ready meals, snacks and
accompaniments, principally for major UK multiple retailers. The total
consideration for the acquisition was Stg£124m financed through existing lines
of credit with Group banks.
Complementing Kerry Foods' existing chilled ready meals businesses, Noon has
well established relationships with leading UK multiple retail groups and an
excellent reputation for quality, authenticity and innovation in the ethnic
sub-category of the fast growing premium sector of the UK chilled ready meals
market.
Current Trading and Outlook
Despite the competitive challenges across international food and beverage
markets, the Group's core businesses continue to perform well. In ingredients
and flavour markets our technologies and applications are focused on added value
growth categories. Similarly our UK and Irish consumer foods brands and
customer branded offerings are well positioned in industry growth segments.
On-going consolidation in the ingredients and foods sector will continue to
provide further bolt-on acquisition opportunities. The Group expects further
business improvement in the second half, with an outcome for the full year in
line with market expectations.
Kerry Group plc
General Information and Accounting Policies
Basis of preparation
These interim accounts for the six months ended 30 June 2005, have been prepared
on the basis of the recognition and measurement requirements of International
Financial Reporting Standards (IFRS) and are covered by IFRS 1, 'First-time
Adoption of Financial Reporting Standards', as they form part of the period
covered by the Group's first IFRS financial statements for the year ended 31
December 2005.
The interim accounts have been prepared in accordance with IFRS and
International Financial Reporting Interpretations Committee (IFRIC)
interpretations expected to be applicable at 31 December 2005. The IFRS and
IFRIC interpretations that will be applicable at 31 December 2005, including
those that will be applicable on an optional basis are subject to amendments and
interpretations by the International Accounting Standards Board (IASB) and IFRIC
and there is an ongoing process of review and endorsement by the European
Commission.
In particular, the Group has elected to early adopt the 'Amendment to
International Accounting Standard (IAS) 19 Employee Benefits'. The Group has
selected the option available within this standard for immediate recognition of
all actuarial gains and losses outside of the Consolidated Income Statement.
In addition the Group has early adopted the amendment that the IASB has proposed
in respect of IAS 21 'The Effects of Changes to Foreign Exchange Rates' which is
expected to become effective before the end of 2005. IAS 21 requires exchange
differences arising on monetary items that form part of the parent company's net
investment in a foreign operation to be recognised in equity. The application of
the requirement is restricted to monetary items denominated in the functional
currency of the parent or the foreign operation and to funding transacted
directly between the two entities. The proposed amendment clarifies that
exchange differences arising on monetary items that form part of a reporting
entity's net investment in a foreign operation should be recognised in equity
irrespective of the currency and of whether it is the parent or a fellow
subsidiary that enters into the transaction with the foreign operation.
The Group's consolidated financial statements were prepared in accordance with
Irish/UK Generally Accepted Accounting Principles (GAAP) until 31 December 2004,
including the 2004 interim accounts. As part of the transition from Irish/UK
GAAP to IFRS the Group presented its 'Preliminary Restatement of 2004 Financial
Information' on the 24 May 2005 which is available on the Group's website
(www.kerrygroup.com). The Group's accounting policies are as published in the 24
May 2005 announcement including IAS 32 'Financial Instruments: Disclosure and
Presentation' and IAS 39 'Financial Instruments: Recognition and Measurement'
accounting policies which were adopted with effect from 1 January 2005.
The Group applied the exemption available within IFRS 1 that permits the hedge
accounting applied under Irish/UK GAAP to be used in the comparative period to
31 December 2004. Note 7 of these accounts discloses the impact of the adoption
of IAS 32 and IAS 39 on the Consolidated Balance Sheet as at 1 January 2005.
The comparative figures in respect of the 2004 interim accounts have been
restated to reflect the Group's adoption of IFRS and reconciliation workings
between the results as reported under Irish/UK GAAP and under IFRS are available
on the Group's website (www.kerrygroup.com).
These accounts are not full accounts. Full consolidated financial statements to
31 December 2004 under Irish/UK GAAP, which received an unqualified audit
report, have been filed with the Registrar of Companies.
These interim accounts have been prepared under the historical cost convention,
as modified by the revaluation of available for sale financial assets, financial
assets and financial liabilities (including derivative financial instruments),
which are held at fair value.
IFRS does not define certain income statement headings. For clarity, the
following are the definitions as applied by the Group:
'Trading profit' refers to the adjusted operating profit generated by the
businesses before intangible asset amortisation and any profits or losses
generated from the disposal of non-current assets or businesses and any material
acquisition and other restructuring costs.
'Operating profit' is profit before taxation and finance costs.
The Group makes this distinction so as to exclude items that do not impact the
continuous performance of the businesses.
Kerry Group plc
Consolidated Income Statement
for the half year ended 30 June 2005
Half year ended Half year ended Year ended
30 June 2005 30 June 2004 31 Dec. 2004
Unaudited Unaudited
Notes €'000 €'000 €'000
Revenue 1 2,117,238 1,955,344 4,128,736
___________ ___________ ___________
Trading profit 159,876 150,507 355,780
Intangible asset amortisation (4,820) (4,883) (9,822)
Acquisition and other restructuring costs - (6,720) (41,108)
Profit on sale of non-current assets 9,015 1,643 15,592
Loss on sale of business (2,761) - -
___________ ___________ ___________
Operating profit 161,310 140,547 320,442
Finance costs (30,409) (24,525) (51,815)
___________ ___________ ___________
Profit before taxation 130,901 116,022 268,627
Taxation (30,335) (29,894) (64,577)
___________ ___________ ___________
Profit after taxation and attributable to equity 100,566 86,128 204,050
shareholders
___________ ___________ ___________
Earnings per ordinary share (cent)
- basic 2 53.8 46.3 109.5
- fully diluted 2 53.5 46.1 108.9
Kerry Group plc
Consolidated Balance Sheet
as at 30 June 2005 30 June 2005 30 June 2004 31 Dec. 2004
Unaudited Unaudited
€'000 €'000 €'000
Non-current assets
Property, plant and equipment 1,015,943 972,791 960,667
Intangible assets 1,453,991 1,349,633 1,354,845
Financial assets 6,113 - -
Deferred tax assets 15,314 8,772 12,812
___________ ___________ ____________
2,491,361 2,331,196 2,328,324
Current assets
Inventories 568,988 530,011 457,662
Trade and other receivables 642,352 652,434 566,938
Cash and cash equivalents 97,701 50,695 65,328
Assets classified as held for sale 4,616 4,687 4,418
___________ ___________ ____________
1,313,657 1,237,827 1,094,346
Current liabilities
Trade and other payables (854,869) (837,982) (729,142)
Financial liabilities (211,344) (165,685) (64,293)
Tax liabilities (49,793) (48,623) (47,118)
Provisions (6,302) - (12,661)
Deferred income (3,860) (3,114) (3,142)
___________ ___________ ____________
(1,126,168) (1,055,404) (856,356)
Net current assets 187,489 182,423 237,990
___________ ___________ ____________
Total assets less current liabilities 2,678,850 2,513,619 2,566,314
Non-current liabilities
Financial liabilities (1,153,001) (1,218,948) (1,138,473)
Retirement benefit obligation (267,115) (179,640) (199,262)
Other non-current liabilities (93,837) (99,846) (132,436)
Deferred tax liabilities (103,261) (100,060) (103,279)
Deferred income (22,537) (25,849) (24,704)
___________ ___________ ____________
(1,639,751) (1,624,343) (1,598,154)
___________ ___________ ____________
1,039,099 889,276 968,160
___________ ___________ ____________
Capital and reserves
Share capital 23,386 23,307 23,356
Capital conversion reserve fund 340 340 340
Share premium account 377,844 370,377 375,032
Available for sale investment reserve 6,113 - -
Translation reserve 17,660 3,200 (7,601)
Hedging reserve (675) - -
Retained earnings 614,431 492,052 577,033
___________ ___________ ____________
Shareholders' equity 1,039,099 889,276 968,160
___________ ___________ ____________
Kerry Group plc
Consolidated Statement of Recognised Income and Expense
for the half year ended 30 June 2005
Half year ended Half year ended Year ended
30 June 2005 30 June 2004 31 Dec. 2004
Unaudited Unaudited
€'000 €'000 €'000
Fair value movements on available for sale investments (338) - -
Fair value movements on cash flow hedges (3,652) - -
Exchange difference on translation of foreign operations 25,261 3,200 (7,601)
Actuarial (losses) / gains on defined benefit pension
schemes (59,166) 6,538 (21,402)
Deferred tax on items taken directly to reserves 15,193 (1,500) 1,926
___________ ___________ ____________
Net (expense) / income recognised directly in equity (22,702) 8,238 (27,077)
Transfers
Cash flow hedges to profit or loss from equity (122) - -
Profit for the period 100,566 86,128 204,050
___________ ___________ ____________
Total recognised income and expense for the period
attributable to equity shareholders 77,742 94,366 176,973
___________ ___________ ____________
Consolidated Statement of Changes in Equity
for the half year ended 30 June 2005
Half year ended Half year ended Year ended
30 June 2005 30 June 2004 31 Dec. 2004
Unaudited Unaudited
€'000 €'000 €'000
At beginning of period 968,160 805,730 805,730
Impact of adoption of IAS 32 and IAS 39 8,131 - -
___________ ___________ ____________
At beginning of period as adjusted 976,291 805,730 805,730
Total recognised income and expense for the period 77,742 94,366 176,973
Dividends paid (17,776) (16,041) (24,468)
Shares issued during the period 2,858 5,264 10,021
Share issue costs (16) (43) (96)
___________ ___________ ____________
At end of period 1,039,099 889,276 968,160
___________ ___________ ____________
Kerry Group plc
Consolidated Cash Flow Statement
for the half year ended 30 June 2005 Half year ended Half year ended Year ended
30 June 2005 30 June 2004 31 Dec. 2004
Unaudited Unaudited
€'000 €'000 €'000
Operating activities
Trading profit 159,876 150,507 355,780
Adjustments for:
Depreciation (net) 51,877 46,339 91,585
Change in working capital (78,144) (3,575) 35,306
Exchange translation adjustment 1,270 (309) (914)
___________ ___________ ____________
Cash generated from operations 134,879 192,962 481,757
Taxation (22,831) (22,860) (53,618)
Interest (net) (29,122) (21,107) (45,775)
___________ ___________ ____________
Net cash from operating activities 82,926 148,995 382,364
___________ ___________ ____________
Investing activities
Purchase of property, plant and equipment (70,993) (50,252) (110,235)
Proceeds on the sale of non-current assets 11,895 2,275 18,010
Capital grants received 336 233 907
Purchase of subsidiary undertakings (35,937) (668,431) (695,701)
Sale of business (2,761) - -
Deferred creditors paid (7,797) (28,767) (29,955)
Acquisition and other restructuring costs paid (6,359) (1,761) (16,785)
Consideration adjustment on previous acquisitions (1,345) (895) (935)
___________ ___________ ____________
Net cash used in investing activities (112,961) (747,598) (834,694)
___________ ___________ ____________
Financing activities
Dividends paid (17,776) (16,041) (24,468)
Issue of share capital 2,842 5,221 9,925
Net proceeds from bank borrowings 100,785 582,059 429,388
(Decrease) / increase in bank overdrafts (23,443) 21,197 45,951
___________ ___________ ____________
Net cash from financing activities 62,408 592,436 460,796
___________ ___________ ____________
Net increase / (decrease) in cash and cash equivalents 32,373 (6,167) 8,466
Cash and cash equivalents at beginning of period 65,328 56,862 56,862
___________ ___________ ____________
Cash and cash equivalents at end of period 97,701 50,695 65,328
___________ ___________ ____________
Reconciliation of Net Cash Flow to Movement in Net Debt
for the half year ended 30 June 2005
Net increase / (decrease) in cash and cash equivalents 32,373 (6,167) 8,466
Cash inflow from debt financing (77,342) (603,256) (475,339)
___________ ___________ ____________
Changes in net debt resulting from cash flows (44,969) (609,423) (466,873)
Exchange translation adjustment on net debt (80,801) (19,315) 34,635
___________ ___________ ____________
Movement in net debt in the period (125,770) (628,738) (432,238)
Net debt at beginning of period (1,137,438) (705,200) (705,200)
Impact of adoption of IAS 32 and IAS 39 (1,419) - -
___________ ___________ ____________
Net debt at end of period (1,264,627) (1,333,938) (1,137,438)
___________ ___________ ____________
Kerry Group plc
Notes to the Interim Report
for the half year ended 30 June 2005
1. Analysis of results
Half year ended Half year ended Year ended
30 June 2005 30 June 2004 31 Dec. 2004
Unaudited Unaudited
Segment Segment Segment Segment Segment Segment
Revenue Result Revenue Result Revenue Result
€'000 €'000 €'000 €'000 €'000 €'000
By business segment:
Ingredients 1,453,161 118,450 1,296,743 107,622 2,780,779 261,433
Consumer foods 820,301 54,605 807,804 54,589 1,660,533 118,361
Unallocated and Group eliminations (156,224) (13,179) (149,203) (11,704) (312,576) (24,014)
________ ________ ________ ________ _______ ________
2,117,238 159,876 1,955,344 150,507 4,128,736 355,780
________ ________ ________
Intangible asset amortisation (4,820) (4,883) (9,822)
Acquisition and other restructuring
costs - (6,720) (41,108)
Profit on sale of non-current assets 9,015 1,643 15,592
Loss on sale of business (2,761) - -
________ ________ ________
Operating profit 161,310 140,547 320,442
________ ________ ________
Segment Segment Segment
Revenue Revenue Revenue
€'000 €'000 €'000
By destination:
Europe 1,384,352 1,290,859 2,721,074
Americas 573,254 538,246 1,120,884
Asia Pacific 159,632 126,239 286,778
________ ________ ________
2,117,238 1,955,344 4,128,736
________ ________ ________
2. Earnings per ordinary share
Half year ended Half year ended Year ended
30 June 2005 30 June 2004 31 Dec. 2004
Unaudited Unaudited
EPS EPS EPS
cent €'000 cent €'000 cent €'000
Adjusted earnings * 53.8 100,549 50.5 93,918 122.9 229,046
Intangible asset amortisation (2.6) (4,820) (2.6) (4,883) (5.3) (9,822)
Acquisition and other restructuring costs (net) - - (2.5) (4,550) (16.2) (30,339)
Profit on sale of non-current assets (net) 3.9 7,294 0.9 1,643 8.1 15,165
Loss on sale of business (net) (1.3) (2,457) - - - -
_____ ________ _____ ________ _____ ________
Profit after taxation and attributable to equity
shareholders 53.8 100,566 46.3 86,128 109.5 204,050
Share option dilution (0.3) - (0.2) - (0.6) -
_____ ________ _____ ________ _____ ________
53.5 100,566 46.1 86,128 108.9 204,050
_____ ________ _____ ________ _____ ________
The basic weighted average number of ordinary shares in issue for the period was
186,948,613 (half year ended 30 June 2004: 186,087,228; year ended 31 December
2004: 186,401,228). The diluted weighted average number of ordinary shares in
issue for the period was 187,854,384 (half year ended 30 June 2004: 186,993,765;
year ended 31 December 2004: 187,308,737). The dilution arises in respect of
executive share options outstanding. The actual number of shares in issue on 30
June 2005 was 187,092,180 (30 June 2004: 186,501,145; 31 December 2004:
186,848,865).
* In addition to the basic and diluted earnings per share, an adjusted earnings
per share is also provided as it more accurately reflects the Group's underlying
trading performance. Adjusted earnings is profit after taxation, before
intangible asset amortisation, acquisition and other restructuring costs (net),
profit on sale of non-current assets (net) and loss on sale of business (net).
3. Dividends
Since the end of the interim period the Board has declared an interim dividend
of 5.00 cent per share. The interim dividend will be paid on 25 November 2005 to
shareholders registered on the record date of 21 October 2005. These
consolidated interim accounts do not reflect this dividend payable.
Half year ended Half year ended Year ended
30 June 2005 30 June 2004 31 Dec. 2004
Unaudited Unaudited
€'000 €'000 €'000
Amounts recognised as distributions to equity holders in the
period:
Final dividend of 9.50 cent per A ordinary share paid 27 May 17,776 16,041 16,041
2005 (2004: 8.60 cent per A ordinary share paid 28 May 2004)
Interim dividend of 5.00 cent per A ordinary share (2004: 4.50 - - 8,427
cent)
______________ _____________ ___________
4. Defined benefit pension schemes
Half year ended Half year ended Year ended
30 June 2005 30 June 2004 31 Dec. 2004
Unaudited Unaudited
€'000 €'000 €'000
Retirement benefit obligation 267,115 179,640 199,262
Deferred tax (67,485) (43,542) (51,874)
______________ _____________ ___________
Net retirement benefit obligation 199,630 136,098 147,388
______________ _____________ ___________
5. Businesses acquired
During the period the Group completed the acquisition of a number of businesses,
all of which were 100% acquired. The total consideration for acquisitions
amounted to €38m.
The acquisition method of accounting has been used to consolidate the businesses
acquired. The accounting for business acquisitions is provisional. Other than
the valuation of intangible assets there are no material differences arising
between the fair value of the assets and liabilities acquired and the acquiree's
carrying value at this date. If however any fair values need to be adjusted they
will be reflected in the acquisition accounting within one year of the
acquisition date.
The principal acquisitions completed in the period are summarised as follows:
In March 2005, the Group acquired Hangzhou Lanli Food Industry Company Limited,
located in China. The company has a spray drying facility and gives the Group an
established base into the Chinese food ingredients market.
In January 2005, the Group acquired Gordon Jopling (Foods) Limited. Based in the
UK the company principally supplies made-to-order vegetable based ingredients
into the ready meals, pizzas, sauces and dressings markets in the UK and
Ireland.
6. Events after the balance sheet date
In August 2005, the Group acquired the entire issued share capital of Noon Group
Limited at a cost of Stg £124m. Noon is the market leader in the development and
production of authentic Asian chilled ready meals in the UK. The fair value of
the net assets acquired has not yet been determined.
Other than the above and the approval of an interim dividend (see note 3) there
have been no significant events, outside the ordinary course of business,
affecting the Group since 30 June 2005.
7. Impact of adoption of IAS 32 'Financial Instruments: Presentation and
Disclosure' and IAS 39 'Financial Instruments: Recognition and Measurement'
As permitted under IFRS 1, the Group applied hedge accounting in accordance with
Irish/UK GAAP for the year ended 31 December 2004 and adopted IAS 32 and IAS 39
from 1 January 2005.
IFRS Effect of IFRS
31 Dec. 2004 adoption 1 Jan 2005
of IAS 32 and
IAS 39
€'000 €'000 €'000
Non-current assets (a) 2,328,324 6,451 2,334,775
Current assets (b) 1,094,346 3,542 1,097,888
Current liabilities (856,356) - (856,356)
Non-current liabilities (c) (1,598,154) (1,862) (1,600,016)
____________ ____________ ___________
968,160 8,131 976,291
____________ ____________ ___________
____________ ____________ ___________
Capital and reserves (d) 968,160 8,131 976,291
____________ ____________ ___________
The following notes explain the adjustments made to the Group's Consolidated
Balance Sheet as at 1 January 2005 to reflect the adoption of IAS 32 and IAS 39.
(a) Available for sale financial assets
€6,451,000 has been included in non-current assets as a financial asset. This is
the remeasurement to fair value of investments in other companies, which have a
cost base of €nil.
(b) Financial derivatives
€3,542,000 has been included in current assets as financial derivatives. This is
the recognition of derivative financial instruments (cash flow hedges) at fair
value.
(c) Financial derivatives and deferred tax liabilities
€1,419,000 has been recognised in non-current liabilities as a financial
liability as the fair value movement of interest rate swaps.
€443,000 has been included in non-current liabilities as deferred tax. This is
the deferred tax impact of the recognition of derivative financial instruments
(cash flow hedges) at fair value.
(d) Available for sale investment reserve, hedging reserve and retained earnings
€6,451,000 has been included in capital and reserves as an available for sale
investment reserve. This is the impact of the recognition of available for sale
financial assets.
€3,099,000 has been included in capital and reserves as a hedging reserve. This
is the recognition of derivative financial instruments (cash flow hedges) at
fair value, net of related deferred tax liability.
€1,419,000 has been included in capital and reserves in retained earnings. This
is the recognition of the fair value movement of interest rate swaps.
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