Preliminary Statement of Results 31 December 2017

RNS Number : 3304F
Kerry Group PLC
20 February 2018
 



 

 

20 February 2018

Kerry Group

Preliminary Statement of Results

for the year ended 31 December 2017

Kerry, the global taste & nutrition and consumer foods group, reports preliminary results for the year ended 31 December 2017.

 HIGHLIGHTS

·    Group revenue of €6.4 billion reflecting 4.3% business volume growth

-    Taste & Nutrition €5.2 billion, +4.7% volume growth

-    Consumer Foods €1.3 billion, +2.4% volume growth

·    Group trading margin maintained at 12.2%

-    Taste & Nutrition +20bps to 14.9%

-    Consumer Foods -70bps to 8.1%

·    Basic EPS up 10.1% to 333.6 cent

·    Adjusted EPS* up 5.5% to 341.2 cent (+9.4% on a constant currency basis)

·    Final dividend per share of 43.9 cent (total 2017 dividend up 12% to 62.7 cent)

·    Free cash flow of €501m (2016: €570m)

* Before brand related intangible asset amortisation and non-trading items (net of related tax)

Commenting on the results Kerry Group Chief Executive Edmond Scanlon said; "Kerry Group delivered strong top line growth and sustained business development in 2017. Adjusted earnings per share increased by 5.5% reflecting 9.4% growth over the prior year on a constant currency basis. In 2018 we expect to deliver adjusted earnings per share growth of 6% to 10% on a constant currency basis".

Contact Information

 

Media




Frank Hayes

Director of Corporate Affairs

+353 66 7182304

corpaffairs@kerry.ie
Investor Relations




Brian Mehigan

Chief Financial Officer

+353 66 7182292

investorrelations@kerry.ie

William Lynch

Head of Investor Relations

+353 66 7182292

investorrelations@kerry.ie
Website




www.kerrygroup.com




PRELIMINARY STATEMENT OF RESULTS

For the year ended 31 December 2017

Kerry Group achieved a strong volume driven business performance above market growth rates in 2017, reflecting the Group's foundational technology capabilities and speed of innovation in response to consumer and customer requirements. The global marketplace continues to change at an unrelenting pace driven by health & wellness demands, convenience trends, channel proliferation and in particular the growth of out-of-home food and beverage consumption with continued blurring of the landscape between food retail and 'food-to-go'. Nutritional labelling requirements and regulatory changes continue to drive demand for clean label offerings across all end-use-markets providing significant opportunities for differentiated product development.

In 2017 the adaptability and agility of the Kerry Business Model proved highly effective across the increasingly fragmented marketplace through multiple retail, foodservice and ecommerce channels. The Group's focus on profitable growth was further assisted by technology investment and industry-leading RD&A expenditure in Taste & Nutrition. Taste & Nutrition Technologies and Systems achieved sustained volume growth in North America, a good performance in Latin America, a solid recovery in the EMEA region and continued double digit growth in Asia.

In the Group's UK and Irish consumer foods markets, while Kerry Foods maintained a strong category and business development focus, benefiting in particular from the increased snacking and 'food-to-go' consumption trends, the underlying satisfactory divisional business performance was impacted by adverse sterling exchange rate movements.

Business Performance

Group revenue on a reported basis increased by 4.5% to €6.4 billion reflecting strong volume growth offset by adverse currency movements. Business volumes grew by 4.3% year-on-year. Net pricing increased by 2% against a background of approximately 4% raw material price inflation. Currency headwinds accelerated during the year contributing an adverse 2.4% translation impact and an adverse 0.2% transaction currency impact relative to revenue. Business acquisitions contributed 0.8%.

Taste & Nutrition delivered 4.7% volume growth and pricing increased by 2%. Kerry Foods' business volumes increased by 2.4% and pricing increased by 2%.

The Group trading margin was maintained at 12.2%, reflecting 20 basis points improvement in Taste & Nutrition, positive underlying margin improvement in Kerry Foods offset by adverse sterling exchange rates resulting in a 70 basis points margin reduction, and an increased spend on the Kerryconnect programme.

Basic earnings per share increased by 10.1% to 333.6 cent. Adjusted earnings per share increased by 5.5% to 341.2 cent (2016: 323.4 cent) reflecting growth of 9.4% on a constant currency basis over the prior year. The Board recommends a final dividend of 43.9 cent per share, an increase of 12% on the final 2016 dividend. Together with the interim dividend of 18.8 cent per share, this brings the total dividend for the year to 62.7 cent, an increase of 12% on 2016.

Expenditure on research and development increased due to increased investment in Taste & Nutrition to €269m (2016: €261m). Net capital expenditure amounted to €297m (2016: €210m) due to increased investment in Group growth platforms, in particular in taste technologies and developing market facilities. The Group achieved a free cash flow of €501m (2016: €570m).     

Business Reviews

Taste & Nutrition

2017

Growth

Revenue

€5,159m

4.7%*

Trading profit

€767m

+7.1%

Trading margin

14.9%

+20bps

* Volume growth

Kerry, the industry's leading, globally-connected Taste & Nutrition company, provides the largest most innovative portfolio of Taste & Nutrition Technologies and Systems, and Functional Ingredients & Actives for the global food, beverage and pharmaceutical industries.

'Mindful' consumption, driven by the connected consumer revolution, has increased demand for speedy innovation as the marketplace aligns to consumer trends favouring enhanced taste profiles, premiumisation, clean label, 'free-from', personalised, convenient, sustainably sourced food and beverage offerings. Kerry's Technology & Innovation Centre network, supporting the Group's in-market application and commercial centres achieved solid market development across all regions. Development in regional developing markets continued to advance favourably, with an excellent performance reported in the Asia-Pacific region. Demand for 'food-to-go' and out-of-home consumption continued to drive increased innovation requirements in the foodservice channel in all regions. Business performance also benefited from Kerry's commercial effectiveness programmes and the Group's continued industry-leading RD&A investment and capital expenditure programmes.

Taste & Nutrition reported revenue increased by 5.7% to €5.2 billion, reflecting 4.7% volume growth. Net pricing increased by 2%. Trading profit grew by 7.1% to €767m, reflecting a 20 basis points improvement in trading margin to 14.9%. In 2017 Taste & Nutrition accounted for 79% of Group revenue and 88% of Group trading profit.  

Americas Region

Clean label and elevated taste requirements were to the fore in driving innovation across American end-use-markets in 2017. 'Centre of store' branded offerings continued to be adversely impacted by consumer trends in North America but demand for health & wellness, natural, organic, non-GMO, meat-free snacking lines and natural food preservation led to strong development and innovation opportunities throughout food and beverage categories across retail and foodservice channels. In Latin American markets, a solid overall performance was achieved in Brazil, Mexico and Central America but development in the Caribbean region slowed relative to the prior year.

Sales revenue in the Americas region on a reported basis increased by 3.5% to €2,678m, reflecting 3.3% volume growth, a 1.3% increase in net pricing, business acquisitions of 0.4% and an adverse translation currency impact of 1.5%.

The North American meat sector continued to provide strong growth opportunities for Kerry's clean label and authentic taste technologies. Seasonings, coatings and functional meat systems achieved a strong performance in Latin America. Savoury Taste grew well in the stocks and broths segments. Mississippi, US based Dottley Spice was acquired in October 2017 - furthering Kerry's position as a leading supplier of seasonings and coatings to the meat processing industry and foodservice sector in North America.

Culinary Foundations achieved encouraging growth in the prepared meals category. 2017 also saw an increased focus on plant based proteins and premium meat alternatives - in particular in the foodservice channel as providers launched new vegan and meal alternative menu options. Global and regional chains in Brazil also provided good growth opportunities for Culinary Systems and sauce applications.

Kerry's fermented ingredients technologies recorded strong growth in the North American meat and bakery sectors. Introduction of gluten-free, organic and non-GMO lines to the portfolio contributed to the continuing strong performance in 2017. The US $28m expansion programme at the Group's Rochester, Minnesota facility was significantly advanced to increase manufacturing capacity of naturally derived fermented ingredients.

Dairy systems recorded good growth in Brazil and the South Cone. Ben Alimentos was acquired in June expanding the Group's dairy technology capacity in Brazil. In the North American snacks sector good growth was achieved through strategic accounts across multiple technologies including sweet, dairy and culinary systems. Savoury snacks achieved continued growth in Central America and through regional accounts in Mexico. The traditional breakfast cereal category continued to decline in North America.

Kerry's TasteSense sugar reduction technology received US regulatory approval in October which will assist development in the soft drinks sector. Functional ingredients achieved good growth in the craft beer sector. Strong growth was achieved in the RTD coffee sector in North America where Kerry's 'Cold Brew' technology continues to achieve encouraging results. The foodservice sector and convenience store channel provided a solid platform for growth across American markets through extended day-part-menus and 'better-for-you' lines of food and beverage convenient offerings. The acquisition of the US based Kettle business of Tyson Foods was completed prior to year end. Operating from a production and development facility in Fort Worth, Texas; the Kettle business has a strong heritage in the North American foodservice industry with well-established key customer alliances in the QSR and fast-casual restaurant sectors. 

The Group continued to advance business development and performance in the pharmaceutical sector. Cell nutrition recorded continued growth through custom-developed complex media systems. Excipients performed strongly in North America - in particular through Sheffield Anhydrous premium lines. Wellmune® recorded excellent growth in all regions including new applications in the North American dietary supplements market. Ganeden, acquired in August, performed well in particular in the beverage sector. Headquartered in Cleveland, Ohio, Ganeden produces highly stable probiotic ingredients and significantly strengthens Kerry's position in the nutritional actives market.

EMEA Region

Despite the prevailing competitive environment compounded by currency volatility and market uncertainty due to geopolitical issues, Kerry achieved a strong business and operational performance in the EMEA region in 2017. A renewed focus on commercial effectiveness and 'in-market' customer engagement throughout the region assisted overall business performance. Growth in the foodservice sector was particularly encouraging through innovative seasonal launches and 'limited-time-offerings'. A solid performance was achieved in the UK market against a background of inflationary food and beverage trends and continuing uncertainty following the UK electorate decision to leave the European Union. In regional developing markets, trading conditions improved in Sub-Saharan Africa and Middle Eastern markets, and Kerry also continued to achieve good growth in Russia.

Sales revenue in the EMEA region on a reported basis increased by 6.2% to €1,537m, reflecting 4.2% volume growth, a 3.4% increase in net pricing, an adverse 0.1% transaction currency impact, business acquisitions of 0.8% and an adverse 2.1% translation currency impact.

Kerry taste technologies achieved double digit growth across geographies and end-use-markets in the region. TasteSense delivered a strong innovation pipeline in food and beverage categories responding to consumer demand and regulatory changes for reduced sugar.

The meat industry across Europe provided good opportunities for growth through retail and foodservice applications. Kerry recorded good growth through regional QSRs and through retail suppliers in the UK, Ireland and Russia. Coatings technologies performed well leading to investment in additional production capacity in Germany. Establishment of a new production facility to meet customer requirements in the meat and savoury snack sectors in Russia was significantly advanced in 2017. The meat and savoury snack sectors in Middle Eastern markets also provided good growth opportunities for Kerry technologies in 2017. Prior to year end, the Group acquired Galicia, Spain based Hasenosa - a leading producer of coatings (including gluten-free lines), marinades and sauces serving the meat and seafood industries in Europe.  Since year end, the Group has also reached agreement to acquire Johannesburg, South Africa based Season to Season - a leading supplier of Taste ingredients and systems to the African snack and food sectors.    

Dairy & Culinary technologies achieved solid growth in 2017, in particular in the foodservice sector through seasonal QSR applications including appetisers, desserts and beverages. Sweet technologies performed well in the ice cream sector, benefiting from consumer trends favouring premium lines, 'better-for-you' variants and indulgent offerings. Hydrolysed proteins recorded good growth in the confectionery and bar markets.

Beverage applications grew strongly across Europe capitalising on clean label demands and Kerry's TasteSense and Simply Nature technologies, in addition to the Group's branded foodservice offerings and delivery systems. Island Oasis was successfully launched across the Iberian market and Da Vinci continued to achieve above-market growth rates.

Nutritional technologies maintained good growth through infant and life-stage applications. Lower dairy exports from some exporting countries and strong butterfat demand contributed significant upward momentum to international dairy pricing in the first half of 2017. However, a rapid growth in milk output from Q3 saw supply outpacing demand which led to considerably lower dairy market pricing.

Asia-Pacific Region

Excellent growth and business development momentum was maintained in Asia-Pacific markets in 2017. All Kerry technologies established in the region achieved solid growth. Development in the dynamic regional foodservice channel proved highly favourable - capitalising on Kerry's innovation capabilities and speed to market. Further expansion of Kerry's manufacturing and technology footprint was achieved through continued investment in Group facilities and strategic acquisitions.

Sales revenue in the Asia-Pacific region on a reported basis increased by 13.1% to €866m, reflecting 11.1% volume growth, 1.8% increase in net pricing, business acquisitions of 2.9% and an adverse currency translation impact of 2.7%.

Beverage systems grew strongly through tea, coffee and nutritional applications. Liquid beverage systems performed well through foodservice chains, in particular in China, Japan and Thailand. Culinary systems also performed well in the foodservice sector and through soup, sauce, and dressings applications and the bakery and snack sectors in Malaysia, Singapore, China, Australia and New Zealand. Dairy systems grew strongly throughout the region. Meat systems maintained solid growth across all channels in Australia, New Zealand, Thailand and China.

Enzymes and specialised proteins maintained good growth in Asia. Wellmune® achieved solid growth, in particular through functional beverage applications in China. The Group's operational footprint in the Asia-Pacific region was significantly expanded in 2017 through organic investment and the completion of a number of acquisitions. A regional Technology & Innovation Centre was established in Bangalore, India. Regional Application & Development Centres were established in Jakarta, Indonesia; Bangpoo, Thailand and Ho Chi Minh, Vietnam. New production facilities were established across sites located in Plentong, Malaysia; Cikarang, Indonesia; Tumkur, India; Nantong, China; Batangas, Philippines and Brisbane, Australia.

In March 2017, Taste Master was acquired in Adelaide, Australia strengthening the Group's taste capabilities in the beverage, snack, meat and culinary industries in Australia and New Zealand. In April, the acquisition of Jurong, China based Tianning Flavours was completed providing a significant boost to Kerry's savoury and sweet flavour development capabilities.

Since year end, the Group completed the acquisition of Hangzhou, China based Hangman Flavours, further strengthening Kerry's taste positioning and capabilities in Greater China. Agreement has also been reached to acquire Dachang, China based SIAS Food Co. - a leading supplier of culinary and fruit ingredients and systems to the foodservice and food manufacturing industries in China. 



 

Consumer Foods

2017

Growth

Revenue

€1,331m

  2.4%*

Trading profit

€108m

  (8.1%)

Trading margin

8.1%

  (70bps)

* Volume growth

Kerry Foods is an industry-leading manufacturer of added-value branded and customer branded chilled food products to the Irish, UK and selected international markets.

Consumer shopping trends across multiple channels have continued to heighten competitiveness in the UK and Irish consumer foods markets. At retail level, the focus on delivery of 'better value' continues through range simplification, EDLP strategies and investment in customer brands. In the UK market, in an inflationary environment, such trends have adversely impacted trading margins. Discounter chains have continued to gain market share, whilst online shopping continues to grow at pace - driven by innovation and new entrants. Snacking and 'on-the-go' consumption continues to grow, blurring the market landscape between food retail and foodservice.

Kerry Foods' business volumes grew by 2.4%. While there was some lag in price recovery in response to the impact of sterling depreciation on products exported from Ireland to the UK, pricing increased by 2%. The divisional trading profit margin decreased by 70 basis points to 8.1% as the underlying margin improvement was more than offset by the adverse sterling exchange rate movements, resulting in a trading profit decrease of 8.1% to €108m.

Snacking occasions continued to drive strong category growth in the meat and cheese categories. 'Fridge Raiders' achieved strong growth in the meat sector assisted by an increase in promotional frequency and a successful 'Call of Duty' marketing campaign. Dairy snacking grew by 11% with 'Cheestrings' and 'Attack-a-Snak' performing well in response to increased marketing support and wider distribution. In Ireland, Kerry Foods also successfully launched an innovative adult cheese snacking range under the 'Go Go's' brand. 'Charleville' also introduced the premium range 'Crafty Creations' and 'Charleville Snackfuls' snacking products.

In the grocery meats sector, the rebrand of 'Richmond' had a positive impact in the UK sausage category. 'Richmond Perfect Bake' was rebranded to 'Oven Ready' to highlight the brand's convenience benefit. Kerry Foods' brands performed satisfactorily in the Irish meats sector despite the continued focus of retailers on private label and growth of discounter sales. 'Denny' remains the number 1 meats brand in its core categories. 'Galtee' saw good growth in the sausage and sliced cooked meat categories. 'Denny Fresh Pack' was successfully launched in the cooked meats category. 'Fire & Smoke' maintained strong growth in the Irish and UK prepack meats segment. 'Fire & Smoke Snack Pots' achieved continued growth in the chilled snacking sector.

Kerry Foods' grocery dairy business maintained growth in a challenging category environment. In the UK good volume growth was achieved through private label customer brands incorporating Kerry's spreadable butter technologies. In Ireland 'Dairygold' maintained its market leadership positioning, assisted by innovative product launches and a successful 'Make a Minute' marketing campaign. The 'Dairygold Deli' range launch in 2017 created a new 'Fresh Flavours' category segment.

Kerry Foods outperformed market growth rates in chilled and frozen ready meals ranges. This performance was driven by an ongoing focus on enhanced nutrition, lower calories and salt, and clean label declarations - with a number of range relaunches and an increasing presence in health and 'free from' segments.

A strong focus on expanding channel reach in 2017 led to strong growth in 'out-of-home' segments. 'Rollover' recorded good growth and encouraging progress was achieved through pub chains and restaurant chains. The acquisition of Oakhouse Foods was completed in November, expanding Kerry Foods' chilled foods route to market through a new 'direct-to-customer' platform.

Financial Review

 

 

%

2017

2016


change

€'m

€'m





Revenue

4.5%

6,407.9

6,130.6





Trading profit

4.2%

781.3

749.6

Trading margin


12.2%

12.2%

Computer software amortisation


(24.3)

(23.4)

Finance costs (net)


(65.6)

(70.4)

Adjusted earnings before taxation


691.4

655.8

Income taxes (excluding non-trading items)


(89.5)

(86.7)

Adjusted earnings after taxation

5.8%

601.9

569.1

Brand related intangible asset amortisation


(23.6)

(23.0)

Non-trading items (net of related tax)


10.2

(13.0)

Profit after taxation


588.5

533.1







EPS

EPS



Cent

Cent

Basic EPS

10.1%

333.6

302.9

Brand related intangible asset amortisation


13.4

13.1

Non-trading items (net of related tax)


(5.8)

7.4

Adjusted EPS* 

5.5%

341.2

323.4

Constant currency adjusted EPS* growth


+9.4%

+12.3%

* Before brand related intangible asset amortisation and non-trading items (net of related tax)

Analysis of Results

Revenue

On a reported basis, Group revenue increased by 4.5% to €6.4 billion (2016: €6.1 billion). Volumes grew by 4.3%, product pricing increased by 2.0%, and transaction related currency had a negative impact of 0.2%. Business acquisitions contributed 0.8%, and there was a negative reporting currency impact of 2.4%.

FY2016: Group reported revenue +0.4%, volumes +3.6%, product pricing (2.1%), transaction currency (0.3%), acquisitions +3.3%, translation currency (4.1%).

In Taste & Nutrition, reported revenue increased by 5.7% to €5.2 billion (2016: €4.9 billion). Volumes grew by 4.7%, and product pricing increased by 2.0%. Business acquisitions contributed 0.9%, and there was a negative reporting currency 
impact of 1.9%.

FY2016: Taste & Nutrition reported revenue +3.5%, volumes +4.0%, product pricing (2.1%), transaction currency (0.1%), acquisitions +4.9%, translation currency (3.2%).

In Consumer Foods, reported revenue decreased slightly by 0.1% to €1.3 billion (2016: €1.3 billion). Volumes increased by 2.4%, product pricing increased by 2%, and transaction related currency had a negative impact of 0.9%. Business acquisitions contributed 0.2% and there was a negative reporting currency impact of 3.8%.

FY2016: Consumer Foods reported revenue (9.7%), volumes +2.1%, product pricing (2.0%), transaction currency (1.1%), disposals (2.1%), translation currency (6.6%).

Trading Profit & Margin

On a reported basis, Group trading profit increased by 4.2% to €781.3m (2016: €749.6m). Group trading profit margin was maintained at 12.2% reflecting good underlying margin expansion attributable to portfolio enhancement, operating leverage and efficiencies, offset by transaction currency headwinds, increased Kerryconnect investment and the denominator pricing effect.

Trading profit margin in Taste & Nutrition increased by 20 bps to 14.9% (2016: 14.7%), due to the benefits of portfolio enhancement, operating leverage and efficiencies, offset by the denominator pricing effect and currency headwinds. 
Trading profit margin in Consumer Foods decreased by 70 bps to 8.1% (2016: 8.8%), due to significant transaction currency headwinds in the period, partly offset by underlying margin expansion.

Computer Software Amortisation

Computer software amortisation increased to €24.3m (2016: €23.4m) reflecting the on-going progression of the Kerryconnect project. The capitalised element of the cost of this project is being amortised over a 7 year period.

Finance Costs (net)

Finance costs (net) for the year decreased by €4.8m to €65.6m (2016: €70.4m) due to strong cash generation in the year and the repayment of US $192m of senior notes which matured on 20 January 2017. The Group's average interest rate for 
the year was 3.5% (2016: 3.5%).

Taxation

The tax charge for the year, before non-trading items, was €89.5m (2016: €86.7m) representing an effective tax rate of 13.4% (2016: 13.7%).

On 22 December 2017, the US Tax Cuts and Jobs Act ("the Act") was enacted into law. This Act brings about fundamental changes to the US tax system, both from an individual and corporate tax perspective. As a result of the Act, the statutory rate of US federal corporate income tax has been reduced from 35% to 21% with effect from 1 January 2018. The reduction in the US corporate income tax rate to 21% required revaluation of Kerry's US deferred tax assets and liabilities. This resulted in a one-off deferred tax credit in 2017, which is reported in the Consolidated Income Statement as a non-trading item of €52.8m. The final impact of the changes from this new law are subject to a number of detailed provisions in the legislation and any implementation guidance issued by the Treasury Department and the IRS. Kerry will continue to monitor any developments and give due consideration to the impact of any guidance, along with ongoing market interpretation and assessment on the accounting implications of this Act.

Acquisitions

During the year the Group completed 8 acquisitions at a cost of €397m. The acquisition of Hangman Flavours in China was completed shortly after year end.

Non-Trading Items

Non-trading items totalling an income of €10.2m (2016: a charge of €13.0m) net of tax were recorded in 2017. The Group recorded a deferred tax credit arising from the recent US tax reform changes as noted above, which was largely offset by costs relating to the integration of businesses acquired in recent years and the Brexit mitigation programme underway in consumer foods.

Adjusted EPS

Adjusted EPS increased by 5.5% to 341.2 cent (2016: 323.4 cent). The year-on-year increase was negatively impacted by translation currency headwinds. On a constant currency basis, adjusted EPS increased by 9.4% (2016: 12.3%) over the 
prior year.

Basic EPS

Basic EPS increased by 10.1% to 333.6 cent (2016: 302.9 cent) after accounting for brand related intangible asset amortisation of 13.4 cent (2016: 13.1 cent) and a non-trading item credit of 5.8 cent net of tax (2016: a charge of 7.4 cent).

Return on Investment

This is measured by the Group on a profit basis using ROACE and ROAE, and on a cash basis using CFROI. In 2017 the Group achieved ROACE of 13.0% (2016: 12.9%) and ROAE of 15.7% (2016: 16.5%) which were above the Group's return on investment hurdles. The Group achieved CFROI of 10.9% (2016: 12.8%) which was below the Group target as a result of capital expenditure and other strategic investments which are expected to drive business growth in the longer term.

Exchange Rates

Group results are impacted by fluctuations in exchange rates year-on-year versus the euro. The average rates below are the principal rates used for the translation of results. The closing rates below are used to translate assets and liabilities at year end.

 

      Average Rates


     Closing Rates


2017

2016


2017

2016







Australian Dollar

1.47

1.48


1.53

1.46

Brazilian Real

3.62

3.84


3.96

3.44

British Pound Sterling

0.88

0.82


0.89

0.86

Canadian Dollar

1.46

1.46


1.50

1.42

Chinese Yuan Renminbi

7.62

7.32


7.80

7.31

Malaysian Ringgit

4.85

4.58


4.87

4.73

Mexican Peso

21.30

20.67


23.72

21.87

South African Rand

15.03

16.08


14.76

14.50

US Dollar

1.13

1.11


1.20

1.05
 
Impact of Brexit

While the exact outcome of the UK's exit from the European Union is still unclear, our Business Brexit teams continue to work through the potential implications for Kerry. Sterling mitigation plans are well progressed, as the Group continues to restructure less profitable businesses, execute the KerryExcel cost optimisation programme and reduce transaction currency exposure. Given our well established manufacturing footprint in the UK and in the Eurozone, we are very well positioned to deal with the potential challenges and realise the opportunities that will arise.

Balance Sheet

A summary balance sheet as at 31 December is provided below:

 


2017

2016



€'m

€'m

Property, plant & equipment


1,529.6

1,451.9

Intangible assets


3,646.7

3,444.3

Other non-current assets


192.2

285.7

Current assets


2,031.7

2,240.0

Total assets


7,400.2

7,421.9

Current liabilities


1,567.8

1,693.4

Non-current liabilities


2,259.2

2,634.5

Total liabilities


3,827.0

4,327.9

Net assets


3,573.2

3,094.0

Shareholders' equity


3,573.2

3,094.0

 

Intangible Assets

Intangible assets increased by €202.4m to €3,646.7m (2016: €3,444.3m) due to additions of €401.3m during the year which were partially offset by foreign exchange movements and the annual amortisation charge.

Current Assets

Current assets decreased by €208.3m to €2,031.7m (2016: €2,240.0m), primarily due to a decrease in cash in hand at 31 December 2017 arising from the repayment of US Senior Notes of $192m during the year.

Retirement Benefits

At the balance sheet date, the net deficit for defined benefit schemes (after deferred tax) was €102m (2016: €291.9m). The decrease in the net deficit since the previous year end arises primarily from strong investment returns, cash contributions, and the impact of the ongoing liability management programme. The net deficit expressed as a percentage of market capitalisation at 31 December 2017 was 0.6% (2016: 2.4%).

Free Cash Flow

Free cash flow is seen as an important indicator of the strength and quality of the business and of the availability of funds to the Group for reinvestment or for return to the shareholder. In 2017 the Group achieved another strong year of free cash flow of €501.3m (2016: €569.9m) despite higher capital expenditure to support future growth.


2017

2016

Free Cash Flow


€'m

€'m

Trading profit


781.3

749.6

Depreciation (net)


134.0

129.8

Movement in average working capital


93.5

137.7

Pension contributions paid less pension expense


(95.3)

(118.2)

Cash flow from operations


913.5

898.9

Finance costs paid (net)


(60.2)

(61.5)

Income taxes paid


(54.7)

(57.3)

Purchase of non-current assets


(297.3)

(210.2)

Free cash flow


501.3

569.9

Cash conversion¹


83%

100%

¹ Cash conversion is free cash flow expressed as a percentage of adjusted* earnings after tax

Net Debt

Net debt at the end of the year was €1,341.7m (2016: €1,323.7m).

Key Financial Covenants

A significant portion of Group financing facilities are subject to financial covenants as set out in their facility agreements. The Group's balance sheet is in a healthy position. With a net debt to EBITDA* ratio of 1.4 times, the organisation has sufficient headroom to support future growth plans. Group Treasury monitors compliance with all financial covenants and at 31 December the key covenants were as follows:

 

Covenant

2017

Times

2016

Times

Net debt: EBITDA*

Maximum 3.5

1.4

1.5

EBITDA: Net interest*

Minimum 4.75

16.2

14.0

* Calculated in accordance with lenders' facility agreements which take account of adjustments as outlined in Financial Definitions.

 

Share Price and Market Capitalisation

The Company's shares traded in the range €64.18 to €94.30 during the year. The share price at 31 December 2017 was €93.50 (2016: €67.90) giving a market capitalisation of €16.5 billion (2016: €12.0 billion). Total Shareholder Return for 2017 was +38.6% (2016: -10.3%).

Annual Report and Annual General Meeting

The Group's Annual Report will be published at the beginning of April and the Annual General Meeting will be held in Tralee on 3 May 2018.

Board & Management Changes

The Board announces its intention to appoint Ms Marguerite Larkin as Chief Financial Officer from 30 September 2018 to succeed Mr Brian Mehigan who will take up the role of Chief Strategy Officer.

Marguerite Larkin is a senior partner with Deloitte and has held a number of leadership roles within Deloitte Ireland including Audit & Assurance and Risk Advisory leader, Head of Consumer Business Industry Practice and Client & Industries Partner. She has over 25 years global experience and has served as lead client partner for a number of the firm's largest clients operating in a broad range of industries including food & beverage, pharma and technology. She is a fellow of Chartered Accountants Ireland and holds a Bachelor of Commerce degree and Masters in accounting. Ms Larkin will be appointed to the Board on taking up the Chief Financial Officer position on 30 September 2018.

Future Prospects

Despite the changing market landscape and significant currency volatility, Kerry businesses are well positioned to continue to grow and develop profitability, and to achieve the Group's new medium term strategic financial targets as presented at its Capital Markets Day in October 2017. The Group expects its targets to be delivered through above industry average volume growth and continued business margin expansion. Building on Kerry's breadth and depth of foundational technologies and geographic footprint, Kerry Taste & Nutrition is well placed to deliver the continued organic growth of the business across developed and developing markets. In European consumer foods markets, building on Kerry Foods' deep consumer insight and core dairy, meals and meat technologies, the business will continue to focus on its 'strategic value creation model' through occasion led propositions in response to consumer, customer and channel requirements.

The Group is in a strong position to continue to invest in the organic growth of its global businesses and to lead the continued consolidation of the industry benefiting from the Group's strong balance sheet and scalable business model.

In 2018 the Group expects to deliver adjusted earnings per share growth of 6% to 10% on a constant currency basis.

 

 

Disclaimer Forward Looking Statements

This Announcement contains forward looking statements which reflect management expectations based on currently available data. However actual results may differ materially from those expressed or implied by these forward looking statements. These forward looking statements speak only as of the date they were made and the Company undertakes no obligation to publicly update any forward looking statement, whether as a result of new information, future events or otherwise.

 

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017

Consolidated Income Statement








for the financial year ended 31 December 2017


















Before

 Non-Trading

Items

2017

 

 Non-Trading

Items

2017

Total

2017

Before

 Non-Trading

Items

2016

 

 Non-Trading

Items

2016

Total

2016


              Notes

€'m

€'m

€'m

€'m

€'m

€'m









Continuing operations








Revenue

                           2

6,407.9

-

6,407.9

6,130.6

-

6,130.6



_______

_______

_______

_______

_______

_______









Trading profit

                           2

781.3

-

781.3

749.6

-

749.6









Intangible asset amortisation


(47.9)

-

(47.9)

(46.4)

 

-

(46.4)

Non-trading items

                           3

-

(54.5)

(54.5)

-

(21.0)

(21.0)



_______

_______

_______

_______

_______

_______

Operating profit


733.4

(54.5)

678.9

703.2

(21.0)

682.2









Finance income


0.1

-

0.1

1.1

-

1.1

Finance costs


(65.7)

-

(65.7)

(71.5)

-

(71.5)



_______

_______

_______

_______

_______

_______

Profit before taxation


667.8

(54.5)

613.3

632.8

(21.0)

611.8

 

 








Income taxes


(89.5)

64.7

(24.8)

(86.7)

8.0

(78.7)



_______

_______

_______

_______

_______

_______








Profit after taxation attributable to owners of the parent

578.3

10.2

588.5

546.1

(13.0)

533.1



_______

_______

_______

_______

_______

_______









Earnings per A ordinary share




Cent



Cent

 - basic

                           4



333.6



302.9

 - diluted

                           4



333.2



302.0





_______



_______

Consolidated Statement of Comprehensive Income



 

for the financial year ended 31 December 2017




 






2017

2016






€'m

€'m








Profit after taxation attributable to owners of the parent



588.5

533.1








Other comprehensive income:














Items that are or may be reclassified subsequently to profit or loss:




Fair value movements on cash flow hedges




5.3

29.3

Cash flow hedges - reclassified to profit or loss from equity




(29.2)

(13.3)

Deferred tax effect of fair value movements on cash flow hedges




(0.6)

0.9

Exchange difference on translation of foreign operations




(108.8)

(17.9)

Fair value movement on revaluation of available for sale financial assets


3.5

-















Items that will not be reclassified subsequently to profit or loss:





Re-measurement on retirement benefits obligation




130.1

(170.3)

Deferred tax effect of re-measurement on retirement benefits obligation



(20.2)

25.5






_______

_______






Net expense recognised directly in total other comprehensive income



(19.9)

(145.8)






_______

_______








Total comprehensive income





568.6

387.3






_______

_______

Consolidated Balance Sheet





         

 

 

31 December

 

31 December

as at 31 December 2017





2017

2016






€'m

€'m

Non-current assets







Property, plant and equipment





1,529.6

1,451.9

Intangible assets





3,646.7

3,444.3

Financial asset investments





44.6

39.3

Investment in associates





5.8

40.7

Non-current financial instruments





95.4

153.0

Deferred tax assets





46.4

52.7






_______

_______













5,368.5

5,181.9






_______

_______

Current assets







Inventories





797.5

743.0

Trade and other receivables





893.1

847.3

Cash at bank and in hand





312.5

564.7

Other current financial instruments





20.3

80.1

Assets classified as held for sale





8.3

4.9






_______

_______













2,031.7

2,240.0






_______

_______








Total assets





7,400.2

7,421.9






_______

_______

Current liabilities







Trade and other payables





1,410.5

1,351.6

Borrowings and overdrafts





13.3

192.5

Other current financial instruments





9.1

20.9

Tax liabilities





108.4

95.2

Provisions





25.3

30.4

Deferred income





1.2

2.8






_______

_______













1,567.8

1,693.4






_______

_______

Non-current liabilities







Borrowings





1,728.4

1,867.0

Other non-current financial instruments





7.9

7.3

Retirement benefits obligation





124.3

352.8

Other non-current liabilities





96.7

95.1

Deferred tax liabilities





241.9

247.2

Provisions





37.1

40.8

Deferred income





22.9

24.3






_______

_______













2,259.2

2,634.5






_______

_______








Total liabilities





3,827.0

4,327.9






_______

_______








Net assets





3,573.2

3,094.0






_______

_______

Issued capital and reserves attributable to owners of the parent




Share capital





22.0

22.0

Share premium





398.7

398.7

Other reserves





(214.4)

(98.0)

Retained earnings





3,366.9

2,771.3






_______

_______








Shareholders' equity





3,573.2

3,094.0






_______

_______






















 

Consolidated Statement of Changes in Equity

  for the financial year ended 31 December 2017




 





Notes

Share

Capital

€'m

Share

Premium

€'m

Other

Reserves

€'m

Retained

Earnings

€'m

 

Total

€'m

Group:










At 1 January 2016





22.0

398.7

(103.9)

2,473.3

2,790.1











Profit after tax attributable to owners of the parent


-

-

-

533.1

533.1

Other comprehensive expense





-

-

(1.9)

(143.9)

(145.8)






_______

_______

_______

_______

_______

Total comprehensive (expense)/income





-

-

(1.9)

389.2

387.3











Dividends paid




5

-

-

-

(91.2)

(91.2)

Share-based payment expense





-

-

7.8

-

7.8






_______

_______

_______

_______

_______

At 31 December 2016





22.0

398.7

(98.0)

2,771.3

3,094.0











Profit after tax attributable to owners of the parent


-

-

-

    588.5

  588.5

Other comprehensive (expense)/income





-

-

(129.2)

109.3

(19.9)






_______

_______

_______

_______










Total comprehensive (expense)/income





-

-

(129.2)

697.8

568.6

Dividends paid




5

-

-

-

(102.2)

(102.2)

Share-based payment expense





-

-

12.8

-

12.8






_______

_______

_______

_______

_______











At 31 December 2017





22.0

398.7

      (214.4)

3,366.9

3,573.2






_______

_______

_______

_______

_______

 

 

Other Reserves comprise the following:













 

 

AFS

Reserve

€'m

Capital

Redemption

Reserve

              €'m

Other

Undenominated

Capital

                    €'m

Share-Based Payment

Reserve

€'m

Translation

Reserve

€'m

Hedging

Reserve

€'m

Total

€'m











At 1 January 2016



-

1.7

0.3

30.5

(129.1)

(7.3)

(103.9)

Other comprehensive (expense)/income



-

-

-

-

(17.9)

16.0

(1.9)

Share-based payment expense



-

-

-

7.8

-

-

7.8




_______

_______

_______

_______

_______

_______

_______

At 31 December 2016



-

1.7

0.3

38.3

(147.0)

8.7

(98.0)











Other comprehensive income/(expense)



3.5

-

-

-

(108.8)

(23.9)

(129.2)

Share-based payment expense



-

-

-

12.8

-

-

12.8




_______

_______

_______

_______

_______

_______

_______











At 31 December 2017



3.5

1.7

0.3

51.1

(255.8)

(15.2)

(214.4)




       _______

_______

_______

_______

_______

_______

_______











 

 










Consolidated Statement of Cash Flows







for the financial year ended 31 December 2017





2017

2016







Notes


€'m

€'m











Operating activities










Trading profit








781.3

749.6

Adjustments for:










Depreciation (net)








134.0

129.8

Change in working capital








9.1

61.7

Pension contributions paid less pension expense




(95.3)

(118.2)

Payments on non-trading items




(34.0)

(21.2)

Exchange translation adjustment








(8.8)

0.1









_______

_______

Cash generated from operations








786.3

801.8

Income taxes paid








(54.7)

(57.3)

Finance income received








0.1

1.1

Finance costs paid








(60.3)

(62.6)









_______

_______

Net cash from operating activities








671.4

683.0









_______

_______

Investing activities










Purchase of assets








(301.3)

(223.8)

Proceeds from the sale of assets








3.1

12.1

Capital grants received








0.9

1.5

Purchase of businesses (net of cash acquired)


6


(396.5)

(22.2)

Disposal/(purchase) of share in associates








29.5

(6.7)

Income received from associates








-

5.0

Disposal of businesses








-

(2.0)

Payments relating to previous acquisitions








(0.9)

(0.1)









_______

_______











Net cash used in investing activities








(665.2)

(236.2)









_______

_______

Financing activities










Dividends paid






   5


(102.2)

(91.2)

Issue of share capital








-

-

Repayment of borrowings (net of swaps)








(144.3)

(25.6)









_______

_______









Net cash movement due to financing activities




(246.5)

(116.8)









_______

_______











Net (decrease)/increase in cash and cash equivalents




(240.3)

330.0

Cash and cash equivalents at beginning of the financial year




561.1

231.2

Exchange translation adjustment on cash and cash equivalents




(15.2)

(0.1)









_______

_______








Cash and cash equivalents at end of the financial year



305.6

561.1









_______

_______

Reconciliation of Net Cash Flow to Movement in Net Debt






Net (decrease)/increase in cash and cash equivalents





(240.3)

330.0

Cash flow from debt financing








144.3

25.6









_______

_______

Changes in net debt resulting from cash flows




(96.0)

355.6

Fair value movement on interest rate swaps (net of adjustment to borrowings)



2.8

(5.4)

Exchange translation adjustment on net debt








75.2

(23.8)









_______

_______

Movement in net debt in the financial year








(18.0)

326.4

Net debt at beginning of the financial year








(1,323.7)

(1,650.1)









_______

_______











Net debt at end of the financial year








(1,341.7)

(1,323.7)









_______

_______

 

 










Notes to the Financial Statements

for the financial year ended 31 December 2017

 

1. Accounting policies

 

The financial information included within this statement has been extracted from the audited financial statements of Kerry Group plc for the financial year ended 31 December 2017. The auditors' report was unqualified. The financial information set out in this document does not constitute full statutory financial statements for the financial years ended 31 December 2017 or 2016 but is derived from same. The consolidated financial statements of Kerry Group plc have been prepared in accordance with International Financial Reporting Standards ('IFRS'), International Financial Reporting Interpretations Committee ('IFRIC') interpretations and those parts of the Companies Act 2014 applicable to companies reporting under IFRS. The financial statements comprise of the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the notes to the financial statements. The Group's financial statements have also been prepared in accordance with IFRS adopted by the European Union ('EU') which comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'). The Group's financial statements comply with Article 4 of the EU IAS Regulation. IFRS adopted by the EU differs in certain respects from IFRS issued by the IASB. References to IFRS hereafter refer to IFRS adopted by the EU.

 

The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain financial assets and liabilities (including derivative financial instruments) and financial asset investments which are held at fair value. Assets classified as held for sale are stated at the lower of carrying value and fair value less costs to sell. The investment in associates are accounted for using the equity method.

 

The Group's accounting policies will be included in the 2017 Annual Report & Accounts, which will be published at the start of April and are consistent with those described in the 2016 Annual Report & Accounts.

 

New standards and interpretations

Certain new and revised accounting standards and new International Financial Reporting Interpretations Committee ('IFRIC') interpretations have been issued. The Group intends to adopt the relevant new and revised standards when they become effective and the Group's assessment of the impact of these new standards and interpretations is set out below:

 

Standards and Interpretations effective for Kerry Group in 2017 but not material to the results and financial position of the Group:

 

Effective Date

-

IAS 7 (amendments)

Statement of Cash Flows

1 January 2017

-

IAS 12 (amendments)

Income Taxes

1 January 2017





Standards and Interpretations which are not yet effective for Kerry Group and are not expected to have a material effect

on the results or the financial position of the Group:

 

Effective Date

-

IFRS 2 (amendment)

Classification and Measurement of Share-Based Payment Transactions

1 January 2018

-

IFRS 4 (amendment)

Insurance Contracts

1 January 2018

 

-

IFRS 9

Financial Instruments

1 January 2018



IFRS 9, published in July 2014, replaces the existing guidance in IAS 39 'Financial Instruments: Recognition and Measurement'. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. The Group has assessed the potential impact on its consolidated financial statements resulting from the application of IFRS 9. The vast majority of financial assets held are trade receivables and cash, which will continue to be accounted for at amortised cost. The majority of financial asset investments will continue to be accounted for at fair value through profit or loss. On this basis, the classification and measurement changes will not have a material impact on the Group's consolidated financial statements. Given historic loss rates, normal receivable ageing and the significant portion of trade receivables that are within agreed terms, the move from an incurred loss model to an expected loss model will not have a material impact. The new hedging requirements of IFRS 9 will align hedge accounting more closely to the Group's risk management policies, as well as making more hedging relationships eligible for hedge accounting. Current hedging arrangements continue to be appropriate under IFRS with the only difference being a change to the cost of hedging. This change to cost is not material.

Based on the analysis to date the impact of IFRS 9 will not be material. In line with the transition guidance in IFRS 9 the Group will not restate the 2017 prior period on adoption.






-

IFRS 15

Revenue from Contracts with Customers

1 January 2018



IFRS 15 was issued to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied i.e. when 'control' of the goods or services underlying the particular performance obligation is transferred to the customer. The Group has assessed the potential impact on its consolidated financial statements resulting from the application of IFRS 15. Findings from our review of IFRS 15 are that the impact of this new standard on the Groups' results is unlikely to be material. Kerry do not supply services and generally legal title of goods sold is transferred on shipment.

In general there is one performance obligation in each of our sale contracts. In certain parts of the Group's business, the performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment (cost plus a margin) for performance completed to date. In these circumstances, revenue should be recorded over time rather than at a point in time as is our current policy.

Based on analysis conducted to date of its contractual and trading relationships, the Group currently estimates that the impact of IFRS 15 is not material and no material impact on profits in future periods is expected. In line with the transition guidance in IFRS 15 the Group will not restate the 2017 prior period on adoption.






-

IAS 40 (amendment)

Investment Property

1 July 2018

-

IFRIC 22

Foreign Currency Transactions and Advance Consideration

1 January 2018

 

The following revised standards are not yet effective and the impact on Kerry Group is currently under review:

Effective Date

-

IFRS 16

Leases

1 January 2019



IFRS 16, published in January 2016, replaces the existing guidance in IAS 17 'Leases'. IFRS 16 eliminates the classification of leases as either operating leases or finance leases. It introduces a single lessee accounting model, which requires a lessee to recognise: assets and liabilities for all leases with a term of more than 12 months and depreciation of lease assets separately from interest on lease liabilities in the income statement. The Group is assessing the potential impact on its consolidated financial statements resulting from the application of IFRS 16. During 2017 the Group commenced a review of its contractual leases and early indications from this initial review is that IFRS 16 will result in an increase in finance leased assets (right-of-use asset) of approximately €57.5m, and a corresponding increase in financial liabilities of the same amount, on the consolidated balance sheet of the Group's financial statements.


 

2. Analysis of results

 

The Group has determined it has two reportable segments: Taste & Nutrition and Consumer Foods. The Taste & Nutrition segment manufactures and distributes an innovative portfolio of taste & nutrition solutions and functional ingredients & actives for the global food, beverage and pharmaceutical industries. The Consumer Foods segment manufactures and supplies added value branded and consumer branded chilled food products to the Irish, UK and selected international markets.

 

 

 

Taste & Nutrition

2017

 

 

 

Consumer

Foods

2017

 

Group

Eliminations

and

Unallocated

2017

 

 

 

 

Total

2017

 

 

 

Taste & Nutrition

2016

 

 

 

Consumer

Foods

2016

 

Group

Eliminations

and

Unallocated

2016

 

 

 

 

Total

2016


€'m

€'m

€'m

€'m

€'m

€'m

€'m

€'m










External revenue

5,080.5

1,327.4

-

6,407.9

4,800.1

1,330.5

-

6,130.6

Inter-segment revenue

78.3

3.6

(81.9)

-

79.4

2.0

(81.4)

-


_______

_______

_______

_______

_______

_______

_______

_______










Revenue

5,158.8

1,331.0

(81.9)

6,407.9

4,879.5

1,332.5

(81.4)

6,130.6


_______

_______

_______

_______

_______

_______

_______

_______










Trading profit

767.2

107.8

(93.7)

781.3

716.4

117.3

(84.1)

749.6


_______

_______

_______


_______

_______

_______











Intangible asset amortisation



(47.9)




(46.4)

Non-trading items



(54.5)




(21.0)





_______




_______










Operating profit



678.9




682.2


















Finance income



0.1




1.1

Finance costs



(65.7)




(71.5)





_______




_______









Profit before taxation



613.3




611.8










Income taxes



(24.8)




(78.7)





_______




_______







Profit after taxation attributable to owners of the parent

588.5




533.1





_______




_______

Segment assets and liabilities










Segment assets

4,671.6 

 944.2

 1,784.4

 7,400.2

4,441.5

928.3

2,052.1

7,421.9

Segment liabilities

(1,150.5)

(351.8)

(2,324.7)

(3,827.0)

(1,156.9)

(428.1)

(2,742.9)

(4,327.9)


_______

_______

_______

_______

_______

_______

_______

_______










Net assets

3,521.1

592.4

(540.3)

3,573.2

3,284.6

500.2

(690.8)

3,094.0


_______

_______

_______

_______

_______

_______

_______

_______










Other segmental information










Property, plant and equipment additions

246.4

28.8

0.9

276.1

160.7

36.8

2.1

199.6










Depreciation (net)

108.5

18.1

7.3

133.9

109.2

16.2

3.8

129.2










Intangible asset additions

1.0

1.4

21.2

23.6

0.9

0.9

14.7

16.5










Intangible asset amortisation

17.2

6.2

24.5

47.9

19.6

6.1

20.7

46.4


_______

_______

_______

_______

_______

_______

_______

_______










Information about geographical areas

 








 

EMEA

2017

 

Americas

2017

Asia

Pacific

2017

 

Total

2017

 

EMEA

2016

 

Americas

2016

Asia

Pacific

2016

 

Total

2016


€'m

€'m

€'m

€'m

€'m

€'m

€'m

€'m










Revenue by location of external customers

2,864.0

2,678.3

865.6

6,407.9

2,777.0

2,588.5

765.1

6,130.6










Segment assets by location

4,300.2

2,451.0

649.0

7,400.2

4,510.4

2,373.5

538.0

7,421.9










Property, plant and equipment additions

100.6

122.4

53.1

276.1

83.3

76.9

39.4

199.6










Intangible asset additions

22.6

1.0

-

23.6

16.2

0.3

-

16.5


_______

_______

_______

_______

_______

_______

_______

_______










Kerry Group plc is domiciled in the Republic of Ireland and the revenues from external customers in the Republic of Ireland were €447.8m (2016: €429.4m). The non-current assets located in the Republic of Ireland are €906.1m (2016: €936.8m).

 

Revenues from external customers include €1,550.1m (2016: €1,534.8m) in the UK and €2,091.2m (2016: €2,053.1m) in the USA. The non-current assets in the UK are €669.9m (2016: €673.3m) and in the USA are €1,483.9m (2016: €1,385.7m).

 

There are no material dependencies or concentrations on individual customers which would warrant disclosure under IFRS 8 'Operating Segments'. The accounting policies of the reportable segments are the same as the Group's accounting policies as outlined in the Statement of Accounting Policies.

 

3. Non-trading items










2017

2016


Notes



€'m

€'m

Loss on disposal of assets and businesses

(i)



(5.8)

(1.3)

Acquisition integration and restructuring costs

(ii)



(36.0)

(19.6)

Consumer Foods Brexit mitigation programme

(iii)



(11.7)

-

Impairment of assets held for sale

(iv)



(1.0)

(0.1)





_______

_______





(54.5)

(21.0)







Tax on above

(i)- (iv)



11.9

8.0

Tax credit due to change in tax rates

(v)



52.8

-





_______

_______





64.7

8.0





_______

_______





 

10.2

 

(13.0)





_______

_______











Total

(i) Loss on disposal of assets and businesses





2017






€'m

Assets and businesses






Property, plant and equipment





(4.3)

Investments in associates




(34.4)

Assets classified as held for sale




(0.4)






________

Net assets and businesses disposed





(39.1)







Consideration






Cash received





33.3

Disposal related costs





-






________

Total consideration received





33.3






________






Loss on disposal of assets and businesses




(5.8)






________

Net cash inflow on disposal:











Total






2017






€'m

Cash





33.3

Less: cash at bank and in hand balance disposed of




-






________












33.3






________

 






During the year the Group disposed of its 22.5% shareholding in Addo Foods for a consideration of €30.1m resulting in a loss of €4.3m and also disposed of unused property, plant and equipment resulting in a loss of €1.5m.







In 2016, the Group disposed of property, plant and equipment and assets classified as held for sale primarily in Ireland and the UK and a small business in the Taste & Nutrition segment.







A tax credit of €0.1m (2016: a tax credit of €1.0m) arose on the disposal of assets and businesses.







(ii) Acquisition integration and restructuring costs





The acquisition integration and restructuring costs of €36.0m (2016: €19.6m) primarily relates to costs of integrating acquisitions completed since 2015, including Red Arrow and Island Oasis, plus acquisitions completed during 2017 into the Group's operations. This cost also includes transaction expenses incurred in completing current year acquisitions. Acquisition integration costs represent additional investment by the Group in the acquired businesses, in order to realise their full value and achieve expected synergies. These costs reflect restructuring of operations, integration of R&D and administration functions, redundancies, relocation of resources and other related expenses in order to integrate the business into the existing Kerry operating model.







In the year ended 31 December 2017, a tax credit of €10.8m (2016: €7.0m) arose due to tax deductions available on acquisition integration and restructuring costs.

 

(iii) Consumer Foods Brexit mitigation programme

As a result of the decision of the UK electorate to leave the European Union, Kerry has initiated a programme to optimise and restructure its cost base and product lines in order to maintain the competitiveness of the parts of the Consumer Foods business that have substantial sterling transaction exposure. The charge relating to this in 2017 is €11.7m and the associated tax credit is €1.0m.







(iv) Impairment of assets held for sale





In 2017, assets classified as held for sale were impaired to their fair value less costs to sell by €1.0m.

 

(v) Tax credit due to change in tax rates

On 22 December 2017, the US Tax Cuts and Jobs Act ("the Act") was enacted into law. This Act brings about fundamental changes to the US tax system, both from an individual and corporate tax perspective. As a result of the Act, the statutory rate of US federal corporate income tax has been reduced from 35% to 21% with effect from 1 January 2018. The reduction in the US corporate income tax rate to 21% required revaluation of Kerry's US deferred tax liabilities. This resulted in a one-off deferred tax credit in 2017, which is reported in the Income Statement as a non-trading item of €52.8m.

 

The final impact of the changes from this new law are subject to a number of detailed provisions in the legislation and any implementation guidance issued by the Treasury Department and the Internal Revenue Service (IRS). Kerry will continue to monitor any developments and give due consideration to the impact of any guidance, along with ongoing market interpretation and assessment on the accounting implications of this Act.

 

4. Earnings per A ordinary share






EPS

2017

EPS

2016


Notes

cent

€'m

cent

€'m

Basic earnings per share






Profit after taxation attributable to owners of the parent


333.6

588.5

302.9

533.1

Brand related intangible asset amortisation


13.4

23.6

13.1

23.0

Non-trading items (net of related tax)

3

(5.8)

(10.2)

7.4

13.0



_______

_______

_______

_______







Adjusted earnings


341.2

601.9

323.4

569.1



_______

_______

_______

_______

 

Diluted earnings per share






Profit after taxation attributable to owners of the parent


333.2

588.5

302.0

533.1

Adjusted earnings


340.8

601.9

322.4

569.1



_______

_______

_______

_______







In addition to the basic and diluted earnings per share, an adjusted earnings per share is also provided as it is considered more reflective of the Group's underlying trading performance. Adjusted earnings is profit after taxation attributable to owners of the parent before brand related intangible asset amortisation and non-trading items (net of related tax). These items are excluded in order to assist in the understanding of underlying earnings.

 

2017

2016


m's

m's

Number of Shares






Basic weighted average number of shares

176.4

176.0

Impact of share options outstanding

0.2


_______

_______




Diluted weighted average number of shares

176.6


_______

_______




Actual number of shares in issue as at 31 December

176.2

176.0


_______

_______

 

5. Dividends

2017

2016

 


€'m

€'m

 

Amounts recognised as distributions to equity shareholders in the financial year


 

Final 2016 dividend of 39.20 cent per A ordinary share paid 19 May 2017

(Final 2015 dividend of 35.00 cent per A ordinary share paid 13 May 2016)

69.0

 




 

Interim 2017 dividend of 18.80 cent per A ordinary share paid 10 November 2017

(Interim 2016 dividend of 16.80 cent per A ordinary share paid 18 November 2016)

33.2

 


_______

_______

 




 


102.2

 


_______

_______

 




Since the financial year end the Board has proposed a final 2017 dividend of 43.90 cent per A ordinary share which amounts to €77.3m. The payment date for the final dividend will be 18 May 2018 to shareholders registered on the record date as at 20 April 2018. The consolidated financial statements do not reflect this dividend.

 

6. Business combinations

 

During 2017, the Group completed a total of eight acquisitions, all of which are 100% owned by the Group.

 


Total



2017



€'m

Recognised amounts of identifiable assets acquired and liabilities assumed:



Non-current assets



   Property, plant and equipment

37.2

   Brand related intangibles

252.3

   Computer software


0.1

Current assets



   Cash at bank and in hand


6.3

   Inventories


30.0

   Trade and other receivables


15.2

Current liabilities



   Trade and other payables


(19.2)

Non-current liabilities



   Deferred tax liabilities


(47.2)

   Other non-current liabilities


(2.8)


________

Total identifiable assets

271.9

Goodwill


125.3



________

Total consideration


397.2



________




Satisfied by:



Cash


387.7

Deferred payment


9.5



    ________



397.2



________




Net cash outflow on acquisition:





2017



€'m

Cash


387.7

Less: cash and cash equivalents acquired


(6.3)

Prepayments in relation to 2018 acquisitions


15.1



________   



396.5



________




The acquisition method of accounting has been used to consolidate the businesses acquired in the Group's financial statements. Given that the valuation of the fair value assets and liabilities recently acquired is still in progress, the above values are determined provisionally. The valuation of the fair value of assets and liabilities will be completed within the measurement period. For the acquisitions completed in 2016, there have been no material revisions of the provisional fair value adjustments since the initial values were established.

 

The goodwill is attributable to the expected profitability, revenue growth, future market development and assembled workforce of the acquired businesses and the synergies expected to arise within the Group after the acquisition. €16.3m of goodwill recognised is expected to be deductible for income tax purposes.

 

Transaction expenses related to these acquisitions of €4.7m were charged in the Group's Consolidated Income Statement during the financial year. The fair value of the financial assets includes trade and other receivables with a fair value of €15.2m and a gross contractual value of €15.6m.

 

From the date of acquisition, the acquired businesses have contributed €33.9m of revenue and €1.9m of profit after taxation attributable to owners of the parent to the Group. If the acquisition dates had been on the first day of the financial year, the acquired businesses would have contributed €256.8m of revenue and €11.1m of profit after taxation attributable to owners of the parent to the Group.

 

The following acquisitions were completed by the Group during 2017:

 

Acquisition

Acquired

Principal activity

Taste Master

March

Taste Master is a flavours business with its R&D centre and main factory located in South Australia. Taste Master operates in five process areas, namely; Fragrance, Dry Blending, Liquid Flavours, Spray Drying and Extruded Products.

Tianning Flavours

April

Tianning is a leading flavour manufacturer based in China. The company is recognised in the Chinese market for supplying high-quality products and its customer base spans across a number of end-use-market categories, including dairy, beverage, ice cream, bakery, culinary and snacks.

Ben Alimentos 

June

Ben Alimentos, based in Gosia, Brazil, was purchased in order to facilitate increased capacity for our existing dairy systems business in Brazil.

Ganeden

August

Ganeden is a leading US technology innovation company, focused on patented probiotics and related technologies. Ganeden has an extensive library of published studies and more than 135 patents for technologies in the supplement, food, beverage, nutrition and personal care markets. Ganeden's proprietary probiotic brand, BC30, is being formulated in an increasing number of key food and beverage brands throughout the world.

Dottley Spice

October

Dottley Spice is a US based dry blending operation that supplies coatings and seasoning blends to some of the leading poultry processors, restaurant chains and food distribution in North America.

Hasenosa

November

Hasenosa, based in Spain, produces speciality flours, batters and tempuras, conventional and Japanese breadcrumbs, texturised vegetable protein, sauces, marinades, products for the fish and meat industry, as well as other products for the precooked, frozen and chilled food industry.

Oakhouse Foods

November

Oakhouse Foods has become one of the UK's leading direct to consumer ready meal providers, delivering meals that are quick and easy to prepare at home for elderly consumers.

Kettle business of Tyson Foods

December

The Kettle business of Tyson Foods is a US based business producing artisan-inspired side dishes, appetisers and dips for consumers and foodservice. The Kettle Collections brand is available for purchase by consumers and through leading restaurant chains and food distribution companies globally.

 

7. Events after the balance sheet date


Since the financial year end, the Group has:

-   completed the acquisition of Zhejiang Hangman Food Technologies Co., Ltd. based in China. The Group also reached agreement to acquire SIAS Food Co., based in China and Season to Season Flavour Manufacturers (Pty) Limited based in Johannesburg, South Africa. The combined consideration for these transactions was €76.0m.

-   proposed a final dividend of 43.90 cent per A ordinary share (note 5).


There have been no other significant events, outside the ordinary course of business, affecting the Group since 31 December 2017.

 

8. General information

 

The statutory financial statements of Kerry Group plc for the financial year ended 31 December 2017 were approved by the Board of Directors and authorised for issue on the 19 February 2018 and will be filed with the Registrar of Companies following the annual general meeting. The statutory financial statements of Kerry Group plc for the financial year ended 31 December 2016, to which an unqualified audit opinion was received, were annexed to the annual return and filed with the Registrar of Companies.

SUPPLEMENTARY INFORMATION

FINANCIAL DEFINITIONS

1.   Revenue

Volume growth

This represents the sales volume growth year-on-year, excluding pass-through pricing, the effect of currency movements, acquisitions (net of disposals) and rationalisation volumes.

 

Volume growth is an important metric as it is seen as the key driver of top-line business improvement. This is used as the key revenue metric, as Kerry operates a pass-through pricing model with its customers to cater for raw material price fluctuations. A full reconciliation to reported revenue growth is detailed in the revenue reconciliation below.

 

Revenue Reconciliation

 

2017

Volume

growth

 

Price

Transaction currency

Translation currency

Acquisitions/

Disposals

Reported

revenue

growth

Taste & Nutrition

4.7%

2.0%

0.0%

(1.9%)

0.9%

5.7%

Consumer Foods

2.4%

2.0%

(0.9%)

(3.8%)

0.2%

(0.1%)


    ________

    ________

    ________

    ________

    ________

    ________

Group

4.3%

2.0%

(0.2%)

(2.4%)

0.8%

4.5%








2016







Taste & Nutrition

4.0%

(2.1%)

(0.1%)

(3.2%)

4.9%

3.5%

Consumer Foods

2.1%

(2.0%)

(1.1%)

(6.6%)

(2.1%)

(9.7%)


    ________

    ________

    ________

    ________

    ________

    ________

Group

3.6%

(2.1%)

(0.3%)

(4.1%)

3.3%

0.4%


    ________

    ________

    ________

    ________

    ________

    ________

 

2.   EBITDA

        EBITDA represents profit before finance income and costs, income taxes, depreciation (including impairment), intangible asset amortisation and non-trading items.

 

2017

2016


€'m

€'m




Profit after taxation attributable to owners of the parent

588.5

533.1

Finance income

(0.1)

(1.1)

Finance costs

65.7

71.5

Income taxes

24.8

78.7

Non-trading items

54.5

21.0

Intangible asset amortisation

47.9

46.4

Depreciation (including impairment)

136.2

132.8


_______

_______

EBITDA

917.5

882.4


_______

_______




3.   Trading Profit

Trading profit refers to the operating profit generated by the businesses before intangible asset amortisation and gains or losses generated from non-trading items. Trading profit represents operating profit before specific items that are not reflective of underlying trading performance and therefore hinder comparison of the trading performance of the Group's businesses, either year-on-year or with other businesses.

2017

2016


€'m

€'m

Operating profit

678.9

682.2

Intangible asset amortisation

47.9

46.4

Non-trading items

54.5

21.0


_______

_______

Trading profit

781.3

749.6


_______

_______

 

4.   Trading Margin

Trading margin represents trading profit, expressed as a percentage of revenue.

2017

2016


€'m

€'m

Trading profit

781.3

749.6

Revenue

6,407.9

6,130.6


_______

_______

Trading margin

12.2%

12.2%


_______

_______

 

5.   Operating profit

Operating profit is profit before income taxes, finance income and finance costs.

2017

2016


€'m

€'m

Profit before tax

613.3

611.8

Finance income

(0.1)

(1.1)

Finance costs

65.7

71.5


_______

_______

Operating profit

678.9

682.2


_______

_______

 

6.   Growth in Adjusted Earnings Per Share on a Constant Currency Basis

In addition to growth in adjusted earnings per share, the growth in adjusted earnings per share on a constant currency basis is also provided as it is considered more reflective of the Group's underlying trading performance. Adjusted earnings is profit after taxation attributable to owners of the parent before brand related intangible asset amortisation and non-trading items (net of related tax). These items are excluded in order to assist in the understanding of underlying earnings. A full reconciliation of adjusted earnings per share is provided in note 4. Constant currency eliminates the translational effect that arises from the changes in foreign currency year-on-year. The growth in adjusted earnings per share on a constant currency basis is calculated by comparing current year adjusted earnings per share, to the prior year adjusted earnings per share retranslated at current year average exchange rates.

 

2017

2016


EPS

EPS


cent

cent

Basic earnings per share

333.6

302.9

Brand related intangible asset amortisation

13.4

13.1

Non-trading items (net of related tax)

(5.8)

7.4


_______

_______

Adjusted earnings per share

341.2

323.4

Impact of retranslating prior year adjusted earnings per share at current year average exchange rates

-

(11.6)


_______

_______

Adjusted earnings per share on a constant currency basis

 

341.2

311.8


_______

_______

Growth in adjusted earnings per share on a constant currency basis

9.4%

12.3%


_______

_______




7.   Free Cash Flow

Free cash flow is trading profit plus depreciation, movement in average working capital, capital expenditure, pensions costs less pension expense, finance costs paid (net) and income taxes paid.

 

Free cash flow is seen as an important indicator of the strength and quality of the business and of the availability to the Group of funds for reinvestment or for return to shareholders. Movement in average working capital is used when calculating free cash flow as management believes this provides a more accurate measure of the increase or decrease in working capital needed to support the business over the course of the year rather than at two distinct points in time and more accurately reflects fluctuations caused by seasonality and other timing factors. Average working capital is the sum of each month's working capital over 12 months. Below is a reconciliation of free cash flow to the nearest IFRS measure, which is "Net cash from operating activities".

2017

2016


€'m

€'m

Net cash from operating activities

671.4

683.0

Difference between movement in monthly average working capital and movement in the financial year end working capital

84.4

76.0

Expenditure on acquisition integration and restructuring costs

34.0

21.2

Purchase of assets

(301.3)

(223.8)

Proceeds from the sale of property, plant and equipment

3.1

12.1

Capital grants received

0.9

1.5

Exchange translation adjustment

8.8

(0.1)


_______

_______

Free cash flow

501.3

569.9


_______

_______

8.   Financial Ratios

The Net debt: EBITDA and EBITDA: Net interest ratios disclosed are calculated in accordance with lenders' facility agreements using an adjusted EBITDA, adjusted finance costs (net of finance income) and an adjusted net debt value to adjust for the impact of non-trading items, acquisitions net of disposals and deferred payments in relation to acquisitions. These ratios are calculated in accordance with lenders' facility agreements and these agreements specifically require these adjustments in the calculation.

 

 

                                           Covenant

2017

Times

2016

Times

Net debt: EBITDA

                                           Maximum 3.5

1.4

1.5

EBITDA: Net interest

                                           Minimum 4.75

16.2

14.0

 

9.   Average Equity

Average equity is calculated by taking an average of the shareholders' funds over the last three reported balance sheets plus an additional €527.8m relating to goodwill written off to reserves pre conversion to IFRS.

 

 


2017

H1 2017

2016

H1 2016

2015



€'m

€'m

€'m

€'m

€'m

Shareholders' funds


3,573.2

 

3,250.4

3,094.0

2,877.0

2,790.1

Goodwill amortised (pre conversion to IFRS)


527.8

527.8

527.8

527.8

527.8



_______

_______

_______

_______

_______








Adjusted equity


4,101.0

3,778.2

3,621.8

3,404.8

3,317.9



_______

_______

_______

_______

_______

 

Average equity


3,833.7


3,448.2





_______


_______

















10.  Return on Average Equity (ROAE)

This measure is defined as profit after tax attributable to owners of the parent before non-trading items (net of related tax) and brand related intangible asset amortisation expressed as a percentage of average equity.


2017

2016


€'m

€'m

Profit after tax

588.5

533.1

Non-trading items (net of tax)

(10.2)

13.0

Brand related intangible asset amortisation

23.6

23.0


_______

_______

Profit after tax before NTIs (net of tax) and brand related intangible asset amortisation

601.9

569.1


_______

_______

Average equity

3,833.7

3,448.2


_______

_______

Return on average equity

15.7%

16.5%


_______

_______

 

11.  Average Capital Employed

Average capital employed is calculated by taking an average of the shareholder's funds and net debt over the last three reported balance sheets plus an additional €527.8m relating to goodwill written off to reserves pre conversion to IFRS.

 


2017

H1 2017

2016

H1 2016

2015



€'m

€'m

€'m

€'m

€'m

Shareholders' funds


3,573.2

 

3,250.4

3,094.0

2,877.0

2,790.1

Goodwill amortised (pre conversion to IFRS)


527.8

527.8

527.8

527.8

527.8



_______

_______

_______

_______

_______








Adjusted equity


4,101.0

3,778.2

3,621.8

3,404.8

3,317.9

Net debt


1,341.7

1,221.7

1,323.7

1,519.7

1,650.1



_______

_______

_______

_______

_______








Total


5,442.7

4,999.9

4,945.5

4,924.5

4,968.0



_______

_______

_______

_______

_______








Average capital employed


5,129.4


4,946.0





_______


_______



 

 

 

12.  Return on Average Capital Employed (ROACE)

This measure is defined as profit after tax attributable to owners of the parent before non-trading items (net of related tax), brand related intangible asset amortisation and finance income and costs expressed as a percentage of average capital employed.


2017

2016


€'m

€'m

Profit after tax attributable to owners of the parent

588.5

533.1

Non-trading items (net of tax)

(10.2)

13.0

Brand related intangible asset amortisation

23.6

23.0

Net finance costs

65.6

70.4


_______

_______

Adjusted profit

667.5

639.5


_______

_______

Average capital employed

5,129.4

4,946.0


_______

_______

Return on average capital employed

13.0%

12.9%


_______

_______

 

13.  Cash Flow Return on Investment (CFROI)

CFROI is calculated as free cash flow before finance costs (net) expressed as a percentage of average capital employed. Average capital employed for the CFROI calculation is the same as that used for ROACE. 

 

2017

2016


€'m

€'m

Net cash from operating activities

671.4

683.0

Difference between movement in average working capital

84.4

76.0

Expenditure on acquisition integration and restructuring costs

34.0

21.2

Purchase of assets

(301.3)

(223.8)

Proceeds from the sale of property, plant and equipment

3.1

12.1

Capital grants received

0.9

1.5

Exchange translation adjustment

8.8

(0.1)


_______

_______

Free cash flow

501.3

569.9

Finance costs paid (net)

60.2

61.5


_______

_______

Operating free cash flow

561.5

631.4


_______

_______

Average capital employed

5,129.4

4,946.0


_______

_______

Cash flow return on investment

10.9%

12.8%


_______

_______

                                                                                                                                                                                   

14.  Total Shareholder Return

Total shareholder return represents the change in the capital value of Kerry Group plc shares plus dividends reinvested in the year.

 

2017

2016

Share price (1 January)

€67.90

€76.31

Interim dividend (cent)

18.8

16.8

Final dividend (cent)

43.9

39.2

Share price (31 December)

€93.50

€67.90


_______

_______

Total shareholder return

38.6%

(10.3%)


_______

_______

 

 

15.  Market Capitalisation

Market capitalisation is calculated as the share price times the number of shares issued.

2017

2016

Share price (31 December)

€93.50

€67.90

Shares in issue (m)

176,182.4

176,010.8


_______

_______




Market capitalisation (€'m)

16,473.1

11,951.1


_______

_______

 

16.  Enterprise Value

Enterprise value is calculated as per external market sources. It is market capitalisation plus reported borrowings less total cash and cash equivalents.

 

2017

2016


€'m

€'m

Market capitalisation

16,473.1

11,951.1

Reported borrowings

1,741.7

2,059.5

Cash and cash equivalents

(312.5)

(564.7)


_______

_______

Enterprise value

17,902.3

13,445.9


_______

_______

17.  Net Debt

Net debt comprises borrowings and overdrafts, derivative financial instruments and cash at bank and in hand.

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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