interim management report 2015 - global food technology
TRANSCRIPT
Disclaimer: Forward Looking Statements
This presentation/announcement may contain forward looking statements with projections regarding, among other
things, the Company’s strategy, revenues, earnings, trading profit, trading margin, finance costs, tax rate, capital
expenditure, dividends, cash flow, net debt or other financial measures, the impact of foreign exchange fluctuations,
the impact of raw material fluctuations and other competitive pressures. These and other forward looking
statements reflect management expectations based on currently available data.
However actual results will be influenced by, among other things, macro-economic conditions, food industry supply
and demand issues, foreign exchange fluctuations, raw material and commodity fluctuations, the successful
acquisition and integration of new businesses, the successful execution of business transformation programmes and
other, as of today, unknown factors and therefore actual results may differ materially from these projections.
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.
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H1 2015 Interim Management Report
Stan McCarthy
CEO
Brian Mehigan
CFO
Review of
Business
Financial
Review
Outlook &
Future
Prospects
+2.7%
Volume
+40bps
Group Trading Margin
H1 2015: Results Highlights
› Adjusted EPS* increased 8.1% to 124.5 cent
› Group revenue at €3.0 billion reflecting 2.7% volume growth
› Group trading margin up 40bps
› Ingredients & Flavours +40bps
› Consumer Foods +20bps
› ROACE* 14.1% (H1 2014: 14.3%)
› Free cash flow €192m
› Interim dividend increased by 11.1% to 15.0 cent
+8.1%
Adjusted EPS*
+14.1%
ROACE*
+11.1%
Interim Dividend
Note: * before brand related intangible asset amortisation and non-trading items (net of related tax) 4
H1 2015 Overview
› Changing marketplace, ‘New Consumer’ trends
› Changing retail and foodservice dynamics
› Increased volatility, impact of currency movements
› Developed markets: broadly stable but repositioning for evolving market conditions
› Developing markets: geopolitical issues persist but zones more stabilised
› Kerry Strategic growth platforms well positioned to respond to customer requirements
› Innovation & Technology network providing speed to market
› Solid innovation platform through ‘clean label’, ‘free from’ nutritional & wellness offerings
› Technology development – organic and acquisition investment
› Continued growth in Foodservice channel, c-stores and etail
› Kerry Foods’ repositioned portfolio performing well
5
Revenue & Margin Overview
€3,028m
Volume: +3.0%
Margin: +40bps
€2,318m €749m
GROUP
INGREDIENTS & FLAVOURS CONSUMER FOODS
Volume: +2.7%
Margin: +40bps
Volume: +1.9%
Margin: +20bps
6
Business Review – Ingredients & Flavours
› Volume +3.0% and pricing (2.8%)
› Trading profit +12.3%
› Margin growth of 40bps
› Taste & Nutrition platforms sustain business development
› Solid performance in American markets
› Acquisition of Insight Beverages, KFI Savory and Baltimore Spice
› EMEA developed markets stabilised – encouraging innovation pipeline
› EMEA developing markets – continued market development despite geopolitical issues
› Acquisition of IOI Loders Croklaan and PST
› Slowdown in Asia economic growth but good Kerry business development
› Strong growth in nutritional & wellness applications
› Sale of Pinnacle lifestyle bakery in Australia in May
H1 2015 GROWTH
Revenue €2,318m +3.0%*
Trading profit €281m +12.3%
Trading margin 12.1% +40bps
Note: * volume growth 7
Ingredients & Flavours Revenue Analysis
Americas +3.3%
EMEA +0.7%
Asia-Pacific +7.2%
Total +3.0%
REVENUE BY TECHNOLOGY* H1 2015 YEAR ON YEAR VOLUME GROWTH
Savoury & Dairy 41%
Beverage 20%
Cereal & Sweet 17%
Functional Ingredients | Pharma 14%
Regional Technologies 8%
* As at 31 December 2014
Taste &Nutrition
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Business Review – Consumer Foods
› Volume +1.9% and pricing (2.6%)
› Margin growth of 20bps
› Portfolio repositioning to-date delivering against changing consumer environment
› MBO of ‘Direct-to-Store’ completed in H1
› Acquisition of Rollover Ltd (UK) – extending Kerry Foods’ ‘hot-to-go’ offering
› Strong growth in snacking and meal solutions
› Good growth in chilled meals and recovery in frozen
› Mattessons Fridge Raiders +8% YOY
› Promotional activity impacting UK sausage category
› Spreads decline in line with category performance
› Denny Gold Medal performing well in Ireland
› Successful launch of ‘Fire & Smoke’ range
› Charleville solid performance in cheese
› Cheestrings – continued growth in France, Germany and Poland
› Outperforming growth rates in etail
H1 2015 GROWTH
Revenue €749m +1.9%*
Trading profit €60m (3.9%)
Trading margin 8.0% +20bps
Note: * volume growth 9
Brian Mehigan
CFO
Financial
Highlights 124.5 cent
ADJUSTED EPS
€300m
TRADING PROFIT
€3,028m
REVENUE
Solid Financial Performance in a Changing Market
› Changing consumer and economic environment
› Input cost deflation
› Financial market volatility
› 1 Kerry investment
› Portfolio repositioning
11
H1 2015 Financial Highlights
Note:* before brand related intangible asset amortisation and non-trading items (net of related tax)
+2.7% volume growth €3,028mRevenue
+9.0%€300mTrading profit
+40bps9.9%Trading margin
+8.1%124.5 centAdjusted EPS*
+22.0%135.2 centBasic EPS
Strong cash generation
€192mFree cash flow
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Revenue Analysis
€2,893m
H1 2014
€3,028m
H1 2015
8.4%
CURRENCY
(3.8%)
DISPOSAL/ ACQUISITION
(2.7%)
PRICE
2.7%
VOLUME
13
4.7%
GROWTH YOY
€3,028m
€2,318m
€749m
0
500
1,000
1,500
2,000
2,500
3,000
Group Ingredients & Flavours Consumer Foods
Revenue – Volume Growth Ahead of Markets
Volume
Price
(2.7%)
+2.7%
(2.8%)
+3.0%
(2.6%)
+1.9%
14
Continued Trading Margin Expansion
€300m€281m
€60m
0
50
100
150
200
250
300
350
Group Ingredients & Flavours Consumer Foods
Margin Progression
Trading Margin %
9.9%
+40bps
12.1%
+40 bps
8.0%
+20bps
15
Trading Margin Progression H1 2015 – Group
Margin 9.5% +0.4% +0.2% +0.0% (0.3%) +0.1% +9.9%
150
200
250
300
350
400
H1 2014 Operating leverage /efficiencies
Net price Currency Kerryconnect /pension
Disposals /acquisitions
H1 2015
16
Free Cash Flow (€m)
H1 2015 H1 2014
Trading profit 300 275
Depreciation (net) 61 52
Movement in average working capital 9 (73)
Pension contributions paid less pension expense (24) (21)
Finance costs (22) (21)
Taxation (13) (12)
Free cash flow before expenditure 311 200
Capital expenditure (net) (119) (98)
Free cash flow 192 102
17
Financial Ratios
BANKING RATIOS H1 2015 H1 2014
Net debt: EBITDA* 1.6x 1.5x
EBITDA: net interest* 19.4x 13.3x
RETURN RATIOS
ROAE** 18.1% 18.2%
ROACE** 14.1% 14.3%
CFROI 10.9% 10.7%
Note: * calculated in accordance with lender covenants
** before brand related intangible asset amortisation and non-trading items (net of related tax)18
Maturity Profile of Net Debt (€m)
H1 2015 H1 2014
Weighted average maturity years 6.1 5.8
New 5 year €1.1bn revolving credit facility now in place – extending debt maturity profile
(178)
340
151
479
85
654
52
(240)
(140)
(40)
60
160
260
360
460
560
660
2015 2015 2016 2017 2020 2022 2023 2025
19
Acquisition and Disposal Update
ACQUISITIONS COMPLETED
Insight Beverages
KFI Savory
Others
Rollover Ltd
Taste Nutrition Developing Markets Consumer Foods
ACQUISITIONS SIGNED
PST
Baltimore Spice
Taste Nutrition Developing Markets Consumer Foods
20
DISPOSALS COMPLETED
Pinnacle lifestyle bakery
Direct-to-Store business
Ingredients & Flavours Consumer Foods
FINANCE
COSTS
€36.3m – an increase of €4.4m due primarily to exchange rate and
pension finance
Other Financial Matters
CURRENCY Annual impact in line with previous guidance
PENSIONNet pension deficit €361m – cost up significantly and actions being
taken to address
KERRYCONNECTDeployment on track in EMEA and Asia-Pacific. Incremental costs
year-on-year €11m as previously guided
SCOPE Dilution from disposals partially offset by acquisitions in H2
21
Kerry Investor Day 2015
Kerry Investor Day 2015Kerry Global Technology and Innovation Centre, Naas
15 October 2015
Stan McCarthy
CEO
Outlook and
Future Prospects
The Changing Marketplace – ‘New Consumer’
The ‘New Consumer’ consumption and shopping trends present challenges for
traditional food retailers and CPG companies
› Demographics
› Attitude
› Pace of life
› Awareness
24
› Shopping for immediate satisfaction – 25% of all meals consumed by millennialsinclude items purchased the same day
› Use of mobile technology
› Seeking total value, freshness, experience
› Creating, customising solutions
› Active co-creators of content, products and experiences
› Looking at back-of-pack in detail
› Building ‘Trust Chains’
The Changing Marketplace – New Shopper Behaviour
› Same weekly shopping list
› Lowest price, multi buys
› Shopping for solutions
› Passive recipients of brand communications
› On pack marketing/messaging
25
The Changing Marketplace – Foodservice/Retail Trends
Better For Youhealthier options
Fresh & Cleanauthentic ingredients,
‘clean label’
Customisationmaking every experience
personal, fun and interactive
Snackingthe new meal
Premiumisationthe growth of handcrafted
and artisanal products
Indulgencedessert inspired everything
26
The Changing Marketplace – Development Driven by
Foodservice Trends
The foodservice channel continues to grow and steal consumer share from retail.
Growth broadening from the QSR sector to fast casual, c-stores and supermarket
foodservice segments
› Global chain / QSR sector diversifying menu offerings
› Street / brand sector suppliers achieve solid growth
› LTOs play a significant role in driving restaurant traffic
› Local / regional cuisines are outperforming
› Growth of digital marketing, engagement and e-commerce
› Requirement for innovative, customised solutions
27
Kerry Market Positioning
› Market leading Taste & Nutrition platforms
› Authentic Taste portfolio
› Depth of Nutrition & General Wellness capability
› Global Technology Application and Culinary leadership
› Speed of innovation
› Accelerating growth in Developing Markets
› Expanding global Foodservice portfolio and growth platforms
› Global and regional customer alliances
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Key Nutrition Market Segments Linked to Life-stages
Rapid growth & development
Learning & development. Physical and emotional maturing
Lifestyle factors, maternal health
Maintenance/prevention
Specific health issues arise/manage health issues
e.g. EPA/DHA, Calcium, Vit A,C,D Protein Iron
e.g. EPA/DHA, Calcium, Vit A,C,D Protein Iron, Wholegrain
Probiotics, superfoods, protein, natural ingredients
e.g. wholegrains, probiotics, plant sterols, protein, calcium
e.g. protein, calcium, vitamin D, etc.
Growth & development, brain,bone & digestive health, food intolerance and allergies
Growth & development, brain,bone, digestive & immune health, food intolerance and allergies
General wellness, weight management, performance, nutrition, maternal nutrition
Weight management & diabetes, bone, cognitive, heart, immune, muscle & digestive health
Digestive, bone, heart, immune & cognitive health, malnutrition, weight management & diabetes, critical care
Demographic
Health Focus
Infant &
Toddlers
Children &
Adolescents
Early
Adulthood
Healthy
AgeingSeniors
Ingredients
Examples
Key
Nutritional Requirements
29
Kerry Nutrition & Wellness – Food and Beverage Focus
‘FREE FROM’Category
Description
Examples
‘BETTER-FOR-YOU’
‘GOOD-FOR-YOU’
‘TAILORED-FOR-YOU’
Avoidance Balance & Moderation Positive Nutrition Targeted Nutrition
Food Intolerance
Low/No/Reduced Lactose
Gluten Free
Clean/Cleaner Label
Protein FortificationVegetable | Dairy
Carbohydrate QualityFibre – Prebiotics | Wholegrains
Healthy LipidsTrans & PHO Replacement |
Healthy Oils
Micronutrient FortificationMinerals Enrichment | Vitamins
Enrichment
Naturally Good For You
‘Free-from’ or ‘zero’ variants of products. For consumers who seek to
eliminate particular nutrients or food types due to health concerns
Products with ‘diet’, ‘low’ or ‘less’ tags. For
the high majority of consumers who believe
that unhealthy indulgences need to be
moderated for a balanced diet and can be replaced with a guilt free
option
Functional products, ‘superfoods’ and natural
foods. For self-accountable consumers
who believe that diet and nutrition is an important route to
wellness
For individuals within the broader population who have specific nutritional
needs based on their need-state and life-stage.
E.g. infants, athletes, seniors and individuals with specific medical
conditions such as diabetes
Reduced Sugar
Reduced Salt
Reduced Fat
Balanced Choice
Infant & Toddler Nutrition
Performance Nutrition
Healthcare Nutrition
(including all need-states)
Weight Management
30
Kerry Global Foodservice Strategy
Kerry Focus:
Foodservice channel including C-stores in developed and developing markets. Global, Regional & Local cuisines and customised solutions
› Continue to drive growth in
Foodservice Channel through
Chain Menu innovation and
brand expansion
› Leverage all Kerry
technologies and solutions
Dual Strategy
Global Foodservice Chain Strategy
Global Foodservice Brand Strategy
31
Consumer Foods: Market Dynamics
Kerry Foods Positioning
› Recovery is firmly on the horizon
› Unemployment falling
› Average earnings growth vs cost of living
› Consumer confidence on the rise
› More channels, more fragmented, more complex
› Growth of discounters
› Growth of online
UK & Ireland
› Repositioned portfolio
› Brand leadership
› Diversified channel and customer base
› Outperforming etail growth rates
› Focus on growth categories
› Snacking, food-to-go, meal solutions
› Insulated by technology
› Growing international presence
Kerry Foods Today
32
2015 Outlook: Summary
› Focused and well positioned for changing marketplace
› Taste, Nutrition & Wellness platforms aligned to retail and foodservice dynamics
› Repositioned Kerry foods portfolio aligned to snacking, meal solutions and channel diversification
› Underpinned by Kerry Technology & Innovation Network
› Speed to market
› Solid innovation
› Kerry ‘Chain’ and Brand strategies delivering good growth in Foodservice
› Solid opportunities for growth in developing markets
› Strong balance sheet and cash generation
› Busy acquisition pipeline
Based on Group year-to-date performance, current exchange rates and
business momentum, we are increasing our full year guidance. We expect to
achieve 6% to 9% growth in adjusted EPS* in 2015
Note: * before brand related intangible asset amortisation and non-trading items (net of related tax) 33
Questions
and Answers
Additional
Information
Business Review – Ingredients & Flavours Americas
› Volumes +3.3%, pricing (2.0%)
› Solid Kerry performance – outperforming industry growth rates
› Taste technologies delivering innovation in retail and foodservice channels
› Progress through ‘clean label’ technology in meat and bakery sectors
› Brazil impacted by inflationary pressures
› Good growth in savoury snacks in Mexico and Central America
› Seasonal launches in ice cream offset decline in sweet sector
› Continued growth in Beverage Flavours and Systems
› Good performance in Kerry brands and foodservice channel
› Acquisition of Insight Beverages, KFI Savory and Baltimore Spice
H1 2015 GROWTH
Revenue €1,080m +3.3%*
Note:* volume growth 36
Business Review – Ingredients & Flavours EMEA
› Volumes +0.7%, pricing (3.8%)
› Stabilised overall market but consumer spend constrained
› Geopolitical issues persist in developing zones
› Encouraging innovation pipeline assisted by Global Centre in Ireland
› Improved performance in Sub-Saharan Africa and MENAT
› Good Kerry development in Russia despite impact of trade sanctions
› Beverage Systems & Flavours maintain solid growth
› Growth through dairy systems in foodservice
› Continued growth in nutritional applications due to investment programme in Ireland
› Primary dairy market returns significantly reduced
› Acquisition of IOI Loders Croklaan and PST Pastacilik Gida
H1 2015 GROWTH
Revenue €789m +0.7%*
Note:* volume growth 37
Business Review – Ingredients & Flavours Asia-Pacific
› Volumes +7.2%, pricing (2.4%)
› Good Kerry market development despite reported lower level of economic activity
› Solid requirement for innovation – particularly through nutritional and wellness applications
› Growth of e-commerce in Chinese infant nutrition sector
› Dairy Systems & Flavours delivering in Indonesia, the Philippines, China and Vietnam
› Strong growth in foodservice channel – premium sauces and beverage systems
› Foodservice brands extended to new territories
› Excellent progress in India through beverage flavours, dairy flavours, emulsifiers, texturants and meat systems
› Australia and New Zealand impacted by industry competitive issues
› Sale of Pinnacle lifestyle bakery in Australia completed in May
H1 2015 GROWTH
Revenue €414m +7.2%*
Note:* volume growth 38
Revenue Growth Components H1 2015
VOLUMES PRICETRADING
CURRENCYLIKE-FOR-
LIKEREPORTINGCURRENCY
DISPS/ACQS
TOTAL
Ingredients& Flavours 3.0% (2.8%) 0.0% 0.2% 8.8% (0.4%) 8.6%
ConsumerFoods 1.9% (2.6%) 0.2% (0.5%) 6.7% (12.6%) (6.4%)
Group 2.7% (2.7%) 0.1% 0.1% 8.4% (3.8%) 4.7%
39
Trading Margin by Business
H1 2015 H1 2014
TRADING TRADING FY 2014
REVENUE PROFIT REVENUE PROFIT MARGIN
€M €M % €M €M % %
Ingredients & Flavours 2,318 281 12.1% 2,133 251 11.7% 13.7%
Consumer Foods 749 60 8.0% 801 62 7.8% 8.3%
Eliminations/unallocated (39) (41) – (41) (38) – –
Group 3,028 300 9.9% 2,893 275 9.5% 11.1%
40
EPS Reconciliation
H1 2014 H1 2015 GROWTH
€ CENT € CENT %
110.8 Basic EPS 135.2 22.0%
4.3 Brand related intangible asset amortisation 4.8
0.1 Non-trading items (net of related tax) (15.5)
115.2 Adjusted EPS* 124.5 +8.1%
Note:* before brand related intangible asset amortisation and non-trading items (net of related tax) 41
Net Debt (€m) as at 30 June 2015
@ FLOATING @ FIXED
DEBT RATES RATES
Euro 598 293 305
Sterling – – –
US Dollar 844 531 313
Other 13 13 –
Gross debt 1,455 837 618
Cash (178) (178) –
Net Debt 1,277 659 618
Gross Debt 100% 58% 42%
Net Debt 100% 52% 48%
Weighted average period for which rate is fixed: 6.1 years
42
Currency Basket – Tailwind to Soften in H2
H1 2015 June m/e
2015
2014
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
43
Free Cash Flow of €1.6bn Over 5 Years
2014 2013 2012* 2011 2010
€M €M €M €M €M
Trading profit 636 611 559 501 470
Depreciation (net) and impairment 104 109 114 101 148
Movement in working capital (59) (9) (41) (4) (21)
Pension contributions paid less pension expense (48) (36) (30) (34) (41)
Capital expenditure (net) (257) (177) (156) (162) (139)
Finance costs (42) (50) (49) (47) (58)
Taxation (31) (36) (53) (76) (54)
Free cash flow 303 412 344 279 305
Note: * 2012 restated due to adoption of IAS 19 (2011) ‘Employee Benefits’ and movement on working capital calculated on an average basis for 2012 and 2013
44
Group Long Term Targets (5 Years 2013-2017)
Return
ROACE* 12%+ CFROI 12%+ ROAE*15%+
Adjusted EPS* Growth +10% p.a. by
VOLUME GROWTH
Ingredients & Flavours 4% to 6% p.a.
Consumer Foods 2% to 3% p.a.
Group 3% to 5% p.a.
(assumes market growth rate of 2% to 3% p.a.)**
MARGIN EXPANSION
Ingredients & Flavours 50bps p.a.
Consumer Foods 20bps p.a.
Group 30bps p.a.
(+ an additional 100 bps at end of Kerryconnect project)
Note:* before brand related intangible asset amortisation and non-trading items (net of related tax)
** assumes neutral currency and raw materials45
Shareholder Analysis
Ireland 2%Continental Europe |Rest of World 15%
Shares in issue at 30 June 2015: 175,875,719
North America 20%
UK 18%
Kerry Co-operative 14%
Retail 31%
46