review of business - kerry group · 2009 like-for-like revenue €1,713m (6.1%) trading profit...
TRANSCRIPT
» Review of Business Stan McCarthy CEO
» Financial Review Brian Mehigan CFO
» Outlook and Future Prospects Stan McCarthy CEO
» Q&A
2009 Year End Results
2009 in Perspective
» Group revenue €4.5 billion (-4.8% LFL)
» Impact of pricing and rationalisation volumes
» Continuing volumes +2.2%
» Group trading margin up 80bps to 9.3%
» Ingredients & Flavours +90bps to 10.4%
» Consumer Foods +40bps to 7.1%
» EPS* and dividend
» Adjusted EPS* up 8.2% to 166.5 cent
» Final dividend of 17.3 cent (total 2009 dividend up 11.1% to 25 cent)
» Free cash flow of €367m
Results Highlights
Note: * before intangible asset amortisation and non-trading items
Like-for-like Revenue Growth Analysis
Note: like-for-like represents revenue growth before subsidiary translation and acquisitions/disposals impact
Group: €4,521m
LFL (4.8%)Price/mix (3.6%)Currency (0.5%)Vol (ratl) (2.9%)
Vol (cont) +2.2%
Consumer Foods: €1,713m
LFL (6.1%)Price/mix (3.2%)Currency (1.3%)Vol (ratl) (1.6%)
Vol (cont) 0.0%
Ingredients & Flavours: €3,261m
LFL (4.5%)Price/mix (4.2%)Currency +0.1%Vol (ratl) (3.3%)
Vol (cont) +2.9%
Revenue Growth
Note: * revenue by location of customers
Continuing volume Like-for-like Like-for-like Like-for-like
» Americas* 3.0% (5.2%) 6.7% 7.0%
» EMEA* 2.3% (6.2%) 4.0% 4.6%
» Asia-Pacific* 9.1% 6.6% 19.3% 17.3%
Ingredients & Flavours 2.9% (4.5%) 7.5% 7.8%
Consumer Foods 0.0% (6.1%) 5.4% 5.6%
Group 2.2% (4.8%) 6.3% 6.7%
2009 2008 2007
2009 Like-for-like
Revenue €3,261m (4.5%)
Trading profit €340m 4.9%
Trading margin 10.4% +90bps
» Continuing volumes +2.9%, trading margin +90bps to 10.4%
» Underlying growth and ‘go-to-market’ efficiencies driving margin expansion
» Industry NPD slow but accelerated in Q4
» Dairy, oils and grain raw material pricing significantly lower
» Dairy & savoury applications up in QSR, savoury snacks and nutritional end-use-
markets. Dera acquisition expands footprint in European markets
» Cereal & sweet impacted by lower premium sales but good progress in bakery
» Good growth in Beverage Systems – through syrups/sauces and taste modulation
» Functional segments – good growth in fermentation and emulsifier applications
» Asia-Pacific markets continued strong development – e.g. Indonesia
Business Review – Ingredients & Flavours
2009 Like-for-like
Revenue €1,713m (6.1%)
Trading profit €122m 0.0%
Trading margin 7.1% +40bps
» Continuing volumes on par with 2008 despite economic conditions in IRL/UK
» Trading margin +40bps to 7.1% driven by efficiencies, including ‘lean’ programme
» UK market: Strong brand performance; Richmond, Wall’s, Mattessons
Successful launch of Cheestrings Shots and Low Low cheese
Acquisition of Adams Pastry – extension of Wall’s brand
Outperformed market growth rates in chilled ready meals
Reduced exports of frozen ready meals from Ireland to UK due to currency
» IRL market: Deflationary recessional environment impacted all categories
Leading brands lose to private label, discounters and tertiary brands
Strategic acquisition of Breeo brands – complementary to Kerry’s brands
Food-to-go segment contracted – impacting on Freshways
MBO of Kerry Spring agreed
Repositioning of brands prior to year-end
Business Review – Consumer Foods
Food & Beverage (non-alcoholic) Consumer Price Index 2009
UK IRL
2009 Financial Highlights
€4,521m (4.8%) like-for-like
€422m 3.8% like-for-like
9.3% +80bps
166.5 cent +8.2%
€367m 2008: €227m
Revenue
Trading profit
Trading margin
Adjusted EPS*
Free cash flow
Adjusted profit after tax* €291m +8.4%
Note: * before intangible asset amortisation and non-trading items
Group Revenue Growth Components
Note: year on year % change
Continuin
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Tota
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Rat
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Price
/mix
Tra
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Rep
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Acq
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(4.8%)
(5.6%) 2.2% (2.9%) (3.6%) (0.5%) (2.8%) 2.0%
Ingredients & FlavoursRevenue Growth Components
Note: year on year % change
Continuin
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Tota
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Rat
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Price
/mix
Tra
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Rep
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Acq
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(4.5%)
(4.4%) 2.9% (3.3%) (4.2%) 0.1% (0.4%) 0.5%
Consumer FoodsRevenue Growth Components
Note: year on year % change
Continuin
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Tota
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Rat
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Price
/mix
Tra
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Rep
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Acq
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(6.1%)
(8.5%) 0.0% (1.6%) (3.2%) (1.3%) (6.5%) 4.1%
Trading Profit Margin %
2009 2008
Ingredients & Flavours 10.4% 9.5%
Consumer Foods 7.1% 6.7%
Group 9.3% 8.5%
Trading Profit Growth
€422m
€409m
2009 Trading Profit: Like-for-like % Growth
Like-for-like Acquisitions/ Reporting Reported
growth disposals currency growth
Ingredients & Flavours 4.9% 0.8% (0.3%) 5.4%
Consumer Foods 0.0% 5.6% (8.6%)* (3.0%)
Group 3.8% 2.3% (2.9%) 3.2%
Note: * in addition trading currency negatively impacted
Consumer Foods trading profit by €25m in 2009
Euro - Sterling Trend
0.85
0.79
0.94
0.75
0.95
2009 2008Avg fx rate 0.89 0.80% change (11.3%)
0.89
2009
2008
H1 H2
Euro – US Dollar Trend
1.57
1.39
1.47
1.30
1.39
2009
2008
1.44
2009 2008Avg fx rate 1.40 1.47% change 4.8%
H1 H2
2008 2009
Continuingvolumes
Margin 8.5% +0.2% +0.0% +0.5% +0.4% (0.3%) 0.0% 9.3%
Acquisitions& disposals
Trading Profit Progression
Translationcurrency
Net price/miximpact Transaction
currency
Rationalisation
€409m
€422m
Non-trading Items (net of tax) €73.3m
Cost€m
Facilities closed/streamlined2008/2009
Ingredients & Flavours plant closures and rationalisation
51.5 50
Consumer Foods (including Breeo) restructuring 31.0 15
Loss on disposal of businesses / non-current assets 14.0
Reversal of incomplete acquisition (Breeo) (23.2)
Income statement charge (net of tax) 73.3
Net cash outflow in 2009* (9.4)
Working capital reduction 100.0
Note: * after Breeo deposit credit
2009 2008
Trading profit 422 409
Depreciation (net) 97 94
Movement in working capital 133 18
Payments into pension plans (net) (42) (34)
Finance costs (78) (73)
Taxation (57) (42)
Free cash flow before capital expenditure 475 372
Capital expenditure (net) (108) (145)
Free cash flow 367 227
Free Cash Flow (€m)
» Acquisition expenditure 2009: €291m (2008: €64m)
» €100m of working capital reduction due to restructuring
2009 2008
EBITDA : net interest 7.8x 6.5x
Debt : EBITDA 2.2x 2.3x
ROAE 16.7% 15.7%
ROACE 12.4% 11.8%
CFROI 15.3% 10.2%
Financial Ratios
Note: * calculated in accordance with banking covenants** before intangible asset amortisation and non-trading items
*
*
**
**
Pro-forma*
31 Dec 2009 31 Dec 2009 31 Dec 2008
Within 1 year (238) (104) (161)
Between 1 and 2 years 332 604 321
Between 2 and 5 years 430 430 771
Over 5 years 635 229 233
1,159 1,159 1,164
Weighted average maturity (years) 5.8 2.8 3.4
Maturity Profile of Net Debt (€m)
* Pro-forma is stated after the new bond issue on 20 January, 2010
» Finance costs Down €7.9m – impact of strong cashflow
and reduced interest rates offset by
acquisitions and capital investment.
» Taxation Tax charge on normal trading activity 18.2%
(2008: 19.8%). Reduction due mainly to
geographic split of profits, R&D tax credits
and changes in local tax rates.
» Pension Net deficit increased by €26m to €141m due
mainly to reduced discount rates and higher
inflation expectations in the UK offset by
better return on assets.
Other Financial Matters
» Positioning
» Global No 1 by scale and technology
» Blue-chip customer base
» Broad geographic spread – sales in 140 countries
» Unrivalled technology synergies, end-use-market focus and applications
expertise, supported by industry leading Centres of Excellence
» Strategy
» Continue to maximise organic growth opportunity
» Technology layering and cross-selling opportunities
» Continue to expand geographic market base
» Maximise opportunities through global customer alliances
» Increase market focused innovation
» Continuous efficiency gains to drive margin growth
» Value enhancing acquisitions
Kerry Business Model: Strategies – Ingredients & Flavours
Kerry Ingredients & Flavours – leveraging technology leadership in global food and beverage markets
Technology Region
End Use Market
Savoury & Dairy Systems
& Flavours 47%
Cereal & Sweet Systems & Flavours
16%
Beverage Systems & Flavours
12%
EMEA39%
Asia-Pacific15%
Americas46%
Meats18%
Bakery12%
Dairy10%
Cereal & Bars6%
Savoury Snacks7%
Prepared Meals6%
Soups, Sauces & Dressings5%
Appetisers & Side Dishes5%
Ice-cream & Frozen Desserts
4%
Confectionery4%
Pharma4%
Beverage19%
Primary/RegionalIngredients
15%
Based on third party revenue
FunctionalIngredients
10%
Leading Ingredients and Flavours Companies
» Kerry is the largest player in the ingredients and flavours market
» Highly fragmented, but growing market ($50bn)
» Benefits to being a scale player
» Consolidation potential
Revenue €m
Most recently published results
» Convenience, variety, enhanced nutrition /
performance
» Clean label, low-sodium, low-calorie, hi-fibre,
fusion flavours
» Digestive comfort, bone or heart health –
wellbeing
» Satiety control / weight management vs.
affordable indulgence
» Life-stage nutrition
» Demographics, urbanisation, emerging markets
» Food safety / security / shelf-life of products
» Sustainability – provenance of raw materials
» Customer alliances – customised solutions
Ingredients & Flavours: Growth Drivers
Global Food and Beverage Trends
Value
Convenience
IndulgenceHealth
Formula optimizationSpeed-to-marketTechnology layering
Fusion flavoursSensory appealCulinary touch
PortabilityReady-to-useEasy preparation
Sodium reductionClean labelsFood safety
» Positioning
» Category leader chilled cabinet
» Brand leaders in Irish & UK markets
» Leader in selected customer branded growth categories
» Unrivalled route to market including dedicated distribution network in
Ireland & UK
» Strategy
» Continued investment in ‘Fridge Fresh’
» Leverage brand heritage
» Innovation to lead category growth
» Continued brand and marketing investment
» Reposition Irish brands for value-conscious consumer
» Drive efficiencies through ‘lean’ programme
Kerry Business Model: Strategies – Consumer Foods
Major food companies in GB/IOI(t/o incl confectionery and beverages)
Premier
Nestle
ABF
Arla
Kerry
Dairy Crest
Northern
UB
Princes
Kellogg
Leading UK/Ireland Consumer Food Groups
The UK/Ireland food and drink market is worth circa €100bn.
Source: OC&C, Nielsen, TNS, Other
*
***
* Kerry chilled markets
Source: Nielsen, IGDSource: OC&C
Major added value chilled foodcompanies (in GB/IOI)
Kerry Foods:Product Categories vs Market Channels
Brands Ireland Repositioning –e.g. Added Value Meat Categories
Kerry Foods’ On-going Innovation Programme
Kerry Foods: Market Positioning
#1 UK cheese snack (Cheestrings)
#1 IRL natural cheese (Charleville & Coleraine)
#1 IRL dairy spread (Dairygold)
#1 IRL dairy spread supplier
#1 UK pvt label dairy spread and cheese supplier
#1 UK sausage (Richmond)
#2 UK sausage (Wall’s)
Biggest food brand in IRL (Denny)
#1 & 2 IRL cooked meats brands (Denny & Shaws)
#1 meat snacks(Mattessons)
#1 UK chilled ready meals supplier
#1 UK frozen ready meals supplier
#1 UK chilled van sales operation
#1 IRL chilled van sales operation
#1 IRL sandwich (Freshways)
» Group revenue: +2% to +4% (LFL) volume growth
» Margin: 10% Group trading margin in 5 years
» Adjusted EPS* 10%+
» ROAE* 15%+ and CFROI 12%+
Kerry Group: Long Term Targets
Note: * before intangible asset amortisation and non-trading items
Future Prospects:
» Strong operating momentum into 2010 – organic growth +
margin expansion
» Organisation aligned to economic and market challenges
» Ingredients & Flavours:
» Solid project/innovation pipeline
» Layering technologies/cross-selling opportunities
» Consumer Foods:
» brand investment and repositioning to drive growth
» Consolidation in customer branded growth categories
» Strong balance sheet and cash generation
Confident of delivering earnings growth to a range of
182 to 185 cent per share (2009: 166.5 cent)
Revenues and Profitability
Group Revenues (€bn) Group Trading Profit (€m)
10 Year CAGR 6.3% 10 Year CAGR 7.6%
Ingredients & Flavours Trading Profit
Trading Profit Trading Margin
Consumer Foods Trading Profit
Trading Profit Trading Margin
Cashflow & EPS
Free Cash Flow (€m)EBITDA (€m)
EPS & Dividends (cent)
Dividend per share Adjusted EPS
2009 Like-for-like
Revenue €1,287m (5.2%)
Business Review – Ingredients & FlavoursAmericas
» Continuing volumes +3%
» Increase in home consumption at expense of foodservice
» Store-label increased market share
» Brands focused on NPD to increase differentiation
» Kerry Center (Beloit, WI) leads commercial development and innovation
» Meat applications weaker but culinary performed well
» Acquisition of Prima – improved positioning in Central America
» Cereal & Sweet impacted by shift from premium
» Beverage driven by taste modulation and natural flavours
» Continued growth in pharma applications
2009 Like-for-like
Revenue €1,124m (6.2%)
Business Review – Ingredients & FlavoursEMEA
» Continuing volumes +2.3%
» Lower raw material costs – dairy, oils & grain
» Good growth in QSR applications
» Dera acquisition strengthens savoury applications
» Cereal & sweet impacted by promotional activity but bakery performed well
» Ice-cream and frozen desserts - good opportunities for NPD
» Beverage applications driven by cost optimisation
» Primary dairy impacted by weak international demand and build up of stocks
» Fruit preparations in France disposed of mid-year
2009 Like-for-like
Revenue €404m 6.6%
Business Review – Ingredients & FlavoursAsia-Pacific
» Good regional growth – continuing volumes +9.1%
» Meat systems strong in Thailand and Indonesia
» Savoury snacks – good growth in all markets
» Dairy systems & flavours – double digit growth in Indonesia
» Lipid systems grew in South East Asia
» Continued development of savoury & dairy and nutritional technologies
in China
» Da Vinci flavoured beverage systems – good performance
» Emulsifiers and enzymes achieve wider applications
» Kerry Pinnacle continued growth in lifestyle bakery
2009 2008
Trading Trading
Revenue Profit Revenue Profit
€m €m % €m €m %
Ingredients & Flavours 3,261 340 10.4% 3,409 323 9.5%
Consumer Foods 1,713 122 7.1% 1,872 126 6.7%
Eliminations/unallocated (453) (40) - (490) (40) -
Group 4,521 422 9.3% 4,791 409 8.5%
Trading Margin by Business
Raw Material Cost % of Prior Year Raw Material Spend
2009 – significant drop in dairy, wheat, oils and fats
2009 2008 2007 2006 2005
Trading profit 422 409 401 384 380
Depreciation (net) 97 94 99 103 102
Movement in working capital 133* 18 (9) (35) 10
Payments into pension plans (net) (42) (34) (29) (11) (9)
Capital expenditure (net) (108) (145) (89) (88) (120)
Finance costs (78) (73) (79) (77) (64)
Taxation (57) (42) (37) (35) (51)
Free cash flow 367 227 257 241 248
Five Year Free Cash Flow (€m)
* Approximately €100m attributable to the Group restructuring programme
Net @ Floating @ Fixeddebt rates rates
Euro 503 503
Sterling 119 119
US Dollar 471 103 368
Other 66 66
1,159 791 368
100% 68% 32%
Weighted average period for which rate is fixed: 1.3 years
Net Debt Profile (€m) as at 31 December 2009
EPS Reconciliation
2008 2009 Growth
€ cent € cent %
153.9 Adjusted EPS* 166.5 8.2%
(8.5) Intangible asset amortisation (9.6)
(44.1) Non-trading items (net of tax) (41.9)
101.3 Basic EPS 115.0 13.5%
Note: * before intangible asset amortisation and non-trading items
Ingredients Consumer& Flavours Foods Eliminations Total
Reported FY 2008 3,388 1,774 (371) 4,791
Reclassification of intersegment sales* 21 98 (119) -
Re-presented FY 2008 3,409 1,872 (490) 4,791
Reconciliation of Revenue - from reported FY 2008 to re-presented FY 2008 (€m) following adoption of IFRS 8
Reconciliation of business segment revenue
Europe/ Americas EMEA Asia-Pacific Total
Reported FY 2008 1,343 2,970 478 4,791
Transfer of Africa & Middle East - 94 (94) -
Re-presented FY 2008 1,343 3,064 384 4,791
Reconciliation of revenue by location of customers
Europe/ Asia- Inter-Americas EMEA Pacific segment Total
Reported FY 2008 1,343 1,246 478 321 3,388
Reclassification of intersegment sales - (45) (94) 160 21
Re-presented FY 2008 1,343 1,201 384 481 3,409
Reconciliation of Ingredients & Flavours revenue
Note: * primarily represents transfer of dairy and cheese sales between segments