Kerry Group interim results

By Liam O'Neill

09 September 08 : Profits up 2% despite difficult trading conditions

Kerry Group's interim results show, on a reporting currency basis, a 1.3% uplift in sales to €2.4bn in the six months to 30 June 2008, with trading profits up 2% to €175.5m.

Foreign exchange, however, took €200m off the group's revenues, but excluding foreign exchange and acquisitions, sales rose by 7.3%, with profits up by 8.1%.

On a global basis (Fig 1), the Group's revenue, excluding foreign exchange, rose in all its markets, with a 20.3% jump in revenue in the Asia Pacific region alone. Kerry's ingredients and flavours businesses in this region contributed 10.1% to overall sales, compared to 8.5% a year previous. (Fig 2)

Sales of €1.7bn were reported on the ingredients and flavours side of the multi-national's operations.

Trading margins for the Group were maintained at 7.4%, and it's adjusted earnings per share was up 7% to 62.8c. Group CEO, Stan McCarthy, was 'pleased overall with the performance', all be it a difficult trading period compounded by 'significant currency and input cost pressures.'

McCarthy confirmed that earnings per share for the year would be in the 'range of 151c to 155c per share,' which is in line with analyst projections.

Excluding currency and acquisitions, sales rose by 7.3%, of which 4.0% was from increased volume sales and 4.2% was related to price increases. The remaining 0.4% was foreign exchange.

McCarthy also outlined the Group's strategy to relign Kerry's entire ingredients, bio-science, flavours, sweet and fruit ingredients businesses, into one Kerry Ingredients & Flavours division. The aim is to provide a one-stop-shop for multinationals, seeking customised solutions spanning Kerry's breath of technologies in food and beverage markets.

Consumer foods

Within its consumer foods business, which operates in Ireland and Britain, sales of €877m were reported during the six months - a slight drop of less than 1%.

However, again excluding currency and disposals, this division reported a 6% uplift in revenues, with 4.4% being re-couped from the market in price increases.

This helped improve operating margins within the division, from 6.3% to 6.4%.

Within the Irish market, it reported solid results from Low Low and Charleville. Its Colraine brand of cheese in Northern Ireland also performed well.

However, growth in the Irish sausage and premium sliced meats sector slowed.

Kerry's results reveal that it received €3.9m on the sale of businesses in the period. This included proceeds from the sale of Maverick, the milk replacer business, to Volac earlier this year.

The figures also show that Kerry spent €121.8m on fixed assets and the purchase of acquisitions. Half of this sum was spent on plant and equipment.

In the United States, it is building a new ingredients and flavours facility in Saint Louise.

Separately, a 250,000 sq/ft customer innovation and commercial centre in Beloit, Wisconsin is being built. This is costing USD50m, and is expected to be completed next year. On the acquisition front, Kerry spent a total of €38m on six companies, one consumer foods company in Britain, and the remainder involved in ingredients and flavours. It also reported that it paid €20m to Reox for Breeo foods, which is non-refundable. (See page 4).

The group is poised to comfortably take on more acquisitions in the coming years. Its net debt at 30 June 2008 was €1,234m, down 9% on the previous year. Its level of debt to market capitalisation at the period end was 38%.

Given the Groups increased spend on capital assets in the period, its free cash flow is down from €75m in the previous year to €51m for the current reported period.

Dividend

An interim dividend to shareholders of 6.9c per share is proposed. This is up 13%. This payment is to be made in late November.

Shareholders benefited to the tune of €24.2m in dividends paid in the period, up by 5%.

It is estimated that approximately half of the shares in issue in the plc are held in Co Kerry.

Separately, Kerry Co-op each year issue patronage shares to its milk suppliers based on one co-op share for every 1,000 gallons of milk supplied.

Suppliers pay €1.27 for each patronage share. However, these shares also qualify for a dividend payment in the year of purchase. The dividend paid on each co-op share held at 30 May this year was €1.30, which was paid at the end of June. This equated to 1.2c per litre of milk supplied. Since 1996, Kerry Co-op has paid out in the region of €90m in dividends.

It noted that margins are lower in the first half of the year, due to seasonality factors, with margins traditional higher in the second half of the year.

This explains the difference between full year margins and half year margins. (Table 1)

Table 1: Kerry Group plc financial highlights & ratios

	2008 € m	2007 € m	% change	like for like
Revenue	2,363.1	2,331.7	1.3%	7.30%
Trading profit	175.5	172.4	2%	8.10%
Profit before tax	132.8	132.5	0%	-
Purchase of fixed assets and subsidiaries	121.8	52.4	132%	-
Free cash flow	51.0	75.0	-32%	-
Adjusted EPS (cent)	62.8	58.8	7%	-
Interim dividend (cent)	6.9	6.1	13%	-
	Half year 2008	Half year 2007	Half year 2006	Full year 2007
Trading profit margin (Group)	7.4%	7.4%	7.2%	8.4%
Trading profit margin - ingredients	8.1%	8.1%	8.0%	9.4%
Trading profit margin - consumer foods	6.4%	6.3%	6.0%	6.6%
Gearing	38%	38%	44%	34%
Revenue growth (like for like basis	7.3%	5.6%	3.5%	6.7%
- Volume	3.5%	4%	3%	4.0%
- Price	4.3%	1.6%	0.5%	3.0%
- Trading currency	-0.5%	*(note 1)	*(note 1)	-0.3%

* (note 1) for purposes of analysis price and trading currency are combined.