Ireland’s largest food and ingredients company, Kerry Group, reported revenues of €5.8bn for 2013, slightly back (0.2%) on 2012, despite underlying sales growth of 4.6%.

Three percent of the growth was attributed to continuing volumes while 1.6% came from price increases. After rationalisation, like-for-like revenue grew by 1.5% after allowing for the negative impact of disposals (-1.4%) and exchange rate headwinds (-3.1%).

The results show continued strong growth from the company’s ingredients business, especially in the Americas and in Asia.

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While Kerry saw profit before taxation fall to €121.9m in 2013, down from €315.5m, trading profits increased by 9.4% to €611m. Profit margins increased by 90 basis points to 10.5%. This was reflected by a 10% increase in ingredients and flavours and 2.9% contraction in consumer foods trading profits.

Kerry Group Chief Executive, Stan McCarthy, outlined how the group achieved good underlying growth in 2013, with a 10.2% increase in adjusted earnings per share and are guiding continued strong performance for 2014, with EPS growth of 6% to 10% based on current exchange rates.

The group’s balance sheet remains strong, with net debt at €1.08bn, down from €1.21bn one year earlier. The net debt to EBITDA ratio at 1.5x and EBITDA to interest at 13.3x improved significantly year on year. Kerry Group posted record free cashflow levels of €412m.

Net profit fell from €260.7m in 2012 to €84.4m in 2013 due to a large number of non-trading items which impacted on net profit by €352.2m.

These included costs related to Kerry’s acquisitions and restructuring programme, supply chain costs and a €36.4m cost of establishing its global technology and innovation centres. €108m related to asset impairment on the non-core food assets being marketed for disposal.

The Kerry share price was up about 2% following the release of their results.

By Division

Consumer foods

Consumer foods continued to be weak. This division, operating mainly from within UK and Irish markets, saw reported revenues fall by 6.5% to €1.601bn. This was despite an underlying sales growth of 1.3%, driven by a 0.1% increase in continuing volumes and 1.2% increase in price. Trading profits fell 2.9% to €129m. Trading margins in this division rose 30 bps to 8%. The ongoing restructuring programme, to refocus its business model on its core offerings, impacted sales in 2013.

Outlining the new reality in the consumer foods market, Stan McCarthy said that confidence remained weak in the UK and Ireland with increased market polarisation. Customers are now shopping differently, with more products sold on promotion, combined with own label and value offerings growing market share.

There are significant structural changes with growth in online shopping and discounters and movement to smaller supermarkets.

The business is refocusing to strengthen its consumer foods business, to better reflect these structural changes in the marketplace. Commenting on the future of the division, Stan McCarthy said that the group would capitalise on snacking, health and convenience trends while underperforming non-core businesses would be held for sale.

Although there was solid performance in some UK brands like Richmond and Mattessons, the group reported mixed performance in the Irish branded market. The division is seeing solid international market development of its Cheestrings brands, as the brand continued to expand its market positioning in France, Germany, Netherlands, and newly launched in Poland and Austria.

Ingredients and flavours

Ingredients continues to show strong growth and to be the driver of overall business growth. In 2013, this division accounted for 73% of group revenue and 81% of group trading profit.

Revenue was up 2.4% to €4,327m on a reported basis. This was reflected by an increase of 5.9% underlying sales growth driven by 4.1% in volume growth and pricing of 1.8%. Rationalisation impacted negatively by 2.5%. Trading profits were up 10% to €558m while trading margins increased by 90 basis points to 12.9%.

Overall, most technologies in this division performed well, with beverage and pharma/functional ingredients showing the strongest growth of 7.4% and 5.2%, respectively. Cereal and sweet reported revenues declined by 2.4%.

By Region

The results show continued strong growth, especially in the Americas and in Asia, despite economic issues. The Asia-Pacific region reported 9.8%, the Americas region reported 6.2% underlying sales growth, while EMEA reported 4%.

Americas

Revenues increased by 4.2% to €1,882m, reflected in 4.4% continuing volume growth, and pricing increases of 1.8%. Strong growth was recorded in beverage flavours benefiting from integration of the Cargills flavours business. Big Train, acquired prior to year end 2012, provided a significant boost across all regions. The recent acquisition of Wynnstarr Flavours should continue to drive growth in this region.

Asia Pacific

Asia Pacific growth continues to be strong, with 8.2% volume growth and price increases of 1.6%. Consumer demand in some Asian countries was slightly reduced due to relatively weaker currencies. Reported sales revenue in the region grew by 5.4% to €765m.

EMEA

The EMEA region remained weak though regional growth in some emerging markets (South Africa, Russia) saw a 2% growth in volumes. Europe continues to be challenging and impacts growth. Revenues were up 0.1% to €1,601m, reflecting underlying sales growth of 4%. Continuing volumes grew by 2% and pricing increased by 2%.

2014 outlook

The company is guiding for continued strong performance for FY 2014, with EPS growth of 6% to 10%. The group has targeted higher revenue in the growth areas of “targeted nutrition, taste and developing market platforms”, chief executive Stan McCarthy commented.

The group said it would pay a final dividend of 28 cent per share, bringing the total dividend for the year to 40 cents – up 11.7%.

Kerry Group’s growth strategy is hinged around general wellness and nutrition, with significant research and development to take place in the new innovation centre in Naas, due to open at the end of this year.

Kerry Group’s revenue in developing markets is €1bn, reflecting 24% of the ingredients and flavours revenue. It is fairly evenly distributed across the region.

Stan McCarthy outlined that these markets are significant and fast-growing.

He also commented that they will continue to realign consumer foods. This will be carried out through innovation and more towards snacking.

Dairy Processing

Milk processing remains an integral part of the Kerry Group business model. The group continues to invest in expansion and upgrading its dairy processing facilities to meet future growth in milk supplies from the group’s 3,700 milk suppliers and to meet stringent customer requirements. Group investment at the Listowel, Charleville and Newmarket sites (including acquisition of Newmarket Creameries) during the past five years has exceeded €100m.