Disclaimer: Forward Looking Statements · 2016-08-04 · Disclaimer: Forward Looking Statements ......
Transcript of Disclaimer: Forward Looking Statements · 2016-08-04 · Disclaimer: Forward Looking Statements ......
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 2016 Interim Management Report
Stan McCarthyCEO Kerry Group
Review of Business
Brian MehiganCFO Kerry Group
Financial Review
1
2
Outlook & Future Prospects
3
H1 2016 Highlights
Adjusted EPS*
+7.5%Volume
+3.2%Group Trading
Margin
+70bpsROACE*
13.1%Free Cash
Flow
€379mInterim
Dividend
+12.0%
4 Note: * before brand related intangible asset amortisation and non-trading items (net of related tax)
• Adjusted EPS* increased 7.5% to 133.8 cent
• Group revenue at €3 billion reflecting 3.2% volume growth
• Group trading margin up 70bps
• ROACE* 13.1% (H1 2015: 14.1%)
• Free cash flow of €379m (H1 2015: €192m)
• Interim dividend increased by 12% to 16.8 cent
Solid H1
Volume
Margin
Cash Flow
H1 2016 – Market Overview
• Significant product churn: increased demand for product differentiation
• Nutrition, health & wellness and convenience demands
• Focus on food safety, clean label and food origin
• E-commerce marketplace growing rapidly
• Intersection of channel product offerings
• Widening meal occasion, ‘food-to-go’ and foodservice demands –
catalysts for innovation
Marketplace Dynamics
Developing Markets
Developed Markets
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• Macro-economic environment remained challenging
• Currency volatility• Consumer trends driving a rapidly changing marketplace
• Slower economic growth
• Intensifying geopolitical and currency instability• Increased regulation advancing food safety, health awareness
Revenue and Margin Overview
€3,037mVolume +3.2%
Margin +70bps
Group
€2,379mVolume +3.5%
Margin +70bps
Taste & Nutrition
€697mVolume +2.3%
Margin +30bps
Consumer Foods
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Business Review – Taste & Nutrition
• Volume growth – continuing to outperform markets
• Localised taste preferences and enhanced nutrition drives product innovation
• Foodservice channel – strong performance across all regions
• Price deflation of 2.2% reflecting customer partnership agreements
• Margin progression primarily driven by enhanced business quality
H1 2016 GROWTH
Revenue €2,379m +3.5%*
Trading profit €304m +7.9%
Trading margin 12.8% +70bps
Americas EMEA Asia-Pacific
3.5%
0.3%
9.5%
3.5%
AMERICAS EMEA APAC T&N
Volume Growth by Region
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• Developed – strong performance in meat, dairy and beverage
• Developing – Brazil flat, Mexico and Central America good growth
• 2015 acquisitions performing well
• Significant product churn
• Developed – competitive environment limits growth
• Developing – geopolitical & economic issues impact a challenging marketplace
• Russia stabilised
• Strong growth across all regional developing markets
• Key drivers: beverage, dairy & foodservice
• Continued growth through lifestyle nutrition
Note: * volume growth
Business Review – Consumer Foods
• Broader retailer focus on EDLP
• Kerry Foods: volume growth led by strong performance in snacking and meal solutions
• Continued growth through e-tail
• Trading profit – improved underlying business more than offset by currency and disposals
• Margin improvement driven by ongoing efficiency programmes and repositioned portfolio
H1 2016 GROWTH
Revenue €697m +2.3%*
Trading profit €58m (3.7%)
Trading margin 8.3% +30bps
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Dairy• Cheese snacking – continued growth
• Charleville – good performance
• Spreads – category challenges
• Cheestrings – launched in Spain/Portugal
Meat Products• Mattessons – strong growth
• Richmond – impacted by EDLP but good growth in frozen category
• ‘Fire & Smoke’ winning market share
Meal Solutions• Strong growth in chilled
• Launch of premium range in frozen sector
• Launched Pure ‘free-from’ range
Note: * volume growth
Financial Highlights
Revenue
€3,037m
Trading Profit
€322m
Adjusted EPS
133.8c
Brian MehiganCFO Kerry Group
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Consistent Financial Performance in a Volatile and Changing Environment
• Changing consumer challenging status quo
• Customers investing in innovation
• Currency volatility
• Deflationary input cost environment
• Partnership model delivering
10 Sources: ECB FX rates | FAO World Food Price Index | Euromonitor
Raw Material Prices
Currency Volatility
GBP BRL ZAR
Global Market Growth
2015 2016F
H1 2016 Financial Highlights
+3.2% volume growth €3,037mRevenue
+7.4%€322mTrading profit
+70bps10.6%Trading margin
+7.5%133.8cAdjusted EPS*
(6.5%)126.4cBasic EPS
161% conversion**€379mFree cash flow
11Note: * before brand related intangible asset amortisation and non-trading items (net of related tax)
** expressed as a percentage of adjusted earnings after tax
Revenue Analysis
€3,028m
H1 2015
€3,037m
H1 2016
0.3%
(3.7%)
TranslationCurrency
(0.2%)
Transaction Currency
3.2%
Volume
(2.2%)
Price
3.2%
Acquisition/Disposal
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Revenue – Volume Growth Ahead of Markets
€3,037m
€2,379m
€697m
Group Taste & Nutrition Consumer Foods
+3.2%
+3.5%
+2.3%
Volume Growth
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Trading Margin – Expansion Ahead of Plan
€322m€304m
€58m
Group Taste & Nutrition Consumer Foods
+70bps +70
bps
+30bps
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Margin Progression
H1 2015 Mix /operating leverage /
efficiencies
Net price Kerryconnect Translation FX /transaction FX
Acquisitions /disposals
H1 2016
Trading Margin Progression H1 2016
Margin 9.9% +0.4% +0.2% +0.1% (0.2%) +0.2% 10.6%
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€300m
€322m
Free Cash Flow
H1 2016 H1 2015
€m €m
Trading profit 322 300
Depreciation (net) 67 61
Movement in average working capital 120 9
Pension contributions paid less pension expense (20) (24)
Cash inflow from operations 489 346
Finance costs paid (net) (24) (22)
Income taxes paid (23) (13)
Capital expenditure (net) (63) (119)
Free cash flow 379 192
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Average Working Capital & Capital Expenditure (net) (€m)
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162 156177
257
229 229
FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Capital Expenditure (net)
FY 2012 FY 2013 FY 2014 H1 2015 H2 2015 H1 2016
€120m Reduction
Average Working Capital Days
Working Capital
Note: * calculated as a percentage of revenue
** estimates for FY 2016
€m
3.1%* 2.7%*3.0%*
4.5%*3.8%* 3.8%**
H1
H2
Financial Ratios
Banking Ratios H1 2016 H1 2015 FY 2015
Net debt: EBITDA* 1.7x 1.6x 1.9x
EBITDA: net interest* 15.7x 19.4x 17.3x
Return Ratios
ROACE** 13.1% 14.1% 13.6%
ROAE** 16.8% 18.1% 17.5%
CFROI 14.5% 10.9% 11.3%
18Note: * calculated in accordance with lender covenants
** before brand related intangible asset amortisation and non-trading items (net of related tax)
Maturity Profile of Net Debt
H1 2016 H1 2015
Weighted average maturity years 7.0 6.1
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(330)
180143
86
645
796
2016 2017 2020 2022 2023 2025
Kerryconnect Update
Progress to Date
T&N EMEA
T&N Asia-Pacific
Foods (phase 1)
Corporate
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Scope Expansion Agenda to Completion
2015 acquisitions
New cloud platform
Foods (phase 2)
Cloud migration
T&N Latin America
T&N North America
Foods (phase 2)
One global platform – enabling Kerry’s complexity to be managed efficiently and consistently
Other Financial Matters
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Finance Costs€39m – an increase of €3m, due to acquisition financing, offset by strong cash generation
Structural integration progressing
Net deficit increased by €61m to €314m, primarily due to a decrease in discount rates
Deflationary cycle continuing into H2
Estimating a 5% headwind at current rates for the full year
Negative impact from Sterling exchange rate
Pension
Raw Materials
Brexit
Currency
New Acquisitions
Outlook & Future Prospects
Stan McCarthyCEO Kerry Group
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Unprecedented Change in the Food & Beverage Industry
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Kerry Group: Uniquely Positioned to Meet Customer and Consumer Needs
No. 1 Taste & Nutrition
Company
Integrated Taste, Functional Ingredients & Systems capability
Insight led innovation
40 years of heritage in food & beverage and natural ingredients
Global science, technology and manufacturing infrastructure
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Kerry Foods: Repositioned
for GrowthIndustry leading R&D
investment
Localised Taste &
Nutrition solutions
Speed-to-market
Manufacturing and innovation excellence
Trusted customer alliances
Investment in high growth segments – ‘in-market’ execution
Market-leading branding and consumer insights
E-commerce focus
International growth opportunities
Kerry’s Unique Taste & Nutrition Growth Model
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Taste NutritionPure & Simple
Clean Label; Trusted; No Artificial Ingredients;
Free From
Authentic & FamiliarCooking Style;
Authentic;Taste of Time; Ethnic
Pleasure & Indulgence
New Taste, Fine-dining, Patisserie and
Coffeehouse Experiences
Fresh & Invigorating
Taste w/out Compromise; Fresh; Healthy Halo;
Natural Mood
Free FromFood Intolerance;
Low/No/Reduced Lactose; Gluten Free; Clean/Cleaner Label
Better For YouReduced Salt,Salt and Fat,
Balanced Choice
Good For YouProtein Fortification;
Carbohydrate Quality; Healthy Lipids; Micronutrient Fortification;
Naturally good for you
Tailored For YouInfant & Toddler, Performance
and HealthCare Nutrition; Weight Management
Kerry Taste Research Programme
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CitrusNatural/Extracts
Sugar & Salt Perception
Dairy TasteSavoury Taste Smoke & Grill
Yeast
Technology Focus
Consumer
Analysis
Process
Applications
Pure & Simple Authentic & FamiliarPleasure & Indulgence Fresh & Invigorating
Sensory Excellence, Molecular Analytical, Regulatory
Distillation / Extraction / Reduction / Encapsulation / Reaction / Fermentation / Compounding
Beverages, Bakery, Confectionery, Dairy, Meats, Soups & Sauces, Snacks, Prepared Meals, Pharma
Partners
Kerry Nutrition Research Programme
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Partners
Infant & Toddlers
Children & Adolescents
Early Adulthood
Healthy Ageing
Seniors
Digestive Health
Weight Management
Allergies & Immunity
Muscle Health
General Wellness
Lifestage
Kerry Case Study: ‘Clean Label’ Customer Positioning
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Underpinned by understanding of the science and regulation of clean label ingredients
Remove
Customers seeking to replace ingredient(s) with clean label alternatives while retain key functionality, taste and/or
nutrition profiles in their products
Customers seeking to leverage clean label
technologies to reduce specific ingredients and
simplify their ingredient decks
Customers seeking to eliminate specific
ingredient(s)
• Natural Flavours
• No Flavours added
• Natural Colours
• Natural Preservative
• Natural Texture
• Short ingredient decks
• Natural ingredients that are multi-functional (e.g. roux)
• Regulatory & dietary recommendation compliance
• BHT replacement
• BPA replacement
• ‘No-No’ lists
Market needs (examples)
Replace Reduce
Customers asking for creative ways to
reposition products in the market place
• Product positioning and format
• Packaging, culinary processing
• Home cooked/Authentic
Customer expectation
• Consumer Insight• Global/Regional/National Regulation • Culinary Expertise• Applications Expertise
Re-position
Kerry’s Approach to Clean Label Product Innovation –Scalable Solutions
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Delivering
• Innovative, consumer preferred products aligned with Clean Label market opportunities
• Sustainable technical, functional & regulatory solutions
• Scalable food & beverage application
ConsumerInsights &
Clean LabelEvolution
Kerry Foods: Continued Innovation for Today’s Marketplace
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Authenticity / Flavour New Health ‘Free From’
Snacking Convenience
H1 2016 Outlook: Summary
• Kerry model resilient and well placed to respond to ongoing volatile and changing macroeconomic and
consumer landscape
• Unique taste & nutrition, functional ingredients & systems capabilities
• Localised innovation and speed to market
• Kerry Foods outperforming snacking, convenience and e-commerce growth rates
• 2015 acquisitions performing well
• Good opportunities through wider international taste, nutrition and foodservice markets
• Well positioned to address challenges and opportunities which ‘Brexit’ may present
Confident of delivering an underlying performance in the full year as previously guided. Taking into account
increased currency headwinds of 5% at current exchange rates, growth in adjusted* earnings per share in 2016 is
expected to be towards the middle to lower end of the 6% to 10% range of 320 to 332 cent per share
31 Note: * before brand related intangible asset amortisation and non-trading items (net of related tax)
Additional Information
Business Review: Taste & Nutrition – Americas
• Business volumes +3.5%, pricing (2.0%)
• Taste technologies performed well – boosted by 2015 acquisitions (in particular Red Arrow Products)
• Continued growth in meat sector in North America
• Growth in snacking categories in Mexico & Central America
• Clean label trends drive growth in school meal sector and in bakery category
• Brazil remains challenging but growth in dairy taste and sauce systems
• Foodservice: good growth in all American markets
• Beverage taste & systems assisted by Island Oasis and Insight Beverages
• Wellmune® performs strongly in pharma and nutrition markets
H1 2016 GROWTH
Revenue €1,244m +3.5%*
34 Note: * volume growth
Business Review: Taste & Nutrition – EMEA
• Business volumes +0.3%, pricing (2.7%)
• Overall region challenging
• Significant ‘product churn’ in a deflationary environment
• Intensifying geopolitical and currency instability
• Foodservice channel continued to provide solid growth opportunities
• Acquisition of Vendin S.L. in Spain
• Meat sector remains highly competitive but improved performance reported in Russia and Eastern Europe
• Dairy sector impacted by oversupply position in international dairy markets
• Cereal and sweet sectors remain subdued
• Nutritional technologies continue to grow in infant and clinical nutritional sectors
H1 2016 GROWTH
Revenue €734m +0.3%*
35 Note: * volume growth
Business Review: Taste & Nutrition – Asia-Pacific
• Business volumes +9.5%, pricing (1.8%)
• Excellent performance in APAC developing markets
• Taste technologies achieve strong market development
• ‘Dairy Complete’ in Indonesia, the Philippines, Vietnam and China
• Snacking sector in Malaysia, Thailand and the Philippines
• Acquisition of Jungjin Foods assists development in South Korea
• Sweet technologies maintain growth in India and Indochina
• Meat sector in Australia and New Zealand remains subdued
• Beverage Systems: strong growth in foodservice and C-Stores
• Regulatory changes impacting infant nutrition sector in China – opportunities for Kerry’s Europe based nutrition technologies
H1 2016 GROWTH
Revenue €367m +9.5%*
36 Note: * volume growth
Revenue Growth Components H1 2016
Transaction Translation Acquisitions/Volumes Price Currency Currency Disposals Total
Taste & Nutrition 3.5% (2.2%) (0.2%) (3.8%) 5.3% 2.6%
Consumer Foods 2.3% (2.1%) (0.3%) (3.1%) (3.8%) (7.0%)
Group 3.2% (2.2%) (0.2%) (3.7%) 3.2% 0.3%
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Trading Margin by Business
H1 2016 H1 2015Revenue Trading Profit Revenue Trading Profit
€m €m % €m €m %
Taste & Nutrition 2,379 304 12.8% 2,318 282 12.1%
Consumer Foods 697 58 8.3% 749 60 8.0%
Eliminations/unallocated (39) (40) – (39) (42) –
Group 3,037 322 10.6% 3,028 300 9.9%
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Currency Basket - Headwind Increasing in H2
39
2016 2015
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
H1: (4%) H2 (est): (6%)
EPS Reconciliation
H1 2016 H1 2015 Growth€ cent € cent %
Adjusted EPS* 133.8 124.5 7.5%
Brand related intangible asset amortisation (5.8) (4.8)
Non-trading items (net of related tax) (1.6) 15.5
Basic EPS 126.4 135.2 (6.5%)
40 Note: * before brand related intangible asset amortisation and non-trading items (net of related tax)
Free Cash Flow of €1.8bn Over 5 Years
41
FY 2015 FY 2014 FY 2013 FY 2012* FY 2011
€m €m €m €m €m
Trading profit 700 636 611 559 501
Depreciation (net) and impairment 126 104 109 114 101
Movement in average working capital (2) (59) (9) (41) (4)
Pension contributions paid less pension expense (57) (48) (36) (30) (34)
Cash Inflow from operations 767 633 675 602 564
Capital expenditure (net) (229) (257) (177) (156) (162)
Finance costs paid (net) (47) (42) (50) (49) (47)
Income taxes paid (38) (31) (36) (53) (76)
Free cash flow 453 303 412 344 279
Note: * 2012 restated due to adoption of IAS 19 (2011) ‘Employee Benefits’
Capital Expenditure – 5 Year History
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5 Year Capital Expenditure
2015 2014 2013 2012 2011 Total
€m €m €m €m €m €m
Capital expenditure (net) 229 257 177 156 162 981
Depreciation (net) and impairment (126) (104) (109) (114) (101) (554)
Excess capital/depreciation 103 153 68 42 61 427
Kerry centre investments (27) (56) (21) (10) (5) (119)
Kerryconnect (30) (34) (26) (28) (30) (148)
Net investment for growth 46 63 21 4 26 160
Revenue volume growth 3.8% 2.4% 3.0% 2.8% 3.3% 15.3%
3.1%*
2.7%*3.0%*
4.5%*
3.8%*
2011 2012 2013 2014 2015
229
257
177156
162
Note: * calculated as a percentage of revenue
Net Debt (€m) as at 30 June 2016
Net @ Floating @ FixedDebt Rates Rates
Euro 1,119 244 875
Sterling – – –
US Dollar 721 414 307
Other 10 10 –
Gross debt 1,850 668 1,182
Cash (330) (330) –
Net debt 1,520 338 1,182
Gross debt 100% 36% 64%
Net debt 100% 22% 78%
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Weighted average period for which rate is fixed: 7.1 years
Group Long Term Targets (5 Years 2013-2017)
44Note: * before brand related intangible asset amortisation and non-trading items (net of related tax)
Targets assume neutral currency and raw materials
Growth
VOLUME GROWTH
Taste & Nutrition 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
Taste & Nutrition 50bps p.a.
Consumer Foods 20bps p.a.
Group 30bps p.a.
(plus an additional 100bps from Kerryconnect project)
Adjusted EPS* 10%+ p.a. by:
CFROI 12%+ ROAE* 15%+
ROACE* 12%+
Return
Shareholder Analysis
45 Shares in issue at 30 June 2016: 175,981,485
UK 15%
North America 20%
Continental Europe | Rest of World 19%
Ireland 3%Retail 29%
Kerry Co-operative 14%
Institutions 57%
Institutional Analysis