Kerry revenues rise despite cost pressures

FOOD GROUP Kerry has reported a fractional increase in revenues for 2008 but says it expects earnings growth this year as it adapts its range to more price-conscious consumers.

Sales grew 6.3 per cent to €4.8 billion on a like-for-like basis last year, excluding the impact of acquisitions, disposals and currency translation. Overall sales rose just 0.1 per cent.

Operating profits before exceptionals rose by 4.5 per cent to €377.3 million. However, pretax profits were 19.4 per cent lower at €240.4 million – largely as a result of rationalisation of group operations.

Consumers became more value-conscious during the second half of 2008 as the impact of the economic downturn took hold, Kerry chief executive Stan McCarthy said in Dublin yesterday.

Despite this, he was confident the company would deliver earnings per share of between 160 cent and 165 cent in 2009.

This compares to diluted earnings per share of 101.1 cent a share for 2008, a fall of 26 per cent.

Adjusted for the impact of exceptionals, earnings per share were 7 per cent higher year-on-year at 153.9 cent.

Kerry sells a range of foods, from bacon and cheese to snacks and smoothies, but it generated two-thirds of its revenues last year by supplying ingredients and flavourings.

The ingredients and flavours unit reported a 7.5 per cent rise in revenues to €3.3 billion with trading profits up 8.9 per cent to €320 million.

Revenues at Kerry’s consumer foods division grew 5.4 per cent to €1.7 billion with trading profits up 5.1 per cent to €120 million.

Demand for dairy products weakened considerably last year, particularly in Europe.

Mr McCarthy said last year had been one of the most challenging yet in terms of exchange rates, with the significant depreciation in the sterling/euro exchange rate causing difficulties.

Raw materials and ingredients costs rose by 7 per cent last year, although these were offset by price and volume increases. The company expects further cost rises in the first half of 2009 before input costs moderate towards the end of the year.

The company said the impact of the pork dioxin contamination crisis was “minimal”, saying it had bumper sales of pork products in December in Ireland and Britain.

Asked if the group was encountering negative international reaction as a result of the banking scandals, Mr McCarthy said Kerry traded on its reputation but noted its share price in Dublin appeared low compared to international peers.

Kerry said it was hoping for a positive High Court finding in relation to its appeal of a Competition Authority decision to prevent its proposed acquisition of Breeo Foods. It took a €23.15 million charge in relation to incomplete acquisitions in 2008.

Geographically, North America was the strongest driver of growth with like-for-like sales up 6.7 per cent compared with 4 per cent in Europe. The smaller Far East region reported sales growth of 19.3 per cent.

Kerry is recommending a final dividend of 15.6 cent per share, bringing its annual dividend to 22.5 cent per share, up 12.5 per cent on the previous year.

Kerry Group: 2008 results€4.8bn (+0.1%)

Revenues:

Operating Profit (before exceptionals):€377.3m (4.5%)

Pre-tax profit: €240m (-19.4%)

EPS (diluted):101.1c (-26%)

Dividend:22.5c (+12.5%)

Summary:Kerry produced results at the upper range estimates, managing to grow volumes in the face of increasing consumer price consciousness in the second half of the year.

The company increased profit margins by 10 basis points to 8.5 per cent. It is pursuing a twin-track approach of seeking growth organically and through acquisitions, while it aims to crank up profit margins to 10 per cent over the next five years.

It has restated its target of doubling turnover to €10 billion over the next five years. With strong cashflow and no debt repayments due for the next two years, analysts say the company has one of the strongest balance sheets in the sector.