Kerry’s Chinese sales set for 30% hit from coronavirus

Plants being run with a skeleton crew as it deals with fallout

Kerry Group chief executive Edmond Scanlon. Photograph: Dara Mac Dónaill /

Kerry Group chief executive Edmond Scanlon. Photograph: Dara Mac Dónaill /

 

Kerry Group chief executive Edmond Scanlon signalled on Tuesday that its sales in China are set to fall by about 30 per cent in the first quarter as its plants in the country are being run with a “skeleton crew” as it deals with the fallout from the coronavirus.

The food giant’s executives also signalled on a conference call with analysts, after reporting full-year figures, that its key nutrition and taste division’s 2020 sales are expected to take a 0.5 per cent hit as business in the world’s most populous country is affected by the disease. That equates to almost €33 million.

“We have been working with our team in China to manage the ongoing developments relating to the coronavirus. Our first priority remains the safety of our people and their families,” Mr Scanlon said. “Our team in China are taking all appropriate protective measures in our facilities and we are working with the Chinese authorities, our customers and other stakeholders to manage through the situation.”

Earnings

Kerry Group gave a wide earnings per share growth forecast of between 5 per cent and 9 per cent for 2020, including an estimated impact in the first quarter to its Chinese business, which has five manufacturing facilities, as a result of the coronavirus. Mr Scanlon confirmed an analysts’ estimate that the guidance pointed towards a 30 per cent reduction in Chinese sales in the current quarter.

A spokesman subsequently said that over a third of staff in the Chinese plans are currently at work and the figure is increasingly daily.

Earlier, the group reported that its trading profit grew 12.1 per cent in 2019 to €903 million as its sales and profit margins expanded in a year that ended strongly even as management were preoccupied by the company’s biggest-ever acquisition bid.

However, Kerry Group lost out in December in its effort to buy the nutrition business of US chemicals group DuPont, which would have been the record-setting deal for an Iseq-listed company. Instead, rival International Flavors and Fragrances reached a $26.2 billion (€24.2 billion) agreement with DuPont for the business.

The financial results show that Kerry Group spent about €17.6 million on the failed merger plan.

Still, Mr Scanlon said that the group - which has historically pursued a strategy of small, bolt-on deals, including €562 million spent on a series of purchases completed in 2019 - will look at all opportunities.

“Scale isn’t going to frighten us here,” Mr Scanlon said on the call in which he referred to the DuPont deal as a “well publicised transaction process,” rather than referring to it by name. “When we seen an opportunity, we will go for it but, again, we’re going to take a disciplined approach.”

Volumes

Meanwhile, group sales expanded by 9.6 per cent to €7.2 billion last year, as its taste and nutrition business delivered business volumes growth by 4 per cent, while its consumer foods unit, home to brands including Dairygold, Denny and EasiSingles cheese slices, saw its volumes decline by 2.2 per cent after losing a major contact with retailer Tesco.

Earnings per share rose by 8.3 per cent when currency fluctuations were stripped out – coming in at the upper end of the company’s forecast for 7 per cent to 9 per cent growth.

Broken down by division, sales in the taste and nutrition business, which sells ingredients to the beverages, confectionary and culinary food industries, reached €6 billion, while consumer foods revenues came to €1.3 billion.

“Kerry has once again served up a strong set of results, driven by its global food ingredients business, which continues to be the key engine of growth,” said Richard Flood, investment manager at Brewin Dolphin Ireland. “While the impact of the coronavirus is a concern, Kerry has the firepower to deliver in challenging markets.”