Kerry Group interim profit rises by 4%

KERRY GROUP beat market expectations and defied the recession yesterday, as it reported a 4 per cent rise in trading profit for the first half of 2009, despite a 3.2 per cent drop in sales.

The robust results were driven by a 60 basis point (0.6 of a percentage point) rise in the trading margin of the group’s ingredients and flavours division to 8.7 per cent, and an increase of 30 basis points in its consumer foods business margin to 6.7 per cent.

The publicly-listed company also increased its earning forecast for 2009, raising its earning estimate to the upper end of the 160-165 cent per share range forecast at the beginning of the year.

Adjusted earnings per share rose 7 per cent year-on-year to 67.2 cent, while Kerry increased its dividend by 11.6 per cent to 7.7 cent. The markets responded positively to the results, with Kerry’s share price up 50 cent in lunchtime trading, although it finished the day 20 cent higher at €18.05, a gain of 1.12 per cent.

The interim results showed that the ingredients and flavours division, which generates two-thirds of Kerry’s overall revenue, outperformed the consumer foods division in relative terms. Ingredients suffered a 1 per cent drop in revenue to €1.656 billion, while revenue from consumers fell 7.7 per cent to €857 million.

Chief executive Stan McCarthy said that all of the group’s consumer food categories had been hit by changing consumer habits, with sales in Ireland particularly down. “Consumer sentiment continues to be weak in Ireland, although things look to be bottoming out. In the UK, it’s been quite different, with a more positive sentiment from a consumer perspective.”

The growing popularity of discount and private label brands has also affected consumer sales, with brands such as Denny and Galtee losing market share to private label and discount offerings.

Mr McCarthy stressed that the advance in the discount labels trend was temporary. “It’s a reflection of a point of time. We need to take a more macro view on the growth in private labels. The market will correct itself over time, with older brands re-establishing themselves.”

At the publication of the results, Mr McCarthy expressed confidence that the company can sustain recent margin progression and deliver a 10 per cent group trading margin in five years.

He said the restructuring of the company in recent years, together with diversification of products and markets, meant it was well-positioned for long-term growth.

On acquisitions, Mr McCarthy said the integration of Breeo Foods into the business following its acquisition in March was proceeding successfully. He said Kerry’s healthy cashflow meant the group had €250 million a year available for acquisitions.

While negotiations about possible takeovers were ongoing, there would be no significant announcement this year.

He ruled out the possibility of job cuts, stating that “right-sizing of the Irish business” had already been completed.