2006 interim results presentation - kerry group · • group trading continues in line with market...

Kerry - 2006 Interim Results Presentation

• Review of Business Hugh Friel

• Financial Review Brian Mehigan

• Business Growth Prospects Hugh Friel

• Q&A

H1 2006: Good Performance in ChallengingPeriod

• Revenue growth of 7% to €2,265m

• Like-for-like revenue growth of 3.5%

• EBITDA* up 1.9% to €216m

• Trading profit growth of 1.5% to €162m

• Adjusted EPS* up 2% to 54.9 cent

• Interim dividend per share up 10% to 5.5 cent

Note: * before intangible asset amortisation and non-trading items

• Good top-line growth in ingredients

• Robust performance but significant cost / price squeeze inconsumer foods

• Energy related cost increase (180bps on margin or €40m)

• Progress through on-going cost recovery programmes

• Good operational performance through supply chain initiatives

• Kerry technologies to the fore in nutritional product developments

• Focus on premiumisation and nutritional values deliveringcategory growth in foods

H1 2006: Highlights

• Continuing surge in energy / energy related cost increases

• Cost recovery programmes in conjunction with long-term

customer partnerships

• Slow down in UK chilled ready meals growth categories

• Margin pressures in frozen prepared meals, poultry, dairy

and fruit preparations

Short Term Issues: Challenges

• Focused on nutritional, wellness and convenience growth categories

• Leveraging ingredients, flavours and bio-science technologiesacross global food and beverage applications

• Consumer foods offerings in convenience, food-to-go, nutritionalgrowth categories

• Focus on - cost recovery programmes

- supply chain efficiencies

- increased product innovation investment

- asset optimisation - elimination of non-core activities

• Rate of industry consolidation - acquisition opportunities

Full Confidence in Kerry Model

Euro - US Dollar Trend (1995 - 2006)

0.80

0.90

1.00

1.10

1.20

1.30

1.40

95 96 97 98 99 00 01 02 03 04 05 06

Raw Materials - Price Trend for Crude Oil(1995 - 2006)

10.0

14.0

18.0

22.0

26.0

30.0

34.0

38.0

42.0

46.0

50.0

54.0

58.0

62.0

66.0

70.0

74.0

78.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

$38 Avg price ‘04

$54 Avg price ‘05

$68 Avg price ‘06

$29 Avg price ‘03

Full Year Trading Margin %

8.6%

7.3%7.2%

8.7%

8.9%

8.3%

7.9%7.8%

8.1%

8.4%

8.6%

6.0%

6.2%

6.4%

6.6%

6.8%

7.0%

7.2%

7.4%7.6%

7.8%

8.0%

8.2%

8.4%

8.6%

8.8%

9.0%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Trading Margin Progression

2005 1995% %

Material gross margin 44.5 32.5

Costs 35.9 25.3

Trading margin 8.6 7.2

H1 Business Review - Ingredients

• Like-for-like revenue growth +5%

• Encouraging rate of NPD in Americas

• Acquisition of Custom Industries and Nuvex Ingredients

• Good top-line growth in Kerry Bio-Science (proteins and pharma - USA,functional systems and culinary - Europe, emulsifiers - Asia)

• Impact of energy and crop issues in global flavour markets

• Margin pressure in European ingredients sector (dairy and fruitpreparations)

• Continuing good growth in emerging markets

H1 2006 Total Growth

Revenue €1,548m 6.5%

Trading Profit €123m 4.0%

H1 Business Review - Consumer Foods

• Like-for-like revenue growth flat due to sectoral price deflation

• Cost recovery restricted due to competitive market conditions

• Chilled ready meals slow-down continued but growth acceleratedtowards end of H1

• Closure of Hartlepool facility

• Continued margin pressure in poultry markets and frozen ready meals

• Good growth in food-to-go and convenience offerings

• Brand investment and NPD delivering good results

H1 2006 Total Growth

Revenue €875m 6.6%

Trading Profit €52m (4.6%)

Continuing Revenue Growth

Total Like-for-like Total Like-for-likeGrowth Growth Growth Growth

Ingredients 6.5% 5.0% 12.1% 3.8%

- Europe* 2.8% 4.2% 15.2% 3.1%

- Americas* 10.9% 5.5% 6.5% 2.6%

- Asia Pacific* 9.1% 9.4% 26.5% 10.5%

Consumer Foods 6.6% 0.2% 1.5% 3.1%

Group 7.0% 3.5% 8.3% 3.4%

H1 2006 H1 2005Revenue Revenue

Note: * Revenue by location of customers

Financial Review

H1 2006 Financial Highlights

Revenue €2,265m +7.0%

Trading profit €162m +1.5%

Basic EPS 53.8 cent +0.0%

Free cash flow €20m H1 2005: €24m

Acquisition programme €96m H1 2005: €38m

Note: * before intangible asset amortisation and non-trading items (net of tax)

Adjusted EPS* 54.9 cent +2.0%

Trading margin 7.2% -40bps

Revenue Analysis

H1 2005 H1 2006

€2,117m €2,265m

Like-for-like+3.5%

Acquisition/Disposal+3.0%

FX Translation+0.5%

+7.0%

Note: Like-for-like represents revenue growth before subsidiary translation and acquisitions / disposals impact

Revenue Growth

H1 2006 H1 2005 H1 2004 Like-for-like Like-for-like Like-for-like

Ingredients 5.0% 3.8% 5.0%

- Europe* 4.2% 3.1% 3.0%

- Americas* 5.5% 2.6% 5.4%

- Asia Pacific* 9.4% 10.5% 14.0%

Consumer Foods 0.2% 3.1% 1.5%

Group 3.5% 3.4% 3.8%

Note: * Revenue by location of customers

10.9%

5.2%

7.0%

9.1%

2.0%

5.5%

9.4%

3.5%

-2

2

6

10

14

Europe Americas Asia Pacific Group

H1 2006 Revenue Growth by Destination

Total Like-for-like


Like-for-like % Growth

Revenue Growth Components

Like-for-like % Growth

H1 H1 FY2006 2005 2005

Volume 3% 3% 4%

Price 1% 1% 1%

Trading currency (0%) (1%) (1%)

Group 3.5% 3.4% 3.7%

3.4%3.5%3.7%

0

1

2

3

4

5

6

H1 2006 H1 2005 FY 2005


Trading Margin Change

H1 2005 H1 2006Trading margin 7.6% 7.2%

• Organic growth and pricing not enough to offset adverse energy andraw material impact

• Energy– €25m increase in cost in the first half covering items such as oil, gas,

diesel, electricity and transport

– This reflects a 42% increase in average oil prices in 2005 and a 32%increase in H1 2006

– Full impact of market rates has not yet evolved

• Energy related raw materials– €15m increase in packaging, sucrose, molasses, edible oils, vegetable

protein and chemicals

Trading Margin Progression

Energy Related

CostIncreases

130

135

140

145

150

155

160

165

170

175

180

H1 2005 H1 2006

€160m

€9m

UnderlyingGrowth

€8m

Acquisitions / Disposals

€0m

Currency(€40m)

€162m

(€5m)

R&D

€30m

MarginRecovery

Programme

Margin 7.6% +0.3% +0.1% 0.0% -0.2% -1.8% +1.2% 7.2%

EBITDA* 216 212 197 176 173

Movement in working capital (100) (77) (4) (79) (97)

Capital expenditure (net) (48) (59) (48) (37) (48)

Finance costs (35) (29) (21) (22) (25)

Taxation (13) (23) (23) (14) (16)

Free Cash Flow 20 24 101 24 (13)

2006 2005 2004 2003 2002€m €m €m €m €m

Interim Five Year Free Cash Flow

Note: * before non-trading items

H1 2006 H1 2005

Debt : Market capitalisation 44% 34%

EBITDA : Net interest* 7.0x 8.6x

Debt : EBITDA* 2.8x 2.8x

Financial Ratios

Note: * calculated in accordance with banking covenants

H1 2006 H1 2005

ROAE* 14.7% 15.7%

ROACE* 10.6% 10.4%

CFROI* 10.4% 9.5%

Return on Investment

Note: * before intangible asset amortisation and non-trading items

Other Financial Matters

• Finance costs Up €4.4m year-on-year due to impact of rate increases and acquisitions offset by cash flow impact. Average rate increase 0.5%

• Taxation Tax charge on continuing operations down to 20.2% due to post acquisition integration and the benefit of R&D tax credits

• Pensions Pension charge for the period amounted to €19m and the net deficit after tax amounted to €121m (H1 2005: €200m)

Outlook 2006 and Future Prospects

Kerry Growth Strategies

• Business model and strategies will continue to deliver satisfactory growth

– Ingredients : Strong organic growth rates

– Foods : NPD and brand investment

• Critical focus on

– On-going cost recovery programmes

– Supply chain efficiencies

– Asset optimisation / restructuring

– Elimination of underperformers

– Increased investment in product innovation

• Acquisitions

Ingredients Positioning

Delivering technology based ingredients and integratedsolutions for the food and beverage industries worldwide

– Leading new product and nutritional development

– Strong customer partnerships and geographic base

– Bio-Science: encouraging pharma pipeline

– Mastertaste: strong business platform and technologydevelopment eg. anti-microbial flavour technology

– Emerging markets: good growth prospects

– Growth through integrated business platforms

“ “

#1 GB Chilled Van Sales operation#1 Irish Chilled Van Sales operation#1 Irish sandwich (Freshways)#2 ROI Chilled Juice (Dawn)#1 ROI Flavoured Mineral Water (Kerry Spring)

Other

Food To Go

Added Value MeatAdded Value Dairy#1 GB sausage (Richmond)#2 GB sausage (Wall’s)Biggest Brand in Ireland (Denny) #1 sausage #1 cooked meats #2 bacon rashers#2 ROI cooked meats brand (Ballyfree)

#1 GB cheese snack portion (Cheestrings)#1 IOI natural cheese (Charleville/Coleraine)#1 ROI cheese slices (Easisingles)#1 NI dairy spread (Golden Cow)#1 Irish dairy spread supplier#1 GB pvt label dairy spread supplier#1 GB pvt label cheese slices supplier

Convenience

#2 GB chilled ready meals supplier#1 GB frozen ready meals supplier

Kerry Consumer Foods Focus Areas

Kerry Foods: Encouraging New Developments

• Mattessons Fridge Raiders

• Denny Feel Free

• Ballyfree Superfood

• Brunchettas

• The Food Doctor

• Champneys

• Freshways Healthy Ways

• Dawn Benefits

Kerry Group: Business Structure

Group

Ingredients€3.0bn

Foods€1.7bn

19 Countries 2 Countries

49 SBU’s 9 SBU’s

121 Manufacturing Plants 32 Manufacturing Plants

Asset Optimisation: Restructuring Jan 2005 –To Date

• Closed 11 plants 4 countries

• Divested 4 plants 3 countries

• Pending 10 plants 7 countries

Revenue -€250m

Net impact

Margin +25bps

Plant Rationalisation: Jan 2005 - To Date

UKBicesterIngredients

7 Countries10 PlantsPending

USAAlbert LeaIngredientsItalyLatinaIngredientsItalyAtripaldaIngredientsNorthern IrelandDerryLiqueurs

DivestedItalyTurinFlavoursUSABeloit (1 plant)IngredientsUKBirminghamIngredientsUKBinghamIngredients

UKHartlepoolReady MealsUKMitchamMeat ProductsUKBristolMeat ProductsIrelandSligoDessertsIrelandLimerickPoultryIrelandLimerickDairy

Closed

Trading Prospects and Outlook

• Group trading continues in line with market expectations

• On-going cost recovery programmes

• Focus on supply chain efficiencies

• Rationalisation programme to deliver 25bps / annum marginenhancement

• Innovation and brand investment

• Busy pipeline of bolt-on acquisition opportunities

Ingredients: Strong organic growth rates into the future

Foods: Strategies will deliver growth ahead of category growth rates

Additional Information

Business Review - Ingredients Americas

• Like-for-like revenue growth +5.5%• Benefit from increased NPD• Cost increases significant particularly energy• New product launch rates in nutrition excellent• Cost initiatives include

– the reorganisation of nutrition (sweet) manufacturing facilities postacquisition of Custom & Nuvex

– Down-sizing of Beloit and Vesper• Bio-Science and Mexico gaining market share• Flavours North America growth in line with the market

Americas H1 2006 Total GrowthRevenue* €635m +10.9%

Note: * revenue by location of customers

Business Review - Ingredients Europe

• Like-for-like revenue growth +4.2%

• Good volume growth in Bio-Science and Ingredients sales in mainlandEurope

• Pricing environment more difficult particularly in the UK

• Germany, Italy and Eastern Europe gaining market share

• Cost increases mainly energy and wheat

• Cost initiatives include the closure of Bicester, Birmingham, Bingham andTurin

• Integration of Bio-Science sales network commenced

• Dairy markets difficult

Europe H1 2006 Total GrowthRevenue* €631m +2.8%


Business Review - Ingredients Asia Pacific

• Like-for-like revenue growth +9.4%

• Speciality proteins and dietary formulations +20%

• Thailand ahead +63%

• Foodservice growth of 44% across the region

• Cost impact of energy and significant investment in new territoriesand new business opportunities

• China performing to plan

Asia Pacific H1 2006 Total GrowthRevenue* €174m +9.1%


Reported Acquisition / Reporting Like-for-like

Growth Disposal Currency Growth

Ingredients 6.5% 0.7% 0.8% 5.0%

Consumer Foods 6.6% 6.7% (0.3%) 0.2%

Group 7.0% 3.0% 0.5% 3.5%

H1 2006 Revenue: Like-for-like % Growth

Raw Materials - Edible Oils Index

80

90

100

110

120

130

140

Jan 03 Jul 03 Jan 04 Jul 04 Jan 05 Jul 05 Jan 06 Jul 06

Source: Datastream Malaysian palm oil & Rapeseed oil (Rotterdam), Credit Suisse research

Currency Exposure Management

• Dollar v Euro - slightly favourable in H1, expected to be

negative in H2

• Sterling v Euro - no significant change expected in 2006

• No material impact on revenue, trading profit or earnings at

current rates

Euro - US Dollar Trend

1.22

1.25

1.29

2005

2006

1.22

1.30

H1 H2

1.18

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Euro - Sterling Trend

0.60

0.62

0.64

0.66

0.68

0.70

0.72

0.74

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

0.68

0.69

2006

20050.68

0.69

H1 H2

0.69

0.67

Interim Cash Flow (€m)

EBITDA* 216 212Change in working capital (100) (77)Finance and taxation (48) (52)Capital expenditure (net) (48) (59)Free cash flow 20 24Acquisitions and disposals

- Businesses acquired net of disposals (88) (48)- Non-trading items (4) (6)

(92) (54)Equity dividends paid (21) (18)Financing - (repurchase) / issue of share capital (net) (2) 3

(95) (45)Exchange adjustment on net debt 32 (81)Increase in borrowings (63) (126)Opening net debt (1,275) (1,139)Closing net debt (1,338) (1,265)

2006 2005

Note: * before non-trading items

Net @ Floating @ Fixed Borrowings Rates Rates

Euro 383 183 200

Sterling 284 284 -

US Dollar 548 100 448

Canadian Dollar 32 32 -

Others 91 91 -

1,338 690 648

100% 52% 48%

Weighted average period for which rate is fixed: 3.5 years

Debt Profile (€m)

30 June 2006 30 June 2005€m €m

Within one year 104 112

Between 1 and 2 years 108 136



1,338 1,265

Weighted average maturity in years: 4.6 5.9

Maturity Profile of Net Debt

EPS Reconciliation

H1 2005 H1 2006 Growth€ cent € cent %

53.8 Adjusted EPS* 54.9 2%

(2.6) Intangible asset amortisation (2.9)

2.6 Non-trading items (net of tax) 1.8

53.8 Basic EPS 53.8 0%


38.7

46.7

57.4

68.0

79.2

87.9

101.8

112.1

122.9

131.6

54.953.850.5

46.141.8

36.432.8

28.223.2

19.716.5

0

20

40

60

80

100

120

140

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

EPS* Growth (cent)

Full Year Half Year

Note: EPS numbers for 1996 to 2003 are pre IFRS


EPS* Broker Estimates 2006 / 2007


High Low Consensus %

2006 Estimate 131.8 130.9 131.6 0.0

2007 Estimate 140.2 136.2 138.4 5.2

Institutional Analysis

North America 18%

Ireland 12%

UK 9%

Continental Europe / Rest of World 5% Shares in issue: 185 million

Shareholder Analysis

Analysis as at 30 June 2006 after share buy back programme

Retail28%

Kerry Co-op28%

Institutions44%

2006 interim results presentation - kerry group · • group trading continues in line with market...

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