Date: 27 October 2022  

LEI: 635400TLVVBNXLFHWC59                                                                                   

KERRY GROUP

Q3 INTERIM MANAGEMENT STATEMENT 2022

Continued strong business growth in a dynamic marketplace

Q3 YTD OVERVIEW

Markets and Performance

The overall demand environment continued to be strong through the period. Consumer preferences for new taste experiences, clean label and healthier options remains strong, while the importance of value options continues to rise across categories.

The resilience of supply chains remains a key focus across the industry due to geopolitical volatility and inflationary pressures. Given the evolving consumer landscape, customers are continuing to evaluate the relevance and uniqueness of their offering and the need to adapt and expand their product ranges. Against this market backdrop, the level of innovation remains strong as customers target opportunities linked with the changing consumer landscape, while also looking to reconfigure aspects of their operations given the evolving industry environment.

Group reported revenue increased by 16.1% in the period. This comprised of business volume growth of 6.6%, increased pricing of 10.6%, a transaction currency tailwind of 0.2%, a translation currency tailwind of 6.6%, with the contribution from business acquisitions of 4.8% partially offset by the impact of the business disposal of the Consumer Foods Meats and Meals business of 12.7%. Group EBITDA margin decreased by 40bps primarily driven by the significant impact of passing through input cost inflation, partially offset by accretion from portfolio developments, operating leverage, portfolio mix and efficiency initiatives.

Business Reviews

Taste & Nutrition

Continued strong business volume growth across regions, channels and end use markets

>    Overall volume growth of 8.5% with strong Q3 growth of 8.2%

>    Snacks, Meat, Bakery and Beverage markets all achieved very strong growth

>    Pricing of 7.5% reflected the pass through of increases in input costs

>    EBITDA margin reduction of 80bps driven by the impact of passing through input cost inflation

Taste & Nutrition delivered strong volume growth through the period across all regions, despite the effect of increased pricing.

The foodservice channel continued its momentum with strong double-digit volume growth. This growth was underpinned by increased LTO and seasonal offerings, combined with solutions to reduce operational complexity. The retail channel also continued to deliver strong growth with customers looking for increased innovation and renovation to offer new taste experiences within categories, as well as reducing food waste and providing more value options to consumers.

The growth achieved across Kerry's food and beverage EUMs was supported by the overall performance of its key growth platforms. Authentic taste continued to deliver very strong growth, with Tastesense™ salt and sugar reduction technologies deployed across a number of Savoury and Dairy applications. Plant-based performed well in spite of a slowdown within the category. Demand continued to be strong for Kerry's range of food waste solutions, while proactive health performed in line with expectations given the elevated demand in the prior year.

Business volumes in emerging markets increased by 12.3%, as strong growth in LATAM, the Middle East, and Southeast Asia was partially offset by challenging conditions in China.

Americas Region

>    Overall volume growth of 9.3% with excellent Q3 growth of 9.6%

>    Growth led by Beverage, Meat and Bakery markets

>    LATAM delivered very strong growth led by Brazil and Mexico

North America delivered an excellent performance through the period. The strong growth in the retail channel was driven by innovation activity across Beverage, Meat and Bakery markets in particular. Within Beverage, growth was driven by increased launches in the tea & coffee, refreshing and nutritional beverage categories. Growth in Meat was delivered through increased demand for taste systems and Kerry's range of food protection and preservation solutions, while Bakery saw growth driven by functional solutions and texture systems.

Growth in foodservice remained strong with quick service restaurants in particular, due to increased seasonal menu offerings, further menu development and innovations enhancing back of house efficiency.

Within LATAM, Brazil and Mexico delivered very strong growth. Volume growth in Brazil was driven by performance in Meals and Meat, while volumes in Mexico were led by growth in Beverage and Snacks with strong wins in authentic taste.

Within the global Pharma EUM, good volume growth was achieved in cell nutrition offset by weaker volumes in excipients due to supply chain constraints.

Europe Region

>    Overall volume growth of 6.2% with Q3 growth of 4.4%

>    Volume growth led by Snacks, Dairy and Meals markets

>    Growth led by Central and Southern Europe

In the period, performance in Snacks, Dairy and Meals led broad based growth across food and beverage markets. Snacks achieved very strong growth with Kerry's Tastesense™ salt reduction technology portfolio, driven by increased customer focus on enhancing their products' nutritional profiles. Growth in Dairy was strong, supported by new launches in ice cream and dairy alternative innovations in the foodservice channel. Meals achieved good growth through taste systems and functional solutions while growth in Beverage was driven by sales of products incorporating Kerry's botanicals, natural extracts and sugar reduction technologies.

The strong overall volume growth in the region was led by the foodservice channel supported by new menu innovations, and an increased level of seasonal products.

From a geographical perspective growth was strongest in Central and Southern Europe, while performance in Eastern Europe was impacted by the ongoing war in the region. As previously announced, the divestment of the Group's Russian subsidiary was also completed during the period.

APMEA Region

>    Overall volume growth of 9.0% with continued strong Q3 growth of 8.6%

>    Volume growth led by Snacks, Meat and Bakery markets

>    Growth driven by the Middle East and Southeast Asia, partially offset by China

Growth in the region was primarily driven by very strong performances in the Middle East and Southeast Asia, led by excellent growth in foodservice as well as Snacks and Bakery within the retail channel. In China, performance was constrained by localised restrictions which continued to be a feature throughout the period.

Overall growth was strong across Food EUMs. The excellent growth in Snacks was driven by authentic taste in savoury applications with regional leaders across APMEA. Growth in Meat was led by local authentic savoury and smoke innovations, while growth in Bakery was supported by texture solutions and increased demand for preservation systems.

The Group also continued to make good strategic progress by enhancing its presence within the region with the expansion of footprint in the Middle East and Southeast Asia.

Dairy Ireland

Solid growth while managing significant price inflation

>    Overall volume growth¹ of 1.8% with Q3 performance of 1.0%

>    Pricing¹ of 36.6% reflected significant increases in dairy prices and other input costs

>    EBITDA margin¹ reduction of 190bps driven by the impact of passing through input cost inflation

Dairy Ireland delivered solid overall volume growth through the period while managing the heightened inflationary cost environment, which resulted in significant price increases across the business.

Within Dairy Consumer Products, the significant price increases led to lower overall category volumes. Within the spreads category, good performance was achieved across our customer-branded ranges. Volumes in cheese snacking were impacted by reduced promotional activity in the period.

Dairy Ingredients delivered volume growth while prices remained significantly higher as a result of constrained global supply dynamics.

¹ Pro-forma performance excluding the Consumer Foods Meats and Meals business disposal

Financial Review

At the end of September, the Group's net debt was €2.4 billion. The Group's consolidated balance sheet remains strong which will facilitate the continued organic and acquisitive growth of Group businesses.   

Future Prospects

While overall market conditions remain uncertain, Kerry is well positioned to support its customers through this dynamic marketplace. The Group remains confident in its ability to continue to manage through the current inflationary cycle with its well-established pricing model and cost initiatives. Kerry will continue to strategically evolve its portfolio and invest capital aligned to its strategic priorities and key growth platforms.

With the completion of the third quarter, the Group is updating its full year guidance and now expects to achieve adjusted earnings per share growth* in 2022 of 6% to 8% on a constant currency basis.

* Earnings guidance is stated after including estimated net dilution from portfolio changes of c. 2.5% in 2022, comprising the previously announced portfolio changes of c. 1.5% and the impact of the divestiture of the Russia and Belarus businesses of c. 1%. Foreign currency is expected to be favourable 9% on earnings in 2022 based on prevailing exchange rates.

Disclaimer: Forward Looking Statements

This Announcement contains forward looking statements which reflect management expectations based on currently available data. However actual results may differ materially from those expressed or implied by these forward looking statements. 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.