Date: 26 October 2023

LEI: 635400TLVVBNXLFHWC59

KERRY GROUP

Q3 INTERIM MANAGEMENT STATEMENT 2023

Continued volume growth with good margin improvement

OVERVIEW

Markets and Performance

Given the prevailing industry dynamics through the period, the overall demand environment remained quite resilient. Customer innovation activity primarily focused on new taste profiles, continued improvements to products' nutritional characteristics, products targeting health need states, and providing more relative value options for consumers.

Group reported revenue in the first nine months of the year decreased by 4.2%, reflecting business volume growth of 0.4%, pricing of 1.3% and a contribution from acquisitions of 1.1%, more than offset by the effect of disposals of 5.1% and adverse translation currency of 1.9%. Group EBITDA margin increased by 10bps as benefits from cost efficiency initiatives and portfolio developments were partially offset by the mathematical impact of passing through overall input cost inflation.

Business Reviews

Taste & Nutrition

Growth driven by continued strong foodservice performance

>    Overall volume growth of 1.5% with Q3 growth of 1.6%

>    Meat, Snacks and Dairy markets achieved good growth

>    Pricing of 3.0% with third quarter pricing of -1.4% reflective of some input cost deflation

>    EBITDA margin +20bps (Q3 +130bps) primarily reflected benefits from cost efficiencies and portfolio developments, partially offset by the mathematical impact of passing through overall input cost inflation

Overall volumes in the division remained solid considering customer and industry dynamics. Foodservice achieved high-single digit volume growth driven by ongoing innovation with QSRs and coffee chains on menu enhancement, seasonal products, and back-of-house efficiency solutions. Volumes in the retail channel were impacted by customer inventory management in North America.

Within the division, the Food EUM achieved good volume growth led by Meat, Snacks and Dairy. This was supported by strong performances in savoury and culinary taste solutions, as well as Tastesense^® salt and sugar-reduction technologies.

Business volumes in emerging markets increased by 5.1% driven by strong growth in the Middle East.

Within the global Pharma EUM, performance was led by good volume growth in cell nutrition and excipients.

Americas Region

>    Overall volumes -1.7% (Q3 -0.9%) with improvement in North America in Q3

>    Retail channel saw softer market conditions while foodservice performed well

>    Good growth in Snacks and Dairy markets

>    LATAM achieved overall growth despite softer Q3 market conditions

Performance in the region reflected strong comparatives and customer inventory reductions particularly across the Beverage, Bakery and Meat markets in the retail channel. Innovation and new launch activity remained strong in many categories despite these dynamics. Foodservice delivered good growth through new taste innovations across menus and back-of-house efficiency solutions, particularly with QSRs and coffee chains.

Overall performance in North America improved through the period, with volumes in the third quarter similar to the prior year. Snacks delivered good growth driven by authentic taste-led innovations across global leaders, emerging brands and private label, while Dairy performed well through taste system innovations. Within the Meat market, we continued to see good launch activity with culinary taste and texture solutions against a backdrop of challenging industry conditions.

LATAM achieved overall growth in the period despite softer market conditions in the third quarter. This growth was driven by Mexico with good performances in the Snacks and Meat markets. 

Europe Region

>    Overall volumes +3.7%, with Q3 growth of 2.0% in line with expectations

>    Volume growth led by Meat, Snacks and Meals markets

>    Growth driven by strong performances in UK and Ireland

The region achieved continued excellent growth in the foodservice channel driven by seasonal products, new menu innovations and ongoing nutritional profile improvements. The retail channel delivered a solid performance in the region considering the significant consumer inflationary environment.

Growth in Meat was driven by culinary taste and texture system launches combined with continued nutritional enhancement innovations. Snacks delivered strong growth through savoury taste and Tastesense^® salt reduction technologies, while Meals also achieved strong growth through nutritional enhancements and authentic taste solutions for stocks and broths.

APMEA Region

>    Overall volume growth of 7.5% with continued strong Q3 growth of 8.2%

>    Volume growth led by Meat, Meals and Dairy markets

>    Growth was strong in the Middle East and South Asia Pacific

Growth in the region remained strong through the period, particularly in the foodservice channel and within the Food EUM in the retail channel. Excellent growth was achieved in Meat through local authentic taste and texture solutions, while Meals and Dairy had good growth in taste systems and Tastesense^® salt reduction technologies.

Within the region, strong growth was achieved in the Middle East and South Asia Pacific, with good overall performance in China considering market conditions through the period. In the third quarter, the Group completed the acquisition of Greatang¹, which broadens and deepens Kerry's capability and portfolio of local taste solutions in the Chinese market.

¹ Acquired 100% of the share capital of Shanghai Greatang Orchard Food Co., Ltd. 

Dairy Ireland

Performance Impacted by Significant Reduction in Dairy Prices

>    Volumes -6.2% (Q3: -12.1%) as challenging industry dynamics persisted

>    Pricing -6.5% (Q3: -17.6%) relating to increased deflationary market dynamics across the period

>    EBITDA Margin -110bps driven by the significant impact from changes in dairy market prices

Volumes in Dairy Ireland were lower through the period, as input cost dynamics continued to impact overall market demand. Within Dairy Ingredients, volumes principally reflected softer market supply dynamics with prices continuing to reduce through the period. Overall growth in Dairy Consumer Products was led by Kerry's branded cheese ranges and private-label spreads.

Financial Review

At the end of September, the Group's net debt was €1.8 billion. The Group's consolidated balance sheet remains strong, which will support the continued strategic development of the business.

Share Buyback Programme

Today Kerry has announced it will commence a share buyback programme of up to €300 million of Kerry Group plc ordinary shares. The buyback is underpinned by the Group's strong balance sheet and cash flow, and aligned to Kerry's Capital Allocation Framework. Kerry will commence the share buyback programme at the beginning of November 2023, and an announcement will be made immediately prior to its formal launch.

Board Changes

The Board has agreed to appoint Dr. Genevieve Berger and Professor Catherine Godson as non-executive directors of the Company with effect from 1 November 2023.

Dr. Berger is a global science leader and during her executive career held roles as the Chief Science Officer at Firmenich International SA as well as the Chief Research & Development Officer and Chief Science Officer at Unilever plc. Dr. Berger is currently a non-executive director of Dassault Systèmes SE and previously served on the boards of Air Liquide SA, Astra Zeneca plc and Smith & Nephew plc.

Professor Godson is the Associate Dean, Research and Innovation at University College Dublin ("UCD") School of Medicine. She has an international reputation in scientific research gained during a long and successful academic career in the US, Switzerland and at UCD. Professor Godson has a broad knowledge across human health and is a global expert on diabetes as well as cardiovascular and kidney diseases. She currently serves on the Irish Research Council and as a Trustee of Barts Charity, London.

Future Prospects

While market conditions remain uncertain, Kerry remains well positioned with a good innovation pipeline.

The Group will continue to manage through the current input cost environment in collaboration with customers. Kerry will continue to develop the business through capital investment and acquisitions aligned to its strategic priorities. Taste and Nutrition is strongly positioned for volume growth and margin expansion; however Dairy Ireland performance continues to be impacted by challenging market conditions. Given this context, the Group expects constant currency adjusted earnings growth to be at the low end of the previously stated 1% to 5% guidance range.

Note: Constant currency earnings guidance includes a net dilution of approximately 2% from portfolio developments. Foreign exchange translation is expected to be a headwind of approximately 3% on earnings in the full year based on prevailing 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.