Kerry Group Plc · EURONEXT:KRZ
Kerry — H1 2006 Earnings Presentation
51 slides from Kerry's earnings presentation, 2006
Slide 1: Kerry - the science of food
KERRY the science of food
Slide 2: Kerry - 2006 Interim Results Presentation
Kerry - 2006 Interim Results Presentation • Review of Business Hugh Friel • Financial Review Brian Mehigan • Business Growth Prospects Hugh Friel • Q&A
Slide 3: H1 2006: Good Performance in Challenging Period
H1 2006: Good Performance in Challenging Period • 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 as
Slide 4: H1 2006: Highlights
H1 2006: Highlights • Good top-line growth in ingredients • Robust performance but significant cost / price squeeze in consumer foods • Energy related cost increase (180bps on margin or €40m) • Progress through on-going cost recovery programmes • Good operational performance through supply chain ini
Slide 5: Short Term Issues: Challenges
Short Term Issues: Challenges • 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 prep
Slide 6: Full Confidence in Kerry Model
Full Confidence in Kerry Model • Focused on nutritional, wellness and convenience growth categories • Leveraging ingredients, flavours and bio-science technologies across global food and beverage applications • Consumer foods offerings in convenience, food-to-go, nutritional growth categories • Focu
Slide 7: Euro - US Dollar Trend (1995 - 2006)
Euro - US Dollar Trend (1995 - 2006) 1.40 1.30 1.20 1.10 1.00 0.90 0.80 95 96 97 98 99 00 01 02 03 04 05 06
Slide 8: Raw Materials - Price Trend for Crude Oil
Raw Materials - Price Trend for Crude Oil (1995 - 2006) 78.0 74.0 70.0 $68 Avg price ‘06 66.0 62.0 58.0 54.0 $54 Avg price ‘05 50.0 46.0 42.0 38.0 $38 Avg price ‘04 34.0 30.0 $29 Avg price ‘03 26.0 22.0 18.0 14.0 10.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Slide 9: Full Year Trading Margin %
Full Year Trading Margin % 9.0% 8.9% 8.8% 8.7% 8.6% 8.6% 8.6% 8.4% 8.4% 8.3% 8.2% 8.1% 8.0% 7.9% 7.8% 7.8% 7.6% 7.4% 7.3% 7.2% 7.2% 7.0% 6.8% 6.6% 6.4% 6.2% 6.0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Slide 10: Trading Margin Progression
Trading Margin Progression 2005 1995 % % Material gross margin 44.5 32.5 Costs 35.9 25.3 Trading margin 8.6 7.2
Slide 11: H1 Business Review - Ingredients
H1 Business Review - Ingredients H1 2006 Total Growth Revenue €1,548m 6.5% Trading Profit €123m 4.0% • 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 - US
Slide 12: H1 Business Review - Consumer Foods
H1 Business Review - Consumer Foods H1 2006 Total Growth Revenue €875m 6.6% Trading Profit €52m (4.6%) • 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 accelerated
Slide 13: Continuing Revenue Growth
Continuing Revenue Growth H1 2006 H1 2005 Revenue Revenue Total Like-for-like Total Like-for-like Growth 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% Grou
Slide 14: Financial Review
KERRY Financial Review
Slide 15: H1 2006 Financial Highlights
H1 2006 Financial Highlights Revenue €2,265m +7.0% Trading profit €162m +1.5% Trading margin 7.2% -40bps Adjusted EPS* 54.9 cent +2.0% 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 ite
Slide 16: Revenue Analysis
Revenue Analysis H1 2005 H1 2006 €2,117m €2,265m +7.0% FX Translation Like-for-like Acquisition/Disposal +0.5% +3.5% +3.0% Note: Like-for-like represents revenue growth before subsidiary translation and acquisitions / disposals impact
Slide 17: Revenue Growth
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
Slide 18: H1 2006 Revenue Growth by Destination
H1 2006 Revenue Growth by Destination 14 10.9% 10 9.4% 9.1% 7.0% 6 5.5% 5.2% 3.5% 2.0% 2 Europe Americas Asia Pacific Group -2 Total Like-for-like Note: Like-for-like represents revenue growth before subsidiary translation and acquisitions / disposals impact
Slide 19: Revenue Growth Components
Revenue Growth Components Like-for-like % Growth Like-for-like % Growth 6 H1 H1 FY 5 2006 2005 2005 4 3.5% 3.7% 3.4% 3 Volume 3% 3% 4% 2 Price 1% 1% 1% 1 Trading currency (0%) (1%) (1%) 0 H1 2006 H1 2005 FY 2005 Group 3.5% 3.4% 3.7% Note: Like-for-like represents revenue growth before subsidiary tra
Slide 20: Trading Margin Change
Trading Margin Change H1 2005 H1 2006 Trading margin 7.6% 7.2% • Organic growth and pricing not enough to offset adverse energy and raw 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
Slide 21: Trading Margin Progression
Trading Margin Progression 180 €8m €0m (€5m) 175 Currency (€40m) 170 €9m R&D Acquisitions / 165 Disposals €30m €162m 160 €160m Underlying 155 Growth 150 145 140 135 130 Energy Margin H1 2005 H1 2006 Related Recovery Cost Programme Increases Margin 7.6% +0.3% +0.1% 0.0% -0.2% -1.8% +1.2% 7.2%
Slide 22: Interim Five Year Free Cash Flow
Interim Five Year Free Cash Flow 2006 2005 2004 2003 2002 €m €m €m €m €m 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 1
Slide 23: Financial Ratios
Financial Ratios H1 2006 H1 2005 Debt : Market capitalisation 44% 34% EBITDA : Net interest* 7.0x 8.6x Debt : EBITDA* 2.8x 2.8x Note: * calculated in accordance with banking covenants
Slide 24: Return on Investment
Return on Investment H1 2006 H1 2005 ROAE* 14.7% 15.7% ROACE* 10.6% 10.4% CFROI* 10.4% 9.5% Note: * before intangible asset amortisation and non-trading items
Slide 25: Other Financial Matters
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 •
Slide 26: Outlook 2006 and Future Prospects
Outlook 2006 and Future Prospects
Slide 27: Kerry Growth Strategies
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
Slide 28: Ingredients Positioning
Ingredients Positioning “ Delivering technology based ingredients and integrated “ solutions 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: s
Slide 29: Kerry Consumer Foods Focus Areas
Kerry Consumer Foods Focus Areas Added Value Dairy Added Value Meat #1 GB cheese snack portion (Cheestrings) #1 GB sausage (Richmond) #1 IOI natural cheese (Charleville/Coleraine) #2 GB sausage (Wall’s) #1 ROI cheese slices (Easisingles) Biggest Brand in Ireland (Denny) #1 NI dairy spread (Golden Co
Slide 30: Kerry Foods: Encouraging New Developments
Kerry Foods: Encouraging New Developments • Mattessons Fridge Raiders • Denny Feel Free • Ballyfree Superfood • Brunchettas • The Food Doctor • Champneys • Freshways Healthy Ways • Dawn Benefits
Slide 31: Kerry Group: Business Structure
Kerry Group: Business Structure Group Ingredients Foods €3.0bn €1.7bn 19 Countries 2 Countries 49 SBU’s 9 SBU’s 121 Manufacturing Plants 32 Manufacturing Plants
Slide 32: Asset Optimisation: Restructuring Jan 2005 - To Date
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
Slide 33: Plant Rationalisation: Jan 2005 - To Date
Plant Rationalisation: Jan 2005 - To Date Closed Dairy Limerick Ireland Poultry Limerick Ireland Desserts Sligo Ireland Meat Products Bristol UK Meat Products Mitcham UK Ready Meals Hartlepool UK Ingredients Bicester UK Ingredients Bingham UK Ingredients Birmingham UK Ingredients Beloit (1 plant) US
Slide 34: Trading Prospects and Outlook
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 margin enhancement • Innovation and brand investment • Busy pipeline of bolt-on acqui
Slide 35: Additional Information
KERRY Additional Information
Slide 36: Business Review - Ingredients Americas
Business Review - Ingredients Americas Americas H1 2006 Total Growth Revenue* €635m +10.9% • 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 reorganisat
Slide 37: Business Review - Ingredients Europe
Business Review - Ingredients Europe Europe H1 2006 Total Growth Revenue* €631m +2.8% • Like-for-like revenue growth +4.2% • Good volume growth in Bio-Science and Ingredients sales in mainland Europe • Pricing environment more difficult particularly in the UK • Germany, Italy and Eastern Europe gain
Slide 38: Business Review - Ingredients Asia Pacific
Business Review - Ingredients Asia Pacific Asia Pacific H1 2006 Total Growth Revenue* €174m +9.1% • 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 inves
Slide 39: H1 2006 Revenue: Like-for-like % Growth
H1 2006 Revenue: Like-for-like % Growth 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%
Slide 40: Raw Materials - Edible Oils Index
Raw Materials - Edible Oils Index 140 130 120 110 100 90 80 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
Slide 41: Currency Exposure Management
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
Slide 42: Euro - US Dollar Trend
Euro - US Dollar Trend 1.40 H1 H2 1.35 2005 1.30 1.30 1.29 1.25 1.25 1.22 1.20 1.22 1.18 2006 1.15 1.10 1.05 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Slide 43: Euro - Sterling Trend
Euro - Sterling Trend 0.74 H1 H2 0.72 2006 0.70 0.69 0.69 0.69 0.68 0.68 0.68 2005 0.67 0.66 0.64 0.62 0.60 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Slide 44: Interim Cash Flow (€m)
Interim Cash Flow (€m) 2006 2005 EBITDA* 216 212 Change in working capital (100) (77) Finance and taxation (48) (52) Capital expenditure (net) (48) (59) Free cash flow 20 24 Acquisitions and disposals - Businesses acquired net of disposals (88) (48) - Non-trading items (4) (6) (92) (54) Equity divid
Slide 45: Debt Profile (€m)
Debt Profile (€m) 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
Slide 46: Maturity Profile of Net Debt
Maturity Profile of Net Debt 30 June 2006 30 June 2005 €m €m Within one year 104 112 Between 1 and 2 years 108 136 Between 2 and 5 years 689 572 Between 5 and 10 years 437 445 1,338 1,265 Weighted average maturity in years: 4.6 5.9
Slide 47: EPS Reconciliation
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% Note: * before intangible asset amortisation and non-trading items (net of tax)
Slide 48: EPS Growth (cent)
EPS* Growth (cent) 140 131.6 122.9 120 112.1 101.8 100 87.9 79.2 80 68.0 57.4 60 53.8 54.9 50.5 46.7 46.1 41.8 38.7 40 36.4 32.8 28.2 23.2 19.7 20 16.5 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Full Year Half Year Note: EPS numbers for 1996 to 2003 are pre IFRS Note: * before intangib
Slide 49: EPS Broker Estimates 2006 / 2007
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 Note: * before intangible asset amortisation and non-trading items (net of tax)
Slide 50: Shareholder Analysis
Shareholder Analysis Institutions Kerry Co-op 44% 28% Institutional Analysis Retail 28% North America 18% Ireland 12% UK 9% Continental Europe / Rest of World 5% Shares in issue: 185 million Analysis as at 30 June 2006 after share buy back programme
Slide 51: Kerry - the science of food
KERRY the science of food