Kerry : Interim Management Report for the half year ended 30 June 2019

Kerry8 August 2019Group - Interim Management Report for the half year ended 30 June 2019

Kerry Group, the global taste & nutrition and consumer foods group reports business performanceHIGHLIGHTSfor the half year ended 30 June 2019.

• Group revenue of €3.6 billion reflecting 3.3% volume growth
• • Taste & Nutrition +3.8% volume growth
  • Consumer Foods +0.6% volume growth
• Reported revenue +10.7%
• Group trading margin +20bps to 10.7%
• • Taste & Nutrition +20bps to 13.3%
  • Consumer Foods margins maintained at 7.0%
• Adjusted EPS of 164.1 cent - up 8.4% on a constant currency basis
• Basic EPS of 135.5 cent (H1 2018: 128.3 cent)
• Interim dividend per share increased 11.9% to 23.5 cent
• Free cash flow of €195m (H1 2018: €201m)

Edmond• Full year Scanlonguida ce updated- Chief Executive Officer

"We are pleased with business performance in the period, as the Group continued to deliver volume growth ahead of the market while expanding trading margins in line with expectations. While heightened consumer pricing and uncertainty impacted market volume growth rates in some developed markets, our unique and industry-leading business model and integrated taste and nutrition positioning continued to deliver significant value for our customers in meeting rapidly evolving consumer needs. We are excited by the ongoing enhancement of our product mix and the development of our innovation pipeline. Good progress has been made on the integration of recent acquisitions, which are performing very well. We are updating our guidance

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and expect to achieve growth in adjusted earnings per share of 7% to 9% in constant currency." ontact Information

Media
Catherine Keogh	VP Corporate Affairs &	[phone]	[e-mail]
	Communications
Investor Relations
Marguerite Larkin	Chief Financial Officer	[phone]	[e-mail]
William Lynch	Head of Investor Relations	[phone]	[e-mail]

Website

www.kerrygroup.com

Kerry Group plc - Interim Management Report 2019 1

INTERIM MANAGEMENT REPORT

For the half year ended 30 June 2019

Group Performance

Group reported revenue increased by 10.7%, reflecting volume growth of 3.3%, neutral pricing, contribution from acquisitions of 4.7%, and a favourable translation currency impact of 2.7%.

Group trading margin increased by 20bps, reflecting good growth driven by operating leverage, portfolio enhancement, efficiencies, impact of foreign currency and acquisitions, partially offset by Brexit risk management costs, investments for growth and increased net investment on the KerryExcel programme.

Constant currency adjusted earnings per share increased by 8.4% to 164.1 cent (H1 2018 currency adjusted: 151.4 cent). Basic earnings per share increased by 5.6% to 135.5 cent (H1 2018: 128.3 cent).

The interim dividend of 23.5 cent per share represents an increase of 11.9% over the 2018 interim dividend.

The Group achieved free cash flow of €195m in the period (H1 2018: €201m).

The Marketplace

The food & beverage industry and end-to-end supply chain continue to evolve at pace, as consumers are demanding more and are challenging traditional business models.

Market volumes in some developed economies experienced softening in the period due to the impact of higher prices at a consumer level. Developing markets continued to change rapidly, with localisation, regulatory changes and home delivery driving increased new product development.

Major global consumer trends such as plant-based diets, authenticity, healthfulness, convenience, clean label, sustainability and premiumisation, tailored to local consumer preferences continue to generate increased innovation opportunities.

The application of Kerry's leading taste and nutrition technology portfolio through our unique business model continues to drive significant value for our customers as they seek to meet rapidly changing consumer demands and increase speed to market.

Business Reviews

Taste & Nutrition

	H1 2019	Growth
Revenue	€2,915m	3.8%¹
Trading margin	13.3%	+20bps

¹ volume growth

• Volume growth driven by Meat, Snacks and Beverage End Use Markets (EUMs)
• Pricing flat - reflecting broadly neutral raw material costs in the period
• Trading margin +20bps - key drivers were enhanced product mix, operating leverage and efficiencies, partially offset by investments for growth and Brexit risk management costs

Kerry's nutrition and wellbeing technology portfolio had a strong performance in the period, as demand for great-tasting products with improved nutritional attributes continued to accelerate across the globe. Our unique taste and nutrition positioning, food science expertise and deep understanding of the intersection of taste and nutrition attributes were the drivers of increased innovation across a wide range of applications. This led to good sales growth in customised solutions incorporating in particular Kerry's fermented ingredients, broad protein portfolio, probiotics, fibre systems, botanicals and natural extracts.

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Developing market growth continued to be strong at 9.1%, with APMEA developing markets being the main driver. Foodservice performed well, with growth of 5.3% despite some softness in the North American market at the beginning of the year. The Group also completed the acquisitions of Southeastern Mills (SEM) and Ariake U.S.A., Inc in the period.

Americas Region

• 2.7% volume growth
• Solid performance in North America, driven by Meat, Snacks and Dairy EUMs
• LATAM performed well

Reported revenue in the region increased by 19.1% to €1,556m primarily reflecting volume growth, foreign currency translation and significant contribution from acquisitions of 9.9%.

North America delivered good volume growth, while market volumes growth rates softened as heightened consumer pricing impacted overall consumption in the period. LATAM performed well with good growth in Mexico and solid performances in Brazil and Central America.

Kerry's Meat EUM delivered strong growth, as our industry-leading portfolio continued to support customers as they innovate to meet evolving consumer demands for new regional flavours, cleaner labels, natural shelf- life preservation and plant-based alternatives. This performance was complemented by the acquisition of Southeastern Mills (SEM) in the period which performed very well.

The Snacks EUM delivered good growth through healthier snacking and new world taste experiences, particularly in LATAM. The Dairy EUM benefitted from the ongoing evolution of the ice cream & desserts category towards premiumisation, lower-calorie and plant-based offerings.

While the Beverage EUM was impacted by a softer start to the year in Foodservice, it benefitted from a number of innovations utilising Ganeden® probiotics and Wellmune® immunity enhancing technologies. The Meals EUM was impacted by softness, particularly in the ambient and chilled categories.

The global Pharma EUM had a good performance, led by strong growth in excipients in North America.

The recently acquired Fleischmann's (FVC) business performed well and the Group also completed the acquisition of Ariake U.S.A., Inc in the period. These acquisitions further enhance Kerry's leading authentic taste and clean label technology portfolio, which the Group plans to leverage in meeting increased demands across a broader range of applications.

Europe Region

• 2.2% volume growth
• Good performance in Beverage, Meat and Snacks EUMs
• Foodservice delivered strong growth

Reported revenue in the region increased by 2.5% to €718m primarily reflecting volume growth.

Kerry's development and applications expertise helped customers improve and broaden their product offerings to meet a diverse range of local consumer preferences right across the region.

The Beverage EUM achieved strong broad-based growth, particularly in Foodservice, as customers enhanced their beverage offerings across their menus, with a number of 'better for you' and seasonal product launches incorporating Kerry's botanicals, natural extracts and sugar reduction technologies.

The Meat EUM performed very well, with multi-texture coating systems delivering new sensorial taste experiences, and in addition a number of successful cleaner label launches. Good business development was also achieved in plant-based meat alternatives, as Kerry's offering was enhanced by the recent JV with Ojah.

The Snacks EUM performed well, with a number of new launches with new authentic world flavours.

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The Dairy EUM was impacted by softer demand in the ice cream category during the period. International dairy markets were relatively stable in the period, reflecting less volatility in global supply / demand dynamics. The Confectionary EUM achieved good growth through a number of local novel taste LTOs across the region.

APMEA Region

• 9.6% volume growth
• Strong growth in Meat, Beverage and Snacks EUMs
• Progressing strategic expansion and business development across the region

Reported revenue in the region increased by 13.3% to €608m primarily reflecting volume growth and the contribution from business acquisitions.

The Group continued to selectively deploy the Kerry business model on a country-by-country basis in the period. This approach was key in supporting our customers as they meet evolving local consumer demands that continue to drive growth right across the region.

Kerry's Meat EUM delivered excellent growth with a range of innovations across both Foodservice and Retail customers to meet key consumer preferences for local authentic taste, value, food safety and home delivery.

The Beverage EUM delivered strong growth underpinned by a number of successful launches into nutritional beverages and a range of foodservice applications. The branded DaVinci range enjoyed strong growth into independent distributors.

The Snacks EUM delivered strong growth, with innovation centred around the localisation of Western taste profiles incorporating both sweet and savoury technologies.

We continued to make good progress in expanding our capacity and processing capabilities in the region. Our strategic expansion in China progressed well, as we upgraded the recently acquired SIAS facility to serve our customers in the Greater Beijing region, while we continued the expansion programme at our Nantong facility aligned to the strategic deployment of our technologies in the region. The Group also opened a new facility in Tumkur, India, which will serve the rapidly expanding South West Asia market and invested in expanding our capabilities in the Middle East region further to the acquisition of AATCO at the end of 2018.

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Consumer Foods

	H1 2019	Growth
Revenue	€689m	0.6%¹
Trading margin	7.0%	0bps

¹ volume growth

• Solid performance led by brands with private label challenged
• Pricing (0.3%) reflective of input costs which were not fully recovered
• Trading margin maintained after incurring Brexit risk management costs

The market landscape continued to be challenged in the period. Lower consumer confidence was reflected through a more cautious consumer, while structural changes across the retail environment continue to drive change along the end-to-end supply chain.

Reported revenue increased by 0.6% to €689m, reflecting volume growth, pricing, and a translation currency tailwind.

'Everyday Fresh' performed in line with expectations. Richmond delivered solid performance led by growth in chicken sausages, while the Denny brand in Ireland experienced strong growth. The traditional spreads category continued to be challenged, however Kerry outperformed with our spreadable butter offering addressing consumer preferences.

'Convenience Meal Solutions' continued to be impacted by reduced promotional activity, but was offset by a number of new business wins through ethnic ready meals in the period. Frozen ready meals delivered a solid performance across the range. At the end of the period, the Group announced that it will cease operations at its production facility in Burton from the start of September, while we will continue our efforts to find alternative solutions for the site.

'Food to Go' performed well, as strong growth in Cheestrings was supported by a number of innovations. Fridge Raiders also extended its snacking range with the launch of a number of new products during the period to reach a broader consumer market. The realignment programme is progressing to plan.

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