Kerry : 2016 Interim Management Report Press Release

NEWS RELEASE

Thursday 4 August 2016

Interim Management Report

for the half year ended 30 June 2016

Kerry, the global taste & nutrition and consumer foods group, reports a solid financial performance for the half year ended 30 June 2016.

Highlights

• Adjusted* EPS up 7.5% to 133.8 cent
• Group revenue of €3 billion reflecting 3.2% business volume growth
• • Taste & Nutrition +3.5% volume growth
  • Consumer Foods +2.3% volume growth
• Trading profit increased by 7.4% to €322m
• Group trading margin up 70 basis points to 10.6%
• • Taste & Nutrition +70 bps to 12.8%
  • Consumer Foods +30 bps to 8.3%
• Interim dividend per share increased by 12% to 16.8 cent
• Free cash flow of €379m (H1 2015: €192m)
• Earnings guidance for full year reaffirmed

*Before brand related intangible asset amortisation and non-trading items (net of related tax)

Commenting on the results Kerry Group Chief Executive Stan McCarthy said; "Despite the challenging market landscape we delivered a solid financial performance in the first half of 2016, with continued margin expansion, strong cash generation and a 7.5% increase in adjusted earnings per share. While we are confident of delivering an underlying trading performance in the full year as previously guided; taking into account the increased currency headwinds of 5% at current exchange rates, growth in adjusted earnings per share in 2016 is expected to be towards the middle to lower end of the 6% to 10% range of 320 to 332 cent per share".

For further information please contact:

Media	Investor Relations
Frank Hayes, Director of Corporate Affairs	Brian Mehigan, Chief Financial Officer
Tel: [phone]	Ronan Deasy, Group Financial Controller
Email: [e-mail]	William Lynch, Head of Investor Relations
Web: www.kerrygroup.com	Tel: [phone]
	Email: [e-mail]

KERRY GROUP PLC Interim Management Report - Page 1

INTERIM MANAGEMENT REPORT

for the half year ended 30 June 2016

Kerry Group delivered a solid financial performance and improved business quality while continuing to grow competitively in the first half of 2016. Global market conditions remain challenging with slower economic growth, currency volatility and continuing geopolitical instability in particular in many regional developing markets. The changing marketplace: with increased retail fragmentation, continued growth in online shopping, increased penetration of regional brands, ongoing growth in snacking, food-to-go and foodservice demand: has contributed to significant product 'churn' with increased demand for product differentiation and innovative offerings. Consumer trends reflect a growing preference for natural, health and wellness offerings and 'clean label' propositions - focusing increased attention on development of convenient taste and nutritional product lines and ever-widening demand for foodservice and meal occasion solutions.

Kerry's combined taste, nutrition and general wellness capabilities and unique 'systems' approach continued to drive increased customer engagement and innovation. Strong growth was achieved in Asia and in the foodservice channel in all regions. Internationalisation and integration of businesses acquired in 2015 continued to be successfully progressed in the period.

The Irish and UK consumer foods' landscape remains highly competitive as retailers address the changing marketplace and economic uncertainty in the UK market. Kerry Foods' repositioned portfolio continues to perform well benefiting from convenience, food-to-go and snacking trends.

RESULTS

Good business momentum was maintained, outperforming market growth rates. Group revenue on a reported basis was broadly unchanged at €3 billion reflecting good volume growth offset by significant currency movements and lower pricing relative to H1 2015. Business volumes grew by 3.2% in the period reflecting a strong performance in American markets, lower volume growth in the EMEA region in particular in regional developing markets, and strong business growth momentum in Asia. Net pricing was 2.2% lower against a background of approximately 4% lower raw material costs. Currency headwinds relative to H1 2015 contributed an adverse 3.7% translation impact relative to revenue.

Taste & Nutrition achieved 3.5% growth in business volumes and pricing was 2.2% lower. Kerry Foods' business volumes grew by 2.3% and pricing was reduced by 2.1%.

Against a background of significant product churn in the period, the Group continued to improve overall business quality and operational efficiencies. Group trading profit increased by 7.4% to €322m. The Group trading profit margin increased by 70 basis points to 10.6%. This reflects a 70 basis points improvement in trading margin in Taste & Nutrition to 12.8%, a 30 basis points improvement in Consumer Foods' margin to 8.3%, and reduced spend on the Kerryconnect Programme contributed 10 basis points.

Adjusted earnings per share increased by 7.5% to 133.8 cent (H1 2015: 124.5 cent). Basic

earnings per share decreased by 6.5% to 126.4 cent (H1 2015: 135.2 cent), (basic earnings per share in H1 2015 included a credit relating to the gain on the sale of the Pinnacle Lifestyle Bakery business in Australia). The interim dividend of 16.8 cent per share represents an increase of 12% over the 2015 interim dividend.

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BUSINESS REVIEWS

TASTE & NUTRITION

	H1 2016	Growth
Revenue	€2,379m	3.5%*
Trading profit	€304m	7.9%
Trading margin	12.8%	+70 bps

*volume growth

Kerry provides the largest, most innovative portfolio of taste & nutrition solutions and functional ingredients & actives for the global food, beverage and pharmaceutical industries.

Kerry's taste portfolio and nutrition & general wellness enabling technology platforms continued to benefit from evolving consumer convenience, health & wellness and localised taste preferences. Consumers increasingly demand 'clean' simple and clear labelling, culinary variety, functional indulgence and enhanced nutritional values driving retail and foodservice requirements for increased innovation and market-ready solutions. Kerry maintained a strong innovation pipeline in all regions in the period and, building on the Group's significant acquisition investment in 2015, continued to progress integration of the acquired businesses and to broaden the acquired technologies into wider taste and nutrition applications in all regions. The acquired businesses performed well to-date and provide significant scope for further international market development.

Taste & Nutrition reported revenue increased to €2,379m reflecting 3.5% business volume growth and 2.2% lower net pricing. Trading profit grew by 7.9% to €304m reflecting a 70 basis points increase in divisional trading margin to 12.8%.

Americas Region

Kerry maintained a solid performance in North America and an improved performance in Latin American markets in H1 2016. Performance was significantly boosted by the technologies acquired in 2015 and progress to-date in integration of the acquisitions. Sales revenue on a reported basis increased by 15.2% to €1,244m reflecting 3.5% business volume growth and 2% lower pricing.

Taste technologies performed well across food and beverage applications. Red Arrow Products acquired in December 2015 recorded strong growth in the meat and savoury products sector, in particular in North America. Costa Rican based Baltimore Spice with manufacturing facilities located in Costa Rica, Guatemala and Panama acquired in July 2015, greatly assisted development in Latin American markets. Good growth was achieved in the savoury snack sectors in Mexico and Central American markets. Culinary Taste & Systems performed well in the North American prepared meals sector and performance was also assisted by KFI Savory acquired in 2015. Dairy and culinary applications throughout American markets benefited from 'clean label' trends, with strong development in school meal applications. While inflationary trends in Brazil remain challenging, Kerry achieved good market growth through dairy applications and through taste and sauce systems in the foodservice channel. The bakery sector throughout American markets also continued to provide good opportunities for growth through clean label preservation systems and extended shelf-life products developed by Kerry's fermentation technologies.

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Beverage Taste & Systems continued to record good growth throughout the region. Island Oasis and Insight Beverages acquired in 2015, performed well in the foodservice and convenience channels. Good growth was recorded in C-stores through hot and cold beverage systems - in particular through tea/coffee applications. Kerry's branded flavoured beverage systems continued to achieve encouraging market development throughout the region. Sales into the soft drinks market were impacted by sectoral trends.

Cell nutrition applications continued to achieve good growth in the pharmaceutical sector. The Wellmune® branded natural food, beverage and supplement immune enhancing ingredients business acquired in September 2015 performed strongly, with market development into wider nutritional and food product areas.

EMEA Region

EMEA market conditions remain challenging due to continued price deflation in regional developed markets and geopolitical instability in regional developing markets. Product 'churn' remains a dominant market feature as food and beverage manufacturers and retailers competitively respond to increased consumer demand for enhanced nutritional offerings and convenience lines in a deflationary environment. The regional foodservice sector continues to provide good growth opportunities for Kerry's consumer-preferred propositions. Sales revenue reported at €734m reflects business volume growth of 0.3% and 2.7% lower pricing.

Overall meat technologies were weaker but innovation to meet added value opportunities is contributing to an encouraging development pipeline. Meat systems recorded some progress in Eastern European markets and demand for snack offerings provided good growth in the EMEA foodservice sector. Kerry recorded good progress in the Russian meat and snacks sectors in the half year and establishment of a local manufacturing facility to meet market requirements is progressing satisfactorily.

Growth in the dairy technology sector was subdued due to the oversupply situation in international dairy markets. While international dairy market conditions stabilised at the end of the period, returns in the primary dairy sector were significantly below prior year levels.

Nutritional technologies maintained market development in the infant nutrition sector and good growth was achieved through hydrolysed proteins for clinical nutrition and protein enriched applications. Enzymes delivered satisfactory growth in the bakery and beverage sectors.

Cereal and sweet applications continue to be adversely impacted by the competitive industry landscape. In addition market conditions in the Sub-Saharan African sweet sector remain highly competitive. Beverage systems recorded good growth in the foodservice channel and Kerry branded beverage offerings continued to progress market development across the region. Madrid based Vendin S.L., a producer and distributor of dry beverage solutions for the vending and foodservice sectors in Europe, was acquired in June.

Asia-Pacific Region

Kerry achieved an excellent performance in the Asia-Pacific region in the half year. Market development across core technologies established in regional developing markets proved highly successful. Business volumes increased by 9.5% and net pricing was 1.8% lower. Reported revenue at €367m reflects a reduction of 11.4% - due to the 13.3% adverse impact of business disposals net of acquisitions (primarily the sale of the Pinnacle Lifestyle bakery business in Australia completed in May 2015) and negative currency translation impact of 5.8%.

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Culinary 'Foundations' recorded solid growth through premium noodle applications in Japan and South Korea. Jungjin Foods acquired in March 2016 significantly strengthened Kerry's taste technology and systems market base in South Korea. Dairy 'Complete' taste systems maintained good growth in Indonesia, the Philippines, Vietnam and China. The growing snacks end-use- market provided solid growth opportunities in Malaysia, Thailand and the Philippines. Culinary sauces achieved strong growth in the regional foodservice channel. The meat sector in Australia and New Zealand remains highly competitive but Kerry meat and savoury technologies continue to achieve encouraging market development in China. Sweet technologies maintained growth in the bakery sector in South West Asia and in the ice cream sector in Indochina.

Life-stage nutritional applications continued to generate opportunities for Kerry's technology portfolio. Regulatory changes impacting the infant nutrition sector in China provide opportunities for Kerry's Europe-based nutritional technologies. Proteins also achieved good growth through enhanced nutritional offerings in the confectionery sector in India and Indonesia. Beverage systems and Kerry's branded flavoured beverage range maintained strong market development throughout the regional foodservice channel and C-store outlets.

CONSUMER FOODS

		H1 2016	Growth
Revenue		€697m	2.3%*
Trading profit		€58m	(3.7%)
Trading margin	8.3%	+30bps

*volume growth

Kerry Foods is an industry-leading manufacturer and marketer of added-value branded and customer branded chilled food products to the Irish, UK and selected international markets.

Trading conditions in the UK and Irish consumer foods markets remain highly competitive as retailers adapt to the changing market landscape, consumer trends including growth of e-tail, and deflationary trends. Discounters have continued to gain market share which has continued to broaden retailer focus on EDLP strategies. Kerry Foods' repositioned portfolio has performed well against this background, gaining market share through growth in the e-tail, snacking and food- to-go sectors and through its' brand investment strategies. Business volumes increased by 2.3%, while pricing decreased by 2.1%. Reported revenue at €697m reduced by 7%, primarily attributable to the disposal of non-core businesses net of acquisitions in 2015 and adverse currency movements relative to H1 2015. The improved quality of Kerry Foods' portfolio contributed to a 30 basis points increase in divisional trading margin to 8.3%. The underlying trading profit improvement was more than offset by the business disposals and adverse currency movement resulting in a trading profit decrease of 3.7% to €58m.

In the UK branded sector, 'Mattessons' meat snacks continued to drive growth in the meat snacking category which grew by 8% year-on-year. Value growth in the overall sausage sector was impacted by the changing promotional environment. 'Richmond' sales were back relative to the same period in 2015 in the fresh category but recorded continued growth in the frozen category. The cheese snacking sector grew by 5% year-on-year where 'Cheestrings' performed well. 'Yollies' children's yoghurt snack range continued to gain market momentum in the UK and Ireland. 'Pure', Kerry Foods' 'free from' brand continued to advance its positioning in the growing health 'free from' segments of the UK and Irish markets.

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