Kerry : Interim Management Report 2021Press Release

Date: 30 July 2021

KERRY GROUP

INTERIM MANAGEMENT REPORT 2021

Strong Growth and Strategic Portfolio Development

Kerry reports business performance for the half year ended 30 June 2021.

OVERVIEW

• Group revenue of €3.6 billion reflecting 9.0% volume growth
• • Taste & Nutrition volumes +9.8% (Q2: +18.1%)
  • Consumer Foods volumes +4.6% (Q2: +8.5%)
• Pricing of +0.5%
• Group trading margin +70bps
• • Taste & Nutrition +80bps
  • Consumer Foods +20bps
• Adjusted EPS of 152.0 cent - up 24.1% on a constant currency basis
• Basic EPS of 128.2 cent (H1 2020: 120.4 cent)
• Free cash flow of €222m reflecting 83% cash conversion
• Interim dividend per share of 28.5 cent (H1 2020: 25.9 cent)
• Guidance updated to reflect business performance and portfolio development

Edmond Scanlon, Chief Executive Officer

"We are pleased with overall performance in the period, reflecting continued strong growth in our retail channel, with good progression and momentum in foodservice while lapping lower prior year levels. The Americas had good overall volume growth, Europe delivered an excellent relative performance, while growth in APMEA remained strong despite challenging conditions in some local markets. A number of our end use markets had strong category development in the period, with Beverage in particular achieving excellent growth.

We had some notable strategic developments this year as we continued to evolve our portfolio. We announced the acquisition of Niacet, which enhances our leadership position in the fast growing food protection and preservation market, while we also reached agreement for the sale of our Consumer Foods' Meats and Meals business. These transactions will further enhance Kerry's position as a market-leading taste & nutrition company.

Our performance through the period gives us continued confidence in our full year outlook, while recognising the inherent uncertainty that will remain in many regions through the remainder of the year. Our earnings guidance range has been updated as a result, and we have also reflected the expected impact from portfolio developments."

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Markets and Performance

Overall conditions improved in many developed markets, with increased economic activity, reopening levels and consumer confidence, while developing markets saw a lot more variability through the period. At-home consumption remains elevated as work practices and consumers' daily routines continue to evolve, with the foodservice channel continuing its trajectory of gradual overall recovery.

Our markets remain highly dynamic, as customers seek to address heightened consumer demands for increased health and wellness benefits, plant protein options, digital engagement, and products addressing a number of sustainability measures.

Group reported revenue in the period increased by 4.9% to €3.6 billion, reflecting a volume increase of 9.0%, increased pricing of 0.5%, an adverse transaction currency impact of 0.1%, an adverse translation currency impact of 5.4%, and contribution from acquisitions of 0.9%.

Group reported trading profit increased by 13.0% to €357 million in the period. Group trading profit margin increased by 70bps to 10.0% primarily due to the recovery of operating leverage given the impact of COVID-19 in the prior year.

Constant currency adjusted earnings per share increased by 24.1% to 152.0 cent (H1 2020: -19.8%). Basic earnings per

share increased to 128.2 cent (H1 2020: 120.4 cent).

The interim dividend of 28.5 cent per share reflects an increase of 10.0% from the prior year interim dividend. The Group achieved free cash flow of €222m (H1 2020: €107m) representing cash conversion of 83% in the period.

Strategic Portfolio Developments

The Group announced a number of important strategic developments in the period, with acquisitions aligned to the key strategic growth areas of food protection and preservation as well as proactive health.

As previously announced, we reached agreement to acquire Niacet, which is a global market leader in technologies for food protection and preservation. It brings a complementary product portfolio and enhances Kerry's leadership position in this fast growing market. It is expected to complete at the end of the third quarter for a consideration of €853m¹ subject to customary closing conditions. The bolt-on acquisition of National Vinegar Co. was completed in the period for a consideration of €25m, adding further capacity and supporting the Group's growth strategy in natural preservation.

We announced the acquisition of Biosearch, S.A., which is a leading biotechnology company based in Spain. The company provides innovative solutions to the global pharmaceutical, nutraceutical and functional food sectors, with an extensive range of probiotics, scientifically backed innovative botanical extracts and omega-3 oils. The acquisition completed in July for a total consideration of €127m. Supporting the Group's proactive health strategy, agreement was also reached for the acquisition of Natreon, Inc. with facilities in the USA and India for a consideration of €42m². This brings leading capability in Ayurvedic and botanical extracts, with a portfolio of clinically backed branded ingredients for stress and sleep under the need state of cognition as well as heart and joint health under healthy ageing.

As previously announced, the Group reached agreement for the disposal of its Consumer Foods' Meats and Meals business to Pilgrim's Pride Corporation. Cash consideration for the transaction is €819m³ and the disposal is expected to close in the final quarter subject to customary closing conditions and regulatory approvals.

• As previously announced €853m is based on a cash consideration of $1,015m at an exchange rate on 21 June of $1.19: €1 ² €42m is based on a cash consideration of $50m at an exchange rate of $1.18: €1 and is subject to routine closing conditions ³ €819m is based on a cash consideration of £704m at an exchange rate on 17 June of £0.86: €1

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Business Reviews

Taste & Nutrition

Strong growth in retail channel, with good progression and activity across the foodservice channel

		H1 2021		Growth
Revenue		€2,939m	+9.8%¹
Trading margin	12.4%	+80bps

1 volume growth

• Exceptional volume growth in Q2 of 18.1% reflected lower prior year comparatives and good underlying growth
• Foodservice volume growth of 25.2% with significantly improved channel dynamics
• Retail volume growth of 5.4% led by Beverage and Food EUMs (particularly Snacks and Dairy)
• Pricing of 0.5% reflecting increases in input costs
• Trading margin increase driven principally by significant operating leverage recovery

Taste & Nutrition continued its positive momentum through the period. The foodservice channel saw improved market conditions with further reopening of operations in many regions and increased customer innovation activity particularly in the second quarter. The retail channel continued to deliver strong growth, supported by an increased level of local innovation, with a number of launches incorporating our proactive nutrition portfolio and Radicle™ plant-based range, while supporting customers to deliver on their sustainability initiatives. Business volumes in developing markets increased by 15.3% with strong growth across all regions.

Americas Region

• Overall volume performance of 8.1% with strong growth in Q2
• Retail channel delivered strong growth led by Beverage, Snacks and Bakery
• Foodservice channel continued to achieve good momentum and innovation activity

Revenue in the region was €1,542m reflecting business volume growth, positive pricing and contribution from acquisitions, more than offset by adverse foreign currency translation, resulting in an overall reported revenue decrease of 0.3%.

The North American retail channel achieved excellent growth in the Beverage EUM with increased demand for proactive nutrition, new innovations with taste systems and natural extracts, and a number of launches in plant-based beverages. Within the Food EUM, Snacks performed very well supported by new launches in healthier snacking. Within Meat, Kerry's food protection and preservation solutions performed well and there was strong business development in plant-based alternatives. Performance in Cereals was impacted by product repositioning in the category, while Bakery delivered good growth through taste systems and cleaner label solutions.

Performance in the foodservice channel reflected the impact of lower prior year comparatives, the easing of restrictions and increased innovation activity. The reopening of operations within the foodservice channel resulted in increased activity across quick service restaurants, fast casual and casual dining as we moved through the period. Labour shortages and wage inflation pressures led to a heightened focus on customer innovations to reduce complexity in back of house operations. While we have continued to make progress, we experienced delays in the commissioning of our new manufacturing facility in Rome, Georgia primarily as a result of equipment delays caused by global supply chain disruption.

In LATAM, Brazil achieved strong growth driven by performance in Beverage and ice cream. Mexico delivered good growth led by Snack applications while performance in CACAR improved later in the period. A new Taste facility was opened in Irapuato, Mexico to enhance the Group's capabilities in servicing local markets.

The global Pharma EUM delivered solid growth led by the performance of cell nutrition and Kerry's Wellmune® immunity enhancing technology.

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Europe Region

• Overall volume growth of 10.7%, with a particularly strong performance in Q2
• Retail channel delivered very good growth led by Meat, Dairy and Snacks
• Foodservice channel performance improved significantly with the easing of restrictions through the second quarter

Revenue in the region was €722m reflecting business volume growth and positive pricing, partially offset by an adverse impact from transaction and translation currency, resulting in a reported revenue increase of 9.9%.

Overall performance in the retail channel was particularly strong in the second quarter, with very good growth across a number of end use markets. Within the Food EUM, Meat achieved excellent growth through a number of plant-based meat alternative innovations, launches with natural preservation and increased demand for healthier coating systems. Dairy delivered strong growth through taste solutions into new launches in premium and dairy-free ice cream ranges, while international dairy markets were impacted by increased demand versus supply dynamics. Snacks also performed well with good growth in savoury taste solutions. Within the Beverage EUM, there was very good growth with low/non-alcoholic beverages incorporating Kerry's botanicals, natural extracts and sugar reduction technologies.

The foodservice channel saw improved performance with the easing of restrictions in many regions through the second quarter, most notably in the UK, Southern and Eastern Europe. The exceptionally strong volume growth in foodservice in the second quarter reflected significantly lower prior year comparatives, when the region was most impacted by lockdowns and restrictions on movement.

Russia and Eastern Europe continued to deliver excellent growth across both retail and foodservice channels, led by Snacks and Meat.

APMEA Region

• Overall volume growth of 14.0% across the period
• Retail channel delivered strong growth led by Beverage, Dairy and Meat
• Foodservice channel performance improved significantly led by growth in China, the Middle East and Australia

Revenue in the region was €646m reflecting business volume growth, positive pricing and contribution from acquisitions, partially offset by an adverse impact from transaction and translation currency, resulting in a reported revenue increase of 14.0%.

Market conditions varied during the period with localised restrictions in place in many jurisdictions. Within the region there were some notable performances, with China delivering excellent growth across both channels, the Middle East and Australia performing particularly well in the foodservice channel, while South East Asia and Japan continued to be impacted by restrictions on mobility.

In the retail channel, excellent growth was achieved within the Beverage EUM across tea, coffee and refreshing beverage. Within the Food EUM, Dairy delivered strong growth through a number of launches with regional leaders, while Meat performed very well with increased demand for local authentic taste offerings. Overall growth in the foodservice channel was broad-based across the region following the lower prior year comparatives and primarily led by Beverage and Meals.

The Group made good progress in the development of its new Taste facility in Durban in the period. The construction of a new Taste manufacturing facility in Indonesia was also announced, catering for a wide range of technologies. This facility will include a new RD&A centre and is expected to be operational by the end of 2022.

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Consumer Foods

Strong volume growth particularly in the second quarter

		H1 2021		Growth
Revenue		€674m	+4.6%¹
Trading margin	7.2%	+20bps

1 volume growth

• Volume growth of 4.6% - led by snacking, meat-free ranges and chilled ready meals
• Pricing of 0.4% reflecting increases in input costs and market pricing
• Trading margin +20bps primarily due to operating leverage

Revenue in the division was €674m reflecting business volume growth and positive pricing, partially offset by an adverse impact from transaction and translation currency, resulting in a reported revenue increase of 4.3%.

The Richmond sausage range delivered very good growth in the period, with meat-free offerings continuing to drive further market share gains supported by strong innovation and new launch activity. The Denny brand performed well, while reduced retailer deli counter operations impacted sales of sliced cooked meats. Performance of Dairygold and spreadable butter was lower reflecting the lapping of strong prior year comparatives.

Chilled meals achieved strong growth, while frozen meals sales improved through the period after being initially impacted by increased customer stocking at the end of the previous year.

The snacking range delivered strong growth primarily through Fridge Raiders, while the Strings & Things range, led by Cheestrings achieved very good growth with the reopening of schools at the end of the first quarter. The Oakhouse Foods home delivery business continued to perform very well across the period.

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