Interim Results

Kerry Group PLC 30 August 2000 Interim Report Half Year Ended 30 June, 2000 Kerry, the global food ingredients and consumer foods group, reports interim results for the half year ended 30 June 2000 FINANCIAL HIGHLIGHTS * Sales increased by 10.3% to EUR1,264.8m. * Operating profit before goodwill amortisation increased by 14.4% to EUR101.3m. * Operating margin up from 7.7% to 8%. * Profit before taxation increased by 20.1% to EUR71.4m. * Earnings per share before goodwill amortisation increased by 17.4% to EUR35.1c. * FRS3 earnings per share increased by 45.5% to EUR30.7c. * Dividend per share increased by 15% to EUR2.92c. The unaudited results and Balance Sheet of the Group as at 30 June 2000, together with comparative figures for the previous year and the audited results to 31 December 1999, are set out in this release. A copy of the Interim Report will be circulated to shareholders and is available for inspection at the registered office of the company. For further information please contact: Frank Hayes Director of Corporate Affairs Tel no: +353 66 7182304 Fax no: +353 66 7182972 Kerry Web Site: www.kerrygroup.com KERRY GROUP PLC CHAIRMAN'S STATEMENT for the half year ended 30 June 2000 Results _________ The Board of Kerry is pleased to report a solid performance with good profit growth in all markets for the six months to 30 June 2000. Profit before tax increased by 20.1% to EUR71.4m. Earnings per share before goodwill amortisation increased by 17.4% to EUR35.1c. Basic FRS3 earnings per share increased by 45.5% to EUR30.7c. Operating profits increased by 14.4% to EUR101.3m. Group turnover at EUR1,264.8m grew by 10.3% compared to the same trading period in 1999.Reflecting the strength of all core businesses, this represents a further enhancement in operating margins to 8% from the previous years level of 7.7%. Operations Review ____________________ Ireland and Rest of Europe Sales from the Group's Irish based operations grew by 5.7% from EUR277.9m to EUR293.8m. Operating profit increased by 11.4% to EUR18.2m. European operations increased turnover by 10.5% to EUR558.1m while operating profits grew by 7% from EUR35.5m to EUR38.0m. In European ingredients markets continuing progress was recorded in the prepared foods sector and good growth was achieved through coatings applications in the fish and poultry sectors and clear coatings for potato products. Excellent results were also achieved through the development and launch of a range of organic ingredients to meet the requirements of major food processors and retailers in the UK market. The recently commissioned Olesnica facility in Poland for savoury flavourings and coating systems, and a technical development centre accommodating Kerry's range of core ingredients technologies, has advanced the Group's position in Eastern European markets, particularly in Poland, Hungary and Russia. The acquisition of SFI Europe ingredients particulates business with a facility based in Tilburg, the Netherlands, as part of the acquisition of Shade Foods in the period under review, also advanced the Group's position as a leading supplier to ice cream, bakery, dairy and nutraceutical markets in Europe. Kerry's consumer foods business units in Ireland and the UK continued to outperform the market. The buoyant Irish economy and the growth in the number of dual income families has accelerated demand for snacking and convenient food offerings. A range of Italian ready meals were successfully launched under the Denny brand in Ireland and consumer response to the range of premium cooked meats introduced under the Denny Finest brand also proved very satisfactory. Double digit growth in the UK ready meals sector continued and Kerry increased its market share. Consumer response to the relaunch of the Mattessons range of premium cooked meat products proved extremely favourable.On-going investment in NPD was manifested in the recent introduction of 'Wall's Instants' - ready cooked microwaveable sausage which has achieved a highly favourable response at trade level. Americas Kerry's American food ingredient business again performed well. Turnover grew by 14.4% to EUR348.7m and operating profits increased by 18.3% from EUR34.9m to EUR41.2m. The sale of the DCA bakery mix business in the US and Canada was broadly offset by the first time contribution from the acquired Shade Foods particulates business. The SFI Group of speciality food ingredients businesses, comprising Shade Foods Inc in the USA and Speciality Food Ingredients (SFI) in Europe, were acquired since year end for a total consideration of US$80m. Shade has already exhibited strong growth, in particular with chocolate coatings and inclusions for the fast growing nutraceutical sector and with clusters for ready to eat cereals. In February the Group announced the sale of the DCA bakery mix business in the US and Canada to Pillsbury Bakeries & Foodservice for US$100m. In the US strong growth continued through major national accounts driven by traditional cornerstone technologies, in particular through spray-dried cheese flavourings, liquid sauces and fillings. Local business in Canada also grew satisfactorily year on year. In Mexico good progress continued with the snack food sector growing strongly. Business development in South American markets has proceeded very satisfactorily since the commissioning of the Brazilian processing and technical facility in August 1999. Good results have been achieved through functional dairy ingredients in the ice cream and bakery sectors and with cheese systems to the prepared foods industry. Asia Pacific Growth and development in Asia Pacific markets continued as planned in the period under review with sales growing by 8.6% to EUR64.1m and operating profits increased from EUR1.8m to EUR3.9m. In Australia and New Zealand the prepared foods segment continued to grow strongly providing good opportunity for the Group's savoury flavourings and Mastertaste flavours. Good progress was also recorded through marinades, glazes and other coatings technologies and developments through 'quick service restaurant' chains continued apace. Speciality lipids technology introduced in late 1999 also achieved good results. The Kerry Pinnacle range of branded bakery ingredients was further rationalised and focused on growth and development through regional and national bakery chains and in-store bakeries in major supermarket outlets. In Asia the Group continued to develop through application of coatings and functional savoury technologies. Markets for cheese and dairy flavourings showed promising growth which will be fully exploited when the additional manufacturing capacity at the Group's Malaysian facility comes on stream in early 2001. Development ____________ In line with the Group's growth and development plans in global ingredients markets and selected consumer foods niches, a number of major development projects were advanced during the period. In the UK, a new global food ingredients technical centre developed at a cost of EUR10m was opened in Bristol. The Bristol Technical Centre will service Kerry's customer base in European markets through the development of savoury flavourings, functional savoury ingredients and coating systems, complementing the Group's regional technical centres throughout Europe. Construction of a major new state-of-the-art coatings manufacturing facility in Calhoun, Georgia, USA has commenced. The project costing US$22m will be completed by mid year 2001 and will produce breaders, batters and marinades for seafood, poultry, vegetable and other processed food applications. The Georgia facility will become the fifth US coatings plant operated by Kerry, complementing existing facilities in Melrose Park, Illinois; Millstadt, Illinois; Evansville, Indiana and Ponchatoula, Louisiana. Stage 2 of the major development plan for the Johor Bahru plant in Malaysia has progressed very satisfactorily. Costing US$12m, the project will be completed by year end and fully commissioned in early 2001 and will triple capacity at the facility for the production of speciality lipids and cheese and dairy flavourings. Restructuring of manufacturing facilities in Australia, subsequent to the acquisition of Burns Philp was significantly advanced. The plan comprises development of two world class production facilities in Murrarie (Brisbane) and Altona (Victoria) and the closure of three existing facilities. The AUS$12m Murrarie development project, providing manufacturing and technical facilities for all Kerry's core ingredients technologies in Australia is substantially complete and will be fully commissioned by October, making it one of the most advanced facilities of its kind. The Altona development project will be completed in 2001. In consumer foods phase 2 of the development of the Shillelagh (Irl) pre-packed chilled snack products facility is near completion. The new EUR15m facility which will be fully commissioned in October 2000, represents further investment by the Group in high growth segments of the convenience food sector and provides additional production capacity required to match the continued growth of the Denny brand in the Irish market. Post Balance Sheet Events _________________________ Kerry has entered into an agreement, subject to contract and due diligence to acquire the ingredients particulates business of Harald-Industria e Comercio de Alimentos Ltda located in Sao Paola, Brazil. A leading provider of speciality chocolate coatings, flavoured particulates and low water activity fillings to the premium ice cream, dairy and bakery sectors in Brazil, the business complements the Shade Foods and SFI Europe businesses acquired since year end 1999. The Group also recently completed the acquisition of York UK based York Dragee which provides chocolate inclusions and coated particulates to the cereal, confectionery, bakery and ice cream sector in the UK and mainland Europe. York Dragee's unique technologies are focused on growth niches of the latter market segments, including 'healthy eating', novelty and snack lines. The acquisitions of Shade, Harald and York in high growth ingredients sector with strong established partnerships with multinational food processors, provides strong growth opportunities for Kerry to extend the unique flavoured textured particulates, high protein inclusions, speciality chocolate and compound coatings technologies to ready-to-eat-cereals, confectionery, dairy, ice cream, bakery and nutraceutical markets globally. Finance ________ Interest charges for the period were similar to last year, with interest cover increasing to 5.9 times from the prior year level of 5.2 times. Working capital was EUR68.4m higher than at year end 1999. The disposal of the DCA bakery mix business in the USA and Canada and the purchase of Shade Foods Inc. in the USA and SFI Europe resulted in a net cash inflow of EUR32.6m. Notwithstanding Group acquisitions and the level of capital expenditure, net debt at the end of June 2000, incorporating an adverse translation adjustment of EUR16.4m, stood at EUR569.2m compared to the year end level of EUR544.5m. The level of debt expressed as a percentage of market capitalisation amounts to 24% compared to 30% at 30 June 1999 and the ratio of debt to EBITDA was 2.1 times. The taxation charge on ordinary activities increased to EUR18.6m compared to the 1999 first half level of EUR14.4m, reflecting an increase in the Group's effective tax rate from 24.2% to 26.0%. The basic weighted average number of shares in issue for the period was 172,047,213 (June 1999;172,047,213). The diluted weighted average number of shares in issue for the period was 173,290,602 (June 1999; 173,132,371). Dividend _________ The Board has declared an interim dividend of EUR2.92c per share, an increase of 15% on the 1999 interim dividend of EUR2.54c per share. The interim dividend will be paid on 30 November 2000 to shareholders on the record date 3 November 2000. Current Trading and Outlook ____________________________ The Group is confident of a good result for the full year and is well positioned to capitalise on complementary acquisition opportunities which continue to arise in Kerry's core markets. Michael Hanrahan Chairman 29 August 2000 KERRY GROUP PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT for the half year ended 30 June 2000 Half year Half year Year ended ended ended 30 June, 30 June, 31 Dec., 2000 1999 1999 Unaudited Unaudited Audited EUR'000 EUR'000 EUR'000 Turnover Continuing operations - Note 1 1,264,755 1,146,817 2,456,352 --------- --------- --------- Operating profit - continuing operations Before goodwill amortisation and exceptional items 101,305 88,562 203,614 Goodwill amortisation 7,520 6,369 12,103 Exceptional restructuring costs - 10,513 35,359 --------- --------- --------- Operating profit - Note 1 93,785 71,680 156,152 Profit on sale of business 193 - - Interest payable and similar charges 22,600 22,770 42,309 --------- --------- --------- Profit before taxation 71,378 48,910 113,843 Taxation - Ordinary activities 18,550 14,407 34,662 - Exceptional items - (1,809) 3,703 --------- --------- --------- 18,550 12,598 38,365 --------- --------- --------- Profit after taxation and attributable to ordinary shareholders 52,828 36,312 75,478 Dividends 5,024 4,369 13,539 --------- --------- --------- Retained profit for the period 47,804 31,943 61,939 ========= ========= ========= Earnings per ordinary share (cents) - Note 2 -basic before goodwill amortisation 35.1 29.9 73.6 and exceptional items -basic after goodwill amortisation 30.7 21.1 43.9 and exceptional items -fully diluted after goodwill 30.5 21.0 43.6 amortisation and exceptional items KERRY GROUP PLC CONSOLIDATED BALANCE SHEET as at 30 June 2000 30 June, 30 June, 31 Dec, 2000 1999 1999 Unaudited Unaudited Audited EUR'000 EUR'000 EUR'000 Fixed assets Tangible assets 641,004 572,473 607,347 Intangible assets 262,445 246,271 234,153 --------- --------- --------- 903,449 818,744 841,500 Current assets Stocks 296,869 278,944 272,354 Debtors 369,756 366,584 332,976 Cash at bank and in hand 10,381 5,939 13,261 --------- --------- --------- 677,006 651,467 618,591 Creditors: Amounts falling due (612,296) (572,516) (566,512) within one year --------- --------- --------- Net current assets 64,710 78,951 52,079 --------- --------- --------- Total assets less current liabilities 968,159 897,695 893,579 Creditors: Amounts falling due (494,107) (574,075) (521,060) after more than one year Provisions for liabilities and charges (8,794) (6,645) (20,394) --------- --------- --------- 465,258 316,975 352,125 Capital and reserves Called-up equity share capital 21,506 21,846 21,846 Other reserve 340 - - Share premium account 190,694 190,694 190,694 Profit and loss account 229,137 81,996 114,712 --------- --------- --------- 441,677 294,536 327,252 Deferred income 23,581 22,439 24,873 --------- --------- --------- 465,258 316,975 352,125 ========= ========= ========= KERRY GROUP PLC CONSOLIDATED CASH FLOW STATEMENT for the half year ended 30 June 2000 Half year Half year Year ended ended ended 30 June, 30 June, 31 Dec., 2000 1999 1999 Unaudited Unaudited Audited EUR'000 EUR'000 EUR'000 Operating profit before goodwill amortisation and exceptional items 101,305 88,562 203,614 Depreciation (net) 32,665 28,937 55,078 Change in working capital (68,423) (29,466) 3,779 Exchange translation adjustment (770) (1,007) (149) ---------- --------- --------- Net cash flow from operating activities 64,777 87,026 262,322 Returns on investments and servicing of finance (23,485) (22,770) (39,457) Taxation (21,778) (8,924) (28,137) Capital expenditure Purchase of tangible fixed assets (46,882) (28,295) (91,059) Proceeds on the sale of fixed assets 756 596 7,986 Development grants received - 79 3,701 Acquisitions and disposals Purchase of subsidiary undertakings (72,337) (5,258) (5,712) Proceeds on the sale of businesses 104,876 - - Deferred creditors paid (2,407) (4,280) (4,562) Exceptional restructuring costs (2,674) (6,863) (19,692) Consideration adjustment on previous acquisitions - - 12,101 Equity dividends paid (9,170) (7,646) (12,015) ---------- --------- --------- Cash (outflow) / inflow before use of liquid resources and financing (8,324) 3,665 85,476 Financing Increase / (decrease) in debt due within one year 5,444 24,565 (35,756) Decrease in debt due after one year - (35,025) (49,193) --------- --------- --------- (Decrease) / increase in cash in the period (2,880) (6,795) 527 ========= ========= ========= KERRY GROUP PLC RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT for the half year ended 30 June 2000 (Decrease) / increase in cash in the period (2,880) (6,795) 527 Cash flow from debt financing (5,444) 10,460 84,949 --------- --------- --------- Change in net debt resulting from cash flows (8,324) 3,665 85,476 Exchange translation adjustment (16,383) (45,286) (64,273) --------- --------- --------- Movement in net debt in the period (24,707) (41,621) 21,203 Net debt at beginning of period (544,532) (565,735) (565,735) --------- --------- --------- Net debt at end of period (569,239) (607,356) (544,532) ========= ========= ========= KERRY GROUP PLC STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES for the half year ended 30 June 2000 Half year Half year Year ended ended ended 30 June, 30 June, 31 Dec., 2000 1999 1999 Unaudited Unaudited Audited EUR'000 EUR'000 EUR'000 Profit attributable to the Group 52,828 36,312 75,478 Exchange translation adjustment on foreign currency net investments (8,510) 1,105 10,064 --------- --------- --------- Total recognised gains and losses relating to the period 44,318 37,417 85,542 ========= ========= ========= KERRY GROUP PLC RECONCILIATION OF MOVEMENTS IN SHARE CAPITAL AND RESERVES for the half year ended 30 June 2000 Share Capital Capital Profit and Conversion and Loss Premium Reserve Fund Account Total EUR'000 EUR'000 EUR'000 EUR'000 At beginning of period 212,540 - 114,712 327,252 Retained profit - - 47,804 47,804 Renominalisation of share capital - Note 5 (340) 340 - - Goodwill written back back on disposal - - 75,131 75,131 Exchange translation adjustment - - (8,510) (8,510) --------- --------- --------- --------- At end of period 212,200 340 229,137 441,677 ========= ========= ========= ========= The Profit & Loss Account figures comprise the following: Intangible Profit & Assets Retained Loss Written Off Profits Account EUR'000 EUR'000 EUR'000 At beginning of period (474,698) 589,410 114,712 Retained profit (7,520) 55,324 47,804 Goodwill written back on disposal 75,131 - 75,131 Exchange translation adjustment - (8,510) (8,510) --------- --------- --------- At end of period (407,087) 636,224 229,137 ========= ========= ========= KERRY GROUP PLC NOTES TO THE INTERIM REPORT for the half year ended 30 June 2000 1. Analysis of results by region -------------------------------- Half year ended Half year ended Year ended 30 June,2000 30 June,1999 31 Dec.,1999 Unaudited Unaudited Audited ------------------- ------------------ ------------------- Turnover Operating Turnover Operating Turnover Operating Profit Profit Profit EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 By geographical market of origin: Ireland 293,846 18,249 277,897 16,386 613,671 34,506 Rest of Europe 558,148 37,971 505,004 35,475 1,092,613 85,836 Americas 348,688 41,230 304,919 34,862 615,025 76,305 Asia Pacific 64,073 3,855 58,997 1,839 135,043 6,967 ---------------------------------------------------------- 1,264,755 101,305 1,146,817 88,562 2,456,352 203,614 Goodwill amortised - (7,520) - (6,369) - (12,103) Exceptional restructuring costs - - - (10,513) - (35,359) --------------------------------------------------------- 1,264,755 93,785 1,146,817 71,680 2,456,352 156,152 ========================================================== By destination: Ireland 209,610 186,971 394,344 Rest of Europe 617,375 569,770 1,224,234 Americas 357,613 316,976 675,255 Asia Pacific 80,157 73,100 162,519 --------- --------- --------- 1,264,755 1,146,817 2,456,352 ========= ========= ========= 2. Earnings Per Share ----------------------------- Unaudited Unaudited Audited EPS June 2000 EPS June 1999 EPS Dec.1999 Cents EUR'000 Cents EUR'000 Cents EUR'000 Profit after taxation 35.1 60,348 29.9 51,385 73.6 126,643 before goodwill & exceptional items Goodwill amortisation 4.4 7,520 3.7 6,369 7.0 12,103 Exceptional items (net) - - 5.1 8,704 22.7 39,062 Profit after taxation goodwill amortisation --------------------------------------------------- & exceptional items 30.7 52,828 21.1 36,312 43.9 75,478 =================================================== Share option dilution 0.2 - 0.1 - 0.3 - --------------------------------------------------- 30.5 52,828 21.0 36,312 43.6 75,478 ===================================================== The basic weighted average number of shares in issue for the period was 172,047,213 (June 1999: 172,047,213). The diluted weighted average number of ordinary shares in issue for the period was 173,290,602 (June 1999: 173,132,371). The dilution arises in respect of executive share options outstanding. 3. Accounting Policies ---------------------------- These accounts have been prepared using the same accounting policies detailed in the 1999 annual financial statements except that the Group has implemented Financial Reporting Standard 16 'Current Tax' in the half year ended 30 June 2000. This does not have a material impact on either the measurement or the classification of the Group's assets and liabilities. 4. Profit on sale of business ------------------------------- The profit on sale of business arose on the disposal of the Group's DCA bakery business in the US and Canada to Pillsbury Bakeries and Foodservice, completed in February 2000 for US$100.7m (net of expenses). 5. Share Capital ------------------------------ Due to the introduction of the euro each of the issued and unissued ordinary shares of IR£0.10 each was redenominated into an ordinary share of EUR0.1269738 following a resolution passed at the date of the last AGM. Every such share was then renominalised to be an ordinary share of EUR0.125. An amount equal to the reduction in the issued share capital resulting from this renominalisation was transferred to a capital conversion reserve fund. Previous Redenominated Renominalised Aggregate Par Value Par Value of Par Value Renominalisation of Shares Shares of Shares Effect EUR'000 172,047,213 IR£0.10 EUR0.1269738 EUR0.125 340 A ordinary shares ===================================================== 6. These accounts are not full accounts and except where indicated are unaudited. Full accounts to 31 December, 1999, which received an unqualified audit report, have been filed with the Registrar of Companies.

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