27th Feb 2007 07:01
Kerry Group PLC27 February 2007 Press Announcement 27 February, 2007 Kerry Group plc Annual Results 2006 Kerry, the global ingredients, flavours and consumer foods group, reportspreliminary results for the year ended 31 December 2006. Financial Highlights • Sales revenue increased by 4.9% to €4.65 billion • EBITDA increased to €487m • Trading profit increased to €384m • Trading margin reduced to 8.3% • Adjusted EPS* up 1.7% to 133.9 cent • Final dividend per share up 13.6% to 12.5 cent • Free cash flow of €241m • R&D expenditure increased by 11.4% to €139m *before intangible amortisation and non-trading items Commenting on Kerry's results, Hugh Friel, Chief Executive, said "While 2006 wasa challenging year for the Group, I am pleased by the improved tradingperformance in the second half benefiting from successful innovation andon-going business restructuring and cost saving programmes. The Group has madea good start to 2007 and we are confident of an outcome for the full year inline with market expectations." For further information please contact:Frank HayesDirector of Corporate Affairs Tel no + 353 66 7182304 Fax no + 353 66 7182972Kerry Web Site www.kerrygroup.com Kerry Group plc Preliminary Statement Results for the year ended 31 December 2006 In a difficult year for the global food industry, Kerry continued tosuccessfully develop its worldwide food ingredients businesses and its Irish andUK consumer foods businesses. Benefiting from good top-line growth across foodand beverage ingredients markets, the Group increased trading profits despitethe surge in energy and energy related cost inflation in 2006. The performancein the second half of the year was particularly encouraging across ingredientsmarkets - with trading margin improvement of 20 basis points in the periodoffsetting the 20 basis points reduction in trading margin in the first sixmonths. This performance was assisted by the continued development ofnutritional and functional food and beverage ingredient systems, in addition tocost recovery and savings programmes. In the UK and Irish consumer foodssectors progress was adversely affected by the delay in recovering input costincreases and market related difficulties in the poultry and frozen ready mealssectors. However the food division's market leading brands and core businesssegments performed well. The programme to optimise operational efficiencies throughout the Groupannounced at the half year results stage is well advanced. The full programme,scheduled for completion by year-end 2007, will effect a €250m reduction inrevenue and a 25 basis points improvement in the Group trading margin in 2008. The Group's focus on research, development and application led to a 10% increasein roll-out of new product developments in 2006. Expenditure increased from€125m in 2005 to €139m in the year under review. Results Total Group sales revenue in 2006 increased by 4.9% to €4.65 billion. On alike-for-like basis this reflects revenue growth of 3.6% year-on-year.Earnings before interest, tax, depreciation, amortisation and non-trading itemsincreased by 1% to €487m. The unprecedented surge in energy and energy relatedcost inflation in 2006 limited trading profit growth to 1% to a level of €384m.Despite good margin recovery in the second half of the year, the time-lag incost recovery particularly in European markets resulted in a Group tradingmargin of 8.3%, 30 basis points below the prior year level. Trading margins iningredients businesses were held at 9.4% but margins in consumer foods,exacerbated by the difficulties in the poultry and frozen ready meals sector,declined from 7.1% to 6.5%. Non-trading items (acquisition integration, business disposals, plant closuresand restructuring costs) for the year amounted to €73.4m which reduced profitafter taxation by €59.2m to €178m. Adjusted earnings per share increased by1.7% to 133.9 cent. The Board will recommend to the Annual General Meeting afinal dividend of 12.5 cent per share. This will bring the total dividendpayment for the year to 18 cent per share, an increase of 12.5% on the previousyear. Business Reviews Food Ingredients Overall Kerry's food ingredients businesses achieved a good performance in 2006notwithstanding significant cost pressures. Total sales revenue increased by3.7% to €3.13 billion, reflecting like-for-like growth of 4%. Trading profitsincreased by 3.3% to €293m, maintaining a trading margin of 9.4% similar to thelevel over the previous two years. Despite the time-lag in recovering costincreases in particular in European markets, the trading margin in the secondhalf increased to 10.7% offsetting the 20 basis points reduction in the firstsix months of 2006. This performance benefited from the on-going focusthroughout all Group ingredients operations on cost savings and on restructuringprogrammes for optimum asset utilisation. Excellent results were also achievedthrough the Kerry Ingredients, Mastertaste and Kerry Bio-Science innovationprogrammes focused on customer requirements for enhanced health, natural,convenient product solutions and improved delivery formats. In American ingredients markets progress and development in 2006 accelerated,with an improved growth and innovation performance relative to the prior year.Sales revenue increased by 5.2% or 4.9% on a like-for-like basis to €1.28billion. In North America, building on the ingredients business 'integratedbusiness unit' structure, a new Go-To-Market strategy was initiated in 2006.The rapid expansion of Kerry's technology base in recent years necessitated arealignment of business units around core technologies - providingindustry-leading customer service through applications and product solutionsdeveloped across multi-technology platforms. Encouraging results have alreadybeen achieved through this strategy and prospects are for higher growth rates asa result in 2007. In the U.S. food and beverage industry development continues to focus onconsumer demands for healthy 'good for you' products, convenient formats and thecontinued expansion of organic lines. Good growth was achieved in meetingmarket demands for new nutritional and functional food and beverage offerings,assisted by Kerry's Proteins and Nutritionals range of dairy and soytechnologies. Successful product launches were achieved with innovativeingredient systems including high protein crisps in nutrition bars and premiuminclusions in ready-to-eat cereals and ice cream categories. Progress in thecereal and sweet ingredients sectors continues to meet growth expectations. In2006, this led to the acquisition of Custom Industries and Nuvex Ingredients.Complementing Kerry's existing facilities in the U.S. and Canada, bothacquisitions added valuable production capacity and proprietary technologies.Nuvex Ingredients; operating from a modern organically certified productionfacility located in Blue Earth, Minnesota; further strengthens Kerry's industryleading extrusion technology and enhances its market positioning in the cerealand nutritional sectors. In the sweet sector, Custom Industries; operating frommodern manufacturing facilities in St Genevieve, Missouri and Toronto, Canada;significantly strengthens Kerry's portfolio of inclusion products in particularinto the bakery category. In the speciality dairy sector Kerry's business restructuring programmedelivered good results. The Albert Lea, Minnesota facility was closed andbusiness operations were aligned to meet sector requirements. Reflectingconsumer preference for heat and serve products, new production lines wereintroduced for frozen and chilled complete sauces and nutritional beverages. Strong volume growth was achieved in the savoury ingredients sector in thesecond half of 2006. The appetizer market, regional snack manufacturers andfoodservice chains provided good growth opportunities for Kerry's snack,flavourings, meat seasonings and coatings technologies. In the nutritional beverage sector, development of spray-dried pharma-gradenutritional formulas produced at the Covington, Ohio facility and shelf-stableliquid nutritional beverages produced at the St. Claire, Quebec facilityachieved strong market positioning. In the U.S. foodservice sector, Kerry continued to record strong growth viacoffee house chains through beverage, coatings and sweet ingredientapplications. Growth trends in speciality beverages and indulgent frozendesserts created good opportunities for beverage syrups and sweet inclusions asrestaurant chains continue to expand their menu offerings. The growingpopularity of speciality coffee and indulgent coffee based beverages continuesto drive coffee syrup and smoothie sales. Re-branding initiatives across the DaVinci and JetTea ranges achieved a good market response. The strength and breadth of the Group's ingredients technologies were again tothe fore in delivering continued satisfactory business development in LatinAmerican and South American markets. Good growth was achieved in CentralAmerican snack markets and in the Mexican beverage and bakery categories. Thefoodservice sector in the region continued to grow providing good opportunityfor Kerry's range of savoury and sweet ingredient systems. The Group's Brazilbased facilities continued to achieve good market growth through seasonings andfood coatings in South American proteins markets and through sweet ingredientsin the Brazilian ice cream sector. In American markets the Group's flavour division made good progress in thegrowing natural and organics marketplace. While the demand for 'all natural'clean label applications has grown across all food and beverage categories, theMastertaste natural flavours business was impacted by the pricing level ofgrapefruit in the aftermath of the series of hurricanes in 2005. Mastertaste iswell positioned in the North American organics marketplace which grew by 24% in2006. Its flavour modulation technology also achieved good growth as saltreduction and sugar reduction programmes were progressively implemented acrossfood and beverage categories. Mastertaste savoury flavours expanded itspenetration of U.S. poultry markets due to growing demand for bolder tasteprofiles, regional specific cuisine and ethnic flavours. Crystals(R)all-natural freeze dried juice products continued to grow market share in thehealth/wellness beverage sectors. Manheimer Fragrances significantly developedits market presence in the U.S. home environmental, personal care and toiletriescategories, benefiting from the division's fragrance creativity combined withnatural products technology. Year 1 of the research programme at MonellChemical Senses Centre into 'human sensory adoption' and application of researchfindings for flavour/fragrance development achieved good results and assisteddevelopment of taste modulation. The increased momentum towards natural, low salt, low sugar, low fat, allergenfree consumer products assisted the attainment of good top-line growth acrossKerry Bio-Science technologies in 2006. In American markets good growth wasachieved through fermented ingredients in culinary, cell nutrition anddistillery market segments. Emulsifiers performed satisfactorily with theclosure of the Brantford facility in Canada and transfer of production to theGroup's Malaysian facilities adjacent to the raw material supply base.Hydrolysed proteins delivered good results in the pharma segment reflectingSheffield(TM) Pharma Ingredients position as a leading supplier of nutrientsinto biotechnology derived pharmaceutical applications. Sheffield(TM)excipients are inextricably linked with the physical performance andmanufacturing processes for new medications conferring beneficial functionalcharacteristics. However performance in the sector in 2006 was impacted by abacklog in regulatory agency approvals and customer lifecycle phasing whichadversely affected lactose excipient sales. This exacerbated the time-lag inrecovering the significant input cost increases during the year. Sheffield(TM)did achieve good sales growth through glyceride excipients and the projectpipeline was boosted through new product launches. European ingredients had a challenging year due to cost pressures and sectoralmarket issues in major consumer markets. Top-line growth in Kerry's Europeaningredients businesses was below expectations with delays well into 2006 inrecovering the significant cost increases. Sales revenue increased by 2.3% to€1.29 billion, which represents like-for-like growth of 3.2%. However profitmargins were maintained as good progress was made across the food ingredients,bio-science and flavours businesses in maximising supply chain efficiencies andreducing overheads. The slowdown in growth in the prepared foods sector impacted sales and marginperformance in Kerry's seasonings and coatings businesses in the UK and France.Germany continued to achieve good growth and returns from Eastern European meatseasonings markets were similar to the prior year. Excellent progress was reported through culinary systems and sauces in Franceand the UK as demand grows for convenient 'clean label' authentic flavourings.While conditions in the snacks seasonings sector remained highly competitive,Kerry achieved continued growth through regional snack processors in the UK andthrough further market development in Middle Eastern markets. The Europeaningredients division's focus on supply chain efficiencies resulted in closure ofthe Bicester and Birmingham plants in the UK and a seasonings facility in Milan,Italy. In dairy markets, returns were negatively impacted by the relatively weak marketconditions in the first nine months of 2006. As the EU transitions from directmarket supports through the processing sector to direct milk producer payments,significant market fluctuations are possible dependant on supply/demandbalances. While considerable firming of international dairy markets occurredprior to year-end, nevertheless processor returns for 2006 were well below theprevious year. With the increasing trend towards healthy lifestyles and greaterdemand for wellness products, Kerry Dairy Ingredients has made significantprogress through the development of milk proteins with specific nutritional andfunctional benefits. Further investment in dairy flavour technology has led toinnovative developments in culinary and savoury bakery markets, working inpartnership with the Group's global ingredients businesses. Kerry's European fruit and sweet ingredients business achieved a good overallbusiness performance in 2006. While chilled and frozen dairy product marketsremained intensely competitive, fruit preparations achieved satisfactory growththrough range extensions and product mix improvements. Growth was also achievedthrough fruit beverages and flavoured syrup applications. Ravifruit purees anddecoration fruits saw continued growth in Eastern Europe, the Middle East andAsian Markets. Positive growth was also achieved in the European confectioneryand fruit sauce markets. Kerry's sweet ingredients business in Europeexperienced strong organic growth through coated products in the breakfastcereal and fresh dairy product sectors, benefiting from the successful launch ofinnovative lines of low sugar and health fruit cereal clusters. Kerry Bio-Science continued to make good progress in European markets. Its 'DuraFresh' range of shelf-life extender products recorded good growth in thecheese, yoghurt and flavoured milk sectors. The division's full line ofproducts, including emulsifiers, stabilizers, speciality proteins and enzymesmade encouraging progress in the dairy sector as processors seek productdifferentiation through innovative health offerings. Cost recovery programmesincreased margins in functional proteins markets and innovative whippingproteins achieved growth through aerated confectionery products. Following theexpansion programme at the Menstrie facility in Scotland in 2005, good growthwas achieved through yeast extracts in culinary, cell nutrition and distillerymarkets in Europe. Despite significant cost pressures, profitable growth wasalso achieved through Kerry Bio-Science enzymes throughout global beverage andconfectionery markets. Mastertaste flavours recorded slightly lower sales in Europe in 2006 butprofitability was improved due to successful flavour development and withdrawalfrom lower margin activity. The combined skills of the division's UK andItalian development teams led to successful new savoury flavour launches. "ChefStyle" clean label flavours made encouraging progress. Benefiting from itsSunPure fruit expertise, good progress was achieved in fruit juice fortificationand through botanical extracts for the fast growing flavoured beveragescategory. In Asia Pacific markets, the Group again made excellent progress with furthermargin improvement and good growth in all territories. Sales revenue increasedby 9.2% to €363m, reflecting like-for-like growth of 10.1% year on year. Kerry's nutrition technologies recorded strong double digit growth in Asia in2006. The range of San-A-Creme(TM) nutritional lipids including co-dried milkproteins with unique fatty acid profiles of linoleic and linolenic acid (AA andDHA) fuelled growth in this fast growing nutritional category. Specialtybeverages also continue to exhibit exceptionally strong growth rates. With thecontinued expansion of speciality coffee chains across the region, Kerry's DaVinci branded range of flavoured beverage products achieved 32% growthyear-on-year with strong growth in Korea, Japan and Hong Kong and encouragingmarket development in China. The successful launch of a range of frappe andfruit smoothie products in the dynamic ice-blended products sector haspositioned Kerry as 'one-stop-supplier' to the speciality beverage foodservicesector. Asian consumer markets are increasingly demanding convenient savoury offeringswhich has led to good growth opportunities for the Group's meat seasonings andmarinades. The health snack and biscuit sectors are also exhibitingencouraging growth where Kerry has pioneered the introduction of trans-fat freesystems in Asian markets. Growth in the savoury biscuit sector has outperformedsales in the sweet sector due to the growth of health/functional lines. Kerry Bio-Science and Mastertaste flavours and fragrance divisions alsocontinued to successfully develop their respective positions in Asian markets in2006. Prior to year-end, a state-of-the-art technical, applications andadministration facility was established in Shanghai to spearhead development ofboth divisions in the region. Bio-Science saw satisfactory growth throughfermentation products and enzymes. The Esterol emulsifiers facility achieveddouble digit growth year-on-year with strong revenue growth in the bakerysegment. The investment programme to expand production capacity at theMalaysian based facility is progressing as planned. Kerry Ingredients achieved good organic sales growth in the Australian foodprocessor markets in 2006. New meat marinade offerings fuelled growth in theadded value poultry sector and through custom-branded products for majorsupermarket groups. Beverage syrups and sauces continued to achieve stronggrowth in the speciality beverage/coffee chain market segments. Progress in thesnack and food processor segments in New Zealand was similar to the prior year. The Group's Pinnacle range of speciality bakery products continues toconsolidate its leading market positions in the Australian market with growth inthe franchise bakery and specialist contract manufacturers market segmentsoffsetting changes in supermarket in-store bakery business models. PinnacleAustralia was named 'National Supplier of the Year' by a major national multipleretail chain in 2006. Pinnacle also successfully established the in-store brandoffering in Thailand and prior to year-end in Malaysia. Consumer Foods Kerry's core consumer foods categories including chilled ready meals, pre-packedcooked meats, sausage, cheese and spreads all grew satisfactorily in 2006.However difficulties in the primary poultry and frozen foods categoriesadversely impacted performance and trading profits of the foods division. Whilesales revenue increased by 5.4% to €1.82 billion (reflecting like-for-likegrowth of 1.5%) trading profits declined by 4.5% to €118m. The significantreduction in profitability in the poultry and frozen ready meals categoriesmeant that the overall trading margin in the foods division was reduced from7.1% in 2005 to 6.5% in the year under review. Having divested the primarypoultry processing operations prior to year-end, management is confident thatthe division's strong branded category leadership, its focus on chilled growthcategories and innovation across health/wellness sectors, combined with itsquality asset and strong customer base, positions Kerry Foods for goodprofitability in 2007. In the UK sausage category, fresh offerings continue to grow at the expense offrozen. Kerry's market leading Richmond and Wall's brands benefited stronglyfrom the 4.6% year-on-year increase in fresh sausage sales as consumers trade-upin the main quality segments of the market. Both brands continue to benefitfrom strong brand investment on TV and through press marketing support. Wall'sFavourite Recipe range, the most recent brand development in the premiumcategory, continues to perform well. The Porkinson brand has also enjoyedincreased popularity as consumers seek more authentic, superior qualityofferings. Despite the sales decline in the frozen sausage sector, the Richmondfrozen range saw growth year-on-year. Wall's expanded its brand development anddistribution in the pre-pack rasher category. In 2006, Mattessons commenced a major brand investment programme and thisconsiderable financial investment is expected to achieve strong results in theyear ahead. Smoked Pork Sausage has already shown a good response to theincreased level of marketing activity and to brand extension to new Hot & Spicyvariants. Mattessons Fridge Raiders again achieved excellent results as newcustomers entered the growing meat snacking sectors. In the home-baking category, Green's had a difficult year due to the poorperformance of the 'kids' sector. The brand has been repositioned tore-establish its presence in the small and large cake mix sectors. ClassicDesserts and time saver mixes including Pancake Mix recorded good sales growth.A major marketing programme will mark the 100th year of Green's brand in 2007.In the homebaking flour sector, Homepride continues to outperform the marketacross the retail landscape. The second half of 2006 saw renewed growth in the UK chilled ready meals market.Overall the category grew by 4.2% year-on-year, with a significant increasein households buying into the sector and an increasing momentum towards 'healthily balanced' and premium offerings. Kerry Foods consolidated itsposition as the second largest producer of chilled ready meals in the UK market.While its sales in the oriental category declined slightly year-on-year,Indian recipes performed well and new generations of premium meals weresuccessfully launched during the second half of the year. In the premiumhealth sector, 'The Food Doctor' innovative range was introduced using acombination of raw and cooked ingredients that can be quickly steam cooked inthe microwave. The 'Champneys' wellbeing brand of multi-cuisine meals was alsosuccessfully launched. To maximise operational efficiencies, the Hartlepoolprocessing facility was closed. Good value growth was achieved in theready-to-cook meals category with the launch of premium offerings. Savourypastry products also saw a satisfactory level of value growth in 2006 throughcontinued premiumisation of the category. The UK frozen ready meals market declined by 12% year-on-year but by year-endthe rate of decline had slowed to 9%. Against this background, Rye Valley Foodsachieved a satisfactory sales performance - consolidating its position as theleading European producer in the sector. However despite its lowest costproducer status, Rye Valley's trading profits were lower due to the intensecompetition in a declining market. Due to the relatively poor profitability of the primary poultry processingsector, Kerry Foods divested its Redgrave operation in the UK and its Smithborooperation in Ireland prior to year-end. The chilled patisserie business inBirmingham, UK was also sold in 2006, as was the St. Brendan's Irish CreamLiqueur business in Derry. The specialist foodservice business unit established in Kerry Foods in late 2005achieved good results. Sourcing products from over twenty Kerry sites in theUK, Ireland and France, the new foodservice unit supplies over 800 products inambient, chilled and frozen formats. Kerry Foods Direct to Store continued to develop its market leadership positionin the UK convenience store sector. Whilst overall sales were maintained in achallenging marketplace, profitability was slightly lower than in 2005 due tothe impact of energy prices on distribution costs. In the UK and Irish cheese categories, Kerry had an excellent year with goodgrowth across all branded segments. The Charleville and Coleraine brandscontinue to grow their leading market share positions and the extension of theLow Low brand into cheese was the market's star performer with 40% year-on-yeargrowth. In the processed cheese sector, EasiSingles brand share declinedslightly as private label captured an increased market share. The brand willbenefit from new packaging formats and increased marketing support in 2007 tosupport growth in the snacking sector. While the UK cheese snacks sector continues to have bright prospects for longterm growth, sales growth slowed relative to the previous year. Cheestringsmaintained its market share and reinforced its strong nutritional/healthattributes through an extensive advertising campaign emphasising its 100%natural cheese value. Ficello continues to build its market positioning inFrance and Brunchettas has made encouraging progress in developing the new adultcheese snacks sector in Ireland and the UK. In the dairy and low-fat spreads category in Ireland, Kerry again delivered goodvolume growth through its Low Low, Kerrymaid, Golden Cow and Golden Olivebrands. With an on-going focus on more healthy options, the premium lowercholesterol offering under the Low Low brand achieved a strong marketperformance. In the UK market Kerry Foods consolidated its position as theleading producer of own-label spreads through its investment in categorymanagement and responsiveness to market trends such as the growing influence ofOmega 3 & 6 enriched products. Denny again recorded a strong performance in the Irish market. Slightly reducedsales in the standard sausage segment was offset by the continued development ofDenny Select in the premium sector. Denny rashers had a strong performance withvolume and value growth driven by its focus on superior quality andpremiumisation. Cooked meats also had an excellent performance growing by 16%year-on-year. Differentiation and innovation across the Denny range in thepremium category contributed strongly to this growth while Ballyfree as brandleader in the white meat segment continues to outperform category growth rates.The Ballyfree brand was relaunched in September 2006, with a new identityexuding 'country freshness' and new packaging formats optimising the brandpromise of 'Real Food for Modern Living'. In 2006, Freshways continued to make considerable progress towards its vision ofbeing the number one fresh prepack food-to-go brand in Ireland. Strong growthin value and volume terms was delivered through Freshways innovation platformincluding the successful launch of the 'Healthy Ways' range of sandwiches, new 'Limited Edition' offerings, the re-launch of Freshways salads, new sandwichrecipes and a 'Gourmet' range of sandwiches. Kerryfresh also advanced itsmarket position as one of Ireland's leading suppliers of fresh food-to-goingredients and menu concepts for delicatessens, sandwich bars, coffee shops,pubs, restaurants and workplace caterers. Dawn Juice achieved satisfactory volume and value growth in Ireland but marginsin the sector were impacted by higher raw material prices. Dawn Benefits wasfirst to market in Ireland with three new health juice offerings - Dawn OrangeJuice with Omega-3, Dawn Orange Juice with Probiotic and Dawn Orange Juice withMultivitamins and Calcium. Dawn Flavoured Milks were re-launched in mid-2006leading to increased sales and Dawn Omega Milk also continued to achieve goodmarket development. Kerry Spring achieved good growth in both the non-flavouredand flavoured market segments in Ireland. Geographic Markets Total Group sales revenue throughout European markets in 2006 grew by 4.2% to €3billion. In American markets, the Group's ingredients and flavours businessesincreased sales revenue by 5.2% to €1.3 billion. Sales revenue in Asia Pacificmarkets increased by 9.2% to €363m. Finance Earnings before finance costs, tax, non-trading items, depreciation andamortisation (EBITDA) increased by 1% to €487m. After allowing for an increasein working capital of €46m, capital expenditure of €88m (net of proceeds fromasset disposals of €14m), finance payments of €77m and tax of €35m, free cashflow available to the Group was €241m. The consistent strong cash generationperformance of the Group has delivered €1.26 billion free cash in the last fiveyear period. Expenditure on Group acquisitions amounted to €113m (2005: €234m). Net debt atyear-end amounted to €1,194m compared to €1,275m at the end of 2005. Net debtto EBITDA reduced to 2.5 times (2005: 2.6 times). Finance costs were €76.9mcompared to the 2005 level of €68.4m, with EBITDA to net interest covered 6.2times (2005 : 8 times). The Group used its share buy-back programmeauthorisation to purchase 2.8 million shares at a cost of €48.4m in 2006. Dividend The Board recommends a final dividend of 12.5 cent per share, an increase of13.6% on 2005. Together with the interim dividend of 5.5 cent per share, thisraises the total dividend for the year to 18 cent per share, an increase of12.5% on the previous year. The final dividend will be paid on 25 May 2007 toshareholders registered on the record date 27 April 2007. Annual Report and Annual General Meeting The Group's Annual Report will be published in April and the Annual GeneralMeeting will be held in Tralee on 18 May 2007. Future Prospects The Group has made a good start to 2007. The ingredients, bio-science andflavours businesses are well positioned to meet customer requirements forconvenient, nutritional product innovations throughout the global marketplace.Having divested non-core low margin activities in the Group's consumer foodsdivision in Ireland and the UK; Kerry Foods' focus on premium chilled growthcategories, allied to its well-invested market-leading brands and strongcustomer base, augurs well for the future profitable growth of the division. The restructuring programme to optimise asset utilisation and enhance supplychain efficiencies is well advanced and will be completed by year-end. With theforecast more benign energy cost environment, the Group's on-going focus on costrecovery in some markets and on cost savings throughout all operations, coupledwith good top-line growth will deliver margin expansion in 2007. The Group hasa strong balance sheet and is well positioned to avail of business growthopportunities. We are confident of an outcome for the full year in line withmarket expectations. Results for the year ended 31 December 2006 Kerry Group plcConsolidated Income Statementfor the year ended 31 December 2006 Before Non-Trading Non-Trading Items Items Total 2006 2006 2006 2005 Notes •'000 •'000 •'000 •'000 Revenue 1 4,645,920 - 4,645,920 4,429,777 ___________ ___________ ___________ ___________ Trading profit 1 383,688 - 383,688 380,213 Intangible asset amortisation (12,093) - (12,093) (10,331)Non-trading items 2 - (73,425) (73,425) (3,623) ___________ ___________ ___________ ___________Operating profit 371,595 (73,425) 298,170 366,259Finance costs (76,930) - (76,930) (68,353) ___________ ___________ ___________ ___________Profit before taxation 294,665 (73,425) 221,240 297,906Income taxes (57,753) 14,262 (43,491) (62,030) ___________ ___________ ___________ ___________Profit after taxation and attributable to 236,912 (59,163) 177,749 235,876equity shareholders ___________ ___________ ___________ ___________ Earnings per ordinary share (cent) - basic 3 95.6 126.1 - fully diluted 3 95.2 125.5 The financial statements were approved by the Board of Directors on 26 February 2007 and signed on its behalf by: Denis Buckley, ChairmanHugh Friel, Chief Executive Kerry Group plcConsolidated Balance Sheetas at 31 December 2006 2006 2005 •'000 •'000Non-current assetsProperty, plant and equipment 1,010,343 1,066,931Intangible assets 1,684,756 1,633,367Financial asset investments 19,866 12,442Deferred tax assets 10,856 12,115 ___________ ____________ 2,725,821 2,724,855 ___________ ____________Current assetsInventories 495,313 544,438Trade and other receivables 597,073 558,831Cash and cash equivalents 188,844 163,903Financial assets 4,485 1,862Assets classified as held for sale 2,696 10,415 ___________ ____________ 1,288,411 1,279,449 ___________ ____________Total assets 4,014,232 4,004,304 ___________ ____________Current liabilitiesTrade and other payables 836,550 845,285Financial liabilities 27,261 143,854Tax liabilities 51,909 44,659Deferred income 2,726 3,078Liabilities classified as held for sale - 1,899 ___________ ____________ 918,446 1,038,775 ___________ ____________Non-current liabilitiesFinancial liabilities 1,356,296 1,297,210Retirement benefits obligation 180,269 249,103Other non-current liabilities 87,368 107,297Deferred tax liabilities 131,252 112,276Deferred income 17,434 21,959 ___________ ____________ 1,772,619 1,787,845 ___________ ____________Total liabilities 2,691,065 2,826,620 ___________ ____________Net assets 1,323,167 1,177,684 ___________ ____________Capital and reservesShare capital 23,445 23,399Share premium account 383,341 378,979Other reserves (32,089) 23,501Retained earnings 948,470 751,805 ___________ ____________Shareholders' equity 1,323,167 1,177,684 ___________ ____________ The financial statements were approved by the Board of Directors on 26 February 2007 and signed on its behalf by: Denis Buckley, ChairmanHugh Friel, Chief Executive Kerry Group plcConsolidated Statement of Recognised Income and Expensefor the year ended 31 December 2006 2006 2005 •'000 •'000 Fair value movements on available-for-sale investments 7,424 12,209Fair value movements on cash flow hedges (2,608) (3,383)Exchange difference on translation of foreign operations (13,389) 17,747Actuarial gains/(losses) on defined benefit pension schemes 61,924 (50,387)Deferred tax on items taken directly to reserves (12,251) 16,412 ___________ ____________Net income/(expense) recognised directly in equity 41,100 (7,402) TransfersCash flow hedges to profit or loss from equity 160 857Sale of available-for-sale investments - (6,218)Profit for the year after taxation 177,749 235,876 ___________ ____________Total recognised income and expense for the year attributable to equity 219,009 223,113shareholders ___________ ____________ Kerry Group plcConsolidated Reconciliation of Changes in Shareholders' Equityfor the year ended 31 December 2006 2006 2005 •'000 •'000 At beginning of year 1,177,684 968,160Impact of adoption of IAS 32 and IAS 39 - 9,550 ___________ ____________At beginning of year as adjusted 1,177,684 977,710 Total recognised income and expense for the year 219,009 223,113Dividends paid (30,757) (27,129)Purchase of treasury shares (48,442) -Long term incentive plan expense 1,265 -Shares issued during the year 4,408 4,014Share issue costs - (24) ___________ ____________At end of year 1,323,167 1,177,684 ___________ ____________ Kerry Group plcConsolidated Cash Flow Statementfor the year ended 31 December 2006 2006 2005 •'000 •'000Operating activitiesTrading profit 383,688 380,213Adjustments for:Depreciation (net) 102,923 101,643Change in working capital (45,893) 260Exchange translation adjustment (484) 494 ____________ ____________Cash generated from operations 440,234 482,610 Income taxes paid (35,056) (50,656)Interest received 2,006 1,752Finance costs paid (78,587) (66,066) ___________ ___________Net cash from operating activities 328,597 367,640 ____________ ____________Investing activitiesPurchase of non-current assets (103,066) (149,262)Proceeds from the sale of non-current assets 13,886 28,928Capital grants received 1,687 446Purchase of subsidiary undertakings (112,830) (233,688)Proceeds from disposal of businesses 17,118 2,759Payment of deferred payables (2,781) (11,353)Expenditure on non-trading items (30,903) (15,236)Consideration adjustment on previous acquisitions (63) (18) ___________ ___________Net cash used in investing activities (216,952) (377,424) ____________ ____________Financing activitiesDividends paid (30,757) (27,129)Purchase of treasury shares (48,442) -Issue of share capital 4,408 3,990Net movement on bank borrowings (4,958) 199,349Decrease in bank overdrafts (1,694) (72,853) ___________ ____________Net cash (used in)/from financing activities (81,443) 103,357 ___________ ____________ Net increase in cash and cash equivalents 30,202 93,573Cash and cash equivalents at beginning of year 163,903 65,328Exchange translation adjustment on cash and cash equivalents (5,261) 5,002 ___________ ____________Cash and cash equivalents at end of year 188,844 163,903 ___________ ____________Reconciliation of Net Cash Flow to Movement in Net Debtfor the year ended 31 December 2006 Net increase in cash and cash equivalents 30,202 93,573Cash outflow/(inflow) from debt financing 6,652 (126,496) ___________ ____________Changes in net debt resulting from cash flows 36,854 (32,923)Fair value movement on interest rate swaps (5,998) -Exchange translation adjustment on net debt 50,146 (104,997) ___________ ____________Movement in net debt in the year 81,002 (137,920)Net debt at beginning of year (1,275,358) (1,137,438) ____________ ____________Net debt at end of year (1,194,356) (1,275,358) ___________ ____________ Kerry Group plcNotes to the Financial Statementsfor the year ended 31 December 2006 1. Analysis of results 2006 2005 Unallocated Unallocated Ingredients Consumer and Group Total Ingredients Consumer and Group TotalBy business segment: Foods Eliminations Foods Eliminations •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000 Revenue 3,134,288 1,818,733 (307,101) 4,645,920 3,021,944 1,725,839 (318,006) 4,429,777 ________ ________ ________ ________ ________ ________ ________ ________ Trading profit 293,131 117,528 (26,971) 383,688 283,816 123,018 (26,621) 380,213 Intangible asset amortisation (10,202) (1,045) (846) (12,093) (9,263) (477) (591) (10,331)Non-trading items (25,544) (47,881) - (73,425) (12,127) 2,227 6,277 (3,623) ________ ________ ________ ________ ________ ________ ________ ________ Operating profit 257,385 68,602 (27,817) 298,170 262,426 124,768 (20,935) 366,259 ________ ________ ________ ________ ________ ________Finance costs (76,930) (68,353) ________ ________Profit before taxation 221,240 297,906 Income taxes (43,491) (62,030) ________ ________Profit after taxation and attributable to equityshareholders 177,749 235,876 ________ ________ Segment assets andliabilities Segment assets 2,449,392 1,060,691 504,149 4,014,232 2,485,988 1,067,629 450,687 4,004,304Segment liabilities 564,118 452,173 1,674,774 2,691,065 591,435 478,155 1,757,030 2,826,620 ________ ________ __________ ________ ________ ________ __________ ________Net assets 1,885,274 608,518 (1,170,625) 1,323,167 1,894,553 589,474 (1,306,343) 1,177,684 ________ ________ __________ ________ ________ ________ __________ ________ Other segmental information Property, plant and equipment additions 75,009 22,891 - 97,900 86,266 53,368 4,124 143,758Intangible asset additions 1,872 - 1,279 3,151 2,061 141 1,274 3,476Depreciation (net) 69,345 33,018 560 102,923 65,431 35,671 541 101,643 ________ ________ __________ ________ ________ ________ __________ ________ 2006 2005 Europe Americas Asia Total Europe Americas Asia Total Pacific PacificBy destination: •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000 Revenue by location of customers 3,007,511 1,275,879 362,530 4,645,920 2,885,039 1,212,877 331,861 4,429,777 Segment assets by location 2,718,778 1,102,707 192,747 4,014,232 2,707,101 1,112,956 184,247 4,004,304 Property, plant and equipment additions 70,222 20,917 6,761 97,900 108,815 29,239 5,704 143,758 Intangible asset additions 1,538 1,597 16 3,151 1,817 1,659 - 3,476 ________ ________ __________ ________ ________ ________ __________ ________ 2. Non-trading items 2006 2005 •'000 •'000 Profit on sale of non-current assets 11,477 14,702Loss on sale of businesses (35,860) (13,363)Acquisitions, plant closures and other restructuring costs (49,042) (4,962) ________ ________ (73,425) (3,623) Tax credit on non-trading items 14,262 3,665 ________ ________ (59,163) 42 ________ ________ The profit on sale of non-current assets primarily relates to the sale ofproperties, plant and equipment. The loss on sale of businesses in 2006 relates substantially to the sale of thepoultry businesses in Ireland and the UK, the chilled desserts business in theUK and small non-core Ingredients businesses in the USA and Brazil. The acquisitions, plant closures and other restructuring costs relate to therestructuring of manufacturing plants in Europe, Americas and Asia Pacific andthe integration of recent acquisitions. The costs are analysed as follows: 2006 2005 •'000 •'000 Plant closure and relocation 22,552 4,061Redundancies and contract compensation 7,534 -Plant and other assets impaired 18,139 901Other 817 - ________ ________ 49,042 4,962 ________ ________ In 2006, the non-trading items had a positive net cash effect (after relatedtax) of €14,363,000. 3. Earnings per ordinary share EPS 2006 EPS 2005 Notes cent •'000 cent •'000 Basic earnings per share Profit after taxation and attributable to equity shareholders 95.6 177,749 126.1 235,876Intangible asset amortisation 6.5 12,093 5.5 10,331Non-trading items (net of related tax) 2 31.8 59,163 - (42) ________ ________ _____ ________Adjusted earnings * 133.9 249,005 131.6 246,165 ________ ________ _____ ________Diluted earnings per share Profit after taxation and attributable to equity shareholders 95.2 177,749 125.5 235,876Adjusted earnings* 133.4 249,005 131.0 246,165 _________ ________ _____ ________ * In addition to the basic and diluted earnings per share, an adjusted earningsper share is also provided as it is considered more reflective of the Group'sunderlying trading performance. Adjusted earnings is profit after taxationbefore intangible asset amortisation and non-trading items (net of related tax). Number Number of Shares of Shares 2006 2005 000's 000's Basic weighted average number of shares 185,949 187,051Impact of executive share options outstanding 715 879 _________ ________Diluted weighted average number of shares 186,664 187,930 _________ _________Actual number of shares in issue** 184,762 187,196 _________ _________ ** Excludes 2,800,000 shares held as treasury shares. 4. General information and accounting policies The financial information set out in this document does not constitute fullstatutory accounts for the years ended 31 December 2006 or 2005 but is derivedfrom same. The Group financial statements have been prepared in accordance withInternational Financial Reporting Standards as adopted by the European Union andtheir interpretations as issued by the International Accounting Standards Boardand the International Financial Reporting Interpretations Committee, applicableIrish law and the Listing Rules of the Irish and London Stock Exchanges. The 2006 and 2005 accounts have been audited and received unqualified auditreports. The 2006 financial statements were approved by the Board of Directorson 26 February 2007. The consolidated financial statements have been prepared under the historicalcost convention, as modified by the revaluation of available-for-sale financialassets, financial asset investments and financial liabilities (includingderivative financial instruments), which are held at fair value. The Group'saccounting policies will be included in the Annual Report to be published inApril 2007. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Kerry