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Added value pays off for Kerry

25-Feb-2004

Driving hard into value added ingredients has paid off for Irish food group Kerry as the company faces off tougher currency exposure in 2003 to see a steady rise in sales and operating profit. European bottom line benefits from greater awareness of health, food safety and convenience foods.

On the back of a €3.7bn turnover operating profit for the year rose 7.6 per cent on 2002 levels to reach €308.5m.

"In a year marked by significant currency shifts, Kerry achieved an excellent operational and financial performance. All Kerry businesses are well positioned to lead new product developments to meet consumer nutrition and lifestyle requirements," said Kerry group chief executive, Hugh Friel.

 

The consumer desire for health-orientated food products - from dairy drinks to functional margarines - helped keep operations in Ireland and the rest of Europe on an even keel, as business disposals and currency pulled the figures down for these regions.

 

Irish based operations coming in at €1.33 billion in turnover reflect a 3 per cent drop on the prior year level due to business disposals and the impact of currency, said the group yesterday. Emphasising that on a like-for-like basis, sales grew by 3 per cent and operating profit increased by 11 per cent to €69m.

 

Reported turnover from European operations (excluding Ireland) hit €1.27 billion, slightly lower than 2002 'primarily to the lower sterling to euro exchange rate,' said the group, adding that operating profits rose to €112m.

 

In European ingredients markets growth and market development was strongly influenced by trends in consumer markets - in particular greater awareness of health and food safety in addition to the increased demand for convenience.

 

In 2003 food processor and foodservice markets benefited from the increased demand for more appetising, varied, natural and convenient foods, said Kerry.

 

In the savoury ingredients sector the company recorded good growth through seasonings and protein blends and through snack flavourings in particular in eastern Europe and Germany.

 

Squeezing margins for ingredients companies the world over, rising raw material prices took their toll on the Irish giant. "Conditions in European food coatings markets again proved highly competitive due to cereal raw material cost increases," Kerry reported. Relief for the coatings business came through passing the price on to the customer as well as a continuing focus on manufacturing efficiencies in pan-European facilities.

 

"Kerry made satisfactory progress in the sector - particularly in seafood applications. The UK based EBI business, acquired in 2002, continued to record strong profitable growth in added-value coatings applications in foodservice markets throughout Europe and the Far East," said the group.

 

In the fast growing European convenience food sector, the Aromont and Voyager businesses, acquired in late 2001, again made good progress particularly through culinary systems and sauces for the prepared meals sector.

 

Evidence that government and industry efforts to push the profile of fruit seem to be paying off with Kerry reporting that fruit participated as a key health ingredient in consumer products, providing a good platform for growth in usage of fruit preparations in European chilled and frozen dairy products, confectionery, bakery and biscuit markets.

 

The company reported that its sweet ingredients business also made good progress in those sectors through inclusions, particulates and coatings, while York Dragee also grew its retail offering of functional and health confectionery products.

 

Demand for high-protein functional foods and low-carbohydrate lines also provided good growth opportunities for Kerry's speciality dairy ingredients business. Further progress was achieved through functional dairy applications for nutritional beverages, sports beverages and infant formula, said the group.

 

Elsewhere, the Americas pulled in a profit of €113m, down from €120m in 2002 as currency conversions and heavy investments took their toll bringing operating margin down by 12.1 per cent. 'Wellness' and nutrition were the key drivers of development in the North American food industry in 2003, confirmed Kerry. 'Businesses were well positioned to lead new product developments through the division's application specific ingredients technologies,' said the company.

 

But reaching deep into the pockets in 2003 alone the company completed the purchase of ingredients companies Guernsey Bel, a Chicago-based supplier of ingredients for ice-cream and bakery industries, seasoning and spice company Pacific Seasonings, and Seattle-based supplier of branded flavoured syrups Da Vinci Gourmet.

 

Extending its North American reach in the highly competitive world of flavours the company acquired SunPure, a producer of natural citrus flavours and ingredients based in Florida and Crystals International, a manufacturer of natural fruit and vegetable flavours.

 

Despite the acquisition trail the company assured the market yesterday that in 2003 it had delivered more than €200 million in free cash flow.

 

Tapping into strong growth in emerging markets, the Irish group reported that in Asia Pacific Kerry businesses reported an 'excellent performance' across markets in 2003. Sales increased by 9.9 per cent to €157m and operating profit rose by 13.9 per cent to €14.5m.

 

In Australia, gains were achieved in the meat and poultry sectors, the quick-service restaurant sectors and in particular in the foodservice beverage sector.

 

Asia saw speciality ingredients growing across the region with sales particularly strong in South East Asia across all technologies but particularly in speciality lipids, nutritional powders, cheese powders and food coating systems.

 

Looking ahead to 2004 the growing Irish food group foresees the current, and continuing, consumer demand for nutritional, convenient and 'lifestyle' foods and beverages as the driving force to profits.

 

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