Rising ingredient costs hit Kerry Foods’ Q1 results

By Rick Pendrous

- Last updated on GMT

Related tags: Kerry foods, United kingdom

Kerry Foods launched advertising campaign to boost frozen food sales
Kerry Foods launched advertising campaign to boost frozen food sales
Kerry Foods, part of the Irish Kerry Group, has been hit by the difficulty of recovering its rising ingredients costs, it reported in its first quarter (Q1) results released today.

While demand in its important Irish and UK consumer foods’ markets broadly stabilised, overall market performance was affected by significant raw material inflation, it said.

Overall, Kerry Group reported a 2.2% increase in sales volumes, reflecting the greater success of its ingredients and flavours business, which grew by 3.1% for the three months to March 31, cushioning a decline in volume sales of consumer foods, which fell by 0.2%.

The Group managed to raise prices on average by 1.8%, which went some way to offset input cost inflation of about 4%.

Frozen meals suffered

Although Kerry Foods was unaffected by the horsemeat scandal that emerged during Q1, confidence in some of the market categories it serves – notably the frozen meals – suffered.

The division’s ability to service the independent and convenience retail sectors direct-to-store in the UK and Ireland was impeded by the refocusing of its business model on its core offerings. This resulted in a 4.8% volume loss as a result of rationalised product range.

The division’s UK branded activities performed “satisfactorily”​ and Wall’s continued to achieve good growth in the savoury pastry sector. Cheestrings were hit by strong competition in the UK market but maintained levels in mainland Europe.

Promotional activity

Intense promotional activity in the UK branded spreads category also hit sales of Kerry Foods’ own-label spreads. Performance in the cheese slices category reflected the decline in burger sales. Kerry maintained satisfactory growth in the chilled meals sector but sales in the frozen category reflected the significant loss in consumer confidence in frozen meat products, associated with the wider horsemeat contamination issues affecting the market.

In March, Kerry Foods launched its first ever consumer advertising campaign for Bisto Frozen ready meals designed to reassure consumers about their provenance. It also announced plans for two new pasta meals with the tag line, ‘made from 100% minced beef from trusted sources’.

In Ireland, Kerry Foods’ branded sausage and rasher offerings performed well, but sliced meats declined due to intense own-label promotional activity.

Dairygold and LowLow spreads maintained a strong performance, it said.

£1.3bn debt up on year-end

The Group’s closing net debt position at €1.3bn was up marginally from the year-end position of €1.2bn. The increase reflected the impact of capital expenditure in the quarter and increased investment in working capital. Capital expenditure in 2013 is expected to be higher than it was in 2012 as the Group continues its transformation programme.

Related topics: Ingredients

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