Kerry Group to increase its organic spend as acquisition pipeline remains strong

Kerry Group is to invest much of its capital resources into driving organic growth this year but has said its acquisition pipeline remains strong, with an estimated €1bn available to spend.

Part of the Tralee, Co Kerry-based food giant’s upcoming spend will be an extra €50m on its Kerryconnect programme From an original €350m cost its strategy for systems, processes and information integration in the group and part of the ‘1 Kerry’ model, has run into an extra year of implementation.

Last year, the group’s R&D spend rose 6% to €197m.

Yesterday, Kerry reported its financial results for 2014; showing a 4.1% rise in group trading profits but a 1.4% drop in revenues, to €5.76bn.

Trading profit jumped from €611.4m to €636.4m, while pre-tax profits soared over €430m to €555.6m.

Operating profit rose from €189.5m to €608.5m, while basic earnings per share went from 48c to 273c. The dividend for the year will amount to 45c, up by 12.5% on 2013’s level.

Group chief executive Stan McCarthy said 2014 was another period of positive growth and that the group is well placed to build upon it.

“We recorded another year of good growth, business margin expansion and an 8.1% increase in adjusted earnings per share, in 2014.

“The consumer environment, across developed and developing markets, is changing rapidly, but Kerry is well-positioned to capitalise on global growth opportunities. We expect to achieve another year of good growth in 2015,” he added.

Management said that it expects to achieve growth of 5% to 8% in adjusted earnings per share, to a range of 293c to 301c per share, this year. That includes the impact of divestments made last year.

In 2014, Kerry offloaded a small ingredients and flavours business in Argentina, a consumer food pastry business in the UK, and property and equipment.

It is progressing the divestiture of the remaining assets held for sale at year-end and €38m of earnings will be disposed of via these transactions. Kerry’s main ingredients and flavours division saw 3.4% revenue growth, to nearly €4.4bn, with trading profit up by 6.1% at €593m.

The company said that consumer confidence improved last year and its consumer foods division saw only a slight drop (-0.7%) in revenues to €1.5bn.

Goodbody Stockbrokers’ food analyst, Liam Igoe said while the results gave off mixed signals, the group’s core fundamentals are still there: like-for-like growth and margin progression.

“Kerry’s balance sheet remains strong, though obviously impacted by the recent fall in the euro and acquisitions and net debt was higher than we forecast, at €1.2bn.

“However, in debt ratio terms, the indebtedness remains modest at less than one times forecast full-year 2015 earnings before tax, interest, depreciation and amortisation.

This, clearly, leaves scope, over €1bn, for acquisitions spend, which the statement suggests is in the pipeline.”

“Solid 2014 results highlight Kerry’s capacity to deliver underlying volume growth and margin advancement, notwithstanding tough market conditions,” said Jack Gorman of Davy Stockbrokers.