Kerry's careful strategy overcomes cost increases

By Laura Crowley

- Last updated on GMT

Related tags Revenue Kerry

Collaboration with customers, cautious pricing, a simplified
structure and innovation all helped Kerry Ingredients achieve
profit increases despite soaring raw material costs.

The group, whose food ingredients sector covers application-specific ingredients, flavours and bio-science businesses, reported revenue growth of 6.7 per cent for year 2007, up to €4.8bn from €4.6bn.

Ingredients revenue was up 7.8 per cent to €3,310m. The company's EBITDA reached a record €500m, while trading profit increased by 7.4 per cent, from €384m in 2006 to €401mm in 2007 despite the prevailing currency and inflationary input cost environment.

Trading profit for the ingredients sector increased 7.6 per cent to €310m on a like-for-like basis.

"Kerry achieved a good all round business performance and solid organic growth in 2007 notwithstanding the inflationary input cost environment," said chief executive Stan McCarthy.

"Working closely with our customers we successfully managed this challenge through prudent pricing actions and business efficiency improvements."

Kerry also broadened its "go-to-market" strategy, which applies a simplified structure to maximise selling opportunities across its customer base.

The idea is to leverage strengths in science, and provide innovative solutions and applications to match customers' needs.

European growth Sales revenue for European ingredients and flavours increased €1,339m, reflecting like-for-like growth of 4.6 per cent.

The growth in consumer demand for natural products and health ingredient lines provided favourable growth opportunities for the group's enzymes facility, through assisting food processors in salt sugar, fat and allergen reduction.

Revenue growth for emulsifier applications was restricted by the rising cost of raw materials, which was driven up across the industry by increasing demands from emerging markets, growing popularity of biofuels redirecting crops, and a high cost of oil.

Meanwhile, good market development and successful product launches in the dairy and confectionery markets established platforms for growth.

And commercialisation of key R&D initiatives in coatings and savoury applications in coatings and savoury applications in chilled foods growth categories provided some compensation for flat volumes in the frozen segment.

Kerry chairman Dennis Buckley said: "Group expenditure on research, development and applications increased to €145m in 2007.

A strong innovation pipeline continued to support the successful commercialisation of new product concepts, recipes and consumer food and beverage offerings."

In the beverage sector, a new application facility was established in the Netherlands.

Coupled with increased investment in research, Kerry said this strengthened its capability to support European customers in providing solutions to meet changing market requirements.

The company said there was an increased global demand for dairy products and low inventory levels, which helped improve its Irish milk processing operations.

Considerable improvement was also recorded in its sweet and fruit ingredients, on the back of Kerry's strong innovation pipeline and organic European growth.

International performance Buckley said: "In 2007, the group focused critical attention on aligning its global infrastructure, comprising ingredients, flavours and bio-science technologies and application teams, to best serve our customers and Kerry in growing their businesses."

In American ingredients and flavours, market sales revenue grew to €1,310m, up 7 per cent.

Sweet applications in the US ice-cream market were adversely effected by lower sectoral sales as a result of the increase in dairy raw material prices.

However, the Custom Industries acquisition in 2006 assisted growth in the bakery sector's sweet ingredients technologies.

The group also acquired QA Products in Chicago and Can Pan Candy to strengthen Kerry's range in this area.

Despite grain prices rising, Kerry achieved sales growth in savoury systems, coatings and seasoning as a result of its application expertise and customer-based strategy.

In November, Kerry acquired Presco Food Seasonings.

Buckley added: "By leveraging the maximum synergies from this industry leading technological base, considerable progress has already been achieved in American markets.

Work programmes have also commenced in EMEA and Asia-Pacific markets to maximise value through effective application of all group technologies in a strategic approach to servicing customer needs and markets."

In Asia-Pacific markets, where the company has seen great growth potential, sales revenue increased by 17.1 per cent to €425m. China saw strong growth through customised solutions for the ice-cream industry and snack offerings, while beverage applications grew strongly in Japan, Korea, Malaysia, the Philippines and China.

In Australia and New Zealand, Kerry's total ingredients portfolio recorded double digit growth, with beverage performing particularly well.

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