Kerry Regulatory News (KYGA)

18 February 2020

Preliminary Statement of Results

for the year ended 31 December 2019

Kerry Group, the global taste & nutrition and consumer foods group, reports business performance for the year ended 31 December 2019.

 HIGHLIGHTS

·; Group revenue of €7.2 billion reflecting 9.6% reported growth

- Taste & Nutrition 4.0% volume growth

- Consumer Foods 2.2% volume reduction (0.9% growth excluding contract exit)

·; Group trading profit of €903m reflecting 12.1% reported growth

·; Group trading margin +30bps to 12.5%

- Taste & Nutrition trading margin of 15.3%

- Consumer Foods trading margin of 7.6%

·; Adjusted EPS up 8.3% on a constant currency basis to 393.7 cent (11.4% reported growth)

·; Basic EPS of 320.4 cent (2018: 305.9 cent)

·; Final dividend per share of 55.1 cent (total 2019 dividend up 12% to 78.6 cent)

·; Free Cash Flow of €515m (2018: €447m)

Edmond Scanlon - Chief Executive Officer

"We are pleased with the business performance and the strategic development of the Group in 2019. Taste & Nutrition delivered good volume growth, particularly against the backdrop of softer market volumes in some developed markets. We also enhanced our trading profit margin and achieved growth in adjusted earnings per share of 8.3% in constant currency.

Significant progress was made right across our strategic growth priorities of taste, nutrition, foodservice and developing markets. We successfully integrated a number of strategic acquisitions, expanded our strategic footprint in high growth developing markets, while further enhancing our industry-leading global integrated solutions portfolio."

Contact Information

PRELIMINARY STATEMENT OF RESULTS

For the year ended 31 December 2019

Group Performance

Strong growth was achieved in the year, driven by good volume growth in Taste & Nutrition and the contribution from strategic acquisitions. Group reported revenue increased by 9.6% to €7.2 billion, reflecting volume growth of 2.8%, flat overall pricing, favourable translation currency impact of 2.1% and contribution from business acquisitions of 4.7%. Taste & Nutrition achieved good volume growth in the Americas, a solid performance in Europe and continued strong growth in APMEA. Consumer Foods delivered a solid underlying performance versus the market, offset by the impact of the ready meals contract exit previously announced.

Group trading profit increased by 12.1% (+9.5% in constant currency), reflecting good growth and the contribution from business acquisitions. Group trading margin increased by 30bps, reflecting portfolio enhancement, operating leverage, efficiencies and acquisitions, partially offset by Brexit risk management costs, investments for growth and net investment on the KerryExcel programme.

Constant currency adjusted earnings per share increased by 8.3% to 393.7 cent (2018 currency adjusted: 363.5 cent). Basic earnings per share increased by 4.7% to 320.4 cent (2018: 305.9 cent). The Board recommends a final dividend of 55.1 cent per share, an increase of 12.0% on the final 2018 dividend. Together with the interim dividend of 23.5 cent per share, this brings the total dividend for the year to 78.6 cent, an increase of 12% on 2018.

Kerry's industry-leading research and development expenditure increased to €291m (2018: €275m) due to additional investment in Taste & Nutrition. Net capital expenditure amounted to €315m (2018: €286m) as the Group continued to invest in its strategic priorities for growth, particularly across taste, nutrition and developing markets. The Group achieved free cash flow of €515m reflecting cash conversion of 74% in the year (2018: €447m / 72%).

The Marketplace

The food and beverage industry continues to evolve at pace, with a heightened focus on sustainability as consumers are demanding more, which is challenging traditional business models right along the end-to-end supply chain.

Consumers want great taste, including authentic, natural and local taste experiences. They want enhanced nutrition for better health and overall wellbeing, and they expect more convenient and affordable options to match today's on-the-go and digital lifestyles. Consumers are demanding that these experiences are produced and delivered without compromise, in ways that are good for people and the planet. Products are increasingly required to reflect consumers' values on sustainability and provide additional fulfilment by creating positive outcomes beyond the consumption occasion. Our Purpose to Inspire Food and Nourish Life helps define the key role Kerry plays in addressing these needs. As our customers continue to meet these rapidly changing consumer demands and increase speed to market, Kerry is best positioned as the co-creation partner of choice with our unique business model, broad taste and nutrition technology portfolio, and industry-leading integrated solutions capability.

Kerry is the global leader in the development of taste and nutrition solutions for the food, beverage and pharmaceutical markets. Our broad technology foundation, customer-centric business model, and industry-leading integrated solutions capability make Kerry the co-creation partner of choice.

·; Volume growth driven by Beverage and Food End Use Markets (EUMs) - led by Meat and Snacks

·; Pricing of +0.1% - reflecting broadly neutral raw material costs in the period

·; Trading margin +20bps - key drivers were enhanced product mix, operating leverage and efficiencies, partially offset by investments for growth and Brexit risk management costs

Reported revenue increased by 12.5%, reflecting volume growth of 4.0%, pricing of 0.1%, favourable translation currency impact of 2.6% and contribution from business acquisitions of 5.8%. This performance included the recent acquisitions of Fleischmann's (FVC), Southeastern Mills (SEM) and Ariake U.S.A. Inc. Trading profit grew by 14.1% to €918.5m, reflecting a 20bps improvement in trading margin to 15.3%.

Developing markets delivered strong volume growth of 10.0%, with APMEA developing markets being the main driver. Key drivers of growth were localisation, regulatory changes, food safety, convenience and home delivery, which drove increased new product development. Foodservice performed well, with volume growth of 5.5% despite some softness in the North American market.

Kerry's nutrition and wellbeing technology portfolio had a strong performance, as Kerry further evolved its position as the industry-leading nutrition and wellness partner across Beverage and Food EUMs, particularly in Meat and Snacks. Demand for great tasting products with improved nutritional attributes continued to accelerate across the globe. Our unique taste and nutrition positioning, food science expertise and deep understanding of the intersection of taste and nutrition were key drivers of increased innovation across a wide range of applications. This led to good sales growth in solutions incorporating Kerry's fermented ingredients, broad speciality protein portfolio, probiotics, TasteSense™, botanicals and natural extracts.

·; 2.7% volume growth

·; Solid performance in North America led by Food EUMs of Meat and Snacks

·; LATAM performed well

·; 2.0% volume growth

·; Good performance in Beverage and Food EUMs of Meat and Snacks

·; Foodservice performed well across the region

Kerry's Beverage EUMs achieved strong broad-based growth across a number of sub-categories from low/non-alcoholic beverage, tea and coffee to plant-based offerings. There was a strong performance within Foodservice, as customers enhanced their beverage offerings across their menus, with a number of 'better for you' and seasonal product launches incorporating Kerry's botanicals, natural extracts and sugar reduction technologies.

Within the Food EUMs, Kerry's Meat sub-EUM performed very well, with its industry-leading portfolio deployed to create solutions which met a variety of customer and consumer needs. Strong growth and very good business development were achieved in plant-based meat alternatives, supported by the launch of the Radicle™ portfolio. The Snacks sub-EUM performed well, with a number of new authentic world taste launches and healthy snack products incorporating Kerry's Ganeden® probiotics. The Confectionery sub-EUM achieved good growth through a number of local novel taste LTOs across the region. The Dairy sub-EUM was impacted by softer demand in the ice cream category during the period. International dairy markets were relatively stable in the period, reflecting less volatility in global supply/demand dynamics.

Russia and Eastern Europe delivered good growth, as we continue to develop our presence and offering across the region. The Group also completed the acquisition of Pevesa Biotech - a specialist plant protein isolates and hydrolysates business based in Spain and serving key nutrition applications.

·; 10.3% volume growth

·; Strong growth right across all Food and Beverage EUMs

·; Good progress in strategic expansion and business development

Reported revenue in the region increased by 16.2% to €1,285m, reflecting 10.3% volume growth, 0.1% increase in net pricing, 0.1% favourable transaction currency impact, 0.6% favourable translation currency impact and contribution from business acquisitions of 5.1%. Key to the strong growth in the region was the further deployment of Kerry's business model with customers across existing and new markets. This approach was key in supporting our customers as they meet evolving local consumer demands.

Within Food EUMs, Kerry's Meat sub-EUM delivered excellent growth with both global and regional customers, particularly in China and South East Asia, with a range of innovations meeting key consumer preferences for premium local authentic taste and a superior home delivery experience. The Snacks sub-EUM delivered strong growth, particularly with savoury taste innovations that meet local consumer preferences.

Kerry's Beverage EUMs delivered strong growth underpinned by a number of successful launches in refreshing beverages with enhanced wellness and functional benefits. The branded DaVinci range enjoyed strong growth across the year.

We continued to make good progress in expanding our capacity and deploying our technology capabilities in the region. Our strategic expansion in China progressed well, as we upgraded the recently acquired SIAS facility to serve our customers in the Greater Beijing region, and continued the expansion programme at our Nantong facility. In June, the Group opened a new facility in Tumkur, India, which will serve our rapidly expanding South West Asia market. Further to the acquisition of AATCO at the end of 2018, the Group invested in expanding its capabilities in the Middle East region.

Kerry Foods is an industry-leading manufacturer of chilled food products primarily to the Irish and UK markets.

·; Overall volume performance impacted by ready meals contract exit

·; Pricing of -0.5% reflective of lower input costs and market pricing

·; Trading margin - strong efficiencies partially offset by pricing and Brexit risk management costs

Reported revenue decreased by 2.4% to €1,307m, reflecting a 2.2% reduction in volumes, a 0.5% decrease in net pricing, and a favourable translation currency impact of 0.3%. Excluding the impact of the previously reported ready meals contract exit, Kerry delivered a robust performance in the context of a subdued UK marketplace, where lower consumer confidence impacted overall market volumes. The divisional trading margin increased by 10bps to 7.6%. Trading profit decreased by 1.2% to €98.9m in the year. The realignment programme was completed during the year and delivered to plan.

The Richmond chilled sausage range delivered a solid performance, led by growth in chicken sausages and the new plant-based sausage which was launched at the end of September, along with a range of meat-free products under the Naked Glory brand. The Denny brand in Ireland performed well. A number of business wins supported our overall performance within spreads.

Chilled meals continued to be impacted by reduced promotional activity, while frozen meals had a good performance across the range. As previously announced, production was ceased in the ready meals facility in Burton in September and the site was sold prior to the year end.

The Cheestrings range had strong growth supported by a number of innovations. Fridge Raiders also extended its snacking range to reach a broader consumer market.

Financial Review

* Before brand related intangible asset amortisation and non-trading items (net of related tax).

Revenue

Group reported revenue increased by 9.6% to €7.2 billion (2018: €6.6 billion), reflecting volume growth of 2.8%, flat overall pricing impact, favourable translation currency impact of 2.1% and contribution from business acquisitions of 4.7%.

2018: Group reported revenue +3.1%, volume growth +3.5%, pricing (0.5%), transaction currency (0.1%), translation currency (3.4%) and contribution from business acquisitions of +3.6%.

Taste & Nutrition reported revenue increased by 12.5% to €6.0 billion (2018: €5.4 billion), reflecting volume growth of 4.0%, pricing increase of 0.1% related to raw material movements, translation currency impact of 2.6% and contribution from business acquisitions of 5.8%.

2018: Taste & Nutrition reported revenue +3.7%, volume growth +4.1%, pricing (0.5%), transaction currency (0.1%), translation currency (4.0%), acquisitions +4.2%.

Consumer Foods reported revenue decreased by 2.4% to €1.31 billion (2018: €1.34 billion), reflecting volume decline of 2.2%, pricing decrease of 0.5% related to raw material pricing pass-through and market pricing, and positive translation currency impact of 0.3%. The volume decrease reflects the exit of a ready meals contract during the year - excluding the impact of this contract exit, volume would have increased by 0.9%.

2018: Consumer Foods reported revenue +0.6%, volume growth +1.1%, pricing (0.4%), transaction currency (0.3%), translation currency (0.6%), acquisitions of +0.8%.

Trading Profit & Margin

Group trading profit increased by 12.1% to €902.7m (2018: €805.6m). Group trading margin increased by 30bps to 12.5% driven by portfolio enhancement, operating leverage, efficiencies and the impact of acquisitions, partially offset by investments for growth, Brexit risk management costs and increased Kerryconnect investment due to the commencement of the rollout across our sites in North America.

Trading margin in Taste & Nutrition increased by 20bps to 15.3% (2018: 15.1%), driven by portfolio enhancement, operating leverage and efficiencies, partially offset by investments for growth, the impact of acquisitions and Brexit risk management costs.

Trading margin in Consumer Foods increased by 10bps to 7.6% (2018: 7.5%), driven by efficiencies from the Realignment Programme which delivered to plan, partially offset by a decrease in operating leverage as a result of the contract exit, Brexit risk management costs and net price in a challenging market.

The trading profit reflects an EBITDA of €1.1 billion (2018: €0.9 billion) and an EBITDA margin of 15.1% (2018: 14.2%).

Finance Costs (net)

Finance costs (net) for the year increased by €14.6m to €81.6m (2018: €67.0m) primarily due to acquisition activity and the impact of IFRS 16 'Leases'. The Group's average interest rate for the year was 3.7% (2018: 3.8%).

Impact of IFRS 16 'Leases'

In January 2019, the Group adopted the new accounting standard IFRS 16 'Leases', which resulted in a €3.4m reduction in operating expenses and an increase of €4.6m in finance costs on transition.

Taxation

The tax charge for the year before non-trading items was €98.6m (2018: €89.2m) representing an effective tax rate of 13.0% (2018: 13.0%) and is reflective of the geographical mix of earnings.

Acquisitions

During the year, the Group completed eleven acquisitions at a total consideration of €561.7m. These investments were aligned to the Group's strategic priorities for growth, bringing additional taste and nutritional technologies, expanding its presence in developing markets and adding to its foodservice offering.

Non-Trading Items

During the year, the Group incurred a non-trading item charge of €91.7m (2018: €55.1m) net of tax. The charge in the year related to costs associated with the integration of recent acquisitions, a material transaction process in our sector that we participated in, and the Consumer Foods Realignment Programme. The prior year non-trading charge related primarily to costs associated with the integration of acquisitions and the completion of the Brexit Currency Mitigation Programme.

Adjusted EPS in Constant Currency

Adjusted EPS in constant currency increased by 8.3% in the year (2018: +8.6%). This was achieved through volume growth ahead of our markets, good margin progression, together with the contribution from the acquired businesses.

Basic EPS

Basic EPS increased by 4.7% to 320.4 cent (2018: 305.9 cent). Basic EPS is calculated after accounting for brand related intangible asset amortisation of 21.4 cent (2018: 16.3 cent) and a non-trading item charge of 51.9 cent net of related tax (2018: 31.2 cent).

Return on Average Capital Employed

The Group achieved ROACE of 11.8% (2018: 12.0%) reflective of strategic acquisitions completed and investments made in the year.

Exchange Rates

Group results are impacted by year-on-year fluctuations in exchange rates versus the euro. The average rates below are the principal rates used for the translation of results. The closing rates below are used to translate assets and liabilities at year end.

Balance Sheet

A summary balance sheet as at 31 December is provided below:

Property, Plant & Equipment

Property, plant and equipment increased by €295.9m to €2,062.9m (2018: €1,767.0m) primarily due to capital expenditure in the year and the impact of the change in the lease accounting policy, partially offset by the annual depreciation charge. Net capital expenditure in the year amounted to €315.3m (2018: €285.5m). The level of capital investment supports the Group's growth initiatives and included upgrading the recently acquired SIAS facility in the Greater Beijing region, continuing the expansion programme at the Nantong facility in China and opening a new facility in Tumkur, India to serve the rapidly expanding South West Asia market and expanding the Group's capabilities in the Middle East region.

Intangible Assets

Intangible assets increased by €494.1m to €4,589.7m (2018: €4,095.6m) due to additions of €437.7m relating to the eleven acquisitions completed during the year, the increased investment in Kerryconnect related software and positive foreign exchange movements, partially offset by the annual amortisation charge.

Current Assets

Current assets increased by €400.8m to €2,672.2m (2018: €2,271.4m), primarily due to an increase in cash on hand at 31 December 2019 and trade receivables, other receivables and inventories from the businesses acquired during the year.

Retirement Benefits

At the balance sheet date, the total net deficit for all defined benefit schemes (after deferred tax) was €8.6m (2018: €44.0m). The decrease in the net deficit is primarily driven by a strong return on assets and a reduction in the deficit from the liability management programme offsetting unfavourable movements in discount rates. The net deficit expressed as a percentage of market capitalisation at 31 December 2019 was 0.04% (2018: 0.3%).

Free Cash Flow

Free cash flow is an important indicator of the strength and quality of the business and of the availability of funds to the Group for reinvestment or for return to the shareholder. In 2019, the Group achieved free cash flow of €514.6m (2018: €446.5m).

¹ Cash conversion is free cash flow expressed as a percentage of adjusted earnings after tax.

Net debt at the end of the year was €1,862.8m (2018: €1,623.5m) reflecting acquisitions completed and dividends paid, partially offset by cash flow generated.

In June 2019, the Group renewed its €1.1 billion revolving credit facility, extending the maturity date to June 2024. The facility contains two 1-year extension options, exercisable on the 1st and 2nd anniversaries of the facility and which, if exercised, would extend the maturity date of the facility to June 2026. In line with the Group's commitment to environmental and social matters, the revolving credit facility carries a price adjustment mechanism, which is linked to the Group meeting or exceeding certain carbon, water and waste efficiency metrics. This facility is not subject to a financial covenant.

In September 2019, the Group issued 10 year €750m euro bond notes. The bonds are listed on Euronext Dublin and are rated by S&P and Moody's.

The Group's balance sheet is in a strong position with a Net debt to EBITDA* ratio of 1.8 times. At this ratio the Group has significant liquidity headroom to support future growth plans. A small element of the Group's finance facilities is subject to financial covenants. Group Treasury monitors compliance with all financial covenants and at 31 December the key covenants were as follows:

Share Price and Market Capitalisation

The Company's shares traded in the range €86.50 to €117.90 during the year. The share price at 31 December 2019 was €111.10 (2018: €86.50) giving a market capitalisation of €19.6 billion (2018: €15.2 billion). Total Shareholder Return for 2019 was 29.3% (2018: (6.8%)).

The Group's Annual Report will be published at the end of March and the Annual General Meeting will be held in Tralee on 30 April 2020.

Future Prospects

Our markets and the end-to-end supply chain are experiencing unprecedented disruption, as consumers are demanding more than ever before, and traditional business models are being challenged as a result. What consumers want from food and beverage offerings is changing at pace. They want great tasting products that nourish their bodies, enhance their lives and are sustainable for the planet. New entrants and challenger brands have added significant fragmentation to the marketplace. Key for customers to win in this fast-moving environment is the ability to bring more products to market and to do so quicker. This changing marketplace is creating a significant opportunity for enterprises that can deliver on these new requirements. Kerry's unique business model, broad taste and nutrition technology portfolio, and industry-leading integrated solutions capability positions it as the co-creation partner of choice for the food, beverage and pharma industries.

Taste & Nutrition has strong growth prospects, as we continue to further deploy our industry-leading business model in supporting our customers. Consumer Foods continues to selectively focus on growth opportunities.

The Group will continue to invest for growth aligned to the changing market landscape and pursue M&A opportunities aligned to our strategic growth priorities.

Over the past number of weeks, we have been working with our team in China to manage the ongoing developments relating to the coronavirus. Our first priority remains the safety of our people and their families. Our team in China are taking all appropriate protective measures in our facilities and we are working with the Chinese authorities, our customers and other stakeholders to manage through the situation. We have included in our full year guidance the estimated first quarter impact on our China business.

The Group has a strong innovation pipeline and remains confident in its ability to continue to outperform its markets. We have reflected our estimate of the impact in the first quarter from the developments in China and expect to achieve adjusted earnings per share growth in 2020 of 5% to 9% on a constant currency basis.

Disclaimer: Forward Looking Statements

This Announcement contains forward looking statements which reflect management expectations based on currently available data. However actual results may differ materially from those expressed or implied by these forward looking statements. These forward looking statements speak only as of the date they were made and the Company undertakes no obligation to publicly update any forward looking statement, whether as a result of new information, future events or otherwise.

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2019