Business

Kerry Group sees revenue fall amid ‘challenging’ market conditions

Irish dairy unit continues to weigh on business

Edmond Scanlon

Kerry Group chief executive Edmond Scanlon: 'We remain open-minded about opportunities to create shareholder value.'

Ciara O'Brien
Thu Feb 15 2024 - 08:21

Revenue at food group Kerry fell last year as changes in foreign exchange rates hit figures, while the Irish dairy unit remained a drag on the business.

The company said group revenue was €8 billion for the year, down from €8.8 billion a year earlier. That represented an 8.6 per cent decline, with disposals accounting for 5.1 per cent and currency almost 3 per cent.

Group earnings before interest, tax, depreciation and amortisation (Ebitda) was almost €1.2 billion for the year. Kerry said organic profit growth was “more than offset” by the impact of disposals of some of its businesses, with the sale of its sweet ingredients business serving the bakery, cereal, confectionery, dairy and ice cream industries in March, and foreign exchange movements. Adjusted earnings per share were 430.1 cent.

Falling prices also came into play, with Kerry seeing it pricing fall 0.7 per cent as inflation pressures eased in the second half of the year. That compared to the prior year, when prices rose 11.7 per cent.

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But group volumes were also lower, falling almost 1 per cent over the year.

The Taste and Nutrition business continued to grow, with volumes up 1.1 per cent for the year. But the Dairy Ireland unit saw revenue fall 16.6 per cent on a reported basis, with volumes down 6.5 per cent.

Pricing at the business, which includes brands such as Dairygold spreads, Charleville cheese and Cheestrings snacks, fell 9.3 per cent, and Ebidta was €53 million, down from €71 million in 2022. The company attributed the fall in revenue to constrained supply conditions and rising costs that hit the market dynamics.

Chief executive Edmond Scanlon said the company would continue to “selectively invest” in the dairy business, which had been touted for sale in 2021. “We remain open-minded about opportunities to create shareholder value,” he said.

The decline in dairy market sales prices also impacted the performance of the dairy ingredients sector, while Kerry’s dairy consumer products business was supported by growth in branded cheese.

Mr Scanlon said Kerry put in a “solid performance” that recognised varying market dynamics.

“Overall Taste & Nutrition volume growth represented an outperformance of our markets. APMEA and Europe achieved good volume growth led by a strong performance in the food service channel, while volumes in North America were impacted by stocking dynamics and softer market conditions,” he said. “Dairy Ireland performance reflected challenging market conditions across the year.”

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The company has made significant changes to its portfolio in recent months, divesting some of the lower margin growth businesses, which Mr Scanlon said were also a drag on the company’s sustainability credentials too.

“Over the course of the last five years, we’ve rotated almost 40 per cent of the portfolio. We’ve grown taste nutrition Ebitda margins to 17 per cent in 2023,” he said.

“We’re targeting those margins to be closer to 18 per cent in 2024. That’s thanks in large part to the level of transformation we have done in our portfolio. We have pivoted our portfolio in such a way that we are we are in a place where 80 per cent-plus of our portfolio is either balanced or positive from a nutritional perspective.”

He said the company was confident that over the next three years, it could build out margins to 20 per cent. He did not rule out further acquisition activity.

The group spent €301 million on research and development last year, while net capital expenditure was €303 million, as Kerry continued to invest in the business.

In total, the company has invested about €3 billion in R&D over the last decade. “That investment really underpins the confidence we have around our organic growth, our margin expansion, and our overall confidence around the business,” Mr Scanlon said.

Overall consumer market volumes remain relatively muted, with Kerry guiding growth of between 5-8 per cent in adjusted earnings per share in constant currency for 2024.

Kerry is undergoing a €300 million share buyback but said it plans a further round in 2024, with more details announced at a later date.

The final dividend for 2023 will be 80.8 cent per share, the company said, with the total 2023 dividend up 10.1 per cent to 115.4 cent.

Ciara O'Brien

Ciara O'Brien

Ciara O'Brien is an Irish Times business and technology journalist

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