IRELAND: Kerry profit hurt by increasing costs

Irish food maker Kerry Group posted a 28% drop in reported full-year profits today (24 February) hurt by increasing costs, currency pressures and restructuring charges.

Net income for the year ended 31 December fell to EUR177m (US$225m) from EUR246m a year earlier.

A series of restructuring measures, including the rationalisation of manufacturing sites in the Americas and Europe, weighed on Kerry's bottom line.

Stripping out the cost of these moves, Kerry said underlying net income rose from EUR246m in 2007 to EUR254m.

Revenue remained relatively flat at EUR4.8bn from EUR4.7bn in the previous year.

On a reported basis, operating profit dropped to EUR318m from EUR377.3m in the same period last year. Excluding the impact of Kerry's restructuring, underlying operating profit rose from EUR318m in 2007 to EUR394.3m in 2008.

Nevertheless, Kerry admitted the "significant depreciation" of the sterling/euro exchange rate and "increasingly challenging" trading conditions in the UK and Irish consumer foods markets had weighed on the business.

However, the company said it is "confident" of earnings growth in 2009 of EUR1.60 to EUR1.65 per share from EUR1.53 in 2008.

Kerry's ingredients and flavours division saw revenue increase by 7.5% on a like-for-like basis to EUR3.4m in 2008. The unit saw trading profit rise by 8.9% to EUR320m.

In the Americas, sales rose by 6.7% on a like-for-like basis to EUR1.34bn as demand for natural ingredients and flavours and 'clean-label' continued to grow, Kerry said.

In Europe, despite "significant" input cost pressures, Kerry said its ingredients and flavours division performed well with like-for-like sales up 4% to EUR1.24bn. A focus on business efficiencies and cost recovery meant trading profit margins were maintained despite rising raw material and energy costs, the company said.

In the Asia-Pacific region, Kerry saw like-for-like sales jump 19.3% to EUR478m.

Meanwhile, Kerry's consumer foods business, which includes Wall's sausages and Mattessons snacks, enjoyed a 5.4% rise in turnover to EUR1.77bn. On a like-for-like basis, turnover was up 5.1%.

Kerry said it achieved a "robust all-round performance" in the UK market. Following a rise in raw material costs, the overall sausage market remained relatively flat in volume terms but grew "satisfactorily" in value terms, the company said.

The overall chilled ready meals category saw little growth year-on-year, while the frozen ready meals category stabilised in 2008 and showed encouraging growth in volume and value in the second half of the year, Kerry said.

The spreads sector also endured "significant" input cost pressures, Kerry said, but the overall market achieved some volume growth and "double-digit" value growth. Low Low maintained its brand positioning and Kerrymaid grew by 13% year-on-year in the butter spreads sector in Ireland.

While sales were lower in the sandwich and food-to-go category in Ireland in the second half of the year, Kerry continued to achieve satisfactory market development in the sector.

Kerry chief executive Stan McCarthy said trading had become "challenging" as consumers looked for value in promotions and private label.

However, McCarthy said Kerry had put in a "satisfactory business performance".

"As shoppers became ever more price and value conscious… this led to a marked increase in promotional activity and double digit growth of value retail brand ranges," McCarthy said. 

"Kerry Foods positioning in chilled foods growth categories and the division's ability to respond quickly to consumer trends contributed to a satisfactory business performance against such a challenging background."