Kerry Group, the Dublin-listed consumer foods and ingredients supplier, has announced a strategic review of its dairy-related businesses in Ireland and the UK amid speculation in recent weeks the company was mulling a sale of its consumer-facing division.
Kerry’s Consumer Foods business unit covers dairy, processed meats and ready-meals, including brands such as Dairygold butter, Richmond sausages and Naked Glory meat-free products, while its Taste & Nutrition division is focused on ingredients.
Market watchers had speculated recently that the Consumer Foods arm would be put up for sale this quarter before Kerry’s announcement this morning (16 February), made in conjunction with its annual results to 31 December. Group revenues were down 4% on a reported basis at EUR7bn (US$8.5bn) as volumes fell 2.9%.
“The group is conducting a strategic review of its dairy-related businesses in Ireland and the UK. This business has activities across both Taste & Nutrition and Consumer Foods businesses. We note that there is no certainty that this review will lead to a transaction. Further communication will be made in due course as appropriate,” Kerry noted.
Kerry made no mention about the future of the rest of the assets within Consumer Foods following recent speculation the division would be split up and sold off in a piecemeal fashion.
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CEO Edmond Scanlon, addressing analysts on a follow-up call today, confirmed the dairy business is worth around EUR900m with a 50-50 split between Consumer Foods and Taste & Nutrition.
“Consumer Foods is a good business,” Scanlon noted. “It had a great last quarter, continues to perform well and a good momentum coming into the year. And we continue to selectively invest in the growth areas we have outlined in the past, whether it’s plant-based, whether it’s the D2C element or snacking.”
Kerry’s primary dairy operations have reportedly attracted interest from Ireland’s Kerry Co-operative Creameries, with local media reporting in January the business was pursuing a majority stake along with an unnamed rival bidder. But the Irish Independent newspaper had flagged at the time that a potential deal by the Co-op was expected to close before the end of January.
Volumes also dropped across the two divisions, with Consumer Foods’ volumes down 2.6% for the year and Taste & Nutrition down 3%.
Consumer-facing revenues declined 2.6% to EUR1.28bn, with the trading margin up 20 basis points at 7.8%. Taste & Nutrition revenues dropped 3% to EUR5.75bn and the margin fell 110 points to 14.2%, Kerry announced.
The trading margin at the group level decreased 100 basis points to 11.5% mainly due to costs associated with Covid-19.
Kerry's trading profit for the year fell 11.5% to EUR797.2m, with Taste & Nutrition down 14.2% at EUR814.2m. Profits for Consumer Foods, which also includes the Fridge Raiders and Cheestrings brands, dropped 7.8% to EUR99.2m.
On Monday, Kerry announced a plan to acquire Spanish company Biosearch Life, an ingredients supplier in nutraceuticals and functional foods.
Scanlon explained the rationale behind any future deals. "In terms of M&A, the bolt-on strategy that we've been on over the last several years has delivered significant shareholder value," which will continue, while "at the same time remaining opened minded to larger deals".
The results statement read: "Our Consumer Foods business has a good growth outlook supported by continued innovation and the strength of our brands. We will continue to invest for growth and enablement of our business model, while continuing to pursue M&A opportunities aligned to our strategic growth priorities."
