Kerry Group, the international food ingredients firm, today reported pre-tax profits of €335.8m for 2009, up 6% on 2008 despite "challenging economic conditions."

Group sales revenue in 2009 reported at €4.5 billion reflects a 4.8% reduction on a like-for-like (LFL) basis. However, Kerry said allowing for elimination of non-core activities as a result of the 'go-to-market' and business restructuring programmes, improvements to product mix, lower pricing and trading currency movements; continuing business volumes were 2.2% ahead on a Group-wide basis. Continuing business volumes improved by 2.9% in ingredients & flavours and recovered in consumer foods as the year progressed to equal the 2008 level. Business restructuring in the Group's ingredients & flavours regional businesses was completed by year-end and was well advanced in the consumer foods division.

Trading profit increased to €422m, reflecting a 3.8% (LFL) increase and 80 basis points improvement in the Group trading profit margin to 9.3%. Ingredients & flavours achieved a 90 basis points improvement in trading profit margin to 10.4% and margins in consumer foods, driven by business efficiency programmes, increased by 40 basis points to 7.1%.

Kerry's consumer food business reported flat trading profits of €122m, while revenues rose by 6.1% to €1.7 billion. It said that brands in the UK market performed well, but its brands underperformed in Ireland.

Results detail

Goodbody analyst, Liam Igoe, commented: "Kerry Group’s results were slightly ahead of our forecasts (+8% at EPS level). The main positive variance was in its finance charge, while sales and headline operating profits were lower than forecast, although its margins were slightly better than expected at +90bps (versus 70 bps forecast). Kerry Ingredients saw its underlying volumes for continuing businesses increasing by 2.9% (3% in the first ten months of the year, 2.7% in H1).

Within this, the Americas were up 3%, EMEA (Europe, Middle East, Africa) by 2.3% and Asia-Pacific by 9.1%. Product-wise, savoury & dairy applications, along with fermented ingredients, performed well in Americas, while Sweet & Cereal Ingredients were weaker on both sides of the Atlantic, due to lower demand for premium brands. Europe was also negatively impacted by the fall in the primary dairy markets in 2009. Kerry Foods saw underlying volumes flat (-0.8% in the first ten months of the year, -1.5% in H1), though this masks the fact that volumes are likely to have shown growth in H2, which contrasted with a very weak H1.

The two geographic zones also differed markedly, with most of the declines emanating from the Irish market due both to the recession and the impact of Irish-based exports into the UK (especially frozen ready meals, which were impacted by the weakness of sterling). The Irish branded foods operations suffered also from down-trading to private label. The UK branded products showed steady growth during the year, chilled ready meals was “satisfactory” while private label business was mixed.

Good progress was made by Kerry in improving margins in 2009, which enjoyed a 90bps expansion (70bps in the ten months of 2009), helped by lower costs and also the Breeo acquisition in Ireland. Margins increased by 40bps in Kerry Foods (vs 50bps forecast) and 90bps in Ingredients (vs 70bps forecast) Kerry Group’s debt was in-line with our forecasts. Guidance for FY10 has been given at 182-185c in EPS terms, suggesting an upgrade in our EPS forecast to c.184c or +3.5% from its current 177.9c."