Kerry Group plc

Good morning and welcome to Kerry Group's 2023 half-year results call. I'm joined on the call by our CEO, Edmund Scanlon, and our CFO, Marguerite Larkin. Edmund and Marguerite will take you through today's presentation, and following this, we will then open the lines up for your questions. Before we begin, please note the usual disclaimer regarding forward-looking statements. I will now pass over to Edmund.

Thanks, William, and good morning, everyone. As ever, we appreciate you joining our call and your interest in our company. So beginning with slide four and my overview comments for half one. We're pleased to deliver a good overall performance in the first half of the year, considering the varying conditions across our markets. Firstly, on volumes, we saw an incremental improvement in volume growth in the second quarter, which is significant considering the record comparisons we achieved last year. and the pricing we've seen across our industry. Our volumes in the first half were driven by strong performances in APMEA and Europe, led by food service, with the retail channel in North America reflecting customer inventory management. And while these dynamics have continued beyond Q2, we're currently seeing a lot of innovation activity, which is why we expect our volumes to continue their upward trajectory. On margins, we saw a significant improvement in the second quarter. We had benefits from cost initiatives and portfolio developments coming through in the first half. And with the inflationary environment beginning to moderate and showing deflation in places, we feel good about the cadence of our margin improvements through the rest of the year. From a strategic perspective, we made good progress across the business in the first half. I would particularly like to call out the expansion of our presence in emerging markets through a combination of organic and inorganic investments. We opened a new taste facility in Indonesia and also made acquisitions in Colombia and China, which I'll give a little bit more detail on later on. And as previously announced, we completed the disposal of our sweet ingredients portfolio as we enhance and refine our portfolio to areas where we can add the most value. Moving next to our taste and nutrition overview on slide five, where growth was driven by a strong performance in food service. Revenue for the division increased to $3.5 billion in the first half of the year, which reflected 6.8% organic growth. Volumes are up 1.4%, with overall pricing of 5.4% as we continue to manage input cost fluctuations. EBITDA margins were back 20 basis points in the half, with Q2 up 40 basis points. From an end-use market perspective, volume growth was led by a strong performance in dairy applications, in snacks through savory taste, and in meat in taste and texture systems. Looking at our channels, as mentioned, food service delivered another strong performance with volumes up high single digit, while volumes in the retail channel were back in H1 due to customer inventory management in North America. And in emerging markets, we had 6% overall volume growth led by a strong performance in the Middle East in particular. Turning to slide six and taste and nutrition's performance by region, Firstly, the Americas, where revenues increased slightly to $1.9 billion, with overall volumes back 2.2% driven by the dynamics I mentioned, primarily in the retail channel. And also not forgetting our strong volume comparative of over 9% in H1 last year. We achieved good volume growth in snacks in the first half, with authentic taste-led innovations with global leaders and emerging brands. The area EUMs also performed well with functional and case system innovations. That time delivered solid overall growth in the first half. We did undertake extensive maintenance work at a major facility in Mexico, which reduced operational capacity across the second quarter. And this facility is now back up and running again in the last few weeks. Looking across the broader region, growth was led by strong performances in the snacks and beverage end-use markets. Moving to Europe, where reported revenue increased to €771 million, with volume growth of 4.6%. This was supported by excellent volumes in food service through menu enhancement activities, seasonal products, and ongoing nutritional profile improvements. Growth was led by the dairy, snacks, and meat end-use markets, with strong performances in the UK and Ireland in particular. In AFMEA, reported revenue increased to 813 million euro, with volume growth of 7.1%. And this was led by meat, meals, and snack markets, and very strong growth in food service. Within the region, growth was strong in the Middle East and South Asia Pacific, with overall performance in China improving through the half. Moving to slide seven in Dairy Ireland, where performance reflected overall market conditions. Revenue in the first half decreased to 675 million euro as a result of H1 volumes being back 2.5%. Pricing in the first half was 0.4%, reflective of dairy markets. EBITDA was lower at 29 million, with EBITDA margins also reducing as a result of the significant reduction in dairy market sales prices. Within the division, the lower volumes in dairy ingredients principally reflected softer market supply, while dairy consumer products performed well, with volume growth led by Kerry's branded cheese ranges and private label spreads. With that, I'll pass you over to Marguerite to give you some more detail on the financial performance.

Thank you, Edmund, and good morning, everyone. Turning now to slide nine and the financial overview for the first half of the year. Group revenue increased to 4.1 billion euro, with group volumes up 0.6%. Group EBITDA of 518 million was in line with last year, while EBITDA margins were back 20 basis points. Adjusted earnings per share of 180 cents was up 2%, Return on capital employed for H1 was 10.1%, with growth being offset by portfolio developments and foreign exchange. And free cash flow was 232 million, representing 73% cash conversion. Turning next to our group revenue bridge on slide 10. Group reported revenue was up 1.6% in the first six months of the year. This comprised a volume increase of 0.6% and pricing of 4.5%, as we managed year-on-year input cost inflation through our pricing model. Foreign currency translation was relatively neutral in the first half, while the effect of disposals net of acquisitions was adverse 3.4%, with a contribution from acquisitions of 1.1%, more than offset by the impact from divestments of 4.5%, primarily relating to the recent disposal of the sweet ingredients portfolio and our businesses in Russia and Belarus last year. Moving to slide 11 and our revenue analysis by division. On the left-hand side, you can see the breakdown of revenue with group organic and volume growth driven by the performance of taste and nutrition. On the right-hand side, you can see the regional analysis of taste and nutrition's 1.4% volume growth in the first half. This breakdown of overall volume growth highlights the varied dynamics across our markets, with very good performances in Europe and Daphnia in the first half of 2023, partially offset by the Americas. Our overall growth in the period was achieved against an exceptionally strong comparative performance across all our regions in the prior year.