Kerry Group plc

Good morning and welcome to our Q1 2025 trading update call. I'm joined on the call by our CEO, Edmund Scanlon, and our CFO, Marguerite Larkin. As usual, Edmund and Marguerite will take you through our presentation, and we will then open the lines up for your questions. Before we begin, please note the usual disclaimer on our Q1 presentation regarding forward-looking statements. I will now hand over to Edmund.

Thanks, William, and good morning, everyone, and thank you for joining our call. So moving to slide four and my overview comments for Q1. We delivered a good overall performance in the first quarter, particularly given market conditions. Beginning with revenue, we delivered Q1 volume growth of 3.1%, which represented another strong end market outperformance. And this was driven by good volume growth in the Americas and AFMEA, with Europe similar to the prior year. From a channel perspective, food service delivered another good performance, driven by new menu innovations, LTOs, and solutions to reduce operational cost and complexity, with growth in the retail channel supported by increased nutritional enhancement activity with our customers.

And across our end-use markets, growth was led by beverage, bakery, and snacks,

driven by our savory taste and taste and salt and sugar reduction technologies, as well as integrated solutions incorporating our botanicals, natural extracts, and enzymes. Moving to margins, we delivered strong EBITDA margin expansion of 90 basis points in the first quarter, primarily driven by accelerated operational excellence. And we continue to see good margin expansion opportunity as we look out across the year.

And on guidance,

which I'll touch on in a little bit more detail later on. We remain on track to deliver our full year guidance and are maintaining our range of 7 to 11% constant currency earnings per share growth in 2025.

I now hand you over to Marguerite for the performance audit.

Thanks, Edmund, and good morning, everyone. Moving to slide five and the business review. Volume growth in Q1 was 3.1%, which was led by a good performance across food service and some of our emerging markets in particular. Pricing for the period was up 0.2%, reflecting overall input cost inflation. On the EBITDA margins, we delivered strong continuing business margin progression of 90 basis points, primarily driven by cost efficiencies, contribution from acquisitions, operating leverage and portfolio mix, as we continue to make good progress towards our targets. Looking at our end markets, despite challenging market conditions in places, we delivered strong growth in beverage, bakery and snacks, which remain highly dynamic markets. In food service, we had growth of 4.7% with good growth in retail, and volumes in emerging markets increased by 6.4% across the period, led by a strong performance in Southeast Asia. Turning to slide six now and our performance by region. In the Americas, we delivered volume growth of 3.5% in the period, with good performances in both North America and La Tam. Within North America, we had good growth in bakery, snacks, and dairy, with continued customer focus on improving the nutritional profiles of their products. Growth in the retail channel was supported by renovation activity across both customer and retailer brands. with growth in the food service panel led by quick service and fast casual restaurants. Within LATAM, we had strong growth in Brazil and Central America, and most notably within the snacks and meals end markets in particular. In Europe, overall volumes were similar to the prior year at 0.1%. Good growth was achieved in beverage through Kerry's integrated taste technologies and proactive health ingredients, with growth in bakery led by performance in texture systems with softer dynamics within the meals and dairy markets. In food service, we delivered good growth led by quick service restaurants and coffee chains, while retail channel volumes reflected subdued demand. In apnea, we delivered volume growth of 5.1%, primarily driven by strong growth in Southeast Asia, the Middle East, and Africa, with volumes in China remaining challenged. Across our end markets, growth was led by beverage, bakery, and snacks. In food service, we delivered strong volume growth with leading regional coffee chains and quick service restaurants, while performance in the retail channel was driven by growth in authentic savory taste profiles with local customers. Turning to our Q1 revenue bridge on slide seven. Reported revenue from continuing operations was up 6.3% in the first quarter. The main driver of this was volume growth of 3.1%. Pricing was up 0.2%. Transaction currency favorable 0.5%, with translation currency favorable 1.7%. And on the acquisitions and disposals, net 0.8% revenue increase was primarily driven by the lactase enzymes business we acquired last year. Finally, to cover off a number of other matters on slide eight, Firstly, on tariff, we have an extensive global manufacturing footprint of 124 facilities. This, combined with our well-established local supply network, enables us to predominantly source and manufacture within the markets we serve. We are continuing to monitor the ongoing tariff development, and we are working with our customers to manage the implications of these, including mitigating options such as deploying alternative sources for inputs where feasible or product reformulation options. And we will manage residual on-cost via our well-established pricing model. On the input costs, while we are seeing variation within our input cost basket, we are currently looking at low single-digit input cost inflation and therefore limited overall pricing in the full year. And we will update you as we progress through the year. On currency, as you'll be aware, we've seen significant movements versus the U.S. dollar in recent months. And based on prevailing rates, we are forecasting a translation currency headwind of 3% to 4% in the full year. We have a strong balance sheet with net debt at the end of the period of 1.9 billion, reflecting cash generation, capital investment, and share buyback. And aligned to our capital allocation framework, we will be initiating a further 300 million share buyback program, which will commence post the completion of the current program. To summarize, we delivered a good overall financial performance in the quarter, with good volume growth along with strong margin expansion. And with that, I'll pass you back to Edmund.

Thanks, Marguerite. Finally, before we move to Q&A, I'd like to close out with our full year outlook. Against the backdrop of the current macroeconomic environment, with the continually evolving tariff and global trade landscape, Kerry's extensive local footprint, global sourcing network, and customer-centric business model positions us well to navigate through this period. When recognizing the heightened level of market uncertainty, we remain well positioned for good volume growth and strong margin expansion in the year as we continue to support our customers as an innovation and renovation partner. And we are maintaining our full-year constant currency earnings per share guidance of 7% to 11% growth.

So with that, I'll hand you back to the operator, and we look forward to taking your questions.

We're now opening the floor for question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. Your first question comes from the line of Alex Sloan of Barclays. Your line is now open.

Yeah, hi, morning all. Thanks for taking the questions too from me, please. Just firstly, within the overall guidance you talked to being positioned for good volume growth, I think previously you'd indicated you were aiming for in line to better volumes in 25 versus 24. Is that still a reasonable base case? That would be the first one. And the second one, just in North America, I mean, several of your peers, perhaps more focused on flavors, have called out this region as a weak spot in Q1, referencing some customers slowing orders in the face of weaker macro backdrop. But your performance doesn't seem to reflect this with decent volume growth. I see help by that innovation agenda. Could you talk to the performance in April in North America again? and your expectations for the full year for that region. Thanks.

Good morning, Alex, and I'll kick off here. So, look, just in terms of the outlook for the full year, there's no change to the parameters around our guidance for the full year, and looking specifically in volumes, our Q1 was in line with expectations, and we still believe we can achieve similar or better volume growth for 2025 over 2024. With respect to North America, for us, the reality is that the North America market is a highly dynamic market. We had a strong Q1 with volume growth around 3% in North America, which we believe is an industry-leading volume performance in the quarter. Look, visibility is lower in general, and clearly there is a heightened level of volatility, and there is quite a bit of variability at a customer level. But I would remind you just to think back on our investor conference back last October, where we talked about that renovation and reformulation opportunity. And the reality is that we call that right in that the renovation opportunity, that penetration opportunity is the biggest driver of growth for us right now. And we are winning market share through these reformulation opportunities, be it salt or sugar reformulation or reformulating for availability of raw materials, be it citrus or cocoa. There's nothing really notable to call out, you know, let's say April versus March or April versus Q1.

Thanks very much.

Your next question comes from the line of Ed Hopkins of JP Morgan. Your line is now open.

Hi there. Thank you very much for taking my questions. My first one is following up on the volumes. I think before you'd pointed to end markets growing just above 0%, 0.5%. Obviously, we see the reporting of global food companies, of some of the food service operators and such. What's your best view of how the end markets volumes growth was in Q1? And then my second question is to your point on reformulation. How do you see the brief pipeline ahead, the innovation pipeline? Are there any KPIs or data points that you can point to on whether this innovation pipeline is bigger than it has been in past years, whether reformulation activity is picking up versus past years? That would be helpful. Thank you.

Hi, Ed. Good morning. Maybe taking the second part of your question first. For sure, we've seen an uptick in reformulation opportunities, especially in North America. This is something we flagged at our investor day back last October. We talked about it at our full year results in February. And it has kicked on again since February. So, you know, quite a strong innovation pipeline. primarily driven by reformulation, either reformulation for nutritional reasons or reformulation as it relates to raw material availability and raw material cost and raw material price. I'm referring back to those examples of citrus and cocoa that I might have touched on previously. Then in terms of overall market growth, look, you know, I think it's fair to say that visibility is, you know, a little bit less than it typically has been. We haven't really changed what our perspective is on consumption growth, you know, somewhere around that, you know, half a percent level or maybe a little bit less. But I guess, you know, that kind of overall volume growth kind of perspective from a market perspective doesn't really tell the full story as such. There is a lot of moving parts. You know, we have seen good growth in retailer brands in many geographies. We've seen, you know, some positivity around local and emerging brands. And I guess renovation really is the big driver. And we do see it as a significant opportunity for us. And it is a key driver of growth for us so far this year, and we believe that will continue throughout the course of the year. And, you know, specifically at a customer level, we're very much focused on supporting our customers to enhance the nutritional profiles of the products, while also addressing cost challenges. And within the food service channel, the needs for supporting customers frankly continue to grow. Food service customers are aggressively out there looking for ways to drive excitement in their menu, to drive novelties across their menu, aggressively trying to find ways to get customers into their stores. LTOs are running at more than 50% of where they were back in 2019. And then on the wellness agenda or the wellness innovation side, there's opportunities to address a variety of customer needs, be it around functionality in beverage and specific functionality around cognitive health, digestive health, gut health or women's health. What's crucial for us right now is that we're managing resources effectively to allocate them to the areas where we see the best potential.

Thank you.

Next question comes from the line of Fulvio Casol of Berenberg. Your line is now open.

Yes, good morning and thank you for taking my questions. So my first one is in terms of any sort of volume acceleration from Q1, where could this become more visible in the coming quarters? Should we expect Europe to recover a little bit from the flattish growth that you achieved in Q1? And also across the channels, you expect slightly better growth in food service as you cycle weaker comps, or could the retail business also improve? So that's my first question on the volume development. And then my second question is on the potential risk of a recession. There seems to be more and more chatter about a recession in the U.S. Can you remind us on your experience on the consumer trends back in 2009 and the risk you would see to your business in the event of a recession later in the year, please. Thank you.

Hi, Paul. Good morning.

Look, I think we are being very pragmatic here. I mean, clearly there's more variability in general, you know, which does make it harder to predict the overall market dynamics. But like we said in February, we see overall volume similar to last year. And we haven't really changed our view on that. Our pipeline is progressing, especially in North America. And we see the AFMEA region having the potential to progress in the second half. um while europe we haven't we haven't changed our overall perspectives in europe we continue to see that uh you know relatively vanished throughout the course of the year so you know taking taking that into account um and and all that will be on all the moving pieces um we're still looking at volumes being similar better than last year from from um from a channel perspective we're looking at continued good growth in the food service channel with food service outperforming retail in the year. And the level of that outperformance, we just have to see how that progresses throughout the year. Then in terms of your other question around consumer dynamics and what have you, the reality is that the consumers continue to be very value conscious and they are trading down in places. And we have seen private label take some market share And we are very well positioned to enable those customers within the private label space to develop products that are pitched at the right level for those consumers. And we've also seen an uptick in terms of innovation as it relates to more value options or value price points to focus on those consumers. And I guess that's pretty much in line to what we have seen in any time in our history where there's been an element of trading down. So this is something that we see, we believe we're well positioned to be able to help customers in this environment. And frankly speaking, customers need more help in this environment and lean into their partners that can help them even more in this type of environment.

We have to see how things play out, but we feel we're well positioned overall. Thank you. Very helpful.

Before we move on to our next question, if you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. Your next question comes from the line of Kathal Kenny of Davey Research. Your line is now open.

Good morning. Two questions from my side. Firstly, on AFNI, another good performance there, despite challenges in China, which have persisted now for a couple of quarters. Just interested in your view in terms of the outlook for that region, in particular China, as we get into the second half of 25. Second question is just on margin. Marguerite, perhaps you can remind us of the cadence of margin and the levers for 2025 as well, please. They're my two questions.

Thanks, Colin. Good morning. In terms of the Apnea region, Middle East Africa continues to perform well, and we also see Southeast Asia progressing nicely as well. On China specifically, we haven't seen a notable change per se in the overall market conditions. So we had a softer performance in the quarter, and this was in line with expectations. We did say back in February that we did expect volumes to progress in H2, and we continue to have that perspective. So progression here from, you know, after H1.

And, excuse me, good morning, Carl. Just on the margin question. Firstly, we're pleased with the strong margin expansion of 90 basis points in the quarter. There is no change to what we would have said at the time of our full year results. We expect to deliver 50 basis points or greater margin expansion in 2025. And as we would have said at the time, that will be more first half based versus the second half and that's purely due to the phasing of the benefits coming through earlier than anticipated from the Accelerate programme and we will continue to see margin expansion as well as efficiencies from operating leverage and mix. So, as we would have said, we're on track to deliver another year of good margin expansion in 2025. Thank you.

Very helpful.

Your next question comes from the line of Patrick Higgins of Goodbody. Your line is now open.

Thanks. Morning, everyone. Most of my questions have been answered, but just one on, I guess, competitive intensity across your customer base. It seemed like it was being a ramp up in terms of promo activity and innovation, not just renovation. But as I started this year, I'm just interested to see how that kind of progressed through the quarter and clearly post-April as well, given the tariff situation.

Yeah, I mean, we've seen a pickup in innovation for planned launches in 2025, Patrick. You know, we are seeing this right across both CPG, private label, and food service. And the level of competition for a share of consumer wallet is fierce. And it feels like if one doesn't innovate right now, it's hard for for our customers to protect and grow their market shares. So look for us, what we're seeing is that the renovation reformulation opportunities are driving very good activity for us. We have seen an uptick in our pipeline. I feel we're very well positioned to, you know, to give the opportunity to our customers to capitalize on the opportunities that they see out there. We have seen scenarios with customers that, you know, you know, haven't really been very active in the past around, you know, developing new products or or reformulating existing products in areas like meals, while that is something we have seen an uptick in, especially in North America. So I think within North America specifically, we're seeing activity from customers that frankly we haven't seen in quite some time. And let's see how that plays out for the remainder of the year or next year. But it is an overall positive development from our perspective.

Thank you.

Our final question for today comes from the line of Nicola Tang of BNP Paribas. Your line is now open.

Hi, everyone. Thanks for taking the questions. First, just to come back a bit on Europe, I was wondering if you could talk a little bit more around what you're seeing looking forward here, particularly on the retail side, which was a little bit weak. And then secondly, just on the buyback, I think, you know, announcing the new program today, I think that had been broadly expected, but perhaps the timing of the announcement was a bit earlier. So could you just, you know, share your thoughts around, you know, sort of timing and also, you know, this is your fourth buyback. So can we assume that this is, you know, really part of sort of core part of your capital allocation priorities going forward? Thanks.

Thanks, Nicola.

And just maybe to take your question first, and maybe just to put it out there, when one is looking at our performance in Europe maybe versus peers, most of our peers include Middle East and Africa within their Europe region, whereas our Europe region is pretty much almost exclusively a developed Europe view. But maybe just to give some color on our performance within the region, we had good growth in food service while the volumes in the retail channel were slightly back. And that's primarily driven by softer dynamics we saw in the meals and dairy and juice markets, where frankly, we just saw less innovation in those categories. On the bright side, we did see good activity in beverage and bakery. And then on the food service channel, like I said, we saw good growth there. And I guess from an overall Europe expectation standpoint, like we said back in February, we do expect Europe to have limited growth this year with overall growth for the business, for the company being led by the Americas and APMEA.

And then Nicola, just a couple of comments on your share buyback question. So firstly, we expect to complete the current share buyback by the end of the second quarter. And just given our good cash generation, the strong balance sheet and the current market backdrop, we felt it would be helpful to announce our intention to have a further buyback and that will commence sometime just after the completion of the current share buyback programme. The share buyback that we've announced is very much consistent with our capital allocation strategy and it enables us to retain flexibility as to our capital allocation priorities and it provides that flexibility between returning cash through the share buyback and flexibility for acquisitions, which we want to retain given the synergistic platform we have to create value. So very much in line with our capital allocation framework.

Thank you.

We have a couple of additional questions. First, coming from the line of Charles Bentley of Jefferies, your line is now open.

Oh, thanks so much for taking my questions. Just a couple. So, Edwin, you talked about some of the kind of raw material-driven reformulation that you're seeing from customers around citrus and cocoa. I mean, I guess if I look at citrus prices, they've essentially halved on a one-year view. I mean, still a very elevated level. But just, I guess, how you think about customers' stickiness to some of these shifts? Do you think they are like a... they are basically reactionary or do you think that like the kind of i guess taste profile they're getting and the cost profile they're getting the reliability of the cost profile they're getting and such to kind of retain that business long term um and then secondly um i just i guess from a customer perspective that i guess there's a tension between defending growth and defending margin so how much you focus on amp investment or potentially cut it and maybe we're seeing kind of different responses from some of the European clients and the US clients. So I guess, how do you kind of see that evolving? And is that why we're seeing such a split in the growth dynamics between the regions? And do you think maybe more customers kind of go to try to defend margin, maybe look to cut AMP? Thank you.

Thanks, Charles. And maybe just kicking off on the raw material side, I mean, I guess the challenge on citrus, Charles, is that this issue around citrus has been there for quite some time. And it's more around, frankly, availability than price at this moment in time. So I think there's any changes that are going to be made, any reformulations that are going to be made on the citrus side and on the cocoa side as well. What we've seen in the past when these types of changes happen is that they don't revert back. So they do stay in place. And typically, customers are very, very slow to reformulate. So they're going to be very, I would say, conscious on the taste, profile differences, etc., etc. Even more so in this environment, nobody wants to be losing customers. market share, nobody wants to be losing consumers. So they're typically very cautious, but when they do make a change, those changes stick. Then I guess in terms of your second question, I mean, without getting into the details of A&P expenditures by customers, we are seeing a very significant level of variability Across regions where customers in Western Europe were just not seeing that level of innovation, that level of just competitive intensity that we're seeing in North America. We're seeing North America being very dynamic. We're seeing private label being very dynamic. We're seeing new products being launched in private label, frankly, on a monthly basis. We're seeing more fixtures within certain categories being allocated towards private label. And we're also seeing emerging brands getting opportunities inside major retailers to show their products. And so we are seeing a situation right now where the level of dynamism in North America is at a significantly more elevated level versus Europe. And I also think that from what we've seen, that level of elevated innovation and renovation is at a higher point today than it even was back in February or back even on October last year when we called out that innovation and renovation opportunity. So a lot of variability also down at a customer level where different customers are taking different approaches and at a category level, We're seeing beverage continuing to be quite dynamic, again, especially in North America, with new launches of functional drinks, nutritional drinks, drinks with elevated protein levels that require masking from Kerry and sugar reduction from Kerry. And then on the snack side and on the bakery side, we're seeing a significant level of activity around salt reduction, new taste experiences. And again, we're very well positioned to help customers in those areas as well. So quite a bit of variability, both from a geographic perspective, an end-use market perspective, and also an individual customer perspective.

Great, that's very helpful. And if I could just quickly follow up, I mean, you talked about the renovation piece for a long period of time, and I just, I guess, do you think it kind of applies, is it broad-based in terms of there's kind of, I guess, a volume kicker to that in terms of technology, i.e. you're getting both a salt reduction or a sugar reduction piece or some form of functionality, masking or whatever, as well as just a pure taste piece? And is that kind of how we should be thinking about it?

So in that, you know, when we talked about this back at our investor day charms, we sized this opportunity at about 15 billion, incremental volume growth opportunity for the entire industry. And the reason that we sized it at that scale is because when customers actually look at salt or sugar products, within their formulations, just take those two for example. And obviously colors now is another one that is starting to bubble up. There is no one-for-one replacement for an artificial color or for sugar or salt in a formulation. So the customer actually has to blow open their formulations and it gives us the opportunity to work with the complete formulation around taste, texture, and functionality, and also in the case of salt, food protection and preservation. So that's why we're sounding confident about that penetration opportunity and have been since last October, because from a pragmatic standpoint, when you engage with customers around these formulations, There's a lot more opportunity there. And there's a lot bigger part of the formula for us to go at. And frankly, we target that opportunity to grow a market share for ourselves. And I think you're seeing that here over the course of the last couple of quarters, especially in North America.

Great. Very helpful.

Thank you.

Our last question comes from the line of Charles Eden of UBS. Your line is now open.

Hi. Morning, Edmund. Morning, Marguerite. Morning, William. I have a more medium-term question on the lactase enzymes business. Can you talk through some of the benefits or early wins that this has driven since it's been part of the Cary portfolio? And linked to this, biotech is clearly a priority for Cary, and I assume this won't be the last acquisition in this space we see in the coming years. So could you talk a little bit more about what other areas you'd like to add to within your biotech toolkit? Thanks.

Thanks, Charles.

And I mean, a few areas maybe on the second part of your question first. The areas that we have identified to add to are probiotics, enzymes, food protection, preservation, and also yeast fermentation. We already have foundations across each of those four platforms, but we are, we will continue to look out there for opportunities to add capability right across the biofermentation space, building on those four platforms. And maybe, you know, let's see, maybe there might be another platform we add, but for right now, it's those four platforms that I just called out. um then in terms of um sorry what was the first part of your question charles yeah just in terms of so um specifically on on on that um on that acquisition i i guess what we're you know with any acquisition but with that one specifically What's really important to us is that we're able to combine technologies that we have within Kerry with the technology that we acquired through the acquisition to create incremental benefits for the customer. And an example of that specifically on lactase is that we've been able to combine the lactase enzyme technology with taste modulation, specifically sugar modulation technology that already existed within Kerry. And by combining those technologies together, we're able to give a reduced sugar option to customers, specifically within the dairy category that maintains the right level of taste that is consumer preferred. So it's a perfect example for us where we've been able to create incremental benefit with the customer that we couldn't do on our own as Kerry, or that the previous owner of that business couldn't do on their own. It was the combination of both technologies coming together has created that growth opportunity for us. And that for us is really the... cracking the code of creating incremental benefit for customers when we combine technologies together. So it's something we're, frankly, very excited about. And I think we've continued to give us good growth opportunities here in the future.

Appreciate it. Thanks, Edmund.

As we have no further questions, I would now like to hand it back to Kerry for any closing remarks.

All we want to say is thank you for everyone for joining us on the call today. And if you have any further follow-ups, please do reach out to the IR team. Wish you all a very good day. Thank you.