Kerry Group plc

Thank you, operator. Good morning and welcome to our 2025 half-year results call. I'm joined in the call by our CEO, Edmund Scanlon, and our CFO, Marguerite Larkin. Edmund and Marguerite will take you through our presentation, and following this, we will then open up the lines for your questions. Before we begin, please take note of the disclaimer on our H1 presentation regarding forward-looking statements. I'll now pass over to Edmund.

Thanks, William, and good morning, everyone, and thanks for joining our call. So beginning with slide four and the summary overview of H1, where we delivered a good overall performance, particularly given market conditions, with continued volume growth and strong margin expansion, driving strong constant currency earnings growth. So firstly on revenue, we delivered 3% volume growth, which was well ahead of end market and channel growth. This was led by a strong performance in the food service channel, with continued innovation activity on new menu items, seasonal launches, as well as cost reduction solutions. Growth in the retail channel was supported by increased retailer brand innovation and nutritional renovation across a range of customers. On EBITDA margins, we delivered very strong margin expansion of 100 basis points in the first half, with a key driver being its accelerated operational excellence, along with operating leverage and also product and portfolio and mixed benefits. And on earnings per share, the combination of volume growth and margin expansion enabled us to deliver strong constant currency growth of 9.8% in the first half. I'll touch on the outlook in a little more detail later, but to summarize, There's no change to our full year constant currency EPS guidance range. We're slightly moderating our volume growth outlook for the full year to similar to what we delivered in H1, while increasing our expectations for full year margin expansion, which we will touch on shortly. Moving next to the business performance overview in slide five. Volume growth was 3% for both Q2 and H1. This represented a strong outperformance over food and beverage end markets, which were flattish overall. Pricing of 0.2% reflected limited overall inflation across our basket of input costs. Across our end-use markets, volume growth was led by beverage, bakery and snacks end-use markets, This was supported by strong growth in savory taste, taste sense salt and sugar reduction technologies, as well as botanicals, natural extracts, and proactive health ingredients. And then in emerging markets, we had volume growth of 5.6%, led by a strong performance in Southeast Asia and LATAM. Turning next to the performance by region and starting with the Americas in slide six, where we had continued strong performance. Reported revenue for the region increased to over 1.9 billion euro, driven by volume growth of 3.7% in H1 and 3.9% in Q2. EBITDA margins for the region increased by 90 basis points to 18.5%. driven by accelerate operational excellence benefits, operating leverage, and product mix. In North America, we had strong growth in snacks through our range of savory taste profiles and taste sense salt reduction technologies across global and emerging brands, given the increased customer focus on improving nutritional profiles. Growth in bakery was driven by taste and texture solutions, as well as enzymes. While in beverage, we had good performances in the refreshing and low no alcohol categories through botanicals and natural extracts. Across our channels, we had a good performance in retail, supported by innovation and renovation activity across both customer and retailer brands. with food service continuing to strongly outperform traffic in the channel. Within LATAM, strong growth was achieved in Brazil and Central America across the snacks and meals and markets in particular. Business developments in the region included investment in enhancing our coffee extraction capabilities, which continues to be an area of innovation focus for our customers across many food and beverage applications and also across channels. Moving to Europe on slide 7, where performance was in line with expectations. Reported revenue for the region was €731 million, with volume growth of 0.2% in H1 and 0.3% in Q2. On margins, we delivered strong EBITDA margin expansion of 90 basis points. And looking at our end-use markets, volume growth in beverage was led by nutritional beverages through our integrated taste technologies and proactive health ingredients, while growth in bakery was led by texture systems. Across our channels, food service had good growth through seasonal and new launch activity with quick service restaurants, with performance in retail remaining challenged. Business investments in the region included strong progress in the development of our new biotechnology center in Leipzig in Germany, enzyme capacity expansion in Ireland, as well as the expansion of our cocoa extraction capabilities in grass in France. Turning to slide eight, Anatmia, where growth in the region was primarily driven by Southeast Asia, with solid growth in the Middle East and Africa given disruption in places, and volumes in China remaining challenged. Reported revenue for the region increased to €821 million, led by volume growth of 4.2% in H1 and 3.2% in Q2. On margins, we had EBITDA margin expansion of 60 basis points for the region in H1. And across our end markets, growth was led by bakery through food protection and preservation systems, as well as reformulation activity in areas including cocoa. Beverage continued to achieve good growth across refreshing, nutritional, and functional beverages through natural extracts, botanicals, and taste sense sugar reduction technologies with both local and regional customers. Meals also had good growth, while performance in snacks was impacted by disruption to order patterns during the period. Growth in our channels was led by food service, with leading regional coffee chains and quick service restaurants, while growth in retail was led by good performance and taste. Finally, business developments across the region included continued investment and expansion of our local taste capacity in the Middle East and Africa. And with that, I'll hand you over to Marguerite for the financial review.

Thanks Edmund and good morning everyone. We delivered a good financial performance in the first half. Now turning to slide 10 and the financial overview to give you more detail. Revenue increased to 3.5 billion euro with volume growth of 3%. EBITDA increased by 7.5% to 556 million euro with EBITDA margins up 100 basis points. Adjusted earnings per share of 209.2 cent was up 9.8% in constant currency and 7.8% in reported currency. Return on capital employed of 10.7% reflected continued progression in the period and free cash flow was 309 million with a cash conversion of 89% on an average basis. Turning to our group revenue bridge on slide 11, volume growth was 3%, as I mentioned. Pricing was positive 0.2%, reflecting limited overall input cost inflation, and transaction currency was positive 0.3%. Foreign currency translation was adverse 1.9%, due to movements in the US dollar and weakness of some emerging market currencies versus the euro. The contribution from acquisitions of 0.6% related to the lactase enzymes acquisition. And the effect from disposals of 0.9% related to firstly, the divestment of two small non-core businesses and assets in the prior year. And secondly, the revenue associated with the exit of a manufacturing agreement at a taste and nutrition facility in Northern Ireland, which following the Kerry Dairy Ireland transaction has now been separated into two distinct manufacturing operations. Next to the margin bridge on slide 12. We delivered strong EBITDA margin expansion of 100 basis points with EBITDA increasing to 556 million. Looking at the key moving parts. Firstly, on operating leverage and portfolio mix, we had a 30 basis points improvement led by portfolio mix. Pricing was net neutral, given limited overall inflation in the period. The Accelerate Operational Excellence Program contributed strongly to growth, delivering 50 basis points of EBITDA margin expansion in the first half. Foreign currency was net neutral from a margin perspective, and acquisitions and disposals contributed a net positive 20 basis points, with acquisitions and disposals both contributing circa 10 basis points each. Overall, we are pleased with our margin expansion in the period. And as we previously said, EBITDA margin expansion is greater in the first half due to the timing of the Accelerate Operational Excellence benefits. In the second half, we expect strong EBITDA margin expansion and we are increasing our expectations for the full year to 70 basis points or greater. Moving now to free cash flow on slide 13. We generated good free cash flow in the period of 309 million, reflecting 89% average cash conversion on earnings and 83% on a point to point basis. Looking at the component parts for the first half, EBITDA increased to 556 million, as I mentioned. Average working capital represented an investment of 66 million aligned to the growth and development of the business. For the full year, we are looking at a similar level of working capital investment. And capital expenditure of 120 million was similar to the prior year, reflecting various strategic capital investments as Edmund referenced earlier. Overall, we delivered good cash conversion in the first half, and we remain well on track to deliver cash conversion in the 80 to 90% range in the full year. Finally, on cash, as a reminder, when looking at the free cash flow statement, the reported H1 2024 comparable period includes the impact of Kerry Dairy Ireland, which contributed circa 35 million to EBITDA and was the main driver of the significantly positive working capital inflow in the prior year. Turning to our debt profile and credit metrics on slide 14. Net debt at the end of June was 2.1 billion with a weighted average maturity of 5.1 years and seven years after the repayment of the refinanced 950 million bond maturing later this year. Our credit metrics are strong with a net debt to EBITDA ratio of 1.7 times and we have a very strong balance sheet which will continue to support the further development of our business. Finally, to cover off a number of other financial matters on slide 15. Finance costs of 26.5 million were similar to the prior year. Net non-trading items were 15 million, primarily reflecting costs related to the closeout of the Accelerate Operational Excellence Programme. We have initiated Accelerate 2.0 as planned, which will focus on footprint optimization and enabling digital excellence across the organization. And we will update you in due course as we progress the program. On the input costs, we saw a limited overall input cost inflation in the first half, which we expect to be somewhat similar for the full year. On capital returns, we have announced an interim dividend of 42 cents per share, a year-on-year increase of 10.2%. On share buybacks, we repurchased 256 million worth of shares during the period. And on currency, we are currently expecting a foreign currency translation headwind of 4% to 5% on adjusted earnings per share in the full year. To summarise, we delivered a good financial performance in the first half with good volume growth ahead of end markets, strong EBITDA margin progression and good cash generation. And with that, I'll pass you back to Edmund.

Thanks, Marguerite. So moving to our full year outlook on slide 17. Our strong end-market volume-old performance in the first half of the year demonstrates the strength of our strategic positioning across our markets, channels, and customer base as an innovation and renovation partner. Looking to the second half of the year, we continue to be well positioned for volume growth with a good innovation pipeline. While recognizing this, end-market volumes have softened through the period, And we're looking at volume growth in the second half being similar to the volume growth of 3% we achieved in H1. On EBITDA margins, we're looking for strong margin expansion in 2025 of 70 basis points or greater, as Marguerite just referenced. And we're maintaining our full year adjusted earnings per share guidance of 7% to 11% constant currency growth. So with that, I'll hand you back to the operator, and we look forward to taking your questions.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via speakerphone on your device, Please pick up your handset to ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. And our first question comes from the line of Patrick Higgins with GoodBuddy. Your line is open.

Thanks. Morning, everyone. A couple of questions on my end, if that's okay. Firstly, You mentioned end markets have softened through the first half. Could you just give us a sense of what you think the end markets are growing or growing at all, if at all, in H1 and your expectation for H2? And then secondly, following on from that, maybe could you just run us through your expectations for H2, I guess, by channel or by region and what's prompted you to pull back the full year guidance around the volume piece in particular? Thank you.

Sure. Thanks, Patrick. And I'll kick off here. I think I think in terms of, let's say, overall kind of market conditions and what we're seeing right now, our best estimate is that end markets are flattish right now versus what we would have seen earlier in the year and last year. I think, though, that that headline probably doesn't tell the full story as there are a lot of moving parts there. You know, there's good growth in retailer brands. There's good growth in local and emerging brands in many geographies. They're investing behind innovation, looking to extend their brand ranges, et cetera. So I guess it's hard to kind of draw a kind of a conclusion by customer segment per se. The variability is really down to an individual customer level. But our best estimate right now is around Flattish from an overall market perspective. Then in terms of our volume outlook for the full year, and just to put some color on that, we're slightly moderating our overall volume expectations to being similar to H1 in that 3% zone like we mentioned. Slightly moderating our expectations for the APMEA region. and very slightly moderating our expectations in Americas. And in reality, there's actually no major call out there. And again, it goes back to that variability down at an individual customer level. We have seen a little bit more variability in apnea and some softness, you know, in places, again, down to an individual customer level in U.S. food service. So looking out at the full year, we're expecting to see volumes in apnea to progress in the second half. So H2 will be stronger than H1 in apnea. We do remain very positive on the region longer term. We have a strong track record there and we have a great team there. Then maybe in terms of food service, just for a second. We see traffic as being, let's say, quite flattish overall in the first half. And at the same time, we delivered a very strong outperformance of greater than 400 basis points. And then maybe back in the U.S., the reality is the environment is a little bit more challenging at the moment in terms of consumer sentiment and spending patterns. But at the same time, we remain very positive on the channel and we remain very positive on the U.S. And within retail in the U.S., we're very positive in terms of the opportunity that's out there in front of us in terms of reformulation, renovation, what's happening with retailer brands and private label. And the reality, I guess, is, look, customers are aggressively out there looking at ways to defend their positions, to try and grow their business. They're looking at innovation to do that. And we're highly we're very well positioned and ideally positioned to actually enable them to do that.

Thank you.

Our next question comes from the line of Charles Eden with UBS. Your line is open.

Hi, morning, Edmund. Morning, Marguerite. Just one question for me on the Americas region, where obviously volumes accelerated to 3.9% in Q2. Could you just talk a little bit around what you think is driving that? I know you've said in the past really any sort of reformulation benefits from making it healthy again is a 26 story. So is that just... underlying markets a little bit better um i guess you call out food service but there's sort of any color there and and your expectations for that region specifically going into the second half and just to clarify i think the answer is no but the assumption is there's no call forward of demand because of tariffs because you are quite local for local is that correct thank you

Thanks, Charles, and good morning. I think, look, in the Americas and North America in particular, I think we've been very consistent. The reality is that we have, you know, we have a powerhouse of the business in North America. We're clearly recognized as, you know, food and beverage applications experts globally, but especially in that region. We have a phenomenal customer access right across channels and end-use markets. The reality is that the underlying market conditions actually have deteriorated actually in the second quarter. But I guess from our perspective, what we are seeing and where we're well positioned is that number one, we've seen a pickup in innovation with retailer brands, with private label customers and private label retailers. We see customers trying to defend their positions and new and emerging players trying to scale their businesses. So I guess that pickup of innovation that we touched on earlier in the year, that is actually continuing. The second point is that more customers are actively planning to reformulate products. And, you know, that's more ahead of us right now, to be frank. I mean, the impact in our business today actually is reformulation that was planned 12, 18 months ago as such. So the reformulation that's going to be worked on now is going to be more of a kind of a 2026 impact and beyond as opposed to a 2025 impact. But there is no doubt there is a reformulation is top of mind for many customers right across the retail landscape in particular. And customers are formulating plans. Some have initiated, you know, renovation plans and others are kind of assessing and waiting. But this is very much top of mind and I guess is giving us you know, confidence about or continues to give us confidence around the North American market in the medium term and long term. And then the third area, I guess, is food service. And, you know, while the underlying market in food services is challenged, we continue to outperform the market by, you know, somewhere in the tune of, you know, 400 basis points. So for us, it's really these three key areas that are presenting us with opportunities for strong market outperformance. And that's what you're seeing coming through in the overall volume growth performance in the region. We are very slightly moderating our expectations in that market in the second half. purely based on the marketplace. Tariffs aren't a feature here. It's really back to those three areas of strong underlying innovation, reformulation being a key factor, and food services being a consistent underpin for us in the region.

Thanks. And if I could just ask a follow-up, and it's semi-related. On the slightly raised margin expectations for the year, is that largely a mixed factor, i.e. America's a bit stronger than you'd thought, maybe APME, which is slightly lower margin, a bit weaker? Or is it cost savings coming through slightly quicker than expected, just trying to understand the drivers of that slightly better margin expectation for the year?

I might just come in on the margin expectation. You're right, the increase is principally attributable to expected mixed benefits and some greater operational excellence benefits, but I'd call out the mix as being an important factor here.

Thank you both.

And again, if you would like to ask a question, please press star then the number one in your telephone keypad. And our next question comes from the line of Edward Hocken with JP Morgan. Your line is open.

Hello, all. Thank you very much for taking my questions. My first one is a bit of a follow-up on the volumes picture into the second half of the year. So, I understand APMIR should be getting a bit better. So, am I right in thinking that you're expecting some moderation in H2 compared with H1 in the America's region? On reformulation trends that we've mentioned, I was wondering whether you can quantify, you know, we've seen a lot of headlines in recent weeks about companies reformulating for various ingredients. Are you able to give some kind of quantification of the kind of uptick in interest or uptick in projects that you're working on that might come through in 2026? And then my other question, sorry, is on free cash flow on the working capital outflows you saw in the first half of the year. Can you give any indication what you're expecting working capital to land for the full year? Thank you.

Thanks, Ed. Good morning. And I'll kick off. Basically, just to recap, the APMEA region will progress and will be stronger in H2 versus H1. And in the Americas, we're calling out a slight moderation there, a very slight moderation there in terms of our expected volume outlook. And then that's purely down to... let's say, the marketplace dynamics that I just referenced. In terms of reformulation, I think, Ed, you'll appreciate these things are kind of hard to measure per se. I mean, I think what we can confidently say is that reformulation as a topic has never been as topical, basically, with customers right across channels, especially in North America as it is today, I think. And there are many drivers. And you would have heard me talk about these drivers already. Yes, there is the potential, and let's see how that plays out, but potential for new regulations to come into place in North America. It's not exactly clear what direction of travel that's going to take. That's certainly part of the backdrop. But even that aside, there continues to be reformulation from a nutritional perspective continuing and from a cost perspective as well, as well as availability of raw materials. So... Sitting here today, actually, when we look at the reformulation activity, a lot of it is activity that was already in the pipe probably a year ago around salt and sugar reduction across snack, beverage, and multiple end-use markets, but primarily snack. And then on... Let's say beyond that, I think it is more around key raw materials that have had significant supply issues, areas like cocoa replacement. That is an important part of our reformulation pipeline. not just in North America, but actually globally, and was an important part of our performance in APMI in particular here in the first half. The other area I would call out is citrus. Again, well flagged in terms of availability of raw materials and, again, an area where we're very well positioned in terms of helping customers to reformulate. And maybe the last one I touch on is the whole coffee area. you know, there's a lot of things going on in coffee. There's some, you know, noise around tariffs and what have you, especially obviously back into North America or back into the US. And that's an area where we continue to build out our capability on coffee extraction, again, to be able to partner with customers to help them to reformulate. So I think it's a matter of this topic being really top of mind for customers right across the board for lots of reasons. And I guess it's something that gives us confidence in our business and confidence in our strategy as we look out over the coming quarters.

And on your working capital question, we expect to have an investment in the full year similar to the half year, and that's very much aligned to the growth and the development of the business. We delivered good cash in the first half, and for the full year, we expect another year of strong cash conversion in the 80% to 90% range.

Thank you.

Next question comes from the line of Alex Sloan with Barclays. Your line is open.

Yeah, hi, morning all. Thanks for taking the questions. Two from me, please. The first one, just in terms of the volume guidance, I mean, obviously, back in 2023, you moderated the volume outlook a few times down in the year. Clearly, it was a very different backdrop. You know, we had significant industry destocking at that time. But what's your confidence levels that there shouldn't be, you know, sort of further downside to this slightly revised volume outlook this year? I guess what are the puts and takes as to why you might be above or below that 3% level? And the second one, I mean, perhaps slightly related question, but the Americas, you've obviously, that's, you know, where you've sort of slightly moderating expectations in the second half. You talked about flat end market growth. I think that was a global comment. Could you just maybe tell us what you're assuming in terms of the America's end market growth now versus maybe what you were assuming before? Thank you.

Thanks, Alex, and good morning. I think in terms of the market outlook overall, I think in the U.S., we call it broadly similar, maybe a tad lighter than flattish, but in that zone nonetheless. And I think that's really been the difference between where we are today versus maybe where we are a few months ago. But just going back to your question versus 2023, I think we're in a completely different place. I think the level of innovation that's happening in the industry today is in a completely different place versus where it was in 2023. And the strength of our pipeline and the level of customer engagement around innovation is in a completely different place to where it was back then. I mean, maybe just to touch on food service for a second. You know, I've seen an unprecedented level of innovation in food service, especially in the area of beverage around North America in particular, where customers are, you know, on the food service channel are just aggressively going out there and fighting for, for fighting for customers and using beverage as a platform to do that. And we're perfectly positioned to enable them to do that. I think then on, you know, switching to the retail side, you know, with the level of unprecedented inflation that has come true over the last several years, you You know, retailers have a, you know, pretty unique opportunity here to take market share. Again, it's a category of customers that needs help to launch into, you know, to try and, I suppose, develop out their strategies and to launch new products. into the categories in which they want to potentially lead. And again, this wasn't a factor. These weren't factors that were at play in 2023. So our visibility, I would say, is much better. And the level of innovation in the marketplace is at a completely different level to what was there in 2023.

Okay, thank you.

As we have no further questions, I'll now hand you back to Kerry for any closing remarks.

Thank you, operator. Thank you everyone for joining us and for your questions this morning. All that's left to say on our end is if there are any further questions, please do reach out to the IR team and we wish you a very good day. Thank you.