Kerry Group plc

Good morning and welcome to our Q3 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 presentation regarding forward looking statements. I will now hand over to Edmund.

Thanks William. Good morning everyone and thank you for joining our call. So moving first, to slide four and my overview comments. We delivered a good performance across the first nine months of the year with volume growth well ahead of our markets, combined with strong EBITDA margin expansion. Beginning with revenue, volume growth for Q3 and year-to-date was 3%, which represented a strong in-market outperformance. Looking at this firstly by region, we achieved good growth in the Americas, supported by new product launch activity with both Europe and AFMIA delivering sequential volume growth improvements in the third quarter. From a channel perspective, food service growth of 4.1% was driven by good innovation activity across new menu items, season and launches, and LTOs. Growth in the retail channel was supported by increased retailer brand innovation and nutritional enhancement renovations. And by technology, we had strong performances across savory taste and taste sense, salt and sugar reduction technologies, as well as enzymes, natural extracts, and proactive health technologies. Moving to margins, we delivered strong EBITDA margin expansion of 90 basis points in the period, primarily driven by accelerated operational excellence. And we continue to see good margin expansion opportunity in front of us. On guidance, we remain on track to deliver our full-year guidance. And finally, before we move to the performance review, I'd just like to update you on a few key strategic developments during the period. In recent weeks, we opened our new state-of-the-art biotechnology center in Leipzig in Germany, which will play an important role in supporting future fermentation and biotransformation innovation for the food and beverage industry. In the period, we initiated our Accelerate 2.0 program, which will focus on footprint optimization and enabling digital excellence across the organization. And we also continue to invest and develop our footprint, capacity, and capabilities across our regions through the period. I now hand you over to Marguerite for the business review.

Thanks Edmund, and good morning everyone. Moving to slide five in the business review, Firstly, volume growth in the period of 3% represented continuous strong end market outperformance, as Edmunds mentioned. Pricing of 0.2% reflected overall input cost inflation. On the EBITDA margins, we delivered strong margin progression of 90 basis points in the period and 80 basis points in the quarter, primarily driven by cost efficiency, operating leverage, and product mix. along with a contribution from acquisitions and disposals. Growth in our end-use markets was led by the bakery, snacks, and dairy end markets. Food service delivered growth of 4.1% despite soft traffic in places. Retail performed well overall, given increased customer focus on improving the nutritional profiles of their products. And volumes in emerging markets increased by 5.3% in the period, led by a strong performance in Southeast Asia. Turning to slide six now, and our performance by region. Firstly, in the Americas, where we had good performance across the region, with volume growth of 3.6% year-to-date and 3.5% in the third quarter. Within North America, growth was led by snacks through Kerry's range of savory taste profiles and taste sense salt reduction technology. Growth in the retail channels was supported by renovation activity across global, regional, and retailer brands, with growth in food service led by good innovation activity with quick service and fast casual restaurants. And in LACAM, we had strong growth in Brazil and Central America, led by snacks. In Europe, volume growth was 0.7% in the third quarter, 0.4% year-to-date. This included a good performance in food service through seasonal and new launch activity, with retail volumes reflecting soft market dynamics in Western Europe. Growth in the region was led by beverage through Kerry's integrated taste technologies and proactive health ingredients. Turning to apnea, where our volume growth was 4.1% in the third quarter. This was primarily driven by strong growth in Southeast Asia, with solid growth in the Middle East and Africa, and volumes in China remaining challenged. Food service delivered strong volume growth with coffee chains and quick service restaurants, and retail channel volume growth was driven by Kerry's authentic savory taste profile. Growth in our end markets was led by bakery through food protection and preservation systems, as well as reformulation activity in areas including cocoa. Turning to the components of our reported year-to-date revenue bridge on slide seven, Volume growth, as I mentioned, was 3%, with pricing of 0.2%. Transaction currency was favorable 0.2%. Translation currency was adverse 3.6%, given movements in the U.S. dollar and emerging market currencies versus the euro. And the acquisitions net of disposals was a net decrease of 0.8% in the period. Finally, to cover off a number of other matters on slide eight. Net debt at the end of the period was 2.2 billion, reflecting cash generation, capital investments, and the share buyback program. We initiated Accelerate 2.0 as planned during the period, and we are pleased with the progress made. Firstly, in executing the footprint optimization strategy across Europe and North America, including the commencement of some site closures and the disposal of some associated business activities. And secondly, we have started the rollout of a number of digital initiatives we have been piloting over the last 18 months within our manufacturing operations and commercial activities. On the input costs, while there is overall variation within our input cost basket, we are currently looking at limited input cost inflation for the full year. On currency, our outlook remains unchanged for a 4% to 5% translation currency headwind in the full year. To summarize, we delivered a good overall financial performance in the period, with volume growth combined with strong margin expansion. And with that, I'll pass you back to Edmund.

Thanks, Marguerite. So moving to our full year outlook in slide nine. Our strong end market volume of performance in the period demonstrates the strength of our strategic positioning across our markets, channels, and customer base. And looking to the remainder of the year, while recognizing a heightened level of market uncertainty, we remain well positioned for volume growth and strong margin expansion as we continue to support our customers as an innovation and renovation part. As I noted earlier, we're maintaining our full-year adjusted earnings per share guidance of 7% to 11% constant currency growth. And with that, I'll now hand you back to the operator, and we look forward to taking your questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, in order to ask a question, please press star followed by the number one on your telephone keypad. And if you would like to withdraw your questions, simply press star one again. Your first question comes from the line of Patrick Higgins with Good Buddy. Please go ahead.

Thanks. Morning, Edmund. Morning, Marguerite. A couple of questions, if that's okay. Firstly, just in terms of, I guess, guidance, obviously you've reiterated the 7 to 11 on EPS, but just in terms of volumes, I think at H1 you said around 3% is that, kind of reiterated it as well. And I guess following on from that, you know, at the H1 point, you noted end markets were expected to be broadly flat this year. How has that developed since then? Could you maybe talk through the moving parts by region? And then my next question is just around the innovation pipeline. Obviously, you've been pretty consistent about the strength of that through this year. How has that developed since H1? Have you seen any delays or kind of smaller than expected launches, just given the challenging kind of consumer backdrop. I'll leave it there. Thanks.

Thanks, Patrick. Good morning. Firstly, on the volume outlook for the remaining of the year, no change to what we said in the half year. So we're expecting volume growth to be circa 3% in the full year. In terms of, let's say, market kind of let's say conditions or kind of what we're seeing by region maybe. The reality is that there is a lot of variability out there at the moment. North America, the consumer backdrop has remained challenging. And I think we can all see that from different kind of market data out there or traffic data on the food service channel being slightly back year and year. In LATAM, the market in Brazil has improved versus last year, but we've seen the opposite in Mexico. And in the Acme region, market demand in Southeast Asia has been healthy for us. I think it's fair to say Indonesia has been the standout performer for us, but when we look right across Southeast Asia, it's been quite strong. Maybe the only exception being Vietnam. And I think what's really important for us is our ability to be able to pivot resources at pace and at scale. Then in terms of innovation, I guess, look, we called out a year ago that penetration opportunity and the scale of that penetration opportunity is quite significant. And as we look at the progression of our project pipeline between then and now, we've seen the impact of that penetration opportunity really, I suppose, contributing to our pipeline and contributing to the increase in scale in our pipeline over the course of the last 12 months. There has been quite a bit of launch activity in Q3, that will continue into Q4. Some of the performance of that launch activity into the market has been mixed in places. But overall, I would say at the level of innovation that we have seen come through both on the retail channel and the food service channel is quite strong overall. The main driver being the penetration opportunity. But we've also seen customers, let's say, for instance, in food service, be it the larger players or the smaller players, step up the level of innovation with the larger players more focused on you know, protecting market share and securing market share and bringing innovation to the menu to, to do that. Whereas the smaller players have been, you know, let's say more into the zone of scaling their businesses, um, and, and expanding their businesses through, through store openings. And on the retail side, uh, you know, we've seen significant step up in activity on, on private labels, which drives, I guess, the local and regional, um, customer segment within, within our, um,

customer segmentation overall okay thank you your next question comes from the line of alex loan with barclays please go ahead yeah hi morning all um two questions from me if that's okay um i clearly it's you know too early to talk about 26 precisely but you know relative to where we are today, would it be fair to assume that at-mere growth next year can be closer to the medium-term target if China improves? And perhaps you could give a bit more colour on the trends and outlook that you're seeing in China, obviously still challenged in quarter three. The second one, in quarter three, you had sort of more balanced growth between food service, which obviously slowed to touch on... on the traffic, but improved growth in retail. Would you expect that sort of balance to remain the case for the remainder of the year and into 26, or should we expect food service to resume its historical outperformance? Thanks.

Good morning, Alex. Maybe taking the second part of your question first. As you say, let's say the performance across food service and retail has been, you know, let's say food service is slightly ahead of retail as we sit here at the moment. But as we look out, we would feel that, you know, food service will still continue to outperform retail like it has in the past. I guess the headlines that we're seeing maybe coming from the larger players or the trafficking doesn't reflect the level of activity that's going on within the channel. I would say from an innovation perspective, whether it's LTOs, seasonal offerings, whether it's new taste profiles being launched onto the menus, a lot of innovation around chicken and let's say the whole poultry category, beverage continuing to be quite strong. Yeah, the message really on food services, the headlines probably doesn't just capture the level of activity that's going on right across the channel. Then maybe on AFMEA for a minute. Look, our expectations here going forward over the coming, let's say, quarters and then over the medium term is that the AFMEA region will continue our expectations that the AFNI region will continue to be in that high single-digit volume growth zone. Obviously, we're not there at the moment, but we do remain very positive on the region. We have developed our business significantly there in recent years, particularly in the Middle East and Africa. We continue to invest in that region. We have new capacity coming on in Jeddah. We brought New Brown in a manufacturing facility in Turkey. We're opening a new state-of-the-art technology and innovation center in Dubai. And that's really our expected standout performer here going out into the future, the Middle East and Africa. China has been more challenging in recent times. Absolutely no doubt about that. We have, let's say, slightly adjusted our strategy in China in that We have seen some of our customer base in China look more to regions outside of China to grow their business. So we have made a slight pivot there from a personnel perspective and from a strategic customer engagement perspective, bringing them proactive concepts whereby they can target regions outside of China to grow their business and specifically develop products for, let's say, Southeast Asia and the Middle East and Africa, albeit these products will be produced in China. So a slight pivot there. We're not sitting back waiting for the market to change in China. We're being very proactive, really, to try and drive our business forward there and to get as proactive as we possibly can with our customer base.

Thank you.

Once again, if you would like to ask a question, please press far followed by the number one on your telephone keypad. Our next question comes from the line of head, Hawkin with JP Morgan. Please go ahead.

Hi all. Thanks very much for taking my questions. I've got two, please. My first one's on Europe. So you saw a bit of an improvement in volumes growth in Q3, whether you could outline what drove that uptick and how durable it is as we think about Q4 and next year. And also with the appointment of Marcelo as the head of that region, what is it do you think needs to be changed or developed or fixed within the region to get it on a more sustainable growth footing after a couple of years that have been close to flat? And my second question, the group level as we think about 2026, and obviously it's early days to be talking about, but In the absence of an end market improvement, supposing end markets remain flat, what kind of levers do you see or what kind of areas to draw our attention to that could drive growth improvement versus this year? Or is it your view that in a flat market, then a circa 3% is the right level for 2026 volumes as well? Thank you.

Yeah, maybe first on the Europe question, Ed, and good morning. I would say, look, our expectations for Europe, and bear in mind, when we talk about Europe, we're talking about a developed Europe situation. Basically, our expectation is to be in that 1% to 2% volume growth range. And we are, and we will progress towards that range in the, let's say, upcoming quarters. It's going to be a slow burn in Europe nonetheless. I mean, the market is fairly challenged. It is a market that we're expecting to have a more proactive approach in that market. We've always been proactive in Europe, but we're expecting Marcello to bring that level of proactivity that we would typically have in emerging markets into Europe and to build on the good work that's already been going on in Europe. We're not calling out any change in strategy in Europe. It's a continuation of the strategy. We believe we have absolutely the right strategy for our customer base in Europe and to grow our business in Europe. It's about, let's say, doing a refreshed in terms of our approach to the market, bringing that emerging market mindset of intense proactivity to the customer base. Then in terms of maybe the outlook, I would go back to the point of, let's say, the market is going to do what the market is going to do. I guess we're really focused on driving our business forward. When I look at the scale of our pipeline versus where it was a year ago, it is significantly ahead of where it was a year ago. And I would call out maybe three big areas. The penetration opportunity that I've talked about many times in the past, that reformulation from a nutrition perspective, from a cost perspective, and even from a sustainability perspective, These are all factors that are driving our business forward. There are, you know, challenges around availability of raw materials, et cetera, et cetera. All these things are driving our business forward, driving penetration, you know, contributing to the growth that we're getting in the business. And, you know, the major, I suppose, reformulation opportunities, specifically in North America, are in front of us. Um, you know, the, the, the entire discussion around, um, I would say the, um, you know, Maha or, you know, the, you know, potential front to pack labeling, or, you know, let's see how things play out in North America. But that's still very much in front of us. Um, States are doing, you know, are doing their own thing, but there hasn't been a federal intervention yet in North America in terms of exactly the direction of travel. If and when that happens, we feel that's a further underpin of growth and a further underpin of opportunity for us going forward into the future. Food service, we've seen a significant step up on the level of value offerings and value meals and just our customer base being hyper-focused and trying they're doing that through the lens of new launches, be it LTOs or seasonal offerings, but they've also stepped up their value offerings and we expect that to continue over the coming quarters and we're extremely well positioned as it relates to that channel. And the third area I call out is let's say that private label opportunity whereby retailers are being quite aggressive in terms of trying to bring new products to the market that are not just national brand equivalents. They are trying to bring high-quality products to the market to grow categories. So I guess as we look out into the future, we feel that despite the challenging market, there are several factors there that we feel quite good about as we look out into the quarters in front of us.

Thank you.

Your next question comes from the line of Fulvio Cazal with Berenberg.

Please go ahead.

Yes, good morning. Thank you for taking my questions. My question is really on the EBITDA margin, which is up 90 basis points in the first nine months. up 80 basis points for the third quarter. So my question around that is, well, clearly it's developing probably better than what you would have anticipated at the start of the year, whether you can confirm that. And if that's the case, could you maybe just highlight for us What's driving this? Is it that you're seeing incremental cost-saving opportunities that you're unlocking, or are you just executing faster some of the efficiencies? In other words, the 19% to 20% target that you've got for 2028, are you likely to achieve that earlier, or is there going to be a bigger potential upside on the EBITDA margins? Thank you.

Good morning, Fulvio, and maybe I'll take that question. So firstly, we are pleased with the strong margin expansion of 80 basis points in the quarter. In terms of the stronger performance in the quarter, it's mainly due to the phasing of benefits from Accelerate Operational Excellence. and portfolio developments so slightly ahead of our expectation. I would say though there is no change to the full year expectation for margin expansion of 70 basis points or greater. We are well on track to deliver that margin expansion in the current year. And then in terms of the Looking forward to the margin expansion over the next number of years, we are happy that we have outlined a clear margin target of 19% to 20% by 2028. We have a clear pathway in terms of delivery of that target, and we're pleased with the progress that we've made in terms of commencing the Accelerate 2.0 program, which will be a strong underpinning of delivery of that margin expansion over the next couple of years, as well as continued expansion from mix and operating leverage.

Thank you for that.

Our final question comes from the line of Cath Hall-Kenney with Davey Research. Please go ahead.

Thanks. Good morning. Two questions from my side. Firstly, just come back to private label, Edmund. Just want to delve into that a little bit more. Which region are you seeing most activity on innovation and which region are you best placed to execute on that opportunity? And then the second one is just on enzymes. I see it comes up in the press release a couple of times. Just wondering in terms of the end market applications you're focused on in terms of bringing that technology to bear. Thank you.

Good morning, Cahill. Maybe talking about enzymes first. I mean, I think that the two end-use markets that we are seeing, I would say, performance that is maybe even slightly ahead of expectations is on dairy and bakery. Firstly, on dairy, we have, you know, quite a strong offering into the dairy channel, let's say, historically. But historically, You know, lactose intolerance is a growing kind of need out there in the market, and we're extremely well positioned to be able to take advantage of that opportunity. And that opportunity is quite global. The second area is in bakery, whereby enzymes and our enzyme capability is a key tool to the toolbox, in our toolbox in terms of freshness, and food protection and preservation. Um, and again, that is, that is a, that is a demand from, from our customer base, uh, across both food service and retail channels. And that is about basically bringing freshness and, and, and, uh, and food, uh, food protection and preservation in a clean label way to the bakery and juice market. Um, and yeah, we, we recently announced a new, um, biotechnology center in Leipzig in Germany, and we're expanding our footprint in Ireland as it relates to manufacturing enzymes both on the fermentation side and on the packaging side. Then on private label, I guess private label is not new to us here in Europe or let's say in Ireland and the UK. We have, let's say, a strong track record in private label, let's say, emanating from this region. And we have, I suppose, with that level of experience, we have an expertise that we have in private label. We've deployed those capabilities into North America. It is in North America that we have seen a step change in terms of engagement with retailers around targeting certain categories where actually they want to take a leadership position in certain categories where they feel There's been a lack of innovation in recent years and they feel that there's, you know, let's say plenty of scope from a pricing perspective to bring really high quality, clean label, more nutritious food and beverage products into categories that they want to lead. And we're very well positioned to be able to actually enable them. From an overall, I suppose, business model perspective, it is quite similar in terms of approach as we take for food service. So we feel well positioned to be able to take advantage of this opportunity and expect that private label performance and private label, I suppose, market expansion will continue in North America. And yeah, we feel good about that as we look forward into the coming quarters.

Thank you.

And that concludes the question and answer session. I would like to turn the call back over to Kerry for closing remarks.

Thank you, everyone, for joining us on the call today. If you do have any follow-ups, please do reach out. We just want to wish you a good day. Thank you.