K
E
R
R
Y
G
R
O
U
P
A
N
N
U
A
L
R
E
P
O
R
T
2
0
1
5
KERRY GROUP
ANNUAL REPORT 2015
Global Leader in Taste & Nutrition
KERRY GROUP
Prince's Street
Tralee
Co. Kerry
Ireland
T: +353 66 718 2000
F: +353 66 718 2961
www.kerrygroup.com
Kerry Group is global leader in Taste and
Nutrition serving the food, beverage and
pharmaceutical industries, and a leading
supplier of added value brands and
customer branded foods to the Irish,
UK and selected international markets.
With revenues of circa €6 billion, the Group
employs some 23,000 people and serves a
global customer base in over 140 countries.
The Group is headquartered in Tralee, Ireland
and is listed on the Dublin (KYGa.I) and London
Stock Exchanges (KYGa.L).
ΜDownload
Download our Investor App
at kerrygroup.com
STRATEGIC REPORT
2015 Results
3
Kerry at a glance
4
Chairman’s Statement
6
Chief Executive’s Review
8
Kerry Business Model
12
Our Markets
13
14 Our Strategy
18
20
28
34
38
54 Risk Report
Group Key Performance Indicators
Financial Review
Business Review: Taste & Nutrition
Business Review: Consumer Foods
Sustainability Review
GOVERNANCE REPORT
Board of Directors
62
64 Report of the Directors
69 Corporate Governance Report
74 Audit Committee Report
78 Nomination Committee Report
82 Remuneration Committee Report
Independent Auditors’ Report
100
FINANCIAL STATEMENTS
104 Group Financial Statements
112 Notes to the Financial Statements
173 Financial Definitions
2
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
Discover our Taste
& Nutrition evolution
Kerry Taste & Nutrition has successfully
evolved from our industry-leading
Ingredients & Flavours positioning.
The future of food and beverage
ΜRead More Our Strategy pg14
Highlights
of the year
3
ΜRead More
Details of the Group’s business
performance in 2015 are presented
in the Chief Executive’s Review pg8
and in the Business Reviews pgs28-37
Continued
Growth
• Record year of Group
business development
• Kerry business model outperforming
market growth rates
• Continued business margin
expansion and earnings growth
GROUP REVENUE OF
€6.1 billion
TRADING PROFIT UP 10% TO
€700 million
• Changing marketplace continues
to drive a strong pipeline of innovation
and demand for Kerry’s Taste &
Nutrition Technologies and Systems
ADJUSTED EPS* UP 8.2% TO
301.9 cent
BASIC EPS UP 9.4%
298.7 cent
• Repositioned Kerry Foods portfolio
delivering in a rapidly changing
consumer foods marketplace
• The Board recommends a final
dividend of 35 cent per share (an
increase of 11.1% on the final 2014
dividend) payable on 13 May 2016 to
shareholders registered on the record
date 15 April 2016
FREE CASH FLOW OF
€453 million
TOTAL DIVIDEND PER SHARE UP 11.1% TO
50.0 cent
RETURN ON AVERAGE CAPITAL
EMPLOYED OF
TOTAL SHAREHOLDER
RETURN
13.6%
35%
* Earnings per share before brand related intangible asset
amortisation and non-trading items (net of related tax).
Highlights
of the year
ΜRead More
Details of the Group’s business
performance in 2015 are presented
in the Chief Executive’s Review pg8
and in the Business Reviews pgs28-37
At a glance
ΜRead More
Our Strategy pg14
Our Sustainability Review pg38
3
4
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
Continued
Growth
A Global
Leader
• Record year of Group
business development
• Kerry business model outperforming
market growth rates
• Continued business margin
expansion and earnings growth
GROUP REVENUE OF
€6.1 billion
TRADING PROFIT UP 10% TO
€700 million
• Changing marketplace continues
to drive a strong pipeline of innovation
and demand for Kerry’s Taste &
Nutrition Technologies and Systems
ADJUSTED EPS* UP 8.2% TO
301.9 cent
BASIC EPS UP 9.4%
298.7 cent
• Repositioned Kerry Foods portfolio
delivering in a rapidly changing
consumer foods marketplace
• The Board recommends a final
dividend of 35 cent per share (an
increase of 11.1% on the final 2014
dividend) payable on 13 May 2016 to
shareholders registered on the record
date 15 April 2016
FREE CASH FLOW OF
€453 million
TOTAL DIVIDEND PER SHARE UP 11.1% TO
50.0 cent
RETURN ON AVERAGE CAPITAL
EMPLOYED OF
TOTAL SHAREHOLDER
RETURN
13.6%
35%
* Earnings per share before brand related intangible asset
amortisation and non-trading items (net of related tax).
OUR MISSION STATEMENT
Kerry Group will be:
– world leader in Taste and
Nutrition serving the food,
beverage and pharmaceutical
industries, and
– a leading supplier of added value
brands and customer branded
foods to the Irish, UK and
selected international markets.
Through the skills and wholehearted
commitment of our employees, we will
be leaders in our markets – excelling in
product quality, technical and marketing
creativity and service to our customers.
We are committed to the highest standards
of business and ethical behaviour, to
fulfilling our responsibilities to the
communities which we serve and to
the creation of long-term value for
all stakeholders on a socially and
environmentally sustainable basis.
132
Manufacturing
locations
26
Operations in
26 countries
140
Sales in over
140 countries
800
Scientists
23,000
Employees
Industry leading
R&D investment
ΜRead More
Our Global Technology & Innovation Centre in
Naas, Ireland (pictured) allows our customers
access to the latest insights and research pg32
Uniquely positioned
to meet customer
and consumer needs
ABOUT US
Kerry Group has a well established Strategy
for Growth embracing Kerry’s global Taste
& Nutrition business and Kerry Foods –
consumer foods business.
ΜRead More Our Business Model pg12 Our Strategy pg14
Kerry Taste & Nutrition has successfully evolved from our
industry-leading Ingredients & Flavours positioning to
become the largest and most technologically advanced
developer and provider of taste and nutrition solutions
in the world. Kerry has strong customer alliances with
leading global, regional and local food, beverage and
pharmaceutical companies.
ΜRead More Our Business Review – Taste & Nutrition pg28
Kerry Foods, the Group’s consumer foods division, has also
established strong strategic and commercial alliances with
its retail partners in the Irish, UK and selected international
markets. The division’s brands are household names in
their respective markets including category leading brands
such as Richmond, Wall’s, Mattessons, Denny, Shaws,
Cheestrings, Dairygold and LowLow to name but a few.
Kerry Foods is also a leading provider of customer
branded chilled foods.
ΜRead More Our Business Review – Consumer Foods pg34
€6.1 bn
Revenue
€700 m
Trading Profit
76% Taste & Nutrition
24% Consumer Foods
84% Taste & Nutrition
16% Consumer Foods
Consumer Foods
Kerry Foods is a market leading supplier
of added-value branded and customer
branded chilled food products to the
Irish, UK and selected international
markets. Our consumer food products
are marketed directly through multiple
retailers, convenience stores and
through e-commerce channels in
our selected markets.
Kerry Foods portfolio of consumer
branded products includes over 20 high
profile brands across three major market
sectors; Meat & Savoury Products, Meal
Solutions and Dairy Products.
The portfolio includes;
In Ireland:
In the UK:
Denny, Galtee, Shaws,
Dairygold, Cheestrings,
Charleville, LowLow
Richmond, Wall’s,
Mattessons,
LowLow, Pure,
Cheestrings
International: Cheestrings
The division is also a leading producer
of retail private label products including
chilled and frozen meals, cooked meats,
cheese and dairy products. It has also
broadened its ‘hot-to-go’ offerings and
channel distribution in the ‘out-of-home’
sector – in particular in the leisure and
foodservice segments.
€1.5 bn
Revenue
REGION
µGB
µIreland
µRest of Europe
PRODUCT
µMeat & Savoury Products
Meal Solutions
µDairy Products
CHANNEL
µBrand
µPrivate Label
€6.1 bn
Revenue
€700 m
Trading Profit
76% Taste & Nutrition
24% Consumer Foods
84% Taste & Nutrition
16% Consumer Foods
Consumer Foods
Kerry Foods is a market leading supplier
of added-value branded and customer
branded chilled food products to the
Irish, UK and selected international
markets. Our consumer food products
are marketed directly through multiple
retailers, convenience stores and
through e-commerce channels in
our selected markets.
Kerry Foods portfolio of consumer
branded products includes over 20 high
profile brands across three major market
sectors; Meat & Savoury Products, Meal
Solutions and Dairy Products.
The portfolio includes;
In Ireland:
In the UK:
Denny, Galtee, Shaws,
Dairygold, Cheestrings,
Charleville, LowLow
Richmond, Wall’s,
Mattessons,
LowLow, Pure,
Cheestrings
International: Cheestrings
The division is also a leading producer
of retail private label products including
chilled and frozen meals, cooked meats,
cheese and dairy products. It has also
broadened its ‘hot-to-go’ offerings and
channel distribution in the ‘out-of-home’
sector – in particular in the leisure and
foodservice segments.
€1.5 bn
Revenue
REGION
µGB
µIreland
µRest of Europe
PRODUCT
µMeat & Savoury Products
Meal Solutions
µDairy Products
CHANNEL
µBrand
µPrivate Label
55
WHERE WE OPERATE
Manufacturing Plants
Sales Offices
Taste & Nutrition
Everyday millions of people throughout
the world consume food or beverage
products incorporating Kerry’s Taste
& Nutrition technologies or systems.
Kerry Taste & Nutrition is the largest
and broadest industry innovation and
solutions provider in the fragmented
$65 billion global ingredients and
flavours market. With revenues of
€4.7 billion in 2015, the division holds
approximately 10% global market share.
We are a ‘B2B’ (Business to Business)
taste, nutrition and functional ingredients
solutions provider to all sectors of the
food, beverage and pharmaceutical
markets, including retail and foodservice
end-use-market categories served by
our customers. Kerry’s market leading
insight and innovation, food and beverage
heritage, science and technology, and
applications/culinary excellence, provides
the foresight and technology to deliver
products that nourish and delight
consumers throughout the world.
€4.7 bn
Revenue
REGION
µAmericas
µEMEA
µAsia-Pacific
µDeveloped
µDeveloping
TECHNOLOGY
END USE MARKET
µSavoury & Dairy Science
µBeverage Science
µCereal & Sweet Science
µPharma & Functional
µRegional Ingredients
µBeverage
µMeats
µDairy
µBakery
µSoups, Sauces
& Dressings
µIce-cream & Desserts
µPrepared Meals
& Side Dishes
µSavoury Snacks
µPharma
µCereal & Bars
µConfectionery
µAppetisers
6
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
Chairman’s
Statement
ΜRead More
Details of the Group’s
business performance in
2015 are presented in the
Chief Executive’s Review
pg8 and in the Business
Reviews pgs28-37
Michael Dowling Chairman
I am pleased to report that there was a strong
performance by all our businesses in 2015
despite the demands of a changing marketplace
and a slowdown in economic growth in many
developing markets.
Technology and market development were key
priorities for the Group in 2015 and our results
highlight Kerry’s continued success both in
achieving organic growth and in broadening
our technology portfolio and market positioning
through strategic acquisitions. Kerry Group
is well positioned to address rapidly evolving
consumer needs in terms of health, wellness and
convenience requirements, and the changing
market landscape driven by consumers across
retail, foodservice and e-commerce channels.
RESULTS
Reported revenue grew by 6.1% to €6.1 billion,
reflecting 3.8% business volume growth.
Adjusted earnings after tax before brand related
intangible asset amortisation and non-trading
items increased by 8.3% to €531m.
Adjusted earnings per share increased by 8.2%
to 301.9 cent (2014 : 278.9 cent). The Group
achieved a free cash flow of €453m in 2015 and
its financial position remains strong.
STRATEGIC DEVELOPMENT
Kerry’s successful business model embraces the
Group’s global leadership in Taste & Nutrition
and Kerry Foods’ leadership positioning in its
selected consumer foods’ markets. Strategic
development of our platforms for growth is
underpinned by continued organic development
and acquisition investment. In a record year of
acquisition investment, the Group completed ten
acquisitions at a net cost of €888m. In addition,
a number of non-core businesses held for sale
in 2014 were sold during the year. Acquisitions
in Taste & Nutrition completed in 2015 included;
KFI Savory, Baltimore Spice, Red Arrow Products,
Insight Beverages, Island Oasis and Biothera
Inc’s ‘Wellmune’ business. Kerry Foods acquired
Rollover Ltd in the UK in January 2015.
7
I am pleased to report that there was a
strong performance by all our businesses
in 2015 despite the demands of a changing
marketplace and a slowdown in economic
growth in many developing markets.
Following a tender process, the Board accepted
a recommendation from the Audit Committee
that PricewaterhouseCoopers be selected as
external auditors for the Group. May I take this
opportunity to thank Deloitte for the value they
contributed to the Group and their professional
approach over the years.
PROSPECTS
The views of management regarding the outlook
for the Group in 2016 are presented in the Chief
Executive’s Review. Your Board remains confident
that the Group’s business model and strategies
will continue to deliver sustained value for all
stakeholders in the years to come. Finally, on
the Board’s behalf, I would like to thank Stan
McCarthy Chief Executive, Group management
and all employees for their contribution to
Kerry’s continued success.
Michael Dowling
Chairman
22 February 2016
ΜRead More
Details of businesses
acquired in 2015 are
presented in the Business
Reviews pgs28-37
SHAREHOLDER
ANALYSIS
14% Kerry Co-operative
29% Retail
57% Institutions
16% UK
20% North America
18% Continental
Europe/
Rest of World
Ireland
3%
We continue to pursue organic and acquisition
growth opportunities, which building on the
Group’s 1 Kerry business model can be readily
structurally integrated.
DIVIDEND
The Board recommends a final dividend of
35 cent per share (an increase of 11.1% on the
2014 final dividend) payable on 13 May 2016
to shareholders registered on the record date
15 April 2016. When combined with the interim
dividend of 15 cent per share, this brings the
total dividend for the year to 50 cent per share,
an increase of 11.1% on 2014.
BOARD CHANGES
In September we welcomed Tom Moran to
the Board as a non-executive Director. Tom
was Secretary General of the Department of
Agriculture, Food and the Marine in Ireland from
2005 to the end of 2014. Throughout his public
sector career he held a number of international
policy and international trade negotiation
leadership roles. He also served as Ireland’s
Agriculture Attaché to France and to the
OECD. He is currently a Board Member
of An Bord Bia (the Irish Food Board) and
also a non-executive Director of the beef
processing company Elivia in France.
AUDITORS
Deloitte has been our auditor since the Company
was incorporated in 1986. In keeping with best
practice and to comply with the UK Corporate
Governance Code and EU legislation it was
agreed to undertake a process to recommend
the appointment of a new external auditor.
8
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
Chief Executive’s
Review
ΜRead More
Sustainability Review
pgs38-53
Stan McCarthy Chief Executive
Kerry Group achieved a strong financial
performance coupled with solid business
development in all our core business areas
and markets in 2015. In a challenging year
marked by regional variation in economic
growth, geopolitical instability, and significant
commodity and currency volatility, global and
regional food and beverage providers also
continued to address the changing marketplace
arising from consumer shopping patterns
and channel dynamics. The ‘new connected
consumer’ increasingly demands on-trend food
& beverage experience at retail and foodservice
level - accelerating the requirement for innovation
and speed to market. In addition health, wellness,
nutrition and convenience are key differentiators
across all end-use-markets – providing strong
opportunities for growth through Kerry’s unique
Taste & Nutrition technology portfolio.
While economic conditions continued
to improve in most regional developed
markets – consumer demand remained
weak. Developing markets overall exhibited
slower economic growth, with many regional
markets impacted by intensified geopolitical
activity and significant currency movement.
However Kerry continued to achieve good
volume growth through its Taste & Nutrition
technologies and systems in all regions. In a
record year of acquisition investment, the
Group also continued to consolidate Kerry’s
leading global infrastructure and expand
its technology and market footprint for
future growth.
Kerry Foods performed well, benefiting from
the improved economic conditions in the UK and
Irish markets and growing consumer demand for
snacking and convenience offerings.
9
Kerry Group achieved a strong financial
performance coupled with solid business
development in all our core business areas
and markets in 2015.
ΜRead More Financial Review pg20
The restructured Kerry Foods’ portfolio is well
positioned to meet consumer requirements
across all channels including the fast growing
food-to-go sector and e-commerce channels.
Taste & Nutrition achieved 4% growth in
business volumes and pricing was 2.3% lower.
Kerry Foods’ business volumes grew by 3%
and pricing reduced by 1.9%.
RESULTS
Group businesses continued to outperform
market growth rates in 2015. Sales revenue
on a reported basis increased by 6.1% to
€6.1 billion. Business volumes progressively
improved during the year delivering 3.8%
year-on-year growth. This performance
reflected continued strong market development
in American markets, an improved performance
in the EMEA region and good growth in Asia
despite lower economic growth in some regional
developing markets. Pricing declined by 2.2%
against a background of approximately 4.5%
lower raw material costs. Currency movements
contributed a positive 6.9% translation impact
to revenue.
The Group trading profit
margin increased by 40
basis points to 11.5%
11.5%
Group trading performance was again
assisted by 1 Kerry efficiency programmes,
improved product mix and the repositioned Kerry
Foods business portfolio. Group trading profit
increased by 10% to €700m. The Group trading
profit margin increased by 40 basis points to
11.5%, reflecting a 40 basis points improvement in
Taste & Nutrition to 14.1% and a 20 basis points
improvement in Kerry Foods’ margin to 8.5%.
Basic earnings per share increased by
9.4% to 298.7 cent. Adjusted earnings per
share increased by 8.2% to 301.9 cent
(2014: 278.9 cent).
Expenditure on research and development in
2015 increased to €234m (2014: €197m). Net
capital expenditure amounted to €229m (2014:
€257m). The Group achieved a free cash flow
of €453m (2014: €303m).
ΜRead More
Group Key Performance Indicators pgs18-19
10
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
ΜRead More
Our Markets pg13
Business Review –
Taste & Nutrition pg28
Business Review –
Consumer Foods pg34
BUSINESS REVIEWS
TASTE & NUTRITION
Kerry’s Taste & Nutrition technologies and
systems performed well across all regions in
2015 whilst Group businesses continued to
invest organically and through acquisition in
further expansion of our technology portfolio.
Demand for improved nutrition, health &
wellness offerings, broader taste profiles,
convenience and snacking solutions, and
‘clean-label’ enhancements, continued to
drive customer engagement and innovation
through Kerry’s industry-leading Technology
& Innovation Centre network.
Reported revenue increased by 8.7% to €4.7
billion, reflecting 4% business volume growth
and 2.3% lower net pricing. Trading profit grew
by 11.9% to €663m reflecting a 40 basis points
increase in divisional trading margin to 14.1%.
In 2015, Taste & Nutrition accounted for 76% of
Group revenue and 84% of Group trading profit.
Kerry achieved good growth in American
markets in 2015. Development in Latin American
markets was impacted by significant currency
devaluation particularly in Brazil which impacted
‘out-of-home’ food consumption, but Kerry
maintained satisfactory business development
in Mexico, Central America and the Andean
region. Sales revenue in the Americas region
increased by 21.4% on a reported basis to
€2,308m, reflecting 4.1% volume growth and
1.9% lower pricing.
Establishment of the Group’s Global Technology
& Innovation Centre in Ireland mid-year,
supported by Kerry Development & Application
Centres in Moscow, Dubai and Durban has
led to a significant increase in customer
engagement and innovation in the EMEA region.
Business volumes in 2015 increased by 0.9%
and with lower raw material pricing, in particular
dairy, overall net pricing reduced by 2.9%. This
resulted in reported revenue of €1,546m similar
to the prior year level.
Demand for balanced life-stage nutrition,
healthy snacking, convenient tasteful beverage
applications and customised foodservice
solutions continues to drive strong growth
in the Asia-Pacific region. Regional business
volumes grew by 10.1%. Revenues reported at
€784m reflected the business volume growth,
2.1% lower pricing, currency movements and
the impact of the sale of the Pinnacle Lifestyle
bakery business in Australia completed in May.
CONSUMER FOODS
Consumer confidence has continued to
grow in the Irish and UK consumer foods
markets in line with the improved economic
conditions in both economies. Overall trading
conditions remain highly competitive due to
retail competitiveness arising from market
polarisation and fragmentation, the growth of
e-tail and deflationary trends. The deflationary
environment has led to some category volume
recovery. Discounters have continued to invest
for growth which has led to broader retailer
focus on EDLP. Changing lifestyles have also
contributed to continued growth in snacking
– with increased demand for healthier options.
Online grocery shopping maintained a strong
growth momentum where Kerry out performed
category e-tail growth rates.
The repositioned Kerry Foods’ portfolio
performed well against this background
delivering 3% volume growth in 2015. Net
pricing was 1.9% lower. Following the sale of the
division’s pastry manufacturing assets in August
2014 and the management buy-out of the
Direct-To-Store business in the UK completed
at the end of February 2015, sales revenue in the
repositioned Kerry Foods’ portfolio was reported
at €1,476m. Trading in the division’s continuing
businesses improved during the year, with
reported trading profit similar to the prior year
level at €126m despite the business disposals.
The Group’s holistic partnership approach, facilitated by the
Kerry business model and 1 Kerry strategies, is central to
supporting the continued growth of Kerry’s global and regional
customers in developed and developing markets.
Total Shareholder
Return for 2015
35%
FINANCE
Finance costs (net) for the year increased by
€16.4m to €69.3m (2014: €52.9m) primarily
due to acquisition financing, foreign exchange
movements and higher finance costs relating
to post retirement benefit obligations, offset
by cash generated in the period. The Group’s
average interest rate for the year was
3.6% (2014: 3.6%).
The tax charge for the year, before
non-trading items, was €81.1m (2014:
€79.6m) representing an effective tax
rate of 13.7% (2014: 14.3%). The decrease
in the effective tax rate is primarily driven
from the geographical split of profits, R&D
investment mainly in Ireland and changes in
country tax rates. Net debt at the end of the
year was €1,650.1m (2014: €1,195.3m).
The Company’s shares traded in the range
€56.50 to €77.70 during the year. The share
price at 31 December was €76.31 (2014: €57.07)
giving a market capitalisation of €13.4 billion
(2014: €10.0 billion). Total Shareholder Return
for 2015 was 35% (2014: 14%).
FUTURE PROSPECTS
Combining Kerry’s industry-leading
taste capability and our unique
nutrition & general wellness enabling
technology platforms will continue to
drive innovation and growth throughout
the Group’s food, beverage and foodservice
international markets. Following record
acquisition investment in 2015, the Group
will invest in extending and broadening the
newly acquired technologies into wider taste
& nutrition markets throughout all geographic
regions and markets.
11
Combining Kerry’s industry-leading taste
capability and our unique nutrition & general
wellness enabling technology platforms will
continue to drive innovation and growth
throughout the Group’s food, beverage and
foodservice international markets.
ΜRead More
Our Business Model pg12
Our Strategy pg14
In consumer foods’ markets, the restructured
Kerry Foods portfolio is well positioned to
capitalise on today’s snacking, convenience
and food-to-go trends. Kerry Foods is now
focused on expanding its footprint into new
growth categories and channels, and into
selected international markets.
The Group’s holistic partnership approach,
facilitated by the Kerry business model and
1 Kerry strategies, is central to supporting the
continued growth of Kerry’s global and regional
customers in developed and developing
markets. Capital resources will continue to be
invested in organic development of the Group’s
technology growth platforms and manufacturing
footprint in developing markets - supporting
customer initiatives in advancing continued
food safety improvements.
Stan McCarthy
Chief Executive
22 February 2016
ΜRead More
The Group’s business
performance in 2015 is
presented in the Chief
Executive’s Review pg8
and in the Business
Reviews pgs28-37
12
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
Business Model
A Sustainable
Business Model
Kerry’s business model is based on the Group’s Strategy
for growth embracing our global leadership in Taste &
Nutrition and our consumer foods’ leadership positioning
in Kerry Foods’ selected markets and growth categories.
Market
Leadership
Taste
& Nutrition
#1
Holistic Partnerships
Taste
Nutrition & General
Wellness
Developing
Markets
Consumer Foods
#1
Consumer
Channel
Customer
Geography
Sustainability
1 Kerry
The foundations of the Kerry Business Model are
based on maintaining competitive advantage through
excellence in innovation and service to our valued
customers in the food, beverage and pharmaceutical
industries – dedicated towards meeting consumer
needs in today’s changing marketplace. Accordingly,
our 1 Kerry approach to business development and
customer service is focused on creating and nurturing
sustainable long-term customer alliances and delivery of
long-term value to all stakeholders on a sustainable basis.
Our holistic partnership approach facilitated by the
Kerry Business Model (underpinned by functional
excellence, involving multi-functional, multi-level,
multi-channel relationships) is key in supporting
our customers’ business growth in developed and
developing markets and in driving the growth of Kerry
Foods in its selected Meat & Savoury Products, Dairy
Products and Meal Solutions market categories.
13
13%
ASIA-PACIFIC
REGION
49%
EMEA
REGION
38%
AMERICAS
REGION
Our Markets
Evolving
Marketplace
Kerry has well established market leadership
positions in global food, beverage and
pharmaceutical markets through delivery of the
Group’s Taste & Nutrition technologies and systems
to our customer base in over 140 countries. Kerry
Foods, the Group’s consumer foods business holds
number 1 or 2 branded leadership positions in its
selected chilled foods categories in Europe.
Today’s consumer markets and changing
food and beverage consumption trends
require renewed vigour in product innovation
and development of nutritious, tasteful offerings
and menu solutions which address convenience,
health & wellness and life-stage preferences.
KERRY SALES
IN OVER
140
COUNTRIES
THE CHANGING MARKETPLACE – ‘NEW CONSUMER’
Our markets continue to evolve and are
characterised by an unprecedented level
of change in attitudes and consumption
trends in recent years.
Underlying factors, including population growth, demographic
changes, middle-class growth and urbanisation, ‘new consumers’
shopping for ‘immediate satisfaction’ while seeking health and wellness,
variety, freshness, experience and value, in addition to the growth in
foodservice markets and use of mobile technology, will continue to
underpin growth in global demand in food and beverage markets well
into the future.
THE CHANGING CONSUMER
DEMOGRAPHIC
Shrinking middle class
Millennial growth
Urban centres
growing rapidly
Single households
Ethnic expansion
ATTITUDE
Life is an experience
Instant gratification
Social & ethical
responsibility
Value seeking
PACE OF LIFE
Less personal time
Need for convenience
and functionality
Snacking culture
pervasive
AWARENESS
Back to basics approach
Trying to follow a proactive,
healthy lifestyle
Real food and clean label
Trust is key
In line with such trends, Kerry’s strategic
customers continue to extend their activities
and marketing across global markets which
in turn requires Kerry, as their preferred
supplier of Taste & Nutrition technologies, to
extend the Group’s technical, manufacturing
and customer service capabilities to a wider
geographic marketplace.
Understanding and anticipating changes
in consumer trends is central to Kerry’s
continued successful growth and
development. Our continued investment
in industry-leading ‘Consumer and Market
Insights’ capability informs our consumer-
focused innovation and customer
engagement model. This proprietary
approach in delivery of unique insights to our
customers enables our strategic partners to
develop their brands or customised menu
offerings to grow their businesses.
In the fast-changing consumer environment,
taste and nutritional values remain the
primary factor in re-purchasing decisions.
Accordingly, speed of innovation and
localisation of taste are key drivers of growth
in the rapidly evolving global marketplace –
providing solid innovation opportunities for
Kerry’s industry-leading Global and Regional
Technology & Innovation Centres and
Regional Development & Application
Centre network.
14
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
Our Strategy
ΜRead More
Sustainability Review pg38
A Proven Strategy
for Growth
Our strategy is to continue
to profitably grow
– our industry-leading Taste & Nutrition business
across global developed and developing
markets – leveraging the breadth and depth
of Kerry technologies, innovation capability
and market insights to provide superior
service to our customers;
– and, by capitalising on snacking, health and
convenience trends, to deliver compelling
consumer propositions which meet consumer
and channel requirements through the Group’s
reconfigured Kerry Foods’ portfolio.
This strategy will be delivered
through strategic growth pillars
in both the Group’s Taste &
Nutrition and Consumer
Foods’ businesses.
To maximise shareholder value,
strategic development of our
pillars for growth is underpinned
by continued organic development
and acquisition investment which
can be readily integrated through
the 1 Kerry Business Model.
Taste & Nutrition
Strategic growth pillars
Market
Leadership
Taste & Nutrition
1
Taste
Holistic Partnerships
2
Nutrition
& General
Wellness
3
Developing
Markets
Consumer
Foods
A
B
C
D
Consumer
Channel
Customer
Geography
Sustainability
1 Kerry
1
TASTE
Our positioning is unique as our portfolio embraces Kerry’s market-leading flavour and texture technologies, built on a deep
foundation of fundamental research, coupled with our food science and process technology expertise, which has been built up
over 40 years. We look at our Taste capabilities to meet the ‘New Consumers’ taste requirements under the following areas:
CONSUMER TASTE PILLARS
R
E
M
U
S
N
O
C
I
S
N
O
T
A
T
C
E
P
X
E
S
D
E
E
N
T
E
K
R
A
M
)
S
E
L
P
M
A
X
E
(
Pure & Simple
Authentic & Familiar
Fresh & Invigorating
Pleasure & Indulgence
For self-accountable consumers we
create taste products that are safe,
trusted and real.
For consumers who want comfort,
nostalgia and familiarity, we provide
taste that delivers wholesomeness
and provenance.
For consumers seeking products
with a feel good factor we
deliver invigorating, revitalising,
refreshing taste.
For consumers who crave premium
and/or indulgent experiences we
deliver trending, emerging taste
that excites and inspires.
• Clean label
• Trusted/traceable ingredients
• No artificial ingredients
•
‘Free-from’
• Cooking style tastes
• Authentic food experiences
• The taste of time
• Ethnic/local cuisine tastes
• Taste without compromise
• Fresh
• Healthy Halo
• Natural Mood
• New taste experiences
• The fine-dining experience
• The Patisserie experience
• The Coffee-house experience
Underpinned by: Understanding the fundamental science of Taste
FlavourµµTextureµµMouthfeelµµAppearanceµµAromaµµSensory
Delivered by: A leading Taste Portfolio
15
2
NUTRITION & GENERAL WELLNESS
We will drive growth through our nutrition
and general wellness technologies by
helping create more nutritious products
that are inspired by market insight and
science to meet people’s needs. We
operate across all life stages, from infant
and toddler through to adulthood, healthy
aging and seniors.
CONSUMER NUTRITION PILLARS
Kerry has a long-standing history and a huge
capability in delivering nutritious and healthy
products. Our heritage in dairy along with
our foundational proteins expertise enables
us to provide natural nutrition capabilities.
Our Nutrition & General Wellness strategy is
supported and enhanced by our Functional
Ingredients & Actives portfolio which we will
continue to expand and by our depth and
breadth of application expertise. Kerry also
has well established partnerships with
research and educational institutions to
continue to evolve our science and nutrition
understanding and capabilities.
Free from
Better for you
Good for you
Tailored for you
Avoidance
“Free-from” or “zero” variants of
products. For consumers who seek
to eliminate particular nutrients or
food types due to health concerns.
Balance & Moderation
Products with “diet”, “low” or “less”
tags. For the majority of consumers
who believe that unhealthy
indulgences need to be moderated
for a balanced diet and can be
replaced with a guilt free option.
Positive Nutrition
Functional products, “superfoods”
and “natural foods.” For
self-accountable consumers who
believe that diet and nutrition
is an important route to wellness.
Tailored for you
For individuals within the broader
population who have specific nutritional
needs based on their need state and
life stage. E.g. infants, athletes, seniors
and individuals with specific medical
conditions such as diabetes.
• Food intolerance
• Low/No/Reduced Lactose
• Gluten Free
• Clean/Cleaner Label
• Reduced Sugar
• Reduced Salt
• Reduced Fat
• Balanced Choice
• Protein Fortification
• Carbohydrate Quality
• Healthy Lipids
• Micronutrient Fortification
Infant & Toddler Nutrition
•
• Performance Nutrition
• HealthCare Nutrition
(including all need states)
• Weight Management
R
E
M
U
S
N
O
C
I
S
N
O
T
A
T
C
E
P
X
E
S
D
E
E
N
T
E
K
R
A
M
)
S
E
L
P
M
A
X
E
(
Underpinned by: Understanding the fundamental science of Nutrition
FortificationµµDietary NutritionµµLife StagesµµNeed StatesµµTaste
Delivered by: A leading Nutrition Portfolio
The Group’s Taste and Nutrition strategies are interdependent and uniquely benefit through Kerry’s ability to formulate and
leverage both platforms.
3
DEVELOPING MARKETS
In line with Kerry customer requirements, and capitalising on economic and demographic trends in developing markets, the Group
has targeted continued growth in specific developing markets through organic and acquisitive investment.
2008
19%
2014
25%
2015
26%
GROWTH MODEL
Targets for growth:
ASIA-PACIFIC Greater China, Indonesia, India,
Malaysia, Philippines, Thailand, Vietnam
EMEA South Africa, Nigeria, Turkey, Saudi Arabia,
Other Middle East, Russia, Eastern Europe
LATAM Brazil, Mexico, Central America
STRATEGIC MODEL
• Business development
with key regional players
• Local market consumer insight,
application and culinary expertise
• Kerry Centre platform development
• Leveraging global purchasing power
• Leverage 1 Kerry global structure
• Expand regional production footprint
16
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
Consumer Foods
Strategic growth pillars Kerry Foods’ strategy is underpinned by four platforms for growth
A CONSUMER
B CHANNEL
C CUSTOMER
D GEOGRAPHY
We will use consumer-led
insight and innovative
technology to develop
compelling propositions
that delight shoppers in
our core categories – meat,
dairy and meals.
We will ensure our products
are readily available to all
our consumers, across all
channels, when ever and
where ever they shop.
We will work collaboratively
with our customers to ensure
we create products that they,
and their consumers, love
to buy.
We’re committed to
expanding our footprint
beyond the UK and Ireland
into new markets, to reach
new customers.
We will engage shoppers
across multiple channels from
supermarket to convenience
to online to discounters and
we will align our portfolio and
propositions to meet channel
needs. We are investing in
people, skills and capabilities
to ensure that we excel in all
channels. Our core is rooted at
multiple retail level but while
channel proliferation brings
complexity it also provides Kerry
Foods with opportunities to
make our products available in
more places and within arm’s
reach of shoppers.
Kerry Foods will actively
collaborate with our customers
leveraging insight, innovation,
category and customer
management to develop winning
and engaging plans that ensure
we are their partner of choice
in our key categories. We also
have an active programme to
develop relationships with new
customers beyond our existing
customer base including
foodservice and leisure –
providing us with new and
exciting routes to market.
Kerry Foods will actively expand
its footprint beyond the UK and
Ireland. We now have a presence
in six Mainland European
countries with Cheestrings
and we are actively exploring
many more. We will leverage
brands and technology into
new geographies where we
can establish a defendable
position based on a competitive
advantage with is underpinned
by real consumer insight.
Kerry Foods will leverage our
technology and innovation to
deliver insight led propositions
that delight our consumers in
our core categories of Meat,
Dairy and Meals. The consumer
is at the heart of everything we
do and all of our propositions
will leverage deep consumer
insight. Our deep rooted
technology capability enables
us to create products that meet
consumer trends quickly with
offerings that are not easy for
competition to replicate. Within
the Consumer Growth Platform,
we are focused on three key
growth trends all of which
are exhibiting strong growth
globally;
a) Nutritional snacking
b) Convenience – ‘quick
and easy’ solutions
c) Natural health
17
Our Strategy
Kerry Strategic
Advantage
Kerry Group has a long history of
sustained profitable growth. Group
strategy will continue to be achieved
through the commitment and expertise
of our people – capitalising on Kerry’s
strategic advantage.
Technology
Leader
Market
Leader
Proven
Success
Growth
Potential
People
Sustainable
Unrivalled technology breadth
Fundamental science & research capability
Food science & process expertise
Unique taste & nutrition positioning
Application & culinary leadership
Global Technology & Innovation Centre platform
#1 in America, Europe and ROW for Savoury & Dairy
#1 in America, Europe for Cereal & Sweet
#1 in proteins globally
Top 5 in flavours globally
In 5 of the top 10 blockbuster drugs
A leader in chilled food in UK and Ireland
Consistent delivery of targets since 1986
11% CAGR for revenue
14% CAGR for trading profit
14% CAGR for adjusted EPS
17% CAGR on share price
17% CAGR on dividends
Unique customer intimacy model
Unrivalled Taste and Nutrition capabilities
Established and growing Developing Market position
Proven consolidator
Strong balance sheet
1 Kerry & global footprint platform
Proven leadership and management capability
Results driven culture
Talent management – Kerry Learning Academy
Personal growth opportunities
Mobility
Diversity
Natural heritage
Investing for a sustainable future
Milestone linked to performance management
1 Kerry Sustainability Programme
Commitment to targets
Company-wide initiatives
18
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
Group Key
Performance
Indicators
The Group’s strategic objective is to maximise
shareholder return by delivering on the targets
of growth in business profitability and exceeding
return on investment hurdles.
Drivers of Shareholder Return
Total
Shareholder
Return
Share Price
Dividend
Volume
Growth
Margin
Expansion
Growth
EPS
Return
ROACE
ROAE
CFROI
TOTAL SHAREHOLDER
RETURN
35%
5 year Compound Growth
213%
35%
27%
43%
14%
14%
14%
ADJUSTED
EPS GROWTH
8.2%
�
GROWTH
VOLUME
GROWTH
3.8%
�
TRADING MARGIN
EXPANSION
+40bps
8.2%
301.9
8.1%
278.9
10.2%
257.9
9.7%
234.0
11.1%
213.4
3.3%
2.8% 3.0%
2.4%
3.8%
9.6%
9.4%
11.1% 11.5%
10.5%
2011 2012 2013 2014 2015
2011
2012 2013 2014 2015
2011
2012 2013 2014 2015
2011
2012 2013 2014 2015
Definition**
Total Shareholder Return
(TSR) represents the change
in the capital value of Kerry
Group shares plus dividends
reinvested.
Strategic Linkage
TSR is an important indicator
of how successful the Group
has been in terms of
shareholder value creation.
Performance
The Group achieved a
TSR of 35% in 2015 which
outperformed the STOXX
Europe 600 Food and
Beverage Index and the
MSCI Europe Food
Producers Index.
The Group achieved
Compound Growth of
213% in TSR since 2010.
Link to Remuneration
Performance metric for
long-term incentive plan.
Definition**
Adjusted EPS growth represents
the change in adjusted EPS in
the current year compared to
adjusted EPS achieved in the prior
year. Adjusted EPS is considered
more reflective of the Group’s
underlying trading performance
than basic EPS.
Strategic Linkage
EPS growth is a key performance
metric as it encompasses all
the components of growth that
are important to the Group’s
stakeholders. Volume growth and
margin expansion are the two key
drivers of EPS growth.
Performance
The Group achieved adjusted
EPS growth of 8.2% in the year,
which was below the Group’s
medium term target of 10%
per annum.
Link to Remuneration
Performance metric for
short-term & long-term
incentive plans.
Definition**
This represents sales volume
growth year-on-year from
on-going business, excluding
volumes from acquisitions (net
of disposals) and rationalisation
volumes.
Strategic Linkage
Volume growth is an important
metric as it is seen as the key
driver of top-line business
improvement. This is used
as the key revenue metric, as
Kerry operates a pass-through
pricing model with its customers
to cater for raw material price
fluctuations. Pricing therefore
impacts like-for-like revenue
growth positively or negatively
depending on whether raw
material prices move up or down.
Performance
The Group achieved continuing
volume growth in 2015 of 3.8%
which was in the Group’s target
range of 3-5% per annum.
Link to Remuneration
Key driver of adjusted
EPS growth (performance
metric for short & long-term
incentive plans).
Definition**
Trading margin expansion
represents the change in trading
margin in the current year
compared to trading margin
achieved in the prior year. Trading
margin represents annual trading
profit, expressed as a percentage
of revenue.
Strategic Linkage
Trading margin expansion is a
key measure of profitability. It
demonstrates improvement in
the product mix being sold and
also improvement in the operating
efficiency of the business.
Performance
The Group achieved trading
margin expansion of 40 bps in
2015, which is in excess of the
Group’s target range of 30 bps
per annum.
Link to Remuneration
Key driver of adjusted EPS growth
(performance metric for short &
long-term incentive plans).
19
GROUP 5 YEAR TARGETS (2013–2017)
Growth
Adjusted EPSµ10%+ p.a. by:
Volume growth*
Margin Expansion
Taste & Nutrition
Consumer Foods
Group
4% to 6% p.a.
2% to 3% p.a.
3% to 5% p.a.
Taste & Nutrition
Consumer Foods
Group
50bps p.a
20bps p.a
30bps p.a
*assumes market growth rate of 2% to 3% p.a.
+ an additional 100 bps from Kerryconnect project
Return
ROACE 12%+
ROAE 15%+µµµµµµCFROI 12%+
The metrics outlined below are important
measurement indicators of Group performance
in meeting its strategic objective. Business
strategy is set by the Board of Directors and
all Kerry employees work towards achieving
these goals. Remuneration is directly linked
with performance versus these targets.
RETURN
RETURN ON AVERAGE
CAPITAL EMPLOYED (ROACE)
13.6%
RETURN ON AVERAGE
EQUITY (ROAE)
17.5%
14.4%
14.2%
13.6%
17.0%
16.5%
18.6%
18.0%
17.5%
CASH FLOW RETURN ON
INVESTMENT (CFROI)
11.3%
12.6%
11.5%
11.3%
9.4%
9.1%
12.6%
12.1%
CASH
FREE
CASH FLOW
€453m
412
453
345
279
303
2011
2012 2013 2014 2015
2011
2012 2013 2014 2015
2011
2012 2013 2014 2015
2011
2012 2013 2014 2015
Definition**
This measure is defined as profit
after tax before non-trading
items (net of tax), brand related
intangible asset amortisation
and finance income and costs,
expressed as a percentage of
average capital employed.
Strategic Linkage
ROACE is a key measure of the
return the Group achieves on its
investment in capital expenditure
projects, acquisitions and other
strategic investments, expressed
as a percentage of what resources
are available to the Group.
Performance
The Group achieved ROACE
of 13.6% in 2015, above the
Group’s target of 12%. The 2015
performance was impacted by
the timing of acquisitions in Q4.
Link to Remuneration
Performance metric for
long-term incentive plan.
ΜRead More
Definition**
This measure is defined as profit
after tax before non-trading items
(net of tax) and brand related
intangible asset amortisation,
expressed as a percentage of
average equity.
Strategic Linkage
ROAE is a key measure of
the return the Group achieves
on its investment in capital
expenditure projects, acquisitions
and other strategic investments,
expressed as a percentage
of what shareholders have
invested in the Group.
Performance
The Group achieved ROAE
of 17.5% in 2015, above the
Group’s target of 15%. The 2015
performance was impacted by the
timing of acquisitions in Q4.
Link to Remuneration
Similar metric to ROACE
(performance metric for
long-term incentive plan).
Definition**
CFROI is calculated as free cash
flow before finance costs paid
(net), expressed as a percentage
of average capital employed.
Strategic Linkage
CFROI is important as it
measures the Group’s cash
return on invested assets.
Performance
The Group achieved a CFROI
of 11.3% in 2015. This was just
below the Group target of 12%,
as a result of investment in
capital and other projects to
drive business growth in
the longer term. The 2015
performance was impacted
by the timing of acquisitions
in Q4.
Link to Remuneration
Free Cash Flow (performance
metric for short-term incentive
plan) is the key driver of CFROI.
Non-Financial KPIs are detailed in
our Sustainability Review pgs38-53
** Full definitions can be found in the Supplementary
Information section – Financial Definitions pg173
Definition**
Free Cash Flow is trading profit
plus depreciation, movement in
average working capital, capital
expenditure, pension costs less
pension expense, finance costs
paid (net) and income taxes paid.
Strategic Linkage
Free Cash Flow is seen as an
important indicator of the strength
and quality of the business and
of the availability to the Group
of funds for reinvestment or for
return to shareholders.
Performance
The Group achieved free
cash flow of €453m in 2015.
Link to Remuneration
Performance metric for
short-term incentive plan.
20
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
Finance Review
A Strong
Performance
ΜRead More
Group Key Performance
Indicators pg18
Brian Mehigan,
Chief Financial Officer
The Financial Review provides an overview of the Group’s financial performance
for the year ended 31 December 2015 and of the Group’s financial position at
that date.
KEY PERFORMANCE INDICATORS
The performance metrics outlined below have been identified as the Key
Performance Indicators (KPIs) for the Group. These KPIs are used to measure
the financial and operational performance of the Group and are used to track
progress in achieving long term targets. The targets for these KPIs for the current
5 year cycle (2013 - 2017) and the Group’s performance over the 3 years from
2013 are summarised in the table below. A more expansive analysis of the Group’s
performance versus KPIs is included in the Group Key Performance Indicators
section of the Strategic Report.
Growth
Adjusted* EPS growth
Continuing volume growth
Trading profit margin growth
Target
3 Year Average
10%+
3% to 5%**
+30bps p.a.
8.8%
3.1%
+60bps
Return
Return on average capital employed (ROACE*)
Return on average equity (ROAE*)
Cash flow return on investment (CFROI)
Target
12%+
15%+
12%+
3 Year Average
14.1%
18.0%
11.0%
The targets above assume neutral currency and raw material costs
* Before brand related intangible asset amortisation and non-trading items (net of related tax)
** Assumes market growth rate of 2% to 3% p.a.
21
ANALYSIS OF RESULTS
Reconciliation of adjusted* earnings to profit after taxation
Revenue
Trading profit
Trading margin
Computer software amortisation
Finance costs (net)
Adjusted earnings before taxation
%
change
6.1%
10.0%
Income taxes (excluding non-trading items)
Adjusted earnings after taxation
8.3%
Brand related intangible asset amortisation
Non-trading items (net of related tax)
Profit after taxation
Adjusted EPS
8.2%
Brand related intangible asset amortisation
Non-trading items (net of related tax)
Basic EPS
* Before brand related intangible asset amortisation and non-trading items (net of related tax)
2015
€’m
2014
€’m
6,104.9
5,756.6
700.1
11.5%
(18.7)
(69.3)
612.1
(81.1)
531.0
(18.7)
13.1
525.4
EPS
Cent
301.9
(10.6)
7.4
298.7
636.4
11.1%
(13.6)
(52.9)
569.9
(79.6)
490.3
(14.4)
4.0
479.9
EPS
Cent
278.9
(8.2)
2.3
273.0
Revenue
On a reported basis Group revenue increased by 6.1% to €6.1 billion (2014: €5.8 billion). Volumes grew by 3.8%, product
pricing decreased by 2.2%, and there was a positive transaction related currency impact of 0.1%. There was a negative
impact of business disposals net of acquisitions of 2.5% and a positive reporting currency impact of 6.9%.
In Taste & Nutrition, reported revenue increased by 8.7% to €4.7 billion (2014: €4.3 billion). Volumes grew by 4.0% and
product pricing decreased by 2.3%. There was a positive impact of business acquisitions net of disposals of 0.1% and a
positive reporting currency impact of 6.9%.
In Consumer Foods, reported revenue decreased by 2.2% to €1.48 billion (2014: €1.51 billion). Volumes increased
by 3.0%, product pricing decreased by 1.9%, and there was a positive transaction related currency impact of 0.4%.
There was a negative impact of business disposals net of acquisitions of 10.3% and a positive reporting currency
impact of 6.6%.
Trading Profit & Margin
On a reported basis, Group trading profit increased by 10.0% to €700.1m (2014: €636.4m). Group trading profit margin
increased 40 basis points (bps) to 11.5%. The improvement in Group trading profit margin was attributed to operating
leverage and improved product mix, coupled with the benefits accruing through the 1 Kerry Business Transformation
Programme and the positive impact from exiting non-core business activities.
Trading profit margin in Taste & Nutrition increased by 40 bps to 14.1%, due to the benefits of improved product mix,
operating leverage and business efficiency programmes. Trading profit margin in Consumer Foods increased by 20 bps
to 8.5% due to business efficiency gains combined with the positive impact from exiting non-core business activities.
A comprehensive analysis of the revenue and trading performance of the Taste & Nutrition and Consumer Foods
divisions is included in the Business Reviews on pages 28 to 37.
22
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
Computer Software Amortisation
Computer software amortisation increased to €18.7m (2014: €13.6m) reflecting the on-going progression of the Kerryconnect
project. The capitalised element of the cost of this project is being amortised over a 7 year period.
Finance Costs (net)
Finance costs (net) for the year increased by €16.4m to €69.3m (2014: €52.9m) primarily due to acquisition financing, foreign
exchange movements and higher finance costs relating to post retirement benefit obligations, offset by cash generated in the
period. The Group’s average interest rate for the year was 3.6% (2014: 3.6%).
Taxation
The tax charge for the year, before non-trading items, was €81.1m (2014: €79.6m) representing an effective tax rate of 13.7%
(2014: 14.3%). The decrease in the effective tax rate is primarily driven by the geographical split of profits, R&D investment
mainly in Ireland and changes in country tax rates.
Acquisitions and Disposals
During the year, the Group completed 10 acquisitions at a net cost of €888.1m. The Group also disposed of the Pinnacle lifestyle bakery
business in Australia and the Consumer Foods Direct-to-Store business in the UK. The total consideration was €153.8m before disposal
related costs.
Non-Trading Items
Non-trading items totalling to an income of €13.1m net of tax (2014: €4.0m) were recorded in 2015. The Group realised a profit of
€26.7m on the disposal of the Pinnacle lifestyle bakery and Direct to store businesses and a loss of €4.2m on the disposal of
miscellaneous property, plant and equipment. In addition, the Group incurred €7.8m of acquisition transaction and integration costs
relating to the acquisitions completed during the year and a €5.3m charge relating to the impairment of assets held for sale. A tax
credit of €3.7m was recognised on these non-trading items.
Adjusted EPS
Adjusted EPS increased by 8.2% to 301.9 cent (2014: 278.9 cent).
Basic EPS
Basic EPS increased by 9.4% to 298.7 cent (2014: 273.0 cent) after adjusting for brand related intangible asset amortisation
of 10.6c (2014: 8.2c) and non-trading items of 7.4c net of tax (2014: 2.3c).
Return on Investment
This is measured by the Group on a profit basis using ROACE and ROAE, and on a cash basis using CFROI. In 2015, the Group
achieved ROACE of 13.6% (2014: 14.4%) and ROAE of 17.5% (2014: 18.6%) which were well above the Group return on investment
hurdles. The Group achieved a CFROI of 11.3% (2014: 9.1%) which was below the Group target as a result of capital and other
strategic investments which are expected to drive business growth in the longer term. The above metrics for 2015 were negatively
impacted by the timing of acquisitions in the fourth quarter as they include the total cost of the acquisitions, but only include the
return from the date they were acquired. If you re-calculate ROACE using an annualised return, this results in a performance of
14.3%, with a similar positive effect on ROAE and CFROI.
Exchange Rates
Group results are impacted by fluctuations in exchange rates year on year versus the euro. The average rates below are the
principal rates used for the translation of revenues. The closing rates below are used to translate assets and liabilities at year end.
Australian Dollar
Brazilian Real
British Pound Sterling
Canadian Dollar
Malaysian Ringgit
Mexican Peso
Russian Ruble
South African Rand
US Dollar
Average Rates
2014
1.46
2015
1.46
Closing Rates
2014
1.48
2015
1.49
3.72
0.73
1.41
4.30
17.46
68.07
13.90
1.12
3.14
0.81
1.47
4.33
17.54
50.95
14.28
1.33
4.25
0.73
1.51
4.69
18.73
79.70
16.95
1.09
3.22
0.78
1.41
4.25
17.87
68.34
14.04
1.21
23
Dividends
The Board has proposed a final dividend of 35.0 cent per A ordinary share payable on 13 May 2016 to shareholders
registered on the record date of 15 April 2016. When combined with the interim dividend of 15.0 cent per share, the total
dividend for the year amounted to 50.0 cent per share (2014: 45.0 cent per share) an increase of 11.1%.
BALANCE SHEET
A summary balance sheet as at 31 December is provided below:
Property, plant & equipment
Intangible assets
Other non-current assets
Current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
2015
€’m
1,431.5
3,449.3
290.5
1,841.7
7,013.0
1,477.8
2,745.1
4,222.9
2,790.1
2,790.1
2014
€’m
1,283.4
2,629.0
228.6
1,826.8
5,967.8
1,633.7
2,098.5
3,732.2
2,235.6
2,235.6
Intangible Assets & Acquisitions
Intangible assets increased by €820.3m to €3,449.3m (2014: €2,629.0m). Intangible assets of €786.6m were
recorded in the year relating to acquisitions completed by the Group, with an additional increase of €66.2m
due to year-end exchange rates used to translate intangible assets other than those denominated in euro.
Retirement Benefits
At the balance sheet date, the net deficit for defined benefit schemes (after deferred tax) was €253.3m
(2014: €393.3m). The decrease is due to an increase in the discount rates in the UK, Eurozone and the US
and cash contributions during the year. The net deficit expressed as a percentage of market capitalisation at 31
December was 1.9% (2014: 3.9%). The charge to the income statement during the year, for both defined benefit and
defined contribution schemes was €54.3m (2014: €50.4m).
Shareholders’ Equity
Shareholders’ equity increased by €554.5m to €2,790.1m (2014: €2,235.6m), resulting from profits generated
during the year and stronger year-end exchange rates, offset in part by dividends.
A full reconciliation of shareholders’ equity is disclosed in the Consolidated Statement of Changes in Equity on page 108.
24
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
CAPITAL STRUCTURE
The Group finances its operations through a combination of equity and borrowing facilities, including bank
borrowings and senior notes from capital markets.
The financing structure of the Group is managed in order to optimise shareholder value while allowing the
Group to take advantage of opportunities that might arise to grow the business. The Group targets acquisition
and investment opportunities that are value enhancing and the Group’s policy is to fund these transactions from
cash flow or borrowings while maintaining its investment grade debt status.
This is managed by setting net debt to EBITDA targets while allowing flexibility to accommodate significant
acquisition opportunities. Any expected variation from these targets should be reversible within twelve to
eighteen months; otherwise consideration would be given to issuing additional equity in the Group.
Financing
In April, following a limited syndication process, the Group arranged a new €1.1bn revolving credit facility replacing
its existing arrangements. The syndication, which was more than two times oversubscribed, extended the maturity
and increased the quantum of Kerry’s revolving credit facility.
In September, the Group announced its debut Eurobond, issuing €750m 10 year notes at an annual coupon of
2.375%. The bonds, which were over 3.5 times oversubscribed, are listed on the Irish Stock Exchange and provide
Kerry with an additional source of debt finance.
These new facilities significantly increase the amount of debt finance available. They extend the maturity profile of
Group debt and were used to retire existing debt, fund acquisitions and for general corporate purposes.
FREE CASH FLOW
Free cash flow is seen as an important indicator of the strength and quality of the business and of the availability
of funds to the Group for reinvestment or for return to the shareholder. In 2015 the Group achieved a free cash flow
of €452.6m (2014: €302.9m) analysed below with a free cash flow to adjusted* earnings after tax conversion rate of
85.2% (2014: 61.8%).
Free Cash Flow
Trading profit
Depreciation (net)
Movement in average working capital
Pension contributions paid less pension expense
Cash flow from operations
Finance costs paid (net)
Income taxes paid
Purchase of non-current assets
Free cash flow
* Before brand related intangible asset amortisation and non-trading items (net of related tax)
2015
€’m
700.1
125.9
(1.6)
(57.5)
766.9
(46.6)
(38.3)
(229.4)
452.6
2014
€’m
636.4
103.5
(59.2)
(48.0)
632.7
(41.8)
(30.6)
(257.4)
302.9
25
Net Debt
Net debt at the end of the year was €1,650.1m (2014: €1,195.3m). The increase during the year is analysed in the
table below:
Movement in Net Debt
Free cash flow
Acquisitions (net of disposals) including payments relating to previous acquisitions
Difference between average working capital and year-end working capital
Non-trading items
Equity dividends paid
Exchange translation adjustment on profits
Increase in net debt resulting from cash flows
Fair value movement on interest rate swaps
Exchange translation adjustment on net debt
Increase in net debt in the year
Net debt at beginning of year
Net debt at end of year
2015
€’m
452.6
(773.2)
66.4
(26.4)
(81.8)
(0.7)
(363.1)
0.2
(91.9)
(454.8)
(1,195.3)
(1,650.1)
2014
€’m
302.9
(156.5)
(20.1)
(74.5)
(73.0)
3.3
(17.9)
(5.5)
(88.8)
(112.2)
(1,083.1)
(1,195.3)
Exchange impact on net debt
The exchange translation adjustment of €91.9m results primarily from borrowings denominated in US dollar translated
at a year-end rate of $1.09 versus a rate of $1.21 in 2014.
Maturity Profile of Net Debt
Within 1 year
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
Net debt at end of year
Weighted average maturity (years)
2015
€’m
198.0
(153.7)
(143.9)
(1,550.5)
(1,650.1)
2014
€’m
(21.0)
(132.4)
(144.5)
(897.4)
(1,195.3)
7.5
5.2
26
26
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
Key Financial Covenants
The majority of Group borrowings are subject to financial covenants calculated in accordance with lenders’ facility agreements.
The Group’s balance sheet is in a healthy position. With a net debt to EBITDA* ratio of 1.9 times, the organisation has sufficient
headroom to support its future growth plans. Group Treasury monitors compliance with all financial covenants and at 31
December the key covenants were as follows:
Net debt: EBITDA*
EBITDA: Net interest*
Covenant
Maximum 3.5
Minimum 4.75
2015
Times
1.9
17.3
2014
Times
1.6
17.2
Net Debt: EBITDA*
EBITDA: Net Interest*
3.5x
3.0x
2.5x
2.0x
1.5x
1.0x
2011
2012
2013
2014
2015
19x
17x
15x
13x
11x
9x
7x
5x
2011
2012
2013
2014
2015
* Calculated in accordance with lenders’ facility agreements which take account of adjustments as outlined on page 174.
Credit Facilities
Undrawn committed facilities at the end of the year were
€1,100.0m (2014: €867.0m) while undrawn standby facilities
were €340.3m (2014: €351.0m).
Full details of the Group’s financial liabilities, cash at bank and
in hand and credit facilities are disclosed in notes 23 and 24
to the consolidated financial statements.
FINANCIAL RISK MANAGEMENT
Within the Group risk management framework as described
in the Risk Report on page 54, the Group has a Financial Risk
Management Programme, which is approved by the Board of
Directors and is subject to regular monitoring by the Finance
Committee and Group Internal Audit. The Group does not
engage in speculative trading.
Share Price and Market Capitalisation
The Company’s shares traded in the range €56.50 to €77.70
during the year. The share price at 31 December was €76.31
(2014: €57.07) giving a market capitalisation of €13.4 billion
(2014: €10.0 billion). Total Shareholder Return for 2015 was
35%. (2014: 14%)
Investor Relations
Kerry’s senior management team are committed to
interacting with the international shareholder community
to ensure a full understanding of Kerry’s strategic plan, long
term targets and current trading performance. During the
year members of the executive management team presented
at 15 capital market conferences and met approximately 550
institutional investors at conferences, one-on-one meetings
and group presentations.
Further details relating to the Group’s financial and
compliance risks and their associated mitigation processes
are discussed in the Risk Report on pages 54 to 60 and in
note 24 to the consolidated financial statements.
SUMMARY AND FINANCIAL OUTLOOK
Against the backdrop of a volatile economic and market
environment, the Group delivered another strong performance
in 2015 generating revenue of €6.1 billion, trading profit of
€700m and free cash flow of €453m. At year-end the balance
sheet is also in a good position and with a net debt: EBITDA
ratio of 1.9 times, the Group has sufficient headroom to support
the future growth plans of the organisation.
Despite challenging market and financial conditions continuing
to prevail going into 2016, the Group looks forward to further
financial growth and development in the year ahead.
27
Kerry Group - 10 year earnings history
A history of
positive results
2006
€’m
2007
€’m
2008
€’m
2009
€’m
2010
€’m
2011
€’m
**2012
€’m
2013
€’m
2014
€’m
2015
€’m
Revenue
4,645.9
4,787.8
4,790.8
4,520.7
4,960.0
5,302.2
5,848.3
5,836.7
5,756.6
6,104.9
Trading profit
383.7
401.1
409.2
422.3
470.2
500.5
559.0
611.4
636.4
700.1
Computer software
amortisation
(2.0)
(2.6)
(3.6)
(4.5)
(4.3)
(5.4)
(8.7)
(11.5)
(13.6)
(18.7)
Finance costs (net)
(76.9)
(79.1)
(77.6)
(69.8)
(60.5)
(46.0)
(62.1)
(67.6)
(52.9)
(69.3)
Adjusted earnings
before taxation*
Income taxes (excluding
non-trading items)
Adjusted earnings
after taxation*
Brand related intangible
asset amortisation
Non-trading items
(net of related tax)
Profit after taxation
and attributable to
owners of the parent
304.8
319.4
328.0
348.0
405.4
449.1
488.2
532.3
569.9
612.1
(57.8)
(64.5)
(62.7)
(61.2)
(68.7)
(74.6)
(77.3)
(79.1)
(79.6)
(81.1)
247.0
254.9
265.3
286.8
336.7
374.5
410.9
453.2
490.3
531.0
(10.1)
(10.0)
(11.3)
(12.3)
(11.8)
(13.9)
(14.7)
(16.6)
(14.4)
(18.7)
(59.2)
1.2
(77.0)
(73.3)
(0.7)
0.1
(135.5)
(352.2)
4.0
13.1
177.7
246.1
177.0
201.2
324.2
360.7
260.7
84.4
479.9
525.4
Adjusted EPS (cent)*
132.8
142.4
151.8
163.9
192.1
213.4
234.0
257.9
278.9
301.9
* Adjusted EPS, adjusted earnings before taxation and adjusted earnings after taxation are calculated before brand related intangible asset amortisation and
non-trading items (net of related tax) which are considered more reflective of the Group's underlying trading performance.
** 2012 was restated in line with IAS 19 (2011) ‘Employee Benefits’ which was adopted as required by IFRS in 2013. All other years are presented as reported.
28
Kerry provides the largest,
most innovative portfolio
of Taste & Nutrition
Technologies and Systems,
and Functional Ingredients
& Actives for the global
food, beverage and
pharmaceutical industries.
29
Taste & Nutrition
Innovation led
by insight and
science-based expertise
Gerry Behan, President and CEO
of Kerry Taste & Nutrition
The changing marketplace continues to drive
a strong pipeline of innovation and demand
for Kerry’s Taste & Nutrition Technologies and
Systems. Solid market development was achieved
in all regions as the Group’s global and regional
customers addressed consumer demand for
‘better-for-you’, natural, authentic taste, ‘free-from’,
‘clean-label’, convenience products. Developed
market conditions remain challenging as food and
beverage providers compete to meet changing
consumer lifestyles, shopping behaviours and
retail / foodservice channel requirements. Regional
developing markets continue to be impacted by
slower economic growth, significant currency
movements and geopolitical issues. Against this
background, Kerry’s Taste & Nutritional technology
portfolio and Global Technology & Innovation
Centre network was to the fore in product
development and innovation through the Group’s
commercial alliances.
Reported revenue increased by 8.7% to €4.7 billion,
reflecting 4% business volume growth and 2.3%
lower net pricing. Trading profit grew by 11.9% to
€663m reflecting a 40 basis points increase in
divisional trading margin to 14.1%. In 2015, Taste &
Nutrition accounted for 76% of Group revenue and
84% of Group trading profit.
REVENUE
2015
€4,716m
GROWTH
4%*
TRADING PROFIT
2015
€663m
GROWTH
+11.9%
TRADING MARGIN
2015
14.1%
GROWTH
+40bps
* volume growth
30
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
AMERICAS REGION
Combining Kerry’s taste capability with
the Group’s unique Nutrition & General
Wellness enabling technology portfolio
delivered good growth throughout
American food and beverage markets
in 2015. Whilst sectoral industry issues
impacted overall development in some
traditional retail food categories, demand
for innovation accelerated in particular in
wellness, nutrition and snacking categories,
and to meet ‘eating-out-of-home’ market
requirements. Development in Latin
American markets was impacted by
significant currency devaluation particularly
in Brazil which impacted ‘out-of-home’
food consumption, but Kerry maintained
satisfactory business development in
Mexico, Central America and the Andean
region. The Group’s recent acquisitions
assisted growth in Brazil despite the
prevailing macro-economic conditions.
Sales revenue in the Americas region
increased by 21.4% on a reported basis to
€2,308m, reflecting 4.1% volume growth and
1.9% lower pricing.
Americas region market development
was boosted in 2015 through completion
of a number of strategic acquisitions.
Kerry achieved solid growth in the North
American meat sector and across American
foodservice channels through successful
deployment of Kerry taste technologies and
‘clean-label’ systems. The breakfast meats
sector provided good growth opportunities
at retail and foodservice level, and meat
snacking continued to grow across all
channels. Kerry coatings, seasonings,
fermented ingredient systems and smoke/
grill technologies achieved strong growth
based on such trends. KFI Savory, the
U.S. based savoury flavour business of
Kraft Food Ingredients acquired in June
2015, performed in line with expectations.
Wynnstarr Flavors assisted performance
in the North American culinary sector and
recent acquisitions assisted growth in the
Brazilian foodservice sector despite the
challenging macro-economic conditions.
31
Sales revenue in
the Americas region
increased by
21.4%
Central American markets presented
good growth opportunities. Baltimore Spice,
a Costa Rican based spices, seasonings
and condiments producer with production
facilities located in Costa Rica, Guatemala
and Panama acquired in July, significantly
strengthened Kerry’s market positioning in
the culinary and snack sectors in Central
America and the Caribbean.
The acquisition of Red Arrow Products
was completed in December significantly
strengthening Kerry’s taste technology
and savoury flavour industry leadership.
Operating from manufacturing facilities
in Wisconsin, supported by Application
& Development Centres in Germany
and Sweden, Red Arrow is a leading
supplier of natural smoke flavours
and authentic savoury grill flavours
serving meat, culinary and food industry
markets worldwide.
The snack bar and bagged snacks
categories continued to provide good
opportunities for Kerry innovation
including application of organic
certified seasonings. Savoury snack
applications achieved strong growth
in Mexico and Central America.
Development in the bakery sector was
driven by increased consumer demand
for ‘free-from’, ‘clean-label’, convenience and
tasteful products, enabling Kerry to record
solid growth through its Taste & Nutrition
technologies and gluten-free, organic and
non-GMO lines.
Trends in international dairy markets
limited development through dairy and
culinary systems. However Kerry saw
breakthrough innovation in the ice-cream
sector through its proprietary ‘Rapid
Fire’ development process, and through
smoothie and yoghurt applications. Kerry
continued to invest in the expansion and
broadening of its beverage solutions
technologies and to consolidate the
Group’s industry-leading positioning
as provider of the broadest portfolio
of beverage solutions. Taste and lower
calorie trends provided strong innovation
opportunities in soft drinks, coffee and
nutritional beverages. The fast growing
‘single serve’ market led to increased
applications in the hot beverage, soup,
broth and sauce markets. Kerry’s Big Train,
DaVinci Gourmet and Oregon Chai brands
benefited from growing consumption of
‘out-of-home’ beverages through c-stores
and specialist outlets. Extension of the Big
Train range to Kerry’s branded offering
in Latin American markets achieved
good results. Insight Beverages, a leading
U.S. based supplier of custom beverage
solutions to foodservice and convenience
store channels in North American markets,
acquired in May, performed in line with
expectations. In September the Group also
acquired Island Oasis a category leading
provider of all-natural premium cocktail
mixes and customised beverage solutions
serving ‘on-premise’, restaurant, leisure and
hospitality segments of the U.S. market.
Distributed and marketed though
national and regional chains, QSR’s
and independents; the Island Oasis
portfolio includes innovative frozen and
shelf-stable fruit purées, coffee blends,
performance nutrition beverage systems
and customised ‘on-premise’ beverage
equipment. Headquartered in Walpole
(MA), the business operates from
manufacturing facilities in Byesville
(OH) and Buffalo (NY).
Pharma ingredients continued to achieve
good growth throughout excipient and
cell nutrition applications across Kerry’s
global markets. Kerry saw increased
success in 2015 through the Group’s
custom-developed complex media
systems in cell nutrition. In September the
Group acquired Biothera Inc.’s Wellmune®
business which produces and markets
the unique Wellmune® branded natural
food, beverage and supplement ingredient
clinically proven to strengthen the
immune system – improving health and
wellness. Kosher, Halal, non-allergenic,
GMO-free, gluten-free and ‘Informed
Sport’ certified, Wellmune® is formulated
in a growing number of food, beverage
and supplement products in more than
fifty countries throughout the world.
ΜRead More
Our Business Model pg12
Our Strategy pg14
32
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
EMEA REGION
European economies continued to recover
in 2015 but the overall deflationary
environment continued to heighten
competitiveness in food and beverage
markets. Geopolitical instability continued
to constrain development in regional
developing markets. Kerry’s performance
throughout the region improved in 2015
with good growth reported in the second
half of the year. Nutrition and general
wellness trends continued to drive
development and innovation in EMEA food
and beverage markets with an increased
focus on sodium, calorie and fat reduction
coupled with continued growth in demand
for convenient food and beverage solutions.
Establishment of the Group’s Global
Technology & Innovation Centre in Ireland
mid-year, supported by Kerry Development
& Application Centres in Moscow, Dubai
and Durban has led to a significant increase
in customer engagement and innovation.
Business volumes in 2015 increased by
0.9% and with lower raw material pricing, in
particular dairy, overall net pricing reduced
by 2.9%. This resulted in reported revenue
of €1,546m similar to the prior year level.
Kerry dairy taste technologies and systems
continued to progress development
in the bakery, processed cheese and
spread sectors. While dairy and culinary
technologies were impacted by sectoral
competiveness issues, Kerry recorded
good growth and market development in
the foodservice channel. Snacking trends
provided good growth opportunities in the
appetizers market. Demand for clean-label
remains the primary driver of innovation
in a comparatively flat bakery market
providing increased opportunity for Kerry
fermentation technology. Competitiveness
in the European meat industry accelerated
the requirement for more differentiated
offerings including improved taste,
functionality and nutritional solutions.
Kerry continued to extend its beverage
and sweet taste technologies in the EMEA
region into wider market sectors including
the coffee segment, dairy beverages,
nutritional drinks and ‘beyond carbonates’.
Good growth was achieved through
Kerry’s natural extracts range and through
water and coffee enhancers. Functional
beverages exhibited good growth and
the energy drinks, RTD teas and coffee
segments provided solid opportunities
for innovation. Beverage systems
maintained strong growth, in particular in
the foodservice channel through Kerry’s
branded ‘Big Train’ and ‘DaVinci Gourmet’
products.
The MENAT sub-region delivered
encouraging growth through beverage
applications and snacks. Turkey based PST
Pastacilik Gida, a branded provider of sweet
ingredient solutions to the fine bakery,
confectionery, ice cream and foodservice
sectors in Turkey and the Middle East,
was acquired in July. Market conditions
in Sub-Saharan Africa remained highly
competitive. In South Africa, an increased
focus on sodium reduction has generated
innovation opportunities in the bakery,
snacks and meat sectors. The brewing
industry in Africa saw good growth where
Kerry achieved solid growth through its
beverage taste technologies. Industry
development in Russia continues to be
impacted by the political and economic
situation. While new product development
remains on hold, Kerry continued to
assist its Russian customers in recipe
optimisation and production processes.
The European primary dairy sector has
operated under extremely challenging
conditions in 2015 as a substantial increase
in output in exporting countries and a
slowdown in import demand led to a
significant fall in prices along the EU
dairy supply chain.
The Group’s Europe based nutritional
technologies continued to advance
applications across all life-stage end-use-
markets in particular in the Asian infant
nutrition sector. Ongoing investment at
Kerry’s facilities in Ireland has significantly
expanded production and packaging
capability to meet customer nutritional
product applications. Demand for
hydrolysed proteins for clinical and infant
nutrition continues to grow. Enzymes
delivered good growth in the bakery,
beverage and nutritional sectors.
The recently established Global Technology
& Innovation Centre in Ireland also includes
Kerry’s Global Centre of Excellence for
Nutrition. The Centre, which also hosts
Kerry’s Nutrition Discovery Centre, is the
focal point for the Group’s commercial,
technical, nutritional science and strategic
marketing teams and the Global Centre for
Kerry customer engagement on nutrition
and general wellness.
In 2015 the Kerry Health
and Nutrition Institute
supported by a Scientific
Advisory Council was
launched to bring
industry–leading insight
to the science and policy
of health, taste, nutrition
and general wellness.
33
Business volumes in
the Asia-Pacific region
increased by
10.1%
ASIA-PACIFIC REGION
Kerry continued to successfully establish
and consolidate a world-class operational
and market development footprint
throughout the Asia-Pacific region in
2015 – notwithstanding the slowdown in
economic growth and currency movements
in regional developing markets. Business
performance remained robust throughout
the region with an accelerated growth
level in Q4. Localisation of taste is critical
to success in individual markets which
increased the demand for innovation and
speed of launch. Demand for balanced
life-stage nutrition, healthy snacking,
convenient tasteful beverage applications
and customised foodservice solutions
continues to reflect strong growth. Regional
business volumes grew by 10.1%. Revenues
reported at €784m reflected the business
volume growth, 2.1% lower pricing, currency
movements and the impact of the sale of
the Pinnacle Lifestyle bakery business in
Australia completed in May.
Dairy Taste technologies continued to
achieve strong growth in particular
through cheese and butter systems
in Indonesia, Vietnam, China and the
Philippines. Snacking trends provided
strong innovation opportunities for Kerry
culinary applications in South East Asia.
Completion of the new sauce systems
production plant at Kerry’s Plentong
facility in Malaysia facilitated continued
growth through premium sauce systems
in Malaysia and China. Interest in Kerry’s
‘clean-label’ technologies is growing in
the region and achieved encouraging
development progress in the meat
and bakery sectors in Australia and
New Zealand.
Beverage taste technologies and systems
recorded strong growth – in particular
in the foodservice sector throughout
Asia-Pacific markets. Kerry’s branded
beverage offerings including DaVinci,
Café D’Amore and Big Train are
successfully extending market reach
into wider geographic markets and
channels – including c-stores. Solid
market development continues to be
achieved in India through beverage
flavours, emulsifiers, texturants and
meat systems.
ΜRead More
Our Markets pg13
Demand for protein enriched foods and
enhanced nutritional values across all
life-stages continues to grow in Asia.
Nutritional beverage applications led to
increased demand for Kerry hydrolysed
proteins particularly in clinical and infant
nutrition. Functional hydrolysates also
grew sales in the confectionery markets
in India and Indonesia. Demand for
premium quality infant nutrition products
in China continues to provide excellent
opportunities for growth through Kerry
nutritional technologies and systems.
Phase 1 of a major investment programme
at the Group’s Nantong, China production
facility was completed in 2015. The Group’s
recently acquired ‘Wellmune’ immune-
health ingredient continues to grow
applications in Asia – in particular in China
where results from a recently completed
clinical study added to the growing body
of clinical evidence of Wellmune’s ability to
strengthen the immune system of children.
Kerry continued to successfully establish
and consolidate a world-class operational
and market development footprint
throughout the Asia-Pacific region in 2015.
34
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
INNOVATION
Responding to snacking trends
Kerry Foods is an industry-leading
manufacturer and marketer
of added-value branded and
customer branded chilled food
products to the Irish, UK and
selected international markets.
35
Consumer Foods
Delivering
on consumer
needs
Flor Healy, CEO Kerry Foods
Consumer confidence has continued to grow in
the Irish and UK consumer foods markets in line
with the improved economic conditions in both
economies. Overall trading conditions remain
highly competitive due to retail competitiveness
arising from market polarisation and fragmentation,
the growth of e-tail and deflationary trends. The
deflationary environment has led to some category
volume recovery. Discounters have continued to
invest for growth which has led to broader retailer
focus on EDLP. Changing lifestyles have also
contributed to continued growth in snacking –
with increased demand for healthier options.
Online grocery shopping maintained a strong
growth momentum where Kerry outperformed
category e-tail growth rates.
The repositioned Kerry Foods’ portfolio
performed well against this background delivering
3% volume growth in 2015. Net pricing was 1.9%
lower. Following the sale of the division’s pastry
manufacturing assets in August 2014 and the
management buy-out of the Direct-To-Store
business in the UK completed at the end of
February 2015, sales revenue in the repositioned
Kerry Foods’ portfolio was reported at €1,476m.
Trading in the division’s continuing businesses
improved during the year, with reported trading
profit similar to the prior year level at €126m despite
the business disposals.
REVENUE
2015
€1,476m
GROWTH
3%*
TRADING PROFIT
2015
€126m
GROWTH
+0.2%
TRADING MARGIN
2015
8.5%
GROWTH
+20bps
* volume growth
36
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
UK BRANDS
UK Brands had a mixed performance due to
category specific competitiveness issues.
Mattessons meat snacks continued to
drive growth in the meat snacking sector
delivering double digit brand growth with
increased sales through the convenience
channel and successful extension of the
brand to the adults’ snack segment. In
the sausage sector, Richmond branded
offerings were impacted by the changing
promotional environment. Richmond
and Wall’s continued to bring innovative
offerings to the category through
convenient solutions meeting today’s
consumer lifestyles including ‘Richmond
Perfect Bake’ and ‘Wall’s Ready Baked’.
Cheestrings performed well in the UK
as the children’s cheese snack sector
returned to growth. ‘LowLow Snack Bites’
continued to grow the adult cheese snack
sector. ‘Pure’, Kerry Foods’ ‘free from’ brand
consolidated its leadership position in
the growing UK dairy-free spreads sector.
Rollover Ltd., acquired in January 2015,
extended Kerry Foods’ ‘hot-to-go’ UK
offering and channel distribution.
ΜRead More
Kerry Foods' strategic
growth pillars pg16
Richmond and Wall’s
continued to bring
innovative offerings to
the category through
convenient solutions
meeting today’s
consumer lifestyles.
UK Customer Brands achieved
strong growth in each of its key
sectors in the meal solutions
category – chilled ready meals,
‘Ready-to-Cook’ and frozen ready
meals. The frozen meals category
returned to growth where the Bisto
and Sharwood's brands achieved
excellent growth. The private
label spreads sector lost some
market share to block butter and
spreadable butter but Kerry Foods’
spreads volumes outperformed
the market significantly. A major
investment programme at Kerry
Foods’ Ossett production facility
was significantly advanced in 2015.
BRANDS IRELAND
Brands Ireland performed well in the Irish
grocery market which returned to growth
in 2015. The ‘Denny Gold Medal’ sausage
range achieved good brand growth year-
on-year. Kerry Foods ‘Fire and Smoke’ range
of branded sliced cooked meats recorded
an excellent performance – achieving
a number of notable innovation awards
including an international taste award at
Germany’s ANUGA Food Fair.
‘Dairygold’ maintained its brand leadership
position in the Irish spreads market and
LowLow consolidated its position as
brand leader in the low fat cheese and
spreads sectors. ‘Charleville’ achieved
good brand growth in the cheese category
and successfully launched the ‘Charleville
Snackfuls’ range of cheese snacking
products. 2015 saw ‘Yollies’, an innovative
children’s yoghurt snack range, gain
increased market momentum in the
Irish and UK markets.
International markets provided further
growth opportunities for the Cheestrings
range. Available now in eight European
markets, Cheestrings saw a strong
performance in France and Germany
in 2015.
37
Delivering brand
growth and
innovative, award
winning solutions.
Kerry Foods ‘Fire and Smoke’ range of branded sliced cooked meats recorded
an excellent performance – achieving a number of notable innovation awards
including an international taste award at Germany’s ANUGA Food Fair.
‘Dairygold’ maintained
its brand leadership
position in the Irish
spreads market.
38
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
Sustainability
At the heart of
our business
We are committed to the highest
standards of business and ethical
behaviour to fulfilling our responsibilities
to the communities which we serve
and to the creation of long-term value
for all stakeholders on a socially and
environmentally sustainable basis.
ΜRead More
‘Towards 2020’ strategy pg41
At Kerry Group, sustainability is at the heart of our business.
As a world leader in Taste and Nutrition and as a major consumer
foods organisation in Europe, we recognise our dependence on
natural ecosystems, our responsibilities to our communities and
the changing expectations of our customers and consumers.
Our sustainability journey is one of continuous improvement,
which aims to deliver a better future for all our stakeholders and
is a significant driver of behaviour within our organisation.
OUR APPROACH
At Kerry Group, we seek to identify the challenges and
opportunities associated with sustainability through an inclusive
process of engagement and risk management. In 2015, the
Group launched its comprehensive ‘Towards 2020’ strategy to
build on the success achieved through our ‘1 Kerry Sustainability
Programme’ between 2012 – 2015. ‘Towards 2020’ is a broad based
strategy with 4 key pillars, covering all aspects of our business,
and provides a framework to direct the activities that will ensure
Kerry achieves its goal of sustainable growth.
Under each pillar, we have prioritised the most pertinent issues
for Kerry Group and its stakeholders. We have carefully examined
the ways in which we can lessen our impacts and create value,
and we have set measurable targets for improvement in these
areas over a five year period.
ENVIRONMENT
SUSTAINABILITY
MARKETPLACE
SUSTAINABILITY
WORKPLACE
SUSTAINABILITY
COMMUNITY
SUSTAINABILITY
SECURING
SUSTAINABLE
GROWTH
39
Reduction in Waste sent
to Landfill in 2015
-12%
ΜRead More
Environment pg42
ΜRead More
Sustainable vanilla pg53
ΜRead More
Education, Arts and Sport pg53
ΜRead More
Concern RAIN project pg51
ΜRead More
Focus on food waste
initiative pg43
99% of our global sites
were accredited under
Global Food Safety
Initiative (GFSI) standards.
99%
ΜRead More
Workplace pg46
40
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
ΜRead More
Our Strategy pg14
Our sustainability
journey is one
of continuous
improvement,
which aims to
deliver a better
future for all our
stakeholders and
is a significant driver
of behaviour within
our organisation.
MATERIALITY
In the course of developing our ‘Towards 2020’ programme, we consulted widely with
internal and external audiences, to identify those issues of material importance for our
business and its stakeholders. This process has helped us refine our approach and focus
on those critical areas of impact. This sustainability review provides details of the Group’s
performance on those issues.
OUR VALUE CHAIN
Primary
Producer
Processor
Supplier
KERRY GROUP
Customer
Retail
& Food
Service
Consumer
STAKEHOLDER ENGAGEMENT
Stakeholder engagement continues to be an essential element of our work on sustainability.
As a predominantly B2B business, we are attuned to the needs of our customers and are
in continuous dialogue with them and other members of our stakeholder community. Our
engagement takes place at many levels within the organisation and in 2015, Kerry Group
sought to further enhance the engagement process with dedicated resources and the roll
out of online tools to support the practice. Feedback is captured on a continuous basis and
helps to inform the ongoing review process of our ‘Towards 2020’ programme, both
in terms of performance and materiality.
COLLABORATION
Delivering sustainability at Kerry Group is a shared responsibility and each employee has
a role to play in realising our ambitions for 2020 and beyond. However, we accept that the
broader challenges presented by sustainability demand a more holistic approach. In addition
to promoting greater internal cooperation, we are engaged in partnerships with customers,
suppliers and relevant third parties to help achieve our 2020 goals. In this sustainability
review, we reference a number of important multi-stakeholder initiatives that Kerry has
been involved with during 2015.
GOVERNANCE
Sustainability within the organisation is governed by the Kerry Group Sustainability
Council who provide leadership, appraise performance and promote industry best practice
throughout the Group. The Sustainability Council’s membership comprises Directors
of Group functions with responsibility for the implementation of all elements of Kerry’s
sustainability programme. The council is led by a senior executive who reports directly to
the CEO, who in turn reports to the Kerry Group Board of Directors on sustainability issues.
ΜRead More
Focus on food waste
initiative pg43
Sustainable Dairy pg47
Concern RAIN project pg51
ΜRead More
Board of Directors pg62
1 Kerry sustainability programme - ‘Towards 2020’
41
Marketplace
Quality / Sourcing / Nutrition
Workplace
People / Ethics
Community
Social / Economic
Environment
Climate / Efficiency / Waste
Continue to improve our
environmental stewardship
Drive efficiency in resource
use (energy & water)
Exceed in efforts to reduce waste
and increase recycling
Deliver on our brand sustainability
strategy plan
Achieve 100% ISO 14001 approval (all
Kerry manufacturing sites)
Achieve an overall 13% reduction in
GHG emissions by 2020 compared to
baseline year 2013, reflecting an overall
25% reduction compared to baseline
year 2009*
Reduce water use by 7% by 2020
compared to baseline year 2013,
reflecting an overall reduction of 11% by
2020 compared to baseline year 2011
I
S
N
O
T
A
R
P
S
A
I
I
N
A
L
P
C
G
E
T
A
R
T
S
R
A
E
Y
E
V
F
I
Continue to conduct our business in a
responsible and ethical manner
and be an employer of choice
Be a responsible neighbour by driving
and supporting outreach initiatives in
our local communities
Through our Code of Conduct we
will continue to provide a safe and
healthy environment in which to work
Continue to partner with the
international programme to alleviate
world hunger in developing regions
Continue to embrace diversity and
promote incusion across the Group
Promote Kerry Community Lead Projects
in each region
Through our focus on science and
technology development, we will
generate innovative products that
contribute to improving health and
wellbeing across all life-stages, creating
better lifestyles for people today and
future generations
Through our leading innovation and
product development expertise, we will
continue to enhance the nutritional value
of our ingredients and continue to assist
our valued customers
Make quality a distinguishing capability
Ensure responsible sourcing practices
Leverage Kerry’s Taste & Nutrition
technology platforms and applications
expertise to improve nutritional values
of food and beverage products in
partnership with our customers
Drive ethical business practices and
compliance to Kerry Code of Conduct
Assist and actively engage in development
programmes in our communities
to improve - health and nutrition,
entrepreneurship, amenity/community
development projects, education, arts and
sport, sustainable agriculture
Assist Concern Worldwide in
implementing the ‘RAIN’ (Realigning
Agriculture to Improve Nutrition) project
in the developing world
Deliver on our Kerry Foods’ ‘Better For
You’ Programme
Ensure wages are competitive and all
labour standards are fair, equitable and
meet or exceed local guidelines
Partner with our customers in
sustainable sourcing of strategic
ingredients. Achieve Kerry sustainable
raw material sourcing targets across our
raw material categories
Embrace diversity across our workforce,
our customer base and the communities
we serve
Develop Kerry Community Lead Projects
in each region
Reduce waste by 12% by 2020 compared
to baseline year 2013, reflecting an
overall 32% reduction compared to
baseline year by 2011
Ensure 100% of strategic and key supply
partners are formalised as members of
SEDEX and have signed our Supplier
Code of Conduct
Continue to improve Health and Safety
metrics across all Group sites
Assist community development
programmes in association with Kerry
Vanilla Project in Madagascar
Achieve Zero Waste to Landfill where
technically feasible in each jurisdiction
Maintain Global Food Safety Initiative
(GFSI) certification of all Kerry
manufacturing sites
Promote training and learning
opportunities to ensure ongoing
development
Achieve Group ISO 14001 approval
targets for 2016
Implement Kerry Carbon Reduction
Projects for 2016 in line with our
2020 targets
Implement Kerry Water Reduction
Projects for 2016 in line with our
2020 targets
Implement Kerry Waste Reduction
Projects for 2016 in line with our
2020 targets
Implement Kerry Global Quality
Management System (GQMS) and Kerry
Foods Manufacturing Standard (KFMS).
Certify all plants against an accredited
Global Food Safety Initiative (GFSI)
standard
Maintain SEDEX membership across all
Group manufacturing sites
Achieve SMETA or equivalent
certification across all Kerry Developing
Market manufacturing plants
Support and partner with International
Nutrition Research programmes
Implement our Origin Green
Programme in Ireland
Achieve Kerry Foods’ ‘Better For You’
Programmes’ annual goals
S
L
A
O
G
6
1
0
2
Drive day to day business decisions
through our defined Kerry Values
Formalise community engagement
programmes in all our communities
through Kerry Community Relations
Committees and Community Relations
Ambassadors
Achieve annual target for all Kerry
employees to have completed the Kerry
Code of Conduct training through the
Learning Academy
Share community support best
practices through ‘Kerry Community
Relations’ site
Ensure compliance with Kerry Global
Health & Safety Management Systems
Formalise support for employee
philanthropy programmes
Implement our Origin Green
Programme in Ireland
Achieve a 5% reduction in recognised
Global Health & Safety metrics across
all sites
Promote diversity by building a
workplace that is free of prejudice and
actively fosters the appreciation of
diversity throughout the organisation
Progress Kerry sustainable raw material
sourcing objectives
Implement our Origin Green
Programme in Ireland
Promote Health, Nutrition & General
Wellness through Kerry’s Nutrition
Centre of Excellence and the Kerry
‘Health & Nutrition Institute’
Implement our Origin Green
Programme in Ireland
*Achievement of total target improvement by 2020 is dependent on completion of a planned new Combined Heat and Power (CHP) energy solution at the Listowel plant in Ireland.
42
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
Environment
The increasing impact of man-made activities on natural ecosystems is widely
acknowledged. Climate change, resource scarcity, access to water, all of these are
issues with universal consequences. To help ensure good environmental stewardship
within our operations, the Group’s Environmental Policy sets out our core goals for
managing impacts at site level. Ongoing improvement projects in our focus areas of
Emissions, Waste and Water are supported by new technologies, processes, innovation
and by some of the most experienced and highly trained experts in the industry.
EMISSIONS
Green House Gas (GHG) emissions reduction is a priority for Kerry Group. Over the past
number of years we have been increasingly focused on managing and reducing our carbon
footprint. We measure our footprint in accordance with the GHG Protocol and since 2013,
have employed the services of an independent third party, Jacobs, to provide assurance on
our carbon measurement and performance. We report annually to CDP (see Note 6), using
it to communicate and benchmark our performance and we are continuously striving to
improve our scores. Kerry Group has targeted a 13% reduction in carbon intensity between
2015 and 2020, compared to baseline year of 2013. This builds on a 13.4% reduction
achieved since 2011. Although our rate of reduction slowed in 2015, due to changes in
production volumes at key sites and delays to some carbon efficiency projects, we realised
a carbon saving of 1.6% and remain on track to meet our 2020 goal.
Carbon
Co2 per Tonne*
% Change
*Novem Adjusted
2013 Base Year
2020 Target
2015 Target
2015 Performance
323.28kg
281.25kg
-13%
311.27kg
-3.9%
317.99kg
-1.6%
Notes
1) The GHG Protocol sets the global standard for how to measure, manage and report
greenhouse gas emissions.
2) Kerry Group’s KPI on Carbon is a relative measure of CO2 divided by Tonnes of Finished Goods.
3) Our measurement and target performance is of Scope 1 & 2 emissions from our manufacturing
facilities (this accounts for 98% of Kerry Group’s Scope 1 & 2 emissions)
a. Scope 1 emissions consist of fuel and fugitive emissions. No process emissions are generated
from Kerry’s activities.
b. Scope 2 emissions consist of electricity consumption by sites.
4) Kerry Group’s actual performance has been adjusted to reflect like-for-like performance to our
baseline year. We use the Novem Methodology for carbon reporting to adjust our baseline target
reduction number in order to account for changes to product mix that have had a material effect
on carbon intensity.
5) The Novem Methodology predicts what the absolute GHG emissions for the production of a group
of products would be if the base year emissions per tonne were applied to today’s production levels
and product mix. This allows a meaningful comparison between two production periods based on
improvements in the emissions per tonne for each product group. The Novem procedure applies
only where targets are relative and Kerry Group measures GHG emissions on a CO2 per tonne
output basis.
6) CDP is an international non-profit working with business, investors and governments to help
manage environmental risk and drive emissions reduction.
JACOBS SUMMARY ASSURANCE STATEMENT
Jacobs has assured Kerry’s greenhouse gas performance data (scope 1 and 2
emissions) from its manufacturing facilities for 2015 in accordance with AA1000AS
(2008). Jacobs evaluated the systems and processes used to collate and report the
greenhouse gas performance data. Jacobs has been able to obtain a moderate level of
assurance for the data reported in the Group Annual Report 2015. Jacobs full assurance
statement can be found on Kerry’s website www.kerrygroup.com
Reduction in CO2
intensity in 2015
-1.6%
Reduction in Waste
intensity in 2015
-10.7%
Reduction in Water
intensity in 2015
-4.7%
Reduction in Waste sent
to Landfill in 2015
-12%
Food Recovery in
Ireland & UK
27,500 Cases
Performance versus ISO
14001 approval targets
98.5%
Malaysian carbon award
In 2013, the Malaysian Prime
Minister announced plans to work
towards a 40% national reduction
in carbon intensity by 2020. To help
manage this transition, Malaysia
initiated the MYCarbon programme.
This National Corporate GHG
Reporting Programme aims to
promote advanced GHG reporting
and management by organisations
in Malaysia, particularly in the
private sector. Each year the
programme recognises companies
that have excelled in their carbon
reduction efforts and staff at Kerry’s
site in Plentong were delighted to
be shortlisted for last year’s award,
in recognition of a 21% reduction in
carbon intensity achieved at the site
during 2015.
43
WATER
Kerry is focused on both the quantity of water used in our
operations and the quality of the water discharged from our sites.
We also recognise that water stress is a growing global issue and
in 2015 we began to assess our operations base with a view to
focusing greater attention on conservation measures at
sites in water stressed regions. Having already achieved a 4.2%
reduction in water use between 2011 and 2014, Kerry has targeted
a further 7% reduction by 2020. In 2015, we reduced our water
consumption by 4.7%, ahead of target for the year, and on track
to deliver on our 2020 goal.
Water
m3 per Tonne FG
% Change
2013
Base Year
2020
Target
2015
Target
2015
Performance
4.90
–
4.55
-7%
4.78
-2.4%
4.67
-4.7%
Notes
1) Our target for water is a relative measure of metres cubed (m3) divided
by tonnes of product produced
2) Our target performance is water usage at our manufacturing facilities
3) Our actual performance has been adjusted to reflect like for like
performance to our base year
WASTE
In addition to reducing our overall waste volumes, we look to divert
waste from landfill and work with our suppliers to reduce waste at
source. We seek opportunities to turn waste into a resource and in
2015 launched a project in Malaysia to turn by-product from our
Waste Water Treatment Plant into organic fertiliser. We also have
an increasing focus on food waste and partner with a range of
charities to distribute food products to those in need within our
local communities. Having achieved a 20% reduction in waste
between 2011 and 2014, Kerry committed to a further waste
reduction of 12% between 2015 and 2020. In 2015, we achieved
an overall 10.7% reduction in waste intensity and a 12% reduction
in waste sent to landfill.
Water
2013
Base Year
2020
Target
2015
Target
2015
Performance
Kgs per Tonne FG
103.23
% Change
–
90.84
-12%
99.10
-4%
92.15
-10.7%
Notes
1) Our target is a relative measure of waste divided by tonnes of
product produced.
Water reduction at Padiham (UK)
At our site in Padiham, England, we manufacture
technical ingredients for the UK food industry.
Through a focus on water conservation measures,
the site has achieved a 72% reduction in water
intensity over the past two years. This has been
achieved through a combination of short and long
term projects that include improved monitoring,
process optimisation, education and training.
Targeted sites
certified
98.5%
ENVIRONMENTAL
MANAGEMENT SYSTEMS
To support our efforts on environmental
stewardship, accredited environmental
management systems are progressively
being established across our sites.
Building on the 100% accreditation
of all Kerry Foods sites, the Group
continues to make good progress
against its ISO 14001 implementation
targets. In 2015, 98.5% of targeted
sites were certified. We will continue to
advance certification of our remaining
sites in 2016 with anticipated certification
of all qualifying sites in 2017.
Focus on food waste (UK & Ireland)
In 2015, almost 25,000 cases of Kerry Foods
products in Ireland were diverted from waste
to those most in need through our charity
partner ‘Heart to Hand’. Through this initiative,
food which meets our strict quality standards
but which cannot be sold, is redistributed to
a range of hostels, shelters and kitchens that
serve the poorest in our communities. Following
the success of this initiative in Ireland, we
have looked to replicate the model in the UK
and towards the end of 2015 began working in
partnership with ‘FoodShare’. In that short space
of time we have already donated another 2,500
cases of food to those in need in the UK.
44
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
Marketplace
Spend on Research,
Development &
Application in 2015
€234 million
Priority categories
identified for
responsible sourcing
10
Kerry manufacturing sites
with GFSI certification
99%
Kerry manufacturing sites
with SEDEX membership
100%
Kerry developing region
sites with SMETA or
equivalent certification
97%
We will play a positive
role in helping to
transform the health
and sustainability of
consumer diets.
At Kerry Group, we know that the products we produce have an impact beyond our
factory gates. In addition to producing our own consumer brands, our Taste and
Nutrition ingredients are an integral part of some of the world’s best known food and
beverage products. We want to ensure that as well as improving taste and nutrition,
we can demonstrate that our raw materials come from sustainable sources, and that
those who help to produce them are treated fairly. Through our activities under the
Marketplace pillar, we will play a positive role in helping to transform the health and
sustainability of consumer diets.
HEALTH & NUTRITION
Everyday millions of people consume food or beverage products produced by Kerry
or by our customers using our products. Through our leading innovation and product
development expertise, we work closely with our customers to develop and deliver great-
tasting, nutritious foods and beverages. We do this through combining our expertise in
dietary requirements and nutrition with the most comprehensive portfolio of Taste and
Nutrition solutions and an understanding of consumer attitudes to health and wellness.
2015 saw Kerry continue to expand its Taste and Nutrition capabilities with the official
opening of the Kerry Global Technology & Innovation Centre in Ireland. This state of the art
facility is home to some of the world’s leading food and nutrition experts and the Group’s
Global Centre of Excellence for Nutrition. During the year we also launched the Kerry
Health and Nutrition Institute which aims to be the ultimate destination for expert insight
into the science and policy of health, nutrition and general wellness. We continue to invest
heavily in Research Development & Application and in 2015 our global spend in this area
was €234 million.
ΜOnline
See www.kerry.com
for more information
45
8% reduction in
calories in fat
spreads in 2015
8%
KERRY FOODS’ ‘BETTER FOR YOU’ PROGRAMME
Nutritional Improvements 2015
Calories
in
8%
fat spreads
category
Sodium
in
14%
uncured meat
category
Positive
Nutrition
e.g. Cheestrings
contains 20%-25%
(NRV) vitamin D
and calcium
Clean Label
e.g. 100%
natural ingredients
ham
Saturated Fat
5%
in
sausage
category
The primary focus of our ‘Better For You’
programme is to reduce calories, saturated fat,
and sodium, and add positive nutrition as
appropriate without compromising on taste.
Kerry Foods’ ‘Better For You’ Programme aims to improve existing products and
develop new ones that can contribute to a healthy balanced diet and lifestyle. The
primary focus of our ‘Better For You’ programme is to reduce calories, saturated fat,
and sodium, and add positive nutrition as appropriate without compromising on
taste. A strong scientific foundation underpins our reformulation priorities.
In 2012, Kerry Foods joined the Department of Health Public Health Responsibility
Deal calorie reduction pledge in the UK. As part of this pledge, our goal was to
reduce calories by on average 5% in key brands across the categories in which
we operate. Building on our 2012 to 2014 achievements within the uncured meat,
cheese and sausage categories, we delivered an 8% reduction in calories in fat
spreads in 2015. In 2014, Kerry Foods also became a signatory to the saturated fat
reduction pledge under the UK Responsibility Deal. As part of this commitment, a
5% reduction in saturated fat in sausage was achieved in 2015. Building on previous
salt reduction work, we continue to explore new technologies to achieve further
sodium reduction across our portfolio. With regard to new product development,
Yollies, an innovative children’s yoghurt snack range, was launched in 2015. This
product range contains strictly controlled levels of calories, saturated fat and sugar
and is categorised as non HFSS (high fat, sugar, salt) under the UK Department of
Health nutrient profiling scheme. Yollies is a source of calcium and vitamin D.
Kerry Health and
Nutrition Institute
The Kerry Health and Nutrition
Institute aims to provide
information on scientific research
and communicate the latest
developments in nutrition science
and health, to further highlight
nutritional advancements in food
and beverage product development.
Supported by a Scientific Advisory
Council, which includes independent
and recognised leaders in the area
of nutrition science and research,
the institute will promote and
develop technologies that meet
consumer needs as they seek to
pursue healthier diets and lifestyles,
and bring industry leading insight
to the science and policy of health,
taste, nutrition and general wellness.
ΜOnline
Find out more at
kerryhealthandnutritioninstitute.com
46
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
99% of our global sites
were accredited under
Global Food Safety
Initiative (GFSI) standards.
99%
QUALITY & FOOD SAFETY
Kerry is committed to excelling in the provision of the
highest quality products and to ensuring the complete
safety of all the goods which we produce. Under Kerry’s
Global Quality Management System, each business unit
has developed exacting product and service standards
that support our goals. We have put in place resources
and programmes to assure superior manufacturing
practices, that reflect continuous improvement through
our people, practices and processes. We work with
recognised assurance standards to provide confidence
to our customers and in 2015, 99% of our global sites
were accredited under Global Food Safety Initiative
(GFSI) standards.
ΜOnline
See www.kerry.com
for more information
RESPONSIBLE SOURCING
Kerry Group sources goods and services from independent suppliers located around
the world. To help mitigate the environmental impacts associated with the production of
some commodities, it is essential that we work together with customers and suppliers to
understand how to build sustainable and resilient supply chains. As a responsible buyer
we also want to ensure that workers who produce these raw materials are treated in
accordance with our own values around fairness and respect.
SUSTAINABLE AGRICULTURE
As part of our ‘Towards 2020’ programme, Kerry Group has identified ten raw material
categories that are of strategic importance to our business. Within these categories
we seek to use our purchasing power to support sustainable production practices
throughout the supply chain.
Dairy
Meat
Citrus
Herbs & Spices
Palm Oil
Fruit & Vegetables
Cocoa & Coffee
Sugar & Molasses
Vanilla
Paper Packaging
SSAFE Membership
Kerry Group is a member of SSAFE,
a global non-profit membership
organisation working to integrate
food safety, animal health and
plant health across food supply
chains to improve public health
and wellbeing. The SSAFE initiative
brings together industry leaders,
government bodies, academia and
other stakeholders to find ways
to enhance the integrity of the
food system.
It is essential that we
work together with
customers and suppliers
to understand how to
build sustainable and
resilient supply chains.
In each category we identify the priority issues and look at how we can drive improvement.
We adopt a tailored approach to our sourcing targets and while certification has an
important role to play, in some regions more direct involvement is required (see our vanilla
sourcing project on pg 53). In 2015, we have continued the work to map our supply chain
and to build a roadmap for achieving our sustainable sourcing targets by 2020.
ΜRead More
Sustainable Vanilla pg53
In 2015, Kerry Group also joined the Sustainable Agriculture Initiative (SAI), building on
our membership of the pioneering ‘Origin Green’ programme in Ireland. Our involvement
with these initiatives will help us to pursue more collaborative engagement with key
stakeholders and create the basis for a common approach to sustainable sourcing.
Sustainable Dairy
In Ireland, Kerry Group is an
inaugural member of the Origin
Green initiative (see opposite).
At farm level, the programme has
developed the ‘Sustainable Dairy
Assurance Scheme’ (SDAS), the
first internationally accredited,
national sustainable dairy
programme in the world.
As part of our sustainable
sourcing goals, we have set
ourselves the target of sourcing
100% of our milk in Ireland from
SDAS certified farms by the end
of 2016, alongside the sustainable
sourcing of dairy raw materials in
North America in collaboration
with our customers. In Ireland,
our entire supplier base will
undergo detailed independent
quality and sustainability audits
every 18 months, which will
provide a carbon footprint for
each farm. In addition to these
audits, farmers will be supported
with practical advice on how to
improve efficiencies and reduce
their environmental impact
through the online ‘Carbon
Navigator Tool’ and our peer-to-
peer learning programme ‘Focus
on Profit’.
At the end of 2015, 97% of our
milk suppliers were signed up to
the SDAS programme and 60% of
supplier farms have already been
fully certified. Kerry Agribusiness
is working closely with the
remaining farmers to ensure that
we achieve our target of 100%
certification by the end of 2016.
SOCIAL COMPLIANCE
Kerry Group looks to ensure that those we do business with
meet our expectations around human rights and the fair
treatment of workers. Our ‘Supplier Code of Conduct’ sets forth
the standards to which Kerry Group expects its suppliers to
adhere. This code is a mandatory part of the supplier selection
process and is subject to continued monitoring. Kerry uses the
Supplier Ethical Data Exchange (SEDEX) to share details of our
social and environmental performance and to monitor supplier
compliance. We are working with strategic and key supply
partners to ensure that by 2020, all are registered members of
the platform. In 2015, 100% of Kerry manufacturing sites were
registered members of SEDEX and 97% of sites in developing
regions had achieved SMETA (SEDEX Members Ethical Trade
Audit) or equivalent certification.
ORIGIN GREEN
In 2013, Kerry became an approved member of Origin Green,
An Bord Bia’s (the Irish Food Board) sustainability programme,
designed to make Ireland a world leader in sustainably
produced food and drink. The programme operates at
processor and primary producer level and as part of Kerry’s
commitment, we have submitted a ‘Sustainability Charter’ for
our Irish based operations. This charter outlines our ambitions
and targets in key sustainability areas over a defined period of
time and our performance against these targets is verified by
independent audit body, SGS, on an annual basis.
47
ΜOnline
See www.kerry.
com for more
information
The Group has established
best practice guidelines
for nutritional labelling
across our portfolio, in line
with Food Information to
Consumers legislation (EU
Regulation No 1169/2011).
MARKETING AND COMMUNICATIONS
Kerry is passionate about promoting the real food values of our products and in
our customer communications we ensure a responsible approach, with particular
consideration given to the status of children. All our advertising and brand
positioning conforms to national advertising codes of practice. We also provide
clear information necessary for consumers to make informed choices through on-
pack nutritional labelling and the development of additional consumer information
services e.g. brand websites. The Group has established best practice guidelines for
nutritional labelling across our portfolio, in line with Food Information to Consumers
legislation (EU Regulation No 1169/2011). In addition to mandatory labelling
requirements, we support the voluntary addition of front of pack ‘Reference Intake’
information to aid consumer choice. We also employ customer enquiry lines which
are manned by experienced teams who help to answer all nutritional queries in an
efficient and professional manner.
48
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
Workplace
With 23,000 employees across the globe, our diverse high performance teams are
key to our innovative culture and ongoing success. Retaining and developing their
enthusiasm and determination to succeed is central to the Group’s strategy for
growth and development. At Kerry Group, we aim to provide an environment where
each employee can flourish. To do this we focus our efforts under the workplace
pillar on ethical business practices, mutual respect and the provision of a safe and
healthy workplace.
At Kerry Group we aim to provide an environment
where each employee can flourish.
Kerry’s global workforce
23,000
employees
Improvement in Health
& Safety metrics
10%
Learning & Development
Customised
Kerry training
programmes
Kerry’s position on child
and forced labour
Zero
tolerance
ETHICS
Achieving business results ethically and legally will always be an absolute expectation
at Kerry Group because our everyday actions are the basis of trusting, productive
relationships with each other and with our stakeholders. Through our Code of Conduct,
we set out a commitment to live our values and focus attention on ethical business
practice. In 2015, we developed an online training module around the Code of Conduct to
help each employee fully understand what is expected from them under the Code.
Kerry remains a non-partisan organisation and Group businesses are prohibited from
supporting political parties, either directly or indirectly. The Group or its constituent
businesses do not make financial contributions to political parties, political candidates
or public officials.
Our everyday actions
are the basis of
trusting, productive
relationships with
each other and with
our stakeholders.
ΜOnline
For more details on all our policies and codes in
relation to the workplace, including Human Rights
and Business Ethics, please visit our Group website at
www.kerrygroup.com/sustainability/workplace
HUMAN RIGHTS
As a business, we also want to ensure that our policies reflect
our commitment to upholding internationally recognised human
rights and these policies are aligned with relevant United Nations
and International Labour Organisation conventions. Foremost
among these is our commitment to no child or forced labour. All
employment with Kerry is voluntary. We do not use child or forced
labour in any of our operations or facilities. We do not tolerate any
form of unacceptable treatment of workers and we fully respect
all applicable laws establishing a minimum age for employment, in
order to support the effective abolition of child labour worldwide.
In 2015, we continued to extend our standards on these and other
labour issues into our supply chain, through our Supplier Code of
Conduct. This code sets out the expectations we have of our key
business and strategic supply chain partners.
We do not use child or forced labour in
any of our operations or facilities and we
do not tolerate any form of unacceptable
treatment of workers
Kerry Group has a range of processes and systems in place
to manage compliance with the above requirements and also
operates an Employee Concerns Disclosure Policy. Under this
policy, employees with concerns about labour issues, or any other
business practice, can report these freely through an appropriate
independent channel.
HEALTH & WELLBEING
The health and safety of our employees is a key priority at Kerry
Group and the Group’s safety policy establishes the fundamental
principles that all employees must consider in their role and their
business decisions. Implementation of our Global Health & Safety
Management Systems continues throughout all Group businesses
and in 2015 we achieved a 10% improvement in regional global
safety metrics, ahead of our stated target of 5%.
We also recognise that there are other factors that can impact
upon employee wellbeing and at Kerry we aim to support our
colleagues in leading healthy, active lifestyles. Across the Group
in 2015, we have supported a range of initiatives at site level to
encourage people to become more active, to improve their diet
and to pay greater attention to their health and wellbeing.
49
LEARNING & DEVELOPMENT
At Kerry we aspire to develop a culture of high performance
and are committed to helping colleagues grow and develop.
We believe in people with big ideas and want to encourage
learning opportunities. Kerry’s Learning Academy and our HR
teams help to deliver structured training and development
programmes for employees, through which they can acquire
the skills, knowledge and capabilities necessary for further
growth within the organisation.
Our ‘Best-in-Class’ Graduate Development programme provides
an accelerated career path and is designed to equip graduates
with the knowledge and skills necessary for them to take on
early leadership roles in Kerry.
DIVERSITY & INCLUSION
The Group is committed to the principles of equality and
diversity and has fully adopted all relevant equality and
anti-discrimination legislation. We encourage and embrace
differences in terms of education, experience, values and culture.
We recognise that to thrive globally requires a strong foundation
of tolerance and the ability to develop a truly diverse workforce.
It is our policy to communicate honestly and openly with each
other at all levels and employees are encouraged
and expected to contribute their thoughts and ideas during
this two-way process. In 2015, we continued the roll out of
our unique and customisable ‘mykerry’ platform to facilitate
greater employee communication and collaboration.
We encourage and embrace differences
and recognise that to thrive globally
requires a truly diverse workforce.
Health & Safety Award
In May 2015, Kerry received the award for the best project to improve occupational health
and safety at the annual Prévigesst Mutual Banquet in Quebec. At our Granby plant
we manufacture liquid flavours in stainless steel tanks and the manipulation of these tanks
had previously caused some safety concerns. Through an innovative redesign, the team
at Granby customised the tanks to better suit the plants needs and minimised the risks
associated with their handling. Since the conclusion of the project there have been no
incidents involving the tanks and employee safety on site has been further enhanced.
50
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
Community
Broad community
engagement programe
5
focus
areas
Phase 1 of Concern RAIN
Project in Zambia
Completed
Employee support
for charity partners in
LATAM
95%
Food donated to those in
need in North America
272 tonnes
In the past 5 years
the Kerry Group has
contributed over
�1.25 million to the
‘RAIN’ project in
Zambia.
�1.25
Million
ΜRead More
Human Ingredient,
Art Workshop,
Brazil pg52
With its roots in the cooperative sector in Ireland, Kerry Group has a proud
record of community engagement and support. Since its foundation, the
Group has contributed significant time and resources to initiatives and
charitable causes in the regions where we operate and the philosophy of
positive engagement with local communities continues to be a core value
of the organisation.
Within local communities our primary areas of focus and support are as follows:
a) Health, Hunger & Nutrition
b) Entrepreneurship
c) Community Development
d) Education, Arts & Sport
e) Sustainable Agriculture
51
HEALTH, HUNGER & NUTRITION
As the world’s leading Taste and Nutrition company, Kerry Group understands
the primary importance of nutrition across all life stages. We welcome the call to
action provided by the UN Sustainable Development Goals particularly on the
achievement of agreed targets for child stunting. Under-nutrition during the first
1000 days is a leading cause of stunting and has serious implications for a child’s
future wellbeing and prosperity. In Zambia, where more than one million children
are impacted, Concern is working to alleviate child stunting through the award-
winning ‘RAIN’ (Realigning Agriculture to Improve Nutrition) Project. Given the fit
between the aims of this project and Kerry’s objectives on nutrition, we are proud
to support their work.
Queen, 36, stands in her vegetable garden. Queen is a participant in
Concern's rain programme and has received tools, seeds, livestock
and training. Gareth Bentley/Concern/Zambia/2014.
Concern RAIN project, Zambia
Since 2011, Kerry Group has been supporting Concern’s
pioneering work in the Mumbwa District of Zambia. The first
phase of the RAIN project has now concluded and the full
impact of the programme over the last five years is currently
being assessed by the International Food Policy Research
Institute (IFPRI). Initial results are encouraging and show that
the RAIN project has resulted in a diversification in diet among
participants, improved feeding practices among pregnant
and lactating women and delivered a greater gender balance
in household decision making, as well as in community and
district structures.
Highlights from the RAIN Project in 2015 include:
– A 40% increase in the number of group meetings
led by Smallholder Model Farmers
–
1,998 home visits to individual farmers, about
45% of the total number of beneficiaries
– Ongoing engagement with rural health clinics and
environmental health technicians to deliver health
and nutrition information including the provision of
visual aids to support learning.
– Distribution of pumps and sprayers to enhance
agricultural activities in light of the poor rainy
season in 2014/2015
– Provision of 53 additional solar driers that help
to reduce the time taken to dry surplus fruit
and vegetables
– Partnering with the District Medical Office on the
distribution of weighing scales to health centres to
allow for the monitoring of children’s growth and to
improve the rates of community outreach
– Rehabilitation of a further 10 boreholes which was
of particular significance given the poor rains during
this period.
52
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
ENTREPRENEURSHIP
Through its daily activities and community development work,
Kerry Group seeks to foster enterprise, innovation and
development. We promote learning opportunities for young people
through work placement programmes at our major corporate
centres. Our responsible sourcing practices look to support
smallholder farmers and much of our community development
projects take place in rural areas, giving rise to local employment,
supporting disadvantaged areas and promoting local enterprise.
For example our support for Listowel Food Fair, which takes place
in South West Ireland, promotes awareness of the quality food and
beverage products made by local entrepreneurs.
Through our daily activities and
community development work,
we seek to foster enterprise,
innovation and development.
COMMUNITY DEVELOPMENT
Kerry Group and its employees around the world play a key role in
efforts to support local communities where we operate. In Ireland,
the Group provides ongoing support for the Children’s Medical
and Research Foundation, the Hospice and our Hospitals. In 2015,
we also gave vital funding to local mountain rescue teams and
provided sensory equipment to schools enrolling children with
acute learning difficulties. In Latin America, our ‘Human Ingredient’
programme continued to harness the generosity and goodwill of
our colleagues in the region. They contributed their time, skills and
donated practical gifts to provide support for local children in need
and achieved a participation rate of 95% in a campaign to support
their chosen charity partners.
In the US, our ‘Live United’ Campaign continues to engage Kerry
employees in projects that have a meaningful and lasting impact on
their communities. In 2015, they donated over 272 tonnes of food
to those in need, mobilised recycling programmes, raised funds for
local charities and helped to plant community gardens.
Kerry Park
In 2015, our site in Owen, Wisconsin, adopted
a local park that was neglected and in need
of repair. The community team repaired the
building, added picnic tables and a custom-made
bench. The park renovation has been welcomed
within the community and future projects include
adding more recreation equipment, implementing
a waste stream programme and adding an
outdoor cooking area. In light of Kerry’s efforts
on this project, the park has been renamed,
Kerry Park.
Kerry Group and its
employees around the
world play a key role
in efforts to support
local communities
where we operate.
53
Sustainable vanilla – Madagascar
Kerry Group continues to work directly with farmers
in Madagascar to ensure the sustainable sourcing
of vanilla. In the municipality of Maroambihy, in the
SAVA region, we have partnered with our supplier to
ensure the development of a more sustainable supply
chain. This project delivers benefits for Kerry Group
in terms of product quality, while at the same time
creating long-term value for the local communities
that produce the vanilla beans. In 2015, we have
continued to make progress on key elements of the
programme particularly around increasing farm
incomes and the empowerment of women. We are
delighted to have expanded our reach in the last 12
months by doubling the number of villages involved.
In the year ahead we aim to further expand the
programme both in terms of the numbers involved
and the positive impacts we deliver for farmers and
the wider community.
EDUCATION, ARTS AND SPORT
Kerry sponsors a range of activities across the areas of Education,
Arts and Sport. The Group provides funding for scholarships, local
cultural and performance programmes and a range of sporting
disciplines. In 2015, we continued our support for Siamsa Tíre’s
National Folk Theatre of Ireland and ‘Listowel Writers Week -
International Literary Festival’, including the prestigious ‘Kerry
Group Award’ for Irish fiction. We contributed to the US Embassy’s
‘Creative Minds Series’ that aims to foster collaboration between
young people in Ireland and the United States and in 2015, Kerry
Group was the corporate sponsor of the Art Institute of Chicago’s
inspiring exhibition, ‘Ireland: Crossroads of Art & Design 1690 –
1840’, which celebrates Ireland’s rich arts heritage. We are also the
proud sponsors of numerous sporting activities including, Kerry
GAA, the Kerry Group International ‘Rás Mumhan’ cycling event and
the Children’s Community Games.
Kerry Group sponsors
a range of activities
across the areas of
Education, Arts
and Sport.
SUSTAINABLE AGRICULTURE
Sustainable agriculture is a vital component of both our sourcing
and community programmes. Through our involvement with
Concern’s RAIN project in Zambia, and our own sustainable
sourcing commitments, we look to support farmers and help
preserve vibrant and economically viable rural communities.
ΜRead More
Concern RAIN project pg51
54
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
Risk Report
Effective risk
management
The Group has identified a number of
risks which, if they arise, could potentially
impact the achievement of its strategic
objectives. The Board is responsible for
determining the nature and extent of the
risks it is willing to accept in achieving
the strategic objectives. Whilst the
Group’s diversity in terms of geography,
number of manufacturing locations
and broad customer and product base
reduces the impact that any one risk can
have, all risks need to be monitored and
managed to achieve a profitable return
for shareholders.
ΜRead More
Governance Structure pg71
KERRY GROUP RISK MANAGEMENT FRAMEWORK
The Group’s risk management framework, which is designed to
identify, manage and mitigate potential risks that are potentially
material to the achievement of the Group’s objectives is outlined in
the diagram below. Appropriate governance structures are in place
to ensure there is clarity of ownership and responsibility for risk
management throughout the Group.
Board of Directors
Audit Committee
Risk Oversight Committee / Executive Management
1st LINE OF
DEFENCE:
Operational
Management
Internal Control
Measures
(Policies,
processes,
tasks and
behaviours)
2nd LINE OF
DEFENCE:
Oversight
Functions
Performance
Reviews, Self-
Assessments,
Ongoing
monitoring
3rd LINE OF
DEFENCE:
Assurance
Providers
Provide
assurance on
the operation of
the 1st and 2nd
lines of defence
Board of Directors
The Group’s risk management and internal control systems are
owned by the Board who is responsible for ensuring that the risk
appetite and risk tolerance are set to appropriate levels and also for
ensuring that appropriate mitigating procedures exist for each of
the principal risks identified.
The Board has defined the culture,
values and expected behaviours of the
organisation through the Group Code
of Conduct, which supports the overall
risk management framework. Within
this framework, the Board delegates
responsibility for day-to-day management
of risk to Executive Management to ensure
that appropriate risk management and
internal control systems are in place to
mitigate against these principal risks.
Audit Committee
Under delegation from the Board, the Audit
Committee assesses the overall risk profile
and evaluates the design and effectiveness
of the risk management and internal control
systems throughout the Group. This includes
reviewing reports received from Internal
Audit, the Group External Auditor and
management on the operation of material
financial, operational and compliance
controls during the period under review.
A detailed description of the activities
carried out by the Committee for the year
under review is outlined in the report of
the Audit Committee on pages 74 to 77.
Risk Oversight Committee
The Risk Oversight Committee (ROC) is
chaired by the Chief Financial Officer and
comprises of senior business management.
The ROC supports the Audit Committee
in the risk management process through
on-going monitoring and evaluation of the
risk environment and ensuring continuous
improvement of the effectiveness of risk
mitigation activities.
Responsibility for the Group risk
assessment process is owned by the ROC
who maintains the Group risk register and
report on changes in the principal risks to
the Audit Committee on an annual basis.
As a regular agenda item at Board and
Audit Committee meetings, members
of the ROC, or nominated functional
leadership, present on the principal risks of
the Group. These presentations assist the
Directors in assessing the potential impact
of the risk to the Group’s operations and
the appropriateness of the existing and
proposed material internal controls.
Executive Management
Executive Management are responsible for
ensuring that risks are managed effectively
on an operational basis. The “three lines of
defence” model as set out below ensures
that accountability for risk management
is embedded into the Group’s processes
and procedures.
A number of management committees
have also been established to support
risk management initiatives across key
functional areas including, the Group
Finance Committee, the Sustainability
Council and the Global Health Safety and
Environmental (HSE) Leadership Team.
Three Lines of Defence
1st Line of Defence
The first line of defence are operational
management who have responsibility for
maintaining an effective risk management
and internal control environment and
for executing control procedures on a
day-to-day basis within their sites or
business units. They are also responsible
for proactively ensuring compliance
with Group policies and procedures.
By embedding risk management into
standard ways of working it is ensured
that potential risks are identified at an
early stage, escalated as appropriate
and controls are put in place to manage
these risks.
2nd Line of Defence
The second line of defence are oversight
functions, including Group compliance
and functional leadership teams, who
in conjunction with management are
responsible for the ongoing monitoring
of the operation of internal controls. They
are also responsible for providing support
and expertise to operational management
in regard to the management of specific
risks and the design of internal controls.
Examples of tools employed for continuous
monitoring include monthly performance
reviews, functional audits, internal control
self-assessment questionnaires, and ICT
security monitoring.
3rd Line of Defence
Internal Audit and external assurance
providers are responsible for providing
independent assurance to the Audit
55
Committee and the Board on the adequacy
and effectiveness of the risk management
and control frameworks operated by the
1st and 2nd lines of defence. As part of
its annual programme of work, Internal
Audit conducts regular reviews of risk
management processes and gives advice
and recommendations on how to improve
the overall control environment.
RISK ASSESSMENT PROCESS
The Group’s risk assessment process
is based on a co-ordinated, Group wide
approach to the identification and
evaluation of risks and the manner in which
they are monitored and managed. This
process, which is facilitated by Internal
Audit and overseen by the ROC, begins
with a bottom up approach involving
managers from all business and functional
areas who, through a programme of
workshops, perform a detailed risk review
exercise to update the Group Risk Register.
During these workshops all existing
strategic, operational, financial and
compliance risks are considered together
with new and emerging risks in each
business and function. In assessing the
potential impact and likelihood of each risk
identified, management consider the existing
key controls and evaluate the risks in terms
of potential residual impact. A standard risk
scoring matrix is used to ensure consistency
in reporting across all areas.
The divisional and functional risk registers
are consolidated into the Group Risk Register
of principal risks for the Group. Executive
management provide input to ensure that
there is also a top-down view of the key risks
facing the Group. The ROC review the Group
Risk Register and submit it to the Audit
Committee and Board for approval.
The Audit Committee and Board formally
approved the Group risk register and have
confirmed in the Corporate Governance
report that a robust assessment of these
risks was completed including those risks
which could threaten the business model,
future performance, solvency or liquidity
of the Group. Throughout the year, the
Board considered the appropriateness
of the strategies and actions to address
these risks in pursuit of the Group’s
strategic objectives.
56
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
PRINCIPAL RISKS AND UNCERTAINTIES
The following table describes the principal risks and uncertainties that have been identified by the Board, the mitigating
actions for each and an update on any change in the profile of each risk during the year. The Board has determined that
these are the principal risks that could impact the Group in the achievement of its objectives and each risk has
also been linked to the Group’s Strategies as outlined in the Business Model on page 12.
This table is not an exhaustive list of all the risks that may impact the Group, but the Board’s view of the principal risks
at this point in time. There are additional risks which are not yet considered material or which are not yet known to the
Board but which will assume greater importance in the future.
RISK TREND KEY
Risk is unchanged
Risk has increased
Link to Strategies as per Business Model Report pg12
Taste
Nutrition &
General Wellness
Consumer
Foods
Developing
Markets
Sustainability
1 Kerry
Risk
Trend Risk Description and Potential Impact
Mitigation
Link to Strategy
as per
Business Model
Strategic Risks
Portfolio Management
As a global organisation operating across
many jurisdictions, demand for our products
is impacted by a range of factors including
economic, demographic, technological,
competitive and ongoing changes in
consumer preferences.
The growth and continued success of the
Group is dependent on its management of its
portfolio of geographies, technologies, channels
and customers and its ability to respond to
changes in the markets in which it operates.
The ability to strategically evaluate and respond
to this dynamic market place is a key priority
for the Group and a failure to so could have an
adverse impact on the Group’s business model
and future performance.
The Group’s strategy and operational activities are
reviewed and approved by the Board on an ongoing basis
throughout the year to ensure that it is responding effectively
to market and consumer demand with a view to maintaining
the Group’s growth.
Over the course of this year the Group has evolved the
positioning of its Ingredients and Flavours business to a
Taste and Nutrition positioning to align with the changing
marketplace and rapidly evolving health, nutrition and
wellness trends which provide the opportunity for the
Group’s technology platforms and systems in all regions.
As described in Our Markets on page 13 the Group has
invested in consumer and market insights capability as
part of its ongoing programme to build a more tailored and
commercially effective go-to-market structure.
The Group continues to develop its global infrastructure to
ensure that it is well placed to capitalise on opportunities
both organically and acquisitively. This included the official
opening of its new Global Technology & Innovation Centre
in Naas, Ireland this year, which also accommodates the
Group’s Centre of Excellence for Nutrition. The Group is also
investing in its e-commerce platform to align with market
developments in this area.
57
Link to Strategy
as per
Business Model
Risk
Trend Risk Description and Potential Impact
Mitigation
Strategic Risks
Business Acquisition and Divestiture
Acquisitions and divestitures continue to be a
core element of the Group’s growth strategy
and there is a risk that the anticipated benefits
of such a transaction are not delivered resulting
in a delay in the delivery of the expected return
on investment and a subsequent impact on the
strategic development of the group.
This may be the result of an inaccurate
evaluation of the target company, an over
estimation or failure to achieve expected
synergies, poor management of the transaction,
poor planning and implementation of the
integration or the transaction not adding
shareholder value as expected.
Developing Markets
The Group has a strategic objective of
delivering growth in developing markets
globally which involves increased inherent
risks that could have an adverse impact on
the future performance of the Group.
These risks include political instability,
economic slowdown, currency volatility,
complex legal and regulatory environments
and lower security, operational and
quality standards.
Board approval is required for all transactions and regular
updates are presented to Board Members on potential
targets including strategic evaluations of any proposed
significant investments. This includes an assessment of their
ability to generate the required return on investment and a
review of their strategic fit within the group.
The Group has developed significant experience and
capabilities in this area. A clearly defined process is employed
to ensure that the evaluation of a target is comprehensive
and that the execution and integration is effective. A similar
process is implemented for the execution of divestitures.
A strong governance system is in place to oversee the
integration process including the appointment of a senior
business owner, supported by a team of appropriately skilled
personnel, to monitor the integration project, to review the
performance of the acquired entity and to implement any
corrective actions which may be required.
The Group talent management programme ensures that
the acquired entity management team is strengthened
by the transfer of experienced Kerry management which
helps increase the efficiency of the integration efforts.
The retention of key acquired talent is also a focus of
the integration process.
The diversity of countries across which the Group operates
ensures that it is not overly exposed to issues in any one
particular geography.
The Group has a legal, regulatory and compliance
structure that ensures compliance with applicable laws and
regulations. This structure is supported by the Group Code
of Conduct which includes policies in relation to anti-bribery
and corruption.
The support of the Kerry divisional structure and
experienced talent ensures that standardised ways of
working and common processes are adopted across all sites
ensuring consistency of operations throughout the Group.
Regular visits by senior management, finance staff and
internal audit support local teams to address issues.
58
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
Risk
Trend Risk Description and Potential Impact
Mitigation
Link to Strategy
as per
Business Model
Operational Risks
Quality and Food Safety
Failure to maintain the quality and safety of our
products could expose the Group to product
liability claims, product recalls, customer
complaints, litigation or non-compliance with
food safety legislation. This may have an
impact on customer relationships and lead to
reputational or financial damage to the Group.
A Global Quality and Food Safety structure has been
established providing leadership in key areas such as
HACCP, global supply quality and crisis management.
A global steering committee ensures that a culture of
quality exists and best practices are implemented
across the organisation.
A Global Quality Management System (GQMS) is in place
to support the Group’s manufacturing and supply chain
functions through robust policies and procedures as well
as training to the defined Kerry working standards. This
ensures that quality assurance procedures are embedded
into the operational processes. Both internal, supplier and
customer KPIs are monitored and a continuous improvement
culture is in place to address issues as they arise.
Kerry manufacturing sites are subject to regular audits by
internal teams, customers and independent bodies auditing
against recognised global food safety standards. Stringent
controls are also in place for suppliers including site audits
and rigorous quality checking of all raw materials.
Adequate product liability insurance is maintained across
the Group.
Raw Material and Input Cost Fluctuations
The Group’s cost base and margin can be
impacted by fluctuations in the prices of
commodities as well as direct inputs such
as energy, freight or labour. An inability to
pass on these increases to customers may
negatively impact profit margins.
The Group maintains a strong commercial focus on
procurement, pricing and cost improvement initiatives to
manage and mitigate this risk and all global commercial
teams have been trained in margin management principles.
Major commodity exposures are monitored on an ongoing
basis and an active risk management approach is in place
which includes taking purchasing cover on a back to
back basis depending on the category of sales contract.
Contractual mechanisms are in place with many customers
to “pass through” changes in commodity prices.
The Group employs experienced purchasing and commercial
managers to ensure that all input costs are clearly understood
and reflected in the pricing of our products.
Reporting is in place to identify any potential exposures
by commodity type and business. Detailed margin reporting
by customer, product and business ensures that commercial
teams maintain an ongoing focus on performance in this area.
59
Link to Strategy
as per
Business Model
Risk
Trend Risk Description and Potential Impact
Mitigation
Operational Risks
Talent Management
The ongoing success of the Group is
dependent on attracting, developing, engaging
and retaining qualified, experienced and
appropriately skilled employees. An inability
to secure and build a resilient talent pipeline
could impact the Group’s ability to achieve its
strategic objectives.
An integrated talent management framework is in place
to assess and plan for people development through talent
reviews and critical role succession planning. This includes
a continued focus on talent sharing, recruitment, mobility,
and retention of key acquired talent. There is also a strong
graduate recruitment programme in operation which
supports the Group’s succession planning programme.
There is a continued focus on the diversity of our talent
pipeline and building local talent in developing markets.
The Group operates a Global Learning Academy focused
on leadership, commercial and functional capabilities to
support the professional growth of employees at all levels
both in current and future roles
The establishment of a Global Mobility team supports
the deployment of key talent as they move within
the organisation.
ICT Systems, Information Security and Cybercrime
The Group’s operations are increasingly
dependent on IT systems and the
management of information. Any failure
to protect the Group’s Intellectual Property
or prevention of unauthorised access to
sensitive data could have an adverse effect
on the Group’s business and cause significant
reputational damage.
Cybercrime including unauthorised access
to confidential information and systems,
inaccurate data being entered into our systems
and/or interruption of our main operating
activities could negatively impact our business.
Failing to implement the Kerryconnect
programme (the initiative to establish an
integrated ICT approach) as planned and
within budget could have a negative impact on
business operations or financial performance
Senior ICT leadership provide strong governance in this
area with additional resources added to the Group’s ICT
Security structure during 2015.
The Group employs a broad range of measures, including
policies and procedures, ICT access controls, security
awareness training and infrastructure to ensure that
sensitive data is protected from unauthorised access
and use. A number of independent audits were conducted
in this area during 2015 and action plans were developed
to address issues raised.
An ongoing security enhancement programme is in place
which includes deployment of additional layers of protection
on intrusion prevention, document control and identity
management.
During the year there has been an ongoing focus on raising
the awareness of all employees in the area of ICT security.
In the event of a system failure there is a robust disaster
recovery plan in place.
The Kerryconnect programme has a robust governance
structure and is led by an experienced steering team and a
phased, regional implementation schedule is being rolled out.
60
KERRY GROUP ANNUAL REPORT 2015ΜSTRATEGIC REPORT
Risk
Trend Risk Description and Potential Impact
Mitigation
Financial and Compliance Risks
Taxation
In an increasingly complex international tax
environment, such matters as changes in
tax laws, changing legal interpretations, tax
audits and transfer pricing judgements may
impact the Group’s tax liability or reporting
requirements.
The Group employs a team of dedicated internal tax
experts who support the Group in ensuring compliance
with all taxation matters globally. The Group also engages
external taxation advisors for research, use of economic
statistical studies and guidance on matters of compliance
where appropriate.
Link to Strategy
as per
Business Model
A strong emphasis is placed on proactively engaging
with tax authorities in all material jurisdictions.
Failure to accumulate and consider
relevant tax information may result in
non-compliance with tax regulations or
adverse tax consequences that could
have been avoided had transactions been
structured differently.
Treasury Risk
The international nature of the Group’s
operations mean that it has transactions
across many jurisdictions which expose it
to inherent liquidity, foreign exchange and
interest rate risks.
The Group’s financial position remains strong with
significant cash resources and relatively long debt maturities.
The Group’s treasury function actively manages all risks
through cash-flow forecasts, foreign currency exposure
netting and hedging and monitoring of funding requirements.
A Group finance committee is in place which oversees
the Group’s treasury and funding policies and activities.
The Board routinely reviews and approves Group financing
options. In September, the Group issued a Eurobond of
€750m 10 year notes at an annual coupon of 2.375%.
These bonds which are listed on the Irish Stock Exchange
provide an additional source of debt finance and significantly
extend the maturity profile of Group debt and proceeds
from the issue are being used to retire existing debt and
to fund acquisitions.
Group policies require businesses to hedge all transactional
currency exposures, and long term supply or purchase
contracts which give rise to currency exposures.
ΜRead More
Our Strategy pg14
Governance Structure pg71
61
Governance
Report
Board of Directors
62
64 Report of the Directors
69 Corporate Governance Report
74 Audit Committee Report
78 Nomination Committee Report
82
100
Independent Auditors’ Report
Remuneration Committee Report
62
KERRY GROUP ANNUAL REPORT 2015ΜGOVERNANCE REPORT
Board of Directors
CHAIRMAN & EXECUTIVE DIRECTORS
Mr. Michael Dowling (71)
Chairman of the Board
Appointed: 3 March 1998 and as Chairman 1 January 2015
Michael is a former Secretary General of the Department of Agriculture, Food and Forestry
in Ireland and a Board member of the Agricultural Trust. He is also Chairman of the Board of
Management of the UCC/Teagasc Food Innovation Alliance. He was appointed Chairman of the
Board in 2015 and has served as a Director for 18 years. He is also a member of the Nomination
Committee since January 2001 and was appointed as Committee Chairman in 2014.
Mr. Stan McCarthy (58)*
Chief Executive
Appointed: 9 March 1999 and as CEO on 1 January 2008
Stan joined Kerry’s graduate recruitment programme in Ireland in 1976. He has worked in a number of
finance roles including Financial Controller in the USA on the establishment of Kerry’s operations in
Chicago in 1984. Following the Group’s acquisition of Beatreme Foods Inc. in 1988 he was appointed
Vice President of Materials Management and Purchasing. In 1991, he was appointed Vice President
of Sales and Marketing and became President of Kerry North America in 1996. He has served as
Director for 17 years.
Mr. Brian Mehigan (54)*
Chief Financial Officer
Appointed: 25 February 2002
Brian joined Kerry Group in 1989, having previously worked in practice for six years. He held a
number of finance positions within Kerry between 1989 and 2002. He has served as CFO and as an
Executive Director on Kerry Group plc’s Board for 14 years. He is a Fellow of Chartered Accountants
Ireland and a graduate of National University of Ireland, Cork.
Mr. Gerry Behan (51)*
President and CEO, Kerry Taste and Nutrition
Appointed: 13 May 2008
Gerry joined Kerry's graduate recruitment programme in 1986 and has held a number of senior
financial and management roles primarily in the Americas region. He was appointed President and
Chief Executive Officer of Kerry's Global Taste & Nutrition business on 19 December 2011 and has
served as a Board member for eight years.
Mr. Flor Healy (53)*
Chief Executive Officer, Kerry Foods
Appointed: 23 February 2004
Flor joined Kerry’s graduate recruitment programme in 1984 and has worked for the Group in a
number of leading management and finance roles in Ireland and the UK. He was appointed Chief
Executive Officer of the Group’s Consumer Foods Division in 2004 and has served as a Board member
for 12 years.
* Executive Director
63
NON-EXECUTIVE DIRECTORS
A.
F.
B.
G.
C.
H.
D.
I.
E.
J.
A. Mr. Michael Ahern (58)
Independent Non-Executive Director
Appointed: 1 January 2014
Michael operates his own business in the
agribusiness sector and is a Director of Kerry
Co-operative Creameries Limited. He has served
as a member of the Board for two years.
B. Dr. Hugh Brady (56)
Independent Non-Executive Director
Appointed: 24 February 2014
Hugh is President and Vice Chancellor of the
University of Bristol in the UK – a position he has
held since 2015. He was previously President of
University College Dublin (UCD) from 2004-2013.
A medical graduate, Hugh has had a successful
career as a physician and biomedical research
scientist in the US where he served on the faculty
of Harvard Medical School for almost a decade
prior to returning to his alma mater as Professor
of Medicine and Therapeutics. In addition, Hugh
has held many national and international leadership
roles which include Chairman of the Irish Health
Research Board and Chairman of the Universitas
21 Network of global research universities.
He has served as a member of the Board for two
years and was appointed a member of both the
Audit and Nomination Committees in 2015.
C. Mr. Patrick Casey (66)
Independent Non-Executive Director
Appointed: 2 May 2014
Patrick operates his own business in the agribusiness
sector and is a Director of Kerry Co-operative Creameries
Limited. He has served as member of the Board for
one year.
D. Mr. James Devane (54)
Independent Non-Executive Director
Appointed: 1 January 2014
James operates his own business in the agribusiness
sector and is a Director of Kerry Co-operative
Creameries Limited. He has served as a member
of the Board for two years.
E. Dr. Karin Dorrepaal (54)
Independent Non-Executive Director
Appointed: 1 January 2015
Karin served as an executive Director on the
Board of Schering AG in Berlin. Currently she
holds non-executive Director roles on the Boards’
of Gerresheimer AG, Paion AG (vice Chairman),
Humedics GmbH (Chairman) and Triton Private
Equity all of which are based in Germany. She also
serves on the Supervisory Board of Almirall S.A.
in Spain. Dr. Dorrepaal received her Ph.D. from the
Free University of Amsterdam, The Netherlands
and also holds an MBA from the Erasmus University
Rotterdam School of Management.
Karin has served on the Board for one year and joined
the Remuneration Committee in January 2015 and
Nomination Committee in December 2015.
F. Ms. Joan Garahy (53)
Independent Non-Executive Director
Appointed: 11 January 2012
Joan is Managing Director of ClearView Investments
& Pensions Limited, an independent financial advisory
company as well as being a Director of a number of
private companies. She has 27 years of experience of
advising on and managing investment funds. She is
a former Managing Director of HBCL Investments &
Pensions and Director of investments at HC Financial
Services. In the past she worked with the National
Treasury Management Agency as head of research at
the National Pension Reserve Fund and was also head
of research with Hibernian Investment Managers. Prior
to that, she spent ten years as a stockbroker with both
Goodbody and NCB in Dublin.
Joan has served as a member of the Board for four
years. On 20 February 2012, Joan was appointed to
Chair the Remuneration Committee and became a
member of the Audit Committee on the same date.
G. Mr. James C. Kenny (62)
Independent Non-Executive Director
Appointed: 1 June 2011
James was formerly Executive Vice President of US
based Kenny Construction Inc. and also President
of Kenny Management Services Inc. He previously
served as US Ambassador to Ireland from July
2003 to June 2006.
James has served as a member of the Board for
five years. He was appointed a member of both
the Remuneration and Nomination Committees
on 20 February 2012.
H. Mr. Tom Moran (60)
Independent Non-Executive Director
Appointed: 29 September 2015
Tom was Secretary General of the Department of
Agriculture, Food and the Marine from 2005 to end
of 2014. Throughout his public sector career he held
a number of international policy and international
trade negotiation leadership roles. Mr. Moran also
formerly served as Ireland's Agriculture Attaché to
France and to the OECD. He is currently a Board
member of An Bord Bia, the Irish Food Board, and also
a Non-Executive Director of Elivia (France). Tom was
appointed to the Audit Committee in December 2015.
I. Mr. John Joseph O’Connor (63)
Independent Non-Executive Director
Appointed: 1 January 2014
John operates his own business in the agribusiness
sector and is a Director of Kerry Co-operative
Creameries Limited. He has served as a member
of the Board for two years.
J. Mr. Philip Toomey (62)
Independent Non-Executive Director
Appointed: 20 February 2012
Philip was formerly Global Chief Operating Officer for
the financial services industry practice at Accenture
and has a wide range of international consulting
experience. He was also a member of the Accenture
Global Leadership Council. He is a Fellow of Chartered
Accountants Ireland and a Board member of UDG
Healthcare plc to which he was appointed in 2008.
Philip was appointed as Senior Independent Director to
the Kerry Group plc Board on 20 February 2012 and as
a member of the Audit Committee on the same date.
He was appointed Chairman of the Audit Committee
on 25 February 2013.
* Executive Director
64
KERRY GROUP ANNUAL REPORT 2015ΜGOVERNANCE REPORT
Report of
the Directors
DIRECTORS AND OTHER INFORMATION
Directors
Michael Dowling, Chairman
Stan McCarthy, Chief Executive Officer*
Brian Mehigan, Chief Financial Officer*
Gerry Behan, President & CEO Taste & Nutrition*
Flor Healy, CEO Kerry Foods*
Michael Ahern
Hugh Brady
Patrick Casey
James Devane
Karin Dorrepaal
Joan Garahy
James C. Kenny
Tom Moran
John Joseph O’Connor
Philip Toomey
*Executive Director
Secretary and Registered Office
Brian Durran
Kerry Group plc
Prince’s Street
Tralee
Co. Kerry
Ireland
Registrar and Share Transfer Office
Brian Durran
Registrar’s Department
Kerry Group plc
Prince’s Street
Tralee
Co. Kerry
Ireland
Website
www.kerrygroup.com
65
The Directors are
pleased to report
another strong
performance for
2015.
An increase in adjusted
earnings per share (epS) before
brand related intangible asset
amortisation and non-trading
items (net of related tax) to
301.9 cent
An increase in basic epS to
298.7 cent
Final Dividend in respect
of the year ended
31 December 2015
€61.6m
175.9m
shares were in issue at
31 December 2015.
expenditure on research and
development in 2015
€234.2m
the Directors submit their Annual
report together with the audited financial
statements for the year ended 31
December 2015.
prIncIpal acTIvITIeS
Kerry Group is a world leader in the global
food industry. Its industry-leading portfolio
of taste & nutrition technologies and
systems means that unique, innovative
solutions for customers across all sectors
of the food, beverage and pharmaceutical
industries can be delivered. the Consumer
Foods business is one of the leading
suppliers of added-value branded and
customer branded chilled food products.
listed on the Irish and london Stock
exchanges, Kerry has 132 manufacturing
facilities across five continents and
provides over 15,000 food and ingredient
products via its network of international
sales and technical centres to a wide
customer base in 140 countries.
reSulTS anD DIvIDenDS
the Directors are pleased to report another
strong performance for 2015 with an
increase in adjusted earnings per share
(epS) before brand related intangible asset
amortisation and non-trading items (net
of related tax) of 8.2% over 2014 to 301.9
cent (2014: 278.9 cent) and an increase
in basic epS to 298.7 cent (2014: 273.0
cent). revenue for the year amounted to
€6.1 billion (2014: €5.8 billion). Further
details of the results for the year are set
out in the Consolidated Income Statement,
in the related notes forming part of the
consolidated financial statements and in
the financial and business reviews. the key
performance indicators of the Group are
discussed on pages 18 to 19.
on 22 February 2016, the Directors
recommended a final dividend totalling
€61.6m in respect of the year ended 31
December 2015 (see note 10 to the financial
statements). this final dividend per share
is an increase of 11.1% over the final 2014
dividend paid on 15 May 2015. this dividend
is in addition to the interim dividend paid to
shareholders on 13 november 2015, which
amounted to €26.4m.
the payment date for the final dividend is
13 May 2016 to shareholders registered on
the record date 15 April 2016.
SHare capITal
Details of the share capital are shown in
note 27 of the financial statements. the
authorised share capital of the Company is
€35,000,000 divided into 280,000,000 A
ordinary shares of 12.5 cent each, of which
175,884,469 shares were in issue at 31
December 2015.
the A ordinary shares rank equally in all
respects. there are no limitations on the
holding of securities in the Company.
there are no restrictions on the transfer
of fully paid shares in the Company but
the Directors have the power to refuse
the transfer of shares that are not fully
paid. there are no deadlines for exercising
voting rights other than proxy votes, which
must be received by the Company at least
48 hours before the time of the meeting at
which a vote will take place. there are no
restrictions on voting rights except:
– where the holder or holders of shares
have failed to pay any call or instalment
in the manner and at the time appointed
for payment; or
– the failure of any shareholder to
comply with the terms of Article 14 of
the Company’s Articles of Association
(disclosure of beneficial interest).
the Company is not aware of any
agreements between shareholders which
may result in restrictions on the transfer of
securities or on voting rights.
the Directors have the authority to
issue new shares in the Company up to
a maximum of 20 million new A ordinary
shares. this authority will expire on 30 July
2016 and it is intended to seek shareholder
approval to renew the authority at the
Annual General Meeting (AGM) to be held
on 27 April 2016.
66
Kerry Group AnnuAl report 2015µGovernance reporT
the Directors have the authority to allot shares for cash on a non
pro-rata basis up to a maximum of 5% of the issued share capital
which expires on 30 July 2016 and it is also intended to seek
renewal of this authority at the AGM. In addition the Directors
propose to extend this authority by a further 5% of the issued
share capital, provided the additional authority will only be used
for the purpose of an acquisition or one which has taken place
in the preceding six month period and is disclosed with the
announcement of the issue. It is also intended to seek shareholder
approval for this new authority at the AGM.
During 2015, 52,148 vested into shares and 42,299 conditional
awards vested into share options under the Company’s long term
Incentive plan. In the same period, 25,719 share options were
exercised under the Company’s long term Incentive plan. Further
details are shown in note 28 to the financial statements.
the Company may purchase its own shares in accordance with the
Companies Act 2014 and the Company’s Articles of Association.
At the 2015 AGM, shareholders passed a resolution authorising the
Company to purchase up to 5% of its own issued share capital but
the authority was not exercised. this authority is due to expire on
27 April 2016 and it is intended to seek shareholder approval for its
renewal at the AGM.
arTIcleS oF aSSocIaTIon
the Articles of Association empower the Board to appoint
Directors but also require such Directors to retire and submit
themselves for re-election at the next AGM following their
appointment. Specific rules regarding the re-election of Directors
are referred to below.
the regulations contained in the Articles of Association of the
Company may be amended by special resolution with the sanction
of shareholders in a general meeting.
SIGnIFIcanT aGreeMenTS
the Company’s financing arrangements include ‘Change of Control’
provisions which give its lending institutions the right to withdraw
their facilities in the event of a change of control occurring unless
they agree otherwise in writing. other than change of control
provisions in those arrangements, the Company is not a party to
any other significant agreements which contain such a provision.
acquISITIonS anD DISpoSalS
the Group completed a number of acquisitions and disposals
during the year. the businesses acquired and divested are
described in the Chief executive’s review and in note 31 and note 5
to the financial statements.
reSearcH anD DevelopMenT
the Group is fully committed to ongoing technological
innovation in all sectors of its business, providing integrated
customer-focused product development by leveraging our
global technology capabilities and expertise. to facilitate this,
the Group has invested in highly focused research, development
and application centres of excellence with a strategically located
Global technology & Innovation Centre, based in naas, Ireland
which is supported by regional Development & Application
Centres. expenditure on research and development amounted to
€234.2m in 2015 (2014: €196.8m).
SuSTaInaBIlITy
Kerry Group is committed to the highest standards of business and
ethical behaviour, to fulfilling its responsibilities to the communities
it serves and to the creation of long term value for all stakeholders
on a socially and environmentally sustainable basis.
Details regarding the Group’s sustainability performance, policies
and programmes in respect of the marketplace, environment,
workplace and the community are outlined in the Sustainability
review on pages 38 to 53.
FuTure DevelopMenTS
Kerry Group is well positioned across global food, beverage
and pharmaceutical growth markets and our strong technology
platforms will continue to lead innovation and category growth. the
Group is confident that good growth rates are achievable through
application of our industry leading taste & nutrition technologies
in developed and developing markets. In addition, in the Group’s
core consumer foods categories, the underlying strength of Kerry
Foods’ brands and its focus on product innovation and positioning
in convenience growth categories will sustain profitable growth.
the Group is well positioned to actively pursue strategic acquisition
opportunities which will support top-line and earnings growth into
the future.
BoarD cHanGeS
Dr. Karin Dorrepaal was appointed to the Board on 01 January
2015 and Mr. tom Moran was appointed to the Board on 29
September 2015.
DIrecTorS
the Board consists of a Chairman, four executive and ten
independent non-executive Directors. the names and biographical
details of the Directors are set out on pages 62 to 63.
under Article 102 of the Company’s Articles of Association Mr. tom
Moran, who was appointed to the Board since the previous AGM,
will retire at the next AGM and, being eligible, is seeking re-election.
All other Directors will retire by rotation at the AGM and they, being
eligible, are seeking re-election at that meeting.
Following the individual performance evaluation of all Directors,
as outlined in the Corporate Governance report on pages 71 and
72, the Board recommends the re-election of all Directors seeking
re-election.
SuBSTanTIal InTereSTS
the Directors have been notified of the following shareholdings of
3% or more in the issued share capital of the Company:
Shareholder
Kerry Co-operative Creameries
limited (KCC)
number Held %
24,048,456
13.7%
the Capital Group Companies, Inc.
Blackrock Investment Management
8,065,824
7,039,391
4.6%
4.0%
Apart from the aforementioned, the Company has not been notified of
any interest of 3% or more in the issued share capital of the Company.
corporaTe Governance
the Corporate Governance report on pages 69 to 73 sets out the
Company’s application of the principles, and compliance with, the
provisions of the uK Corporate Governance Code and Irish Annex
and the adoption of the going concern basis in preparing the
consolidated financial statements.
prIncIpal rISkS anD uncerTaInTIeS
In accordance with the transparency (Directive 2004/109/eC)
regulations 2007 and the transparency rules of the Central Bank
of Ireland, a description of the principal risks and uncertainties
facing the Group is outlined on pages 56 to 60.
DIrecTorS’ reSponSIBIlITy STaTeMenT
the Directors are responsible for preparing the Annual report
and the financial statements in accordance with applicable law
and regulations.
Irish company law requires the Directors to prepare financial
statements for each financial year, which give a true and fair view of
the state of affairs of the Company and the Group and of the profit
or loss of the Group for that period. under that law the Directors
have elected to prepare group financial statements in accordance
with International Financial reporting Standards (‘IFrSs’) as
adopted by the european union and Article 4 of the IAS regulation
and have also chosen to prepare the parent company financial
statements under IFrSs as adopted by the european union. In
preparing the financial statements, the Directors are required to:
– select suitable accounting policies and then apply them
consistently;
– make judgements and estimates that are reasonable and prudent;
– state that the financial statements comply with IFrS as adopted
by the european union; and
– prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group will continue
in business.
67
the Directors are responsible for ensuring that the company keeps
adequate accounting records which correctly explain and record the
transactions of the company, enable at any time the assets, liabilities,
financial position and profit or loss of the company to be determined
with reasonable accuracy and to enable them to ensure that the
financial statements are prepared in accordance with IFrSs as
adopted by the european union and comply with the Companies Act
2014 and as regards to the Group financial statements, Article 4 of
the IAS regulation and enable the financial statements to be audited.
the Directors are also responsible for safeguarding the assets
of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities. the
Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Group’s
website (www.kerrygroup.com). Irish legislation governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
In accordance with the transparency (Directive 2004/109/eC)
regulations 2007 and the transparency rules of the Central Bank
of Ireland, the Directors are required to include a management
report containing a fair review of the business and a description of
the principal risks and uncertainties facing the Group. the Directors
are also required by applicable law and the listing rules issued by
the Irish Stock exchange and the uK listing Authority to prepare
a Directors’ report and reports relating to Directors’ remuneration
and corporate governance.
each of the Directors, whose names and functions are listed on
page 64, confirms that, to the best of their knowledge and belief:
– the consolidated financial statements for the year ended
31 December 2015 have been prepared in accordance with
the applicable IFrSs as adopted by the european union and
give a true and fair view of the assets, liabilities, and financial
position of the Group and the undertakings included in the
consolidation, taken as a whole, as at that date and its profit for
the year then ended;
– the Company financial statements, prepared in accordance
with IFrSs as adopted by the european union and as applied
in accordance with the Companies Act 2014, give a true and
fair view of the assets, liabilities and financial position of the
Company as at 31 December 2015;
– the Business review includes a fair review of the development
and performance of the business for the year ended 31
December 2015 and the position of the Company and the Group
at the year-end;
– the report of the Directors provides a description of the principal
risks and uncertainties which may impact the future performance
of the Company and the Group at the year-end; and
– the Annual report and financial statements, taken as a whole,
provides the information necessary for shareholders to assess
the Company’s and Group’s performance, business model and
strategy and is fair, balanced and understandable.
68
Kerry Group AnnuAl report 2015µGovernance reporT
accounTInG recorDS
to ensure that proper accounting records are kept for the
Company in accordance with section 281 to 289 of the Companies
Act 2014, the Directors employ appropriately qualified accounting
personnel and maintain appropriate accounting systems. the
accounting records of the Company are maintained at the
Company’s registered office.
accounTaBIlITy anD auDIT
A statement relating to the Directors’ responsibilities in respect of
the preparation of the financial statements is set out on page 67
with the responsibilities of the Company’s Independent Auditor
outlined on page 103.
During the year, a formal external audit tender process was
undertaken by the Audit Committee on the Boards behalf,
following which the Board selected pricewaterhouseCoopers
as the external auditor for the Group. on 22 February 2016, the
Board appointed pricewaterhouseCoopers with effect from 29
March 2016. A resolution to formally approve the appointment
of pricewaterhouseCoopers as external auditors will be put to
Shareholders at the AGM on 27 April 2016.
Deloitte, Chartered Accountants intend to resign as external
auditors to the Group with effect from 29 March 2016 and have
confirmed, in accordance with Section 400 of the Companies
Act 2014, that there are no circumstances in connection with
their resignation which should be brought to the attention of the
members or the creditors of the Company.
the financial statements on pages 104 to 175 have been audited by
Deloitte, Chartered Accountants.
polITIcal DonaTIonS
During the year the Company made no political contributions which
require disclosure under the electoral Act, 1997.
SuBSIDIarIeS
the principal subsidiaries are listed in note 37 to the financial
statements.
reTIreMenT BeneFITS
Information in relation to the Group’s retirement benefit schemes is
given in note 26 to the financial statements.
TaxaTIon
So far as the Directors are aware, the Company is not a close
company within the definition of the taxes Consolidation Act, 1997.
there has been no change in this respect since 31 December 2015.
Signed on behalf of the Board:
Michael Dowling
Chairman
22 February 2016
Stan Mccarthy
Chief executive officer
Corporate Governance Report
69
Michael Dowling
Chairman of the Board
Dear Shareholder,
I am pleased to present the Kerry Group
Corporate Governance report for the year
ended 31 December 2015.
As Chairman my main responsibility is to lead
the Board through facilitating discussion on
strategic issues and promoting a culture that
is conducive to the operation of the Board
and its committees. I am pleased to confirm
on behalf of the Board that, for the year under
review, the Group has fully complied with the
2014 uK Corporate Governance Code and the
Irish Annex (the Code). the Group remains
committed to achieving high standards of
governance through operating ethically and
with integrity in all matters and as Chairman I
will continue, with Board support, to promote
the culture of good governance.
the Board sets the tone and culture for the
way in which the Group operates. this culture
is underpinned by a robust risk management
framework consisting of policies, procedures,
behaviours and tasks, including a Code of
Conduct which defines business conduct
standards for anyone working for or on behalf
of the company.
leaDerSHIp
BoarD coMpoSITIon
anD MeMBerSHIp
the Board is responsible for ensuring the
long term success of the company through
experienced leadership and establishing
effective control and oversight of the
Group’s activities.
the Board comprises of 15 Directors each
of whom bring a range of skills, experience
and backgrounds to the organisation. the
membership of the Board consists of a non-
executive Chairman, Chief executive, Chief
Financial officer, two other executive Directors,
and ten non-executive Directors. the Directors
are of the opinion that the current composition
of the Board provides the extensive relevant
business experience needed to oversee the
effective operation of the Group’s activities and
that the individual Directors bring a diverse
In 2015 we reviewed the longer term
viability of the Group in line with the new
requirements of the Code. the Directors
are of the opinion that there is a reasonable
expectation that the Group will continue in
operation and meet its liabilities over the
next five years.
An internal evaluation of the effectiveness of
the Board and its committees was conducted
in 2015 in line with the requirements of the
Code and Kerry’s Corporate Governance
policy. A full external Board performance
evaluation will be conducted later this year.
the Board in conjunction with the
nomination Committee ensures that there
are robust plans in place to facilitate Board
and senior management succession.
the following reports describe how the
Group has achieved compliance with the
Code through the activities and operations of
the Board and its committees during the year.
Michael Dowling
Chairman of the Board
range of skills, knowledge and experience,
including the industry and international
experience, necessary to provide effective
governance and oversight of the Group.
these skills are considered appropriate to
address and mitigate the principal risks and
uncertainties of the Group as outlined on
pages 56 to 60.
BoarD role anD operaTIonS
the Board is responsible for delivering
long-term value to the Group’s shareholders
while exercising business judgement on
developing strategy, delivering objectives and
managing the risks that face the organisation.
the Board has a formal schedule of matters
specifically reserved to it for decision as
noted below and has delegated other
responsibilities to management for day to day
operations within the context of the Kerry
Group Governance Framework as outlined
on page 71.
70
Kerry Group AnnuAl report 2015µGovernance reporT
Schedule of Matters Reserved for the Board
– Approval of the overall Group strategic and operating plans
– Approval of acquisitions and divestitures
– Approval of annual budgets (revenue and capital)
– Approval of interim management statements and interim
financial statements
– Monitoring and reviewing risk management and internal
control systems
– ensuring compliance with corporate governance standards
– Assessment of the longer term viability of the Group and the
going-concern assumption
– the preparation of and confirmation that the annual report
and financial statements, present a fair, balanced and
understandable assessment of the Company’s position
and prospects.
the Directors are responsible for managing the business of
the Company and may exercise all the powers of the Company
subject to the provisions of relevant statutes, to any directions
given by shareholders in General Meeting and to the Company’s
Memorandum and Articles of Association. the fundamental
responsibility of the Directors is to exercise their business
judgement on matters of critical and long-term significance
to the Group.
the Chairman ensures that all Directors have full and timely
access to such information as they require to discharge their
responsibilities fully and effectively. Board papers are issued to
each Director at least one week in advance of Board meetings and
include the meeting agenda, minutes of the previous Board meeting
and all papers relevant to the agenda. the Chairman, in conjunction
with the Company Secretary, has primary responsibility for setting
the agenda for each meeting. All Directors continually receive
comprehensive reports and documentation on all matters for which
they have responsibility to allow them to fully complete their duties
as a Director. All Directors participate in discussing strategy, trading
updates, financial performance, significant risks and operational
activities. Board meetings are of sufficient duration to ensure that
all agenda items and any other material non-agenda items that may
arise are adequately addressed.
each Director has access to the advice and services of the
Company Secretary, whose responsibility it is to ensure that Board
procedures are followed and that applicable rules and regulations
are complied with. In accordance with an agreed procedure,
in the furtherance of their duties, each Director is able to take
independent professional advice at the Company’s expense. there
is a Directors and officers liability policy in place for all Directors
and officers of the Company against claims from third parties
relating to the execution of their duties as Directors and officers of
the Company and any of its subsidiaries.
MeeTInGS anD aTTenDance
the Board meets sufficiently regularly to ensure that all its duties
are discharged effectively. All Directors are expected to prepare for
and attend meetings of the Board and the AGM. the Committee
Chairmen are available to answer questions at the AGM. Should any
Director be unable to attend a Board meeting in person, conferencing
arrangements are available to facilitate participation. In the event that
a Director cannot attend or participate in the meeting, the Director
may discuss and share opinions on agenda items with the Chairman,
Chief executive or Company Secretary in advance of the meeting.
During 2015 the Board met seven times and the table below
outlines the attendance record of individual Directors.
Directors Attendance at
2015 Board Meetings
Michael Ahern
Gerry Behan
Dr. Hugh Brady
patrick Casey
James Devane
Michael Dowling
Dr. Karin Dorrepaal
Joan Garahy
Flor Healy
James C. Kenny
John Joseph o’Connor
Stan McCarthy
Brian Mehigan
tom Moran (appointed 29 September 2015)
philip toomey
Attended Eligible
7
7
7
7
7
7
7
7
7
7
7
7
7
3
7
7
7
7
7
7
7
7
7
7
7
7
7
7
3
7
cHaIrMan anD cHIeF execuTIve
Michael Dowling was appointed Chairman of the Board on 1 January
2015. the roles of the Chairman and Chief executive are separate and
the division of duties between them is formally established, set out
in writing and agreed by the Board. the Chairman is responsible for
leadership of the Board and ensuring its effectiveness in all respects.
the executive Directors of the Company, led by the Chief executive,
are responsible for the management of the Group’s business and the
implementation of Group strategy and policy.
SenIor InDepenDenT DIrecTor
philip toomey is the Group’s Senior Independent Director (SID).
the principal role of the SID is to provide a sounding board for
the Chairman and to act as an intermediary for other Directors as
required. the SID is responsible for the appraisal of the Chairman’s
performance throughout the year. He is also available to meet
shareholders upon request, in particular if they have concerns that
cannot be resolved through the Chairman or the Chief executive.
71
InDepenDence
the Group currently has four independent non-executive
Directors on the Board who are also Directors of Kerry
Co-operative Creameries (KCC), the Group’s largest shareholder.
over the past 30 years KCC’s shareholding has reduced from
100% to its current level of 13.7%. the Board is of the opinion that
through their knowledge of the industry, these Directors contribute
to the achievement of the Group’s objectives. Although connected
to a significant shareholder no trading relationship exists between
KCC and the Company. notwithstanding their connection to KCC,
the Board as a whole is of the opinion that these Directors are
independent in both character and judgement. All other non-
executive Directors are considered independent in both
character and judgement.
BoarD coMMITTeeS
the Board has three committees, the Audit Committee, the
nomination Committee and the remuneration Committee, which
support the operation of the Board through their focus on specific
areas of governance. each committee is governed by its terms of
reference which sets out how it should operate including its role,
membership, authority and duties. reports on the activities of the
individual committees are presented to the Board by the respective
committee Chairmen.
Further details on the duties, operation and activities of all
Board Committees can be found in their respective reports on
pages 74 to 99.
kerry Group Governance FraMework
the Kerry Group Governance Framework, as outlined in the
diagram below, is the structure which supports the Board in its
duties and overseeing the Group’s operations.
BoarD eFFecTIveneSS
BoarD InDucTIon anD DevelopMenT
on appointment to the Board, each new non-executive Director
undergoes a full formal induction programme. this induction
includes an overview of their duties and responsibilities as a
Director, presentations on the Group’s operations and results,
meetings with key executive management and an outline of the
principal risks of the Group.
throughout the year the Board as a whole engages in development
through a series of consultations with subject matter experts on a
range of topics including risk management, corporate governance,
anti-fraud and information security. presentations are also made
by executive Directors and senior management on various topics
throughout the year in their areas of responsibility. the June
2015 Board meeting was held in Singapore following which Board
members visited several of the Group’s operating facilities in the
Asia-pacific region to better understand the business and meet
with local senior management.
Individual board members training requirements are reviewed with
the Chairman and Company Secretary and training is provided to
address these needs.
BoarD perForMance evaluaTIon
During the year, a review of the performance of the Board,
Board Committees, individual Directors and the Chairman was
undertaken internally against a set of key criteria. the review was
facilitated by the Company Secretary and was undertaken using
thinking Board, Independent Audit limited’s governance self-
assessment process. Independent Audit limited is recognised as
a leading firm of board reviewers, based in london, which is fully
independent of Kerry Group.
Shareholders
Board of Directors
Executive Management
audit
committee
(pg 74)
nomination
committee
(pg 78)
remuneration
committee
(pg 82)
Finance
committee
(pg 26)
risk oversight
committee
(pg 55)
Sustainability
council
(pg 40)
72
Kerry Group AnnuAl report 2015µGovernance reporT
At a meeting in December 2015 the non-executive Board members,
led by the Chairman, considered the Board evaluation report
which included a formal review of its own performance and the
Board committees. progress against recommendations from the
previous evaluation was considered and the Board is satisfied that
improvements have been made that have enhanced the operations
and effectiveness of both the Board and its committees.
Topics covered during Board Performance Evaluation
– Board composition and culture
– Ability and effectiveness
– role and responsibilities
– Strategic development
– time and commitment
– Knowledge and communication
the Chairman appraised each of the non-executive Directors
individually utilising the same process. the key areas reviewed were
independence, contribution and attendance at Board meetings,
interaction with executive Directors, the Company Secretary and
senior management, ability to communicate issues of importance
and concern, their knowledge and effectiveness at meetings and
the overall time and commitment to their role on the Board.
In addition, the Senior Independent Director formally appraised
the performance of the Chairman. this appraisal was similar to
the Board evaluation process which included feedback from all
Directors on the Chairman’s performance during the year.
the Board concluded that no area of significant weakness had
been identified and that it operated effectively throughout the
period under review. A number of points for improvement were
identified and action plans established to address them.
accounTaBIlITy
rISk ManaGeMenT anD InTernal conTrolS
the internal control framework in Kerry Group is defined as
a system encompassing the policies, processes, tasks and
behaviours, which together facilitate the Group’s effective and
efficient operation by enabling it to respond appropriately to
significant business, operational, financial, compliance and other
risks to achieve its business objectives.
the Board has delegated certain duties to the Audit Committee in
relation to the on-going monitoring and review of risk management
and internal control systems. the work performed by the Audit
Committee is described in their report on pages 74 to 77.
Full details of the risk management systems are described in the
risk report on pages 54 to 55.
the principal risks facing the company, including those that would
threaten the business model, future performance, solvency or
liquidity are described on pages 56 to 60. the Directors confirm
that they have carried out a robust assessment of these risks and
the actions that are in place to mitigate them.
the Directors confirm that they have also reviewed the effectiveness
of the systems of risk management and internal control which
operated during the period covered by these financial statements
and up to the date of this report and that no significant failings or
weaknesses were identified. the procedures adopted comply with
the guidance contained in Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting as published
by the Financial reporting Council in the uK.
GoInG concern
the consolidated financial statements have been prepared on the
going concern basis.
the Directors have considered the Group’s business activities
and how it generates value, together with the main trends and
factors likely to affect future development, business performance
and position of the Group as described in the Business reviews
on pages 29 to 37. the Group’s 2016 budget was reviewed and
approved at the December Board meeting. they have also
examined the financial position of the Group, including cash flows,
liquidity position, borrowing facilities, financial instruments and
financial risk management, as described on pages 20 to 26 and
additionally as described in note 24.
As a result of this review, the Directors report that they have
satisfied themselves and consider it appropriate that the Group
is a going concern, having adequate resources to continue in
operational existence for the foreseeable future and have not
identified any material uncertainties in the Group’s ability to
continue over a period of at least 12 months.
the systems which operate in Kerry Group provide reasonable, but
not absolute, assurance of:
– the safeguarding of assets against unauthorised use or
disposition; and
– the maintenance of proper accounting records and the reliability
of the financial information produced.
µread More
the strategic report provides a
detailed description of how the
Group generates and preserves
value pg. 2 to 60.
73
lonGer TerM vIaBIlITy STaTeMenT
the Directors have assessed prospects of the Group over a
period of 5 years to 31 December 2020. this period is considered
appropriate as it aligns with the Group five year rolling strategic
planning process.
the Group Annual and Interim reports, and Interim Management
Statements form the principal communications with the Company’s
Shareholders, along with a programme of regular ongoing
interactions. this programme is formalised within an investor
relations framework.
this assessment considered the potential impact of the Group’s
principal risks and uncertainties as described on pages 56 to 60
should one or more of these risks materialise. the Group’s strategic
plan was stress tested for a number of severe but plausible
scenarios that could materially impact the Group’s business model,
future performance, solvency or liquidity.
the potential impact of scenarios that could arise out of one, or
a combination, of the Group’s principal risks being realised and
which may negatively impact on profitability, growth forecasts or
cashflows were considered. each principal risk identified on pages
56 to 60 was taken into account, including the specific risks below
which were believed to be the most critical for this assessment:
– failure to achieve targeted revenue and margins;
– an acquisition not delivering the expected returns;
– the impact of a significant food quality failure; and
– a significant cashflow impact as a result of adverse exchange
movements.
the potential impact of the crystallisation of the risks were
considered in relation to the Group’s profitability, cashflow, debt
profile and the credit facilities in place.
the Board considers that the diverse nature of the Group’s
geographies, markets, customer base, and product portfolio provide
significant mitigation against the impact of a serious business
interruption.
Based on the results of this analysis the Directors have concluded
that they have a reasonable expectation the Group will be able to
continue in operation and meet its liabilities as they fall due over
the five year period of their assessment.
FaIr BalanceD anD unDerSTanDaBle
the Directors have concluded that the Annual report presents a
fair, balanced and understandable assessment of the company’s
position and prospects. this assessment was completed by the
Audit Committee and the activities undertaken in reaching this
conclusion are discussed on page 76.
relaTIonS wITH SHareHolDerS
SHareHolDer coMMunIcaTIonS
the Company actively engages with Shareholders throughout the
year through a variety of channels. Although most shareholder
contact is with the Chief executive and the Chief Financial officer,
supported by management specialising in investor relations, it is the
responsibility of the Board as a whole to ensure that a satisfactory
channel of communication with shareholders exists.
Annual Investor Relations Programme
– presentations of interim and full year results and regular
meetings by senior management with the Company’s
institutional investors
– A significant amount of published material, including results,
presentations, and news releases are accessible to all
shareholders on the Group’s website (www.kerrygroup.com)
and through the Kerry Group Investor relations app
– regular communication is also entered into with individual
shareholders on a wide range of issues through the website
– the Chairman periodically attends investor meetings in order
to obtain the views of shareholders and shares these views
with all Directors in a timely manner
– the Senior Independent Director is available to meet
shareholders on request
In addition to the above an Investor day was held in october 2015
at the Kerry Global technology and Innovation Centre, in naas,
Ireland, which was attended by the Chairman, Chief executive and
Chief Financial officer together with members of the executive
management team. this provided shareholders, fund managers and
analysts an opportunity to visit the newly opened €100m centre
and to observe the Group’s breadth and depth of technologies,
scientific research, innovation and applications expertise, across
food, beverage and pharmaceutical markets.
annual General MeeTInG
the AGM provides an opportunity for the Directors to deliver
presentations on the business and for shareholders, both
institutional and private, to question the Directors directly. the
Chairman of the Board together with the Chairmen of the Audit,
remuneration and nomination Committees are available to answer
questions as required. notice of the AGM, proxy statement and the
Annual report and Financial Statements are sent to shareholders
at least 20 working days before the meeting. A separate resolution
is proposed at the AGM on each substantially separate issue
including a particular resolution relating to the report and financial
statements. Details of the proxy votes for and against each
resolution, together with details of votes withheld are announced
after the result of the votes by hand. these details are published on
the Group’s website following the conclusion of the AGM.
µDownload
Download our Investor App
at kerrygroup.com
74
Kerry Group AnnuAl report 2015µGovernance reporT
Audit Committee Report
philip toomey
Chairman of the Audit Committee
Dear Shareholder,
on behalf of the Audit Committee I am pleased
to present this report which describes the work
performed by the Committee during the year.
I can confirm that during 2015 the Committee
successfully satisfied its responsibilities as set
out in the Audit Committee terms of reference
and under the 2014 uK Corporate Governance
Code (the Code) and the FrC Guidance on
Audit Committees
In the year under review the Committee
supported the Board in its responsibilities
relating to the monitoring of the Group’s
financial reporting process, reviewing and
monitoring the risk management and internal
control systems, overseeing of the Group’s
Internal Audit function and advising the
Board on the appointment and independence
of the Group’s external auditor. the
Committee have reviewed in detail both the
financial and non-financial sections of the
Group’s Annual report and have confirmed
to the Board that the report when taken as
a whole is fair, balanced and understandable
and provides the information necessary to
assess the business model, strategy and
performance of the Group. Advice was also
provided to the Board on the new Corporate
Governance reporting requirements relating
to the longer term viability of the Group.
During the year the Committee, on behalf of
the Board, facilitated a process to oversee
the selection of a new Group external
auditor resulting in the recommendation of
pricewaterhouseCoopers as auditors to the
Group’s Financial Statements in respect of
the year ending 31 December 2016. the audit
of the 2015 Annual report and Financial
Statements will be the last conducted by
Deloitte, Chartered Accountants and I would
like to express my thanks to the partners and
staff who have worked on the Kerry Group
audit over the years.
In December 2015, Mr. tom Moran joined
the Audit Committee, I would like to take
this opportunity to welcome tom and I
look forward to working with him over the
coming year.
philip Toomey
Chairman of the Audit Committee
coMMITTee MeMBerSHIp
During 2015, the Audit Committee comprised of
three independent non-executive Directors; Dr.
Hugh Brady, Ms. Joan Garahy and was chaired
by Mr. philip toomey. Mr. tom Moran joined the
Committee on 11 December 2015.
the Board considers that both philip toomey
and Joan Garahy have relevant and recent
financial experience, as set out in their
biographical details on page 63.
Depending on the scheduled agenda, key
executives and senior management, including
the Chief executive, the Chief Financial
officer, the Head of Internal Audit as well as
representatives of the external auditor, are
regularly invited to attend Audit Committee
meetings. When required members of the roC
are invited to attend meetings to present on
agenda items related to risk. the Company
Secretary is the Secretary of the Committee.
role, reSponSIBIlITIeS anD
TerMS oF reFerence
the main responsibilities and role of the
Committee, which were reviewed and
updated during 2015 to reflect the changes
in the uK Corporate Governance Code, are
set out in written terms of reference which
are available from the Group’s website
(www.kerrygroup.com) or upon request.
the key duties outlined in the terms of
reference include ensuring the interests of
the shareholders are properly protected in
relation to financial reporting and internal
control, assisting the Board in executing its
duties in relation to risk management and
oversight of internal controls, overseeing the
Company’s relations with the external auditor
and monitoring the work of the internal audit
function. the Committee advises the Board
prior to its approval of the Interim and Annual
Consolidated Financial Statements, whether
75
it believes there are any material uncertainties that may impact
the Group’s ability to continue as a going concern and if the annual
report and financial statements, taken as a whole are fair, balanced
and understandable. During the year, the Committee agreed the
process to address the updated requirements of the uK Corporate
Governance Code in relation to the longer term viability statement,
and supported the Board in its conclusion that there is a reasonable
expectation that the Company will continue in operation over the
period of the assessment.
the Committee is satisfied that formal and transparent
arrangements for considering corporate reporting, risk
management, internal control principles and for maintaining an
appropriate relationship with the Company’s auditor exist.
coMMITTee MeeTInGS anD acTIvITIeS 2015
the Committee met six times during the year and attendance at
these meetings is detailed below:
During the year the Audit Committee Chairman provided a letter
to the Board outlining how the Committee discharged its duties
during 2015.
coMMITTee evaluaTIon
the internal review of Board effectiveness described on pages 71
to 72 included a review by the Committee of its own effectiveness.
A number of recommendations that are relevant to the operation of
the Audit Committee were made and action plans were agreed to
address the issues raised.
Subject
Committee Activity
Committee Member
Hugh Brady
Joan Garahy
tom Moran
philip toomey
Attended Eligible
6
6
1
6
6
6
1
6
the key activities undertaken by the Committee are set out below:
Financial Reporting
and Significant
Financial Judgements
the Audit Committee reviewed the Interim Management Statements, the Interim and Annual Consolidated
Financial Statements and all formal announcements relating to these statements before submitting them to the
Board of Directors with a recommendation to approve. these reviews focused on, but were not limited to:
– the appropriateness and consistency of accounting policies and practices;
– the going concern assumption; and
– compliance with applicable financial reporting standards, corporate governance requirements and the
sufficiency of disclosures.
the areas of significant judgement in the preparation of the financial statements are outlined below.
carrying value of intangible assets
Intangible assets, as disclosed in note 12, represents the largest number on the Group balance sheet at €3.4bn.
the Committee considered the process used to identify and value intangible assets arising on acquisitions
as well as the process to complete the impairment review of the Group’s intangible assets and specifically the
assumptions used for the future cash flows, discount rates, perpetuity rates and growth rates. the Committee
found that the assumptions used for the review are appropriate following discussions with senior management
and the external auditor.
Taxation
An element of judgement is required when arriving at the level of provisioning for uncertain current and
deferred tax liabilities. the Committee reviewed the Group’s senior management tax provisioning methodology
and considered the outcome of the auditors' review of these provisions. As a result, the Committee believes the
level of provisioning is appropriate.
retirement benefit obligations
the Group has a number of defined benefit schemes that are in a deficit position as outlined in note 26. these
schemes have been closed to new members; however changes in actuarial assumptions can impact the valuation
of these obligations. During their review of the financial statements, the Committee considered the assumptions
used including discount rates, inflation rates and mortality rates and were satisfied that the methodology employed
by the Group and its external advisors was appropriate. the Committee having consulted with senior management
and discussed with the external auditor, concluded that these assumptions are appropriate.
76
Kerry Group AnnuAl report 2015µGovernance reporT
Subject
Committee Activity
Fair, Balanced and
Understandable
As requested by the Board, the Audit Committee reviewed the Annual report, taken as a whole, to ensure that
it is fair, balanced and understandable, and provides the information necessary for shareholders to assess the
company’s position and performance, business model and strategy.
In satisfying this responsibility, the Committee considered the following:
– the timetable for the co-ordination and preparation of the Annual report and Consolidated Financial
Statements, including key milestones as presented at the December Audit Committee meeting;
– the systematic approach to review and sign-off carried out by senior management and the Group external
auditor, with a focus on consistency and balance;
– a detailed report from senior finance management verifying their assessment of the consistency between
the narrative and financial sections of the Annual report which were presented to the Audit Committee; and
– the draft Annual report and Financial Statements were available to the Audit Committee in sufficient time
for review in advance of the Committee meeting to facilitate adequate discussion at the meeting.
Based on the work performed, the Committee confirmed to the Board that it was satisfied that the above
requirement had been met.
Internal Control and
Risk Management
the Audit Committee, as set out in its terms of reference, supports the Board in its duties to review and
monitor on an ongoing basis the effectiveness of the Company’s risk management and internal control
systems. throughout the year, the Committee:
– reviewed and approved the assessment of the principal risks and uncertainties that could impact the
achievement of the Group’s strategic objectives as described on pages 54 to 60;
– received presentations on a selection of principal risks and discussed with senior management the material
internal controls that exist to mitigate these to levels within the Group’s risk appetite;
– reviewed quarterly reports from the Head of Internal Audit based on internal audits completed outlining non-
compliances with Group controls and management’s action plans to address them;
– considered reports from the Head of Internal Audit on investigations of fraud or other significant control
failures which occurred during the year and approved plans to address and remediate the control
weaknesses;
– received regular updates from the Group Financial Controller on control weaknesses identified through
monthly financial review meetings;
– considered the results of the Kerry Control reporting System, the internal control self-assessment review
of material finance, operational and compliance controls, and concluded that the controls are operating
effectively;
– assessed the Group’s risk management and internal control framework in line with the FrC Guidance on risk
Management, Internal Control and related Financial and Business reporting; and
– reviewed the report from the external auditor in respect of significant financial accounting and reporting
issues, together with internal control weakness observations.
the Audit Committee, having assessed the above information, is satisfied that the internal control and risk
management framework is operating effectively and has reported this opinion to the Board.
77
Subject
Internal Audit
Committee Activity
the Committee reviewed and approved the Group internal audit strategy and annual plan to ensure alignment with
the Group’s principal risks. the Committee considered and were satisfied that the competencies, experience and
level of resources within the internal audit team were adequate to achieve the proposed plan.
the Committee considered the role and effectiveness of Internal Audit in the overall context of the Group’s risk
management framework and were satisfied that the function has appropriate standing within the Group.
the Head of Internal Audit (HIA) provided quarterly updates of progress against the agreed plan including the
results of internal audit reports and managements actions to remediate issues identified.
the HIA had regular meetings with the Chairman of the Audit Committee and the Committee held a meeting with
the HIA without the presence of management.
Following an external review of the function in 2012 it was noted that the Internal Audit function conforms to the
Institute of Internal Auditors (IIA) International professional practice Framework (IppF). the Internal Audit function
intends to complete its next external assessment in 2017.
Appointment of
External Auditor
In 2014 the Audit Committee committed to appointing a new firm for the Group’s external audit commencing
financial year ended 31 December 2016, in keeping with best practice and to comply with the uK Corporate
Governance Code and eu legislation.
As Deloitte has been the Group external auditor since 1986 it was mutually agreed that they would cease to be the
company’s auditor effective from 29 March 2016 and therefore would not participate in the audit tender process.
In early 2015, following an evaluation by the Audit Committee, a number of external audit firms who were considered
to have the appropriate resources and competencies were invited to participate in the process to select a new
external auditor for the audit of Kerry Group and its subsidiary entities.
Written submissions and presentations from invited firms were evaluated by key senior financial management and
a shortlist of three firms, who demonstrated the calibre, resources and experience needed to undertake the Kerry
Group external audit were selected to make presentations to the Audit Committee, Chairman and Chief executive.
Following these presentations the Audit Committee evaluated the capabilities, competencies and resources of
the shortlisted firms and recommended to the Board that pricewaterhouseCoopers be selected as external
auditors for the Group.
External Audit
and Non Audit
Services
the Audit Committee reviewed and approved the external audit plan for the Group’s audit. the external Auditors'
report on quality control procedures and on the safeguards which they have put in place to ensure their objectivity and
independence in accordance with regulatory and professional requirements was also reviewed.
During the year, the Committee met with the external auditor without management present to discuss any issues
that may have arisen during the audit of the Group’s Consolidated Financial Statements.
Having considered all of the above, the Committee concluded that the Group’s external auditor remained
independent and that the audit process was effective.
the Group’s policy is that the external auditor and its affiliates may be used for non-audit services that are not in
conflict with the auditors' independence and where sound commercial reasons exist. this policy was reviewed and
approved by the Audit Committee and all non-audit services and fees were approved in accordance with Group
policy. the Audit Committee approved the remuneration for the external auditor. Details of fees paid for audit and
non-audit services are outlined in note 3.
During the year, the HIA provided the Committee with summaries of fraudulent matters outlining the details of such
incidents, key control failures, any financial loss and actions for improvement.
the Group employs a comprehensive and confidential reporting procedure to assist management and employees to
work together to address fraud, abuse, and other misconduct in the workplace. the Committee reviewed the operation
of these procedures during the year and were satisfied with the process.
Whistleblowing
and Fraud
Arrangements
78
Kerry Group AnnuAl report 2015µGovernance reporT
Nomination Committee Report
Michael Dowling
Chairman of the nomination
Committee
Dear Shareholder,
I am pleased to present this report outlining
the work undertaken by the Committee
during 2015. In the year under review, we
continued to lead the Board refreshment
process, ensuring the composition of the
Board has the correct balance of skills,
knowledge, experience, diversity, and
independence. In September, the Committee
recommended the appointment of Mr. tom
Moran to the Board.
the refreshment of the three Board
Committees was also considered which
resulted in Dr. Karin Dorrepaal being
appointed to the nomination Committee and
Mr. tom Moran being appointed to the Audit
Committee in December 2015.
the Committee continues to focus on a
strategic succession plan for both the Board
and Senior Management.
Michael Dowling
Chairman of the nomination Committee
the Committee’s effectiveness is reviewed
on an annual basis as part of the Board
evaluation process. Further details on this
process can be found on page 81.
the Committee is authorised by the Board
to obtain independent professional advice
and to secure the attendance of advisors
with relevant experience and expertise if it
considers this necessary. During 2015, the
Group used the advice and services of the
london office of Heidrick & Struggles which
specialises in executive and non-executive
board member recruitment services. In
addition the services of Mr. peter lever, a uK
based independent management consultant,
have been engaged to assist the Board in
refreshment and succession planning to
achieve the diversity and skills objectives.
neither Heidrick & Struggles nor Mr. lever
have any other connection to the Group.
the main responsibilities of the Committee
are set out in written terms of reference
which are available from the Group’s website
(www.kerrygroup.com) or upon request.
coMMITTee MeMBerSHIp
the nomination Committee consists of three
independent non-executive Directors, Dr.
Hugh Brady, Mr. James Kenny and since 11
December, 2015 Dr. Karin Dorrepaal and is
chaired by Mr. Michael Dowling.
role, responsibilities and terms of reference
the nomination Committee reviews the
size, structure and composition of the Board
considering knowledge, skills, experience
and diversity.
the Chairman of the Board or an
independent non-executive Director of
the Company acts as the Chairman of the
Committee. the Chairman of the Board
does not chair the Committee when it is
dealing with the matter of succession to the
chairmanship. the Company Secretary acts
as Secretary of the nomination Committee.
the Board ensures that the membership
of the nomination Committee is refreshed
in accordance with the Group’s Corporate
Governance policy.
only Committee members are entitled
to attend Committee meetings and the
quorum for meetings is two. the nomination
Committee may extend an invitation to other
persons to attend meetings to be present for
particular agenda items as required.
1. assessment
– nomination Committee conducts
Board evaluation
– Considers the skill set, experience,
balance and diversity of the Board
2. requirement
– If a requirement is identified, Committee
prepares a detailed job description outlining
the particular skills and experience required
3. Search
– Conducts search through third party search
agency, Directors or other stakeholders
– Search based on job description identified
above
4. Screening
– Screening carried out by 3rd party as
selected by the Committee
5. Interview
– Interview and selection process led by the
Committee
– results are reviewed by the Committee who
select candidates and recommend them to
the Board for approval
6. approval
– Board of Directors consider the
candidate(s) from the Committee and
approve the candidate(s) subject to
shareholder election at the AGM
Primary responsibilities of the Nomination Committee
– evaluating the balance of skills, experience, independence,
knowledge and diversity of the Board to ensure optimum size
and composition
– reviewing the Board Diversity policy and the setting of
measurable objectives for reporting the policy
– ensuring an appropriate nomination process is in place for
Board appointments
– reviewing a candidate’s other commitments to ensure that
on appointment, a candidate has sufficient time to undertake
the role
– ensuring a formal induction plan is in place for each new
Director on appointment
– Making recommendations to the Board on the appointment
and re-appointment of both executive and non-executive
Directors
– Making recommendations to the Board concerning
membership of Board Committees in consultation with the
Chairmen of the Committees
– ensuring plans and processes are in place for succession
planning for Directors and senior management positions.
79
noMInaTIon proceSS
there is a formal, rigorous and transparent procedure determining the
nomination for appointment of new Directors to the Board. Candidates
are identified and selected on merit against objective criteria and with
due regard to the benefits of diversity on the Board. the Committee
makes recommendations to the Board concerning appointments of
executive or non-executive Directors, having considered the blend
of skills, experience, independence and diversity deemed appropriate
and reflecting the global nature of the Company.
the nomination Committee also makes recommendations to
the Board concerning the re-appointment of any non-executive
Director at the conclusion of their specified term and the re-
election of all Directors who are the subject of annual rotation. the
terms and conditions of appointment of non-executive Directors
are set out in formal letters of appointment, which are available for
inspection at the Company’s registered office during normal office
hours and at the Annual General Meeting of the Company.
the key stages in the nomination process are outlined in the
diagram (above).
BoarD reFreSHMenT polIcy
on an on-going basis the nomination Committee reviews and
assesses the structure, size, composition and overall balance of the
Board and makes recommendations to the Board with regard to
refreshment and succession planning.
Appointments to the Board are for a three year period, subject to
shareholder approval and annual re-election, after consideration of
annual performance evaluation and statutory provisions relating to
the removal of a Director. the Board may appoint such Directors
for a further term not exceeding three years and may consider
an additional term if deemed appropriate. During the year, the
Chairman conducted a rigorous review of all non-executive
Directors as part of the Board evaluation process, taking into
account the need for progressive refreshment of the Board.
DIverSITy polIcy
Diversity is fully embraced at Kerry and the Group is committed to
having a work environment that is respectful of everyone. In order
to achieve a positive and productive workplace, all employees must
work together and realise each individual has something unique to
contribute to the overall success of Kerry.
the Group has implemented a Diversity and Inclusion policy which
forms part of the Group Code of Conduct ensuring that diversity
and inclusion are embedded in Kerry Group’s core values. Within
this, the Group seeks to recruit, hire and retain the best talent
from a diverse mix of backgrounds, with the skills and experiences
to drive new ideas, products and services providing a sustained
competitive advantage.
80
Kerry Group AnnuAl report 2015µGovernance reporT
Board Tenure
the Board believes in the benefits of having a diverse Board
and the benefits that it can bring to its effective operation.
Differences in background, skills, experiences, nationality and other
attributes including gender, are considered in determining the
optimum composition of the Board and with the aim to balance it
appropriately. All Board appointments are made on merit, with due
regard to diversity.
considers the benefits of all aspects of diversity including, but not
limited to, those described above, in order to complement the range
and balance of skills, knowledge and experience on the Board. As
part of the identification process Heidrick & Struggles are required
to present a list of potential candidates, who meet the stated
specification and requirements, comprising candidates of diverse
backgrounds for consideration by the Committee.
In reviewing Board composition and agreeing a job specification
for new non-executive Director appointments, the Committee
A summary of the Group’s current position relating to Board and
senior management diversity is provided below:
ExECUTIvE/NON-ExECUTIvE DIRECTORS
BOARD TENURE (YEARS)
0
10
0
20
10
30
20
40
30
50
40
50
Executive
27%
Non-Executive
73%
100
80
60
40
20
0
Diversity
DIvERSITY
100%
80%
60%
40%
20%
0%
FEMALE
13%
MALE
87%
FEMALE
21%
MALE
79%
Executive/Non-Executive Directors
15+
7%
7%
Board Age Profile
11-15
13%
5-10
7%
3-5
0-2
20%
46%
0%
10%
20%
30%
40%
50%
Executive Directors
Non-Executive Directors
BOARD AgE PROFIlE
+65
61-65
56-60
51-55
13%
20%
27%
40%
Board
Senior Management
0%
10%
20%
30%
40%
50%
81
coMMITTee MeeTInGS anD acTIvITIeS 2015
the Committee met four times during the year and attendance at these meetings is detailed below:
Director
Hugh Brady
Karin Dorrepaal
Michael Dowling
James C. Kenny
Attended Eligible
4
1
4
4
4
1
4
4
the principal activities of the Committee throughout the year are detailed below.
Subject
Internal and
External
Evaluation
Committee
Terms of
Reference
Board and
Senior
Executive
Succession
Planning
Committee Activity
As outlined in detail on page 71 an internal review of the Board and its Committees took place in 2015. the
Committee considered the outcome of this review and identified the areas relevant to the nomination Committee.
each recommendation was assessed and an action plan was developed to address areas for potential improvement.
these recommendations will form part of the agenda of the Committee for the coming year.
the Committee reviewed its terms of reference during the year to ensure the contents remained relevant and
appropriate and best reflect the role and responsibilities of the Committee.
During the year the Committee continued to review Board and Senior Management succession planning to ensure
the appropriate level of skills and diversity.
the Committee has engaged an external consultant, Mr. peter lever, to assist and advise on a strategy for Board
succession and refreshment into the future.
the Committee continues to ensure that there is a robust succession plan for senior management positions.
Re-appointment
of Directors
the Committee recommended to the Board that all Directors, subject to and seeking re-election, be put forward for
re-appointment at the Group’s 2016 AGM.
In accordance with the Articles of Association, all newly appointed Directors are subject to election by shareholders
at the AGM following their appointment. All other Board members are required to subject themselves for re-election
by shareholders on an annual basis. the Board explains to shareholders, in the papers accompanying the resolutions
to elect and re-elect the non-executive Directors, why they believe the individual should be re-elected. When
proposing re-election, the Chairman confirms to shareholders that following formal performance evaluation, the
individual’s performance continues to be effective and demonstrates commitment to the role.
Mr. tom Moran was appointed to the Board on 29 September 2015.
this appointment to the Board was conducted in line with the nomination process contained on page 79 and
Heidrick & Struggles were engaged in the process as advisers to the Committee.
As of 31 December 2015 the Board is made up of 15 Directors, comprising a non-executive Chairman, four executive
Directors and ten non-executive Directors. the average tenure of the Board currently stands at six years with two
thirds of the Board having been appointed in the past five years.
the tenure of Board members serving on each Committee was considered and membership of each Committee is
reviewed on an on-going basis to ensure each are appropriately refreshed.
As a result of this review tom Moran was appointed to the Audit Committee and Dr. Karin Dorrepaal was appointed
to the nomination Committee in December 2015.
Appointment of
Non-Executive
Director
Board and
Committees
Composition and
Refreshment
Policy
82
Kerry Group AnnuAl report 2015µGovernance reporT
Remuneration Committee Report
SecTIon a: cHaIrMan'S annual STaTeMenT
Joan Garahy
Chairman, remuneration Committee
Dear Shareholder,
on behalf of the remuneration Committee,
I am pleased to present the Directors’
remuneration report for the year
ended 31 December 2015. the Group’s
remuneration policy is outlined on page
86. the Committee is confident that
the Group’s policy achieves its strategic
objectives, is properly governed and
operates to the highest standards. We have
proposed changes to the Group’s executive
remuneration policy for 2016 which we have
outlined below and detailed in the report.
lInkInG reMuneraTIon anD
rewarD To Group STraTeGy
the Committee is dedicated to structuring
a remuneration policy which is stretching to
incentivise performance, with remuneration
metrics directly aligned to the Group’s key
performance indicators to deliver value to
shareholders.
the Group is focused on delivering
on its targets of growth in business
profitability and exceeding return on
investment hurdles. Appropriate metrics
are in place to achieve these goals which
are detailed later in the report on page
90 [and as referenced on pages 18 and
19 of the strategic report]. In addition,
minimum share ownership requirements
for executive Directors, combined with a
performance and deferral period of up to 5
years for share based remuneration, aligns
the executive Directors’ interests with that
of the shareholders.
2015 FInancIal year
In a challenging global business
environment, the Group again delivered a
good financial performance for the year as
shown below.
2015 Performance
Adjusted earnings per Share
(epS) Growth
total Shareholder return (tSr)
return on Average Capital
employed (roACe)
Results
8.2%
35%
13.6%
execuTIve DIrecTor
reMuneraTIon polIcy For 2016
As part of a three year review cycle,
the Ceo, CFo and executive Directors
remuneration was reviewed and
benchmarked during 2015. the review
found that, when compared with similar
sized Irish, uK, uS and european
companies in the sector, executive Director
remuneration levels were generally between
the median and lower quartile of the peer
group at target opportunity, with the CFo in
the lower quartile. At maximum opportunity,
the Ceo and executive Directors levels
were closer to the lower quartile, with
the CFo again in the lower quartile. the
Committee, having consulted with major
institutional shareholders, is of the opinion
that this gap in total reward is too great and
an adjustment is required.
the executive team is well established
and has delivered significant value to
shareholders in the form of continued total
Shareholder return growth (in excess of
500% over 7 years). In the same period the
enterprise value has increased from €3.4bn
to €15.2bn.
7 yr ToTal SHareHolDer reTurn
(value oF €100 InveSTeD on 31/12/2008)
15
14
13
12
€700
11
€650
10
€600
9
€550
€500
8
€450
7
€400
6
€350
5
€300
€250
4
€200
3
€150
2
€100
€50
1
€0
0
83
2016. the Ceo’s salary will increase by 9% and the CFo’s salary will
increase by 18%. In the case of the CFo only, this is part one of a
phased process to align his basic salary closer to the median of the
peer group. the Committee further deem it is appropriate to increase
the maximum annual incentive opportunity under the Short term
Incentive plan for our Ceo from 100% to 150% of basic salary and for
our CFo from 90% to 125% of basic salary.
700
650
600
the base remuneration levels of the other executive Directors
550
was found to be appropriate and therefore the Committee
500
recommend that increases to basic salary of 2% be applied in line
450
with inflation. the review has also identified the need to increase
400
the maximum annual incentive opportunity under the Short term
350
Incentive plan for the other executive Directors from 90% - 100% to
300
125% of basic salary.
250
200
150
100
50
0
In all cases the target annual incentive opportunity under the Short
term Incentive plan represents 70% of the maximum opportunity.
In making these recommendations the Committee have considered
the continued growth of the Group and the greater alignment of
our executive remuneration policy with that of our peers. We are
confident that our executives will continue to deliver significant
value to our shareholders and that our performance measures
remain relevant, stretching and appropriate.
2008 2009 2010
2011
2012
2013
2014
2015
Kerry
MSCI Europe Food Producer
E300 Food & Beverage
enTerprISe value
€ Billion
15.0
15.2
there are no proposed changes to the long term Incentive plan.
14.0
13.0
12.0
11.0
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
11.3
9.9
8.3
6.3
5.5
4.7
3.4
2008
2009
2010
2011
2012
2013
2014
2015
over the last 7 years there have been minimal increases to basic
salaries for the Ceo, CFo and executive Directors (average of circa
2% per annum since 2008). In addition, annual bonus opportunities
for the Ceo, CFo and executive Directors have remained
unchanged for the same period against stretching targets and
difficult economic conditions.
IncenTIve planS
the Committee continued to monitor the Short term Incentive plan
(StIp) and the long term Incentive plan (ltIp) arrangements for
the Group’s executive Directors and senior management in 2015 to
ensure that the performance metrics used for the Group’s incentive
plans remain appropriate and reflective of the Group’s strategic
objectives. the overall effectiveness of the StIp and ltIp were
reviewed in 2015 to ensure each plan was structured appropriately
to incentivise executive Directors and senior management.
Malus/clawback provisions were also reviewed and were deemed
appropriate for both plans.
concluSIon
the Committee continues to review the Group’s remuneration
policy to ensure that it remains aligned to shareholders’ interests,
is correctly reported in line with relevant legislation and provides
the right framework to attract, retain and motivate the executives
to meet the Group’s objectives. As in previous years, the
remuneration report is being put to shareholders for an advisory
vote. last year 98% of our shareholders voted in favour of the
report and I would encourage shareholders to again support this
year’s remuneration resolution.
yours sincerely
With this in mind, and in line with our strategy of rewarding strong
performance, increases to remuneration are merited. the Committee
recommend the following salary increases with effect from 1 January
Joan Garahy
Chairman, remuneration Committee
84
Kerry Group AnnuAl report 2015µGovernance reporT
SecTIon B: reMuneraTIon coMMITTee
& key acTIvITIeS
reMuneraTIon coMMITTee MeMBerSHIp
During the year, the remuneration Committee comprised three
independent non-executive Directors; Mr. James C. Kenny, Dr. Karin
Dorrepaal and was chaired by Ms. Joan Garahy. Details of the skills
and experience of the Directors are contained in the Directors’
biographies on pages 62 to 63.
role oF THe reMuneraTIon coMMITTee
on behalf of the Board, the remuneration Committee is responsible
for determining the remuneration policy for the Ceo and the other
executive Directors on an annual basis. the Ceo is invited to
attend remuneration Committee meetings, but does not attend
Committee meetings when his own remuneration is discussed. the
Committee also has access to internal and external professional
advice as required. the Committee follows an annual and tri-
annual calendar with matters scheduled and planned well in
advance. Decisions are made within agreed reference terms, with
additional meetings held as required. In considering the agenda
the Committee gives due regard to overall business strategy, the
interests of shareholders and the performance of the Group.
the remuneration Committee also completes an assessment
of its’ own performance on an annual basis and reports any
recommendations to the Board.
the main responsibilities of the Committee are set out in its written
terms of reference and are available from the Group’s website www.
kerrygroup.com and upon request.
Key Responsibilities:
In accordance with the terms of reference of the Committee,
the primary responsibilities of the Committee include:
– to review the remuneration of the Ceo and executive Directors;
– to review the remuneration of the Chairman and
non-executive Directors;
– to review and approve incentive plan structures and targets;
– to agree the design of all share incentive plans for approval
by the shareholders;
– to ensure the contractual terms of executive Directors are
deemed fair and reasonable;
– to place before shareholders at each AGM, a Directors’
remuneration report outlining the Company’s policy and
disclosures on remuneration;
– to arrange where appropriate, external benchmarking of
overall remuneration levels and the effectiveness of share
based incentives and long term incentive schemes;
– to receive recommendations from the Ceo and have
oversight of the salaries and overall remuneration of senior
management; and
– to review annually its own performance and terms of
reference to ensure it is operating effectively.
coMMITTee MeeTInGS anD acTIvITIeS 2015
the Committee met on four occasions during the year. Attendance
at these meetings is detailed below:
Director
Joan Garahy
James C. Kenny
Karin Dorrepaal
Attended Eligible
4
4
4
4
4
4
the key activities undertaken by the Committee in discharging its duties during 2015 are set out below:
Subject
Committee Activity
Remuneration Report
A review of best practice remuneration reporting was completed during 2015 to ensure compliance with
relevant legislation and reporting requirements while also ensuring the delivery of a report which is transparent
and understandable for all shareholders. As part of this review, the Committee considered the recent
amendments in reporting requirements detailed in the 2014 Irish Companies Act and is satisfied that the
Group is in full compliance with the Act. the Committee continues to monitor the ongoing discussions and
commentary on the pending eu Shareholders’ rights Directive (the outcome of which is expected to be known
in 2016) to prepare for its introduction and implementation.
Basic Salary
A detailed benchmark review of executive Directors’ salaries is scheduled on a three year cycle and this was
completed in 2015 [see Implementation Section on page 89 for details on the outcome of the review].
Short Term Incentive
Plan (STIP)
StIp awards were reviewed during 2015 by the remuneration Committee to ensure that the plan remains
appropriately stretching and aligned with the Group and business strategy [see Implementation Section on
page 90 for details on the outcome of the review]
long Term Incentive
Plan (lTIP)
the Committee reviewed the overall effectiveness of the ltIp during 2015 to ensure it is structured
appropriately to incentivise executive Directors and senior management across the Group [see Implementation
Section on page 90 for details on the outcome of the review].
85
Subject
Committee Activity
Chairman &
Non Executive
Directors’ Fees
Shareholder
Consultation
A detailed benchmark review of the Chairman’s and non-executive Directors’ fees was undertaken in 2014
with the assistance of Willis towers Watson. recommended increases from this review were effective from 1st
January 2015. Following this detailed review last year, the Committee proposed no changes to fee levels for the
Chairman and non-executive Directors for 2016.
the Committee reviewed the results of the vote by shareholders to receive and consider the remuneration
report at its first meeting following the 2015 AGM. the vote on the “Say on pay” resolution was 98% in favour,
with shareholders voting overwhelmingly in support of the report.
the Committee, in early 2016, discussed the outcome of the 2015 executive Directors remuneration review with
major institutional shareholders who provided useful feedback which was considered by the Committee. this
feedback, together with additional feedback received from shareholder representative bodies and governance
groups, and the result of shareholders votes, informed the final pay change proposals.
Senior Management
Review
Committee
Performance Review
Within its terms of reference there is a requirement for the Committee to have oversight of the salaries and
overall remuneration of senior management. In line with this, a benchmark review for senior management was
completed in 2015 with Willis towers Watson. the outcome of this review, including the recommendations and
proposed increases, were presented to the Committee.
During 2015 the Committee completed a review of its own performance. Specifically the Committee evaluated
the operation of the remuneration structure changes effected in 2015. An assessment of the level of interaction
with shareholders in the year under review was also completed to ensure the Committee was effective in
discharging its responsibilities.
Committee Review of
Terms of Reference
During the year the Committee updated its’ terms of reference. A copy of these terms is available on the
group website www.kerrygroup.com
reMuneraTIon coMMITTee aDvISorS
the remuneration Committee is authorised by the Board to appoint external advisors. Willis towers Watson (named towers Watson
during 2015) has been appointed as the advisor to the remuneration Committee. Willis towers Watson has also provided management
remuneration information and pension advisory services to the group during the period under review. Willis towers Watson is a member of
the remuneration Consultant’s Group and the Committee ensures that the nature and extent of these other services does not affect the
advisor’s independence. the fees incurred with Willis towers Watson for advising the Committee in 2015 were €244,000 (2014: €66,000).
86
Kerry Group AnnuAl report 2015µGovernance reporT
SecTIon c: reMuneraTIon polIcy
the Group’s executive Director remuneration policy is to ensure
that executive remuneration properly reflects their duties and
responsibilities, and is sufficient to attract, retain and motivate
people of the highest quality internationally. remuneration includes
performance related elements designed to align Directors’ interests
with those of shareholders and to encourage performance at
the highest levels in line with the Group’s strategy. In setting
remuneration levels, the Committee has regard to comparable Irish,
uK, uS and european companies in the sector in terms of both
the size of the Group and the geographical spread and complexity
of it’s business. It also considers pay and employment conditions
elsewhere in the Group.
the Committee also considers the level of pay in terms of the
balance between the fixed and variable elements of remuneration.
Fixed elements of remuneration are defined as basic salary, pension
and other benefits with the variable elements being performance
related incentives with both short and long term components.
A high proportion of executive Directors’ potential remuneration is
based on short term and long term performance related incentive
programmes. By incorporating these elements, the remuneration
Committee believes that the interest and risk appetite of the
executive Directors is properly aligned with the interests of the
shareholders and other stakeholders.
necessary expenses incurred undertaking company business, are
reimbursed and/or met directly so that executive Directors are no
worse off on a net of tax basis for fulfilling company duties.
IlluSTraTIon oF reMuneraTIon polIcy
the following diagram shows the minimum, target and maximum
composition balance between the fixed and variable remuneration
components for each executive Director effective 1 January 2016.
the inner most circle represents the minimum potential scenario
for remuneration, with the middle circle representing target and the
outer circle representing maximum potential.
STAN MCCARThY
BRIAN MEhIgAN
Basic Salary
pension
STIp
lTIp
43%
21%
31%
31%
17%
83%
32%
32%
4%
6%
gERRY BEhAN
FlOR hEAlY
Basic Salary
pension
STIp
lTIp
45%
22%
32%
33%
17%
83%
28%
28%
5%
7%
Basic Salary
pension
STIp
lTIp
Basic Salary
pension
STIp
lTIp
42%
23%
29%
33%
21%
79%
29%
29%
42%
24%
30%
33%
18%
82%
29%
29%
6%
9%
5%
8%
87
ServIce conTracTS
the Group does not have any service contracts with its Directors which extend beyond one year.
non-execuTIve DIrecTorS’ reMuneraTIon polIcy
non-executive Directors’ fees, which are determined by the Board as a whole, fairly reflect the responsibilities and time spent by the
Directors on the Group’s affairs. In determining the fees, which are set within the limits approved by shareholders, consideration is given to
both the complexity of the Group and the level of fees paid to non-executive Directors in comparable companies. on a three year cycle,
the Chairman of the remuneration Committee will review non-executive Directors’ fees, consult with the Committee and present any
recommendations to the full Board for approval. this review was last undertaken in 2014 and increases were made effective from 1 January
2015. Fees will remain unchanged in 2016 and will be reviewed again in 2017 in accordance with the three year review cycle. non-executive
Directors do not participate in the Group’s incentive plans, pension arrangements or other elements of remuneration provided to the
executive Directors. no payments are made to non-executive Directors for expenses, other than those incurred wholly and directly in the
course of their appointments.
FuTure polIcy TaBle
the following table details the remuneration policy for the Group’s executive Directors effective from 1 January 2016:
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Basic Salary
reflects the value of the
individual, their skills and
experience
Competitive salaries are set
to attract, retain and motivate
executives to deliver strong
performance for the Group
Benefits
to provide a competitive
benefit package aligned with
the role and responsibilities of
Directors
– remuneration Committee sets the basic salary
– Set at a level to
– not applicable
and benefits of each executive Director
– Determined after taking into account a number
of elements including the Directors’ performance,
experience and level of responsibility
– paid monthly in Ireland and bi-monthly in the uS
– Salary is referenced to job responsibility and
internal/external market data
– pay conditions across the Group are also
considered when determining any basic salary
adjustments
attract, retain and
motivate Directors
– reviewed annually
– Full benchmark
review undertaken
every three years
– these benefits primarily relate to the use of a
– not applicable
– not applicable
company car or a car allowance
– Business travel costs are reimbursed and/or met
directly so that executive Directors are no worse
off on a net of tax basis for fulfilling company
duties
Short Term Performance Related Incentives*
to incentivise the achievement,
on an annual basis, of key
performance metrics and short
term goals beneficial to the
Group and the delivery of the
Group’s strategy
A 25% deferral in shares/
options provides a 2 year
retention element and aligns
executives’ interests with
shareholders’ interests
– Achievement of predetermined earnings growth
– Maximum
– Adjusted earnings
and other performance targets set by the
remuneration Committee
opportunity 125% -
150% of basic salary
per Share
– Business operating
– performance targets aligned to published
– 70% of maximum
profit
strategic targets
– 75% of the award payable in cash
– 25% awarded by way of ordinary shares/options
to be issued two years after vesting following a
deferral period
– Malus & clawback provisions are in place for
awards under the StIp (see below)
opportunity
for on-target
performance
– Cash Flow/Margin
– personal and
Strategic objectives
88
Kerry Group AnnuAl report 2015µGovernance reporT
Purpose and link to strategy
Operation
long Term Performance Related Incentives*
Opportunity
Performance metrics
retention of key management
and incentivisation of sustained
performance against key
metrics over a longer period
of time
Share based to provide
alignment with shareholder
interests
A 50% deferral provides a
retention element and aligns
executives’ interests with
shareholders’ interests
Shareholding Requirement
Maintain alignment of the
interests of the shareholders
and the executive Directors
and commitment over the
long term
Pension
to provide competitive
retirement benefits to attract
and retain executives
– the awards vest depending on a number of
– Maximum
– Adjusted earnings
separate performance metrics being met over a
three year performance period
opportunity 180% -
200% of basic salary
per Share
– total Shareholder
– Conditional awards over shares or share options
– 50% of maximum
return
opportunity
for on-target
performance
– return on Average
Capital employed
in the Group
– 50% of the earned award delivered at vesting
date
– 50% of the earned award issued following a
two year deferral period (i.e. giving a combined
performance period and deferral period of 5
years)
– Malus & clawback provisions are in place for
awards under the 2013 ltIp (see below)
– executive Directors are expected to build and to
hold shares in the Company to a level not less
than 180%-200% of their basic salary over a five
year time period (see below)
– not applicable
– 180% - 200% of
basic salary
– executive Directors in the uS participate in the
– not applicable
– not applicable
Group’s defined benefit and defined contribution
pension schemes
– Irish resident Directors receive a contribution to
an after tax savings scheme (see below)
*the Committee may at its discretion, amend or vary the performance conditions of the StIp and ltIp where it is deemed appropriate.
penSIonS
A review of pension provisions for the executive Directors impacted by the lifetime earnings cap in Ireland was concluded during 2012. the
Irish resident Directors have thus been offered a contribution (on a cost neutral basis to the Company) to an after tax savings scheme as an
option. Both Directors affected have taken up this option. the uS resident Directors participate in a uS defined benefit pension scheme which
was constructed to deliver the same equivalent pension benefit as delivered under the Irish defined benefit scheme, which calculates pension
benefit based on basic pay.
SHareHolDInG requIreMenT
Share ownership is a key component of the Group’s remuneration policy as it helps maintain alignment between the interests of the
shareholders and the interests of the executive Directors. to help maintain commitment over the long term, executive Directors are expected
to build and to hold shares in the Company to a level not less than 180% - 200% of their basic salary, over a five year period. All executive
Directors have significantly exceeded the minimum shareholding requirement. [See table on page 98 in section D for details].
DIluTIon
the company offers executive Directors and employees the opportunity to participate in share based schemes as part of the Group’s
remuneration policy. In line with best practice guidelines, the company ensures that the level of share awards granted under these schemes
over a rolling ten year period does not exceed 10% of the Company’s share capital. the dilution resulting from vested share awards/share
options for this ten year period is 1.9%.
the potential future dilution level from unvested share awards/share options as a result of these schemes is a further 0.6%.
89
clawBack / MaluS
the Committee has the discretion to reduce or impose further conditions on the StIp and ltIp awards prior to vesting (malus).
It further has the discretion to recover incentives paid within a period of 2 years from vesting (clawback), where the Audit Committee
determines that:-
– a material misstatement of the Company’s audited financial results or a serious wrongdoing has occurred;
and
– as a result of that misstatement or serious wrongdoing, there will need to be a restatement of the accounts and that the incentive
awarded was in excess of the amount that would have been awarded had there not been such a misstatement.
Any recalculation shall be effected in such manner and subject to such procedures as the Company determines to be measured and
appropriate, including repayment of any excess incentive or set off against any amounts due or potentially due to the participant under any
vested or unvested incentive awards.
other elements of remuneration are not subject to clawback or malus provisions.
conSIDeraTIon oF eMployMenT conDITIonS elSewHere In THe coMpany
When setting the remuneration policy for executive Directors, the remuneration Committee takes into account the pay and
employment conditions of the other employees in the Group. Senior management are invited to participate in both the StIp and
ltIp to incentivise performance through the achievement of short term and long term objectives and through the holding of shares
in the Company. While the Committee does not consult directly with employees when setting remuneration for executive Directors,
it does take into account information provided by our external advisors, Willis towers Watson, in conjunction with feedback provided
by the Human resource function.
IMpleMenTaTIon oF FuTure polIcy
BaSIc Salary anD BeneFITS
A detailed benchmark review of executive Directors’ salaries is scheduled on a three year cycle and this was completed in 2015 (last review
occurred in 2012). this review included amongst other things, a study of a significant number of comparable Irish, uK, uS and european
companies in the sector.
the review was designed to ensure basic salaries are reflective of experience, performance, the scope of the roles, changes in
responsibilities and also to ensure alignment with the market.
the 2015 review, performed in conjunction with Willis towers Watson, determined that there is a shortfall between our Ceo and CFo’s
remuneration and that of our market peers. the executive team have delivered significant value to shareholders in the form of continued
total Shareholder return growth (in excess of 500% over 7 years). over the same period there have been minimal increases to basic
salaries (average of circa 2% per annum) and annual bonus opportunities have remained unchanged against stretching targets and difficult
economic conditions.
Following the outcome of the review, it has been agreed to increase the basic salary level of the Ceo from $1,330k to $1,450k (9% Increase)
and the CFo from €522k to €616k (18% Increase) effective from 1st January 2016. In the case of the CFo only, this is part one of a phased
process to align his basic salary closer to the median of the peer group. the basic salaries of the other executive Directors will be adjusted
by 2% in line with inflation.
90
Kerry Group AnnuAl report 2015µGovernance reporT
SHorT TerM perForMance relaTeD IncenTIve awarD (STIp)
the structure of the scheme is reviewed regularly to ensure that it develops in line with the Group’s strategic goals. A review of the StIp
was completed in 2015 to ensure the targets set were stretching, linked to strategy and appropriately calibrated. the performance targets
remain stretching and support our business strategy and the ongoing enhancement of shareholder value through a focus on a return for
shareholders, increasing profit and cash generation. Furthermore the malus and clawback provisions of the StIp, which include a 2 year
clawback provision (outlined on page 89) are deemed to be appropriate and effective.
the targets set for 2016 are a combination of a number of performance metrics as set out in the table below:
2016 STIp – performance Metrics and weightings
Metrics
Adjusted epS Growth
Business operating profit
Cash Flow/Margin
personal and Strategic
total
Stan Mccarthy
Brian Mehigan
% of award
% of award
Flor Healy
% of award
Gerry Behan
% of award
Target
49%
–
14%
7%
70%
Max
70%
–
20%
10%
100%
Target
49%
–
14%
7%
70%
Max
70%
–
20%
10%
100%
Target
35%
14%
14%
7%
70%
Max
50%
20%
20%
10%
100%
Target
35%
14%
14%
7%
70%
Max
50%
20%
20%
10%
100%
these are considered to be the key metrics as they align with the Group’s objectives while also ensuring the long term operational and financial
stability of the Group. Adjusted epS growth was chosen as a key performance metric as it encompasses all the components of growth that are
important to the Group’s stakeholders. this metric represents 70% of the overall weighting for the Ceo and the CFo and 50% of the overall
weighting for the other executive Directors. For 2016, the Group’s adjusted epS target is set at 10% annual growth in excess of the 2015
adjusted epS.
Business operating profit and Cash Flow/Margin reflect the operational performance of the business incorporating key metrics of sales
growth, margin improvement and cash flow delivery. personal and Strategic objectives, that are relevant to each executive’s specific area of
responsibility, are key in ensuring strategic and functional goals are capable of being rewarded. As these metrics are commercially sensitive,
targets are not disclosed at this time.
In conjunction with the review of basic salaries referred to above, the Committee has decided to increase the level of maximum StIp
opportunity for the Ceo from 100% - 150% of basic salary and also increase the maximum opportunity of the other executive Directors from
90% - 100% to 125% of basic salary. In all cases the target annual incentive opportunity under the Short term Incentive plan represents 70%
of the maximum opportunity.
note: See Group Key performance Indicators (KpIs) on pages 18 and 19 for link between the performance metrics used for incentive
purposes and the Group’s strategy.
lonG TerM perForMance relaTeD IncenTIveS (lTIp
the Committee reviewed the overall effectiveness of the ltIp during 2015 to ensure it is structured appropriately to incentivise executive
Directors and senior management across the Group.
the level of opportunity under this scheme available to the Ceo and executive Director’s is to remain unchanged following the review. the
ltIp performance metrics and weightings were reviewed in 2015 and deemed to be in accordance with Group strategy while remaining
suitably stretching. As part of this review the performance metrics used by other companies in our peer group were also taken into
consideration. ltIp thresholds, targets and maximum opportunities are deemed to be appropriately calibrated to maintain alignment
between the interests of Directors and shareholders. the malus and clawback provisions applying to the 2013 ltIp (outlined on page 89)
are deemed to be appropriate and effective and include a 2 year clawback provision.
SHareHolDer enGaGeMenT
the Committee discussed the adjustments outlined above with major institutional shareholders who welcomed the engagement and
provided useful feedback which was further considered by the Committee.
91
SecTIon D: 2015 DIrecTorS’ reMuneraTIon
Disclosures regarding Directors’ remuneration have been drawn up on an individual Director basis in accordance with the requirements of the
Irish Corporate Governance Annex, the uK Corporate Governance Code, the Irish Stock exchange and the uK listing Authority:
execuTIve DIrecTorS’ reMuneraTIon
As Stan McCarthy and Gerry Behan are paid in the uS in uS dollars, the reporting of their year on year remuneration is impacted by the
appreciation of the uS dollar against the euro which is significant for 2015. We have shown their remuneration in their home country
currency (uS dollars) for comparison purposes.
2014
$’000
4,366
2,635
7,001
€’000
5,264
1,622
1,536
Basic
Salaries
2015
$’000
1,330
835
2,165
2014
$’000
1,304
810
2,114
Benefits
pensions2
performance
related3
lTIp4
Total
2015
2014
2015
2014
2015
2014
2015
2014
2015
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
109
33
142
96
51
147
273
173
446
303
214
517
768
522
1,290
744
373
1,117
2,139
1,329
3,468
1,919
1,187
3,106
4,619
2,892
7,511
€’000
€’000
€’000
€’000
€’000
€’000
€’000
€’000
€’000
€’000
€’000
Stan McCarthy
Gerry Behan
total uS $
total uS $ in eur€1
1,950
1,590
Brian Mehigan2
Flor Healy2
522
557
512
546
3,029
2,648
128
30
11
169
110
29
14
153
143
126
671
402
389
1,162
840
3,124
2,335
6,766
145
129
271
243
263
129
900
960
673
718
1,866
1,897
663
1,676
1,232
4,984
3,726
10,529
8,422
Note 1:
Note 2:
Given the significant movement of the euro to US dollar exchange rate over the year, the table shows the Executive Directors’ pay in the currency of payment to ensure clarity
in payments and changes year on year.
The pension figures outlined above for both Stan McCarthy and Gerry Behan include both defined benefit and defined contribution retirement benefits, while for Stan
McCarthy retiree medical benefits are also included in this figure. The Irish Finance Act 2011 established a cap on pension provision by introducing a penal tax charge on any
benefits exceeding €2.3m in value. In response to this, the Remuneration Committee decided to offer Executive Directors who are members of the Irish pension scheme the
option to have contributions made to a savings plan in lieu of further pension accrual, on an overall cost neutral basis to the Company. Both Brian Mehigan and Flor Healy have
opted for the alternative savings plan and the figures included above reflect this including life cover.
Note 3: This STIP amount represents 75% delivered in cash with 25% delivered by way of shares/share options which are deferred for two years.
Note 4: The share price used to calculate the value of the LTIP is the average share price for the three months up to the end of the year being reported.
BaSIc Salary IncreaSeS
the remuneration Committee proposed an increase in basic salaries in 2015 of 2% on average (in local currency) in line with inflation. the
Group’s Ceo received an increase of 2% of basic salary with the average increase for all Group employees in 2015 being approximately 3.4%.
annual IncenTIve ouTcoMeS (STIp)
2016 STIp – Disclosure against Target/outcome
Metrics
Adjusted epS Growth
Business operating profit
Business operating Cash Flow
performance achieved relative to targets
Threshold
0%
Target
70%
Maximum
100%
performance
achieved
57.7%
63.3%
63.0%
As reflected in the table above, for 2015 the Group achieved performance below the target opportunity level set by the remuneration
Committee, which demonstrates that the targets are stretch targets in the current environment.
For 2015, the Group’s adjusted epS target was set at 10% annual growth in excess of the 2014 adjusted epS. the Group realised 8.2%
growth for the year.
92
Kerry Group AnnuAl report 2015µGovernance reporT
As Business operating profit and Business operating Cash Flow are key internal business metrics, the results in the table above are the
accumulated averages for the executive Directors. As these metrics are commercially sensitive the targets are not disclosed. these targets
will be disclosed when they are considered to be no longer commercially sensitive.
lonG TerM IncenTIve plan (lTIp)
the Group operates two long term Incentive plans (ltIp). the terms and conditions of the first plan were approved by shareholders
in 2006 with the second plan being approved in 2013. the remuneration Committee approves the terms, conditions and allocation of
conditional awards under the Group’s ltIp to executive Directors, the Company Secretary and senior management. under this plan,
executive Directors and senior management are invited to participate in conditional awards over shares or share options in the Company.
Depending on performance metrics being met, the 2013 ltIp plan will vest over a three year performance period. 50% of the award is
delivered at the vesting date with the remaining 50% of the award being delivered following a two year deferral period. this provides for a
combined performance period and deferral period of 5 years.
2006 lTIp
Conditional awards have been made in 2011, 2012 and 2013 and these will potentially vest or partially vest three years after each award date
if the predetermined performance targets are achieved. Since 2013, no further conditional awards have been issued under the 2006 ltIp
and the final awards will vest in 2016.
An award may lapse if a participant ceases to be employed within the Group before the vesting date.
the market price of the shares on the date of each award outlined above is disclosed in note 28 to the financial statements.
the proportion of each conditional award which vests will depend on the adjusted epS and tSr performance of the Group during the
relevant three year performance period.
EPS performance test
up to 50% of the award vests according to the Group’s adjusted epS growth over the performance period compared with a target adjusted
by the movement in the Irish Consumer price Index (CpI) over the same period.
this measurement will be determined by reference to the growth in Kerry Group’s adjusted epS in each of the three financial years in the
performance period in comparison with the movement in the CpI in accordance with the following table:
kerry’s adjusted epS growth over a 3 year performance period
Below CpI +15 percentage points (5% p.a.)
percentage of the award which vests
0%
CpI +15 percentage points (5% p.a.)
50%
Between CpI +15 and +22.5 percentage points (7.5% p.a.)
Straight line between 50% and 100%
Greater than or equal to CpI +22.5 percentage points (7.5% p.a.)
100%
the growth in Kerry’s adjusted epS is calculated by reference to the adjusted epS of the financial year immediately preceding the start of
the performance period and the adjusted epS of the last financial year of the performance period. the increase in the CpI is calculated by
reference to the last figure published in the financial year immediately preceding the start of the performance period and the last figure
published in the last financial year of the performance period.
Should the Committee consider it appropriate, following any change in the Group’s accounting policies, accounting period or method
of calculating adjusted epS, it may make such adjustments as are necessary to put the calculations of adjusted epS for the relevant
accounting periods on a broadly comparable basis, after consulting the Irish Association of Investment Managers.
TSR performance test
the remaining 50% of the award vests according to the Group’s tSr performance over the period measured against the tSr performance
of a peer group of listed companies over the same three year performance period. the peer group consists of Kerry and the following
companies:
93
Glanbia
Greencore
IFF
Kellogg
McCormick & Co.
premier Foods
Sensient technologies
tate & lyle
Associated British Foods
Danone
General Mills
Givaudan
unilever
350
300
250
200
150
100
50
0
-50
As a result of mergers, acquisitions, divestitures and delisting, the following companies have been removed from the LTIP peer group: IAWS, Arla Foods, Cadbury,
Uniq, Northern Foods, Danisco, Robert Wiseman, CSM and HJ Heinz.
When assessing whether the performance hurdle has been met, this measurement is determined by reference to the ranking of Kerry’s tSr
during each of the three financial years identified as the performance period, in comparison with the tSr performance of the companies in
the peer group. the awards vest in line with the following table:
position of kerry in the peer Group
Below median
Median
Between median and 75th percentile
Greater than 75th percentile
percentage of the award which vests
0%
30%
Straight line between 30% and 100%
100%
the Committee may make adjustments to the peer group where necessary to take account of mergers, acquisitions, demergers or a
company ceasing to trade provided that, as a result, this tSr performance condition will be neither materially easier nor more difficult to
achieve. tSr for each company in the peer group shall be calculated on such basis as the Committee, acting reasonably, may specify from
time to time, provided that as far as practicable the same method of calculation shall be used for every company in the peer group.
Overall outcome of the 2006 lTIP vesting in 2016
the performance graph below shows Kerry’s tSr compared to the peer companies over the three year performance period from 1 January
2013 to 31 December 2015 for the 2006 ltIp awards which issued in 2013. these awards have a vesting date on or before 30 April 2016.
3 year TSr: kerry anD coMparaTor 1 Jan 2013 – 31 Dec 2015
350
300
250
200
150
100
50
0
-50
Top Quartile
2nd Quartile
3rd Quartile
4th Quartile
1
r
e
e
P
2
r
e
e
P
3
r
e
e
P
4
r
e
e
P
5
r
e
e
P
6
r
e
e
P
Y
R
R
E
K
8
r
e
e
P
9
r
e
e
P
0
1
r
e
e
P
1
1
r
e
e
P
2
1
r
e
e
P
3
1
r
e
e
P
4
1
r
e
e
P
the outcome of the measurement of the adjusted epS condition in relation to the 2013 awards is that the CpI plus 22.5% condition
was exceeded.
long Term
Incentive plan
2006
TSr performance
(50% of award)
53rd percentile*
actual vesting
of TSr award
20.3%
epS performance
(50% of award)
26.5% growth*
actual vesting
of epS award
50%
Total %
vested
70.3%
*See TSR and EPS tables above for details of performance metrics.
94
Kerry Group AnnuAl report 2015µGovernance reporT
2013 lTIp
the 2013 ltIp was approved by shareholders at the 2013 AGM. the first conditional awards under this scheme were made to executive
Directors in 2013 and these will potentially vest or partially vest three years after award date if the predetermined performance targets are
achieved. the maximum award that can be made to an individual Director under the ltIp over a 12 month period is equivalent to 180% -
200% of basic salary for that period.
An award may lapse if a participant ceases to be employed within the Group before the vesting date.
50% of shares/share options which potentially vest under the scheme are issued immediately upon vesting. the remaining 50% of the award
is issued to participants following a two year deferral period.
the market price of the shares on the date of each award outlined above is disclosed in note 28 to the financial statements.
the proportion of each conditional award which vests will depend on the adjusted epS, tSr and roACe performance of the Group during
the relevant three year performance period.
EPS performance test
up to 50% of the award vests according to the Group’s average adjusted epS growth over the performance period. this measurement
is determined by reference to the growth in Kerry Group’s adjusted epS in each of the three financial years in the performance period in
accordance with the vesting schedule outlined in the following table:
threshold
target
Maximum
kerry’s epS growth per annum
8%
10%
12%
percentage of the award which vests
25%
50%
100%
Below 8% none of the award will vest. Between 8% and 10%, 25%-50% vesting will occur on a straight line basis. Between 10% and 12%,
50-100% vesting will occur on a straight line basis.
the growth in Kerry’s average adjusted epS is calculated by reference to the adjusted epS of the financial year immediately preceding
the start of the performance period and the adjusted epS of the last financial year of the performance period.
Should the Committee consider it appropriate, following any change in the Group’s accounting policies, accounting period or method
of calculating adjusted epS, it may make such adjustments as are necessary to put the calculations of adjusted epS for the relevant
accounting periods on a broadly comparable basis, after consulting the Irish Association of Investment Managers.
TSR performance test
30% of the award vests according to the Group’s tSr performance over the period measured against the tSr performance of a peer
group of listed companies over the same three year performance period. the peer group consists of Kerry and the following companies:
Aryzta
Chr. Hansen*
Barry Callebaut
Corbion
General Mills
Givaudan
Glanbia
Greencore
Danone
IFF
Kellogg
McCormick & Co.
nestle
novozymes
premier Foods
Sensient technologies
Symrise
tate & lyle
unilever
*It was agreed for 2015 onwards to replace Associated British Foods with Chr. Hansen in the peer group.
When assessing whether the performance hurdle has been met, this measurement is determined by reference to the ranking of Kerry’s tSr
during each of the three financial years identified as the performance period, in comparison with the tSr performance of the companies in
the peer group. the awards vest in line with the following table:
position of kerry in the peer Group
Below median
Median
Between median and 75th percentile
Greater than 75th percentile
percentage of the award which vests
0%
30%
Straight line between 30% and 100%
100%
95
the Committee may make adjustments to the peer group where necessary to take account of mergers, acquisitions, demergers or a
company ceasing to trade provided that, as a result, this tSr performance condition will be neither materially easier nor more difficult to
achieve. tSr for each company in the peer group shall be calculated on such basis as the Committee, acting reasonably, may specify from
time to time, provided that as far as practicable the same method of calculation shall be used for every company in the peer group.
ROACE performance test
20% of the award vests according to the Group’s roACe over the performance period. roACe represents a good perspective on the
Group’s internal rate of return and financial added value for shareholders. roACe supports the strategic focus on growth and margins
through ensuring cash is reinvested to generate appropriate returns.
this measurement will be determined by reference to the roACe in each of the three financial years included in the performance period:
threshold
target
Maximum
return on average capital employed
10%
12%
14%
percentage of the award which vests
25%
50%
100%
Below 10% none of the award will vest. Between 10% and 12%, 25%-50% vesting will occur on a straight line basis. Between 12% and 14%,
50-100% vesting will occur on a straight line basis.
Overall outcome of the 2013 lTIP vesting in 2016
the performance graph below shows Kerry’s tSr compared to the peer companies over the three year performance period from 1 January
2013 to 31 December 2015 for the 2013 ltIp awards which issued in 2013. these awards have a vesting date on or before 30 April 2016.
3 year TSr: kerry anD coMparaTor 1 Jan 2013 - 31 Dec 2015
350
300
250
200
150
100
50
0
-50
Top Quartile
2nd Quartile
3rd Quartile
4th Quartile
1
r
e
e
P
2
r
e
e
P
3
r
e
e
P
4
r
e
e
P
5
r
e
e
P
6
r
e
e
P
7
r
e
e
P
8
r
e
e
P
Y
R
R
E
K
0
1
r
e
e
P
1
1
r
e
e
P
2
1
r
e
e
P
3
1
r
e
e
P
4
1
r
e
e
P
5
1
r
e
e
P
6
1
r
e
e
P
7
1
r
e
e
P
8
1
r
e
e
P
9
1
r
e
e
P
0
2
r
e
e
P
See chart on page 99, which illustrates the Group’s tSr performance from 2008 to 2015.
the outcome of the measurement of the adjusted epS condition in relation to the 2013 awards is that the threshold condition of
8% was exceeded.
the outcome of the measurement of the roACe in relation to the 2013 award is that the maximum condition of 14% was achieved.
TSr
performance
(30% of award)
57th percentile*
actual vesting
of TSr award
15.6%
epS
performance
(50% of award)
8.83% growth*
actual
vesting
of epS award
17.7%
roace
performance
(20% of award)
14%*
actual vesting
of roace
award
20%
Total %
vested
53.3%
*See TSR, EPS and ROACE tables above for details of performance metrics.
long Term
Incentive
plan
350
2013
300
250
200
150
100
50
0
-50
96
Kerry Group AnnuAl report 2015µGovernance reporT
non-execuTIve DIrecTorS’ reMuneraTIon paID In 2015
remuneration paid to non-executive Directors in 2015 is set out below:
Michael Ahern
Hugh Brady
Denis Buckley
Sean Bugler
paddy Casey
James Devane
Karin Dorrepaal
Michael Dowling
Joan Garahy
James C. Kenny
John Joseph o’Connor
philip toomey
tom Moran
Fees 2015
€
43,000
78,000
-
-
43,000
43,000
69,666
230,000
93,000
97,000
43,000
98,000
16,167
853,833
Fees 2014
€
38,000
48,583
209,000
15,833
25,333
38,000
-
95,000
88,000
92,000
38,000
93,000
-
780,749
non-executive Directors’ remuneration consists of fees only. no payments are made to non-executive Directors for expenses, other than
those incurred wholly and directly in the course of their appointments. there was one new appointment in 2015, with tom Moran being
appointed on 29 September 2015.
the following table shows the executive Directors’ and Company Secretary’s interests under the ltIp. Conditional awards at 1 January
2015 relate to awards made in 2012, 2013 and 2014 which have a three year performance period. the 2012 awards vested in 2015. the 2013
awards will potentially vest in 2016 and 2014 awards will potentially vest in 2017. the market price of the shares on the date of each award is
disclosed in note 28 to the financial statements.
DIrecTorS’ anD coMpany SecreTary’S InTereSTS In lonG TerM IncenTIve plan
conditional
awards at
1 January
2015
lTIp
Scheme
Share
awards
vested
During
the year
Share
option
awards
vested During
the year
Share awards
relinquished
During the
year
conditional
awards Made
During the
year
conditional
awards at
31 December
2015
Share price
at Date of
conditional
award Made
During year
Directors
Stan McCarthy
- 2006 ltIp
- 2013 ltIp
Brian Mehigan
- 2006 ltIp
Flor Healy
- 2013 ltIp
- 2006 ltIp
- 2013 ltIp
Gerry Behan
- 2006 ltIp
- 2013 ltIp
company Secretary
Brian Durran
- 2006 ltIp
- 2013 ltIp
48,917
57,872
22,967
27,578
24,494
29,411
30,305
35,956
7,353
5,955
(26,090)
-
-
-
-
-
(16,130)
-
-
-
-
-
(2,300)
-
-
38,030
(12,172)
-
(12,982)
-
-
-
(1,073)
-
(1,144)
-
(1,422)
-
14,484
-
15,447
-
-
23,859
(3,897)
-
(344)
-
-
3,567
20,527
95,902
9,722
42,062
10,368
44,858
12,753
59,815
3,112
9,522
€64.92
€64.92
€64.92
€64.92
€64.92
97
Conditional awards made in 2015 have a three year performance period and will potentially vest in 2018. 50% of shares/share options which
potentially vest under the 2013 ltIp, are issued immediately upon vesting. the remaining 50% of the award are issued to participants
following a two year deferral period.
the following table shows the share options which are held by the executive Directors and the Company Secretary under the ltIp.
Share options
outstanding at
1 January 2015
Share options
exercised During
the year
Share options
vested During
the year
Share options
outstanding at
31 December 2015
exercise price
per Share
Directors
Brian Mehigan
Flor Healy
company Secretary
Brian Durran
51,992
74,880
19,823
-
-
-
12,172
12,982
3,897
64,164
87,862
23,720
€0.125
€0.125
€0.125
once vested, share options under the 2006 ltIp and 2013 ltIp can be exercised for up to seven years before they lapse.
DIrecTorS’ penSIonS
the pension benefits of each of the executive Directors during the year are outlined in the following table. the pension benefits included
below relate to defined benefit pension plans only.
accrued benefits on leaving service at end of year
Increase during year
(excluding inflation)
€’000
accumulated total
at end of year
€’000
Transfer value of increase in
accumulated accrued benefits
€’000
22
5
5
12
44
41
914
228
254
397
1,793
1,539
210
99
104
27
440
425
Stan Mccarthy
Brian Mehigan1
Flor Healy1
Gerry Behan
2015
2014
note 1: For Brian Mehigan and Flor Healy, pension accrual has ceased from 2011, driven by the impact of the lifetime cap. Instead, contributions are paid to a
savings plan from this date. This is shown within pensions in the Executive Directors’ remuneration table.
payMenTS To ForMer DIrecTorS
there were no payments made to former Directors in 2015 (2014: €nil).
payMenTS For loSS oF oFFIce
there were no payments for loss of office in 2015 (2014: €nil).
98
Kerry Group AnnuAl report 2015µGovernance reporT
DIrecTorS’ anD coMpany SecreTary’S InTereSTS
there has not been any contract or arrangement with the Company or any subsidiary during the year in which a Director of the Company
was materially interested and which was significant in relation to the Group’s business.
the interests of the Directors and the Company Secretary of the Company and their spouses and minor children in the share capital of the
Company, all of which were beneficial unless otherwise indicated, as shown below:
31 December
2015
ordinary Shares
number
31 December
2015 Share
options
number
31 December
2015
Total
number
1 January
2015
ordinary Shares
number
1 January
2015
Share options
number
1 January
2015
total
number
Directors
Michael Ahern
Gerry Behan
- Deferred
Hugh Brady
paddy Casey
James Devane
Karin Dorrepaal
Michael Dowling
Joan Garahy
Flor Healy
- Deferred
James C. Kenny
Stan McCarthy
- Deferred
Brian Mehigan
- Deferred
John Joseph o’Connor
philip toomey
company Secretary
Brian Durran
- Deferred
3,241
49,465
3,610
-
20,052
4,994
-
4,200
1,050
58,210
-
-
149,177
5,693
40,334
-
21,932
6,000
13,000
-
-
-
-
-
-
-
-
-
-
87,862
2,187
-
-
-
64,164
2,491
-
-
23,720
798
3,241
49,465
3,610
-
20,052
4,994
-
4,200
1,050
146,072
2,187
-
149,177
5,693
104,498
2,491
21,932
6,000
36,720
798
3,241
47,335
2,277
-
20,052
4,994
-
4,200
1,050
58,210
-
-
137,087
3,037
40,334
-
21,932
1,000
13,000
-
-
-
-
-
-
-
-
-
-
74,880
1,691
-
-
-
51,992
1,480
-
-
19,823
474
3,241
47,335
2,277
-
20,052
4,994
-
4,200
1,050
133,090
1,691
-
137,087
3,037
92,326
1,480
21,932
1,000
32,823
474
the deferred shares and share options above, relate to 25% of the executive Directors and Company Secretary’s 2013 and 2014 StIp
awards which are subject to a two year deferral period. these will be delivered in shares / share options in March 2016 and March 2017
respectively.
SHareHolDInG GuIDelIneS
the table below sets out the executive Directors’ shareholding at 31 December 2015 shown as a multiple of basic salary.
Stan McCarthy
Brian Mehigan
Flor Healy
Gerry Behan
as a Multiple of Basic Salary1
9x
15x
20x
5x
Note 1: The share price used to calculate the above is the share price as at 31 December 2015.
700
600
500
400
300
200
100
0
99
TSr perForMance anD cHIeF execuTIve oFFIcer reMuneraTIon
the graph below illustrates the tSr performance of the Group over the past seven years showing the increase in value of €100 invested
the Group’s shares from 31 December 2008 to 31 December 2015. Also outlined in the table below, the remuneration of the Chief executive
officer is calculated in line with the methodology captured under recent legislation which was enacted for uK incorporated companies.
7 yr ToTal SHareHolDer reTurn
(value oF €100 InveSTeD on 31/12/2008)
€700
€600
€500
€400
€300
€200
€100
€0
2008
2009
Kerry
2010
2011
2012
MSCI Europe Food Producer
2013
E300 Food & Beverage
2014
2015
chief executive officer
total remuneration
Annual incentive achieved as a % of maximum
ltIp achieved as a % of maximum
Note 1: There was no LTIP with a performance period ending in 2009 or 2010.
Note 2: This is the combined average 2015 LTIP paid out from the 2006 and 2013 plans.
Note 3: Reported numbers are impacted by the US dollar to euro exchange rate. Please refer to the Executive Director’s remuneration table on page 91 for US dollar to euro
2012
€'000
3,538
74%
100%
2013
€'000
3,592
70%
100%
2014
€'000
3,283
57%
91.9%
2015
€'000
4,1613
58%
61.8%2
2009
€'000
1,751
57%
n/A1
2010
€'000
2,116
90%
n/A1
2011
€'000
3,283
73%
100%
remuneration details for 2014 and 2015.
relaTIve IMporTance oF SpenD on pay
the total amount spent on executive Director remuneration (including long term Incentive plan) and overall employee pay is outlined
below in relation to retained profit, dividends paid and taxation paid.
2015
Director
Remuneration (0.6%)
Profit after tax
before NTIs (29.1%)
Dividends Paid (4.6%)
Taxation Paid (7.1%)
Employee costs (58.6%)
2014
Director
Remuneration (0.5%)
Profit after tax
before NTIs (29.3%)
Dividends Paid (4.5%)
Taxation Paid (6.9%)
Employee costs (58.8%)
STaTeMenT on SHareHolDer voTInG
Below is an overview of the voting which took place at the most recent AGM with respect to the Directors’ remuneration.
Approve the Directors’ remuneration report
votes For votes against
1,489,171
96,635,217
1.5%
98%
votes withheld/ abstained
386,561
0.5%
the Committee appreciates the level of support shown by the shareholders for the remuneration report and is committed
to continued consultation with shareholders with regard to the remuneration policy.
500
450
400
350
300
250
200
150
100
50
0
100
Kerry Group AnnuAl report 2015µGovernance reporT
Independent Auditors’ Report to the
Members of Kerry Group PLC
opInIon on FInancIal STaTeMenTS oF
kerry Group plc
In our opinion, the financial statements:
– give a true and fair view of the assets, liabilities and financial
position of the Group and the company as at 31 December 2015
and of the Group’s profit for the financial year then ended; and
– have been properly prepared in accordance with the relevant
financial reporting framework and in particular, with the
requirements of the Companies Act 2014 and, as regards the
Group financial statements, Article 4 of the IAS regulation.
the financial statements comprise the Consolidated Income
Statement, the Consolidated Statement of Comprehensive Income,
the Consolidated and Company Balance Sheets, the Consolidated
and Company Statements of Changes in equity, the Consolidated
and Company Statements of Cash Flows and the related notes 1 to
37. the financial reporting framework that has been applied in the
preparation of the Group and parent company financial statements
is Irish law and IFrSs as adopted by the european union.
SeparaTe opInIon In relaTIon To IFrSS
aS ISSueD By THe IaSB
As explained in note 1 to the Group financial statements, in addition
to complying with its legal obligation to apply IFrSs as adopted by
the european union, the Group has also applied IFrSs as issued by
the International Accounting Standards Board (IASB).
In our opinion the Group financial statements comply with IFrSs as
issued by the IASB.
GoInG concern anD THe DIrecTorS’ aSSeSSMenT
oF THe prIncIpal rISkS THaT woulD THreaTen THe
Solvency or lIquIDITy oF THe Group
As required by the listing rules we have reviewed the directors’
statement contained within the Corporate Governance report on
page 67 that the Group is a going concern.
We have nothing material to add or draw attention to in relation to:
– the directors’ confirmation on page 72 that they have carried
out a robust assessment of the principal risks facing the Group,
including those that would threaten its business model, future
performance, solvency or liquidity;
– the disclosures on pages 56 to 60 that describe those risks and
explain how they are being managed or mitigated;
– the directors’ statement in note 1 to the financial statements
about whether they considered it appropriate to adopt the
going concern basis of accounting in preparing them and their
identification of any material uncertainties to the Group’s ability
to continue to do so over a period of at least twelve months from
the date of approval of the financial statements; and
– the director’s explanation on page 73 as to how they have
assessed the prospects of the Group, over what period they have
done so and why they consider that period to be appropriate,
and their statement as to whether they have a reasonable
expectation that the Group will be able to continue in operation
and meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing attention
to any necessary qualifications or assumptions.
We agreed with the directors’ adoption of the going concern
basis of accounting and we did not identify any such material
uncertainties. However, because not all future events or conditions
can be predicted, this statement is not a guarantee as to the
Group’s ability to continue as a going concern.
our aSSeSSMenT oF rISkS oF MaTerIal
MISSTaTeMenT
the assessed risks of material misstatement described below
are those that had the greatest effect on our audit strategy, the
allocation of resources in the audit and directing the efforts of the
engagement team:
101
risk of material misstatement
carrying value of intangible assets and accounting
for acquisitions
the Group’s goodwill and intangible assets of €3.4bn represent
approximately 49% of the Group’s total assets at year end.
Management’s assessment of the risk of impairment of the carrying
value of goodwill and intangible assets requires judgement in
relation to the identification of Cash Generating units (CGus) and
the underlying assumptions in the Group’s impairment model.
During 2015 the Group completed 10 acquisitions at a cost of
approximately €893m. Valuing the assets and liabilities acquired
requires management judgement and estimation, particularly in
relation to intangible assets which comprised a significant portion
of the assets acquired by the Group.
our audit response to the risk
We assessed, using valuation specialists who are part of our audit
team, the Group’s impairment review methodology including
the identification of CGus. We challenged the underlying key
assumptions within the Group’s impairment model including
discount rates, growth rates (including those used in the terminal
value calculations) and cashflow projections.
We challenged management’s estimates and key assumptions used
to value intangible assets acquired, including royalty and discount
rates, with assistance from our valuation specialists.
We evaluated management’s sensitivity analysis and performed our
own sensitivity analysis on the key assumptions used.
Refer also to page 75 (Audit Committee Report), page 113
(intangible assets accounting policy), page 116 (business
combinations accounting policy) and notes 12 and 31 to the
financial statements.
Taxation provisions
the global nature of the Group’s business means it is subject
to taxation in numerous jurisdictions and cross-border
transactions can be challenged by taxation authorities resulting
in tax exposures. As a result, a significant level of management
judgement and estimation is needed to determine the provision
required for these exposures.
Refer also to page 75 (Audit Committee Report) and page 118
(critical accounting estimates and judgements).
retirement Benefits obligation
the Group operates a number of defined benefit schemes mainly
in Ireland, the uK and north America. the deficit on these schemes
is sensitive to changes in actuarial assumptions. A small change
in an assumption could result in a significant change in the overall
liability recorded.
Refer also to page 75 (Audit Committee Report), page 115
(retirement benefits obligation accounting policy) and note 26 to
the financial statements.
We assessed whether the disclosures in relation to goodwill,
intangibles and acquisitions were appropriate and met the
requirements of accounting standards.
We obtained an understanding of the Group’s tax strategy and
management’s process and critical accounting judgements
made in the estimation of the Group’s tax liabilities for exposures
arising in jurisdictions where the Group has significant operations.
Assisted by our tax specialists, who are part of our audit team, we
challenged and evaluated management’s assumptions and estimates
in respect of open tax audits and other tax exposures, based on
their interpretation of the relevant tax laws and likely outcomes in
jurisdictions where the Group has significant trading operations and,
where available, information on past tax settlements.
our audit procedures included using Deloitte pension actuaries
to assist us in evaluating the appropriateness of key assumptions
including discount rates, inflation rates, pension and salary
increases and mortality assumptions, used in determining the net
retirement benefits obligation. Where possible, we compared these
key assumptions to market benchmarks. our greatest focus was
on pension schemes in Ireland, the uK and north America which
represent 89% of the overall retirement benefits obligation.
We tested a sample of plan asset valuations and independently
confirmed year end valuations. We assessed whether the
disclosures in the financial statements were in accordance with
accounting standards.
the description of risks above should be read in conjunction with the significant issues considered by the Audit Committee set out on
pages 75 to 77.
our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a whole, and not to
express an opinion on individual accounts or disclosures. our opinion on the financial statements is not modified with respect to any of the
risks described above, and we do not express an opinion on these individual matters.
102
Kerry Group AnnuAl report 2015µGovernance reporT
our applIcaTIon oF MaTerIalITy
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed
or influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
We determined materiality for the Group to be €38m (2014:
€36m), which is approximately 6% (2014: 6%) of adjusted earnings
before taxation, and below 2% (2014: below 2%) of Consolidated
Shareholders’ equity. We use adjusted earnings before taxation to
exclude the effect of volatility (for example, separately disclosed
adjusting items) from our determination. We agreed with the
Audit Committee that we would report to the Committee all audit
differences in excess of €1.9m (2014: €1.8m) as well as differences
below this threshold that, in our view, warranted reporting on
qualitative grounds. We also report to the Audit Committee on
disclosure matters that we identified when assessing the overall
presentation of the financial statements.
an overvIew oF THe Scope oF our auDIT
our Group audit was scoped by obtaining an understanding of the
Group and its environment, including Group-wide controls, and
assessing the risks of material misstatement at the Group level.
Based on that assessment, we focused our Group audit scope
primarily on the audit work in twenty nine components. eighteen
of these components were subject to full audit procedures, whilst
the remaining eleven components were subject to specified
audit procedures where the extent of our testing was based on
our assessment of the risks of material misstatement and on the
materiality of the Group’s operations at those locations. these
twenty nine components comprise the principal business units of
the Group and account for over 90% of the Group’s revenue and
total assets. these components were also selected to provide an
appropriate basis for undertaking audit work to address the risks
of material misstatement identified above. our audit work on all
components, both significant and non-significant, was executed at
levels of materiality applicable to each individual entity which were
lower than Group materiality and ranged from €6m to €22m.
At the parent entity level we also tested the consolidation process
and carried out analytical procedures to confirm our conclusion
that there were no significant risks of material misstatement of the
aggregated financial information of the remaining components not
subject to audit or audit of specified account balances.
the Group audit team performed site visits and attended planning
meetings at a number of significant component locations
including Ireland, the uK, the uS and Asia pacific during the
year and participated in audit meetings with other significant
components and a number of non-significant components. the
Group audit team directed the component audits by issuing
detailed Group referral instructions, reviewing audit plans and risk
assessment procedures of significant components and reviewing
documentation of the findings of component auditors.
opInIon on oTHer MaTTerS preScrIBeD
By THe coMpanIeS acT 2014
Directors’ Report and Corporate governance Statement
In our opinion the information given in the Directors’ report
is consistent with the financial statements and based on the
work undertaken in the course of the audit the description
in the Corporate Governance Statement of the main features
of the internal control and risk management systems in
relation to the financial reporting process and the information
required under regulation 21(2)(c), (d), (f), (h) and (i) of the
european Communities (takeover Bids (Directive 2004/25/eC))
regulations 2006 (S.I. no. 255 of 2006) are consistent with the
financial statements and have been prepared in accordance
with section 1373 Companies Act 2014. Based on our knowledge
and understanding of the company and its environment
obtained in the course of the audit, we have not identified any
material misstatements in this information. In our opinion, the
information required pursuant to section 1373(2)(a), (b), (e) and
(f) Companies Act 2014 is contained in the company’s corporate
governance statement.
Adequacy of explanations received and accounting records
– We have obtained all the information and explanations which we
consider necessary for the purposes of our audit;
– In our opinion, the accounting records of the company were
sufficient to permit the financial statements to be readily and
properly audited; and
– the parent company balance sheet is in agreement with the
accounting records.
MaTTerS on wHIcH we are requIreD To reporT
By excepTIon
Our duty to read other information in the Annual Report
under International Standards on Auditing (uK and Ireland), we are
required to report to you if, in our opinion, information in the annual
report is:
– Materially inconsistent with the information in the audited
financial statements; or
– Apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired in the
course of performing our audit; or
– otherwise misleading
In particular, we are required to consider whether we have
identified any inconsistencies between our knowledge acquired
during the audit and the directors’ statement that they consider
the annual report is fair, balanced and understandable and whether
the annual report appropriately discloses those matters that we
communicated to the Audit Committee which we consider should
have been disclosed. We confirm that we have not identified any
such inconsistencies or misleading statements.
.
103
Marguerite larkin
For and on behalf of Deloitte
Chartered Accountants and Statutory Audit Firm
Dublin
Date: 22 February 2016
Directors’ remuneration
under the listing rules of the Irish Stock exchange we are
required to review the six specified elements of disclosures in the
report to shareholders by the board on directors’ remuneration.
under the Companies Act 2014 we are required to report to you
if, in our opinion, the disclosures of directors’ remuneration and
transactions specified by law are not made. We have nothing to
report arising from our review of these matters.
Corporate governance Statement
under the listing rules of the Irish Stock exchange we are also
required to review the part of the Corporate Governance Statement
relating to the company’s compliance with the provisions of the
uK Corporate Governance Code and the provisions of the Irish
Corporate Governance Annex specified for our review. We have
nothing to report arising from our review.
reSpecTIve reSponSIBIlITIeS oF DIrecTorS
anD auDITorS
As explained more fully in the Directors’ responsibilities Statement,
the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair
view and otherwise comply with the Companies Act 2014. our
responsibility is to audit and express an opinion on the financial
statements in accordance with applicable law and International
Standards on Auditing (uK and Ireland). those standards require
us to comply with the Auditing practices Board’s ethical Standards
for Auditors.
this report is made solely to the company’s members, as a body,
in accordance with section 391 of the Companies Act 2014. our
audit work has been undertaken so that we might state to the
company’s members those matters we are required to state to them
in an auditors' report and for no other purpose. to the fullest extent
permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company’s members as a body, for
our audit work, for this report, or for the opinions we have formed.
Scope oF THe auDIT oF THe FInancIal STaTeMenTS
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. this includes an
assessment of: whether the accounting policies are appropriate to
the Group and the parent company’s circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the directors; and the
overall presentation of the financial statements. In addition, we
read all the financial and non-financial information in the annual
report to identify material inconsistencies with the audited financial
statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit.
If we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
104
Kerry Group AnnuAl report 2015µFInAncIAl STATemenTS
Consolidated Income Statement
for the finAnciAl yeAr ended 31 december 2015
continuing operations
Revenue
Trading profit
intangible asset amortisation
non-trading items
Operating profit
finance income
finance costs
Profit before taxation
income taxes
Profit after taxation and attributable to owners of the parent
earnings per A ordinary share
- basic
- diluted
Before
non-Trading
Items
2015
€’m
non-Trading
Items
2015
€’m
notes
before
non-trading
items
2014
€’m
Total
2015
€’m
non-trading
items
2014
€’m
2
6,104.9
700.1
(37.4)
-
662.7
1.8
(71.1)
593.4
(81.1)
512.3
2/3
12
5
3
6
6
7
9
9
-
-
-
9.4
9.4
-
-
9.4
3.7
13.1
6,104.9
5,756.6
700.1
636.4
(28.0)
-
608.4
1.1
(54.0)
555.5
(79.6)
475.9
(37.4)
9.4
672.1
1.8
(71.1)
602.8
(77.4)
525.4
cent
298.7
298.4
-
-
-
0.1
0.1
-
-
0.1
3.9
4.0
total
2014
€’m
5,756.6
636.4
(28.0)
0.1
608.5
1.1
(54.0)
555.6
(75.7)
479.9
cent
273.0
272.7
Consolidated Statement of Comprehensive Income
for the finAnciAl yeAr ended 31 december 2015
profit after taxation and attributable to owners of the parent
Other comprehensive income:
Items that are or may be reclassified subsequently to profit or loss:
fair value movements on cash flow hedges
cash flow hedges - reclassified to profit or loss from equity
deferred tax effect of fair value movements on cash flow hedges
exchange difference on translation and disposal of foreign operations
deferred tax effect of exchange difference on translation of foreign operations
Items that will not be reclassified subsequently to profit or loss:
re-measurement on retirement benefits obligation
deferred tax effect of re-measurement on retirement benefits obligation
net income/(expense) recognised directly in other comprehensive income
Total comprehensive income
105
2014
€’m
479.9
(8.3)
3.0
4.2
68.3
0.7
(246.1)
30.5
(147.7)
332.2
notes
24
17
30
17
26
17
2015
€’m
525.4
10.3
2.9
(1.4)
(25.5)
(0.3)
141.1
(25.2)
101.9
627.3
106
Kerry Group AnnuAl report 2015µFInAncIAl STATemenTS
Consolidated Balance Sheet
As At 31 december 2015
non-current assets
property, plant and equipment
intangible assets
financial asset investments
investment in associate
non-current financial instruments
deferred tax assets
current assets
inventories
trade and other receivables
cash at bank and in hand
other current financial instruments
Assets classified as held for sale
Total assets
current liabilities
trade and other payables
borrowings and overdrafts
other current financial instruments
tax liabilities
provisions
deferred income
non-current liabilities
borrowings
other non-current financial instruments
retirement benefits obligation
other non-current liabilities
deferred tax liabilities
provisions
deferred income
Total liabilities
net assets
Issued capital and reserves attributable to owners of the parent
share capital
share premium
other reserves
retained earnings
Shareholders’ equity
the financial statements were approved by the board of directors on 22 february 2016 and signed on its behalf by:
michael dowling, chairman
stan mccarthy, chief executive officer
31 December
2015
€’m
31 december
2014
€’m
notes
11
12
13
14
23
17
16
19
23
23
18
20
23
23
25
21
23
23
26
22
17
25
21
27
1,431.5
3,449.3
34.0
38.9
174.4
43.2
5,171.3
734.2
833.9
236.4
15.7
21.5
1,841.7
7,013.0
1,285.8
38.4
25.1
94.1
31.7
2.7
1,477.8
2,011.5
6.5
305.7
93.9
243.8
59.1
24.6
2,745.1
4,222.9
2,790.1
22.0
398.7
(103.9)
2,473.3
2,790.1
1,283.4
2,629.0
27.9
40.2
104.7
55.8
4,141.0
702.0
801.1
283.7
9.4
30.6
1,826.8
5,967.8
1,194.1
303.1
21.8
62.4
49.8
2.5
1,633.7
1,270.6
8.4
472.8
76.8
191.1
55.7
23.1
2,098.5
3,732.2
2,235.6
22.0
398.7
(100.6)
1,915.5
2,235.6
Company Balance Sheet
As At 31 december 2015
non-current assets
property, plant and equipment
investment in subsidiaries
current assets
cash at bank and in hand
trade and other receivables
Total assets
current liabilities
trade and other payables
borrowings and overdrafts
non-current liabilities
other non-current liabilities
deferred income
Total liabilities
net assets
Issued capital and reserves
share capital
share premium
other reserves
retained earnings
Shareholders’ equity
107
notes
2015
€’m
2014
€’m
11
15
23
19
20
23
22
21
27
0.8
637.7
638.5
0.1
63.3
63.4
701.9
9.3
0.7
10.0
-
0.1
0.1
10.1
691.8
22.0
398.7
32.5
238.6
691.8
0.9
637.7
638.6
-
1.6
1.6
640.2
45.3
0.7
46.0
57.5
0.1
57.6
103.6
536.6
22.0
398.7
23.5
92.4
536.6
the financial statements were approved by the board of directors on 22 february 2016 and signed on its behalf by:
michael dowling, chairman
stan mccarthy, chief executive officer
108
Kerry Group AnnuAl report 2015µFInAncIAl STATemenTS
Consolidated Statement of Changes in Equity
for the finAnciAl yeAr ended 31 december 2015
Group:
At 1 January 2014
total comprehensive income
dividends paid
share-based payment expense
At 31 december 2014
total comprehensive (expense)/income
dividends paid
share-based payment expense
Share
capital
€’m
Share
Premium
€’m
Other
Reserves
€’m
Retained
earnings
€’m
Total
€’m
notes
22.0
398.7
(172.5)
1,719.3
1,967.5
-
-
-
-
-
-
63.0
-
8.9
269.2
(73.0)
-
332.2
(73.0)
8.9
22.0
398.7
(100.6)
1,915.5
2,235.6
-
-
-
-
-
-
(12.3)
-
9.0
639.6
(81.8)
-
627.3
(81.8)
9.0
10
28
10
28
At 31 December 2015
22.0
398.7
(103.9)
2,473.3
2,790.1
Other Reserves comprise the following:
At 1 January 2014
total comprehensive income/(expense)
share-based payment expense
At 31 december 2014
total comprehensive (expense)/income
share-based payment expense
At 31 December 2015
capital
Redemption
Reserve
€’m
Other
Undenominated
capital
€’m
Share-Based
Payment
Reserve
€’m
notes
Translation
Reserve
€’m
Hedging
Reserve
€’m
Total
€’m
(172.5)
63.0
8.9
0.3
-
-
0.3
-
-
12.6
-
8.9
21.5
-
9.0
(171.9)
68.3
-
(15.2)
(5.3)
-
(103.6)
(20.5)
(100.6)
(25.5)
-
13.2
-
(12.3)
9.0
0.3
30.5
(129.1)
(7.3)
(103.9)
28
28
1.7
-
-
1.7
-
-
1.7
the nature and purpose of each reserve within shareholders’ equity are described in note 36.
Company Statement of Changes in Equity
for the finAnciAl yeAr ended 31 december 2015
Share
capital
€’m
Share
Premium
€’m
Other
Reserves
€’m
Retained
earnings
€’m
notes
company:
At 1 January 2014
total comprehensive income
dividends paid
share-based payment expense
At 31 december 2014
total comprehensive income
dividends paid
share-based payment expense
8
10
28
8
10
28
22.0
398.7
-
-
-
-
-
-
22.0
398.7
-
-
-
-
-
-
14.6
-
-
8.9
23.5
-
-
9.0
At 31 December 2015
22.0
398.7
32.5
Other Reserves comprise the following:
95.5
69.9
(73.0)
-
92.4
228.0
(81.8)
-
238.6
At 1 January 2014
share-based payment expense
At 31 december 2014
share-based payment expense
At 31 December 2015
notes
28
28
capital
Redemption
Reserve
€’m
Other
Undenominated
capital
€’m
Share-Based
Payment
Reserve
€’m
1.7
-
1.7
-
1.7
0.3
-
0.3
-
0.3
12.6
8.9
21.5
9.0
30.5
the nature and purpose of each reserve within shareholders’ equity are described in note 36.
109
Total
€’m
530.8
69.9
(73.0)
8.9
536.6
228.0
(81.8)
9.0
691.8
Total
€’m
14.6
8.9
23.5
9.0
32.5
110
Kerry Group AnnuAl report 2015µFInAncIAl STATemenTS
Consolidated Statement of Cash Flows
for the finAnciAl yeAr ended 31 december 2015
Operating activities
trading profit
Adjustments for:
depreciation (net)
change in working capital
pension contributions paid less pension expense
payments on acquisition integration and restructuring costs
exchange translation adjustment
cash generated from operations
income taxes paid
finance income received
finance costs paid
net cash from operating activities
Investing activities
purchase of assets
proceeds from the sale of assets
capital grants received
purchase of businesses (net of cash acquired)
disposal of businesses (net of related tax)
payments relating to previous acquisitions
net cash used in investing activities
Financing activities
dividends paid
issue of share capital
repayment of long term borrowings
net increase in other borrowings
net cash movement due to financing activities
net (decrease)/increase in cash and cash equivalents
cash and cash equivalents at beginning of the financial year
exchange translation adjustment on cash and cash equivalents
cash and cash equivalents at end of the financial year
Reconciliation of net cash Flow to movement in net Debt
net (decrease)/increase in cash and cash equivalents
cash inflow from debt financing
changes in net debt resulting from cash flows
fair value movement on interest rate swaps (net of adjustment to borrowings)
exchange translation adjustment on net debt
movement in net debt in the financial year
net debt at beginning of the financial year
net debt at end of the financial year
notes
29
3
29
30
29
31
10
27
30
29
30
23
2015
€’m
700.1
125.9
64.8
(57.5)
(26.4)
(0.7)
806.2
(38.3)
1.8
(48.4)
721.3
(252.2)
12.7
10.1
(888.1)
115.7
(0.8)
(1,002.6)
(81.8)
-
(1,273.8)
1,589.5
233.9
(47.4)
278.1
0.5
231.2
(47.4)
(315.7)
(363.1)
0.2
(91.9)
(454.8)
(1,195.3)
(1,650.1)
2014
€’m
636.4
103.5
(79.3)
(48.0)
(74.5)
3.3
541.4
(30.6)
1.1
(42.9)
469.0
(274.1)
15.9
0.8
(133.5)
(13.4)
(9.6)
(413.9)
(73.0)
-
(13.4)
55.8
(30.6)
24.5
245.8
7.8
278.1
24.5
(42.4)
(17.9)
(5.5)
(88.8)
(112.2)
(1,083.1)
(1,195.3)
Company Statement of Cash Flows
for the finAnciAl yeAr ended 31 december 2015
Operating activities
trading profit
Adjustments for:
depreciation
change in working capital
net cash from operating activities
Financing activities
dividends paid
issue of share capital
net cash movement due to financing activities
net increase/(decrease) in cash and cash equivalents
cash and cash equivalents at beginning of the financial year
cash and cash equivalents at end of the financial year
111
2014
€’m
68.4
0.2
4.0
72.6
(73.0)
-
(73.0)
(0.4)
(0.3)
(0.7)
notes
29
11/21
29
10
27
23
29
2015
€’m
226.2
0.1
(144.4)
81.9
(81.8)
-
(81.8)
0.1
(0.7)
(0.6)
112
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
Basis of consolidation
Subsidiaries
the consolidated financial statements incorporate the financial
statements of the company and the entities controlled by the company
(its subsidiaries), all of which prepare financial statements up to 31
december. Accounting policies of subsidiaries are consistent with the
policies adopted by the Group. control is achieved where the company
has the power over the investee, is exposed or has rights to variable
returns from its involvement with the investee and has the ability to use
its power to affect its returns.
the results of subsidiaries acquired or disposed of during the financial
year are included in the consolidated income statement from the date
the company gains control until the date the company ceases to control
the subsidiary. All inter-group transactions and balances are eliminated
on consolidation.
Associates
Associates are all entities over which the Group has significant influence
but not control, generally accompanying a shareholding of between
20% and 50% of the voting rights. significant influence is the power to
participate in the financial and operating policy decisions of the investee
but is not control or joint control over those policies. investments in
associates are accounted for using the equity method of accounting
and are initially recognised at cost. on acquisition of the investment in
associate, any excess of the cost of the investment over the Group’s
share of the net fair value of the identifiable assets and liabilities of the
investee is recognised as goodwill, which is included within the carrying
value of the investment.
the Group’s share of its associate’s post-acquisition profits or losses
is recognised in ‘share of associate loss (after tax)’ within trading
profit in the consolidated income statement, and its share of post-
acquisition movements in reserves is recognised in reserves. the
cumulative post-acquisition movements are adjusted against the
carrying amount of the investment, less any impairment in value.
Where indicators of impairment arise, the carrying amount of the
associate is tested for impairment by comparing its recoverable
amount with its carrying amount.
unrealised gains arising from transactions with associates are eliminated
to the extent of the Group’s interest in the entity. unrealised losses are
similarly eliminated to the extent that they do not provide evidence of
impairment. the accounting policies of associates are modified where
necessary to ensure consistency of accounting treatment at Group level.
Notes to the Financial Statements
for the finAnciAl yeAr ended 31 december 2015
1. STATemenT OF AccOUnTInG POlIcIeS
General information
Kerry Group plc is a public limited company incorporated in the republic
of ireland. the registered office address is prince’s street, tralee, co.
Kerry. the principal activities of the company and its subsidiaries are
described in the business reviews.
Basis of preparation
the consolidated financial statements of Kerry Group plc have been
prepared in accordance with international financial reporting standards
(‘ifrs’), international financial reporting interpretations committee
(‘ifric’) interpretations and those parts of the companies Act 2014
applicable to companies reporting under ifrs. both the parent company
and Group financial statements have also been prepared in accordance
with ifrss adopted by the european union (‘eu’) which comprise
standards and interpretations approved by the international Accounting
standards board (‘iAsb’). the Group financial statements comply with
Article 4 of the eu iAs regulation. ifrs adopted by the eu differs in
certain respects from ifrs issued by the iAsb. references to ifrs
hereafter refer to ifrs adopted by the eu.
the parent company financial statements are prepared using
accounting policies consistent with the accounting policies applied to
the consolidated financial statements by the Group.
the consolidated financial statements have been prepared under the
historical cost convention, as modified by the revaluation of certain
financial assets and liabilities (including derivative financial instruments),
retirement benefits obligation and financial asset investments which
are held at fair value. Assets classified as held for sale are stated at the
lower of carrying value and fair value less costs to sell. the investment in
associate is accounted for using the equity method.
the consolidated financial statements have been prepared on a going
concern basis and further details can be found on page 72 of the
corporate Governance report.
the consolidated financial statements contained herein are presented
in euro, which is the functional currency of the parent company, Kerry
Group plc. the functional currencies of the Group’s main subsidiaries
are euro, us dollar and sterling.
certain income statement headings and other financial measures included
in the consolidated financial statements are not defined by ifrs. the
Group make this distinction to give a better understanding of the financial
performance of the business. please refer to page 173 for definitions.
in the 2015 consolidated financial statements, the Group has re-
presented corresponding 2014 balances to align with current year
presentation. cumulative exchange difference on translation recycled
on disposal has been re-presented as a separate line item in effect
of exchange translation adjustments (note 30). the net movement
on borrowings has been re-presented as repayment of long term
borrowings and net increase in other borrowings in the consolidated
statement of cash flows and the net movement on borrowings has
been removed from cash flow components (note 29). these changes in
presentation do not impact on the classification of any line items on the
Group’s or company balance sheet.
113
the charge in respect of periodic depreciation is calculated after
establishing an estimate of the asset’s useful life and the expected
residual value at the end of its life. increasing/(decreasing) an asset’s
expected life or its residual value would result in a (decreased)/
increased depreciation charge to the consolidated income statement as
well as an increase/(decrease) in the carrying value of the asset.
the useful lives of Group assets are determined by management at the
time the assets are acquired and reviewed annually for appropriateness.
these lives are based on historical experience with similar assets
as well as anticipation of future events, which may impact their life,
such as changes in technology. historically, changes in useful lives or
residual values have not resulted in material changes to the Group’s
depreciation charge.
Assets in the course of construction for production or administrative
purposes are carried at cost less any recognised impairment loss.
cost includes professional fees and other directly attributable costs.
depreciation of these assets commences when the assets are ready
for their intended use, on the same basis as other property assets.
Assets classified as held for sale
Assets are classified as held for sale if their carrying value will be
recovered through a sale transaction rather than through continuing
use. this condition is regarded as met if at the financial year end the
sale is highly probable, the asset is available for immediate sale in its
present condition, management is committed to the sale and the sale is
expected to be completed within one year from the date of classification.
Assets classified as held for sale are measured at the lower of carrying
value and fair value less costs to sell.
Intangible assets
(i) Goodwill
Goodwill arises on business combinations and represents the excess of
the cost of acquisition over the Group’s interest in the fair value of the
identifiable assets and liabilities of a subsidiary entity at the date control
is achieved.
Goodwill arising on acquisitions before the date of transition to ifrs
has been retained at the previous irish/uK GAAp amounts subject to
impairment testing. Goodwill written off to reserves under irish/uK GAAp
prior to 1998 has not been reinstated and is not included in determining
any subsequent profit or loss on disposal.
At the date control is achieved, goodwill is allocated, for the purpose
of impairment testing, to one or more cash generating units (cGus).
Goodwill is not amortised but is reviewed for indications of impairment
at least annually and is carried at cost less accumulated impairment
losses, where identified. impairment is recognised immediately in the
consolidated income statement and is not subsequently reversed.
on disposal of a subsidiary, the attributable amount of goodwill (not
previously written off to reserves) is included in the determination of the
profit or loss on disposal.
1. STATemenT OF AccOUnTInG POlIcIeS (continued)
Revenue
revenue represents the fair value of the consideration received or
receivable, for taste and nutrition applications and consumer foods
branded and non-branded products, from third party customers.
revenue is recorded at invoice value, net of discounts, allowances,
volume and promotional rebates and excludes VAt. revenue is
recognised when the significant risks and rewards of ownership of the
goods have been transferred to the customer, which is usually upon
shipment, or in line with terms agreed with individual customers and
when the amount of revenue and costs incurred can be measured
reliably. revenue is recorded when the collection of the amount due is
reasonably assured. An estimate is made on the basis of historical sales
returns and is recorded to allocate these returns to the same period
as the original revenue is recorded. rebate and discount accruals are
established based on best estimates of the amounts necessary to meet
claims by the Group’s customers. Any unutilised accrual is released after
assessment that the likelihood of such a claim being made is remote.
Segmental analysis
the Group’s operating segments are identified on the basis of the Group’s
management structure, the components of which engage in revenue
and expense generating activities. the operating segments present their
results and financial information to be regularly reviewed by the Group’s
chief operating decision maker, which the Group has defined as the
executive directors. trading profit is the key measure utilised in assessing
the performance of operating segments within the Group.
during the financial year, the Group renamed its ingredients & flavours
operating segment to taste & nutrition. this did not result in a change
in the composition of the Group’s reportable segments.
the Group has two operating segments: taste & nutrition and consumer
foods. the taste & nutrition operating segment manufactures and
distributes application specific ingredients and flavours spanning a number
of technology platforms while the consumer foods segment manufactures
and supplies added value brands and customer branded foods primarily
to the irish and uK markets. corporate activities, such as the cost of
corporate stewardship and the cost of the kerryconnect programme, are
reported along with the elimination of inter-group activities under the
heading ‘Group eliminations and unallocated’. inter-segment pricing is
determined on an arm’s length basis. there are no material dependencies
or concentrations on individual customers which would warrant disclosure
under ifrs 8 ‘operating segments’.
Property, plant and equipment
property, plant and equipment, other than freehold land, are stated at
cost less accumulated depreciation and any accumulated impairment
losses. cost comprises purchase price and other directly attributable
costs. freehold land is stated at cost and is not depreciated.
depreciation on the remaining property, plant and equipment is
calculated by charging equal annual instalments to the consolidated
income statement at the following annual rates:
-
-
-
buildings
plant, machinery and equipment
motor vehicles
2% - 5%
7% - 25%
20%
114
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
1. STATemenT OF AccOUnTInG POlIcIeS (continued)
Intangible assets (continued)
(ii) Brand related intangibles
brand related intangibles acquired as part of a business combination
are valued at their fair value at the date control is achieved. intangible
assets determined to have an indefinite useful life are not amortised
and are tested for impairment at least annually. indefinite life intangible
assets are those for which there is no foreseeable limit to their expected
useful life. in arriving at the conclusion that these brand related
intangibles have an indefinite life, management considers that the Group
is a technology business and expects to acquire, hold and support
technology for an indefinite period. the Group supports this through
spending on research and development. the classification of intangible
assets as indefinite is reviewed annually.
finite life brand related intangible assets are amortised over the
period of their expected useful lives, which range from 2 to 20
years, by charging equal annual instalments to the consolidated
income statement. the useful life used to amortise finite intangible
assets relates to the future performance of the assets acquired and
management’s judgement of the period over which economic benefit will
be derived from the asset. historically, changes in useful lives has not
resulted in material changes to the Group’s amortisation charge.
(iii) Computer software
computer software separately acquired, including computer software
which is not an integral part of an item of computer hardware, is stated
at cost less any accumulated amortisation and any accumulated
impairment losses. cost comprises purchase price and other directly
attributable costs.
computer software is recognised as an asset only if it meets the
following criteria:
-
-
an asset can be separately identified;
it is probable that the asset created will generate future economic
benefits;
the development cost of the asset can be measured reliably;
it is probable that the expected future economic benefits that are
attributable to the asset will flow to the entity; and
the cost of the asset can be measured reliably.
-
-
-
costs relating to the development of computer software for internal use
are capitalised once the recognition criteria outlined above are met.
computer software is amortised over its expected useful life, which
ranges from 3 to 7 years, by charging equal annual instalments to the
consolidated income statement. Amortisation commences when the
assets are ready for use.
Impairment of non-financial assets
Goodwill and other intangible assets that have an indefinite useful life
are not subject to amortisation. they are tested annually in the last
quarter of the financial year or when indications exist that the asset
may be impaired. for the purpose of assessing impairment, assets are
grouped at the lowest levels for which there are separately identifiable
cash flows (cGu) which is by region within operating segment. An
impairment loss is recognised immediately in the consolidated income
statement for the amount by which the asset’s carrying value exceeds
its recoverable amount.
the recoverable amount is the higher of an asset’s fair value less costs
to sell or its value in use. Value in use is determined as the discounted
future cash flows of the cGu. the key assumptions for the value in use
calculations are discount rates, cash flows and growth rates during the
financial year.
When an impairment loss (other than on goodwill) subsequently
reverses, the carrying amount of the asset is increased to the revised
estimate of its recoverable amount, not exceeding its carrying amount
that would have been determined had no impairment loss been
recognised for the asset in prior years. Assets that are subject to
amortisation are reviewed for impairment whenever events or changes
in circumstances indicate the carrying amount may not be recoverable.
impairment is reviewed by assessing the asset’s value-in-use when
compared to its carrying value.
Inventories
inventories are valued at the lower of cost and net realisable value.
cost includes all expenditure incurred in the normal course of business
in bringing the products to their present location and condition. net
realisable value is the estimated selling price of inventory on hand less
all further costs to completion and all costs expected to be incurred
in marketing, distribution and selling. Write-downs of inventories are
primarily recognised under raw materials and consumables in the
consolidated income statement.
Income taxes
income taxes include both current and deferred taxes. income taxes
are charged or credited to the consolidated income statement
except when they relate to items charged or credited directly in other
comprehensive income or shareholders’ equity. in this instance the
income taxes are also charged or credited to other comprehensive
income or shareholders’ equity.
the current tax charge is calculated as the amount payable based on
taxable profit and the tax rates applying to those profits in the financial
year together with adjustments relating to prior years. deferred taxes are
calculated using the tax rates that are expected to apply in the period
when the liability is settled or the asset is realised, based on tax rates that
have been enacted or substantively enacted at the balance sheet date.
the Group can be subject to tax audits in any of the jurisdictions in which
it operates. Amounts accrued in respect of tax audits are determined
based on management’s interpretation of the relevant tax laws and
likelihood of a successful conclusion. When the final tax outcome for
these items is different from amounts initially recorded, such differences
will impact the income tax and deferred tax in the period in which such a
determination is made, as well as the Group’s cash position.
deferred taxes are calculated based on the temporary differences that
arise between the tax base of the asset or liability and its carrying value
in the consolidated balance sheet. deferred taxes are recognised on all
temporary differences in existence at the balance sheet date except for:
temporary differences which arise from the initial recognition
-
of an asset or liability in a transaction other than a business
combination that at the time of the transaction does not affect
accounting or taxable profit or loss, or on the initial recognition of
goodwill for which a tax deduction is not available; and
1. STATemenT OF AccOUnTInG POlIcIeS (continued)
Income taxes (continued)
-
temporary differences which arise on investments in subsidiaries
where the timing of the reversal is controlled by the Group and it
is probable that the temporary difference will not reverse in the
foreseeable future.
the recognition of a deferred tax asset is based upon whether it is
probable that sufficient and suitable taxable profits will be available in
the future, against which the reversal of temporary differences can be
deducted. deferred tax assets are reviewed at each reporting date.
current and deferred income tax assets and liabilities are offset where
taxes are levied by the same taxation authority, there is a legal right of
offset between the assets and liabilities and the Group intends to settle
on a net basis.
Retirement benefits obligation
payments to defined contribution plans are recognised in the consolidated
income statement as they fall due and any contributions outstanding at the
financial year end are included as an accrual in the consolidated balance
sheet. Where sufficient information is not available to account for defined
benefit multi employer plans as defined benefit plans, they are treated as
defined contribution plans and are accounted for accordingly.
Actuarial valuations for accounting purposes are carried out at each
balance sheet date in relation to defined benefit plans, using the
projected unit credit method, to determine the schemes’ liabilities and
the related cost of providing benefits.
current service cost and net interest cost are recognised in the
consolidated income statement as they arise. past service cost,
which can be positive or negative, is recognised immediately in the
consolidated income statement. Gains or losses on the curtailment
or settlement of a plan are recognised in the consolidated income
statement when the curtailment or settlement occurs. re-measurement
on retirement benefits obligation, comprising actuarial gains and losses
and the return on plan assets (excluding amounts included in net
interest cost) are recognised in full in the period in which they occur in
the consolidated statement of comprehensive income.
the defined benefit liability recognised in the consolidated balance
sheet represents the present value of the defined benefit obligation
less the fair value of any plan assets. defined benefit assets are also
recognised in the consolidated balance sheet but are limited to
the present value of available refunds from, and reductions in future
contributions to, the plan.
Provisions
provisions can be distinguished from other types of liability by
considering the events that give rise to the obligation and the degree
of uncertainty as to the amount or timing of the liability. these are
recognised in the consolidated balance sheet when:
-
the Group has a present obligation (legal or constructive) as a
result of a past event;
it is probable that the Group will be required to settle the
obligation; and
a reliable estimate can be made of the amount of the obligation.
-
-
115
the amount recognised as a provision is the best estimate of the
amount required to settle the present obligation at the balance sheet
date, after taking account of the risks and uncertainties surrounding
the obligation.
Research and development expenditure
expenditure on research activities is recognised as an expense in the
financial year it is incurred.
development expenditure is assessed and capitalised as an internally
generated intangible asset only if it meets all of the following criteria:
-
-
-
-
it is technically feasible to complete the asset for use or sale;
it is intended to complete the asset for use or sale;
the Group has the ability to use or sell the intangible asset;
it is probable that the asset created will generate future economic
benefits;
adequate resources are available to complete the asset for sale or
use; and
the development cost of the asset can be measured reliably.
-
-
capitalised development costs are amortised over their expected
economic lives. Where no internally generated intangible asset can
be recognised, product development expenditure is recognised as an
expense in the financial year it is incurred. the Group has not capitalised
product development expenditure to date.
Grants
Grants of a capital nature are accounted for as deferred income in
the consolidated balance sheet and are released to the consolidated
income statement at the same rates as the related assets are
depreciated. Grants of a revenue nature are credited to the consolidated
income statement to offset the matching expenditure.
Dividends
dividends are accounted for when they are approved, through the
retained earnings reserve. dividends proposed do not meet the
definition of a liability until such time as they have been approved.
Operating leases
Annual rentals payable under operating leases are charged to the
consolidated income statement on a straight line basis over the period
of the lease.
Share-based payments
the Group has granted share-based payments to executive directors
and senior executives under a long term incentive plan and to executive
directors under a short term incentive plan.
the equity-settled share-based awards granted under these plans are
measured at the fair value of the equity instrument at the date of grant.
the cost of the award is charged to the consolidated income statement
over the vesting period of the awards based on the probable number
of awards that will eventually vest, with a corresponding credit to
shareholders’ equity.
for the purposes of the long term incentive plan, the fair value of the
award is measured using the monte carlo pricing model. for the short
term incentive plan, the fair value of the expense equates directly to the
cash value of the portion of the short term incentive plan that will be
settled by way of shares/options.
116
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
1. STATemenT OF AccOUnTInG POlIcIeS (continued)
Share-based payments (continued)
At the balance sheet date, the estimate of the level of vesting
is reviewed and any adjustment necessary is recognised in the
consolidated income statement and in the statement of changes
in equity.
Foreign currency
foreign currency transactions are translated into functional currency
at the rate of exchange ruling at the date of the transaction. exchange
differences arising from either the retranslation of the resulting monetary
assets or liabilities at the exchange rate at the balance sheet date or
from the settlement of the balance at a different rate are recognised in
the consolidated income statement when they occur.
on consolidation, the income statements of foreign currency
subsidiaries are translated into euro at the average exchange rate. if this
average is not a reasonable approximation of the cumulative effect of
the rates prevailing on the transaction dates, a weighted average rate is
used. the balance sheets of such subsidiaries are translated at the rate
of exchange at the balance sheet date. resulting exchange differences
arising on the translation of foreign currency subsidiaries are taken
directly to a separate component of shareholders’ equity.
Goodwill and fair value adjustments arising on the acquisition of
foreign subsidiaries are treated as assets and liabilities of the foreign
subsidiaries and are translated at the closing rate.
on disposal of a foreign currency subsidiary, the cumulative translation
difference for that foreign subsidiary is recycled to the consolidated
income statement as part of the profit or loss on disposal.
Borrowing costs
borrowing costs incurred for qualifying assets, which take a substantial
period of time to construct, are added to the cost of the asset during
the period of time required to complete and prepare the asset for its
intended use. other borrowing costs are expensed to the consolidated
income statement in the period in which they are incurred.
Business combinations
the acquisition method of accounting is used for the acquisition of
subsidiaries. the cost of the acquisition is measured at the aggregate
fair value of the consideration given. the acquiree’s identifiable
assets, liabilities and contingent liabilities that meet the conditions for
recognition under ifrs 3 ‘business combinations’ are recognised at
their fair value at the date the Group assumes control of the acquiree.
Acquisition related costs are recognised in the consolidated income
statement as incurred. if the business combination is achieved in stages,
the acquisition date fair value of the Group’s previously held investment
in the acquiree is remeasured to fair value at the acquisition date
through profit or loss.
certain assets and liabilities are not recognised at their fair value at
the date control was achieved as they are accounted for using other
applicable ifrss. these include deferred tax assets/liabilities and also
any assets related to employee benefit arrangements.
if the initial accounting for a business combination is incomplete by the
end of the reporting period in which the combination occurs, the Group
reports provisional amounts for the items for which the valuation of
the fair value of assets and liabilities acquired is still in progress. those
provisional amounts are adjusted during the measurement period of one
year from the date control is achieved when additional information is
obtained about facts and circumstances which would have affected the
amounts recognised as of that date.
Where applicable, the consideration for the acquisition includes any asset
or liability resulting from a contingent consideration arrangement measured
at fair value at the date control is achieved. subsequent changes in such
fair values are adjusted against the cost of acquisition where they qualify
as measurement period adjustments. All other subsequent changes in the
fair value of contingent consideration classified as an asset or liability are
accounted for in accordance with relevant ifrss.
Any fair value adjustments in relation to acquisitions completed prior
to 1 January 2010 have been accounted for under ifrs 3 ‘business
combinations (2004)’.
Investments in subsidiaries
investments in subsidiaries held by the parent company are carried at
cost less accumulated impairment losses.
Financial instruments
financial assets and financial liabilities are recognised on the
consolidated balance sheet when the Group becomes party to the
contractual provisions of the instrument.
financial assets and liabilities are initially measured at fair value plus
transaction costs, except for those classified as fair value through profit
or loss, which are initially measured at fair value.
All financial assets are recognised and derecognised on a trade date
basis, where the purchase or sale of a financial asset is under a contract
whose terms require delivery of the financial asset within the timeframe
of the market concerned.
financial assets and liabilities are offset and presented on a net basis in the
consolidated balance sheet, only if the Group holds an enforceable legal
right of set off for such amounts and there is an intention to settle on a net
basis or to realise an asset and settle the liability simultaneously. in all other
instances they are presented gross in the consolidated balance sheet.
financial assets and liabilities are classified into specified categories
in accordance with iAs 39 ‘financial instruments: recognition and
measurement’. these categories are as follows:
available-for-sale financial assets;
-
loans and receivables;
-
financial assets at fair value through profit or loss (fVtpl);
-
held to maturity investments;
-
financial liabilities measured at amortised cost; and
-
financial liabilities at fair value through profit or loss (fVtpl).
-
the classification is determined at the time of initial recognition of the
financial asset or liability and is based upon its nature and purpose.
1. STATemenT OF AccOUnTInG POlIcIeS (continued)
Financial instruments (continued)
(i) Available-for-sale financial assets
Group financial asset investments are classified as available-for-sale
as they are non-derivative assets and are not designated at fVtpl on
initial recognition. Available-for-sale investments are stated at their fair
value at the balance sheet date. movements in fair value are recorded
in other comprehensive income until the asset is disposed of unless
there is deemed to be an impairment on the original cost, in which case
the loss is taken directly to the consolidated income statement. upon
disposal, the fair value movement in other comprehensive income is
transferred to the consolidated income statement.
Quoted market prices are used to determine the fair value of listed
shares where there is an active market. Where there is not an active
market, a ‘sum-of-the-parts’ valuation model is used to determine the
fair value of shares. A market is deemed not to be active when a low
level of trading exists and willing buyers and sellers are not readily
available. the ‘sum-of-the-parts’ valuation separates the available-for-
sale investments into the operating segments and uses industry analysis
and the market valuations of peer companies in the relevant segments
to arrive at a combined valuation for the investments.
(ii) Loans and receivables
loans and receivables consist primarily of trade and other receivables
and cash and cash equivalents.
trade and other receivables that have fixed or determinable payments
that are not quoted in an active market are stated at amortised cost,
which approximates fair value given the short term nature of these
assets which are neither past due more than 3 months or impaired.
An allowance for doubtful trade receivables is created based on
incurred loss experience or where there is objective evidence that
amounts are irrecoverable. movements in this allowance are recorded
in ‘other external charges’ which is included within trading profit in the
consolidated income statement.
cash and cash equivalents consists of cash at bank and in hand, bank
overdrafts held by the Group and short term bank deposits with a maturity
of three months or less from the date of placement. cash at bank and in
hand and short term bank deposits are shown under current assets on the
consolidated balance sheet. bank overdrafts are shown within ‘borrowings
and overdrafts’ in current liabilities on the consolidated balance sheet but
are included as a component of cash and cash equivalents for the purpose
of the statement of cash flows. the carrying amount of these assets and
liabilities approximates to their fair value.
(iii) Financial assets at fair value through profit or loss (FVTPL)
financial assets are classified as fVtpl when the financial assets are
either held for trading or they are designated upon initial recognition
as fVtpl.
certain derivatives that are not designated and effective as a hedging
instrument are classified as held for trading. the Group does not have
any other financial assets classified as held for trading.
(iv) Held to maturity investments
the Group currently does not have any held to maturity investments.
117
(v) financial liabilities measured at amortised cost
other non-derivative financial liabilities consist primarily of trade and other
payables and borrowings. trade and other payables are stated at amortised
cost, which approximates to their fair value given the short term nature of
these liabilities. trade and other payables are non interest bearing.
debt instruments are initially recorded at fair value, net of transaction costs.
subsequently they are reported at amortised cost, except for hedged debt.
to the extent that debt instruments are hedged under qualifying fair value
hedges, the carrying value of the debt instrument is adjusted for changes
in the fair value of the hedged risk, with changes arising recognised in
the consolidated income statement. the fair value of the hedged item is
primarily determined using the discounted cash flow basis.
(vi) Financial liabilities at fair value through profit or loss (FVTPL)
financial liabilities at fVtpl arise when the financial liabilities are either
held for trading or they are designated upon initial recognition as fVtpl.
the Group classifies as held for trading certain derivatives that are not
designated and effective as a hedging instrument. the Group does not
have any other financial liabilities classified as held for trading.
Impairment of financial assets
financial assets, other than those at fVtpl, are assessed for indicators
of impairment at the end of each reporting period. financial assets are
impaired when objective evidence highlights that the estimated future
cash flows from the investment have been affected.
for quoted and unquoted equity investments classified as available-
for-sale, a significant or prolonged decline in the fair value of the asset
below its cost is considered to be objective evidence of impairment.
for trade receivables, unusual or increasingly delayed payments,
increase in average credit period taken or known financial difficulties
of a customer, in addition to observable changes in national or local
economic conditions in the country of the customer are considered
indicators that the trade receivable balance may be impaired. the
carrying amount of the asset is reduced through the use of an allowance
account and the amount of the loss is recognised in the consolidated
income statement. When a trade receivable is uncollectable, it is written
off against the allowance account for trade receivables. subsequent
recoveries of amounts previously written off are credited to ‘other
external charges’ in the consolidated income statement.
for all other financial assets, objective evidence of impairment
could include:
-
significant financial difficulty of the counterparty, indicated
through unusual or increasingly delayed payments or increase in
average credit period taken;
evidence that the counterparty is entering bankruptcy or financial
re-organisation; and
observable changes in local or economic conditions.
-
-
Derecognition of financial liabilities
the Group derecognises financial liabilities only when the Group’s
obligations are discharged, cancelled or expire.
118
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
1. STATemenT OF AccOUnTInG POlIcIeS (continued)
Financial instruments (continued)
Derivative financial instruments and hedge accounting
the Group’s activities expose it to risks of changes in foreign currency
exchange rates and interest rates in relation to international trading and
long-term debt. the Group uses foreign exchange forward contracts,
interest rate swaps and forward rate agreements to hedge these
exposures. the Group does not use derivative financial instruments for
speculative purposes.
hedge accounting is applied to the derivative instruments where they
are effective in offsetting the changes in fair value or cash flows of the
hedged item. the relevant criteria required in order to apply hedge
accounting is as follows:
-
the hedged item and the hedging instrument are specifically
identified;
the hedging relationship is formally documented to identify the
hedged risk and how the effectiveness is assessed;
the effectiveness of the hedge can be reliably measured;
the hedge must be expected to be highly effective and this is
tested regularly throughout its life; and
a forecast transaction that is the subject of the hedge must be
highly probable.
-
-
-
-
Fair value of financial instrument derivatives
the fair value of derivative instruments is calculated using quoted prices.
Where such prices are not available a discounted cash flow analysis is used
based on the applicable yield curve adjusted for counterparty risk for the
duration and currency of the instrument, which are observable:
-
foreign currency forward contracts are measured using quoted
forward exchange rates to match the maturities of these
contracts; and
interest rate swaps are measured at the present value of future
cash flows estimated and discounted based on the applicable
yield curves adjusted for counterparty credit risk.
-
Cash flow hedges
Where derivatives, including forward foreign currency contracts, forward
commodity contracts and floating to fixed interest rate swaps or cross
currency swaps are used, they are primarily treated as cash flow hedges.
the gain or loss relating to the effective portion of the interest rate
swaps and cross currency interest rate swaps is recognised in other
comprehensive income and is reclassified to profit or loss in the period
when the hedged item is recognised through profit or loss. Any such
reclassification to profit or loss is recognised within finance costs in the
consolidated income statement and all effective amounts directly offset
against movements in the underlying hedged item. Any ineffective portion
of the hedge is recognised in the consolidated income statement. the
gain or loss relating to the effective portion of forward foreign currency
contracts and forward commodity contracts is recognised in other
comprehensive income and is reclassified to profit or loss in the period the
hedged item is recognised through profit or loss. Any ineffective portion of
the hedge is recognised in the consolidated income statement. When the
hedged firm commitment or forecasted transaction occurs and results in
the recognition of an asset or liability, the amounts previously recognised
in the hedge reserve, within other comprehensive income are reclassified
through profit or loss in the periods when the hedged item is impacting
the consolidated income statement.
if a hedge is no longer effective or a hedging relationship ceases to exist,
hedge accounting is discontinued prospectively and any cumulative gain
or loss on the instrument previously recognised in other comprehensive
income is retained in other comprehensive income until the forecasted
transaction occurs, at which time it is released to the consolidated
income statement. if the hedged transaction is no longer expected to
occur, the net cumulative gain or loss in other comprehensive income is
transferred to the consolidated income statement immediately.
cash flow hedge accounting is applied to foreign exchange forward
contracts which are expected to be effective in offsetting the changes
in fair value of expected future cash flows. in order to achieve and
maintain cash flow hedge accounting, it is necessary for management
to determine, at inception and on an ongoing basis, whether a forecast
transaction is highly probable and whether the hedge is effective.
Fair value hedges
Where fixed to floating interest rate swaps are used they are treated
as fair value hedges. changes in the fair value of derivatives that
are designated as fair value hedges are recognised directly in the
consolidated income statement, together with any changes in the
fair value of the hedged asset or liability that are attributable to the
hedged risk.
hedge accounting is discontinued prospectively when the hedging
relationship ceases to exist or the Group revokes the designation.
the fair value adjustment to the carrying amount of the hedged item
arising from the hedged risk is amortised over the remaining maturity
of the hedged item through the consolidated income statement from
that date.
Trading derivatives
certain derivatives which comply with the Group’s financial risk
management policies are not accounted for using hedge accounting.
this arises where the derivatives; a) do not qualify for hedge accounting;
b) provide an effective hedge against foreign currency borrowings
without having to apply hedge accounting; or c) where management
have decided not to apply hedge accounting. in these cases the
instrument is reported independently at fair value with any changes
recognised in the consolidated income statement. in all other instances,
cash flow or fair value hedge accounting is applied.
Critical accounting estimates and judgements
preparation of the consolidated financial statements requires
management to make certain estimations, assumptions and judgements
that affect the reported profits, assets and liabilities.
estimates and underlying assumptions are reviewed on an on-going
basis. changes in accounting estimates may be necessary if there are
changes in the circumstances on which the estimate was based or
as a result of new information or more experience. such changes are
recognised in the period in which the estimate is revised.
in particular, information about significant areas of estimation,
uncertainty and critical judgements in applying accounting policies
that have the most significant effect on the amounts recognised in
the consolidated financial statements are described below and in the
respective notes to the consolidated financial statements.
119
Retirement benefits obligation
the estimation of and accounting for retirement benefits obligation
involves judgements made in conjunction with independent actuaries.
these involve estimates about uncertain future events based on the
environment in different countries, including life expectancy of scheme
members, future salary and pension increases and inflation as well as
discount rates. the assumptions used by the Group and a sensitivity
analysis of a change in these assumptions are described in note 26.
Business combinations
When acquiring a business, the Group is required to bring acquired
assets and liabilities on to the consolidated balance sheet at their
fair value, the determination of which requires a significant degree of
estimation and judgement.
Acquisitions may also result in intangible benefits being brought into
the Group, some of which qualify for recognition as intangible assets
while other such benefits do not meet the recognition requirements
of ifrs and therefore form part of goodwill. Judgement is required in
the assessment and valuation of these intangible assets. for intangible
assets acquired, the Group bases valuations on expected future cash
flows. this method employs a discounted cash flow analysis using
the present value of the estimated after-tax cash flows expected to
be generated from the purchased intangible asset using risk adjusted
discount rates, revenue forecasts and estimated customer attrition as
appropriate. the period of expected cash flows is based on the expected
useful life of the intangible asset acquired.
depending on the nature of the assets and liabilities acquired,
determined provisional fair values may be associated with uncertainty
and possibly adjusted subsequently as allowed by ifrs 3.
business combinations are disclosed in note 31 to these consolidated
financial statements.
Provisions
the amounts recognised as a provision are management’s best estimate
of the expenditure required to settle present obligations at the balance
sheet date. the outcome depends on future events which are by their
nature uncertain. in assessing the likely outcome, management bases its
assessment on historical experience and other factors that are believed
to be reasonable in the circumstances. provisions are disclosed in note
25 to these consolidated financial statements.
Other areas
other areas where accounting estimates and judgements are required,
though the impact on the consolidated financial statements is not
considered as significant as those mentioned above, are property,
plant and equipment (note 11), intangible assets (note 12), financial
assets investments (note 13), investment in associates (note 14), assets
classified as held for sale (note 18), rebates included in trade and other
receivables (note 19) and financial instruments (notes 23 and 24).
1. STATemenT OF AccOUnTInG POlIcIeS (continued)
Impairment of goodwill and intangible assets
determining whether goodwill and intangible assets are impaired or
whether a reversal of an impairment of intangible assets (other than on
goodwill) should be recorded requires comparison of the value in use for
the relevant cash generating units (cGus) to the net assets attributable to
those cGus. the value in use calculation is based on an estimate of future
cash flows expected to arise from the cGus and these are discounted
to net present value using an appropriate discount rate. the tests are
dependent on management’s estimates and judgements, in particular in
relation to the forecasting of future cash flows, the discount rates applied
to those cash flows, the expected long term growth rate of the applicable
businesses and perpetuity rates. such estimates and judgements are
subject to change as a result of changing economic conditions. details of
the assumptions used and key sources of estimation involved are detailed
in note 12 to these consolidated financial statements.
Income taxes and deferred tax assets and liabilities
the calculation of the income tax charge involves a degree of estimation
and judgement as the Group operates in many jurisdictions and the tax
treatment of certain items cannot be fully determined at the time of
the original transaction. furthermore, the Group can also be subject to
tax audits in any of the jurisdictions in which it operates, which by their
nature are often complex and can require several years to conclude.
Amounts accrued in respect of tax and open tax audits are determined
based on management’s judgement and interpretation of the relevant
tax laws, a probability-weighted expected value and likelihood of a
successful conclusion.
the recognition of a deferred tax asset is based upon whether it is
probable that sufficient and suitable taxable profits will be available in
the future, against which the reversal of temporary differences can be
deducted. recognition, therefore, involves judgement regarding the
future financial performance of the particular legal entity or tax group in
which the deferred tax asset exists.
‘income taxes’ and ‘deferred tax assets and liabilities’ are disclosed in
notes 7 and 17 to these consolidated financial statements, respectively.
Non-trading items
certain material items, by virtue of their nature and amount,
are disclosed separately in order for the user to obtain a proper
understanding of the financial information. these items relate to events
or circumstances that are non-recurring in nature which are labeled
collectively as ‘non-trading items’.
Judgement is applied to determine which transactions are to be
considered non-trading items. circumstances that would give rise to this
classification include profits or losses on the disposal or acquisition of
businesses, disposals of assets (non-current assets and assets classified
as held for sale), costs in preparation of disposal of assets, material
acquisition integration and restructuring costs and similar items of a
non-recurring nature, including the related tax effect on those items.
non-trading items are disclosed in note 5 to these consolidated
financial statements.
120
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
1. STATemenT OF AccOUnTInG POlIcIeS (continued)
New standards and interpretations
certain new and revised accounting standards and new international financial reporting interpretations committee (‘ifric’) interpretations have been
issued and the Group’s assessment of the impact of these new standards and interpretations is set out below.
Standards and Interpretations effective for Kerry Group in 2015 but not material to the results and financial position of the Group:
Effective Date
-
-
-
-
-
-
-
-
-
-
ifrs 1 (amendment)
first-time adoption of international financial reporting standards
ifrs 2 (amendment)
share-based payment
ifrs 3 (amendments)
business combinations
ifrs 8 (amendment)
operating segments
ifrs 13 (amendments)
fair Value measurement
iAs 16 (amendment)
property, plant and equipment
iAs 19 (amendment)
employee benefits
iAs 24 (amendment)
related party disclosures
iAs 38 (amendment)
intangible Assets
iAs 40 (amendment)
investment property
Standards and Interpretations which are not yet effective for Kerry Group and are not expected to have a material effect on the
results or the financial position of the Group:
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
ifrs 5 (amendment)
non-current Assets held for sale and discontinued operations
ifrs 7 (amendment)
financial instruments: disclosures
ifrs 10 (amendments) consolidated financial statements
ifrs 11 (amendment)
Joint Arrangements
ifrs 12 (amendment)
disclosure of interests in other entities
ifrs 14
regulatory deferral Accounts
iAs 1 (amendment)
presentation of financial statements
iAs 7 (amendments)
statement of cash flows
iAs 12 (amendments)
income taxes
iAs 16 (amendments)
property, plant and equipment
iAs 19 (amendment)
employee benefits
iAs 27 (amendment)
consolidated and separate financial statements
iAs 28 (amendments)
investments in Associates
iAs 34 (amendment)
interim financial reporting
iAs 38 (amendment)
intangible Assets
iAs 41 (amendment)
Agriculture
1 July 2014
1 July 2014
1 July 2014
1 July 2014
1 July 2014
1 July 2014
1 July 2014
1 July 2014
1 July 2014
1 July 2014
Effective Date
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2017
1 January 2017
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1. STATemenT OF AccOUnTInG POlIcIeS (continued)
New standards and interpretations (continued)
The following revised standards are not yet effective and the impact on Kerry Group is currently under review:
-
ifrs 9
-
ifrs 15
-
ifrs 16
financial instruments
ifrs 9, published in July 2014, replaces the existing guidance in iAs 39 ‘financial instruments: recognition
and measurement’. ifrs 9 includes revised guidance on the classification and measurement of financial
instruments, including a new expected credit loss model for calculating impairment on financial assets,
and the new general hedge accounting requirements. it also carries forward the guidance on recognition
and derecognition of financial instruments from iAs 39. the Group is assessing the potential impact on its
consolidated financial statements resulting from the application of ifrs 9.
revenue from contracts with customers
ifrs 15 was issued to establish a single comprehensive model for entities to use in accounting for
revenue arising from contracts with customers. the core principle of ifrs 15 is that an entity should
recognise revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. under ifrs 15, an entity recognises revenue when (or as) a performance obligation is satisfied i.e.
when ‘control’ of the goods or services underlying the particular performance obligation is transferred to
the customer. the Group is assessing the potential impact on its consolidated financial statements resulting
from the application of ifrs 15.
leases
ifrs 16, published in January 2016, replaces the existing guidance in iAs 17 ‘leases’. ifrs 16 eliminates the
classification of leases as either operating leases or finance leases. it introduces a single lessee accounting
model, which requires a lessee to recognise: assets and liabilities for all leases with a term of more than 12
months and depreciation of lease assets separately from interest on lease liabilities in the income statement.
the Group is assessing the potential impact on its consolidated financial statements resulting from the
application of ifrs 16.
121
Effective Date
1 January 2018
1 January 2018
1 January 2019
122
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
2. AnAlySIS OF ReSUlTS
the Group has two operating segments: taste & nutrition and consumer foods. the taste & nutrition operating segment manufactures and distributes
application specific ingredients and flavours spanning a number of technology platforms, while the consumer foods segment manufactures and supplies
added value brands and customer branded foods primarily to the irish and uK markets.
Taste &
nutrition
2015
€’m
consumer
Foods
2015
€’m
Group
eliminations
and
Unallocated
2015
€’m
Total
2015
€’m
4,637.5
1,467.4
-
6,104.9
78.4
8.3
4,715.9
1,475.7
(86.7)
(86.7)
-
6,104.9
taste &
nutrition
2014
€’m
consumer
foods
2014
€’m
4,257.1
79.8
4,336.9
1,499.5
9.8
1,509.3
Group
eliminations
and
unallocated
2014
€’m
total
2014
€’m
-
5,756.6
(89.6)
(89.6)
-
5,756.6
external revenue
inter-segment revenue
Revenue
Trading profit
662.9
125.7
(88.5)
700.1
592.5
125.4
(81.5)
636.4
intangible asset amortisation
non-trading items
Operating profit
finance income
finance costs
Profit before taxation
income taxes
Profit after taxation and attributable to owners of the parent
(37.4)
9.4
672.1
1.8
(71.1)
602.8
(77.4)
525.4
(28.0)
0.1
608.5
1.1
(54.0)
555.6
(75.7)
479.9
Segment assets and liabilities
segment assets
segment liabilities
net assets
Other segmental information
property, plant and equipment additions
depreciation (net)
intangible asset additions
intangible asset amortisation
Information about geographical areas
revenue by location of external customers
segment assets by location
property, plant and equipment additions
intangible asset additions
4,374.1
984.1
1,654.8
7,013.0
(1,049.2)
(436.0)
(2,737.7)
(4,222.9)
3,814.8
(909.0)
925.1
(507.7)
1,227.9
5,967.8
(2,315.5)
(3,732.2)
3,324.9
548.1
(1,082.9)
2,790.1
2,905.8
417.4
(1,087.6)
2,235.6
176.0
104.0
1.0
14.0
emeA
2015
€’m
3,013.3
4,282.1
109.1
30.9
36.7
17.7
0.6
6.0
3.7
4.3
30.0
17.4
216.4
126.0
31.6
37.4
Americas
2015
€’m
Asia Pacific
2015
€’m
2,307.9
2,234.9
66.7
0.6
783.7
496.0
40.6
0.1
Total
2015
€’m
6,104.9
7,013.0
216.4
31.6
209.8
83.7
1.4
9.5
emeA
2014
€’m
3,048.7
3,601.4
138.8
34.3
15.5
16.4
-
5.7
4.5
3.4
34.2
12.8
Americas
2014
€’m
Asia pacific
2014
€’m
1,901.2
1,770.3
53.1
1.3
806.7
596.1
37.9
-
229.8
103.5
35.6
28.0
total
2014
€’m
5,756.6
5,967.8
229.8
35.6
123
2. AnAlySIS OF ReSUlTS (continued)
Information about geographical areas (continued)
Kerry Group plc is domiciled in the republic of ireland and the revenues from external customers in the republic of ireland were €455.0m (2014: €505.4m).
the non-current assets located in the republic of ireland are €931.9m (2014: €905.5m).
revenues from external customers include €1,710.5m (2014: €1,686.2m) in the uK and €1,789.2m (2014: €1,491.4m) in the us. the non-current assets in the uK
are €786.7m (2014: €715.1m) and in the us are €1,327.4m (2014: €991.8m). the taste & nutrition and consumer foods business reviews, on pages 28 and 34
respectively, provides a description of the types of products from which these segments derive their revenues. during the financial year, the Group renamed its
ingredients & flavours operating segment to taste & nutrition. this did not result in a change in the composition of the Group’s reportable segments.
the accounting policies of the reportable segments are the same as the Group’s accounting policies as outlined in the statement of Accounting policies.
3. OPeRATInG PROFIT
operating profit for the financial year has been arrived at after charging/(crediting) the following operating costs:
Revenue
Less operating costs:
raw materials and consumables
other external charges
staff costs
depreciation (including impairment)
capital grants amortisation
other operating charges
foreign exchange losses
change in inventories of finished goods
share of associate loss (after tax)
Trading profit
intangible asset amortisation
non-trading items
Operating profit
And is stated after charging:
research and development costs
notes
11
21
14
12
5
continuing
Operations
2015
€’m
6,104.9
continuing
operations
2014
€’m
5,756.6
3,303.7
487.9
1,108.8
128.4
(2.5)
355.5
40.4
(18.7)
1.3
700.1
37.4
(9.4)
672.1
3,211.1
473.7
1,032.2
105.8
(2.3)
308.3
7.5
(16.3)
0.2
636.4
28.0
(0.1)
608.5
234.2
196.8
124
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
3. OPeRATInG PROFIT (continued)
Auditors’ remuneration
Statutory disclosure:
Group audit
other assurance services
Total assurance services
tax advisory services
other non-audit services
Total non-audit services
Total auditors’ remuneration
Assurance services
non-audit services
Total
Deloitte
Ireland
2015
€’m
Deloitte
Other
2015
€’m
Deloitte
Worldwide
2015
€’m
deloitte
ireland
2014
€’m
deloitte
other
2014
€’m
deloitte
Worldwide
2014
€’m
1.5
0.3
1.8
0.7
0.4
1.1
2.9
1.8
0.4
2.2
1.6
-
1.6
3.8
3.3
0.7
4.0
2.3
0.4
2.7
6.7
60%
40%
100%
1.3
0.1
1.4
0.4
0.1
0.5
1.9
1.8
0.5
2.3
1.9
-
1.9
4.2
3.1
0.6
3.7
2.3
0.1
2.4
6.1
61%
39%
100%
Group audit consists of fees payable for the consolidated and statutory audits of the Group and its subsidiaries. included in Group audit are total fees of
€7,000 (2014: €7,000) which were paid to the Group’s auditor in respect of the parent company. reimbursement of auditors’ expenses amounted to €0.2m
(2014: €0.2m).
4. TOTAl STAFF nUmBeRS AnD cOSTS
the average number of people employed by the Group was:
emeA
Americas
Asia pacific
Taste &
nutrition
2015
number
5,905
6,613
3,453
15,971
consumer
Foods
2015
number
7,252
-
-
7,252
the aggregate payroll costs of employees (including executive directors) were:
emeA
Americas
Asia pacific
Taste &
nutrition
2015
€’m
313.9
405.8
103.9
823.6
consumer
Foods
2015
€’m
293.6
-
-
293.6
Total
2015
number
13,157
6,613
3,453
23,223
Total
2015
€’m
607.5
405.8
103.9
1,117.2
taste &
nutrition
2014
number
5,127
6,363
3,496
14,986
taste &
nutrition
2014
€’m
284.3
322.7
110.0
717.0
consumer
foods
2014
number
8,781
-
-
8,781
consumer
foods
2014
€’m
322.7
-
-
total
2014
number
13,908
6,363
3,496
23,767
total
2014
€’m
607.0
322.7
110.0
322.7
1,039.7
social welfare costs of €86.6m (2014: €82.2m) and share-based payment expense of €9.0m (2014: €8.9m) are included in payroll costs. pension costs
included in the payroll costs are disclosed in note 26. included in the above payroll costs disclosure is €8.4m (2014: €7.5m) which has been capitalised as
part of computer software in intangible assets.
5. nOn-TRADInG ITemS
profit/(loss) on disposal of businesses and assets
Acquisition integration and restructuring costs
impairment of assets held for sale
tax
(i) Profit/(loss) on disposal of businesses and assets
Assets
property, plant and equipment
Assets classified as held for sale
brand related intangible assets
Goodwill
inventory
Accounts receivable
Accounts payable
net assets disposed
consideration
cash received
disposal related costs
total consideration received
notes
(i)
(ii)
(iii)
7
notes
11
18
12
12
cumulative exchange difference on translation recycled on disposal
30
Profit/(loss) on disposal of businesses and assets
net cash inflow on disposal:
cash
less: cash at bank and in hand balance disposed of
less: disposal related costs
*Assets represent non-current assets and assets classified as held for sale.
125
2014
€’m
0.1
-
-
0.1
3.9
4.0
Total
2015
€’m
(42.4)
(8.4)
(12.7)
(24.8)
(13.3)
(27.9)
24.4
2015
€’m
22.5
(7.8)
(5.3)
9.4
3.7
13.1
*Assets
2015
€’m
(12.5)
(4.4)
-
-
-
-
-
(16.9)
(105.1)
12.7
-
12.7
-
(4.2)
166.5
(38.1)
128.4
(0.8)
22.5
Total
2015
€’m
166.5
-
(38.1)
128.4
Businesses
2015
€’m
(29.9)
(4.0)
(12.7)
(24.8)
(13.3)
(27.9)
24.4
(88.2)
153.8
(38.1)
115.7
(0.8)
26.7
126
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
5. nOn-TRADInG ITemS (continued)
(i) Profit/(loss) on disposal of businesses and assets (continued)
during the financial year, the Group disposed of the pinnacle lifestyle bakery business in Australia from the taste & nutrition division and two businesses
in the consumer foods division in the uK. the consumer foods businesses were classified as held for sale in 2014. Additionally, the Group disposed of
property, plant and equipment and assets classified as held for sale, primarily in the us and ireland.
in 2014, the profit of €0.1m related primarily to the disposal of a business in the consumer foods division in the uK, a subsidiary in Argentina, and the sale of
property, plant and equipment and assets classified as held for sale in the us, uK and ireland. in addition the cumulative exchange difference on translation
recycled on disposal of a subsidiary in 2014 was a loss of €0.4m.
A net tax credit of €1.7m (2014: €3.9m) arose on the disposal of businesses and assets.
(ii) Acquisition integration and restructuring costs
the 2015 acquisition integration and restructuring costs of €7.8m related primarily to transaction expenses incurred in completing acquisitions as well
as initial costs in integrating these acquisitions into the Group’s operations. details of the acquisitions completed in 2015 are disclosed in note 31. in 2015,
a tax credit of €2.0m arose due to tax deductions available on acquisition integration and restructuring costs. there were no acquisition integration and
restructuring costs recorded in non-trading items in 2014.
(iii) Impairment of assets held for sale
in 2015, assets classified as held for sale were impaired to their fair value less costs to sell by €5.3m. there were no impairments of assets held for sale
recorded in 2014.
6. FInAnce IncOme AnD cOSTS
Finance income:
interest income on deposits
Finance costs:
interest payable
interest rate derivative
borrowing costs capitalised
net interest cost on retirement benefits obligation
Finance costs
notes
24
26
2015
€’m
1.8
(52.6)
(5.0)
-
(57.6)
(13.5)
(71.1)
2014
€’m
1.1
(44.7)
(1.2)
1.9
(44.0)
(10.0)
(54.0)
the interest rate derivative cost represents credit value adjustments to the fair values of derivative financial instruments designated in a hedge relationship
of €5.0m (2014: €2.3m). in 2014 credit value adjustments were partly offset by the fair value movement of certain derivatives that were no longer
designated in a hedge relationship.
there were no finance costs capitalised in 2015. the costs capitalised in 2014 related primarily to borrowing costs incurred on significant capital projects
including the Global technology and innovation centres and the development of computer software for the Kerryconnect programme. interest was
capitalised at the Group’s average interest rate for 2014 of 3.6%.
7.
IncOme TAxeS
Recognition in the consolidated Income Statement
current tax expense in the financial year
Adjustments in respect of prior years
deferred tax in the financial year
Income tax expense
included in the above is the following tax charge/(credit) on non-trading items:
current tax
deferred tax
127
2014
€’m
73.7
(3.9)
69.8
5.9
75.7
(0.1)
(3.8)
(3.9)
notes
17
5
2015
€’m
78.6
(6.0)
72.6
4.8
77.4
0.4
(4.1)
(3.7)
the applicable tax rate of 14.1% (2014: 14.7%) used by the Group is calculated based on the weighted average of the standard tax rates applying to profits
earned by the Group in the jurisdictions in which it operates. the variation in the applicable tax rate is caused by changes in profits by jurisdiction, as well as
changes in local statutory tax rates.
the applicable tax rate for the financial year can be reconciled to the income tax expense as follows:
profit before taxation
Applicable tax
Adjustments to current tax and deferred tax in respect of prior years
income taxed at rates other than standard tax rates
Withholding taxes and other local taxes
income not subject to tax
utilisation of unprovided deferred tax assets
other adjusting items
Income tax expense
2015
€’m
602.8
85.2
(2.8)
(2.7)
6.9
(2.5)
(6.0)
(0.7)
77.4
2014
€’m
555.6
81.4
1.7
(0.8)
5.1
(9.4)
(5.2)
2.9
75.7
in 2015, €6.0m of deferred tax assets were utilised in the financial year (2014: €5.2m).
An increase in the Group’s applicable tax rate of 1% would reduce profit after tax by €6.0m (2014: €5.6m). factors that may affect the Group’s future tax
charge include the effects of restructuring, acquisitions and disposals, changes in tax legislation and rates and the use of brought forward losses.
8. PROFIT ATTRIBUTABle TO KeRRy GROUP Plc
in accordance with section 304 (2) of the companies Act, 2014, the company is availing of the exemption from presenting its individual income statement
to the Annual General meeting and from filing it with the registrar of companies. the company’s profit for the financial year as determined in accordance
with ifrss as adopted by the european union is €228.0m (2014: €69.9m).
128
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
9. eARnInGS PeR A ORDInARy SHARe
Basic earnings per share
profit after taxation and attributable to owners of the parent
brand related intangible asset amortisation
non-trading items (net of related tax)
Adjusted earnings
Diluted earnings per share
profit after taxation and attributable to owners of the parent
Adjusted earnings
notes
12
5
ePS
cent
298.7
10.6
(7.4)
301.9
2015
€’m
525.4
18.7
(13.1)
531.0
eps
cent
273.0
8.2
(2.3)
278.9
2014
€’m
479.9
14.4
(4.0)
490.3
298.4
301.5
525.4
531.0
272.7
278.6
479.9
490.3
in addition to the basic and diluted earnings per share, an adjusted earnings per share is also provided as it is considered more reflective of the Group’s
underlying trading performance. Adjusted earnings is profit after taxation before brand related intangible asset amortisation and non-trading items (net of
related tax). these items are excluded in order to assist in the understanding of underlying earnings.
number of Shares
basic weighted average number of shares
impact of share options outstanding
Diluted weighted average number of shares
Actual number of shares in issue as at 31 December
10. DIvIDenDS
Group and company:
Amounts recognised as distributions to equity shareholders in the financial year
final 2014 dividend of 31.50 cent per A ordinary share paid 15 may 2015
(final 2013 dividend of 28.00 cent per A ordinary share paid 9 may 2014)
interim 2015 dividend of 15.00 cent per A ordinary share paid 13 november 2015
(interim 2014 dividend of 13.50 cent per A ordinary share paid 14 november 2014)
note
27
2015
m’s
175.9
0.2
176.1
175.9
2014
m’s
175.8
0.2
176.0
175.8
2015
€’m
2014
€’m
55.4
49.2
26.4
81.8
23.8
73.0
since the financial year end the board has proposed a final 2015 dividend of 35.00 cent per A ordinary share. the payment date for the final dividend will be
13 may 2016 to shareholders registered on the record date as at 15 April 2016. these consolidated financial statements do not reflect this dividend.
11. PROPeRTy, PlAnT AnD eqUIPmenT
Group:
cost
At 1 January 2014
businesses acquired
Additions
purchase adjustments
transfer from construction in progress
disposals
transfer to held for sale
exchange translation adjustment
At 31 december 2014
Businesses acquired
Additions
Purchase adjustments
Transfer from construction in progress
Businesses disposed
Disposals
Transfer to held for sale
exchange translation adjustment
At 31 December 2015
Accumulated depreciation and impairment
At 1 January 2014
charge during the financial year
disposals
transfer to held for sale
exchange translation adjustment
At 31 december 2014
charge during the financial year
Impairments
Businesses disposed
Disposals
Transfer to held for sale
exchange translation adjustment
At 31 December 2015
carrying value
At 31 december 2014
At 31 December 2015
129
land and
Buildings
€’m
notes
Plant,
machinery
and
equipment
€’m
construction
in Progress
€’m
motor
vehicles
€’m
Total
€’m
777.1
6.2
40.0
(0.4)
14.8
(25.3)
(15.3)
48.2
845.3
25.8
72.8
(5.0)
89.8
(9.9)
(9.5)
(36.1)
35.5
1,440.5
9.7
50.8
(0.7)
44.6
(39.1)
(0.8)
86.0
1,591.0
34.9
76.8
(1.0)
57.4
(21.4)
(53.3)
(4.7)
57.8
1,008.7
1,737.5
300.3
23.8
(18.9)
(6.7)
16.6
315.1
28.6
0.9
(0.9)
(8.7)
(32.1)
11.6
314.5
923.7
80.8
(35.5)
(0.3)
52.4
1,021.1
96.7
3.2
(13.1)
(41.7)
(4.3)
34.1
1,096.0
30
31
5
30
3
30
3
3
5
30
94.0
0.7
138.3
-
(59.4)
-
-
7.2
180.8
0.4
65.4
-
(147.2)
(12.5)
(0.2)
-
6.0
92.7
-
-
-
-
-
-
-
-
-
-
-
-
-
20.8
0.3
0.7
-
-
(3.1)
-
0.1
18.8
0.1
1.4
-
-
(0.1)
(1.5)
-
(0.3)
18.4
17.9
1.2
(2.9)
-
0.1
16.3
0.7
-
-
(1.6)
-
(0.1)
15.3
2,332.4
16.9
229.8
(1.1)
-
(67.5)
(16.1)
141.5
2,635.9
61.2
216.4
(6.0)
-
(43.9)
(64.5)
(40.8)
99.0
2,857.3
1,241.9
105.8
(57.3)
(7.0)
69.1
1,352.5
126.0
4.1
(14.0)
(52.0)
(36.4)
45.6
1,425.8
530.2
694.2
569.9
641.5
180.8
92.7
2.5
3.1
1,283.4
1,431.5
included in the impairments above is €1.7m charged to non-trading items relating to assets classified as held for sale.
130
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
11. PROPeRTy, PlAnT AnD eqUIPmenT (continued)
company:
cost
At 1 January 2014
At 31 December 2014 and 2015
Accumulated depreciation
At 1 January 2014
charge during the financial year
At 31 december 2014
charge during the financial year
At 31 December 2015
carrying value
At 31 december 2014
At 31 December 2015
land and
Buildings
Total
€’m
4.7
4.7
3.6
0.2
3.8
0.1
3.9
0.9
0.8
12. InTAnGIBle ASSeTS
notes
Goodwill
€’m
Brand
Related
Intangibles
€’m
computer
Software
€’m
Group:
cost
At 1 January 2014
businesses acquired
Additions
purchase adjustments
businesses disposed
exchange translation adjustment
At 31 december 2014
Businesses acquired
Additions
Purchase adjustments
Transferred to held for sale
Businesses disposed
Disposals
exchange translation adjustment
At 31 December 2015
Accumulated amortisation and impairment
At 1 January 2014
charge during the financial year
businesses disposed
exchange translation adjustment
At 31 december 2014
charge during the financial year
Businesses disposed
Disposals
Impairment
Transfer to be held for sale
exchange translation adjustment
At 31 December 2015
carrying value
At 31 december 2014
At 31 December 2015
30
31
30
3
30
3
30
1,723.9
95.2
-
7.5
(7.7)
87.8
1,906.7
409.3
-
11.2
(3.6)
(39.3)
-
55.5
2,339.8
44.6
-
(7.7)
-
36.9
-
(14.5)
-
3.6
(3.6)
2.1
24.5
799.1
29.0
-
(6.9)
(3.2)
28.4
846.4
377.3
-
3.2
-
(27.9)
-
24.0
1,223.0
146.2
14.4
(3.2)
11.7
169.1
18.7
(15.2)
-
-
-
11.4
184.0
1,869.8
2,315.3
677.3
1,039.0
127.2
-
35.6
-
-
1.3
164.1
-
31.6
-
-
-
(0.5)
1.3
196.5
66.7
13.6
-
1.9
82.2
18.7
-
(0.5)
-
-
1.1
101.5
81.9
95.0
131
Total
€’m
2,650.2
124.2
35.6
0.6
(10.9)
117.5
2,917.2
786.6
31.6
14.4
(3.6)
(67.2)
(0.5)
80.8
3,759.3
257.5
28.0
(10.9)
13.6
288.2
37.4
(29.7)
(0.5)
3.6
(3.6)
14.6
310.0
2,629.0
3,449.3
Allocation of the purchase price in a business combination affects the results of the Group as finite life intangible assets are amortised, whereas indefinite
life intangible assets, including goodwill, are not amortised. this could result in differing amortisation charges based on the allocation to finite life and
indefinite life intangible assets.
included in the cost of brand related intangibles are intangibles of €789.6m (2014: €485.0m) which have indefinite lives. there are no material internally
generated brand related intangibles.
the Group has no separate individual intangible asset that is material, as all intangibles acquired are integrated and developed within the existing business.
132
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
12. InTAnGIBle ASSeTS (continued)
Impairment testing
Goodwill and indefinite life intangibles are subject to impairment testing on an annual basis, or more frequently if there are indicators of impairment. the
recoverable amount of each of the four cash generating units (cGus) is determined on value-in-use calculations. intangible assets acquired in a business
combination are allocated to cGus that are expected to benefit from the business acquisition, rather than where the assets are owned.
cash flow forecasts employed for the value-in-use calculations are for a five year period approved by management and a terminal value which is applied to
the year five cash flows. the terminal value reflects the discounted value of the cash flows beyond year five which is based on the same long term growth
rates applied to the cash flows.
the duration of the discounted cash flow model is a significant factor in determining the fair value of the cGus, which has been arrived at after taking
account of the Group’s strong financial position, its established history of earnings growth and cash flow generation, its proven ability to pursue and
integrate value-enhancing acquisitions, the nature of the taste & nutrition and consumer foods industries and Kerry’s continuous commitment to invest in
research and development in its chosen technologies. this coupled with strong customer relationships and modern manufacturing facilities, protects and
enhances Kerry’s industry leading position as well as future profitability and cash flow generation.
no impairment was recognised in 2015 or 2014 as a result of the impairment testing which identified significant headroom in the recoverable amount of the
related cGus as compared to their carrying value. in 2015, a specific impairment charge of €3.6m in relation to goodwill was recorded in non-trading items
in the consolidated income statement due to the classification of a business as held for sale.
A summary of the allocation of the carrying value of goodwill and indefinite life intangible assets by beneficial region within segment, is as follows:
Taste & nutrition
emeA
Americas
Asia pacific
consumer Foods
emeA
Goodwill
2015
€’m
Goodwill
2014
€’m
Indefinite life
Intangibles
2015
€’m
indefinite life
intangibles
2014
€’m
471.6
1,276.4
116.8
450.5
2,315.3
453.4
877.0
147.3
392.1
1,869.8
114.9
579.2
53.9
41.6
789.6
112.4
270.6
64.6
37.4
485.0
Key assumptions
the key assumptions for calculating value-in-use calculations are those relating to the discount rate, growth rate and cash flows. the table below outlines
the weighted average discount rates and weighted average growth rates by cGu:
Taste & nutrition
emeA
Americas
Asia pacific
consumer Foods
emeA
Discount
Rates
2015
discount
rates
2014
5.3%
5.5%
6.9%
5.4%
5.4%
6.7%
Growth
Rates
2015
1.9%
2.5%
4.7%
Growth
rates
2014
1.9%
2.4%
4.5%
5.2%
5.2%
2.0%
2.0%
133
12. InTAnGIBle ASSeTS (continued)
Impairment testing (continued)
management estimate discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the
cGus. A higher discount rate is applied to higher risk markets, while a lower rate is applied to more stable markets.
Growth rates are based on external market data and are broadly in line with long-term industry growth rates. Generally, lower growth rates are used in
mature markets while higher growth rates are used in emerging markets.
the assumptions used by management in estimating cash flows for each specific cGu include future profitability, capital expenditure requirements,
depreciation levels and working capital investment needs using growth rates as disclosed in the table above. the cash flows included in the value-in-use
calculations are generally determined based on historical performance and management’s expectation of future trends affecting the industry and other
developments and initiatives in the business.
Sensitivity analysis
sensitivity analysis has been performed across the four cGus. if the discount rate was 1% higher than management’s estimates, there would have been no
requirement for the Group to recognise any impairment charge in 2015 or 2014. further changes to the discount rate (for example, a 5% increase) would not
have resulted in an impairment charge in 2015 or 2014 as there is headroom in the discounted cash flows. if the estimated growth rate was 1% lower than
management’s estimates, there would have been no requirement for the Group to recognise any impairment charge in 2015 or 2014. if the estimated cash
flows were 5% lower than management’s estimates, again there would have been no requirement for the Group to recognise any impairment charge in 2015
or 2014. management believes that no reasonable change, in normal circumstances, in any of the above key assumptions would cause the carrying value of
any cGu to exceed its recoverable amount.
13. FInAncIAl ASSeT InveSTmenTS
Group:
At 1 January 2014
Additions
exchange translation adjustment
At 31 december 2014
Additions
exchange translation adjustment
At 31 December 2015
Available-for-sale
Investments
€’m
Other
Investments
€’m
note
4.1
-
-
4.1
-
-
4.1
17.3
4.0
2.5
23.8
3.3
2.8
29.9
30
30
Total
€’m
21.4
4.0
2.5
27.9
3.3
2.8
34.0
Available-for-sale investments
the available-for-sale investments represent investments in equity securities. these investments have no fixed maturity or coupon rate. A ‘sum-of-the-
parts’ valuation was performed in 2015 and 2014 which did not result in any change to the carrying value of these assets.
A 10% decrease in the valuation of these shares in 2015 would have resulted in a loss in the consolidated income statement of €0.4m (2014: €0.4m).
Other investments
the Group maintains rabbi trusts in respect of non-qualified deferred compensation plans in the us. the assets of the trusts consist of bonds and cash
which are restricted for use. the bonds are fair valued at each financial year end using quoted market prices. the corresponding liability is recognised
within ‘other non-current liabilities’ (note 22).
134
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
14. InveSTmenT In ASSOcIATe
At 1 January
Acquisition
share of loss after tax during the financial year
exchange translation adjustment
At 31 December
note
3
2015
€’m
40.2
-
(1.3)
-
38.9
2014
€’m
-
40.2
(0.2)
0.2
40.2
in 2014, the Group acquired an investment in a private company which is treated as an associate undertaking and whose financial year end date is 31 march,
the date established on incorporation. the amounts included in these Group consolidated financial statements in respect of the post-acquisition profits or
losses of the associate are taken from their latest financial statements prepared up to their financial year end, together with management accounts for the
intervening periods to the Group’s year-end.
15. InveSTmenTS In SUBSIDIARIeS
company:
Investments in subsidiaries at cost
At 1 January
redemption of investments in subsidiaries
At 31 December
16. InvenTORIeS
Group:
raw materials and consumables
finished goods and goods for resale
expense inventories
2015
€’m
2014
€’m
637.7
-
637.7
2015
€’m
319.7
390.3
24.2
734.2
638.7
(1.0)
637.7
2014
€’m
291.0
392.0
19.0
702.0
Write-downs of inventories recognised as an expense approximates to 1% (2014: 1%) of raw materials and consumables in the consolidated
income statement.
17. DeFeRReD TAx ASSeTS AnD lIABIlITIeS
the following is an analysis of the movement in the major categories of deferred tax liabilities/(assets) recognised by the Group:
At 1 January 2014
consolidated income statement movement
recognised in other comprehensive income
during the financial year
related to businesses acquired/disposed
exchange translation adjustment
At 31 december 2014
consolidated income statement movement
recognised in other comprehensive income
during the financial year
related to businesses acquired/disposed
exchange translation adjustment
At 31 December 2015
Property,
Plant and
equipment
€’m
notes
Intangible
Assets
€’m
Tax credits
and nOls
€’m
Retirement
Benefits
Obligation
€’m
7
30
87.3
0.6
-
1.3
9.5
98.7
180.5
(7.9)
-
5.5
8.4
186.5
7
(1.5)
(9.7)
-
(2.3)
7.6
102.5
-
35.8
2.1
214.7
30
(28.8)
8.2
(51.7)
6.4
-
(30.5)
(0.1)
(1.9)
(22.6)
11.4
-
1.4
(0.7)
(10.5)
-
(2.9)
(78.7)
3.8
25.2
-
(2.8)
(52.5)
135
Total
€’m
151.9
5.9
(35.4)
6.7
6.2
135.3
4.8
26.9
33.3
0.3
Short Term
Temporary
Differences
and Other
Differences
€’m
(35.4)
(1.4)
(4.9)
-
(6.9)
(48.6)
0.8
1.7
(1.6)
(5.9)
(53.6)
200.6
the short term temporary differences and other temporary differences recognised in other comprehensive income comprise fair value movements on cash
flow hedges of €1.4m (2014: (€4.2m)) and an exchange difference on translation of foreign operations of €0.3m (2014: (€0.7m)). in the above table, nols
refers to net operating losses.
the following is an analysis of the deferred tax balances (after offset) for balance sheet purposes:
deferred tax assets
deferred tax liabilities
2015
€’m
(43.2)
243.8
200.6
2014
€’m
(55.8)
191.1
135.3
the total deductible temporary differences which have not been recognised is €38.1m (2014: €73.5m). the Group does not have any unrecognised losses
which have an expiry date (2014: €22.4m).
deferred tax has not been recognised in respect of withholding taxes and other taxes that would be payable on the unremitted earnings of foreign
subsidiaries, as the Group is in a position to control the timing of reversal of the temporary differences and it is probable that the temporary differences will
not reverse in the foreseeable future. the deferred tax liabilities which have not been recognised in respect of these temporary differences are not material
as the Group can rely on the availability of participation exemptions and tax credits in the context of the Group’s investments in subsidiaries.
An increase of 1% in the tax rates at which deferred tax is calculated would increase the net deferred tax balance of the Group by €6.9m (2014: €4.7m).
136
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
18. ASSeTS clASSIFIeD AS HelD FOR SAle
Group:
property, plant and equipment (net of grants)
inventory
2015
€’m
2014
€’m
12.4
9.1
21.5
12.8
17.8
30.6
in 2015, the Group held certain property, plant and equipment as assets classified as held for sale in both the taste & nutrition and consumer foods
divisions across ireland and the uK. As at the 31 december 2015 the Group had a business in taste & nutrition and another in consumer foods as classified
as held for sale. Additionally two consumer foods businesses were sold, which were classified as held for sale in 2014.
in 2014, the Group had certain property, plant and equipment in the taste & nutrition division in brazil and the us and certain businesses in the consumer
foods division across ireland and the uK classified as held for sale.
in connection with the assets related to the remaining businesses held for sale, their fair value less costs to sell were based on a combination of offers
received for the businesses and management estimates of the fair value of the businesses. these fair values were determined as level 2 on the fair
value hierarchy.
19. TRADe AnD OTHeR ReceIvABleS
Group:
trade receivables
less impairment allowance for doubtful trade receivables
trade receivables due within 1 year
other receivables and prepayments
Amounts due from subsidiaries
VAt receivable
receivables due after 1 year
137
Group
2015
€’m
760.5
(26.6)
733.9
39.7
-
57.4
2.9
833.9
Group
2014
€’m
728.7
(25.2)
703.5
60.9
-
33.3
3.4
801.1
company
2015
€’m
company
2014
€’m
-
-
-
-
63.3
-
-
63.3
-
-
-
-
1.6
-
-
1.6
All receivable balances are due within 1 year except for €2.9m (2014: €3.4m) outlined above. All receivable balances are within terms with the exception of
certain trade receivables which are past due and are detailed below.
the following table shows an analysis of trade receivables split between past due and within terms accounts, where past due is deemed to be when an
account exceeds the agreed terms of trade:
Within terms
past due not more than 1 month
past due more than 1 month but less than 2 months
past due more than 2 months but less than 3 months
past due more than 3 months
Trade receivables (net)
the following table summarises the movement in the allowance for doubtful trade receivables:
At beginning of financial year
charged to the consolidated income statement
utilised or reversed during the financial year
exchange translation adjustment
At end of financial year
2015
€’m
605.3
95.9
25.6
6.9
0.2
733.9
2015
€’m
25.2
10.3
(8.5)
(0.4)
26.6
2014
€’m
556.3
100.9
36.9
7.8
1.6
703.5
2014
€’m
23.1
10.9
(9.6)
0.8
25.2
trade and other receivables are stated at amortised cost. the fair value of these receivables approximates their carrying value as these are short term in
nature and neither past due more than 3 months or impaired. hence, the maximum exposure to credit risk at the reporting date is the carrying value of each
class of receivable.
credit terms and the charging of interest are determined in individual countries. the Group has provided for all receivables where there is objective
evidence, including historical loss experience, that amounts are irrecoverable. the Group does not typically require collateral in respect of trade receivables.
the quality of past due not impaired trade and other receivables is considered good, therefore no significant impairment charge has been recorded in the
consolidated income statement in 2015 or 2014.
before accepting any new customer, the Group uses a credit scoring system to assess the potential customer’s credit quality and defines credit limits by
customer. these credit limits are reviewed regularly throughout the financial year.
there is no significant concentration of credit risk or transaction currency risk with respect to trade receivables, as the Group has a large number of
internationally dispersed customers. further disclosures on currency risk are provided in note 24 to the financial statements.
138
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
20. TRADe AnD OTHeR PAyABleS
trade payables
other payables and accruals
deferred payments on acquisition of businesses
pAye
social security costs
Amounts due to Group companies
Group
2015
€’m
1,088.0
181.9
6.8
2.9
6.2
-
Group
2014
€’m
1,020.6
156.0
6.9
5.7
4.9
-
1,285.8
1,194.1
company
2015
€’m
company
2014
€’m
-
3.4
5.9
-
-
-
9.3
-
2.0
5.9
-
-
37.4
45.3
trade and other payables are stated at amortised cost, which approximates to fair value given the short term nature of these liabilities. the above balances
are all due within 1 year.
21. DeFeRReD IncOme
capital grants
At beginning of the financial year
Grants received during the financial year
Amortised during the financial year
exchange translation adjustment
At end of the financial year
Analysed as:
current liabilities
non-current liabilities
notes
3
30
Group
2015
€’m
25.6
3.7
(2.5)
0.5
27.3
2.7
24.6
27.3
Group
2014
€’m
company
2015
€’m
company
2014
€’m
20.8
6.6
(2.3)
0.5
25.6
2.5
23.1
25.6
0.1
-
-
-
0.1
-
0.1
0.1
0.1
-
-
-
0.1
-
0.1
0.1
there are no material unfulfilled conditions or other contingencies attaching to any government grants received.
22. OTHeR nOn-cURRenT lIABIlITIeS
other payables and accruals
deferred payments on acquisition of businesses
Amounts due to Group companies
Group
2015
€’m
90.7
3.2
-
93.9
Group
2014
€’m
76.8
-
-
76.8
company
2015
€’m
company
2014
€’m
-
-
-
-
-
-
57.5
57.5
All of the above balances are due within 2 to 5 years except for €0.7m (2014: €1.5m) which is not due until after 5 years.
23. AnAlySIS OF FInAncIAl InSTRUmenTS By cATeGORy
the following table outlines the financial assets and liabilities held by the Group at the balance sheet date:
loans &
Receivables
& Other Financial
Assets/(liabilities)
at Amortised cost
2015
€’m
Assets/
(liabilities)
at Fair value
through Profit
or loss
2015
€’m
Derivatives
Designated as
Hedging
Instruments
2015
€’m
Available-
for-sale
Investments
2015
€’m
notes
13
24 (i.i)
24 (ii.ii)
19
24 (iii.i)
24 (iii.i)
24 (i.i)
24 (ii.ii)
20
Group:
financial asset investments
forward foreign exchange contracts
interest rate swaps
trade and other receivables
cash at bank and in hand
Total financial assets
current assets
non-current assets
borrowings and overdrafts
forward foreign exchange contracts
interest rate swaps
trade and other payables
Total financial liabilities
current liabilities
non-current liabilities
Total net financial (liabilities)/assets
-
-
-
833.9
236.4
1,070.3
1,070.3
-
1,070.3
(2,018.2)
-
-
(1,285.8)
(3,304.0)
(1,324.2)
(1,979.8)
(3,304.0)
(2,233.7)
included in the above table are the following components of net debt:
Analysis of total net debt by category
bank overdrafts
bank loans
senior notes
Borrowings and overdrafts
interest rate swaps
cash at bank and in hand
Total net debt
(5.2)
(33.2)
(1,979.8)
(2,018.2)
-
236.4
(1,781.8)
29.9
6.7
-
-
-
36.6
6.7
29.9
36.6
(31.7)
(19.5)
-
-
(51.2)
(19.5)
(31.7)
(51.2)
(14.6)
-
-
(31.7)
(31.7)
-
-
(31.7)
-
13.5
169.9
-
-
183.4
9.0
174.4
183.4
-
(5.6)
(6.5)
-
(12.1)
(5.6)
(6.5)
(12.1)
171.3
-
-
-
-
163.4
-
163.4
4.1
-
-
-
-
4.1
-
4.1
4.1
-
-
-
-
-
-
-
-
4.1
-
-
-
-
-
-
-
139
Total
2015
€’m
34.0
20.2
169.9
833.9
236.4
1,294.4
1,086.0
208.4
1,294.4
(2,049.9)
(25.1)
(6.5)
(1,285.8)
(3,367.3)
(1,349.3)
(2,018.0)
(3,367.3)
(2,072.9)
(5.2)
(33.2)
(2,011.5)
(2,049.9)
163.4
236.4
(1,650.1)
in 2015 all Group borrowings are guaranteed by Kerry Group plc. in 2014 all Group borrowings are guaranteed by Kerry Group plc and its material asset
holding companies through a cross-guarantee structure. no assets of the Group have been pledged to secure the borrowings.
140
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
23. AnAlySIS OF FInAncIAl InSTRUmenTS By cATeGORy (continued)
As part of the Group’s debt portfolio it holds us$750m of senior notes issued in 2013 and us$600m of senior notes issued in 2010. At the time of issuance,
us$250m of the 2013 senior notes and us$500m of the 2010 senior notes were swapped, using cross currency swaps, to euro. in addition the Group holds
€750m of senior notes issued in 2015, of which €175m were swapped, using cross currency swaps, to us dollar.
the adjustment to senior notes classified under liabilities at fair value through profit or loss of €31.7m (2014: €30.4m) represents the part adjustment to the
carrying value of debt from applying fair value hedge accounting for interest rate risk. this amount is primarily offset by the fair value adjustment on the
underlying cross currency interest rate swap.
loans &
receivables
& other financial
Assets/(liabilities) at
Amortised cost
2014
€’m
Assets/
(liabilities)
at fair Value
through profit
or loss
2014
€’m
derivatives
designated as
hedging
instruments
2014
€’m
Available-
for-sale
investments
2014
€’m
notes
13
24 (i.i)
24 (ii.ii)
19
24 (iii.i)
24 (iii.i)
24 (i.i)
24 (ii.ii)
20
Group:
financial asset investments
forward foreign exchange contracts
interest rate swaps
trade and other receivables
cash at bank and in hand
total financial assets
current assets
non-current assets
borrowings
forward foreign exchange contracts
interest rate swaps
trade and other payables
total financial liabilities
current liabilities
non-current liabilities
total net financial (liabilities)/assets
-
-
-
801.1
283.7
1,084.8
1,084.8
-
1,084.8
(1,543.3)
-
-
(1,194.1)
(2,737.4)
(1,497.2)
(1,240.2)
(2,737.4)
(1,652.6)
included in the above table are the following components of net debt:
Analysis of total net debt by category
bank overdrafts
bank loans
senior notes
borrowings and overdrafts
interest rate swaps
cash at bank and in hand
total net debt
(5.6)
(172.3)
(1,365.4)
(1,543.3)
-
283.7
(1,259.6)
23.8
7.5
-
-
-
31.3
7.5
23.8
31.3
(30.4)
(12.3)
-
-
(42.7)
(12.3)
(30.4)
(42.7)
(11.4)
-
-
(30.4)
(30.4)
-
-
(30.4)
-
1.9
104.7
-
-
106.6
1.9
104.7
106.6
-
(7.9)
(10.0)
-
(17.9)
(9.5)
(8.4)
(17.9)
88.7
-
-
-
-
94.7
-
94.7
4.1
-
-
-
-
4.1
-
4.1
4.1
-
-
-
-
-
-
-
-
4.1
-
-
-
-
-
-
-
total
2014
€’m
27.9
9.4
104.7
801.1
283.7
1,226.8
1,094.2
132.6
1,226.8
(1,573.7)
(20.2)
(10.0)
(1,194.1)
(2,798.0)
(1,519.0)
(1,279.0)
(2,798.0)
(1,571.2)
(5.6)
(172.3)
(1,395.8)
(1,573.7)
94.7
283.7
(1,195.3)
23. AnAlySIS OF FInAncIAl InSTRUmenTS By cATeGORy (continued)
the following table outlines the financial assets and liabilities held by the company at the balance sheet date:
company:
Loans & receivables & other financial assets at amortised cost
cash at bank and in hand
trade and other receivables
Total financial assets
current assets
Financial liabilities at amortised cost
borrowings and overdrafts
trade and other payables
Total financial liabilities
current liabilities
Total net financial liabilities
24. FInAncIAl InSTRUmenTS
141
notes
2015
€’m
2014
€’m
19
20
0.1
63.3
63.4
63.4
(0.7)
(9.3)
(10.0)
(10.0)
53.4
-
1.6
1.6
1.6
(0.7)
(45.3)
(46.0)
(46.0)
(44.4)
Capital management
the financing structure of the Group is managed in order to optimise shareholder value while allowing the Group to take advantage of opportunities that
might arise to grow the business. the Group targets acquisition and investment opportunities that are value enhancing and the Group’s policy is to fund
these transactions from cash flow or borrowings while maintaining its investment grade debt status.
the capital structure of the Group consists of debt related financial liabilities, cash and cash equivalents and equity attributable to owners of the parent,
comprising issued capital, reserves and retained earnings as disclosed in the consolidated statement of changes in equity. during the period, the Group
agreed a new 5 year €1.1bn revolving credit facility replacing the existing facility which was due to mature in April 2016. the facility was part used to repay
the us$306m tranche c 2003 senior notes that matured on 30 April 2015. the facility provides a line of committed debt, thereby significantly extending
the maturity profile of Group debt.
in september, the Group issued its debut euro bond, issuing €750m 10 year notes at an annual coupon of 2.375%. the bonds which are listed on the irish stock
exchange provide Kerry with an additional source of debt finance and significantly extend the maturity profile of Group debt. proceeds from the issue were used
to repay existing debt on the 5 year €1.1bn revolving credit facility and to fund acquisitions. the senior notes are rated by standard & poor’s and moody’s.
capital is managed by setting net debt to earnings before finance income and costs, income taxes, depreciation (net), intangible asset amortisation and
non-trading items (ebitdA) targets while allowing flexibility to accommodate significant acquisition opportunities. Any expected variation from these
targets should be reversible within 12 to 18 months; otherwise consideration would be given to issuing additional equity in the Group.
net debt is subject to seasonal fluctuations that can be up to 25% above year end debt levels.
except for public bonds, the majority of Group borrowings are subject to financial covenants calculated in accordance with lenders’ facility agreements.
principal among these are:
-
-
the ratio of net debt to ebitdA of a maximum of 3.5 times; and
ebitdA to net interest charge of a minimum of 4.75 times.
At 31 december these ratios were as follows:
net debt : ebitdA*
ebitdA : net interest*
* calculated in accordance with lenders’ facility agreements which take account of adjustments as outlined on page 26.
2015
Times
1.9
17.3
2014
times
1.6
17.2
142
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
24. FInAncIAl InSTRUmenTS (continued)
Capital management (continued)
Financial risk management objectives
the Group has a clearly defined financial risk management programme, which is approved by the board of directors and is subject to regular monitoring
by the finance committee and Group internal Audit. the Group operates a centralised treasury function, which manages the principal financial risks of the
Group and company.
the principal objectives of the Group’s financial risk management programme are:
-
-
-
-
to manage the Group’s exposure to foreign exchange rate risk;
to manage the Group’s exposure to interest rate risk;
to ensure that the Group has sufficient credit facilities available; and
to ensure that counterparty credit risk is monitored and managed.
residual exposures not managed commercially are hedged using approved financial instruments. the use of financial derivatives is governed by the Group’s
policies and procedures. the Group does not engage in speculative trading.
foreign exchange rate risk management - key foreign exchange exposure of the Group and the disclosures on forward foreign exchange contracts.
interest rate risk management - key interest rate exposures of the Group and the disclosures on interest rate derivatives.
the principal objectives of the Group’s financial risk management programme are further discussed across the following categories:
(i)
(ii)
(iii) liquidity risk management - key banking facilities available to the Group and the maturity profile of the Group’s debt.
(iv) credit risk management - details in relation to the management of credit risk within the Group.
(v) price risk management - details in relation to the management of price risk within the Group.
(vi) fair value of financial instruments - disclosures in relation to the fair value of financial instruments.
(vii) offsetting financial instruments - disclosures in relation to the potential offsetting values in financial instruments.
(i) Foreign exchange rate risk management
the Group is exposed to transactional foreign currency risk on trading activities conducted by subsidiaries in currencies other than their functional
currency. Group policy is to manage foreign currency exposures commercially and through netting of exposures wherever possible. Any residual exposures
arising on foreign exchange transactions are hedged in accordance with Group policy using approved financial instruments, which consist primarily of spot
and forward exchange contracts and currency swaps.
As at 31 december, the Group had an exposure to us dollar assets of €48.5m (2014: €67.6m) and a sterling liability of €18.7m (2014: €16.3m). based on
these net positions, as at 31 december 2015, a weakening of 5% of the us dollar and sterling against all other key operational currencies, and holding all
other items constant, would have decreased the profit after tax of the Group for the financial year by €1.4m (2014: €2.4m).
the Group’s gain or loss on the retranslation of the net assets of foreign currency subsidiaries is taken directly to the translation reserve. As at 31 december
2015 a 5% strengthening of the euro against the us dollar and sterling, holding all other items constant, would have resulted in an additional translation
reserve loss of €9.2m (2014: €9.2m) and €18.9m (2014: €12.4m) respectively.
(i.i) Forward foreign exchange contracts
the Group’s activities expose it to risks of changes in foreign currency exchange rates in relation to international trading, primarily sales in us dollar and
sterling out of the eurozone. the Group uses forward foreign exchange contracts to hedge these exposures. derivative financial instruments are held in the
consolidated balance sheet at their fair value.
the following table details the portfolio of forward foreign exchange contracts at the balance sheet date:
Designated in a hedging relationship:
forward foreign exchange contracts - cash flow hedges
- current
- non-current
At Fair value through Profit or loss:
forward foreign exchange contracts - trading derivatives
- current
notes
(a)
(b)
13.5
9.0
4.5
6.7
6.7
2015
€’m
Asset
2015
€’m
liability
2014
€’m
Asset
2014
€’m
liability
2015
€’m
Total
7.9
3.4
4.5
(5.6)
(5.6)
-
(19.5)
(19.5)
(12.8)
(12.8)
2014
€’m
total
(6.0)
(6.0)
-
(4.8)
(4.8)
(7.9)
(7.9)
-
(12.3)
(12.3)
1.9
1.9
-
7.5
7.5
9.4
Forward foreign exchange contracts
20.2
(25.1)
(4.9)
(20.2)
(10.8)
143
24. FInAncIAl InSTRUmenTS (continued)
(i) Foreign exchange rate risk management (continued)
(i.i) Forward foreign exchange contracts (continued)
the full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than twelve
months and as a current asset or liability if the maturity of the hedged item is less than twelve months.
the Group does not hold any forward foreign exchange contracts classified as fair value hedges.
(a) Forward foreign exchange contracts - cash flow hedges
the following table details the foreign exchange contracts classified as cash flow hedges at 31 december:
Forward foreign exchange contracts
less than 1 year
1 - 2 years
Forward foreign exchange contracts - cash flow hedges
Fair value Asset/(liability)
notional Principal
2015
€’m
3.4
4.5
7.9
2014
€’m
(6.0)
-
(6.0)
2015
€’m
711.4
135.6
847.0
2014
€’m
358.7
-
358.7
At 31 december 2015, an asset of €7.1m (2014: €0.8m liability) of the fair value is included in the hedging reserve, which will primarily be released to the
consolidated income statement within 18 months (2014: 12 months) of the balance sheet date. All forward contracts relate to sales revenue and purchases
made in their respective currencies.
during 2015, a loss of €1.8m (2014: €2.1m loss) has been taken to foreign exchange gains/(losses) in the consolidated income statement in respect of
forward foreign exchange contracts that matured during the year. there were no transactions during 2015 or 2014 which were designated as hedges that
did not occur, nor are there hedges on forecast transactions that are no longer expected to occur.
the gains and losses in other comprehensive income on forward foreign exchange contracts as at 31 december 2014 were released to the consolidated
income statement in 2015 as follows:
-
-
-
-
within 3 months: €0.3m (2014: €0.1m);
within 3 to 6 months: €0.1m (2014: €nil);
within 6 to 9 months: €0.2m (2014: €0.1m); and
within 9 to 12 months: €0.2m (2014: €nil).
At 31 december 2015 and 2014 no ineffectiveness was recognised in the consolidated income statement from foreign currency cash flow hedges.
(b) Forward foreign exchange contracts - trading
the Group holds forward foreign exchange contracts that provide a hedge against foreign currency receivables from ‘within Group’ lending. these
derivatives are classified as trading derivatives and held at fair value through profit or loss. in addition, the Group held a portfolio of forward foreign currency
contracts that provide an economic hedge against expected future sales revenue in the respective currencies of the underlying contracts which were not
classified for hedge accounting.
the following table details the forward foreign exchange contracts classified as trading derivatives at 31 december:
Forward foreign exchange contracts - trading
Fair value liability
notional Principal
2015
€’m
(12.8)
2014
€’m
(4.8)
2015
€’m
1,241.2
2014
€’m
950.5
the fair value loss of €12.8m (2014: €4.8m loss) includes a loss of €5.5m (2014: €1.1m) which is directly offset by a gain of €5.5m (2014: €1.1m) on the
retranslation to balance sheet rates on foreign currency receivables from ‘within Group’ lending and cash pooling. the balance of €7.3m (2014: €5.9m)
relates to other economic hedges as outlined above.
144
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
24. FInAncIAl InSTRUmenTS (continued)
(ii) Interest rate risk management
the Group is exposed to interest rate risk as the Group holds borrowings on both a fixed and floating basis. this exposure to interest rate risk is managed
by optimising the mix of fixed and floating rate borrowings and by using interest rate swaps, cross currency swaps and forward rate agreements to hedge
these exposures. derivative financial instruments are held in the consolidated balance sheet at their fair value.
(ii.i) Interest rate profile of financial liabilities excluding related derivatives fair value
the Group’s exposure to interest rates on financial assets and liabilities are detailed in the table below including the impact of cross currency swaps (ccs)
on the currency profile of net debt:
euro
sterling
us dollar
others
At 31 December 2015
euro
sterling
us dollar
others
At 31 december 2014
Total
Pre ccS
€’m
675.0
(19.4)
1,205.0
(78.8)
1,781.8
32.7
(65.1)
1,365.7
(73.7)
1,259.6
Impact
of ccS
€’m
513.9
-
(513.9)
-
-
617.8
-
(617.8)
-
-
Total
after ccS
€’m
Floating
Rate Debt
€’m
Fixed
Rate Debt
€’m
1,188.9
(19.4)
691.1
(78.8)
1,781.8
650.5
(65.1)
747.9
(73.7)
1,259.6
299.8
(19.4)
369.6
(78.8)
571.2
309.8
(65.1)
212.5
(73.7)
383.5
889.1
-
321.5
-
1,210.6
340.7
-
535.4
-
876.1
the currency profile of debt highlights the impact of the us$750m of cross currency swaps entered into at the time of issuance of senior notes. for
the 2013 senior notes, us$250m were swapped from us dollar fixed to euro fixed and are accounted for as cash flow hedges. for the 2010 senior notes,
us$408m were swapped from us dollar fixed to euro floating and are accounted for as fair value hedges. in addition us$92m were swapped from us dollar
fixed to euro fixed and are accounted for as cash flow hedges. the retranslation of the foreign currency debt of us$750m to the balance sheet rate resulted
in a foreign currency loss of €157.4m (2014: €86.3m) which is directly offset by a gain of €157.4m (2014: €86.3m) on the application of hedge accounting on
the cross currency swaps.
in addition the Group holds €750m of senior notes issued in 2015, of which €175m were swapped, using cross currency swaps, from euro fixed to us dollar
floating and are accounted for as fair value hedges. the fair value of the related derivative includes a liability of €4.0m for movement in exchange rates
since the date of execution which is directly offset by a loss of €4.0m on the application of hedge accounting on the cross currency swaps.
the weighted average interest rate for fixed borrowings as at 31 december 2015 is 2.61% (2014: 3.01%) and the weighted average period for which the rate
is fixed is 7.6 years (2014: 4.4 years).
the floating rate financial liabilities are at rates which fluctuate mainly based upon libor or euribor and comprise of bank borrowings and other financial
liabilities bearing interest rates fixed in advance for periods ranging from 1 to 6 months. At the year end 32% (2014: 30%) of net debt and 40% (2014: 43%)
of gross debt was held at floating rates. if the interest rates applicable to floating rate debt were to rise by 1% holding all other items constant, the profit of
the Group before taxation and non-trading items in the consolidated income statement could decrease by 0.7% (2014: 0.6%).
(ii.ii) Interest rate swap contracts
the Group’s activities expose it to risks of changes in interest rates in relation to long-term debt. the Group uses interest rate swaps, cross
currency swaps and forward rate agreements to hedge these exposures. derivative financial instruments are held in the consolidated balance sheet
at their fair values.
the Group adopts an “exit price” approach to valuing interest rate derivatives to allow for credit risk. All hedges are highly effective on a prospective and
retrospective basis.
24. FInAncIAl InSTRUmenTS (continued)
(ii) Interest rate risk management (continued)
(ii.ii) Interest rate swap contracts (continued)
the following table details the portfolio of interest rate derivative contracts at the balance sheet date:
Designated in a hedging relationship:
interest rate swap contracts - cash flow hedges
- current
- non-current
interest rate swap contracts - fair value hedges
- current
- non-current
Interest rate swap contracts
notes
(a)
(b)
2015
€’m
Asset
2015
€’m
liability
40.7
-
40.7
129.2
-
129.2
169.9
-
-
-
(6.5)
-
(6.5)
(6.5)
2015
€’m
Total
40.7
-
40.7
122.7
-
122.7
163.4
2014
€’m
Asset
2014
€’m
liability
13.7
-
13.7
91.0
-
91.0
104.7
(7.1)
(1.6)
(5.5)
(2.9)
-
(2.9)
(10.0)
145
2014
€’m
total
6.6
(1.6)
8.2
88.1
-
88.1
94.7
the full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than twelve
months and as a current asset or liability if the maturity of the hedged item is less than twelve months. the classification of the maturity profile of the
interest rate derivative contracts are set out in the tables (a) - (b) below.
(a) Interest rate swap contracts - cash flow hedges
under interest rate swap contracts, including cross currency interest rate swaps, the Group agrees to exchange the difference between the fixed and
floating rate interest amounts calculated on the agreed notional principal amounts.
the following table details the notional principal amounts and remaining terms of the cash flow hedges, where the Group receives floating or fixed interest
rate and pays fixed interest rate on swaps as at 31 december:
Interest rate swap contracts
less than 1 year
1 - 2 years
2 - 5 years
> 5 years
Interest rate swap contracts - cash flow hedges
Average contracted
Fixed Interest Rate
Fair value
Asset/(liability)
2015
%
-
4.38
-
2.58
2014
%
1.86
-
4.38
2.58
2015
€’m
-
22.7
-
18.0
40.7
2014
€’m
(1.6)
-
13.7
(5.5)
6.6
notional
Principal
2014
€’m
306.1
-
75.8
205.9
587.8
2015
€’m
-
84.5
-
229.6
314.1
of the fair value asset of €40.7m at 31 december 2015 (2014: €6.6m asset), a gain of €56.9m (2014: €24.5m gain) is attributed to foreign exchange rate
fluctuations. the current year foreign exchange gain of €32.4m (2014: €33.7m gain) has been recognised in the consolidated income statement and
directly offsets the impact incurred on the retranslation of the underlying hedged foreign currency borrowings.
At 31 december 2015 a liability of €14.4m (2014: €19.7m liability) has been recognised in the hedging reserve and will be released to the consolidated
income statement over the life of the interest rate swaps. during 2015, a charge of €1.1m (2014: €0.9m) has been taken to finance costs in the consolidated
income statement in respect of amounts held in the hedging reserve at 31 december 2014. the balance of €1.8m liability (2014: €1.8m asset) relates to the
recognition of credit value adjustments. the current year movement of €3.6m (2014: €0.5m) is recognised in the consolidated income statement.
the interest rate swaps settle on either a 3 or 6 monthly basis, the difference between the floating rate or fixed rate due to be received and the fixed rate to
be paid are settled on a net basis.
(b) Interest rate swap contracts - fair value hedges
under interest rate swap contracts including cross currency interest rate swaps, the Group agrees to exchange the difference between the floating and
fixed interest amounts calculated on the agreed notional principal amounts.
146
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
24. FInAncIAl InSTRUmenTS (continued)
(ii) Interest rate risk management (continued)
(ii.ii) Interest rate swap contracts (continued)
(b) Interest rate swap contracts - fair value hedges (continued)
the following table details the notional principal amounts and remaining terms of the fair value hedges, where the Group receives fixed interest rate and
pays floating interest rate on swaps as at 31 december:
Interest rate swap contracts
2 - 5 years
> 5 years
Interest rate swap contracts - fair value hedges
Average contracted
Fixed Interest Rate
Fair value
Asset
2015
%
4.83
3.51
2014
%
-
4.26
2015
€’m
61.8
60.9
122.7
2014
€’m
-
88.1
88.1
notional
Principal
2014
€’m
-
542.0
542.0
2015
€’m
191.1
588.3
779.4
the interest rate swaps settle on a 6 monthly or annual basis. the floating interest rate paid by the Group is based on 6 month euribor or libor. All
hedges are highly effective on a prospective and retrospective basis.
of the fair value asset of €122.7m (2014: €88.1m) at 31 december 2015, a gain of €96.5m (2014: €61.8m) is attributed to foreign exchange rate fluctuations.
the current year foreign exchange gain of €34.7m (2014: €40.3m gain) has been recognised in the consolidated income statement to directly offset the
impact incurred on the retranslation of the underlying hedged foreign currency borrowings. in addition, an amount of €31.7m (2014: €30.4m) relates to
interest rate risk and the current year movement has been recognised in the consolidated income statement. this is directly offset against the fair value
adjustment to the underlying hedged foreign currency borrowings for interest rate risk. the balance of €5.5m (2014: €4.1m) relates to the recognition of
credit value adjustments. the current year movement of €1.4m (2014: €1.8m) is recognised in the consolidated income statement.
(iii) liquidity risk management
liquidity risk considers the risk that the Group could encounter difficulties in meeting obligations associated with financial liabilities that are settled by
delivering cash or another financial asset. there is no significant concentration of liquidity risk.
Group funding and liquidity is managed by ensuring that sufficient facilities are available from diverse funding sources with an appropriate spread of debt
maturities to match the underlying assets. the Group uses cash flow forecasts to constantly monitor the funding requirements of the Group.
Group businesses are funded from cash generated from operations, borrowings from banks and senior notes from capital markets. it is Group policy to
ensure that:
-
-
both targets were met at 31 december 2015 and 2014.
sufficient facilities are available to cover its gross forecast debt by at least 1.25 times; and
75% of total facilities available are committed.
funding is sourced from banks via syndicated and bilateral arrangements and from institutional investors.
All Group credit facilities are arranged and managed by Group treasury and approved by the board of directors. Where possible, facilities have common
security, financial covenants and terms and conditions.
At 31 december 2015, the Group had undrawn committed bank facilities of €1,100m (2014: €867.0m), and a portfolio of undrawn standby facilities
amounting to €340.3m (2014: €351.0m). the undrawn committed facilities comprise primarily of a revolving credit facility maturing between 4 - 5 years
(2014: between 1 - 2 years).
147
24. FInAncIAl InSTRUmenTS (continued)
(iii) liquidity risk management (continued)
(iii.i) contractual maturity profile of non-derivative financial instruments
the following table details the Group’s remaining contractual maturity of its non-derivative financial instruments excluding trade and other receivables
(note 19), trade and other payables (note 20) and financial asset investments (note 13). this information has been drawn up based on the undiscounted
cash flows of financial liabilities to the earliest date on which the Group can be required to repay. the analysis includes both interest commitments and
principal cash flows. to the extent that interest rates are floating, the rate used is derived from interest rate yield curves at the end of the reporting date and
as such, are subject to change based on market movements.
On demand &
up to 1 year
€’m
Up to
2 years
€’m
2 - 5 years
€’m
> 5 years
€’m
bank overdrafts
bank loans
senior notes
borrowings and overdrafts
deferred payments on acquisition of businesses
interest commitments
At 31 December 2015
Reconciliation to net debt position:
borrowings
senior notes - fair value adjustment
borrowings - reported
interest rate swaps
cash at bank and in hand
Total net debt as at 31 December 2015
5.2
33.2
-
38.4
6.8
45.2
66.0
111.2
38.4
-
38.4
-
(236.4)
(198.0)
-
-
176.4
176.4
2.3
178.7
58.6
237.3
176.4
-
176.4
(22.7)
-
153.7
-
-
191.1
191.1
0.9
192.0
166.0
358.0
191.1
14.6
205.7
(61.8)
-
-
-
1,612.3
1,612.3
-
1,612.3
153.8
1,766.1
17.1
1,629.4
(78.9)
-
143.9
1,550.5
1,612.3
2,018.2
Total
€’m
5.2
33.2
1,979.8
2,018.2
10.0
2,028.2
444.4
2,472.6
31.7
2,049.9
(163.4)
(236.4)
1,650.1
148
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
24. FInAncIAl InSTRUmenTS (continued)
(iii) liquidity risk management (continued)
(iii.i) contractual maturity profile of non-derivative financial instruments (continued)
bank overdrafts
bank loans
senior notes
borrowings and overdrafts
deferred payments on acquisition of businesses
interest commitments
At 31 december 2014
reconciliation to net debt position:
borrowings
senior notes - fair value adjustment
borrowings - reported
interest rate swaps
cash at bank and in hand
total net debt as at 31 december 2014
on demand &
up to 1 year
€’m
5.6
39.8
257.7
303.1
6.9
310.0
49.0
359.0
303.1
-
303.1
1.6
(283.7)
21.0
up to
2 years
€’m
-
132.4
-
132.4
-
132.4
43.8
176.2
132.4
-
132.4
-
-
132.4
2 - 5 years
€’m
> 5 years
€’m
-
0.1
158.1
158.2
-
158.2
109.2
267.4
158.2
-
158.2
(13.7)
-
144.5
-
-
949.6
949.6
-
949.6
91.4
1,041.0
949.6
30.4
980.0
(82.6)
-
897.4
total
€’m
5.6
172.3
1,365.4
1,543.3
6.9
1,550.2
293.4
1,843.6
1,543.3
30.4
1,573.7
(94.7)
(283.7)
1,195.3
the maturity profile of other non-derivative financial instruments are set out in their respective notes.
(iii.ii) contractual maturity profile of derivative financial instruments
the following table details the Group’s remaining contractual maturity of its derivative financial instruments. the table has been drawn up based on the
undiscounted net cash inflows and outflows on derivative instruments that settle on a net basis. to the extent that the amounts payable or receivable are not
fixed, the rate used is derived from interest rate yield curves at the end of the reporting date and as such are subject to change based on market movements.
interest rate swaps inflow
interest rate swaps outflow
net interest rate swaps inflow
forward foreign exchange contracts (outflow)/inflow
At 31 December 2015
interest rate swaps inflow
interest rate swaps outflow
net interest rate swaps inflow
forward foreign exchange contracts inflow
At 31 december 2014
On demand &
up to 1 year
€’m
Up to
2 years
€’m
2 - 5 years
€’m
> 5 years
€’m
41.0
(20.9)
20.1
(9.4)
10.7
60.2
(19.7)
40.5
4.5
45.0
154.4
(63.5)
90.9
-
90.9
156.9
(70.9)
86.0
-
86.0
on demand &
up to 1 year
€’m
up to
2 years
€’m
2 - 5 years
€’m
> 5 years
€’m
33.3
(17.3)
16.0
(10.8)
5.2
33.0
(16.1)
16.9
-
16.9
103.1
(45.3)
57.8
-
57.8
142.3
(46.6)
95.7
-
95.7
Total
€’m
412.5
(175.0)
237.5
(4.9)
232.6
total
€’m
311.7
(125.3)
186.4
(10.8)
175.6
149
24. FInAncIAl InSTRUmenTS (continued)
(iii) liquidity risk management (continued)
(iii.ii) contractual maturity profile of derivative financial instruments (continued)
included in the interest rate swaps inflows and outflows is the foreign currency differential on final maturity of the cross currency interest rate swaps as follows:
Swap inflows
-
-
-
1 - 2 years - swap inflow of €22.7m (2014: €nil)
2 - 5 years - swap inflows of €51.2m (2014: €13.9m)
Greater than 5 years - swap inflows of €83.5m (2014: €72.4m)
Swap outflows
-
Greater than 5 years - swap outflows of €4.0m (2014: €nil)
(iii.iii) Summary of borrowing arrangements
(a) Bank loans
bank loans comprise committed term loan facilities, committed revolving credit facilities, bilateral term loans and other uncommitted facilities:
-
-
-
demand facilities;
syndicate revolving credit facilities of €1.1bn maturing April 2020, with 1 year extension options on the first and second anniversary; and
bilateral term loans with maturities ranging up to 1 year.
(b) 2015 euro senior notes
the Group issued a debut 10 year euro bond of €750m with a maturity date on 10th september 2025.
(c) 2013 US dollar senior notes
the Group issued a 10 year us debut public bond of us$750m with a maturity date on 9 April 2023.
(d) 2010 senior notes
the Group placed us$600m of senior notes with us institutional investors in four tranches with maturity as follows:
-
-
-
-
tranche A of us$192m - maturing on 20 January 2017
tranche b of us$208m - maturing on 20 January 2020
tranche c of us$125m - maturing on 20 January 2022
tranche d of us$75m - maturing on 20 January 2025
(e) 2003 senior notes
the Group placed us$650m senior notes with us institutional investors in 2003, tranche A of us$114m matured on 30 April 2010 and tranche b of
us$230m matured on 30 April 2013 and tranche c of us$306m matured on 30 April 2015.
both the committed syndicate facilities and the 2010 senior notes have financial covenants attached to them. the Group was in full compliance with these
covenants as at 31 december 2015 and 2014.
(iv) credit risk management
cash deposits and other financial assets give rise to credit risk on the amounts due from counterparties.
the Group controls and monitors the distribution of this exposure by ensuring that all financial instruments are held with reputable and financially secure
institutions and that exposure to credit risk is distributed across a number of institutions. At 31 december 2015 and 2014 all cash, short-term deposits and
other liquid investments had a maturity of less than 3 months.
credit risk exposure to financial institutions is actively managed across the portfolio of institutions by setting appropriate credit exposure limits based on
a value at risk calculation that takes ebitdA of the Group and calculates approved tolerance levels based on credit default swap rates for the financial
institutions. these levels are applied in controlling the level of material surplus funds that are placed with counterparties and for controlling the institutions
with which the Group enters into derivative contracts. credit default swaps for those financial institutions are as published by independent credit rating
agencies and are updated and reviewed on an ongoing basis.
the Group’s exposure to its counterparties is continuously monitored and the aggregate value of transactions entered into is spread amongst
approved counterparties.
trade receivables consist of a large number of customers, spread across diverse geographical areas. ongoing credit evaluation is performed on the financial
condition of accounts receivable at operating unit level at least on a monthly basis.
150
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
24. FInAncIAl InSTRUmenTS (continued)
(iv) credit risk management (continued)
the Group’s maximum exposure to credit risk consists of gross trade receivables (note 19), cash deposits (note 23) and other financial assets (note 23),
which are primarily interest rate swaps and foreign exchange contracts.
in relation to credit risk on derivative financial instruments, where appropriate, the Group credit risk is actively managed across the portfolio of institutions through
monitoring the credit default swaps (cds) and setting appropriate credit exposure limits based on cds levels. these levels are applied in controlling the level of
material surplus funds that are placed with counterparties and for controlling institutions with which the Group enters into derivative contracts.
(v) Price risk management
the Group’s exposure to equity securities price risk due to financial asset investments held is considered to be low as the level of securities held versus the
Group’s net assets is not material.
the Group purchases a variety of commodities which can experience price volatility. it is Group policy to manage commodity price risk commercially via back to
back arrangements with customers, through forward purchasing and limited use of derivatives.
(vi) Fair value of financial instruments
(a) Fair value of financial instruments carried at fair value
financial instruments recognised at fair value are analysed between those based on:
quoted prices in active markets for identical assets or liabilities (level 1);
-
those involving inputs other than quoted prices included in level 1 that are observable for the assets or liabilities, either directly (as prices) or indirectly
-
(derived from prices) (level 2); and
those involving inputs for the assets or liabilities that are not based on observable market data (unobservable inputs) (level 3).
-
Financial assets
interest rate swaps
forward foreign exchange contracts
financial asset investments: fair value through profit or loss
Available-for-sale
Financial liabilities
forward foreign exchange contracts
interest rate swaps
Fair value
Hierarchy
level 2
level 2
level 1
level 3
level 2
level 2
2015
€’m
169.9
20.2
29.9
4.1
(25.1)
(6.5)
2014
€’m
104.7
9.4
23.8
4.1
(20.2)
(10.0)
the reconciliation of level 3 assets is provided in note 13. there have been no transfers between levels during the current or prior financial year.
(b) Fair value of financial instruments carried at amortised cost
except as detailed in the following table, it is considered that the carrying amounts of financial assets and financial liabilities recognised at amortised cost in
the financial statements approximate their fair values.
Financial liabilities
senior notes - public
senior notes - private
Fair value
Hierarchy
level 2
level 2
carrying
Amount
2015
€’m
(1,428.7)
(551.1)
(1,979.8)
Fair
value
2015
€’m
(1,398.6)
(566.7)
(1,965.3)
carrying
Amount
2014
€’m
(613.5)
(751.9)
(1,365.4)
fair
Value
2014
€’m
(594.4)
(791.7)
(1,386.1)
24. FInAncIAl InSTRUmenTS (continued)
151
(vi) Fair value of financial instruments (continued)
(c) valuation principles
the fair value of financial assets and liabilities are determined as follows:
-
-
-
assets and liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices;
other financial assets and liabilities (excluding derivatives) are determined in accordance with generally accepted pricing models based on
discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments; and
derivative financial instruments are calculated using quoted prices. Where such prices are not available, a discounted cash flow analysis is performed
using the applicable yield curve for the duration of the instruments. forward foreign exchange contracts are measured using quoted forward
exchange rates and yield curves derived from quoted interest rates adjusted for counterparty credit risk, which is calculated based on credit default
swaps of the respective counterparties. interest rate swaps are measured at the present value of future cash flows estimated and discounted based
on the applicable yield curves derived from quoted interest rates adjusted for counterparty credit risk which is calculated based on credit default
swaps of the respective counterparties.
(vii) Offsetting financial instruments
the Group enters into derivative transactions under international swaps and derivatives Association (isdA) master netting agreements. the isdA
agreements do not meet the criteria for offsetting in the consolidated balance sheet. this is because the Group does not have any current legally
enforceable right to offset recognised amounts, because the right to offset is enforceable only on the occurrence of future events such as a default on the
bank loans or other credit events. no collateral is paid or received.
the following table sets out the carrying amounts of recognised financial instruments that are subject to the above agreements.
the table also sets out where the Group has offset bank overdrafts against cash at bank and in hand based on a legal right of offset as set out in the
banking agreements.
Gross amounts of
financial assets in
the consolidated
Balance Sheet
€’m
Gross amounts of
financial liabilities
in the consolidated
Balance Sheet
€’m
Amounts of financial
instruments presented
in the consolidated
Balance Sheet
€’m
Related financial
instruments that
are not offset
€’m
net amount
€’m
31 December 2015
Financial assets
cash at bank and in hand
forward foreign exchange contracts
interest rate swaps
Financial liabilities
bank overdrafts
forward foreign exchange contracts
interest rate swaps
31 december 2014
financial assets
cash at bank and in hand
forward foreign exchange contracts
interest rate swaps
financial liabilities
bank overdrafts
forward foreign exchange contracts
interest rate swaps
314.0
20.2
169.9
504.1
77.6
-
-
77.6
342.5
9.4
104.7
456.6
58.8
-
-
58.8
(77.6)
-
-
(77.6)
(82.8)
(25.1)
(6.5)
(114.4)
(58.8)
-
-
(58.8)
(64.4)
(20.2)
(10.0)
(94.6)
236.4
20.2
169.9
426.5
(5.2)
(25.1)
(6.5)
(36.8)
283.7
9.4
104.7
397.8
(5.6)
(20.2)
(10.0)
(35.8)
-
(15.4)
(6.3)
(21.7)
-
15.4
6.3
21.7
-
(5.3)
(2.6)
(7.9)
-
5.3
2.6
7.9
236.4
4.8
163.6
404.8
(5.2)
(9.7)
(0.2)
(15.1)
283.7
4.1
102.1
389.9
(5.6)
(14.9)
(7.4)
(27.9)
152
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
25. PROvISIOnS
Group:
At 1 January 2014
provided during the financial year
utilised during the financial year
transferred to payables and accruals
exchange translation adjustment
At 31 december 2014
provided during the financial year
utilised during the financial year
transferred to payables and accruals
exchange translation adjustment
At 31 December 2015
Analysed as:
current liabilities
non-current liabilities
note
Insurance
€’m
non-Trading
Items
€’m
68.8
3.6
(2.3)
-
3.2
73.3
2.3
(5.0)
-
2.9
73.5
30
30
93.9
-
(54.8)
(10.4)
3.5
32.2
1.4
(9.8)
(6.5)
-
17.3
2015
€’m
31.7
59.1
90.8
Total
€’m
162.7
3.6
(57.1)
(10.4)
6.7
105.5
3.7
(14.8)
(6.5)
2.9
90.8
2014
€’m
49.8
55.7
105.5
Insurance
the Group operates a level of self-insurance and under these arrangements the Group retains certain insurance exposure up to pre-determined self-
insurance thresholds. these thresholds are reviewed on a regular basis to ensure they remain appropriate. the insurance provision represents amounts
provided based on industry information, actuarial valuation and historical data in respect of claims that are classified as incurred but not reported and
also the outstanding loss reserve. both are covered by the Group’s self-insurance schemes. the methodology of estimating the provision is periodically
reviewed to ensure that the assumptions made continue to be appropriate. the utilisation of the provision is dependent on the timing of settlement of the
outstanding claims. historically, the average time for settlement of outstanding claims ranges from 3 - 6 years from claim date.
Non-trading items
non-trading items relate primarily to restructuring provisions incurred in 2013, the majority of which related to redundancy and contract compensation
owing to people who are in the process of transitioning out of the business. these costs are expected to be paid in the next 1 - 2 years.
26. ReTIRemenT BeneFITS OBlIGATIOn
the Group operates post-retirement benefit plans in a number of its businesses throughout the world. these plans are structured to accord with local
conditions and practices in each country they operate in and can include both defined contribution and defined benefit plans. the assets of the schemes
are held, where relevant, in separate trustee administered funds.
the Group operates defined benefit post-retirement schemes in a number of countries in which it operates, primarily in ireland and the netherlands
(eurozone), the uK and the us (included in rest of World). the defined benefit plans operated by the Group mostly include final salary pension plans but
also include career average salary pension plans and post-retirement medical plans. the post-retirement medical plans are in respect of a number of the
Group’s us employees. defined benefit schemes in ireland, the uK, and the us are administered by boards of trustees. the boards of trustees comprise of
representatives of the employees, the employer and independent trustees. these boards are responsible for the management and governance of the plans
including compliance with all relevant laws and regulations.
153
26. ReTIRemenT BeneFITS OBlIGATIOn (continued)
the values used in the Group’s financial statements are based on the most recent actuarial valuations and have been updated by the individual schemes’
independent and professionally qualified actuaries to incorporate the requirements of iAs 19 ‘employee benefits’ in order to assess the liabilities of the
various schemes as at 31 december 2015 using the projected unit credit method. All assets in the schemes have been measured at their fair value at the
balance sheet date. full actuarial valuations for funding purposes are carried out for the Group’s pension plans in line with local requirements. the actuarial
reports are not available for public inspection.
the defined benefit plans expose the Group to actuarial risks such as interest rate risk, investment risk, inflation risk and mortality risk.
Interest rate risk
the calculation of the present value of the defined benefit obligation is sensitive to the discount rate which is derived from the interest yield on high quality
corporate bonds at the balance sheet date. market conditions in recent years have resulted in volatility in discount rates which has significantly impacted
the present value of the defined benefit obligation. such changes lead to volatility in the Group’s consolidated balance sheet, consolidated income
statement and consolidated statement of comprehensive income. it also impacts on the funding requirements for the plans.
Investment risk
the net deficit recognised in the consolidated balance sheet represents the present value of the defined benefit obligation less the fair value of the plan
assets. When assets return a rate less than the discount rate this results in an increase in the net deficit. currently the plans have a diversified portfolio of
investments in equities, bonds and other types of investments. external investment consultants periodically conduct an investment review and advise on
the most appropriate asset allocation taking account of asset valuations, funding requirements, liability duration and the achievement of an appropriate
return on assets.
Inflation risk
A significant proportion of the defined benefit obligation is linked to inflation. An increase in inflation rates will increase the defined benefit obligation.
A portion of the plan assets are inflation-linked debt securities which will mitigate some of the effects of inflation.
Mortality risk
the present value of the defined benefit obligation is calculated by reference to the best estimate of the mortality of plan participants both during and after
their employment. An increase in the life expectancy of the plan participants will increase the defined benefit obligation.
(i) Recognition in the Consolidated Income Statement and Consolidated Statement of Comprehensive Income
the following amounts have been recognised in the consolidated income statement and the consolidated statement of comprehensive income in relation
to defined contribution and defined benefit post-retirement plans:
service cost:
- current service cost relating to defined contribution schemes
- current service cost relating to defined benefit schemes
- past service and settlement gains
net interest cost
Recognised in the consolidated Income Statement
re-measurements of the net defined benefit liability:
- return on plan assets (excluding amounts included in net interest cost)
- experience gains on schemes’ liabilities
- Actuarial losses arising from changes in demographic assumptions
- Actuarial (gains)/losses arising from changes in financial assumptions
Recognised in the consolidated Statement of comprehensive Income
Total
2015
€’m
27.0
28.3
(14.5)
13.5
54.3
6.2
(49.5)
6.0
(103.8)
(141.1)
(86.8)
2014
€’m
23.7
21.1
(4.4)
10.0
50.4
(64.9)
(1.6)
9.5
303.1
246.1
296.5
the total service cost is included in total staff numbers and costs (note 4) and the net interest cost is included in finance income and costs (note 6).
the past service and settlement gains of €14.5m in 2015 includes a gain of €10.5m (2014: €nil) in respect of deferred members who transferred out their
benefits from the irish and uK defined benefit plans.
154
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
26. ReTIRemenT BeneFITS OBlIGATIOn (continued)
Pension levy
during 2011, the finance (no. 2) Act introduced an annual levy of 0.6% on the market value of assets held in pension schemes in ireland from 2011 to 2014.
in 2014 an additional levy of 0.15% was introduced resulting in a total levy for 2014 of 0.75%; with the levy for 2015 reduced to a rate of 0.15%. the levy is
payable on the value of assets at the previous year end date. the levy paid during 2015 in respect of defined benefit members was €0.5m and was paid out
of the pension funds in september 2015 (2014: €2.0m). the final levy payment in respect of the assets held at 31 december 2015 will be paid during 2016.
the pension levy has been paid by the members of the defined contribution and additional voluntary contribution schemes and has been passed to the
members of the defined benefit schemes through benefit reductions as resolved by the trustees.
(ii) Recognition in the Consolidated Balance Sheet
the Group’s net defined benefit post-retirement schemes’ deficit at 31 december, which has been recognised in the consolidated balance sheet,
was as follows:
present value of defined benefit obligation
fair value of plan assets
net recognised deficit in plans before deferred tax
net related deferred tax asset
net recognised deficit in plans after deferred tax
31 December
2015
€’m
(1,576.0)
1,270.3
(305.7)
52.4
(253.3)
31 december
2014
€’m
(1,667.4)
1,194.6
(472.8)
79.5
(393.3)
(iii) Financial and demographic assumptions
the principal financial assumptions used by the Group’s actuaries in order to calculate the defined benefit obligation at 31 december, some of which have
been shown in range format to reflect the differing assumptions in each scheme, were as follows:
inflation assumption
rate of increase in salaries
2015
2014
UK
%
3.10
3.10
Rest of
World
%
2.50
3.00
eurozone
%
1.30
1.60 - 3.00
uK
%
3.00
3.00
eurozone
%
1.50
1.80 - 2.50
rate of increase for pensions in payment and deferred pensions
1.00 - 1.50
2.10 - 3.10
-
1.00 - 1.30
2.00 - 3.00
rest of
World
%
2.50
5.00
-
rate used to discount schemes’ liabilities
2.70
4.00
3.50 - 4.25
2.20 - 2.30
3.70
3.65 - 4.00
the most significant demographic assumption is mortality. the mortality assumptions used are based on advice from the pension schemes’ actuaries and
reflect each scheme’s population. the life expectancy of a member retiring at 31 december at age 65, now and in 20 years’ time, some of which have been
shown in range format to reflect the differing assumptions in each scheme, is as follows:
male - retiring now
female - retiring now
male - retiring in 20 years’ time
female - retiring in 20 years’ time
2015
2014
eurozone
years
UK
years
20 - 24
23 - 26
22 - 26
25 - 28
21
23
23
25
Rest of
World
years
21 - 23
23 - 24
23 - 24
25 - 26
eurozone
years
uK
years
20 - 23
23 - 24
22 - 25
25 - 26
21
24
23
26
rest of
World
years
22 - 23
24 - 25
23 - 25
25 - 26
155
26. ReTIRemenT BeneFITS OBlIGATIOn (continued)
(iii) Financial and demographic assumptions (continued)
there are inherent uncertainties surrounding the financial and demographic assumptions adopted by the Group. the assumptions may differ from the
actual data as a result of changes in economic and market conditions as well as the actual experience within each scheme. the present value of post-
retirement benefit schemes’ liabilities is heavily dependent on the discount rate. As the discount rate is based on a market driven measure, which is the
interest yield on high quality corporate bonds at the balance sheet date, the present value of post-retirement benefit schemes’ liabilities can fluctuate
significantly from valuation to valuation. the expected rate of inflation impacts the schemes’ liabilities in that inflation is the basis for the calculation of the
assumed future salary and revaluation increases in each scheme where applicable. in relation to demographic assumptions, differing expectations regarding
current and future changes in mortality rates can have a significant impact on schemes’ liabilities.
the table below gives an approximate indication of the impact of a change in the principal financial actuarial assumptions (discount rate, inflation rate,
salary increases and pensions in payment and deferred pensions increases) and the principal demographic actuarial assumption (mortality) on the
schemes’ liabilities. the present value of the defined benefit obligation has been calculated using the projected unit credit method, which is the same as
that applied in calculating the defined benefit obligation recognised in the consolidated balance sheet. the impact on the defined benefit obligation at 31
december 2015 is calculated on the basis that only one assumption is changed with all other assumptions remaining unchanged. the assessment of the
sensitivity analysis below could therefore be limited as a change in one assumption may not occur in isolation as assumptions may be correlated. there
have been no changes from the previous year in the methods and assumptions used in preparing the sensitivity analysis.
Assumption
discount rate
inflation rate
salary increases
change in assumption
increase/decrease of 0.50%
increase/decrease of 0.50%
increase/decrease of 0.50%
pensions in payment and deferred pensions increases
increase/decrease of 0.50%
Impact on schemes’ liabilities
decrease/increase of 10.0%
increase/decrease of 8.0%
increase/decrease of 2.5%
increase/decrease of 4.9%
mortality
increase/decrease in life expectancy of 1 year
increase/decrease of 2.8%
(iv) Reconciliations for defined benefit plans
the movements in the defined benefit schemes’ obligation during the financial year were:
present value of the defined benefit obligation at beginning of the financial year
current service cost
past service gain
settlement gain
interest expense
contributions by employees
benefits paid
re-measurements:
- experience gains on schemes’ liabilities
- actuarial losses arising from changes in demographic assumptions
- actuarial gains/(losses) arising from changes in financial assumptions
decrease arising on settlement
other movements
exchange translation adjustment
Present value of the defined benefit obligation at end of the financial year
Present value of the defined benefit obligation at end of the financial year that relates to:
Wholly unfunded plans
Wholly or partly funded plans
note
30
2015
€’m
(1,667.4)
(28.3)
4.0
10.5
(53.4)
(7.9)
53.2
49.5
(6.0)
103.8
32.1
(2.7)
(63.4)
(1,576.0)
(23.9)
(1,552.1)
(1,576.0)
2014
€’m
(1,256.9)
(21.1)
4.4
-
(55.3)
(9.0)
41.4
1.6
(9.5)
(303.1)
-
0.3
(60.2)
(1,667.4)
(26.3)
(1,641.1)
(1,667.4)
156
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
26. ReTIRemenT BeneFITS OBlIGATIOn (continued)
(iv) Reconciliations for defined benefit plans (continued)
the weighted average duration of the defined benefit obligation at 31 december 2015 is approximately 21 years (2014: approximately 23 years).
the movements in the schemes’ assets during the financial year were:
fair value of plan assets at beginning of the financial year
interest income
contributions by employer
contributions by employees
benefits paid
re-measurements:
- return on plan assets (excluding amounts included in net interest cost)
decrease arising on settlement
exchange translation adjustment
Fair value of plan assets at end of the financial year
the actual return on plan assets during the financial year was €33.7m (2014: €110.2m).
the fair values of each of the categories of the pension schemes’ assets at 31 december were as follows:
equities
Government fixed income
other fixed income
fund of hedge funds
other
note
30
2015
€’m
1,194.6
39.9
71.2
7.9
(53.2)
(6.2)
(32.1)
48.2
1,270.3
2015
€’m
817.3
288.0
108.5
52.2
4.3
2014
€’m
1,004.8
45.3
64.7
9.0
(41.4)
64.9
-
47.3
1,194.6
2014
€’m
751.3
273.8
110.3
54.9
4.3
Total fair value of pension schemes’ assets
1,270.3
1,194.6
the majority of equity securities and bonds have quoted prices in active markets. in addition, a very high proportion of the underlying assets in the funds
of hedge funds are in the form of quoted securities. the schemes’ assets are invested with professional investment managers or in insurance contracts.
investments in the Group’s own financial instruments, if any, are solely at the discretion of the investment managers concerned. the actual amount of the
Group’s own financial instruments held by the pension schemes during 2015 and 2014 were not material. no property held by the pension schemes was
occupied by the Group nor were any other pensions schemes’ assets used by the Group during 2015 or 2014.
there are a number of defined benefit pension plans being operated by the Group in a number of countries, and within some of these countries multiple
plans are operated. each plan is required to be operated in line with local legislation, conditions, practices and the regulatory framework in place for the
specific country. As a result, there are a number of different funding arrangements in place that accord with the specific local legislative, regulatory and
actuarial requirements.
future accrual for the most significant plans is funded partly by the employees, where they are required to contribute a fixed percentage of pensionable
salary; and partly by the Group’s subsidiaries, being a percentage of pensionable salary as advised by the actuaries and agreed between the Group and the
relevant trustees. deficit funding is carried out by cash contributions from the Group’s subsidiaries. similar to the funding of future accrual, these funding
arrangements have been advised by the Group’s actuaries and agreed between the Group and the relevant trustees. it is the aim of the Group to eliminate
the most significant deficits, being those in ireland and the uK, on average over ten years. Actuarial valuations, which are not available for public inspection,
are carried out every three years in ireland and the uK; and every year in the us.
during the financial year ending 31 december 2016, the Group expects to make contributions of approximately €65.2m in relation to its defined
benefit plans.
27. SHARe cAPITAl
Group and company:
Authorised
280,000,000 A ordinary shares of 12.50 cent each
Allotted, called-up and fully paid (A ordinary shares of 12.50 cent each)
At beginning of the financial year
shares issued during the financial year
At end of the financial year
the company has one class of ordinary share which carries no right to fixed income.
157
2015
€’m
2014
€’m
35.0
22.0
-
22.0
35.0
22.0
-
22.0
Shares issued
during 2015 a total of 77,867 (2014: 83,524) A ordinary shares, each with a nominal value of 12.50 cent, were issued at nominal value per share under the
long term incentive plan.
the total number of shares in issue at 31 december 2015 was 175,884,469 (2014: 175,806,602).
Share buy back programme
At the 2015 Annual General meeting shareholders passed a resolution authorising the company to purchase up to 5% of its own issued share capital which
was not exercised in the year. in 2015 and 2014 no shares were purchased under this programme.
28. SHARe-BASeD PAymenTS
the Group operates two equity-settled share-based payment plans. the first plan is the Group’s long term incentive plan and the second is the element of
the Group’s short term incentive plan that is settled in shares/options after a 2 year deferral period. details on each of these plans is outlined below.
the Group and the company recognised an expense of €9.0m (2014: €8.9m) related to equity-settled share-based payment transactions in the consolidated
income statement during the financial year. the expectation of meeting performance criteria was taken into account when calculating this expense.
(i) Long Term Incentive Plan
2006 Long Term Incentive Plan scheme
the Group operates an equity-settled long term incentive plan (ltip), under which an invitation to participate was made to executive directors and senior
executives. these invitations were made on six occasions between 2006 and 2013. no further conditional awards were made under this scheme after 2013.
the proportion of each invitation which vests will depend on the total shareholder return (tsr) and Adjusted earnings per share (eps) performance of
the Group during a three year period (“the performance period”). A proportion of invitations made in 2012 vested during 2015.
up to 50% of the shares/options subject to an invitation will vest according to the Group’s tsr performance during the performance period measured
against the tsr performance of a peer group of listed companies. the remaining 50% of the shares/options subject to an invitation will vest according to
the Group’s adjusted eps growth performance compared with the inflation adjusted targets during the performance period. An invitation may lapse if a
participant ceases to be employed within the Group before the vesting date.
158
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
28. SHARe-BASeD PAymenTS (continued)
(i) Long Term Incentive Plan (continued)
2013 Long Term Incentive Plan scheme
in 2013 the Group introduced a new long term incentive plan that replaced the old scheme entirely from 2014 onwards. An invitation to participate
was made to executive directors and senior executives. the proportion of each invitation which vests, will depend on the Adjusted earnings per share
(eps) performance, total shareholder return (tsr) and return on Average capital employed (roAce) of the Group during a three year period (“the
performance period”). the invitations made in 2013, 2014 and 2015 will potentially vest in 2016, 2017 and in 2018 respectively. 50% of the award will be
issued at the date of vesting, with 50% being issued after a 2 year deferral period.
up to 50% of the shares/options subject to an invitation will vest according to the Group’s adjusted eps growth compared with target during the
performance period. up to 30% of the shares/options subject to an invitation will vest according to the Group’s tsr performance during the performance
period measured against the tsr performance of a peer group of listed companies. the remaining 20% of the shares/options will vest according to the
Group’s roAce versus predetermined targets. An invitation may lapse if a participant ceases to be employed within the Group before the vesting date.
under the 2013 long term incentive plan (ltip), the Group introduced career shares awards, under which an invitation to participate was made to a limited
number of senior executives. the proportion of each invitation which vests, will depend on personal objectives during a three period (“the performance period”)
and the senior executives remaining within the Group for a four year period (“the retention period”). the invitations made in 2014 and 2015 will potentially vest in
2020 and in 2020/2021 respectively. An invitation may lapse if a participant ceases to be employed within the Group before the vesting date.
A summary of the status of the ltip as at 31 december and the changes during the financial year are presented below:
outstanding at beginning of the financial year
forfeited
shares vested
share options vested
new conditional awards
Outstanding at end of the financial year
Share options arising under the lTIP
outstanding at beginning of the financial year
Vested
exercised
Outstanding and exercisable at end of the financial year
note
27
number of
conditional
Awards
2015
752,766
(32,187)
(52,148)
(42,299)
409,244
1,035,376
number of
conditional
Awards
2014
478,802
(13,125)
(53,564)
(56,917)
397,570
752,766
number of
Share Options
2015
number of
share options
2014
note
27
239,348
42,299
(25,719)
255,928
212,391
56,917
(29,960)
239,348
share options under the ltip scheme have an exercise price of 12.5 cent. the remaining weighted average life for share options outstanding is 3.92 years
(2014: 4.48 years). the weighted average share price at the date of exercise was €53.06 (2014: €54.71).
28. SHARe-BASeD PAymenTS (continued)
(i) Long Term Incentive Plan (continued)
At the invitation grant date, the fair value per conditional award and the assumptions used in the calculations are as follows:
159
2013 lTIP Scheme
2006 lTIP Scheme
2015
conditional
Award at
Grant Date
march 2015
2014
conditional
Award at
Grant Date
2013
conditional
Award at
Grant Date
march 2014
June/september 2013
2013
conditional
Award at
Grant Date
march 2013
2012
conditional
Award at
Grant Date
April 2012
conditional Award invitation date
year of potential vesting
share price at grant date
exercise price per share/options
expected volatility
expected life
risk free rate
expected dividend yield
expected forfeiture rate
2018/2020/2021
2017/2020
€64.92
€0.125
18.4%
€53.80
€0.125
20.8%
3/5/6 years
3/6 years
0.0%
0.8%
5.0%
0.4%
0.9%
5.0%
2016
€43.28/€44.90
€0.125
21.3%/21.4%
3 years
0.4%/0.5%
1.0%
5.0%
Weighted average fair value at grant date
€52.96/€61.74
€44.74/€50.47
€34.40/€35.25
Valuation model
monte carlo
pricing
monte carlo
pricing
monte carlo
pricing
monte carlo
pricing
2016
€46.49
€0.125
22.6%
3 years
0.2%
1.0%
5.0%
€33.75
2015
€33.45
€0.125
25.5%
3 years
0.6%
1.1%
5.0%
€26.99
monte carlo
pricing
expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years. market based vesting
conditions, such as the tsr condition, have been taken into account in establishing the fair value of equity instruments granted. non-market based
performance conditions, such as the eps and roAce conditions, were not taken into account in establishing the fair value of equity instruments granted,
however the number of equity instruments included in the measurement of the transaction is adjusted so that the amount recognised is based on the
number of equity instruments that eventually vest.
(ii) Short Term Incentive Plan
in 2013 the Group’s short term incentive plan for executive directors was amended to incorporate a share-based payment element with 25% of the total
bonus to be settled in shares/share options. the shares/options awarded as part of this scheme will be issued 2 years after the vesting date once a deferral
period has elapsed. there are no further performance conditions relating to the shares/share options during the deferral period.
A share-based payment expense is recognised in the consolidated income statement for the scheme to reflect the value of the bonus to be paid by way
of shares/options. the first shares/options issued under the short term incentive plan, which relate to the 2013 financial year, vested in 2014 and will be
deferred until 2016. the second tranche of the issuance of the shares/options under the short term incentive plan, which relate to the 2014 financial year,
vested in 2015 and will be deferred until 2017. the third tranche of the issuance of the shares/options under the short term incentive plan, which relate to
the 2015 financial year, vested in 2016 and will be deferred until 2018.
160
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
29. cASH FlOW cOmPOnenTS
profit before taxation
intangible asset amortisation
non-trading items
finance income
finance costs
Trading profit
change in working capital
decrease in inventories
increase in trade and other receivables
increase/(decrease) in trade and other payables
share-based payment expense
Purchase of assets
purchase of property, plant and equipment
purchase of assets classified as held for sale
purchase of intangible assets
purchase of financial assets
cash and cash equivalents
cash at bank and in hand
bank overdrafts
notes
12
5
6
6
28
12
13
23
23
Group
2015
€’m
602.8
37.4
(9.4)
(1.8)
71.1
700.1
45.4
(11.2)
21.6
9.0
64.8
(216.8)
(0.5)
(31.6)
(3.3)
(252.2)
236.4
(5.2)
231.2
Group
2014
€’m
555.6
28.0
(0.1)
(1.1)
54.0
636.4
1.1
(52.4)
(36.9)
8.9
(79.3)
(229.5)
(5.0)
(35.6)
(4.0)
(274.1)
283.7
(5.6)
278.1
company
2015
€’m
226.2
company
2014
€’m
68.4
-
-
-
-
-
-
-
-
226.2
68.4
-
(61.7)
(91.7)
9.0
(144.4)
-
-
-
-
-
0.1
(0.7)
(0.6)
-
(1.6)
(3.3)
8.9
4.0
-
-
-
-
-
-
(0.7)
(0.7)
30. eFFecT OF excHAnGe TRAnSlATIOn ADjUSTmenTS
Group:
Increase/(decrease) in assets
property, plant and equipment
intangible assets
financial asset investments
inventories
trade and other receivables
cash at bank and in hand
Assets classified as held for sale
(Increase)/decrease in liabilities
trade and other payables
tax liabilities
financial liabilities
retirement benefits obligation
other non-current liabilities
deferred tax liabilities
provisions
deferred income
retained earnings
cumulative exchange difference on translation recycled on disposal
161
notes
2015
€’m
2014
€’m
11
12
13
26
17
25
21
5
53.4
66.2
2.8
23.6
10.7
0.5
0.9
(60.6)
(1.1)
(92.4)
(15.2)
(10.7)
(0.3)
(2.9)
(0.5)
(0.7)
0.8
(25.5)
72.4
103.9
2.5
44.8
36.5
7.8
1.3
(77.4)
(2.2)
(96.6)
(12.9)
(2.1)
(6.2)
(6.7)
(0.5)
3.3
0.4
68.3
the above exchange translation adjustments arise primarily on the retranslation of the Group’s opening net investment in its foreign currency subsidiaries.
162
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
31. BUSIneSS cOmBInATIOnS
during 2015, the Group completed a total of ten acquisitions, all of which are 100% owned by the Group.
Recognised amounts of identifiable assets acquired and liabilities assumed:
Red Arrow
Products
2015
€’m
Other
Acquisitions
2015
€’m
notes
11
12
12
Non-current assets
property, plant and equipment
brand related intangibles
Current assets
cash at bank and in hand
inventories
trade and other receivables
Current liabilities
trade and other payables
Non-current liabilities
other non-current liabilities
Total identifiable assets
Goodwill
Total consideration
Satisfied by:
cash
deferred payment
net cash outflow on acquisition:
cash
less: cash and cash equivalents acquired
plus: debt acquired
Total
2015
€’m
61.2
377.3
10.3
61.2
46.6
16.2
199.0
0.5
11.5
14.7
45.0
178.3
9.8
49.7
31.9
(6.7)
(32.1)
(38.8)
-
235.2
201.7
436.9
(33.9)
248.7
207.6
456.3
(33.9)
483.9
409.3
893.2
892.0
1.2
893.2
Total
2015
€’m
892.0
(10.3)
6.4
888.1
the acquisition method of accounting has been used to consolidate the businesses acquired in the Group’s financial statements. Given that the valuation
of the fair value of assets and liabilities recently acquired is still in progress, the above values are determined provisionally. for the acquisitions completed
in 2014, there have been no material revisions of the provisional fair value adjustments since the initial values were established.
the goodwill is attributable to the expected profitability, revenue growth, future market development and assembled workforce of the acquired
businesses, and the synergies expected to arise within the Group after the acquisition. €279.5m of goodwill recognised is expected to be deductible
for income tax purposes.
transaction expenses related to these acquisitions of €6.2m were charged in the Group’s consolidated income statement during the financial year.
the fair value of the financial assets includes trade and other receivables with a fair value of €46.6m and a gross contractual value of €51.3m.
163
31. BUSIneSS cOmBInATIOnS (continued)
the following acquisitions were completed by the Group during 2015:
Acquisition
rollover
Acquired
January
insight beverages
may
Kfi savory
June
baltimore spice
July
Wellmune
september
island oasis
september
red Arrow products december
Principal activity
rollover operates in the uK ‘hot-to-go’ market with a strong position in the foodservice channel in
consumer foods.
insight beverages is a leading supplier of custom beverage solutions to the foodservice and convenience
store channels in north American markets.
Kfi savory, the former u.s. based savoury flavour business of Kraft food ingredients, an industry leader in
grilled flavours including authentic savoury flavours with natural and specialty grill flavours.
baltimore spice is a costa rican based spices, seasonings and condiments producer strengthening Kerry’s
market positioning in the culinary and snack sectors in central America.
biothera inc’s business produces and markets the unique Wellmune® branded natural food, beverage and
supplement ingredient clinically proven to strengthen the immune system.
island oasis is a leading provider of all-natural premium cocktail mixes and customised beverage solutions
serving ‘on-premise’, restaurant, leisure and hospitality segments of the u.s. market.
red Arrow products is a leading supplier of natural smoke flavours and authentic natural savoury grill
flavours serving meat, culinary and food industry markets worldwide.
other acquisitions
Various
the Group also acquired three smaller acquisitions in the european taste and nutrition market.
from the date of acquisition, the acquired businesses have contributed €133.0m of revenue and €5.8m of profit after taxation and attributable to owners of
the parent to the Group. if the acquisition dates had been on the first day of the financial year, the acquired businesses would have contributed €403.0m of
revenue and €23.3m of profit after taxation and attributable to owners of the parent to the Group.
32. cOnTInGenT lIABIlITIeS
company:
2015
€’m
2014
€’m
(i)
Guarantees in respect of borrowings of subsidiaries
2,018.2
1,543.3
(ii)
for the purposes of section 357 of the companies Act, 2014, the company has undertaken by board resolution to indemnify the creditors of its
subsidiaries incorporated in the republic of ireland, as set out in note 37, in respect of all amounts shown as liabilities in the statutory financial
statements as referred to in section 357 (1) (b) of the companies Act, 2014 for the financial year ending on 31 december 2015 or any amended
financial period incorporating the said financial year. the company has given similar indemnities in relation to its subsidiaries in luxembourg and
the netherlands (Article 70 of the luxembourg law of 19 december 2002 as amended and Article 2 of the dutch civil code), as set out in note 37.
in addition, the company has also availed of the exemption from filing subsidiary financial statements in luxembourg.
the company does not expect any material loss to arise from these guarantees and considers their fair value to be negligible.
164
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
33. OTHeR FInAncIAl cOmmITmenTS
(i)
commitments for the acquisition of property, plant, equipment and computer software at 31 december for which no provision has been made in the
accounts are as follows:
Group:
commitments in respect of contracts placed
expenditure authorised by the directors but not contracted for at the financial year end
(ii) At the balance sheet date the Group had commitments under non-cancellable operating leases which fall due as follows:
Within 1 year
Within 2 to 5 years
After 5 years
2015
€’m
30.2
64.8
95.0
2015
€’m
24.1
35.7
16.0
75.8
2014
€’m
64.7
61.0
125.7
2014
€’m
30.8
59.5
20.5
110.8
the operating lease charges during 2015 amounted to €29.9m (2014: €35.7m).
the Group leases various buildings, plant and machinery, and motor vehicles under non-cancellable lease arrangements. the Group has a number of leases
but none of these leases are individually material. the leases have various terms, escalation clauses and renewal rights. the leases typically range from less
than 1 year to 65 years.
165
34. RelATeD PARTy TRAnSAcTIOnS
(i) Trading with Directors
in their ordinary course of business as farmers, certain directors have traded on standard commercial terms with the Group’s Agribusiness division.
Aggregate purchases from, and sales to, these directors amounted to €0.3m (2014: €1.1m) and €0.1m (2014: €0.3m) respectively. the trading balance
outstanding to the Group at the financial year end was €0.00m (2014: €0.02m).
All transactions with directors were on standard commercial terms. the amounts outstanding are unsecured and will be settled in cash. no expense has
been recognised in the financial year for bad or doubtful debts in respect of amounts owed by directors.
(ii) Trading between Parent Company and subsidiaries
transactions in the financial year between the parent company and its subsidiaries included dividends received of €241.0m (2014: €77.0m), cost recharges
of €10.9m (2014: €4.8m), and trade and other receivables of €63.3m (2014: €1.6m). the parent company has also provided a guarantee in respect of
borrowings of subsidiaries which is disclosed in note 32.
(iii) Trading with associate company
details of transactions and balances outstanding with associate are as follows:
Associate
Rendering of services
Purchase of goods
Amounts receivable/(payable)
at 31 December
2015
€’m
1.0
2014
€’m
0.6
2015
€’m
(4.0)
2014
€’m
(5.2)
2015
€’m
0.9
2014
€’m
(1.3)
these trading transactions are undertaken and settled at normal trading terms. no loans were advanced in 2015 and no interest was received. in 2014 the
Group advanced loans of €9.9m, on terms equivalent to an arms length transaction, to the associate company of which interest income amounted to €0.1m
and these loans were fully settled in the prior year. no guarantees are given or received by either party.
(iv) Trading with other related parties
Kerry co-operative creameries limited is considered to be a related party of the Group as a result of its significant shareholding in the parent company and
the number of directors in common, as detailed in the directors’ report. during 2015, dividends of €11.2m (2014: €10.0m) were paid to Kerry co-operative
creameries limited based on its shareholding.
(v) Transactions with key management personnel
the board of directors are deemed to be key management personnel of Kerry Group plc as they are responsible for planning, directing and controlling the
activities of the Group.
in addition to their salaries and short-term benefits, the Group also contributes to post retirement defined benefit, defined contribution and saving plans on
behalf of the executive directors. the directors also participate in the Group’s long term incentive plan (ltip) (note 26 and 28).
remuneration cost of key management personnel is as follows:
short-term benefits (salaries, fees and other short-term benefits)
post-retirement benefits
ltip accounting charge
other long-term benefits
termination benefits
Total
2015
€’m
5.8
0.7
3.2
-
-
9.7
2014
€’m
4.8
0.7
3.2
-
-
8.7
retirement benefits of €0.2m (2014: €0.2m) are accruing to 4 directors (2014: 4 directors) under a defined benefit scheme and benefits of €0.5m (2014:
€0.5m) to 2 directors (2014: 2 directors) under a defined contribution scheme. the ltip accounting charge includes €2.2m (2014: €2.1m) in relation to
share awards under the ltip scheme.
details of the remuneration of the Group’s individual directors, together with the number of Kerry Group plc shares/options owned by them and their
interest in the ltip are set out in the Governance report on pages 91 to 99.
dividends totalling €0.1m (2014: €0.2m) were also received by key management personnel during the financial year, based on their personal interests in the
shares of the company.
166
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
35. evenTS AFTeR THe BAlAnce SHeeT DATe
since the financial year end, the Group has proposed a final dividend of 35.00 cent per A ordinary share (note 10).
there have been no other significant events, outside the ordinary course of business, affecting the Group since 31 december 2015.
36. ReSeRveS
Capital redemption reserve
capital redemption reserve represents the nominal cost of the cancelled shares in 2007.
Other undenominated capital
other undenominated capital represents the amount transferred to reserves as a result of renominalising the share capital of the parent company due to
the euro conversion in 2002.
Share-based payment reserve
the share-based payment reserve relates to invitations made to employees to participate in the Group’s long term incentive plan and the element of the
Group’s short term incentive plan that is settled in shares/options. further information in relation to this share-based payment is set out in note 28.
Translation reserve
exchange differences relating to the translation of the balance sheets of the Group’s foreign currency operations from their functional currencies to the
Group’s presentation currency (euro) are recognised directly in other comprehensive income and accumulated in the translation reserve.
Hedging reserve
the hedging reserve represents the effective portion of gains and losses on hedging instruments from the application of cash flow hedge accounting for
which the underlying hedged transaction is not impacting profit or loss. the cumulative deferred gain or loss on the hedging instrument is reclassified to
profit or loss only when the hedged transaction affects the profit or loss.
Retained earnings
retained earnings refers to the portion of net income, which is retained by the Group rather than distributed to shareholders as dividends.
37. PRIncIPAl SUBSIDIARIeS
country
ireland
company name
breeo brands limited
breeo enterprises limited
breeo foods limited
carteret investments
charleville research limited
cuarto limited
dawn dairies limited
denny foods limited
duffy meats limited
dynaboo limited
fambee limited
Glenealy farms (turkeys) limited
Golden Vale clare limited
Golden Vale dairies limited
Golden Vale food products limited
Golden Vale holdings limited
Golden Vale investments limited
Golden Vale limerick limited
Golden Vale limited
henry denny & sons (ireland) limited
Kerry Agribusiness holdings limited
Kerry Agribusiness trading limited
Kerry creameries limited
Kerry food ingredients (cork) limited
Kerry Group business services limited
Kerry Group financial services
Kerry Group finance international limited
Kerry Group services international limited
Kerry Group services limited
Kerry health and nutrition institute limited
Kerry holdings (ireland) limited
Kerry ingredients & flavours limited
Kerry ingredients (ireland) limited
Kerry ingredients holdings (ireland) limited
Kerry treasury services limited
Kerrykreem limited
lifesource foods research limited
national food ingredients limited
newmarket co-operative creameries limited
newmarket marketing company limited
pixundo limited
plassey holdings limited
platters food company limited
princemark holdings limited
Quandu limited
rye developments limited
nature of Business
consumer foods
consumer foods
consumer foods
investment
services
taste & nutrition
consumer foods
investment
consumer foods
consumer foods
consumer foods
consumer foods
investment
Agribusiness
taste & nutrition
investment
investment
consumer foods
investment
consumer foods
investment
Agribusiness
Agribusiness
taste & nutrition
services
services
services
services
services
taste & nutrition
investment
taste & nutrition
taste & nutrition
investment
services
consumer foods
consumer foods
taste & nutrition
taste & nutrition
taste & nutrition
consumer foods
investment
consumer foods
services
consumer foods
services
167
Registered Office
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
168
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
37. PRIncIPAl SUBSIDIARIeS (continued)
country
ireland
company name
rye investments limited
rye Valley foods limited
snowcream (midlands) limited
selamor limited
tacna investments limited
trundu limited
William blake limited
Zenbury international limited
uK
henry denny & sons (ni) limited
dairy produce packers limited
Golden cow dairies limited
Golden Vale (ni) limited
leckpatrick dairies limited
leckpatrick holdings limited
Kerry foods limited
Kerry holdings (u.K.) limited
Kerry savoury foods limited
noon Group limited
noon products limited
rollover holdings limited
rollover Group limited
rollover limited
ebi foods limited
Gordon Jopling (foods) limited
Kerry ingredients (u.K.) limited
Kerry ingredients holdings (u.K.) limited
titusfield limited
Kerry flavours uK limited
spicemanns limited
belgium
Kerry holdings belgium
netherlands
Kerry (nl) b.V.
Kerry Group b.V.
Kerry netherlands services b.V.
czech republic Kerry ingredients & flavours s.r.o.
france
Kerry ingredients france s.A.s.
Kerry ingredients holdings (france) s.A.s.
Kerry savoury ingredients france s.A.s.
Kerry flavours france s.A.s.
Germany
Kerry food Gmbh
Kerry ingredients Gmbh
sucrest Gmbh
Vicos nahrungsmittel Gmbh
red Arrow handels Gmbh
Vitella Vitebsk
cremo ingredients A/s
Kerry ingredients & flavours italia s.p.A.
belarus
denmark
italy
nature of Business
consumer foods
Registered Office
1
consumer foods
Agribusiness
consumer foods
investment
consumer foods
taste & nutrition
services
consumer foods
taste & nutrition
consumer foods
investment
consumer foods
investment
consumer foods
investment
consumer foods
consumer foods
consumer foods
consumer foods
consumer foods
consumer foods
taste & nutrition
taste & nutrition
taste & nutrition
investment
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
investment
investment
taste & nutrition
taste & nutrition
investment
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
1
1
1
1
1
1
1
2
3
3
3
3
3
4
4
4
4
4
4
4
4
5
5
5
5
5
5
6
7
8
8
8
9
10
10
11
11
12
12
13
13
14
15
16
17
37. PRIncIPAl SUBSIDIARIeS (continued)
country
poland
hungary
company name
Kerry polska sp. z.o.o.
Kerry hungaria Kft.
luxembourg
Kerry luxembourg s.a.r.l.
Zenbury international limited s.a.r.l.
romania
russia
Kerry romania s.r.l.
Kerry llc
south Africa
Kerry ingredients south Africa (pty) limited
orley foods (proprietary) limited
slovakia
sweden
ukraine
us
canada
mexico
brazil
dera sK s.r.o.
taber Ab
dera limited
Kerry holding co.
Kerry, inc.
insight beverages, inc.
red Arrow international llc
island oasis manufacturing llc
Kerry (canada) inc.
Kerry ingredients (de mexico) s.A. de c.V.
Kerry do brasil ltda.
Kerry da Amazonia ingredientes e Aromas ltda.
Junior Alimentos indústria e comércio s.A.
costa rica
prima s.A. de c.V.
chile
colombia
panama
baltimore spice central America s.A.
Kerry chile ingredientes, sabores y Aromas ltda.
Kerry ingredients & flavours colombia s.A.s.
baltimore spice panamá s.A.
Guatemala
baltimore spice Guatemala s.A.
el salvador
baltimore spice de el salvador s.A. de c.V.
thailand
Kerry ingredients (thailand) limited
philippines
Kerry food ingredients (philippines), inc.
singapore
malaysia
Japan
china
Kerry manufacturing philippines, inc.
Kerry ingredients (s) pte limited
Kerry ingredients (m) sdn. bhd.
Kerry Japan Kabushiki Kaisha
Kerry food ingredients (hangzhou) company limited
Kerry ingredients trading (shanghai) company limited
Kerry food (nantong) company limited
indonesia
pt Kerry ingredients indonesia
india
Kerry ingredients india private limited
Australia
Kerry ingredients Australia pty limited
new Zealand
Kerry ingredients (nZ) limited
Korea
Kerry ingredients Korea llc
nature of Business
taste & nutrition
taste & nutrition
services
services
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
investment
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
taste & nutrition
169
Registered Office
18
19
20
20
21
22
23
24
25
26
27
28
28
29
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
All principal subsidiaries are wholly owned.
notes
(1)
(2) country represents country of incorporation and operation. ireland refers to the republic of ireland.
(3)
With the exception of the us, canadian and mexican subsidiaries, where the holding is in the form of common stock, all holdings are in the form of
ordinary shares.
170
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
37. PRIncIPAl SUBSIDIARIeS (continued)
Registered Office
1
2
3
4
5
6
7
8
9
10
11
12
13
prince’s street, tralee, co. Kerry, ireland.
6 corcrain road, portadown, craigavon, co. Armagh nt32 3uf, northern ireland.
milburn road, coleraine, co. londonderry bt52 1QZ, northern ireland.
thorpe lea manor, thorpe lea road, egham, surrey tW20 8hy, england.
bradley road, royal portbury dock, bristol bs20 7nZ, england.
9 Kelvin Avenue, hillington, Glasgow G52 4lr, scotland.
Woestjnstraat 37, 2880 bornem, belgium.
maarssenbroeksedijk 2a, 3542 dn utrecht, the netherlands.
marikova, 36 brno, czech republic.
Quartier salignan, 84400 Apt en provence, france.
26 rue Jacques prevert, 59650 Villenueve d’Ascq, france.
hauptstrasse 22-26, d-63924 Kleinheubach, Germany.
neckarstraße 9, 65239 hochheim/main, Germany.
14 hanna-Kunath-strasse 25, 28199, bremen, Germany.
15
16
17
18
19
20
21
ul. p browki 44, 210605 Vitebsk, republic of belarus.
toftegardsvej 3, dK-5620, Glamsbjerg, denmark.
Via cappitani di mozzo 12/16, 24030 mozzo (bG), italy.
25-558 Kielce, ul. Zagnanska 97a, Kielce, poland.
2045 torokbalint, fsd park 2, hungary.
17 rue Antoine Jans, l-1820 luxembourg, Grand-duchy of luxembourg.
sectorul 3, 42 dudesti-pantelimon road, 033094 bucharest, romania.
22 office 901-b, building 1, 16/2 tverskaya street, moscow, 125009, russia.
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
block 3, 4-6 lucas drive, hillcrest, durban, Kwazulu-natal, south Africa.
15a chain Avenue, montague Gardens, cape town, south Africa.
sancova 50, 811 04 bratislava, slovakia.
box 3011, 183 03, taby, stockholm, sweden.
4 Korolenkivska str., Kiev, ukraine.
1209 orange street, Wilmington, delaware 19808, us.
635 oakwood road, lake Zurich il 60047, us.
155 federal street, suite 700, boston, mA 02110, us.
suite 3600, 55 King street West, toronto-dominion bank tower, toronto, m5K 1n6, ontario, canada.
carr. panamericana, salamanca Km 11.2, 36660 irapuato, Guanajuato, mexico.
rua cristiano Alves da silva, 15 parque Jussara, tres coracoes mG, brazil.
Av. djalma batista, no. 1661, millennium shopping mall, business tower, cidade de manaus, estado do Amazonas, brazil.
rua Vinte e um de Abril, 221 - rod. raposo tavares Km 30,9 - Jardim barro branco, cotia - sp, brazil.
200 metros al este del banco nacional en la uruca contiguo a la bomba shell, san José, costa rica.
del liceo de pavas 200 oeste, 100 norte Zip code 1035-1200, san José, costa rica.
isidora Goyenechea 2800, piso 43, las condes, santiago, chile.
cr 7 no. 71 52 to A p 5, bogotá, colombia.
parque industrial costa del este calle Avenida principal y 3ra lote 88. corregimiento, parque lefevre 0819-01869, panama.
Avenida petapa 52-20 zona 12 , Guatemala.
condominio edificio Gran plaza of 401 col. san benito. boulevard el hipodromo, san salvador, el salvador.
171
37. PRIncIPAl SUBSIDIARIeS (continued)
Registered Office (continued)
43 no 618, moo 4, bangpoo industrial estate, praksa sub district, muang district, samutprakarn province, thailand.
44 Gf/sfb#1, mactan economic Zone 1, lapulapu city, cebu, philippines.
45
46
47
48
49
50
51
52
53
5th Ave bgc, taguig, metro manila, philippines.
8 biomedical Grove, #02-01/04 neuros, singapore 138665, singapore.
suite 1301, 13th floor, city plaza, Jalan tebrau, 80300 Johor bahru, Johor, malaysia.
Kamiyacho sankei building. 2f, 1-7-2, Azabudai 1-chome, minato-ku, tokyo 106-0041, Japan.
renhne industry Zone, Jiulong Village, hangzhou, china.
room 248, Ximmao building, 2 tai Zhong road south, Waigaoqiao free trade Zone, shanghai, china.
north side of Xiang, Jiang road, rudong county, nantong, china.
Jl industri utama blok ss no. 6, Jababeka ii mekarmukti, cikarang utara, bekasi 17520, indonesia.
17th floor, nirmal building, nariman point, mumbai 400 021, india.
54 no 8 holker street, newington, nsW 2127, Australia.
55
56
11-13 bell Avenue, otahuhu, Auckland, new Zealand.
2th fl., sheenbang bldg, 1366-18, seocho-dong, seocho-Gu, seoul, 137-863, republic of Korea.
172
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
Supplementary
Information
(Not Covered by
Independent Auditors’ Report)
173
Financial Definitions
1. RevenUe
Volume growth
this represents the sales volume growth year-on-year from ongoing business, excluding volumes from acquisitions net of disposals. A full reconciliation to
reported revenue growth is detailed in the revenue reconciliation below.
Revenue Reconciliation
taste & nutrition
consumer foods
Group
2. eBITDA
volume
growth
4.0%
3.0%
3.8%
Price
(2.3%)
(1.9%)
(2.2%)
Transaction
currency
Translation
currency
Acquisitions /
Disposals
Reported
revenue growth
0.0%
0.4%
0.1%
6.9%
6.6%
6.9%
0.1%
(10.3%)
(2.5%)
8.7%
(2.2%)
6.1%
ebitdA represents profit after taxation and attributable to owners of the parent before finance income and costs, income taxes, depreciation (net),
intangible asset amortisation and non-trading items.
Profit after taxation and attributable to owners of the parent
finance income
finance costs
income taxes
non-trading items
intangible asset amortisation
depreciation (including impairment)
eBITDA
3. TRADInG PROFIT
2015
€’m
525.4
(1.8)
71.1
77.4
(9.4)
37.4
128.4
828.5
2014
€’m
479.9
(1.1)
54.0
75.7
(0.1)
28.0
105.8
742.2
trading profit refers to the operating profit generated by the businesses before intangible asset amortisation and gains or losses generated from non-
trading items. trading profit represents operating profit before specific items that are considered to hinder comparison of the trading performance of the
Group’s businesses, either year-on-year or with other businesses.
4. TRADInG mARGIn
trading margin represents annual trading profit, expressed as a percentage of revenue.
5. nOn-TRADInG ITemS
non-trading items refers to gains or losses on the disposal of businesses, disposal of assets (non-current assets and assets classified as held for sale), costs
in preparation of disposal of assets, material acquisition transaction costs and material acquisition integration and restructuring costs. it is determined by
management that each of these items relate to events or circumstances that are non-recurring in nature.
6. OPeRATInG PROFIT
operating profit is profit before income taxes, finance income and finance costs.
7. OTHeR exTeRnAl cHARGeS
other external charges primarily refers to selling, general and administrative expenses.
8. OTHeR OPeRATInG cHARGeS
other operating charges primarily refers to manufacturing and warehousing costs.
174
Kerry Group AnnuAl report 2015µnOTeS TO THe FInAncIAl STATemenTS
9. ADjUSTeD eARnInGS PeR SHARe
in addition to the basic and diluted earnings per share, an adjusted earnings per share is also provided as it is considered more reflective of the Group’s
underlying trading performance. Adjusted earnings is profit after taxation and attributable to owners of the parent before brand related intangible asset
amortisation and non-trading items (net of related tax). these items are excluded in order to assist in the understanding of underlying earnings. A full
reconciliation of adjusted earnings per share is provided in note 9 of these consolidated financial statements.
basic earnings per share
brand related intangible asset amortisation
non-trading items (net of related tax)
Adjusted earnings per share
10. FRee cASH FlOW
2015
ePS
cent
298.7
10.6
(7.4)
301.9
2014
eps
cent
273.0
8.2
(2.3)
278.9
free cash flow is trading profit plus depreciation, movement in average working capital, capital expenditure, pension costs less pension expense, finance
costs paid (net) and income taxes paid.
free cash flow is seen as an important indicator of the strength and quality of the business and of the availability to the Group of funds for reinvestment or
for return to shareholders. movement in average working capital is used when management believes this provides a more accurate measure of the increase
or decrease in working capital needed to support the business over the course of the year rather than at two distinct points in time. movement in average
working capital measures more accurately fluctuations caused by seasonality and other timing factors. below is a reconciliation of free cash flow to the
nearest ifrs measure, which is “net cash from operating activities”.
net cash from operating activities
difference between movement in average working capital and movement in the financial year end working capital
expenditure on acquisition integration and restructuring costs
purchase of assets
proceeds from the sale of property, plant and equipment
capital grants received
exchange translation adjustment
Free cash flow
11. FInAncIAl RATIOS
2015
€’m
721.3
(66.4)
26.4
(252.2)
12.7
10.1
0.7
452.6
2014
€’m
469.0
20.1
74.5
(274.1)
15.9
0.8
(3.3)
302.9
the net debt: ebitdA and ebitdA: net interest ratios disclosed are calculated in accordance with lender’s facility agreements using an adjusted ebitdA,
adjusted finance costs (net of finance income) and an adjusted net debt value to adjust for the impact of non-trading items, acquisitions net of disposals
and deferred payments in relation to acquisitions. As outlined on page 141 these ratios are calculated in accordance with lender’s facility agreements and
these agreements specifically exclude these items from the calculation.
12. ReTURn On AveRAGe eqUITy (ROAe)
this measure is defined as profit after tax and attributable to owners of the parent before non-trading items (net of tax) and brand related intangible asset
amortisation expressed as a percentage of average equity. Average equity is calculated by taking the average shareholders’ funds over a 12 month period
plus an additional €528m relating to goodwill written off to reserves pre conversion to ifrs.
13. ReTURn On AveRAGe cAPITAl emPlOyeD (ROAce)
this measure is defined as profit after tax and attributable to owners of the parent before non-trading items (net of tax), brand related intangible asset
amortisation and finance income and costs / Average capital employed. Average capital employed is calculated by taking the average shareholders’ funds
and net debt over a 12 month period plus an additional €528m relating to goodwill written off to reserves pre conversion to ifrs.
175
14. cASH FlOW ReTURn On InveSTmenT (cFROI)
cfroi is calculated as free cash flow before finance costs (net) expressed as a percentage of average capital employed. Average capital employed for the
cfroi calculation is the same as that used for roAce.
15. TOTAl SHAReHOlDeR ReTURn (TSR)
total shareholder return (tsr) represents the change in the capital value of Kerry Group shares plus dividends reinvested in the year.
16. mARKeT cAPITAlISATIOn
market capitalisation is calculated as the share price times the number of shares issued.
17. enTeRPRISe vAlUe
enterprise Value is calculated as per external market sources. it is market capitalisation plus reported borrowings less total cash and cash equivalents.
176
Kerry Group AnnuAl report 2015µnOTeS
Notes
K
E
R
R
Y
G
R
O
U
P
A
N
N
U
A
L
R
E
P
O
R
T
2
0
1
5
KERRY GROUP
ANNUAL REPORT 2015
Global Leader in Taste & Nutrition
KERRY GROUP
Prince's Street
Tralee
Co. Kerry
Ireland
T: +353 66 718 2000
F: +353 66 718 2961
www.kerrygroup.com