KERRY GROUP
Prince's Street
Tralee
Co. Kerry
Ireland
T: +353 66 718 2000
F: +353 66 718 2961
www.kerrygroup.com
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KERRY GROUP
ANNUAL REPORT 2016
—
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
Irish Stock Exchange (KYGa.I) and London Stock Exchange (KYGa.L).
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READ MORE INNOVATION & COLLABORATION Taste & Nutrition Discovery facility page 35
SUSTAINABILITY
pages 42-59
COMMUNITY
pages 56-59
READ MORE CONSUMER-LED SOLUTIONS Business Reviews pages 33-41
CONTENTS
—
STRATEGIC REPORT
Highlights of the Year – 2016 Results 3
Kerry Group at a Glance 4
Chairman’s Statement 8
Chief Executive’s Review 10
Our Business Model 14
Our Markets 15
Our Strategy 16
Our People 20
Group Key Performance Indicators 22
Financial Review 24
Business Review: Taste & Nutrition 33
Business Review: Consumer Foods 39
Sustainability Review 42
Risk Report 60
DIRECTORS' REPORT
Board of Directors 70
Report of the Directors 72
Corporate Governance Report 78
Audit Committee Report 83
Nomination Committee Report 88
Remuneration Committee Report 92
FINANCIAL STATEMENTS
Independent Auditors’ Report 112
Group Financial Statements 118
Notes to the Financial Statements 126
READ MORE EXPERTISE & MARKET INSIGHT Our Strategy pages 16-18
SUPPLEMENTARY INFORMATION
Financial Definitions 184
Authentic
Taste
Natural
Extracts
CMYK 85.45.80.50
RGB 32.72.50
HEX 204832
Pantone 357U
CMYK 48.4.90.3
RGB 151.187.59
HEX 97bb3b
Pantone 382U
CMYK 0.35.90.0
RGB 249.177.34
HEX f9b122
Pantone 129U
CMYK 0.0.30.85
RGB 73.72.57
HEX 494839
Pantone 440U
2 | KERRY GROUP | ANNUAL REPORT 2016
STRATEGIC REPORT
HIGHLIGHTS OF THE YEAR
2016 RESULTS
—
Continuing to grow and
deliver compelling
consumer propositions
GROUP REVENUE OF
€6.1 billion
VOLUME GROWTH* OF
+3.6%
NET CASH FROM OPERATING ACTIVITIES OF
FREE CASH FLOW* OF
€683 million
TRADING PROFIT UP 7.1%
€750 million
BASIC EPS UP 1.4%
302.9 cent
€570 million
MARGIN IMPROVEMENT* OF
70 bps
ADJUSTED EPS* UP 7.1% TO
323.4 cent
TOTAL DIVIDEND PER SHARE UP 12.0% TO
RETURN ON AVERAGE CAPITAL EMPLOYED* OF
56.0 cent
12.9%
A strong financial and business development
performance by Group businesses.
Kerry Foods portfolio performs well in a
changing consumer foods marketplace.
Businesses acquired in 2015 were successfully
integrated providing a strong platform for
international market development.
Record free cash flow.
Kerry’s Taste & Nutrition Technologies and
Systems continue to drive a strong pipeline
of innovation.
The Board recommends a final dividend of 39.2
cent per share (an increase of 12% on the final 2015
dividend) payable on 19 May 2017 to shareholders
registered on the record date 28 April 2017.
READ MORE Details of the Group’s business performance
in 2016 are presented in the Chief Executive’s Review
pages 10-13 and in the Business Reviews pages 33-41
* See Group Key Performance Indicators section pages 22-23 and the Supplementary Information section page 184 for
definitions, calculations and reconciliations of Alternative Performance Measures.
2 | KERRY GROUP | ANNUAL REPORT 2016
3 | KERRY GROUP | ANNUAL REPORT 2016
STRATEGIC REPORT
KERRY GROUP AT A GLANCE
—
Delivering taste and
nutrition to millions
of people around the
world every day
Operations in
28
countries
23,000
Employees
140
Sales in over
140 countries
15,000
Products
4 | KERRY GROUP | ANNUAL REPORT 2016
800+
R&D Scientists
130
Manufacturing
locations
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.
READ MORE Sustainability Review pages 42-59
ABOUT US
Kerry Group has a well established Strategy
for Growth embracing Kerry’s global Taste
& Nutrition business and Kerry Foods’ –
consumer foods business.
READ MORE Our Business Model page 14 Our Strategy pages 16-18
Kerry Taste & Nutrition has successfully grown
and developed 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.
READ MORE Our Business Review – Taste & Nutrition pages 33-38
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.
READ MORE Our Business Review – Consumer Foods pages 39-41
5 | KERRY GROUP | ANNUAL REPORT 2016
STRATEGIC REPORT
KERRY GROUP AT A GLANCE
—
STRATEGIC REPORT
KERRY GROUP AT A GLANCE
—
WHERE WE OPERATE
Global Headquarters
Global and Regional Technology
& Innovation Centres
Manufacturing Plants
Sales Offices
Group
HQ
Naas
Beloit
San Juan
del Rio
Shanghai
Singapore
Campinas
€6.1 bn
REVENUE
€750 m
TRADING
PROFIT
79% Taste & Nutrition
21% Consumer Foods
86% Taste & Nutrition
14% Consumer Foods
6 | KERRY GROUP | ANNUAL REPORT 2016
STRATEGIC REPORT
KERRY GROUP AT A GLANCE
—
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 $70 billion
global ingredients and flavours market.
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.
#1
Taste &
Nutrition
#1
Market
Positions
#1
Technology &
Innovation Centre
Network
READ MORE Our Business Review – Taste & Nutrition pages 33-38
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 Products, Meal Solutions
and Dairy Products. The portfolio includes;
In Ireland:
Denny, Galtee, Shaws, Dairygold, Cheestrings,
Charleville, LowLow
Richmond, Wall’s, Mattessons, LowLow, Pure, Cheestrings
In the UK:
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.
READ MORE Our Business Review – Consumer Foods pages 39-41
€4.9 bn
REVENUE
REGION
Americas
EMEA
Asia-Pacific
Developed
Developing
TECHNOLOGY
Savoury & Dairy Science
Beverage Science
Pharma & Functional
Cereal & Sweet Science
Regional Ingredients
END USE MARKET
Beverage
Meats
Dairy
Bakery
Soups,
Sauces
& Dressings
Ice-cream
& Desserts
Prepared
Meals & Side
Dishes
Savoury
Snacks
Pharma
Cereal & Bars
Confectionery
Appetisers
Other
€1.3 bn
REVENUE
REGION
GB
Ireland
Rest of Europe
PRODUCT
Meat Products
Meal Solutions
Dairy Products
CHANNEL
Brand
Private Label
STRATEGIC REPORT
CHAIRMAN'S STATEMENT
—
Leading the way in taste
and nutrition technology
SHAREHOLDER ANALYSIS
28% Retail
14% Kerry Co-operative
58% Institutions
21% North America
16% UK
12% Europe (excluding UK
and Ireland)
5% Rest of World
Ireland
4%
Michael Dowling, Chairman
While economic conditions were less than
buoyant in many of our markets, I am pleased
to report that the Group continued to grow
and develop satisfactorily in 2016.
Current health and wellness trends which are driving innovation
throughout all food and beverage markets in developed and
developing regions, point to the relevance of Kerry’s Taste &
Nutrition and General Wellness technologies for today’s
changing marketplace.
The Group continued to advance market development in all
regions and the strong growth achieved in Asian markets
is particularly gratifying, considering the dynamic industry
and demographic trends of such markets. Kerry’s breadth of
technologies and broad geographic footprint, supported by the
Group’s unrivalled Technology & Innovation Centres, means that it
is ideally positioned to support our global and regional customers
throughout world markets.
Closer to home, the Group’s consumer foods business in Europe
is well placed to cope with market uncertainty arising from the UK
electorate vote to leave the European Union, and is well focused
to meet consumer requirements for nutritional, convenient ‘better-
for-you’, dairy, meat, prepared meals and ‘free-from’ products.
RESULTS
Adjusted earnings after tax before brand related intangible
asset amortisation and non-trading items increased by 7.2%
to €569.1m. Adjusted earnings per share increased by 7.1% to
323.4 cent (2015: 301.9 cent). The Group achieved a record free
cash flow of €569.9m in 2016 and maintained a strong balance
sheet to support the future growth and development of the
business. Following a year of record acquisition expenditure in
2015, management focused critical attention in the past year on
integration of the acquired businesses and extending the new
technologies into wider taste and nutrition markets. Return on
average capital employed at 12.9% was above the Group’s target.
READ MORE Details of the Group’s business performance in 2016 are
presented in the Chief Executive’s Review pages 10-13 and in the
Business Reviews pages 33-41
8 | KERRY GROUP | ANNUAL REPORT 2016
SUSTAINABILITY
Over the past decade Kerry has increasingly embedded
sustainability thinking and positive action into the activities
of all Group businesses and operations. The Group delivered
good progress on its sustainability objectives in 2016 and in the
implementation of it’s ‘Towards 2020’ Sustainability Programme.
An update on performance across the programme objectives and
metrics is presented on pages 46-59 of this Report.
READ MORE Sustainability Review pages 42-59
DIVIDEND
The Board recommends a final dividend of 39.2 cent per share
(an increase of 12% on the final 2015 dividend) payable on 19 May
2017 to shareholders registered on the record date 28 April 2017.
When combined with the interim dividend of 16.8 cent per share,
this brings the total dividend for the year to 56 cent, an increase
of 12% on 2015.
BOARD & MANAGEMENT CHANGES
The Board announces that Stan McCarthy, who became Chief
Executive of the Group in January 2008, will retire as Chief
Executive on 30 September 2017 and as a Director of the Group
at year end. The Board wishes to thank Stan for his outstanding
leadership as Chief Executive and for his career-long contribution
to the growth of the organisation since 1976.
The Group is pleased to announce that Edmond Scanlon has
been appointed Chief Executive Designate to succeed Stan
McCarthy on his retirement. The appointment was overseen by
the Board Nomination Committee, chaired by Group Chairman
Michael Dowling, and approved by the Board of Directors at its
meeting on 20 February 2017.
Edmond is currently President and CEO Kerry Asia Pacific.
He joined Kerry’s Graduate Development Programme in 1996
and worked in Finance until his appointment as Vice President
Finance, Supply Chain and Operations of Kerry’s Global Flavours
Division in 2004. In 2007, Edmond was appointed Vice President
Mergers & Acquisitions, Kerry Americas region, before being
appointed Global President Kerry Functional Ingredients & Actives
in late 2008. In 2012, he was appointed President of Kerry China,
prior to his appointment as President & CEO Kerry Asia Pacific
region in November 2013.
As previously announced, Michael Ahern, James Devane and John
Joseph O’Connor retired from the Board on 31 December 2016. I
would like to thank Michael, James and John for their individual
contributions and service to the organisation.
On 20 February 2017, the Board, on the recommendation of the
Nomination Committee, agreed to appoint Gerard Culligan and
Con Murphy to the Board with effect from 1 June 2017. Gerard
Culligan operates his own business in the agribusiness sector and
is a Director and co-owner of two private companies in the marine
industry. He is also Chairman of Kilrush Credit Union based in
County Clare, Ireland.
Edmond Scanlon, Chief Executive Designate
with Stan McCarthy, Chief Executive.
Con Murphy operates his own business in the agribusiness sector
and is Chairman of the Irish Montbeliarde Cattle Society. Both
Gerard and Con were formerly Directors of Kerry Co-Operative
Creameries Limited. As representatives of the wider community
where the Kerry organisation was founded, they have extensive
experience in the agriculture and food industry.
AUDITORS
As stated in the Group’s 2015 Annual Report, following a formal
external audit tender process undertaken during 2015, the Board
appointed PricewaterhouseCoopers as external auditors for the
Group with effect from 29 March 2016. A resolution to formally
approve their appointment as external auditors was approved by
shareholders at the Annual General Meeting held on 27 April 2016.
Again, may I take this opportunity to thank the outgoing auditors
Deloitte for the value they contributed to the Group over the years.
PROSPECTS
Your Board remains confident that the Group’s business model
and strategies will continue to deliver increased shareholder
value. We will continue to pursue organic and acquisition growth
opportunities and the Group’s balance sheet is well placed to
support our objectives. Management’s views regarding the outlook
for 2017 are presented in the Chief Executive’s Review.
On the Board’s behalf, I would like to thank Stan McCarthy
Chief Executive, Group management and all employees for their
contribution to the ongoing success of the Kerry organisation.
Michael Dowling
Chairman
20 February 2017
8 | KERRY GROUP | ANNUAL REPORT 2016
9 | KERRY GROUP | ANNUAL REPORT 2016
STRATEGIC REPORT
CHIEF EXECUTIVE'S REVIEW
—
Meeting customers’ innovation needs
with our combined Taste & Nutrition
Technologies and Systems
The Group trading profit
margin increased by
70 basis points to 12.2%
12.2%
Stan McCarthy, Chief Executive
Kerry Group achieved good business volume
growth momentum in a competitive market
environment and delivered a strong financial
performance including record cash generation
in 2016.
Group businesses responded well to the prevailing business
environment, increased currency volatility and marketplace
changes by accelerating product innovation and improved
commercial effectiveness. Health & wellness trends continued to
drive ‘nutritionally minded’ consumer choice, increasing demand
for taste, active nutrition, higher protein, natural, ‘free-from’,
authentic, clean-label, convenient food and beverage products.
With growing ‘away-from-home’ consumption and increased
market fragmentation through retail, foodservice and ecommerce
channels, the overall marketplace was marked by significant
product ‘churn’ as food and beverage providers targeted growth
opportunities through differentiated, innovative product offerings.
Kerry’s unique combined Taste & Nutrition Technologies and
Systems were to the fore in meeting customers’ innovation needs
for customised solutions responding to consumer requirements.
The Group’s recent investments in its global, regional and
in-market Technology & Innovation Centre network and
Commercial / Application facilities, coupled with a significant
increase in RD&A expenditure in Taste & Nutrition to 5.1% of
divisional revenue in 2016, contributed to increased customer
engagement and innovation activity. Performance was also
assisted by businesses acquired in 2015 which provided a strong
platform for international market development.
While many developing markets were impacted by continuing
geopolitical issues and significant currency volatility, Kerry
continued to satisfactorily progress market development in all
regions and recorded excellent growth in Asia - particularly
in Q4. Groupwide performance in Q4 reflected good business
development momentum against a strong prior year comparable.
READ MORE Our Markets page 15
10 | KERRY GROUP | ANNUAL REPORT 2016
Health & wellness trends continued to drive
‘nutritionally minded’ consumer choice, increasing
demand for taste, active nutrition, higher protein,
natural, ‘free-from’, authentic, clean-label,
convenient food and beverage products.
READ MORE Our Strategy pages 16-18
Notwithstanding the uncertainty and sterling devaluation
which followed the UK electorate vote on 23 June to leave
the European Union, Kerry Foods, the Group’s consumer foods
division, performed well, capturing growing consumer demand
for authentic, convenient, nutritionally balanced offerings
meeting today’s lifestyle and shopper requirements.
READ MORE Business Review – Consumer Foods pages 39-41
Expenditure on research and development increased significantly
due to increased investment in Taste & Nutrition to €261m (2015:
€234m). Net capital expenditure amounted to €210m (2015:
€229m). The Group achieved a record free cash flow of €570m
(2015: €453m).
READ MORE Group Key Performance Indicators pages 22-23
Financial Review pages 24-30
RESULTS
Group revenue on a reported basis increased slightly to €6.1
billion reflecting good volume growth offset by significant adverse
currency movements and lower pricing. Business volumes grew
satisfactorily during the year reflecting 3.6% growth year-on-
year, good growth in North America, an improved performance
in Latin American markets, challenging market conditions in the
EMEA region (due to the prevailing deflationary environment and
instability in regional developing markets) and a strong business
performance throughout Asia. Net pricing was 2.1% lower against
a background of approximately 4% lower raw material costs.
Currency headwinds relative to 2015 contributed an adverse
4.1% translation impact and an adverse 0.3% transaction currency
impact relative to revenue.
Taste & Nutrition achieved 4% growth in business volumes and
pricing was 2.1% lower. Kerry Foods’ business volumes increased
by 2.1% and pricing reduced by 2%.
READ MORE Business Review – Taste & Nutrition pages 33-38
The Group trading margin increased by 70 basis points to 12.2%.
This reflects a 60 basis points improvement in trading margin in
Taste & Nutrition, a 30 basis points improvement in Kerry Foods’
margin and reduced spending on the Kerryconnect programme.
Basic earnings per share increased by 1.4% to 302.9 cent.
Adjusted earnings per share increased by 7.1% to 323.4 cent (2015:
301.9 cent).
Pea Protein
A DAIRY ALTERNATIVE
10 | KERRY GROUP | ANNUAL REPORT 2016
11 | KERRY GROUP | ANNUAL REPORT 2016
BUSINESS REVIEWS
Taste & Nutrition
Taste & Nutrition reported revenue increased by 3.5% to €4.9
billion, reflecting 4% volume growth and 2.1% net lower pricing.
Trading profit grew by 8.1% to €716m, reflecting a 60 basis points
improvement in divisional trading margin to 14.7%. In 2016 Taste
& Nutrition accounted for 79% of Group revenue and 86% of
Group trading profit. Overall performance was assisted by the
Group’s continuing RD&A investment and by the contribution of
acquisitions completed in 2015.
Kerry achieved a solid performance throughout North and
South American markets in 2016. Sales revenue on a reported
basis increased by 12.2% to €2,589m, reflecting 3.9% volume
growth and 2.1% lower pricing. Taste & Nutrition Technologies
& Systems grew across the Group’s core end-use-markets in
the region with strong momentum in foodservice and direct-
to-retail growth sectors. Red Arrow Products, acquired in
December 2015, performed well, assisting development in the
meat and savoury sectors through its industry leading smoke
and grill technologies. Baltimore Spice provided good growth
opportunities in Latin American markets and performance in
the Americas’ beverage sector was assisted by Island Oasis and
Insight Beverages also acquired in 2015.
Sales revenue in the EMEA region on a reported basis declined
to €1,447m, reflecting a 6.4% adverse translation currency
impact, an adverse 0.2% transaction currency impact, 0.7%
volume growth and 2.1% lower pricing. The UK electorate vote
to leave the European Union created market uncertainty and
a significant devaluation of sterling. In respect of Brexit, Kerry
Taste & Nutrition has a well established manufacturing footprint
in the UK and in mainland Europe, and is well positioned to meet
customer requirements in individual country markets. While the
overall taste market remained challenging in Europe in 2016,
demand for innovation grew due to consumer requirements
for ‘authentic taste’, ‘better-for-you’ and ‘tailored-for-you’
products. The foodservice channel provided the most favourable
opportunities for growth of Kerry’s technology portfolio.
Kerry achieved an excellent business and market development
performance in the Asia-Pacific region in 2016. End-use-
market growth was achieved throughout the Group’s expanded
geographic footprint in the region, with accelerated overall
performance in Q4. Business volumes grew by 10.7% and net
pricing was 1.9% lower. Reported revenue at €765m reflects a
reduction of 2.4%, due to the 7.2% adverse impact of business
disposals net of acquisitions (primarily the sale of the Pinnacle
lifestyle bakery business in Australia completed in May 2015)
and 4% negative currency translation impact. A major expansion
programme at the Group’s Nantong, China production and
distribution centre was completed prior to year end. To support
the Group’s expanding customer base in the region two new
state-of-the-art production facilities were also commissioned in
Batangas, the Philippines and in Cikarang, Indonesia.
Since year end the Group has reached agreement in principle
to acquire Jurong, China based Tianning Flavour & Fragrance
Co. Ltd., which strengthens Kerry’s savoury and sweet flavour
development capability in the Chinese food and beverage
industry, and Adelaide, Australia based Taste Master - a leading
flavours provider to the beverage, sweet & savoury snack and
meat & culinary industries in Australia and New Zealand. Both
transactions are scheduled for completion by the end of Q1
and the total consideration for the businesses being acquired
amounts to €83m.
Consumer Foods
The consumer foods marketplace continues to change with
channel proliferation arising from growth of convenience,
continued expansion of discounter chains, increase in online
purchases and growth in demand for food-on-the-go. With
new entrants disrupting the traditional grocery model and
blurring lines between ‘food-to-go’ and foodservice, the food
and beverage landscape has remained intensely competitive.
In addition consumers have increasingly focused on health
and wellness variants and ‘better-for-you’ lines.
Retailers have responded through a renewed focus on customer
branded offerings and ‘better value’, with a decline in deep cut
promotions which has impacted volume growth. In 2016 Kerry
Foods’ e-tail branded sales outperformed market growth rates.
Kerry Foods’ business volumes grew by 2.1% and net pricing
decreased by 2% in 2016. Reported revenue at €1,333m declined
by 9.7% due to adverse currency movements in 2016 and the
disposal of non-core businesses net of acquisitions in 2015.
Business efficiency improvements and the improved quality of
Kerry Foods’ portfolio contributed a 30 basis points increase in
divisional trading margin to 8.8%. The underlying trading profit
improvement was more than offset by the adverse currency
movement and the business disposals resulting in a trading
profit decrease of 6.7% to €117m.
READ MORE Our Markets page 15
The Group achieved a record
free cash flow of
€570 million
12 | KERRY GROUP | ANNUAL REPORT 2016
In consumer foods’ markets,
Kerry Foods has demonstrated
its resilience and ability
to consistently respond to
consumer needs across the
increasingly fragmented retail,
foodservice and e-tail channels.
FINANCIAL REVIEW
Finance costs (net) for the year increased by €1.1m
to €70.4m (2015: €69.3m). The cost of financing
the high level of acquisition spend in late 2015, was
largely offset by strong cash flow generated during
the year and also from lower pension interest. The
Group’s average interest rate for the year was 3.5%
(2015: 3.6%).
The tax charge for the year, before non-trading
items, was €86.7m (2015: €81.1m) representing an
effective tax rate of 13.7% (2015: 13.7%).
In 2016, the Group achieved a record free cash
flow of €569.9m (2015: €452.6m) resulting in a net
debt to EBITDA ratio at year end of 1.5 times
(2015: 1.9 times).
At the balance sheet date, the net deficit for defined
benefit pension schemes (after deferred tax) was
€291.9m (2015: €253.3m). The increase year-on-year
is primarily driven by lower discount rates.
The Company’s shares traded in the range €61.87
to €84.05 during the year. The share price at 31
December 2016 was €67.90 (2015: €76.31) giving
a market capitalisation of €12 billion (2015: €13.4
billion). Total Shareholder Return for 2016 was
negative 10.3% (2015: +35%) as companies with UK
operations and sterling exposure had their share
price impacted as a result of the Brexit vote, while
the wider consumer staples sector was affected
by rotation into cyclical and interest rate sensitive
shares after the US presidential election.
READ MORE Financial Review pages 24-30
FUTURE PROSPECTS
The Group remains confident of its ability to continue
to profitably grow and develop in the changing global
marketplace. Kerry’s customer-focused business
model and its unrivalled breadth and depth of Taste,
Nutrition & General Wellness technologies and
systems, supported by the Group’s industry leading
Technology & Innovation Centre network, represent
a significant strategic advantage in responding
to consumer trends and customer requirements.
Our business model supports delivery across the
broadening retail, foodservice and ecommerce
landscape throughout global markets. In developed
markets our well established technology leadership
and strong customer alliances will sustain growth
through delivery of customer-preferred, convenient,
tasteful, nutritional food and beverage solutions. The
Group is also well focused on business development
opportunities in regional developing markets, with
prospects for sustained strong growth throughout
Asian markets.
In consumer foods’ markets, Kerry Foods has
demonstrated its resilience and ability to consistently
respond to consumer needs across the increasingly
fragmented retail, foodservice and e-tail channels.
Stan McCarthy
Chief Executive
20 February 2017
12 | KERRY GROUP | ANNUAL REPORT 2016
13 | KERRY GROUP | ANNUAL REPORT 2016
STRATEGIC REPORT
OUR BUSINESS MODEL
—
Maintaining our competitive
advantage through excellence
in innovation and service
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.
Kerry is a world leader in Taste & Nutrition providing unrivalled
service to its broad customer base through its industry-leading
breadth of technologies, broad geographic base and Global
Technology & Innovation Centre network.
Kerry Foods, the Group’s consumer foods division, has developed
strong strategic and commercial alliances with its retail partners
across the Irish, UK and selected European markets. It maintains
market leadership positions through its category leading brands
(including Wall's, Mattessons, Richmond, Pure, Denny, Cheestrings,
Charleville, LowLow and Dairygold to name but a few) and through
its strong alliances in customer branded categories.
The foundations of the Kerry Business Model are based on
maintaining competitive advantage through excellence in
innovation and service to our valued customers. Accordingly,
our 1 Kerry approach to business development and customer
service is focused on creating and nurturing sustainable long-
term customer alliances exploiting the Group’s industry-leading
technologies, innovation capabilities and facilities throughout the
world. 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.
The Kerry business model will continue to leverage our strategic
positioning and competitive advantages that underpin the strategic
development of the Group. This sustainable scalable business
model also provides for continued organic growth and supports the
Group’s position as a leading consolidator in the global taste and
nutrition sectors.
READ MORE Our Strategy pages 16-18
Market
Leadership
Taste & Nutrition
Consumer Foods
#1
#1
Holistic Partnerships
Taste
Nutrition & General
Wellness
Developing
Markets
Consumer
Channel
Customer
Geography
Sustainability
1 Kerry
14 | KERRY GROUP | ANNUAL REPORT 2016
STRATEGIC REPORT
OUR MARKETS
—
Understanding and
anticipating change
in consumer trends
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.
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.
THE CHANGING
MARKETPLACE –
‘NEW CONSUMER’
140
Kerry sales in over
140 countries
45%
EMEA
REGION
42%
AMERICAS
REGION
13%
ASIA-PACIFIC
REGION
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.
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
DEMOGRAPHIC
Shrinking middle class
Millennial growth
Urban centres
growing rapidly
Single households
Ethnic expansion
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.
15 | KERRY GROUP | ANNUAL REPORT 2016
STRATEGIC REPORT
OUR STRATEGY
—
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.
Market
Leadership
Taste & Nutrition
Consumer
Foods
Holistic Partnerships
1
Taste
2
Nutrition
& General
Wellness
3
Developing
Markets
A
B
C
D
Consumer
Channel
Customer
Geography
Sustainability
1 Kerry
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
3 STRATEGIC GROWTH PILLARS: 1. Taste / 2. Nutrition & General Wellness / 3. Developing Markets
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:
Pure & Simple
Authentic & Familiar
Fresh & Invigorating
Pleasure & Indulgence
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.
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.
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.
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 and local 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
2008
19%
2011
21%
2016
26%
16 | KERRY GROUP | ANNUAL REPORT 2016
The Group’s Taste and Nutrition strategies are interdependent and uniquely benefit
through Kerry’s ability to formulate and leverage both platforms.
Taste
Nutrition & Wellness
Pure & Simple
Clean label; Trusted;
No artificial ingredients;
Free from
Authentic & Familiar
Cooking style; Authentic;
Taste of time; Ethnic
Free From
Food intolerance;
Low/no/reduced lactose; Gluten free;
Clean/cleaner label
Better For You
Reduced sugar,
salt and fat;
Balanced choice
Pleasure & Indulgence
New taste;
Fine-dining; Patisserie
and Coffeehouse
experiences
Fresh & Invigorating
Taste without
compromise; Fresh;
Healthy halo;
Natural mood
Good For You
Protein fortification;
Carbohydrate quality;
Healthy lipids;
Micronutrient fortification;
Naturally good for you
Tailored for You
Infant & toddler,
Performance and
Healthcare nutrition;
Weight management
KERRY TASTE RESEARCH PROGRAMME
Technology Focus
Citrus
Natural/Extracts
Sugar & Salt
Perception
Dairy Taste
Savoury Taste
Smoke & Grill
Yeast
Consumer
Analysis
Process
Pure & Simple
Pleasure & Indulgence
Fresh & Invigorating
Authentic & Familiar
Sensory Excellence, Molecular Analytical, Regulatory
Distillation / Extraction / Reduction / Encapsulation / Reaction / Fermentation / Compounding
Applications
Beverages, Bakery, Confectionery, Dairy, Meats, Soups & Sauces, Snacks, Prepared Meals, Pharma
KERRY NUTRITION RESEARCH PROGRAMME
Lifestage
Infant &
Toddlers
Children &
Adolescents
Early
Adulthood
Healthy
Ageing
Seniors
Digestive Health
Weight Management
Allergies & Immunity
General Wellness
Muscle Health
17 | KERRY GROUP | ANNUAL REPORT 2016
Consumer Foods
Kerry Foods’ strategy is underpinned by four platforms for growth
4 STRATEGIC GROWTH PILLARS: A. Consumer / B. Channel / C. Customer / D. Geography
A. Consumer
We will use consumer-led
insight and innovative
technology to develop
compelling propositions
that delight shoppers in
our core categories – 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
B. Channel
We will ensure our products
are readily available to all
our consumers, across all
channels, when ever and
where ever they shop.
C. Customer
We will work collaboratively
with our customers to
ensure we create products
that they, and their
consumers, love to buy.
D. Geography
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 eight
mainland European countries
with Cheestrings and we are
actively exploring many more.
We will leverage our brands
and technology into new
geographies where we
can establish a defendable
position based on a
competitive advantage
which is underpinned by
real consumer insight.
18 | KERRY GROUP | ANNUAL REPORT 2016
STRATEGIC REPORT
STRATEGIC ADVANTAGE
—
We have a long history of sustained profitable growth.
Group strategy will continue to be achieved through
the commitment and expertise of our people.
Technology
Leader
Market
Leader
Proven
Success
Unrivalled technology breadth
Fundamental science &
research capability
Food science &
process expertise
Unique taste &
nutrition positioning
Application &
culinary leadership
#1 in America, Europe and
ROW for Savoury, Dairy &
Beverage
#1 in America, Europe for
Cereal & Sweet
#1 in specialty proteins globally
Top 5 in flavours globally
In 5 of the top 10
blockbuster drugs
Consistent delivery
of targets since 1986
10% CAGR for revenue
14% CAGR for trading profit
13% CAGR for adjusted EPS
16% CAGR on share price
17% CAGR on dividends
Global Technology &
Innovation Centre platform
A leader in chilled food
in UK and Ireland
Growth
Potential
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
People
Sustainable
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 2016
19 | KERRY GROUP | ANNUAL REPORT 2016
STRATEGIC REPORT
OUR PEOPLE
—
Enabling sustainable growth
locally and globally
With 23,000 employees throughout
the world, the Group’s diverse high
performance teams are central to our
innovative culture and ongoing success.
READ MORE Sustainability Review pages 42-59
HOW WE CREATE SUSTAINABLE VALUE
Developing the unique talents and capabilities in our business
and functional areas, combining and leveraging our strengths through
our 1 Kerry business model and approach, whilst retaining and nurturing
our employee determination and enthusiasm to succeed, are key to the
Group’s strategy for continued growth and development.
Our Kerry employee-centric culture has evolved to support sustainable
growth by driving engagement and performance across our groupwide
businesses. The compass of our winning culture and way of working is
our shared values.
OUR SHARED VALUES
Commitment
Teamwork
Excellence
Entrepreneurial
Value Creation
Customers | Passion |
Science | Technology
We are whole-heartedly
committed to the success
of our customers and
Kerry. We take great
pride in our food and
beverage heritage and
continuously strengthen
our science, technology
and applications expertise
to passionately serve
our customers.
Respect | Diversity
| Empowered |
Accountable
We value and respect
each other. We embrace
our global diversity
as a key driver of our
innovation and success.
We are empowered and
accountable for delivering
greater results for our
stakeholders, Kerry and
our careers.
Quality | Safety |
Integrity | Ethics
Ownership | Innovation |
Agility | Drive
Success | Results |
Sustainable | ROI
We execute with
excellence in everything
we do. We continuously
develop our skills and
improve our performance.
We strive to deliver
superior quality and
never compromise on the
safety of our colleagues
or products. We operate
with integrity and adhere
to the highest standards
of business and ethical
behaviour.
We are swift and
responsive, adapting
quickly to the changing
market. We seek
innovative ideas to drive
the business forward and
achieve new levels of
success for our customers
and Kerry.
We prioritise our work to
provide greater value for
our customers and the
business. We generate
maximum returns on
our investments and
continuously seek better
ways to deliver long-
term value on a socially
and environmentally
sustainable basis.
KERRY CODE OF CONDUCT
Through our Kerry Code of Conduct we focus critical attention on ethical business
practices and provision of a safe and healthy workplace. Achieving results
ethically and in compliance with all relevant legislation will always be an absolute
expectation at Kerry Group. We operate zero tolerance for labour abuses and
support effective abolition of child and forced labour worldwide. The Group’s
‘Employee Concerns’ hotline provides a mechanism by which employees can
report issues in confidence through an independent channel.
20 | KERRY GROUP | ANNUAL REPORT 2016
KERRY GROUP DIVERSITY PROGRAMME
In 2016 the Group launched a new Global Diversity Programme. This programme represents Kerry’s current and
long-range commitment to fostering a multicultural workforce and an inclusive environment where each person
can contribute to the organisation’s success and excel in her or his Kerry career.
Talent
People
Development
Agile
Working
Volunteering
Inclusion
Attract the best, grow and ignite their talents and deliver sustainable success
for all, by building an empowered and diverse workforce.
Offer colleagues valuable learning experiences and development, which empowers
them to achieve their career ambitions and realise their full potential.
Enable colleagues to take personal responsibility for finding a more balanced way
to realise career aspirations and life goals.
Fulfill our responsibilities to the communities in which we are located, by creating a
connection between ourselves and our neighbours that enables both them and our
company to thrive.
To foster an environment where independence of thought is highly valued and where
all individuals (irrespective of diverse race, colour, ethnicity, culture, gender, sexual
orientation, gender identity and expression, religion, nationality, age, disability, marital
and parental status) are encouraged to achieve their full potential and fully contribute
to the goals of the Group.
HEALTH & WELLBEING AT KERRY
The health and safety of our employees is a key priority for the
Group and Kerry’s safety policy establishes the fundamental
principles that all employees must consider in their role and their
business decisions. Global Health & Safety Management Systems
are fully implemented throughout all Group businesses and in
2016 we achieved a further 9% improvement in global safety
metrics. We also continued to support a range of initiatives at
site level throughout the Group to encourage people to
become more active and to promote greater awareness of
health and wellbeing.
In 2016 we achieved a further
9% improvement in global
safety metrics
9%
LEARNING AND DEVELOPMENT
In 2016 our Group Human Resources teams continued to develop
and implement structured training and development programmes
for employees through which they acquire the skills, knowledge
and capabilities necessary to assist their individual performance
and development.
A new Kerry Executive Leadership programme was successfully
established in 2016 – identifying new and diverse talent for
future leadership and functional roles.
The Group’s successful Graduate Development Programme
continued to play a central role in 2016 in recruitment and
development of future talent to assist the sustainable growth
of the organisation.
A new Groupwide employee
engagement survey will be
completed in 2017 which will
inform how we can improve our
organisational performance and
enhance our winning Kerry culture.
21 | KERRY GROUP | ANNUAL REPORT 2016
STRATEGIC 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
(10.3%)
5 YEAR COMPOUND GROWTH 148%
Kerry
MSCI F&B
E300 F&B
350
300
250
200
150
100
50
0
ADJUSTED
EPS GROWTH
7.1%
�
GROWTH
VOLUME
GROWTH
3.6%
�
TRADING MARGIN
EXPANSION
+70bps
3.8%
3.6%
2.8% 3.0%
2.4%
10.5%
11.1%
9.6%
11.5%
12.2%
7.1%
323.4
8.2%
301.9
8.1%
278.9
10.2%
257.9
9.7%
234.0
2012
2013
2014
2015
2016
2012 2013
2014
2015
2016
2012 2013
2014
2015
2016
2012 2013
2014
2015
2016
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
-10.3% in 2016, as companies with
UK operations and sterling
exposure had their share price
impacted as a result of
the Brexit vote, while the wider
consumer staples sector was
affected by rotation into
cyclical and interest rate
sensitive shares after the US
Presidential election.
TSR growth over the past two
years was +20.7%, while the
Group has achieved Compound
Growth of +148% in TSR since
the beginning of 2012.
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 7.1% in the year, which
was below the Group’s medium
term target of 10% per annum,
but reflects a strong underlying
performance when you consider
the significant translation currency
headwinds in 2016. Constant
currency EPS growth achieved in
the year was 12.3%.
Link to Remuneration
Performance metric for short-term
& long-term incentive plans.
Definition*
This represents sales volume
growth year-on-year from ongoing
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 2016 of 3.6%,
which is within the Group’s target
range of 3-5% p.a. This was a good
performance in light of a weak
global marketplace.
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 70 bps in
2016, which is in excess of the
Group target range of +50 bps
per annum (Group target after
including the +100 bps benefit
arising from the Kerryconnect
project).
Link to Remuneration
Key driver of adjusted EPS growth
(performance metric for short &
long-term incentive plans).
22 | KERRY GROUP | ANNUAL REPORT 2016
GROUP 5 YEAR TARGETS (2013–2017)
GROWTH
Adjusted EPS 10%+ p.a. by:
Volume growth
Margin Expansion
Taste & Nutrition 4% to 6% p.a.
2% to 3% p.a.
Consumer Foods
3% to 5% p.a.
Group
Taste & Nutrition 50bps p.a
20bps p.a
Consumer Foods
30bps p.a
Group
Plus an additional 100 bps from Kerryconnect project
RETURN
ROACE 12%+
ROAE 15%+ CFROI 12%+
Targets assume neutral currency and raw materials, and market growth rates of 2% to 3% p.a.
The metrics outlined below are important
measurement indicators of Group performance in
meeting its strategic objectives. 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 ON AVERAGE
CAPITAL EMPLOYED (ROACE)
12.9%
14.2% 14.4%
13.6%
12.9%
12.6%
RETURN
RETURN ON AVERAGE
EQUITY (ROAE)
16.5%
18.0% 18.6%
17.0%
17.5%
16.5%
CASH FLOW RETURN ON
INVESTMENT (CFROI)
12.8%
12.6%
11.5%
12.8%
11.3%
9.1%
CASH
FREE
CASH FLOW
€570m
570
453
412
345
303
2012 2013
2014
2015
2016
2012 2013
2014
2015
2016
2012 2013
2014
2015
2016
2012 2013
2014
2015
2016
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
12.9% in 2016, above the Group’s
target of 12%. Performance in 2015
and 2016 was impacted by the
significant acquisitions completed
in Q4 2015.
Link to Remuneration
Performance metric for
long-term incentive plan.
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 16.5% in 2016, above the
Group’s target of 15%.
Performance in 2015 and 2016
was impacted by the significant
acquisitions completed in Q4
2015.
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
12.8% in 2016, above the Group’s
target of 12%.
Link to Remuneration
Free Cash Flow (performance
metric for short-term incentive
plan) is the key driver of CFROI.
Definition*
Free Cash Flow is trading profit
plus depreciation, movement
in average working capital, net
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 record free
cash flow of €570m in 2016,
reflecting strong management
of average working capital, and
timing of capital expenditure,
offset by an increase in pension
contributions in 2016.
Link to Remuneration
Performance metric for
short-term incentive plan.
READ MORE Non-Financial KPIs are detailed
in our Sustainability Review pages 42-59
* These are non-IFRS measures or Alternative Performance Measures. Definitions, calculations and reconciliations for
these are set out within the Supplementary Information section - Financial Definitions on pages 184-186.
22 | KERRY GROUP | ANNUAL REPORT 2016
23 | KERRY GROUP | ANNUAL REPORT 2016
STRATEGIC REPORT
FINANCIAL REVIEW
—
Delivering a strong
performance
VOLUME GROWTH
+3.6%
MARGIN IMPROVEMENT
+70bps
ADJUSTED
EPS
CONSTANT
CURRENCY
+7.1% +12.3%
RECORD FREE CASH FLOW
€570m
Brian Mehigan,
Chief Financial Officer
The Group delivered a
strong underlying business
performance in 2016 with 7.1%
adjusted earnings per share
growth (12.3% growth
in constant currency).
This was achieved due to 3.6% volume
growth in a challenging marketplace,
and trading profit margin improvement
of 70bps, as the Group improved the
quality of its business. A record free cash
flow performance of €570m was also
achieved in 2016.
The Financial Review provides an overview
of the Group’s financial performance for
the year ended 31 December 2016 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 4 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.
READ MORE Group Key Perfomance Indicators
pages 22-23
READ MORE Non-Financial KPIs are detailed in
our Sustainability Review pages 42-59
GROWTH
Adjusted* EPS growth
Volume growth
Trading profit margin expansion
RETURN
Return on average capital employed (ROACE*)
Return on average equity (ROAE*)
Cash flow return on investment (CFROI)
Target
10%+
3% to 5%**
+50bps p.a.***
Target
12%+
15%+
12%+
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.
*** Includes 100 bps benefit arising from the Kerryconnect project
4 Year Average
Constant Currency
9.8%
8.4%
3.2%
+70bps
4 Year Average
13.8%
17.7%
11.5%
24 | KERRY GROUP | ANNUAL REPORT 2016
ANALYSIS OF RESULTS
Revenue
Trading profit
Trading margin
Computer software amortisation
Finance costs (net)
Adjusted earnings before taxation
%
change
0.4%
7.1%
Income taxes (excluding non-trading items)
Adjusted earnings after taxation
7.2%
Brand related intangible asset amortisation
Non-trading items (net of related tax)
Profit after taxation
Adjusted* EPS
7.1%
Brand related intangible asset amortisation
Non-trading items (net of related tax)
Basic EPS
1.4%
* Before brand related intangible asset amortisation and non-trading items (net of related tax)
2016
€’m
2015
€’m
6,130.6
6,104.9
749.6
12.2%
(23.4)
(70.4)
655.8
(86.7)
569.1
(23.0)
(13.0)
533.1
EPS
Cent
323.4
(13.1)
(7.4)
302.9
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
Revenue
On a reported basis, Group revenue increased slightly by 0.4% to €6.1 billion (2015: €6.1 billion). Volumes grew by
3.6%, product pricing decreased by 2.1%, and transaction related currency had a negative impact of 0.3%. Business
acquisitions net of disposals contributed 3.3%, and there was a negative reporting currency impact of 4.1%.
In Taste & Nutrition, reported revenue increased by 3.5% to €4.9 billion (2015: €4.7 billion). Volumes grew by 4.0%,
product pricing decreased by 2.1%, and transaction related currency had a negative impact of 0.1%. Business
acquisitions net of disposals contributed 4.9%, and there was a negative reporting currency impact of 3.2%.
In Consumer Foods, reported revenue decreased by 9.7% to €1.3 billion (2015: €1.5 billion). Volumes increased by
2.1%, product pricing decreased by 2.0%, and transaction related currency had a negative impact of 1.1%. There was
a negative impact of business disposals net of acquisitions of 2.1% and a negative reporting currency impact of 6.6%
mainly due to weaker sterling.
Trading Profit & Margin
On a reported basis, Group trading profit increased by 7.1% to €749.6m (2015: €700.1m). Group trading profit margin
increased 70 basis points (bps) to 12.2%. The improvement in Group trading profit margin is attributed to improved
product mix, the positive impact from acquisitions net of disposals, operating leverage, a benefit from lower spend on
the 1 Kerry Business Transformation Programme, and the positive arithmetical effect which lower pricing has on the
trading margin calculation (the ‘denominator effect’).
Trading profit margin in Taste & Nutrition increased by 60 bps to 14.7%, due to the benefits of improved product mix
underpinned by increased investment in R&D, the positive impact from acquisitions net of disposals, operating
leverage and the positive denominator pricing effect. Trading profit margin in Consumer Foods increased by 30 bps to
8.8% due to the benefits of an improved product mix/portfolio, and the positive denominator pricing effect.
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 33 to 41.
24 | KERRY GROUP | ANNUAL REPORT 2016
25 | KERRY GROUP | ANNUAL REPORT 2016
Computer Software Amortisation
Computer software amortisation increased to €23.4m (2015: €18.7m) reflecting the ongoing 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 marginally increased by €1.1m to €70.4m (2015: €69.3m). The cost of financing the
high level of acquisition spend in late 2015 was largely offset by strong cash flow generated during the year and also
from lower pension interest. The Group’s average interest rate for the year was 3.5% (2015: 3.6%).
Taxation
The tax charge for the year, before non-trading items, was €86.7m (2015: €81.1m) representing an effective tax rate of
13.7% (2015: 13.7%).
Acquisitions
During the year the Group completed two bolt-on acquisitions, establishing manufacturing bases in two new geographies.
Jungjin Foods was acquired in South Korea and Vendin S.L. was acquired in Spain.
Non-Trading Items
The Group recorded €13.0m of costs net of tax relating to the integration of businesses acquired in 2015. This compares
to an income of €13.1m in 2015, primarily due to profits realised on the disposal of non-core businesses.
Adjusted EPS
Adjusted EPS increased by 7.1% to 323.4 cent (2015: 301.9). The year-on-year increase was negatively impacted by
translation currency headwinds. On a constant currency basis, adjusted EPS increased by 12.3% over the prior year.
Basic EPS
Basic EPS increased by 1.4% to 302.9 cent (2015: 298.7 cent) after accounting for brand related intangible asset
amortisation of 13.1c (2015: 10.6c) and non-trading items of 7.4c net of tax (2015: (7.4c)). Non-trading items as
described above negatively impacted Basic EPS in 2016, but had a positive impact in 2015.
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 2016
the Group achieved ROACE of 12.9% (2015: 13.6%), ROAE of 16.5% (2015: 17.5%), while CFROI was 12.8% (2015: 11.3%),
all of which were above the Group return on investment hurdles.
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 results. 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
2015
1.46
2016
1.48
Closing Rates
2015
1.49
2016
1.46
3.84
0.82
1.46
4.58
20.67
74.13
16.08
1.11
3.72
0.73
1.41
4.30
17.46
68.07
13.90
1.12
3.44
0.86
1.42
4.73
21.87
63.81
14.50
1.05
4.25
0.73
1.51
4.69
18.73
79.70
16.95
1.09
26 | KERRY GROUP | ANNUAL REPORT 2016
Impact of Brexit
Since the referendum in June, our Business Brexit teams have been working through and managing the potential
implications for Kerry. Whilst the details of the eventual outcomes are unclear, we have been planning for different
scenarios, noting that there will be a number of potential effects, most noticeably on exchange rates, labour
costs/availability and tariffs in relation to the movement of goods and services. We will continue to update our plans as
greater clarity emerges. Given our well established manufacturing footprint in the UK and the Eurozone, we are very
well positioned to deal with the potential challenges and realise the opportunities that will arise.
Dividends
The Board has proposed a final dividend of 39.2 cent per A ordinary share payable on 19 May 2017 to shareholders
registered on the record date of 28 April 2017. When combined with the interim dividend of 16.8 cent per share, the
total dividend for the year amounted to 56.0 cent per share (2015: 50.0 cent per share) an increase of 12.0%.
Kerry’s policy is to pay a dividend each year and has an unbroken record of dividend growth. Over its 30 years as a
listed company, the Group has grown its dividend at a compound rate of 17.2%. The Group’s aim is to have double
digit dividend growth each year.
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
2016
€’m
1,451.9
3,444.3
285.7
2,240.0
7,421.9
1,693.4
2,634.5
4,327.9
3,094.0
3,094.0
2015
€’m
1,410.4
3,482.6
290.5
1,832.3
7,015.8
1,480.6
2,745.1
4,225.7
2,790.1
2,790.1
Intangible Assets & Acquisitions
Intangible assets decreased by €38.3m to €3,444.3m (2015: €3,482.6m) as additions during the year were offset by
foreign exchange movements and the annual amortisation charge.
Current Assets
Current assets increased by €407.7m to €2,240.0m (2015: €1,832.3m), primarily due to an increase in cash in hand at
the year end, as a result of strong cash flow generated in the year.
Retirement Benefits
At the balance sheet date, the net deficit for defined benefit schemes (after deferred tax) was €291.9m (2015:
€253.3m). The increase year-on-year is primarily driven by lower discount rates in the UK, the Eurozone and the USA,
the impact of which has been partially offset by cash contributions paid into the schemes during the year and a strong
investment return on plan assets. The net deficit expressed as a percentage of market capitalisation at 31 December
2016 was 2.4% (2015: 1.9%).
Shareholders’ Equity
Shareholders’ equity increased by €303.9m to €3,094.0m (2015: €2,790.1m), resulting from profits generated during
the year, offset in part by dividends.
A full reconciliation of shareholders’ equity is disclosed in the Consolidated Statement of Changes in Equity on page 122.
26 | KERRY GROUP | ANNUAL REPORT 2016
27 | KERRY GROUP | ANNUAL REPORT 2016
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.
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 2016 the Group achieved a record free cash
flow of €569.9m (2015: €452.6m) analysed below with a free cash flow to adjusted* earnings after tax conversion
rate of 100% (2015: 85%). This reflects stronger profit, management of average working capital and timing of capital
expenditure spend, offset by a higher level of pension contributions in 2016.
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)
2016
€’m
749.6
129.8
137.7
(118.2)
898.9
(61.5)
(57.3)
(210.2)
569.9
2015
€’m
700.1
125.9
(1.6)
(57.5)
766.9
(46.6)
(38.3)
(229.4)
452.6
28 | KERRY GROUP | ANNUAL REPORT 2016
Net Debt
Net debt at the end of the year was €1,323.7m (2015: €1,650.1m). The decrease 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
Decrease/(increase) in net debt resulting from cash flows
Fair value movement on interest rate swaps
Exchange translation adjustment on net debt
Decrease/(increase) in net debt in the year
Net debt at beginning of year
Net debt at end of year
2016
€’m
569.9
(26.0)
(76.0)
(21.2)
(91.2)
0.1
355.6
(5.4)
(23.8)
326.4
(1,650.1)
(1,323.7)
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)
On 20 January 2017, the Group repaid US $192m of senior notes which matured on that date.
Exchange impact on net debt
The exchange translation adjustment of €23.8m results primarily from borrowings denominated in US dollar
translated at a year end rate of $1.05 versus a rate of $1.09 in 2015.
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)
2016
€’m
397.8
–
(143.8)
(1,577.7)
(1,323.7)
2015
€’m
198.0
(153.7)
(143.9)
(1,550.5)
(1,650.1)
6.4
7.5
28 | KERRY GROUP | ANNUAL REPORT 2016
29 | KERRY GROUP | ANNUAL REPORT 2016
Key Financial Covenants
A significant portion of Group financing facilities are subject to financial covenants as set out in their facility
agreements. The Group’s balance sheet is in a healthy position. With a net debt to EBITDA* ratio of 1.5 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
2016
Times
1.5
14.0
2015
Times
1.9
17.3
Net Debt: EBITDA*
EBITDA: Net Interest*
3.5x
3.0x
2.5x
2.0x
1.5x
1.0x
2012
2013
2014
2015
2016
19.0x
17.0x
15.0x
13.0x
11.0x
9.0x
7.0x
5.0x
2012
2013
2014
2015
2016
* Calculated in accordance with lenders’ facility agreements which take account of adjustments as outlined on page 185.
Credit Facilities
Undrawn committed facilities at the end of the year were €1,100.0m (2015: €1,100.0m) while undrawn standby facilities
were €360.0m (2015: €340.3m).
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.
Share Price and Market Capitalisation
The Company’s shares traded in the range €61.87 to €84.05 during the year. The share price at 31 December 2016 was €67.90
(2015: €76.31) giving a market capitalisation of €12.0 billion (2015: €13.4 billion). Total Shareholder Return for 2016 was negative
10.3% (2015: +35%), as companies with UK operations and sterling exposure had their share price impacted as a result of the Brexit
vote, while the wider consumer staples sector was affected by rotation into cyclical and interest rate sensitive shares after the US
presidential election.
FINANCIAL RISK MANAGEMENT
Within the Group risk management framework as described in the Risk Report on page 60, 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.
Further details relating to the Group’s financial and compliance risks and their associated mitigation processes are discussed in
the Risk Report on pages 60 to 68 and in note 24 to the financial statements.
SUMMARY AND FINANCIAL OUTLOOK
Against the backdrop of a volatile economic and market environment, the Group delivered another strong performance in 2016
generating revenue of €6.1 billion, trading profit of €750m and free cash flow of €570m. At year end the balance sheet is also in a
good position and with a net debt: EBITDA ratio of 1.5 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 2017, the Group looks forward to further financial
growth and development in the year ahead.
30 | KERRY GROUP | ANNUAL REPORT 2016
STRATEGIC REPORT
10 YEAR EARNINGS HISTORY
—
A strong history of
positive results
2007
€’m
2008
€’m
2009
€’m
2010
€’m
2011
€’m
**2012
€’m
2013
€’m
2014
€’m
2015
€’m
2016
€’m
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
6,130.6
401.1
(2.6)
(79.1)
319.4
(64.5)
254.9
(10.0)
1.2
409.2
(3.6)
(77.6)
328.0
(62.7)
265.3
(11.3)
(77.0)
422.3
(4.5)
(69.8)
348.0
(61.2)
286.8
(12.3)
(73.3)
470.2
(4.3)
500.5
(5.4)
(60.5)
(46.0)
449.1
(74.6)
374.5
(13.9)
405.4
(68.7)
336.7
(11.8)
(0.7)
559.0
(8.7)
(62.1)
488.2
(77.3)
410.9
(14.7)
611.4
(11.5)
(67.6)
532.3
(79.1)
453.2
(16.6)
636.4
(13.6)
(52.9)
569.9
(79.6)
490.3
(14.4)
4.0
700.1
(18.7)
(69.3)
612.1
(81.1)
531.0
(18.7)
13.1
0.1
(135.5)
(352.2)
246.1
177.0
201.2
324.2
360.7
260.7
84.4
479.9
525.4
749.6
(23.4)
(70.4)
655.8
(86.7)
569.1
(23.0)
(13.0)
533.1
Revenue
Trading profit
Computer software amortisation
Finance costs (net)
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
Adjusted EPS (cent)*
142.4
151.8
163.9
192.1
213.4
234.0
257.9
278.9
301.9
323.4
*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) and 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.
30 | KERRY GROUP | ANNUAL REPORT 2016
31 | KERRY GROUP | ANNUAL REPORT 2016
Citrus
CMYK 85.45.80.50
RGB 32.72.50
HEX 204832
Pantone 357U
CMYK 48.4.90.3
RGB 151.187.59
HEX 97bb3b
Pantone 382U
CMYK 0.35.90.0
RGB 249.177.34
HEX f9b122
Pantone 129U
CMYK 0.0.30.85
RGB 73.72.57
HEX 494839
Pantone 440U
32 | KERRY GROUP | ANNUAL REPORT 2016
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.
REVENUE
2016
€4,880m
GROWTH
4%*
TRADING PROFIT
2016
€716m
GROWTH
+8.1%
TRADING MARGIN
2016
14.7%
GROWTH
+60bps
STRATEGIC REPORT
BUSINESS REVIEW
—
Taste & Nutrition
—
Driving innovation and
delivering consumer
preferred solutions
Gerry Behan, President and CEO
of Kerry Taste & Nutrition
Kerry’s Taste & Nutrition Technologies and Systems continued to drive innovation
and deliver consumer-preferred solutions in all end-use-markets across global
and regional accounts serving retail and foodservice markets. With increased
market fragmentation, channel diversification and growing demand for niche
categories, food and beverage providers continue to seek innovative solutions to
meet consumer requirements for ‘clean label’, ‘free from’, no added sugar, natural,
more nutritious, authentic, sustainably produced products. This has contributed
to significant marketplace disruption which, coupled with macro-economic issues,
adversely effected performance in some developed markets – in particular in
Europe. Regional developing markets impacted by geopolitical issues remain
challenged but Asian developing markets provided solid growth opportunities.
Overall performance was assisted by the Group’s continued RD&A investment and
by the contribution of acquisitions completed in 2015. Integration of the acquired
businesses has progressed satisfactorily to-date and the Group continues to
invest in extending the acquired technologies into wider taste and nutrition
applications in all regions.
Taste & Nutrition reported revenue increased by 3.5% to €4.9 billion, reflecting 4%
volume growth and 2.1% net lower pricing. Trading profit grew by 8.1% to €716m,
reflecting a 60 basis points improvement in divisional trading margin to 14.7%. In
2016 Taste & Nutrition accounted for 79% of Group revenue and 86% of Group
trading profit.
32 | KERRY GROUP | ANNUAL REPORT 2016
33 | KERRY GROUP | ANNUAL REPORT 2016
* volume growth
TASTE & NUTRITION AMERICAS REGION
Taste & Nutrition Technologies & Systems
grew across the Group’s core end-use-
markets with strong momentum in
foodservice and direct-to-retail growth
sectors. Food Protection & Fermentation
Technologies drove innovation in the
meat, culinary, dairy and bakery sectors.
Development in the meat and savoury
products sector was assisted by Red
Arrow Products, acquired in December
2015 - through its smoke and grill taste
technologies which deliver the most
authentic taste experiences in the
marketplace. Growth was achieved in the
US, Canadian and Latin American processor
markets and also through new launches
and wider meal occasions in the foodservice
sector. Fermentation Technologies also
successfully introduced new gluten-free,
organic and non-GMO lines to its portfolio
which contributed to growth in the bakery
category. A US $28m expansion programme
at the Group’s Rochester (MN) facility
commenced in Q4 2016 to support capacity
and technology advancement. Culinary
Taste & Systems performed well in the
meals sector. The dairy, dairy-free and
yoghurt sectors also provided good growth
opportunities for Kerry’s taste technologies.
Continued growth was achieved in the
confectionery and snacking sectors
throughout American markets. Layering
natural flavours and nutritional ingredients
in snack seasonings systems drove
innovation in the premium snacks and
nutritional bar categories. Snacking as an
eating occasion continues to increase,
with millennials being at the forefront
of category growth. Costa Rican based
Baltimore Spice, acquired in July 2015,
provided good growth opportunities in
Latin America, particularly in Central
American markets. The decline in the
traditional R.T.E. cereals sector led to
continued challenges in Sweet &
Cereal Systems and a realignment of
Kerry operations.
Awareness of sugar content, functionality,
premiumisation, natural products, new
packaging formats and innovation remain
key drivers of growth in the beverage
sector. Kerry’s Beverage Taste & Systems
maintained good growth, particularly in
the foodservice and convenience store
channels. Development in the nutritional
beverage end-use-market, resulting from
increased focus on ‘active nutrition’
and general wellness products, was
driven by Kerry’s liquid systems and
taste technologies.
AMERICAS
REGION
Taste again grew
market positioning as
the number 1 driver
of food and beverage
purchasing throughout
the Americas region
in 2016.
Sales revenue in the
Americas region
increased by
12.2%
Health and wellness trends also combined
to drive growth in demand for clean-
label, organic and ‘free-from’ lines, which
contributed to increased fragmentation in
the marketplace and growth of
niche categories. This fuelled innovation
pipelines and assisted a solid performance
by Kerry’s Taste & Nutrition Technologies
and Systems in North America and an
improved performance in Latin American
markets relative to 2015 – in particular in
the taste, culinary and beverage sectors.
Sales revenue in the Americas region on
a reported basis increased by 12.2% to
€2,589m, reflecting 3.9% volume growth
and 2.1% lower pricing.
34 | KERRY GROUP | ANNUAL REPORT 2016
In line with investment to support Kerry’s
Taste & Nutrition strategic development
and customer collaboration, the Group
also opened a new Taste & Nutrition
Discovery facility, bringing together
marketplace consumer insights, scientific
and applications expertise interactively, at
the Beloit (WI) based Kerry Technology &
Innovation Centre.
READ MORE Our Markets page 15
Island Oasis and Insight Beverages
acquired in 2015 performed to
expectations, broadening Kerry’s market
positioning, particularly in the c-store,
hotel and catering channels. Kerry’s
branded beverage products including Da
Vinci Gourmet and Big Train, continued
to broaden market penetration in Latin
American markets.
In the North American pharmaceutical
sector, performance in excipients
was advanced through new generic
pharmaceutical lines formulated using
Kerry’s ‘Sheffcoat’ film coating system.
Cell nutrition maintained strong growth
through custom-developed complex media
systems. Good progress was achieved in
integrating the Wellmune® branded natural
food, beverage and supplement immune
enhancing ingredients business acquired
in September 2015. In 2016 the sectoral
application of Wellmune® was successfully
extended with launches in sports nutrition,
functional dairy beverages, yoghurt
products and dietary supplements.
35 | KERRY GROUP | ANNUAL REPORT 2016
Dairy
Technology
36 | KERRY GROUP | ANNUAL REPORT 2016
TASTE & NUTRITION EMEA REGION
EMEA
REGION
While the overall
taste market remained
challenging in Europe in
2016, demand for innovation
grew due to consumer
requirements for ‘authentic
taste’, ‘better-for-you’ and
‘tailored-for-you’ products.
European market conditions remained
highly competitive in 2016, as the
deflationary environment in the majority
of developed markets limited growth and
geopolitical issues continued to destabilise
developing markets in the region. However,
snacking and convenience trends provided
positive growth momentum in the
foodservice sector, benefiting Kerry’s Taste
& Nutrition Technologies and Systems.
Dairy & Culinary also achieved good
volume growth in the foodservice sector
due to menu extension capitalising
on appetiser and snacking trends.
‘DairySource’, Kerry’s clean-label dairy
portfolio launched in 2016 was favourably
received. Development in the traditional
snack sector was subdued but demand
for premium, innovative savoury snacks
provided good growth opportunities in
mainland Europe and Russia. Primary
dairy production reduced in some major
exporting countries in H2 2016 which
contributed to improved trading conditions
in international dairy markets.
Cereal & Sweet technologies were
impacted by the decline in breakfast cereal
consumption, a relatively poor ice cream
summer season and overall consumer
trends in sugar based products. Savoury
Taste benefitted from clean-label and
broader recipe profiles in the prepared
meals, soups, sauces and dressings
categories. The overall meat sector in
the UK and mainland Europe remained
intensely competitive which impacted
development but continued market
development was achieved in Eastern
European markets and Russia. Market
conditions in Sub-Saharan Africa stabilised
in 2016 providing more favourable growth
opportunities.
Fermentation technologies achieved
continued growth in the EMEA bakery
category. Specialised proteins grew in
confectionery applications and demand
for allergen-free vegetarian proteins
continues to increase. Bakery, beverage
and nutrition applications provided
solid growth opportunities for Kerry’s
enzyme technology. Kerry’s Europe-
based nutritional technologies continued
to benefit from increased demand,
particularly from Asian markets, for
sustainably produced premium
quality nutritional ingredients for all
life-stage applications, including
infant nutrition products.
READ MORE Our Markets page 15
General wellness trends and the particular
focus on sugar and calorie reduction,
which has led to Governments legislating
on measures to address such issues,
also contributed to a strong demand for
innovation and product differentiation
which resulted in increased product
churn in the year under review. In 2016,
in response to marketplace trends and
to leverage the Group’s in-market and
regional investment in its Commercial
/ Application Centres and its Global
Technology & Innovation Centre in Ireland,
significant resources were deployed to
advance commercial effectiveness and
engagement across European markets.
Sales revenue in the EMEA region on
a reported basis declined to €1,447m,
reflecting a 6.4% adverse translation
currency impact, an adverse 0.2%
transaction currency impact, 0.7% volume
growth and 2.1% lower pricing. The UK
electorate vote to leave the European
Union created market uncertainty and
a significant devaluation of sterling. In
respect of Brexit, Kerry Taste & Nutrition
has a well established manufacturing
footprint in the UK and in mainland
Europe, and is well positioned to meet
customer requirements in individual
country markets.
While the overall taste market remained
challenging in Europe in 2016, demand
for innovation grew due to consumer
requirements for ‘authentic taste’, ‘better-
for-you’ and ‘tailored-for-you’ products.
The foodservice channel provided the
most favourable opportunities for growth
of Kerry’s technology portfolio. Kerry Taste
Technologies and Systems recorded
good growth in the beverage sector.
Sugar reduction was a catalyst for strong
innovation in the soft drinks category.
Kerry’s strong capability in botanical
extracts marketed under the ‘Simply
Nature’ brand achieved good growth in
the adult soft drinks sector. Beverage
systems performed well in the foodservice
and c-store channels, benefiting from
the expanded portfolio following the
acquisitions of ‘Island Oasis’ and ‘Insight
Beverages’ in 2015. Vendin S.L. based in
Madrid was also acquired in June 2016
which further extended Kerry’s distribution
of beverage solutions to the vending and
foodservice channels.
36 | KERRY GROUP | ANNUAL REPORT 2016
37 | KERRY GROUP | ANNUAL REPORT 2016
TASTE & NUTRITION ASIA-PACIFIC REGION
ASIA-PACIFIC
REGION
Kerry achieved an excellent
business and market
development performance
in the Asia-Pacific region in
2016. End-use-market growth
was achieved throughout the
Group’s expanded geographic
footprint in the region,
with accelerated overall
performance in Q4.
Localisation of taste, allied to increased
product launches, channel expansion and
growth in consumer spending provided a
strong impetus for innovation, benefiting
Kerry’s Taste, Nutrition & General Wellness
technologies. Culinary and snacking trends
provided strong growth opportunities,
particularly in the dynamic regional
foodservice channel.
READ MORE Our Strategy pages 16-18
Business volumes grew by 10.7% and
net pricing was 1.9% lower. Reported
revenue at €765m reflects a reduction
of 2.4%, due to the 7.2% adverse impact
of business disposals net of acquisitions
(primarily the sale of the Pinnacle lifestyle
bakery business in Australia completed
in May 2015) and 4% negative currency
translation impact.
Taste Technologies and Systems
maintained strong growth in Indonesia,
Japan and the Philippines with good
momentum in the bakery and savoury
snack sectors. Culinary Snack Systems
outperformed market growth rates
throughout South East Asian markets.
Culinary sauces grew solidly in Australia,
China, Singapore and Malaysia, particularly
in the foodservice channel. Jungjin
Foods acquired in March 2016 provided
a strong platform for growth of Kerry’s
taste technologies and systems in South
Korea. Market conditions in Australia and
New Zealand proved more stable as food
and beverage providers sought increased
innovation in response to health and
wellness trends. The growth in middle
class households provided continued
market development opportunities in
South West Asia. Beverage Systems
maintained strong development in the
regional foodservice and c-store channels,
in particular in China and Japan.
Kerry’s specialised proteins and enzymes
continued to grow applications in Asian
markets. In the pharma sector the
Group’s cell nutrition and excipients
business continued to gain new customer
listings particularly in China. The addition
of Wellmune® significantly broadened
Kerry’s functional nutritional ingredients
and wellness portfolio in 2016 which
developed significant new business wins
in Asia, in particular through functional
beverage applications. Regulatory
changes in the Chinese infant nutrition
sector benefited Kerry’s Europe-based
nutritional technologies.
A major expansion programme at the
Group’s Nantong, China production and
distribution centre was completed prior
to year end. To support the Group’s
expanding customer base in the region
two new state-of-the-art production
facilities were also commissioned in
Batangas, the Philippines and in
Cikarang, Indonesia.
Since year end the Group has reached
agreement in principle to acquire
Jurong, China based Tianning Flavour
& Fragrance Co. Ltd., which strengthens
Kerry’s savoury and sweet flavour
development capability in the Chinese
food and beverage industry, and Adelaide,
Australia based Taste Master - a leading
flavours provider to the beverage, sweet
& savoury snack and meat & culinary
industries in Australia and New Zealand.
Both transactions are scheduled for
completion by the end of Q1 and the total
consideration for the businesses being
acquired amounts to €83m.
Business volumes in the
Asia-Pacific region
grew by
10.7%
38 | KERRY GROUP | ANNUAL REPORT 2016
Kerry Foods is an
industry-leading
manufacturer of
added-value branded
and customer branded
chilled food products
to the Irish, UK and
selected international
markets.
REVENUE
2016
€1,333m
GROWTH
2.1%*
TRADING PROFIT
2016
€117m
GROWTH
(6.7%)
TRADING MARGIN
2016
8.8%
GROWTH
+30bps
STRATEGIC REPORT
BUSINESS REVIEW
—
Consumer Foods
—
Investing in production
expansion and new
processing technologies
Flor Healy, CEO Kerry Foods
The consumer foods marketplace continues to change with channel proliferation
arising from growth of convenience, continued expansion of discounter chains,
increase in online purchases and growth in demand for food-on-the-go. With
new entrants disrupting the traditional grocery model and blurring lines between
‘food-to-go’ and foodservice, the food and beverage landscape has remained
intensely competitive. In addition consumers have increasingly focused on health
and wellness variants and ‘better-for-you’ lines. Retailers have responded through
a renewed focus on customer branded offerings and ‘better value’, with a decline
in deep cut promotions which has impacted volume growth. In 2016 Kerry Foods’
e-tail branded sales outperformed market growth rates.
Kerry Foods’ business volumes grew by 2.1% and net pricing decreased by 2% in
2016. Reported revenue at €1,333m declined by 9.7% due to adverse currency
movements in 2016 and the disposal of non-core businesses net of acquisitions
in 2015. Business efficiency improvements and the improved quality of Kerry
Foods’ portfolio contributed a 30 basis points increase in divisional trading margin
to 8.8%. The underlying trading profit improvement was more than offset by the
adverse currency movement and the business disposals resulting in a trading
profit decrease of 6.7% to €117m.
In line with growth in snacking and ‘food-to-go’ trends, the division invested
significant resources in expanding production and introduction of new processing
technologies at the Attleborough and Ossett sites in Britain, Enniskillen and
Portadown sites in Northern Ireland, and at the Shillelagh facility in the Republic
of Ireland.
38 | KERRY GROUP | ANNUAL REPORT 2016
39 | KERRY GROUP | ANNUAL REPORT 2016
* volume growth
CONSUMER FOODS
With new entrants disrupting
the traditional grocery model
and blurring lines between
‘food-to-go’ and foodservice,
the food and beverage
landscape has remained
intensely competitive.
In the UK branded sector, the meat snacks
category continued to show good growth
where ‘Mattessons’ recorded steady
momentum, building its range across
multiple channels. ‘Mattessons Savagers’
launched in 2015 continued to broaden the
appeal of the category through extension
of the brand to the young adults segment.
The introduction of the ‘Fire & Smoke’
range to the UK cooked meats market
proved highly successful in both the
delicatessen and pre-pack cooked meat
categories – inspiring new usage
occasions for cooked meats.
2016 proved to be a challenging year in
the UK sausage category as major retailers
sought to compete with discounters
through EDLP strategies. ‘Richmond’
remains the number 1 sausage brand
and the successful relaunch of the
‘Wall’s’ fresh sausage portfolio, with
product and packaging improvements,
contributed strong volume and value
growth. The ‘Wall’s Ready Baked’
range continued to drive growth in
the convenient sausage segment.
The children’s cheese snack sector
grew by 11% year-on-year. ‘Cheestrings’
maintained its brand positioning in
a competitive UK marketplace and
successfully launched ‘Cheestrings
Scoffies’ in September – extending the
‘Cheestrings’ snacking portfolio beyond
the lunchbox occasion into an after-school
snacking offering. The ‘Yollies’ children’s
yoghurt snack range recorded strong
growth in the UK market in 2016. ‘Pure’
Kerry Foods’ ‘free from’ brand continued to
advance its positioning in the UK and Irish
markets in 2016.
In UK customer branded segments, Kerry
Foods maintained a strong performance in
the prepared meals category, expanding its
offering to the foodservice and ‘direct-to-
consumer’ channels. Successful launches
and innovation advanced customer
positioning in the chilled meals sector.
Introduction of ‘health’ lines in the frozen
sector brought significant new customers
to the category. The private label spreads
sector proved extremely challenging due
to consumer trends towards spreadable
butter and growth of dairy-free spreads.
A major investment programme at the
Ossett (GB) facility was completed,
creating a Centre of Excellence for
production of spreadable butter
through novel production technologies.
READ MORE Our Markets page 15
The children's cheese sector
grew by 11% year-on-year
11%
40 | KERRY GROUP | ANNUAL REPORT 2016
CONSUMER FOODS
In line with growth in
snacking and ‘food-to-go’
trends, the division invested
significant resources in
expanding production
and introduction of new
processing technologies.
In Ireland, ‘Dairygold’ performed ahead of
the market and successfully expanded
into the growing butter category with the
launch of ‘Dairygold Softer’. The consumer
trend away from traditional health offerings
in the spreads category led to a decline
in sales through the ‘LowLow’ brand.
The ‘Charleville’ brand retained its brand
leadership position in the cheese category.
‘Cheestrings’ continued to advance
market development across mainland
European markets.
‘Denny’ remains the number 1 meats brand
in its core categories in the Irish market.
The ‘Denny Fresh Pack’ was successfully
launched in September, fulfilling shopper
requirements for freshness and
convenience. ‘Fire & Smoke’ continued
to grow market share in the Irish market.
READ MORE Our Markets page 15
READ MORE Our Strategy pages 16-18
‘Denny’ remains the
number 1 meats brand
in Ireland
No. 1
40 | KERRY GROUP | ANNUAL REPORT 2016
41 | KERRY GROUP | ANNUAL REPORT 2016
STRATEGIC REPORT
SUSTAINABILITY REVIEW
—
Securing sustainable
growth
MARKETPLACE
pages 48-51
ENVIRONMENT
pages 46-47
COMMUNITY
pages 56-59
WORKPLACE
pages 52-55
42 | KERRY GROUP | ANNUAL REPORT 2016
42 | KERRY GROUP | ANNUAL REPORT 2016
“ Consumers are increasingly concerned with the origin of
their food, how it is made and the impacts on those that
help to produce it, and they continue to seek out companies
and brands whose values align with theirs. This motivates
many of our stakeholders to engage with companies that can
meet these expectations. We welcome this growing interest
in how companies operate and anticipate that our continued
ability to demonstrate good environmental and social
performance will be increasingly important in our future
business relationships.
We are mindful of our dependence on natural ecosystems
and the responsibilities we have to our customers, our
suppliers, our people and our communities. The Group is
committed to responsible business practice, as laid out in our
Mission Statement, and our ongoing sustainability journey
is an integral part of our 1 Kerry Business Model. In 2016,
we have made good progress against our stated goals as we
continue to integrate sustainability within our day to day
operations. Our comprehensive ‘Towards 2020’ programme
sets out a clear pathway for our business as we pursue our
stated ambition of securing sustainable growth.”
– Stan McCarthy, Chief Executive
SOCIAL
Bearable
Equitable
Sustainable
ENVIRONMENT
ECONOMIC
Viable
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 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 on a socially and
environmentally sustainable basis.
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
Kerry’s sustainability plan represents a journey of continuous
improvement – an ongoing process and strategy to secure
sustainable growth. The Group’s ‘Towards 2020’ programme,
was launched in 2015 and builds on the success of our previous
initiatives. The programme is structured around four key
pillars and aims to minimise our environmental footprint while
enhancing the positive impact of the organisation. Under each
pillar, we have prioritised the most material issues for Kerry
Group and its stakeholders. We have carefully examined the
ways in which we can lessen our adverse impacts and create
value, and we have set measurable targets for improvement in
these areas over a five year period.
READ MORE ‘Towards 2020’ page 45
ENVIRONMENT
SUSTAINABILITY
MARKETPLACE
SUSTAINABILITY
WORKPLACE
SUSTAINABILITY
COMMUNITY
SUSTAINABILITY
‘Towards 2020’ Strategy Pillars
SECURING
SUSTAINABLE
GROWTH
42 | KERRY GROUP | ANNUAL REPORT 2016
43 | KERRY GROUP | ANNUAL REPORT 2016
43 | KERRY GROUP | ANNUAL REPORT 2016
OUR VALUE CHAIN
Primary
Producer
Processor
Supplier
KERRY
GROUP
Customer
Retail
& Food
Service
Consumer
MATERIALITY
Prioritising the most material sustainability issues for Kerry
and its stakeholders is a central part of our strategy. In the
development of our programme, we consulted widely with internal
and external audiences to help refine our approach and to focus
on critical areas of impact. The management of sustainability risk
is undertaken by the Group’s Sustainability Council and captured
through the overarching risk management framework. We monitor
emerging sustainability themes and continue to ensure the
alignment of our strategy with business and stakeholder needs.
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 the course
of 2016, we have become members of a number of important
multi-stakeholder initiatives.
READ MORE Risk Report pages 60-68
READ MORE Responsible Sourcing page 50
STAKEHOLDER ENGAGEMENT
We are committed to an ongoing engagement that facilitates
a better understanding of stakeholder needs and the ways in
which we can address them. Among our key stakeholders are our
customers, suppliers, employees, investors, local communities and
regulatory bodies. We continue to track our engagement with all
stakeholders and use this information to inform the assessment
of our ‘Towards 2020’ programme, both in terms of materiality and
performance. Our ability to demonstrate this level of engagement
is a core part of our independent AA1000(AS) accreditation.
READ MORE Summary Assurance Statement page 46
GOVERNANCE
The Group’s Sustainability Council has been established under
delegation from the Board of Directors. It is chaired by a senior
member of the Group’s executive committee and reports twice
yearly to the Board. The Sustainability Council is made up of
functional leadership from across the organisation and its role is
to assess the risks and opportunities presented by sustainability
and to agree the means by which these should be addressed.
The responsibility for implementation rests with the relevant
functional leadership, while the Council appraises the ongoing
Group performance.
FIND OUT MORE visit our website www.kerrygroup.com
44 | KERRY GROUP | ANNUAL REPORT 2016
1 Kerry Sustainability Programme - ‘Towards 2020’
ENVIRONMENT
Climate / Efficiency / Waste
MARKETPLACE
Quality / Sourcing / Nutrition
WORKPLACE
People / Ethics
COMMUNITY
Economic / Social
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
(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
Reduce waste by 12% by 2020 compared
to baseline year 2013, reflecting an
overall 32% reduction compared to
baseline year by 2011
Achieve Zero Waste to Landfill where
technically feasible in each jurisdiction
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
Deliver on our Kerry Foods’ ‘Better For
You’ Programme
Partner with our customers in
sustainable sourcing of strategic
ingredients. Achieve Kerry sustainable
raw material sourcing targets across our
raw material categories
Ensure our Supplier Code of Conduct is
communicated to all direct suppliers
Ensure 100% of ‘high risk’ supply partners
are formalised as members of SEDEX
Maintain Global Food Safety Initiative
(GFSI) certification of all Kerry
manufacturing sites
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 international
programmes to help alleviate hunger
in developing regions
Continue to embrace diversity and
promote inclusion across the Group
Promote Kerry Community Lead Projects
in each region
Drive ethical business practices and
compliance to Kerry Code of Conduct
Ensure wages are competitive and all
labour standards are fair, equitable and
meet or exceed local guidelines
Embrace diversity across our workforce,
our customer base and the communities
we serve
Assist and actively engage people
in development programmes
in our communities to improve:
health and nutrition; entrepreneurship;
community development;
education, arts and sport; and
sustainable agriculture
Assist NGO Partners with selected projects
in the developing world
Continue to improve Health and Safety
metrics across all Group sites
Develop Kerry Community Lead Projects
in each region
Promote training and learning
opportunities to ensure ongoing
development
Assist community development
programmes in association with Kerry
Vanilla Project in Madagascar
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
Achieve Group ISO 14001 approval
targets for 2017
Implement Kerry Carbon Reduction
Projects for 2017 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
Implement Kerry Water Reduction
Projects for 2017 in line with our
2020 targets
Implement Kerry Waste Reduction
Projects for 2017 in line with our
2020 targets
Continue to advance our Origin Green
Programme in Ireland
S
L
A
O
G
7
1
0
2
Maintain SEDEX membership across all
Group manufacturing sites
Maintain SMETA or equivalent
certification across all Kerry developing
market manufacturing plants
Support and partner with International
Nutrition Research programmes
Achieve Kerry Foods’ ‘Better For You’
Programme annual goals
Drive day to day business decisions
through our defined Kerry Values
Achieve annual target for all Kerry
employees to have completed the Kerry
Code of Conduct Training through the
Learning Academy
Ensure compliance with Global Health &
Safety Management Systems
Achieve a further 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
Continue to advance our Origin Green
Programme in Ireland
Formalise community engagement
programmes in all our communities
through Kerry Community Relations
Committees and Community
Relations Ambassadors
Share Community support best practices
through ‘Kerry Community Relations’ site
Formalise support for employee
philanthropy programmes
Continue to advance our Origin Green
Programme in Ireland
Promote Health, Nutrition & General
Wellness through Kerry’s Nutrition Centre
of Excellence and the Kerry ‘Health &
Nutrition Institute’
Continue to advance our Origin Green
Programme in Ireland
45 | KERRY GROUP | ANNUAL REPORT 2016
Reduction in CO2 intensity
versus base year
-2.5%
Reduction in Water intensity
versus base year
-2.7%
Reduction in Waste intensity
versus base year
-10%
Reduction in Waste sent to
Landfill versus base year
-35%
Food redistribution in the UK
175,000 meals
Performance versus ISO
14001 approval targets
98%
Listowel Natural
Gas Project
—
With Kerry Group acting as the
anchor tenant, the expansion of
Ireland’s national gas network to
Listowel, Co. Kerry was announced
in October 2016. Having made it
commercially feasible for gas to be
delivered to our flagship plant in the
town, we have commenced plans for a
gas fuelled Combined Heat and Power
Plant, which will significantly reduce
the plant’s carbon footprint by 2020.
In addition to the benefits for our own
operations, by facilitating the supply
of natural gas to Listowel, Kerry Group
has also helped to make a cleaner
source of energy available to other
local businesses and homeowners.
ENVIRONMENT
As an industry, food and beverage is acutely reliant on natural ecosystems and the
increasing impact of man-made activities must be a key concern. Changes brought
about by climate change, resource scarcity and access to water will all impact on
business. 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
and we have significantly advanced the implementation of recognised environmental
management systems across our manufacturing sites.
EMISSIONS
Green House Gas (GHG) emissions reduction remains a priority for Kerry Group. We measure
our footprint in accordance with the GHG Protocol (see note 1) and use the services of an
independent third party, Jacobs, to provide assurance on our carbon measurement and
performance. This assurance is provided in accordance with AA1000AS(2008) (see summary
assurance statement below). We also participate in the annual CDP assessment on behalf
of investors and a number of customers. In 2016, we received a rating of A- from CDP, which
places Kerry in a leadership position for our efforts to tackle climate change and recognises
our implementation of current best practice.
Despite some strong regional performances in 2016, we have faced challenges in achieving
our 2016 carbon target for the Group. This is due, in part, to the phasing of capital projects
intended to deliver the required carbon savings. However, we remain fully committed to
meeting our 2020 goal of a 13% reduction and we are confident that the current programmes,
both planned and initiated, will deliver against our overall target.
Carbon
Co2 per Tonne FG*
% Change
*Novem Adjusted
2013 Base Year
2020 Target
2016 Target
2016 Performance
320.18kg
278.56kg
308.07kg
–
-13%
-3.8%
312.18kg
-2.5%
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 of 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 one and two
emissions) from its manufacturing facilities for 2016 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 2016. Jacobs full assurance
statement can be found on Kerry’s website www.kerrygroup.com
46 | KERRY GROUP | ANNUAL REPORT 2016
WATER
At Kerry we recognise the importance of water for our business
and acknowledge the increasing global concerns regarding water
risk. As a Group, we are focused on the quantity of water used
at our sites and the quality of any waste water returned to the
environment. Between 2011 and 2014, the Group achieved a 4.2%
reduction in water intensity and in 2015 set a goal for a further
7% reduction by 2020. In 2016, we have continued to make
progress with a 2.7% reduction versus our base year. Although
this is slightly behind target, we remain on track to deliver against
our 2020 goal.
Water
m3 per Tonne FG
% Change
2013
Base Year
2020
Target
2016
Target
2016
Performance
4.89
–
4.55
-7%
4.72
-3.5%
4.76
-2.7%
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
In 2016, we also undertook to examine our manufacturing base
to identify where our sites are operating in areas of potential
water scarcity. Using a methodology based on the World
Resources Institute’s ‘Aqueduct’ tool we have identified 9 priority
sites across the Group as outlined below. In 2017, we will continue
to work towards improving water stewardship with a particular
focus on these locations.
WASTE
We want to prevent the loss of valuable natural resources and are
continuously looking at ways to minimise our waste. Between 2011
and 2014, we achieved a 20% reduction in waste intensity and in 2015
set a target for a further 12% reduction by 2020. In 2016, we have
made good progress against this target with a 10% reduction versus
our 2013 base year and ahead of our year 2 target.
Waste
2013
Base Year
2020
Target
2016
Target
2016
Performance
Kgs per Tonne FG
103.62
% Change
–
91.19
-12%
94.39
-9%
93.67
-10%
Waste to Landfill
Where we do have waste streams, we look for opportunities to turn this
waste into a resource. We aim to achieve Zero Waste to Landfill by 2020,
(where technically feasible) and by year end 2016 had reduced our
landfill volumes by 35% versus our 2013 base year.
Waste to Landfill trend
Total Waste
Waste to
Landfill
9%
91%
Diverted
Waste
Landfill
2013
2014
2015
2016
Notes
1) Our target is a relative measure of waste divided by tonnes of product produced.
EMEA
2 Priority
Sites
AMERICAS
2 Priority
Sites
ASIA-
PACIFIC
5 Priority
Sites
Water reduction at St. Claire (Canada)
—
As part of a World Class Operations Management initiative
at our site in St. Claire, Canada, a water reduction team
was established to look at ways to reduce the site’s water
consumption. Using a defined methodology, the team identified
areas of water loss and improved ways of working that resulted
in an annual water saving of over 32,000m3.
Focus on food waste (UK & Ireland)
—
In 2015, Kerry Foods commenced its partnership with FareShare
in the UK to redistribute surplus food to those in need. Over the
course of 2016, this has evolved into a successful relationship
that has seen Kerry Foods expand its donations to an additional
two FareShare Regional Centres and donate enough surplus food
for 175,000 meals. In Ireland, Kerry Foods has partnered with
the Heart to Hand Charity for the past two years. In addition to
supporting them through the donation of surplus food, in 2016 our
employees have helped raise funds to meet their transport needs.
Over the course of our partnership with Heart to Hand, Kerry
Foods has donated 144,000 meals to those in need within our
local Irish communities.
ENVIRONMENTAL MANAGEMENT SYSTEMS
Our target for 2020, is to have all our qualifying sites accredited
under the ISO 14001 environmental management system. By
year end 2016, the sites within our Consumer Foods Division, and
sites within the EMEA and APAC regions of our Taste & Nutrition
business have been fully accredited. Within the Americas region a
number of sites, some of which have been more recently acquired,
continue to work towards accreditation. The implementation
of ISO14001 will be rolled out across these sites with targeted
completion by year end 2017.
46 | KERRY GROUP | ANNUAL REPORT 2016
47 | KERRY GROUP | ANNUAL REPORT 2016
MARKETPLACE
At Kerry Group, we realise that our impacts extend beyond our direct operations, both
in terms of the raw materials we use and the final products which we produce. We see
significant opportunity in meeting the increasing demand for healthy and sustainably
produced goods, while acknowledging the challenges presented by demographic trends
and environmental pressures. Through our activities under the Marketplace pillar, our
Taste & Nutrition solutions and Consumer Foods’ brands are helping to support the
transition to healthier and more sustainable consumer diets.
HEALTH & NUTRITION
Non-communicable diseases are responsible for almost 70% of deaths worldwide and
unhealthy diets have been identified as one of four primary risk factors in contracting
such conditions. Given the growing awareness of the link between diet and health, Kerry
Group is ideally placed to support customers and consumers as they look for great tasting,
healthier products.
As the world’s leading Taste & Nutrition company, we are uniquely positioned to support our
industry partners in creating and adapting products to satisfy changing consumer preferences
and regulatory requirements. We understand that without making products taste great, more
nutritious alternatives may not be adopted. Our holistic approach to product development
encompasses our expertise in dietary requirements, the most comprehensive portfolio of
Taste & Nutrition solutions, our applications expertise and an understanding of local consumer
attitudes to health and wellness.
READ MORE Our Strategy pages 16-18
In 2016, we continued to deepen our engagement in this area through the Kerry Health &
Nutrition Institute, which is establishing itself as a thought-leader on the science and policy of
health, nutrition and general wellness. We also continue to invest in new technologies and in
2016 our global spend on Research, Development and Application increased to €261 million.
READ MORE Business Reviews pages 33-41
Spend on Research,
Development & Application
in 2016
€261 million
Categories targeting more
responsible sourcing
10
Kerry manufacturing sites
with GFSI certification
99%
Kerry milk suppliers within
an accredited farm level
sustainability programme
99.5%
Kerry manufacturing sites
with SEDEX membership
100%
Kerry developing region
sites with SMETA or
equivalent certification
100%
48 | KERRY GROUP | ANNUAL REPORT 2016
KERRY FOODS’ ‘BETTER FOR YOU’ PROGRAMME
Nutritional Improvements 2016
Portion
Control
Cheestrings
Minis launched
Sodium
in
22%
sausage
category
Positive
Nutrition
e.g. Yollies yoghurt
lolly is a source of
calcium and
Vitamin D
Clean Label
e.g. emulsifiers
removed from
LowLow cheese
spread
LowLow Dairy
Free Spreads
60% less saturated
fat than butter
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.
Following on from our participation in the UK Public Health Responsibility Deal, key
reformulation achievements in 2016 have included a 22% reduction in sodium in the
UK sausage category. With regard to new product development, the Yollies range was
successfully extended. Yollies are categorised as non HFSS (high fat, sugar, salt) under
the UK Department of Health nutrient profiling scheme. Yollies are also a source of
calcium and vitamin D. Cheestrings mini portions were also launched in 2016 in keeping
with our policy of aiding portion control. In Ireland, Kerry Foods was one of 14 major
food and drink manufacturers who participated in the FDII (Food and Drink Industry
Ireland) Reformulation project published in 2016. This project assessed the impact
of reformulation activity by the 14 companies between 2005 & 2012 and among the
reported achievements was a 36% drop in tonnage of sodium sold over that period.
Building on previous reformulation achievements, Kerry Foods continues to explore
new technologies to achieve further reformulation across our portfolio.
We see significant opportunity in meeting
the increasing demand for healthy and
sustainably produced goods.
Kerry Health &
Nutrition Institute
—
The Kerry Health & Nutrition Institute
provides information on scientific
research and communicates the latest
developments in nutrition, science
and health, to highlight nutritional
advancements in food and beverage
product development.
Supported by a Scientific Advisory
Council, the Institute promotes and
develops technologies that meet
consumer needs as they seek to
pursue healthier diets and lifestyles,
and brings industry leading insight to
the science and policy of health, taste,
nutrition and general wellness. The Kerry
Health and Nutrition Institute also allows
Kerry to engage with other thought
leaders in the fields of food science,
academic research, government policy
and the food industry.
In 2016, as well as becoming a platinum
sponsor of the World Congress of Food
Science and Technology, the Institute
produced 9 white papers and 15 blogs,
published by 20 leading health
and nutrition experts. It also saw
14,000 unique visitors from
135 countries visit the Institute’s
website, logging more than 20,700
individual sessions.
FIND OUT MORE ONLINE
www.kerryhealthandnutritioninstitute.com
48 | KERRY GROUP | ANNUAL REPORT 2016
49 | KERRY GROUP | ANNUAL REPORT 2016
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. We mitigate food
safety risk through thorough proactive risk assessment with a farm to fork review. We
incorporate robust preventive controls, sanitation excellence, product protection, crisis
prevention, and we continuously improve through horizon scanning and embedding best
practices. We work with recognised assurance standards such as the Global Food Safety
Initiative (GFSI), an industry-driven initiative that reduces food safety risks by delivering
equivalence between effective food safety management systems. We leverage this
platform to ensure food safety, compliance with quality standards and to create value for
our customers. In 2016, 99% of our global sites were accredited under GFSI standards.
FIND OUT MORE visit our website www.kerrygroup.com
In 2016, 99% of our
global sites were
accredited under
GFSI standards
99%
We work with our
customers, suppliers
and industry
partners to build
more sustainable and
resilient supply chains.
RESPONSIBLE SOURCING
We source a wide range of raw materials from independent suppliers around the world
and as a responsible buyer, we want to understand the origins of these products and
how they are produced. We aim to ensure that those involved in their production
are treated fairly and that human rights are respected. We also want to minimise the
environmental impacts associated with the production of key commodities and work
with our customers, suppliers and industry partners to build more sustainable and
resilient supply chains.
SUSTAINABLE AGRICULTURE
As part of our responsible sourcing strategy, we have identified 10 raw material
categories that are of strategic importance to our business and where we want to
increase the quantity of sustainably sourced raw materials. Although we do not own
or operate any farms, we want to leverage our purchasing power to support improved
production practices and work in partnership with industry stakeholders to encourage
continuous improvement at farm level.
Dairy
Meat
Palm Oil
Citrus
Herbs & Spices
Fruit & Vegetables
Cocoa & Coffee
Sugar & Molasses
Vanilla
Paper Packaging
To complement our membership of relevant multi-stakeholder platforms such as RSPO,
Origin Green and the Sustainable Agriculture Initiative Platform (SAI), in 2016 Kerry Group
also became a member of the Sustainable Spices Initiative, Tropical Forest Alliance 2020
and the Sustainable Vanilla Initiative. These platforms align with our responsible sourcing
strategy and through them we are pursuing a more collaborative engagement with
stakeholders, creating the basis for a common approach to sustainable sourcing.
READ MORE ‘Towards 2020’ page 45
READ MORE Sustainable Vanilla in Madagascar
page 59
READ MORE Focus on Palm Oil page 51
50 | KERRY GROUP | ANNUAL REPORT 2016
Focus on palm oil
—
In 2016, Kerry Group published a Palm Oil
policy setting out its objectives for the
responsible sourcing of this important
commodity. The Group has been a member of
the RSPO since 2010 and fully endorses the
principles and criteria it has laid out. We are
actively engaging with suppliers to understand
and address any challenges and to ensure
compliance with our clearly defined sourcing
requirements. In 2016, we made progress
in terms of traceability for both our palm
oil and palm kernel oil volumes.
Palm Oil
Traceability
Palm Kernel Oil
Traceability
Mill 97%
Plantation
42%
Mill 81%
Plantation
28%
Total Volume
100%
Total Volume
100%
Within our Consumer Foods division,
all of our 2016 volumes are covered by
RSPO certification systems. In 2017, we
will adopt the use of RSPO Next Credits
as we continue to transition to fully
certified sustainable palm oil within
our Kerry Foods business.
FIND OUT MORE For more information on
palm oil and our other priority categories
see www.kerrygroup.com
SOCIAL COMPLIANCE
Kerry is committed to upholding the rights of workers
and through our membership of the Supplier Ethical Data
Exchange (SEDEX) we can demonstrate our performance
on labour issues to our customers. All our manufacturing
locations are registered with SEDEX and we have valid
SMETA (SEDEX Members Ethical Trade Audit) audits
covering all of our sites in ‘high risk’ locations.
In 2016, the Group’s ‘Supplier Code of Conduct’ was updated, to clearly set out
our expectations of suppliers in upholding the rights of workers within our supply
chain. It explicitly prohibits the use of child or forced labour in any activities
connected with Kerry Group, and sets forth the detailed standards to which our
supply partners must adhere. In monitoring supplier compliance with this Code of
Conduct, we have adopted a risk-based approach to assessment that focuses on
those suppliers operating in geographic locations, and/or producing commodities,
where there is a greater risk of non-conformance. Having mapped our supplier
risk in 2016, our revised goal for 2020 is to have all high risk suppliers registered
as members of SEDEX.
MARKETING AND COMMUNICATIONS
In addition to creating healthy and sustainable products, we want
to ensure that these are marketed responsibly. We are passionate
about promoting the real value of food but we recognise that we
must carefully consider how we communicate this, with particular
attention given to the status of children. All our advertising and
brand positioning conforms to national advertising codes of
practice. We provide on-pack nutritional labelling and additional
information services e.g. brand websites, to help consumers
make informed choices. The Group has established best practice
guidelines for nutritional labelling across our portfolio, in line
with ‘Food Information to Consumers’ legislation. 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 can help respond to any
additional customer requests.
ORIGIN GREEN
As a founder member of the world leading ‘Origin Green’ initiative,
Kerry is committed to An Bord Bia’s (the Irish Food Board’s) unique
sustainability programme, which aims to make Ireland a global leader
in sustainably produced food and drink. The programme operates at
both processor and primary producer level and brings together all
stakeholders under one initiative.
As part of our membership, Kerry has adopted a sustainability charter
covering each of its manufacturing sites in the Republic of Ireland
and has adopted the Sustainable Dairy Assurance Scheme (SDAS) as
a mandatory standard for its contracted liquid milk suppliers. Under
this internationally accredited scheme, we are determining the carbon
footprint of each individual farm and supporting farmers with tools to
help lessen their environmental impacts. At year end 2016, over 99%
of farmers had signed up to participate in the SDAS programme and
85% were fully certified. By the 31st March 2017, all milk collected by the
Group from farms in Ireland will come from SDAS approved suppliers.
FIND OUT MORE visit our website www.kerrygroup.com
50 | KERRY GROUP | ANNUAL REPORT 2016
51 | KERRY GROUP | ANNUAL REPORT 2016
WORKPLACE
As an organisation with over 23,000 employees, Kerry understands the importance
of a positive relationship with its people. Our colleagues are central to our innovative
culture and ongoing success. To retain their enthusiasm and determination to succeed
we want each person to engage fully with our vision and values. To help achieve this we
reward performance, provide opportunities to make a real difference, promote access to
learning and development and create a workplace where each employee can flourish.
At Kerry Group we aim to provide an environment
where each employee can flourish.
ETHICS
Foremost among our values is that business results must be achieved ethically and legally.
This 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 2016, we rolled out a new communications and training
programme to colleagues on the Group’s Code of Conduct.
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.
READ MORE For more details on all our policies and codes in relation to the workplace, please visit
our Group website at www.kerrygroup.com
Kerry’s global workforce
23,000
employees
Improvement in
Health & Safety metrics
9%
Diversity & Inclusion
Dedicated
Strategy
Launched
Kerry’s position on child
and forced labour
Zero
Tolerance
In 2016 we achieved a
further 9% improvement
in global safety metrics
9%
52 | KERRY GROUP | ANNUAL REPORT 2016
HUMAN RIGHTS
As a business, we are committed to upholding international
human rights and our Group policies are informed by relevant
UN Guiding Principles and International Labour Organisation
Conventions. As a Group, we prohibit the use of child or forced
labour. All employment with Kerry Group 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 2016, we continued to extend our standards on these and other
labour issues into our supply chain, through our updated Supplier
Code of Conduct. This code sets out the expectations we have of
all those who seek to do business with Kerry Group.
READ MORE For further details on our policies around Human Rights
and Business Ethics see www.kerrygroup.com
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
As a responsible business, we understand our obligation to
ensure the health & safety of our employees at each of our
sites. We have targeted a 5% year-on-year improvement in
our Health & Safety Metrics and in 2016 we have surpassed
this with a 9% improvement on our 2015 performance. In 2016,
we also completed the rollout of our Global Health & Safety
Management System, establishing consistent ways of working
and standardising the Health & Safety requirements across
the Group.
We also recognise that Kerry can play a role in employee
wellbeing, beyond our Health & Safety goals. To have a broader
impact on the lives of our employees, we want to support them
in leading healthy, active lives. Right across the Group, we have
introduced and promoted a range of initiatives at site level that
seek to promote healthier eating, encourage regular exercise
and draw attention to the importance of managing physical and
mental wellbeing.
52 | KERRY GROUP | ANNUAL REPORT 2016
53 | KERRY GROUP | ANNUAL REPORT 2016
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. In 2016, we introduced the
‘mySuccess’ platform to provide a clearer connection
between individual goals, performance, compensation
and career 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.
54 | KERRY GROUP | ANNUAL REPORT 2016
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 and recognise that to thrive globally requires a
strong foundation of tolerance and the ability to develop
and embrace a truly diverse workforce.
We encourage and embrace
differences and recognise that
to thrive globally requires
a truly diverse workforce.
In 2016, we launched a dedicated Diversity and Inclusion
programme, to reflect and enable the commitments outlined
above. As part of this programme, we are adapting our
recruitment process to attract applications from those in
underrepresented groups, we are focusing on the internal
development opportunities available to all colleagues, we
are creating more flexibility around working practices and
we are creating a more inclusive environment through the
promotion of participation opportunities inside and outside
the organisation.
READ MORE Our People pages 20-21
COMPENSATION & BENEFITS
Compensation and benefits are a core part of our employee
management strategy. We provide competitive rates of pay and ensure
fair compensation practices across all our locations. Employees are
rewarded in line with their individual and business performance and
this includes their achievements against key sustainability metrics for
relevant colleagues. Compensation forms a core part of the overall
employee benefits package, which is tailored to help meet a variety
of short and long term needs.
Employees are rewarded in
line with their individual and
business performance and this
includes their achievements
against key sustainability
metrics for relevant colleagues.
54 | KERRY GROUP | ANNUAL REPORT 2016
55 | KERRY GROUP | ANNUAL REPORT 2016
Broad community
engagement programme
Five focus
areas
Partnership with the World
Food Programme
Project Leche
IFPRI Report on the impacts
of the RAIN Project
Published
Food donated to those in
need by employees in
North America
10,000 Kgs
Kerry Group has
a proud record
of community
engagement
and support.
COMMUNITY
With its roots in the co-operative 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
HEALTH, HUNGER & NUTRITION
As a company focused on Nutrition, we understand the importance of
a healthy balanced diet across all life stages. Through our community
programmes we are engaging in partnerships that aim to improve health,
eradicate hunger, and promote better nutrition among some of the world’s
poorest communities.
World Food Programme
In 2016, Kerry proudly became the first Irish food company to partner with
the World Food Programme (WFP), the food assistance branch of the
United Nations and the world’s leading humanitarian organisation fighting
hunger. As part of a pioneering 3 year project, Kerry Group and the World
Food Programme will ensure that nutritious dairy products are safely and
sustainably incorporated into the Home Grown School Meals (HGSM)
programme. The pilot project is based in Honduras, one of the poorest
countries in Latin America. Over 65% of the Honduran population live in
poverty and one in four children suffer chronic malnutrition due to recurrent
natural disasters and the effects of climate change.
Noon Foundation
In 2016, the Group has also undertaken to support the Noon Foundation
in building a new wing to the Noon Hospital in Rajasthan, India. The Noon
Foundation was established by Lord Gulam Noon, founder of Noon Foods, a
business that was subsequently acquired by Kerry Group in 2005. The ‘Kerry
Wing’ of the Noon Hospital will significantly expand its ability to meet the
growing demand for its services from the people of Rajasthan and Kerry is
particularly proud that the hospital provides treatment for all those who need
it, irrespective of their ability to pay.
56 | KERRY GROUP | ANNUAL REPORT 2016
RAIN Project
In partnership with ‘Concern Worldwide’ Kerry has been supporting
efforts to alleviate child stunting in Africa. The award-winning RAIN
(Realigning Agriculture to Improve Nutrition) project, was designed
to improve infant and maternal nutrition and thereby reduce rates
of child stunting in the Mumbwa district of Zambia. In 2016, an
independent report was published by the International Food Policy
Research Institute (IFPRI) on the impacts of the project. The report
illustrates the challenges associated with addressing multi-faceted
problems contributing to malnutrition and highlights the areas where
the programme has enjoyed success. Having reviewed the findings,
Kerry and Concern are now exploring how the learnings can be
applied elsewhere and are finalising plans for a RAIN+ programme
embracing climate smart agriculture to help alleviate malnutrition
in Africa.
Photos: A group of SMF (small model farmers) attend an agriculture training session as part
of Concern's RAIN programme. Catherine, 43, holds the aubergines she has grown.
© Gareth Bentley/Concern/Zambia
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.
World Food Programme
supporting
The World Food Programme (WFP) provides food
assistance to 80 million people in over 80 countries on
an annual basis. As part of its work, WFP provides school
meals to more than 17 million children on average every
year. Through the Home Grown School Meals (HGSM)
programme, WFP supports the healthy growth and
development of children in some of the world’s most
vulnerable areas. As this may be the only nutritious meal
a child receives each day, it can play a critical role in
preventing malnutrition. This can also have a larger impact
in terms of promoting sustainable development, as it
encourages families to send their children to school and
helps to keep them enrolled. Where possible the HGSM
programme uses locally sourced produce from smallholder
farmers. This helps to create a market for local produce and
protects the livelihoods of rural communities.
In 2016, Kerry Group became a Corporate Partner to WFP.
Our partnership, ‘Project Leche’ has
3 key objectives, namely:
• Improve the nutritional value of school meals
by increasing the dairy component.
• Create a sustainable local milk supply with
enhanced quality and quantity thereby providing
market access for smallholder farmers.
• Increase nutritional awareness amongst
children, teachers and parents.
To achieve these objectives Kerry Group will share dairy
expertise, supporting the local production of safe and
sustainable milk-based products. Our experts in nutrition
will identify how to improve the nutritional content of the
local school meals programme by incorporating these
dairy products. Finally, our direct financial support will
enable WFP to deliver this pilot programme and to
assess the potential for wider adoption of dairy
within the HGSM programme.
56 | KERRY GROUP | ANNUAL REPORT 2016
57 | KERRY GROUP | ANNUAL REPORT 2016
Photos: WFP/Hetze Tosta
COMMUNITY DEVELOPMENT
At Kerry, our colleagues are acutely aware of the needs of
their communities and many play an active role in giving back
through local initiatives. In 2016, some of the employee activities
across the Group have included environmental conservation
efforts in the city of Cebu, Philippines, fundraising activities in
Ireland, volunteering time to help disadvantaged children in Latin
America, and food donations in the US. Our colleagues continue
to generously support programmes designed to enhance their
local communities through the donation of their time, expertise
and resources. In 2017, we want to further support these efforts
through the Kerry Volunteer Programme which will provide time
off for community activities and encourage even greater local
community participation among our employees.
At Group level, Kerry is also a key contributor to community
development projects and among our commitments in 2016, was
our support for the Irish Wheelchair Association’s state of the art
Resource and Outreach Centre in Killarney, County Kerry. We also
provide support for a wide variety of community development
initiatives across a broad spectrum, from Cancer Support
Services to the Centre of Archaeology & Innovation.
EDUCATION, ARTS AND SPORT
2016 had historic significance for Ireland given the 100th
anniversary of the events which led to the country’s independence.
Kerry marked the occasion through its involvement with the
Thomas F Meagher Foundation. This ongoing programme
encourages post-primary students to explore the meaning of Irish
citizenship and an inclusive society, and invites them to participate
in local community development initiatives. In 2016, seven Kerry
Group sponsored University Scholarships were awarded to
students with the leading community projects. We also continued
to engage with local schools through open days and site visits and
in December 2016, Kerry were delighted to sponsor the fifth edition
of the International Eco-Schools Conference in Malaysia.
Our support for the Arts continues through our commitment to
the National Folk Theatre of Ireland, our funding for ‘Fleadh Cheoil
Na Mumhan’ and our sponsorship of the prestigious ‘Kerry Group
Award’ for Irish fiction at the International Literary festival in
Listowel, Co. Kerry.
We also continue to promote involvement with amateur sport
and we are a proud supporter of Kerry GAA, the international
cycling race Kerry Group Ras Mumhan, and the Denny Children’s
Community Games.
58 | KERRY GROUP | ANNUAL REPORT 2016
SUSTAINABLE AGRICULTURE
Many of our initiatives under the ‘Towards 2020’ programme
overlap between pillars and this is particularly true of our efforts
on Sustainable Agriculture. Our partnership with WFP, the RAIN
project, Origin Green, all of these initiatives are based around
sustainable agricultural principles. Under the Marketplace
pillar (page 45), we have already highlighted the importance
of sustainable agriculture in terms of our responsible sourcing
strategy, but our efforts are also particularly important for
local communities.
READ MORE ‘Towards 2020’ page 45
Sustainable vanilla – Madagascar
—
In early 2014, Kerry Group partnered with our local vanilla
supplier in Madagascar to build a more sustainable supply
chain. Together we have set up the ‘Tsara Kalitao’ Project,
which translates as ‘Good Quality’ in Malagasy. At its core
it focuses on training farmers to produce better quality
vanilla beans and increase their income. However, the
broader programme is designed to support the sustainable
development of the region. It does this through three
elements, Farmer Income, Empowering Women
and Education. In addition to directly supporting farmers,
through our pilot programme on education we currently reach
more than 1,000 children in the project region.
On successful completion of this pilot, the programme
will be rolled out across all participating villages with
the potential to positively impact up to 5,000 children
and their families by 2018.
58 | KERRY GROUP | ANNUAL REPORT 2016
59 | KERRY GROUP | ANNUAL REPORT 2016
STRATEGIC REPORT
RISK REPORT
—
Effective Risk Management
Our risk management framework ensures
that robust processes exist to identify and
effectively manage risks so that Kerry can
continue to grow profitably.
Kerry have identified a number of risks which, if they arise,
could potentially impact the reputation of the Group and the
achievement of its strategic objectives. It is the responsibility of
the Board to determine the nature and extent of the risks it is
willing to accept in pursuit of achieving its strategic objectives.
The Group’s diversity in terms of geography, manufacturing
footprint, as well as its broad portfolio of customers and products,
helps reduce the impact that any one risk can have. However, all
risks must be monitored and managed to ensure that the potential
impact remains within the acceptable level of tolerance to achieve
a profitable return for shareholders.
KERRY GROUP RISK MANAGEMENT FRAMEWORK
The Group’s risk management framework is designed to identify,
manage and mitigate potential risks which may have a material
impact on the achievement of the Group’s objectives and is
outlined in the diagram below. The Board have implemented
appropriate governance structures to ensure that 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
READ MORE Governance Structure page 80
Board of Directors
The Board owns the risk management and internal control
systems and is responsible for ensuring that the risk appetite and
risk tolerance are appropriate. It has also set the tone that defines
the culture, values and expected behaviours of the organisation
through the development of the Group Code of Conduct. A
framework has been designed to allow the Board to delegate
responsibility for day-to-day management of risk to Executive
Management including ensuring that appropriate mitigating
procedures exist for each of the principal risks.
As part of the risk management programme, during 2016, the
Board also considered how the potential impact of the Group’s
principal risks and uncertainties may impact the going concern
and longer term viability of the Group. The conclusions of this
assessment are outlined on page 68.
Audit Committee
Under delegation from the Board, the Audit Committee assesses
the overall risk profile of the Group and evaluates the design and
effectiveness of the risk management and internal control systems.
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 Audit Committee Report
on pages 83 to 87.
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 ongoing 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 maintain the Group risk register and report changes
in the Group’s principal risks and uncertainties to the Audit
Committee on an annual basis. This process is described in more
detail on page 61.
A schedule of presentations on the principal risks and
uncertainties is defined at the start of the year and is a regular
agenda item at Board and Audit Committee meetings where
members of the ROC, or nominated functional leadership, present
on these risks. Increased time was allocated for risk presentations
60 | KERRY GROUP | ANNUAL REPORT 2016
on the Board agenda in 2016. These
presentations and subsequent discussions
assist the Directors in assessing the
potential impact of risks to the Group’s
strategy and operations as well as the
effectiveness of existing controls and any
proposed future internal controls.
Executive Management
Executive Management are responsible
for ensuring that internal controls are
operating effectively to manage the
principal risks and uncertainties on a
day-to-day 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 ICT Security
Steering Group, the Sustainability Council
and the Global Health, Safety and
Environmental (HSE) Leadership Team.
Three Lines of Defence
The Group operates a three lines of
defence model to ensure that there
is a clear delegation of responsibility
for the management of risk and that
communication of the risk agenda
is effective.
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 ensures
that potential risks are identified at an
early stage, escalated as appropriate
and controls are established 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 monitoring the operation of
internal controls on an ongoing basis. They
are also responsible for providing support
and expertise to Operational Management
with 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 professional
advisors are responsible for providing
independent assurance to the Audit
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 conduct regular
reviews of risk management processes and
give advice and recommendations on how
to improve the overall control environment.
RISK ASSESSMENT PROCESS
The Group’s risk assessment process is
a co-ordinated bottom-up and top-down
Group wide approach that facilitates the
identification and evaluation of risks as
well as assessing how the risks are
monitored, managed and mitigated. This
process, which is facilitated by Internal
Audit and overseen by the ROC, begins
with bottom-up input from management
across all divisional 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 along
with potential new and emerging risks at a
business and functional level throughout
the Group. In assessing the potential
impact and likelihood of each risk
identified, management evaluate the risks
at a residual level after existing internal
controls have been considered. A standard
risk scoring matrix provides guidance
on impact and likelihood to ensure
consistency in reporting.
The divisional and functional risk registers
are consolidated to identify the principal
risks and uncertainties for inclusion in the
Group risk register. Executive management
review and validate the results of this
process providing further input where
necessary. The ROC then review the
Group Risk Register and submit it to the
Audit Committee for approval.
The interaction and relationships between
risks is considered and discussed. It is
acknowledged by management and the
Board that the risks do not always exist
in isolation and that the crystallisation
of more than one risk at the same time
could have a significant impact on
the Group.
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 consider the appropriateness
of the strategies and actions to address
these risks in pursuit of the Group’s
strategic objectives.
RISK APPETITE
The Kerry Group Board of Directors
consider and assess risks in three broad
categories namely; strategic, operational
and financial & compliance. As a Taste &
Nutrition and Consumer Foods business,
the Board has a low risk appetite for risks
which may impact the Group’s reputation
or brands in the financial & compliance or
operational areas such as product quality,
health & safety and compliance with laws
and regulations etc. However,
in pursuit of strategic growth objectives
the Board understands that there is a
trade-off between risk and reward in
making certain strategic investment
decisions e.g. emerging market expansion,
acquisitions or capital investments and
a higher level of risk may be accepted in
these areas.
Through the risk management
framework all strategic investment
decisions are approved by the Board.
These are supported by documentation
and presentations, along with senior
management input to ensure that the risks
associated with each transaction are fully
understood and accepted.
60 | KERRY GROUP | ANNUAL REPORT 2016
61 | KERRY GROUP | ANNUAL REPORT 2016
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 and
uncertainties which could impact the Group in the achievement of its objectives and additionally, each risk has been linked to the Group’s
strategies as outlined in the Business Model on page 14.
This table presents the Board’s view of the Group’s principal risks and uncertainties and does not represent an exhaustive list of all the
risks that may impact the Group. There are additional risks which are not yet considered material or which are not yet known to the
Board but which could assume greater importance in the future.
RISK TREND KEY
Risk is unchanged
Risk has increased
Risk has decreased
Link to Strategies as per Business Model Report page 14
Taste
Nutrition &
General Wellness
Consumer
Foods
Developing
Markets
Sustainability
1 Kerry
Risk Description and
Potential Impact
Strategic Risks
Portfolio Management
As a global organisation operating across many
countries / regions demand for products is impacted
by a range of factors including economic, demographic,
technology and competitor actions. The Group must
also meet the needs of the “new consumer” who is
seeking the latest trends in health and wellness.
Successfully achieving growth targets is dependent
upon managing the portfolio of customers, technologies
and channels along with ensuring the Group maintains
its agility to respond to market changes. The ability
to strategically evaluate and respond to a dynamic
marketplace is a key priority for the Group, as failure
to do so could have an adverse impact on future
performance.
Mitigation
Risk Trend and
Link to Strategy
The board considers
that this risk is
broadly in line with
the prior year.
The Group's business model, strategy and operational
activities are reviewed and approved by the Board on
an ongoing basis to ensure that the Group is responding
effectively to changing consumer trends and markets.
As described in "Our Markets" on page 15, the Group
continually invests in "Consumer and Market Insights"
which allows it to leverage technical and manufacturing
capabilities to support a tailored and commercially effective
go to market structure. This process is supported by a team
of senior, experienced executives with oversight from the
Board. The positioning of the Group as a Taste & Nutrition
business allows Kerry to take advantage of the evolution
of health, wellness and nutrition trends in all markets to
secure growth opportunities. The Group continues to invest
in its e-commerce platform to ensure it is aligned to market
trends in this area.
Kerry Foods has repositioned its portfolio to align with
evolving geographical, retail, channel and e-commerce
market opportunities.
62 | KERRY GROUP | ANNUAL REPORT 2016
Risk Description and
Potential Impact
Strategic Risks
Business Acquisition and Divestiture
Mitigation
Risk Trend and
Link to Strategy
Acquisitions and divestitures continue to be a core
element of the Group’s growth strategy. There is a
risk that the anticipated benefits of such transactions
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.
Board approval is required for all transactions and regular
updates are presented to the Board 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.
A failure to deliver on anticipated benefits may occur
due to; an inaccurate evaluation of the target business,
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.
The Group has developed significant experience and
capabilities in this area and has a successful track record.
A clearly defined process is employed to ensure that
the evaluation of a target is comprehensive and that the
execution of the acquisition is effective. A similar process is
implemented for the execution of divestitures.
A strong governance system is in place to oversee the
integration process for acquisitions including the
appointment of a senior business owner supported by a
team of appropriately skilled personnel to monitor the
integration project and to review the performance of
the acquired entity.
Post-acquisition reviews are conducted by senior
management, the results and learnings of which are
presented to the Board as a regular agenda item.
The Group talent management programme ensures
that the retention of key acquired talent is a focus of the
integration process and where necessary the acquired
entity management team is strengthened by the
transfer of experienced Kerry management.
Given the
ongoing focus
and
governance
at Board level
and the
extensive
experience of
the senior
management
team in this
area the
Board
consider that
this risk has
decreased.
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63 | KERRY GROUP | ANNUAL REPORT 2016
Risk Description and
Potential Impact
Strategic Risks
Geopolitical Risk
As Kerry operates in many jurisdictions and continues
its expansion in developing markets it is exposed
to external factors which may affect the results of
the Group or disrupt its supply chain. These factors
include a complex and evolving legal and regulatory
environment as well as political instability, currency
volatility, the impact of tariffs and duties and varying
standards of quality and security.
Macro-economic uncertainty also exists around the
impact of the United Kingdom's exit from the European
Union as the longer term implications of this decision
remain unclear and it cannot yet be fully determined
how this may impact the Group.
Mitigation
Risk Trend and
Link to Strategy
Given the
current political and
macro-economic
environment
the Board believe
this risk has
increased.
The diversity of countries in which the Group operates
ensures that it is not overly exposed to any one particular
geography. Experienced management with local and
regional expertise support the Group in understanding how
business and commercial transactions are conducted in
each country / region.
The Group's legal, regulatory and compliance structure
ensures that applicable laws and regulations are complied
with. This is supported by the Group Code of Conduct
which outlines how Kerry expects to conduct business in
all regions.
Senior management regularly review the performance
and trends of KPIs for markets and geographies against
strategic objectives to ensure that future decision
making is reliably informed.
Group policies require businesses to hedge transactional
currency exposures and long term supply or purchase
contracts which give rise to currency exposures.
A senior management team has been established to
assess the impact of various scenarios which may arise
as a result of the United Kingdom’s decision to exit the
European Union. Whilst the eventual outcomes are
unclear, planning is underway for different scenarios
including the potential effects of each. These plans will
be updated on an ongoing basis as greater clarity
emerges. However given our well established
manufacturing footprint both in the UK and across
Europe, the Group is well positioned to deal with the
potential challenges and opportunities as they emerge.
64 | KERRY GROUP | ANNUAL REPORT 2016
Risk Description and
Potential Impact
Operational Risks
Quality and Food Safety
Mitigation
Risk Trend and
Link to Strategy
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,
including the FDA Food Safety Modernisation Act
in the USA. 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
Hazard Assessment and Critical Control Points (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.
The board considers
that this risk is
broadly in line with
the prior year.
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 defined Kerry working standards.
This ensures that quality assurance procedures are
embedded into 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. The supply quality team, in conjunction with
the procurement function, operate strict controls to
ensure that raw materials are sourced from approved
vendors and meet Kerry’s standards.
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 commodities, freight, energy, labour and
other input costs. These fluctuations can be influenced
by Global supply, weather events, political decisions
or changes in regulations. As we move into an
inflationary period and given increased competitive
pressures in the market place an inability to pass
on cost increases to customers may impact the
Group's 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 contracts.
Contractual mechanisms are in place with many customers
to “pass through” changes in commodity prices.
As
commodities
move into an
inflationary
period, the
Board consider
that this risk has
increased.
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.
Monitoring is in place to identify any potential
exposures by commodity type and business and
detailed margin reporting by customer, product and
business ensures that commercial teams maintain an
ongoing focus on performance in this area.
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65 | KERRY GROUP | ANNUAL REPORT 2016
Risk Description and
Potential Impact
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.
ICT Systems, Security and Cybercrime
The Group’s operations are increasingly dependent
on IT systems and the management of information.
A failure of a critical system or the unavailability or
inaccuracy of key data may disrupt operations and
impact our ability to serve customers.
Cybercrime, including unauthorised access to
information systems, may result in confidential data
being accessed leading to loss of Intellectual property
and the potential erosion of the Group’s competitive
position. Inadequate security controls surrounding
banking or treasury systems could also result in the
loss of cash assets.
Mitigation
Risk Trend and
Link to Strategy
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 Global Mobility team supports the deployment of
key talent as they move within the organisation.
An ICT Security Steering Group has been established to
provide governance and ensure that resources are being
correctly utilised to prevent critical system failures and
protect the Group's assets.
During 2016, a project commenced to review ICT business
continuity planning to ensure that the processes in place
are sufficient to meet the current and future needs of
the Group.
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.
The board considers
that this risk is
broadly in line with
the prior year.
Globally reported
incidents of
cybercrime are
increasing as are
levels of persistence,
sophistication
and organisation so
the Board believes
this risk has
increased.
Kerryconnect
The roll out of the Kerryconnect project to implement
a Group wide common ICT solution and standard way
of working is continuing with the deployment of SAP
commencing in the Americas regions in 2017. Any delay
to the project or failure to deliver projected efficiencies
may disrupt business operations reducing our ability
to serve customers. An over-run in costs due to scope
creep, delayed implementation or other reasons may
have a negative financial impact on the Group.
The Kerryconnect programme is supported by an executive
steering team and has a robust governance structure.
During the previous rollouts in Europe and APAC the
Kerryconnect implementation team has accumulated
significant knowledge and experience and will take these
learnings into the next stage of deployment.
As in previous deployments a phased approach to
rollout will be taken in the Americas region and KPIs will
continue to be monitored at regular steering meetings.
Given the significant
knowledge and
experience of
the Kerryconnect
team, the Board
considers that this
risk is stable.
66 | KERRY GROUP | ANNUAL REPORT 2016
Risk Description and
Potential Impact
Operational Risks
Intellectual Property Management
Kerry develops, manufactures and delivers taste and
nutrition technology based ingredients and integrated
solutions to customers in the food, beverage and
pharmaceutical industries. Any failure to protect the
Group’s Intellectual Property (IP) or prevention of
unauthorised access to sensitive data could have an
adverse effect on the Group’s business and cause
significant reputational damage.
Risk Trend and
Link to Strategy
This risk is broadly in
line with the prior
year but has been
presented separately
this year.
Mitigation
Kerry Group continues to focus on developing, enhancing
and protecting its intellectual property portfolio. As a global
leader in the taste & nutrition and consumer foods markets,
Kerry considers its intellectual property security to be
paramount and as a result has developed sophisticated
tailored Intellectual Property policies and strategies to
protect and defend all assets against infringements or
misuse by employees or third parties. These policies form
the foundation of Kerry’s intellectual property regime
and represent a key area of focus for the Group, for both
physical and digital assets.
Protection of IP is also a key focus of the ICT Security
Steering Group.
IP protection clauses are a standard element of
employment contracts.
Financial & 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.
Failure to accumulate and consider relevant tax
information may result in non-compliance with tax
regulations or adverse tax consequences.
A strong emphasis is placed on proactively engaging
with tax authorities in all material jurisdictions.
The Board considers
that this risk is
increasing given
significant changes
in the external
environment.
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.
The Board considers
that this risk is
broadly in line with
the prior year.
A Group finance committee, which is described on page
30 is in place which oversees the Group’s treasury and
funding policies and activities. The Board routinely review
and approve Group financing options.
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GOING CONCERN AND LONGER TERM VIABILITY STATEMENTS
The Board, having reviewed the Group’s principal risks and uncertainties
assessed the going concern and longer term viability of the Group in line
with the requirements of the UK Corporate Governance Code and the Irish
Annex. Its conclusions on these assessments are outlined below.
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 33 to 41. The Group’s 2017
budget was reviewed and approved at the December Board meeting. The
Directors 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 24 to 30 and additionally
as described in note 24 to the financial statements.
As a result of this review, the Directors report that they have satisfied
themselves and consider it appropriate that the Group and the Company
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 and the Company’s ability to continue over a
period of at least 12 months.
Longer Term Viability Statement
The Directors have assessed the prospects of the Group over a period of
three years to 31 December 2019.
Although the Group’s strategic plan covers a period of five years, the Board
considers that three years is the most appropriate period to assess the longer
term viability of the Group as current capital expenditure plans, commercial
arrangements and financial projections etc. are considered to be more reliable
and robust over this period.
The Board have considered how the occurrence of one or more of the Group’s
principal risks and uncertainties could materially impact the Group’s business
model, future performance, solvency or liquidity by assessing the impact
of these risks in severe but plausible scenarios. While each of the principal
risks and uncertainties could have an impact on the Group’s performance, a
significant food quality failure, an acquisition not delivering expected returns or
a failure to achieve targeted revenue or margins were considered most likely to
threaten the Group’s longer term viability. These scenarios were stress tested
to assess their impact on the Group’s solvency, liquidity and cash flow. This
analysis projected that significant headroom existed in all scenarios tested.
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 that the Group will be able to continue in operation and meet
its liabilities as they fall due over the three year period of their assessment.
68 | KERRY GROUP | ANNUAL REPORT 2016
DIRECTORS'
REPORT
—
Board of Directors 70
Report of the Directors 72
Corporate Governance Report 78
Audit Committee Report 83
Nomination Committee Report 88
Remuneration Committee Report 92
68 | KERRY GROUP | ANNUAL REPORT 2016
69 | KERRY GROUP | ANNUAL REPORT 2016
DIRECTORS' REPORT
BOARD OF DIRECTORS
—
Chairman & Executive Directors
Mr. Michael Dowling (72)
Chairman of the Board
Mr. Stan McCarthy (59)*
Chief Executive
Mr. Brian Mehigan (55)*
Chief Financial Officer
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 19 years. He is also a member of the
Nomination Committee since January 2001 and
was appointed as Committee Chairman in 2014.
Appointed: 3 March 1998 and as Chairman
1 January 2015
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. Stan has served as Director for
18 years.
Appointed: 9 March 1999 and as CEO on 1 January
2008
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 is a Fellow of
Chartered Accountants Ireland and a graduate
of National University of Ireland, Cork. Brian has
served as CFO and as an Executive Director on
Kerry Group plc’s Board for 15 years.
Appointed: 25 February 2002
Mr. Gerry Behan (52)*
President and CEO,
Kerry Taste and Nutrition
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. Gerry has served as a Board
member for nine years.
Appointed: 13 May 2008
Mr. Flor Healy (54)*
Chief Executive Officer, Kerry Foods
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. Flor has served as a
Board member for 13 years.
Appointed: 23 February 2004
70 | KERRY GROUP | ANNUAL REPORT 2016
*Executive Director
Dr. Hugh Brady (57)
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.
Hugh has served as a member of the
Board for three years and was appointed
a member of both the Audit and
Nomination Committees in 2015.
Mr. James C. Kenny (63)
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.
During 2016, James joined the Board of
Hub Group, a multimodal transportation
company, listed on the NASDAQ.
James has served as a member of the
Board for six years. He was appointed
a member of both the Remuneration
and Nomination Committees on 20
February 2012.
Non-Executive Directors
Mr. Patrick Casey (67)
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.
Patrick has served as member of the
Board for over two years.
Dr. Karin Dorrepaal (55)
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.
During 2016 Karin was appointed
non-Executive Director of Julias
Clinical Research BV based in the
Netherlands. 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
two years and joined the Remuneration
Committee in January 2015 and
Nomination Committee in
December 2015.
Ms. Joan Garahy (54)
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 28
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 five 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.
Mr. Tom Moran (61)
Independent Non-Executive Director
Appointed: 29 September 2015
Tom was Secretary General of the
Department of Agriculture, Food and the
Marine from 2005 to 2014. Throughout
his public sector career he held a
number of international policy
and international trade negotiation
leadership roles. Tom 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 chairs its
Dairy Subsidiary Board. He is also a non-
Executive Director of Elivia (France) and
is Chairman of the Audit Committee for
both the Irish Department of Housing,
Planning, Community and Local
Government and the Irish Government’s
Public Appointments Service.
Tom has served on the Board for one
year and was appointed to the Audit
Committee in December 2015 and
the Remuneration Committee in
February 2016.
Mr. Philip Toomey (63)
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 has served as a member of the
Board for five years. He 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.
71 | KERRY GROUP | ANNUAL REPORT 2016
DIRECTORS' 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*
Hugh Brady
Patrick Casey
Karin Dorrepaal
Joan Garahy
James C. Kenny
Tom Moran
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
72 | KERRY GROUP | ANNUAL REPORT 2016
The Directors are
pleased to report
another strong
performance
for 2016.
An increase in adjusted
earnings per share (EPS) before
brand related intangible asset
amortisation and non-trading
items (net of related tax) to
323.4 cent
An increase in basic EPS to
302.9 cent
The Directors submit their Annual Report
together with the audited financial
statements for the year ended 31
December 2016.
PRINCIPAL ACTIVITIES
Kerry Group is a world leader in the global
food industry. The Group’s industry-leading
portfolio of taste & nutrition technologies
and systems deliver unique, innovative
solutions for customers across the food,
beverage and pharmaceutical industries.
Kerry Foods, the Group’s Consumer Foods
business is one of the leading suppliers
of added-value branded and customer
branded chilled food products in the Irish,
UK and selected international markets.
Listed on the Irish and London Stock
Exchanges, Kerry has an international
presence with 130 manufacturing facilities
across the world.
RESULTS
The Directors are pleased to report another
strong performance for 2016 with an
increase in adjusted earnings per share
(EPS) before brand related intangible asset
amortisation and non-trading items (net
of related tax) of 7.1% over 2015 to 323.4
cent (2015: 301.9 cent) and an increase
in basic EPS to 302.9 cent (2015: 298.7
cent). Trading profit for the year increased
by 70 basis points to 12.2% (2015: 11.5%).
The Group achieved a record free cash
flow of €570m (2015: €453m). 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 22 to 23.
EVENTS AFTER THE BALANCE
SHEET DATE
On 20 February 2017, the Directors
recommended a final dividend totalling
€69.0m in respect of the year ended 31
December 2016 (see note 10 to the financial
statements). This final dividend per share
is an increase of 12.0% over the final 2015
dividend paid on 13 May 2016. This dividend
is in addition to the interim dividend paid to
shareholders on 18 November 2016, which
amounted to €29.6m.
The payment date for the final dividend is
19 May 2017 to shareholders registered on
the record date 28 April 2017.
Since year end the Group has reached
agreement to acquire Shanghai, China
based Tianning Flavour & Fragrance Co.
Ltd. and Adelaide, Australia based Taste
Master for a combined consideration of
€83.0m.
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
176,010,831 shares were in issue at 31
December 2016.
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 27 July
2017 and it is intended to seek shareholder
approval to renew the authority at the
Annual General Meeting (AGM) to be held
on 4 May 2017.
73 | KERRY GROUP | ANNUAL REPORT 2016
Shareholders approved the authority for the Directors to allot
shares for cash on a non-pro rata basis up to a maximum of 5%
of the issued share capital at the AGM held on the 27 April 2016.
The extension of 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, was also approved by shareholders
at the 2016 AGM. Neither authorities have been exercised and will
expire on the 27 July 2017 and it is intended to seek shareholder
approval for their renewal at the 2017 AGM.
During 2016, 59,941 shares and 44,167 share options vested under
the Company’s Short and Long Term Incentive Plans. In the same
period, 65,686 share options were exercised. 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 2016 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 July 2017 and it is intended to seek
shareholder approval for its renewal at the 2017 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 on page 89.
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.
CHANGE OF CONTROL PROVISIONS
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 two acquisitions during the year. The
businesses acquired are described in the Chief Executive’s Review
and in note 31 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 €260.7m in 2016
(2015: €234.2m).
SUSTAINABILITY
The Group delivered good progress on its sustainability
objectives in 2016 and in the implementation of our Kerry
Group Sustainability Strategy ‘Towards 2020’ programme. The
Group remains 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 42 to 59.
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 AND COMMITTEE CHANGES
Stan McCarthy will retire as Group CEO on 30 September 2017
and he will step down from the Board at the end of the year. Upon
the recommendation of the Nomination Committee, the Board
appointed Edmond Scanlon as CEO Designate on 20 February
2017. His appointment as Group CEO will be effective on 1 October
2017 and he will join the Board on that date.
Michael Ahern, James Devane and John Joseph O’Connor retired
from the Board on 31 December 2016 and Patrick Casey will retire
from the Board on 30 April 2017.
On 20 February 2017, the Board, upon the recommendation of the
Nomination Committee, agreed to appoint Gerard Culligan and
Con Murphy to the Board with effect from 1 June 2017.
Gerard Culligan operates his own business in the agribusiness
sector and is a Director and co-owner of two private companies in
the marine industry. He is also Chairman of Kilrush Credit Union
based in Co. Clare, Ireland.
Con Murphy operates his own business in the agribusiness sector
and is Chairman of the Irish Montbeliarde Cattle Society.
74 | KERRY GROUP | ANNUAL REPORT 2016
Both Mr. Culligan and Mr. Murphy were formerly Directors of Kerry
Co-operative Creameries Ltd. and have extensive experience in
the Dairy industry.
Tom Moran was appointed to the Remuneration Committee in
February 2016.
DIRECTORS
The Board, at the date of this report, consists of a Chairman, four
Executive and seven independent non-Executive Directors. The
names and biographical details of the Directors are set out on
pages 70 to 71.
Patrick Casey’s term of office will cease on 30 April 2017 and he
will step down from the Board with effect from that date. 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 80 and
81, the Board recommends the re-election of all Directors seeking
re-election.
The Directors’ and Company Secretary’s interests in shares and
debentures are included in the Remuneration Report on page 110.
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%
Blackrock Investment Management
The Capital Group Companies, Inc.
MFS International Management
8,359,158
6,942,324
5,554,519
4.8%
3.9%
3.2%
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 78 to 82 sets out
the Company’s application of the principles, and compliance with,
the provisions of the 2014 UK Corporate Governance Code and
Irish Annex (the Code). The going concern statement in the Risk
Report on page 68 sets out the Company’s basis for the adoption
of the going concern basis of accounting 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 are outlined on pages 62 to 67.
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 assets, liabilities and financial position 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.
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.
75 | KERRY GROUP | ANNUAL REPORT 2016
Each of the Directors, whose names and functions are listed on
page 72, confirms that, to the best of their knowledge and belief:
The accounting records of the Company are maintained at the
Company’s registered office.
– the consolidated financial statements for the year ended
31 December 2016 have been prepared in accordance with
IFRSs and 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 2016;
– the Business Review includes a fair review of the development
and performance of the business for the year ended 31
December 2016 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.
DIRECTORS’ COMPLIANCE POLICY STATEMENT
The Directors acknowledge that they are responsible for securing
compliance by the Company with its relevant obligations as
outlined in the Companies Act 2014 (the 2014 Act).
The Directors confirm:
(a) that a compliance policy statement, setting out the Company’s
policies (that, in the directors’ opinion, are appropriate to the
Company) regarding compliance by the Company with its
relevant obligations (within the meaning of the 2014 Act) has
been drawn up;
(b) appropriate arrangements or structures that are, in the
Directors’ opinion, designed to secure material compliance
with the Company’s relevant obligations have been put in
place; and
(c) a review of those arrangements and structures has been
conducted during the financial year.
The arrangements and structures include reliance on the
assistance and advice of persons employed by the Group and
by external legal, compliance and tax advisors that the Directors
consider to have the requisite knowledge and experience to
advise on the Company’s compliance with its relevant obligations.
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.
DISCLOSURE OF INFORMATION TO THE AUDITORS
Each of the Directors, who were members of the Board at the date
of approval of this Report of the Directors, confirms that:
– so far as they are aware there is no relevant audit information of
which the Company’s auditors are unaware; and
– they have taken all the steps that they ought to have taken as
a Director in order to make themselves aware of any relevant
audit information and to establish that the Company’s auditors
are aware of that information.
ACCOUNTABILITY AND AUDIT
A statement relating to the Directors’ responsibilities in respect of
the preparation of the financial statements is set out on page 75
with the responsibilities of the Company’s Independent Auditors
outlined on page 117.
Following a formal external audit tender process undertaken
during 2015, the Board appointed PricewaterhouseCoopers
as external auditors for the Group with effect from 29 March
2016. A resolution to formally approve the appointment of
PricewaterhouseCoopers as external auditors was approved by
Shareholders at the AGM held on 27 April 2016.
The financial statements on pages 118 to 183 have been audited
by PricewaterhouseCoopers, Chartered Accountants.
POLITICAL DONATIONS
During the year the Company made no political contributions
which require disclosure under the Electoral Act, 1997.
GROUP ENTITIES
The principal subsidiaries and associated undertakings 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 2016.
FINANCIAL INSTRUMENTS
The financial risk management objectives and policies along with
a description of the use of financial instruments is set out in note
24 to the financial statements.
76 | KERRY GROUP | ANNUAL REPORT 2016
INFORMATION REQUIRED TO BE DISCLOSED BY LR 6.8.1,
REPUBLIC OF IRELAND LISTING AUTHORITY
For the purposes of LR 6.8.1, the information required to be
disclosed can be found in the following locations:
Section
(1)
Topic
Interest capitalised
(2)
(3)
(4)
(5) – (14)
Publication of unaudited
financial information
Details of small related
party transactions
Details of long-term
incentive schemes
Section 5 - 14 of LR 6.8.1
Location
Statement of
accounting policies
Supplementary
information
Note 34 to the financial
statements
Remuneration
Committee Report
Not applicable
CROSS REFERENCES
All information cross referenced in this report forms part of the
Report of the Directors.
Signed on behalf of the Board:
Michael Dowling
Chairman
20 February 2017
Stan McCarthy
Chief Executive Officer
77 | KERRY GROUP | ANNUAL REPORT 2016
DIRECTORS' REPORT
CORPORATE GOVERNANCE REPORT
—
In December 2016, three non-Executive Directors retired from the
Board having concluded their terms of office and a fourth non-
Executive Director will retire from the Board in April this year. The
Board has agreed to appoint two new non-Executive Directors
with effect from 1 June 2017 and details of all changes are set out
in the Nomination Committee Report on page 91.
Each year the Board undertakes a formal evaluation of its
effectiveness and that of its Committees. In 2016, this was
externally facilitated by Independent Audit Limited (Independent
Audit). Following this review Independent Audit determined
that the Board and its Committees are performing well but
recommended areas for further consideration. Details of the
process and resulting actions arising from this review can be
found on pages 80 and 81.
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. As Chairman I will continue, with Board support,
to ensure that the remaining principles of the Code (April 2016)
are implemented in 2017, continuing the Group’s commitment to
achieving high standards of governance.
Details of the Group’s activities and the operations of the Board,
contained in the following report, outline the manner in which
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
The Directors are of the opinion that the 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 range of skills, knowledge
and experience, including the industry and international
experience, necessary to provide effective governance and
oversight of the Group.
READ MORE Further details
on individual Directors can
be found on pages 70 to 71.
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 2016.
On behalf of the Board I can confirm that, for the year under
review, the Group has fully complied with the 2014 UK Corporate
Governance Code and the Irish Annex (the Code). In April 2016, the
Financial Reporting Council (FRC) published a revised UK Corporate
Governance Code which is effective for financial years beginning
on or after 17 June 2016. A number of the updated principles and
disclosures have been adopted during 2016 and the remainder will
be adopted in 2017.
The Board, in conjunction with the Nomination Committee,
ensures that there are robust plans in place to facilitate Board,
Executive and senior management succession. During 2016, the
Committee led by the Chairman and supported by the Senior
Independent Director and independent external consultants,
identified and recommended a successor to replace the CEO
following his planned retirement in 2017.
The appointment of the CEO Designate was approved by the
Board on 20 February 2017 and he will assume the role of Group
CEO on 1 October 2017 and will also join the Board on that date.
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.
There are 12 members of the Board, which comprises of a non-
Executive Chairman, Chief Executive, Chief Financial Officer, two
other Executive Directors, and seven non-Executive Directors.
78 | KERRY GROUP | ANNUAL REPORT 2016
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 80.
Schedule of Matters Reserved for the Board
– Appointments to the Board;
– Ensuring compliance with corporate governance, legal,
statutory and regulatory requirements;
– Approval of the overall Group strategic and operating plans;
– Monitoring and review of risk management and internal
control systems;
– Approval of acquisitions and divestitures;
– Treasury policy and major corporate activities;
– Approval of annual budgets (revenue and capital);
– Approval of preliminary results, interim management
statements and interim financial statements;
– Assessment of the long term viability of the Group and the
going-concern assumption; and
– 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 Meetings 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 has the authority
to engage 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.
Should any Director be unable to attend a Board meeting in
person, conferencing arrangements are available to facilitate
participation. In the event that a Board member cannot attend or
participate in the meeting, the Director may discuss and share
opinions on agenda items with the Chairman, Chief Executive,
Senior Independent Director or Company Secretary in advance
of the meeting.
During 2016, the Board met eight times and there was full
attendance by all members of the Board apart from Michael
Ahern and John Joseph O’Connor who each attended seven of
the eight meetings.
CHAIRMAN AND CHIEF EXECUTIVE
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.
INDEPENDENCE
Patrick Casey is also a director of Kerry Co-operative Creameries
(KCC), the Group’s largest shareholder. Although Patrick is
connected to a significant shareholder, the Board as a whole is of
the opinion that he is independent in character and judgement.
His term of office ceases on 30 April 2017 following which he will
retire from the Board.
79 | KERRY GROUP | ANNUAL REPORT 2016
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, available from the Group’s website (www.kerrygroup.
com) or upon request, 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 83 to 111.
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 and uncertainties 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 and strategy. Presentations are also
made by Executive Directors and senior management on
various topics throughout the year in relation to their areas of
responsibility. On an annual basis a Board meeting is combined
with a comprehensive schedule of visits, over a week long
period, to the Group’s operating facilities to allow Directors
further develop their understanding of the Group’s activities
and meet with local senior management. The June 2016 Board
meeting was held in London following which Board members
visited three of the Group’s operating facilities in England,
France and Italy. These visits focused on Kerry’s ‘Ready-to-Eat’
consumer foods capabilities as well as Kerry’s taste technology
and expertise. While in Italy Board members were also hosted
by a key customer allowing them to get further insights into the
Group’s operations from a customer perspective.
As part of their personal development plans individual non-
Executive Directors were also afforded the opportunity to visit
a number of the Group’s international facilities and operations
during 2016.
Individual board members training requirements are reviewed with
the Chairman and Company Secretary and training is provided to
address these needs.
BOARD PERFORMANCE EVALUATION
In accordance with provisions of the Code, a performance
evaluation of the Board is carried out annually and facilitated
externally every third year. In 2016, the Board engaged
Independent Audit to facilitate a full external evaluation.
Independent Audit, based in the UK is recognised as a leading firm
of board performance evaluators. Independent Audit has no other
connection to Kerry Group.
Shareholders
Board of Directors
Executive Management
Audit
Committee
(pg 83)
Nomination
Committee
(pg 88)
Remuneration
Committee
(pg 92)
Finance
Committee
(pg 30)
Risk Oversight
Committee
(pg 60)
Sustainability
Council
(pg 44)
80 | KERRY GROUP | ANNUAL REPORT 2016
The review, performed during October and November 2016,
considered the effectiveness of the Board and its committees.
Independent Audit gathered the views of all Directors through the
use of individual questionnaires. In addition, interviews were held
with the Chairman of the Board, the Senior Independent Director,
the Committee Chairs and the Company Secretary. In addition,
Independent Audit observed the November Board and Audit
Committee meetings and reviewed the corresponding papers.
Topics covered during Board Performance Evaluation Included
– Board composition and succession planning;
– Meeting material and dynamics;
– Strategic development and risk management; and
– The work of Board Committees.
Independent Audit noted that good progress had been made
against many areas raised in both the previous external review and
the internal review completed in 2015. In particular, it commended
progress both in relation to time devoted to strategy and greater
consideration given to succession and contingency planning.
Overall the outcome of Independent Audit’s review was that
the Board and its committees perform well. However the review
included a number of suggestions to which the Board will give
further consideration. The main areas for further consideration
arising from the review are included in the table below:
Key Action Points Arising from Board
Performance Evaluation
– Review the Board size;
– Continue to optimise future Board composition; and
– Consider development needs of the Board as a whole and
that of individual Directors.
The Chairman appraised the performance of each of the non-
Executive Directors by meeting each Director individually in
conjunction with using Thinking Board, Independent Audit’s
self-assessment questionnaire software. In addition, the Senior
Independent Director led the formal appraisal of the Chairman’s
performance, based on discussion and feedback from all Directors
on the performance of the Chairman during the year.
At the December 2016 Board meeting, the Board considered
Independent Audit’s evaluation report. The Directors’ appraisal
process concluded that each Director was performing well and
were committed to their role in terms of dedication of time and
attendance at meetings. The Chairman, along with the Company
Secretary, will ensure that suggestions from the 2016 evaluation
report and areas for consideration arising from the Directors’
appraisal, where identified, will be addressed during 2017.
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 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.
The Board has delegated certain duties to the Audit Committee in
relation to the ongoing monitoring and review of risk management
and internal control systems. The work performed by the Audit
Committee is described in their report on pages 83 to 87.
Full details of the risk management systems are described in the
Risk Report on pages 60 to 61.
The principal risks and uncertainties facing the company,
including those that could threaten the business model, future
performance, solvency or liquidity are described on pages 62
to 67. 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 (2014) as published by the Financial Reporting Council
in the UK.
FEATURES OF INTERNAL CONTROL IN RELATION TO
THE FINANCIAL REPORTING PROCESS
The main features of the internal control and risk management
systems of the Group in relation to the financial reporting process
include:
– The Board review and approve a detailed annual budget and
monitor performance against the budget through periodic
Board reporting;
– Prior to submission to the Board with a recommendation to
approve, the Audit Committee review the Interim Management
Statements, the Interim and Annual Consolidated Financial
Statements and all formal announcements relating to these
statements;
81 | KERRY GROUP | ANNUAL REPORT 2016
During the year, the Chief Executive, Chief Financial Officer and
the Investor Relations team engaged with investors through a
variety of formats including hosting Kerry Investor events and
visits to the Kerry Global Technology & Innovation Centres in
Naas, Ireland and Beloit, North America as well as facilitating
both foodservice and supermarket investor tours. The Investor
Relations team met over 700 investors through participation in
roadshows and attendance at conferences in over 20 cities.
Kerry’s Investor Relations team also maintained contact with the
investment community throughout the year, answering financial,
sustainability and other queries as they arose. A significant
amount of published material including results, share price
information, presentations and news releases are accessible to all
shareholders on the Group’s website (www.kerrygroup.com) and
through the Kerry Group Investor Relations application. Through
the Investors section of the website, shareholders and others can
subscribe to receive automated Kerry Group plc email alerts when
new information is posted to the site.
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.
All Directors attend the AGM and are available to meet with
shareholders and 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.
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– Adherence to the Group Code of Conduct and Group policies
published on the Group’s intranet ensures the key controls in
the internal control system are complied with;
– Monthly reporting and financial review meetings are held to
review performance at business level ensuring that significant
variances between the budget and detailed management
accounts are investigated and remedial action is taken as
necessary;
– The Group has a Compliance function to establish compliance
polices and monitor compliance across the countries in which
the Group operates;
– The Group operates a control self-assessment system covering
the key controls for the Finance, Tax and Treasury functions of
the Group;
– A well-resourced and appropriately skilled Finance function is in
place throughout the Group;
– Completion of key account reconciliations at reporting unit and
Group level;
– Centralised Taxation and Treasury functions and regional
Shared Service Centres established to facilitate appropriate
segregation of duties;
– The Group Finance Committee has responsibility for raising
finance, reviewing foreign currency risk, making decisions on
foreign currency and interest rate hedging and managing the
Group’s relationship with its finance providers;
– The Board through the Audit Committee, completes an annual
assessment of risks and controls;
– Appropriate ICT security environment; and
– The Internal Audit function continually review the internal
controls and systems and make recommendations for
improvement which are reported to the Audit Committee.
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 85.
RELATIONS WITH SHAREHOLDERS
SHAREHOLDER COMMUNICATIONS
The Board ensures that a satisfactory channel of communication
with existing and potential shareholders exists. The Group is
committed to interacting with Kerry’s investment community to
share details of its strategic plans, long term targets and trading
performance.
The Group Annual and Interim reports together with its Interim
Management Statements are the principal mediums through
which the Company communicates with its shareholders.
Where necessary, the Board and Committee Chairmen engage
with shareholders on specific topics and, where relevant,
provide feedback to other Directors. The Chairman and Senior
Independent Director are also available throughout the year to
meet shareholders on request.
82 | KERRY GROUP | ANNUAL REPORT 2016
DIRECTORS' REPORT
AUDIT COMMITTEE REPORT
—
information necessary for shareholders to assess the performance,
business model and strategy of the Group. The Committee also
advised the Board on the requirements of the Companies Act
2014 including the requirement to adopt a Directors’ Compliance
Statement.
As outlined in our report last year, the Committee engaged in a
formal tender process for the external audit of the Group’s Financial
Statements in respect of the year ended 31 December 2016.
Following the conclusion of this process, the Board approved the
appointment of PricewaterhouseCoopers (PwC) as auditors to
the Group and this appointment was subsequently approved by
our shareholders at the AGM held on 27 April 2016. A key focus of
the Committee during the year has been enabling a smooth and
successful transition to the new auditors.
An external review of the Committee was conducted by Independent
Audit Limited (Independent Audit) during 2016 and the outcome
of this review was that the Committee was performing well. Further
details are set out on page 84.
In September 2016, I visited the Group’s Technology & Innovation
Centre in Beloit, Wisconsin and met with key members of the North
American finance leadership team. This was an opportunity to
receive an update on the challenges and the various initiatives that
are underway to improve and enhance the control and reporting
environment.
I look forward to meeting with shareholders at our forthcoming AGM
on 4 May 2017.
Philip Toomey
Chairman of the Audit Committee
Philip Toomey
Chairman of the
Audit Committee
Dear Shareholder,
On behalf of the Audit Committee I am pleased to present our report
for the year ended 31 December 2016.
The report details how the Audit Committee fulfilled its
responsibilities under the 2014 UK Corporate Governance Code
and the Irish Annex (the Code) and the 2012 Financial Reporting
Council (FRC) Guidance on Audit Committees. Kerry Group has also
considered the April 2016 revisions to the Code and the updated
Guidance on Audit Committees and has adopted a number of these
principles during 2016 with the remainder to be adopted in 2017.
In the year under review, the Committee supported the Board in its
responsibilities relating to monitoring the Group’s financial reporting
process, reviewing and monitoring the risk management and internal
control systems, overseeing the Group’s Internal Audit function
and advising the Board on the appointment and independence of
the Group’s external auditor. The Committee has 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
ROLES AND RESPONSIBILITIES
The main roles and responsibilities of the Committee, which have
been reviewed and updated to reflect the April 2016 revisions to
the Code and the updated Guidance on Audit Committees, are
set out in written terms of reference which are available from the
Group’s website (www.kerrygroup.com) or upon request.
The key responsibilities outlined in the terms of reference are
included in the table on page 84.
During the year the Audit Committee Chairman provided a letter
to the Board outlining how the Committee discharged its duties
in 2016.
COMMITTEE MEMBERSHIP
During 2016, the Audit Committee comprised four independent
non-Executive Directors; Dr. Hugh Brady, Ms. Joan Garahy, Mr.
Tom Moran and was chaired by Mr. Philip Toomey.
Together the members of the Committee bring a broad range
of experience and business acumen which is vital in supporting
effective governance. As required by the Code, the Board is
satisfied that both Philip Toomey and Joan Garahy have recent
and relevant financial experience, as set out in their biographical
details on page 71.
The Company Secretary is the Secretary of the Committee.
83 | KERRY GROUP | ANNUAL REPORT 2016
Primary Responsibilities of the Audit Committee
– Ensuring the interests of 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 and monitoring of internal controls;
– Monitoring the work of the Internal Audit function;
– Managing the appointment and remuneration of the external auditor as well as monitoring their effectiveness and independence;
– Reviewing the Interim Management Statements, the Interim and Annual Consolidated Financial Statements and considering the
appropriateness of accounting policies and practices;
– Advising the Board on whether it believes there are any material uncertainties that may impact the Group’s ability to continue as a
going concern;
– Advising the Board on whether the Annual Report and Financial Statements, when taken as a whole are fair, balanced and
understandable;
– Reviewing and assessing the effectiveness of the Group’s whistleblowing arrangements; and
– Advising the Board in relation to compliance with stock exchange and other legal or regulatory requirements.
COMMITTEE MEETINGS
The Committee met six times during the year and there was full
attendance by Committee members at all meetings.
Typically the Chief Executive, the Chief Financial Officer, the
Group Financial Controller, the Head of Internal Audit, as well
as representatives of the external auditor are invited to attend
meetings of the Committee. In addition, the Chairman of the
Board attends meetings at the invitation of the Committee. When
required, other key executives and senior management are invited
to attend meetings to provide a deeper insight on agenda items
related to the Group’s principal risks.
The Committee meet with the external auditor and the Head
of Internal Audit, without other executive management being
present, on an annual basis in order to discuss any issues which
may have arisen in the year under review.
After each Board meeting, the Chairman of the Committee reports
to the Board on the key issues which have been discussed.
COMMITTEE EVALUATION
As detailed on pages 80 and 81, an external review of the
Board and its Committees took place in 2016. This process
was externally facilitated by Independent Audit. The evaluation
was carried out based on Committee member’s responses to
Independent Audit’s questionnaires and an interview held between
Independent Audit and the Chair and Secretary of the Committee.
In addition, as part of the evaluation process Independent Audit
observed the November Committee meeting and reviewed the
corresponding papers. The Committee considered the evaluation
report and the resultant recommendation will form part of
the agenda for Committee meetings in the coming year. The
conclusion from the evaluation process was that the Committee
was performing well.
KEY ACTIVITIES
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;
– compliance with applicable financial reporting standards,
corporate governance requirements and the clarity and
completeness of disclosures; and
– significant areas in which judgement had been applied in the
preparation of the financial statements in accordance with the
accounting policies.
A key responsibility of the Committee is to consider the significant
areas of complexity, management judgement and estimation that
have been applied in the preparation of the financial statements.
The Committee has, with the support of PwC as external auditor,
reviewed the suitability of the accounting policies which have
been adopted and whether management have made appropriate
estimates and judgements. The table on page 85 sets out the
significant issues considered by the Committee in relation to the
financial statements for the year ended 31 December 2016.
84 | KERRY GROUP | ANNUAL REPORT 2016
Significant Financial Reporting Judgements
Business
Combinations
The Group acquired two businesses during the financial year which were accounted for as business combinations
and recorded material measurement period adjustments to the provisional fair values in respect of certain 2015
acquisitions. The Committee reviewed the methodology and assumptions applied in determining these fair values.
The Committee found the methodology and assumptions to be appropriate following discussion with senior
management and the external auditor.
Impairment
of Indefinite
Life Intangible
Assets
Intangible assets, as disclosed in note 12 to the financial statements, represents the largest number on the Group
balance sheet at €3.4bn. The Committee considered the process and methodology used to complete the impairment
review of the Group’s indefinite life intangible assets including goodwill, and specifically the assumptions used for the
future cash flows, discount rates, terminal values and growth rates. The Committee found that the methodology and
assumptions used are appropriate following discussions with senior management and the external auditor.
Taxation
Retirement
Benefit
Obligations
An element of judgement is required when arriving at the level of provisioning for uncertain tax liabilities. The
Committee reviewed and discussed the Group’s tax provisioning methodology with senior management and also
considered the outcome of the auditors’ review of these provisions. As a result, the Committee believes the level of
provisioning is appropriate.
The Group operates a number of post-retirement benefit schemes, the valuations of which can fluctuate
significantly with changes in underlying valuation assumptions. The Committee recognise the uncertainty
inherent in these assumptions particularly those related to discount rates, inflation rates and life expectancy.
The Committee having discussed with senior management and considered the view of the external auditors, are
satisfied that both the methodology and valuation assumptions, prepared by external actuaries and adopted by
management are appropriate.
FAIR, BALANCED AND UNDERSTANDABLE
At the request of the Board, the Audit Committee reviewed the
content of the Annual Report 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.
INTERNAL CONTROL AND RISK MANAGEMENT
The Audit Committee supports the Board in its duties to review
and monitor, on an ongoing basis, the effectiveness of the
Group’s risk management and internal control systems. A detailed
overview of the Group’s risk management framework is set out in
the Risk Report on pages 60 and 61.
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 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 was 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.
Having considered the above in conjunction with the
consistency of the various elements of the reports, the narrative
reporting and the language used, the Committee confirmed
to the Board that the Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information
necessary for shareholders to assess the performance, business
model and strategy.
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 62 to 67;
– 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 managements’ action plans to address them;
– considered reports from the Head of Internal Audit on fraud
investigations or other significant control failures which
occurred during the year and approved plans to address and
remediate the issues identified;
– received updates from the Group Financial Controller on
any 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
85 | KERRY GROUP | ANNUAL REPORT 2016
– reviewed the report from the external auditor in respect of
significant financial accounting and reporting issues, together
with significant internal control weakness observations.
As outlined in the Risk Report on page 60, in 2016 an
increased amount of time was scheduled on Board agendas to
accommodate risk presentations which included, amongst others,
presentations from the Head of Quality and the Group Head of
ICT on key controls in their respective areas.
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.
INTERNAL AUDIT
The Audit Committee is responsible for monitoring and reviewing
the operation and effectiveness of the Internal Audit function
including its focus, plans, activities and resources. To fulfil these
duties the Committee:
– reviewed and approved the Group Internal Audit strategy and
annual plan to ensure alignment with the Group’s principal risks;
– considered and were satisfied that the competencies,
experience and level of resources within the internal audit team
were adequate to achieve the proposed plan;
– 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;
– received quarterly updates from the Head of Internal Audit
on progress against the agreed plan including the results of
internal audit reports and management’s actions to remediate
issues identified;
– received updates on the nature and extent of non-audit activity
performed by Internal Audit;
– held a meeting with the Head of Internal Audit without the
presence of management;
– ensured that the Head of Internal Audit had regular meetings
with the Chairman of the Audit Committee and had access to
the Chairman of the Board if required; and
– ensured co-ordination between Group Internal Audit and
the external auditor to maximise the benefits from clear
communication and co-ordinated activities.
External Quality Assessments (EQA) by independent external
consultants are conducted, at least, every five years, to confirm
compliance with the International Professional Practice Framework
of the Institute of Internal Auditors. The most recent external
assessment was completed in 2012 and the Internal Audit function
intends to complete its next assessment in 2017. During 2016, an
internal review against the same standards was completed and
the output from the review, which was deemed as satisfactory, was
presented to the Audit Committee at the April meeting.
The Committee concluded that for 2016 the Internal Audit function
was performing well and is satisfied that the quality, experience and
expertise of the function is appropriate for the Group.
EXTERNAL AUDITOR
The Audit Committee has primary responsibility for overseeing
the relationship with, and performance of the external auditor on
behalf of the Board. This includes making recommendations to
the Board on the appointment, reappointment and removal of the
external auditor, assessing their independence and effectiveness
and for negotiating the audit fee.
Tendering and Appointment
In March 2016, following a formal tender process, which was
overseen by the Audit Committee, PricewaterhouseCoopers
(PwC) were appointed as the Group’s external auditor. Going
forward, the Committee will ensure that in accordance with
EU legislation in relation to Audit Reform as adopted in Irish
legislation, the external auditor will be rotated at least once
every ten years. The Committee will oversee the tendering
process to ensure that all firms have such access as is
necessary to information and individuals for the duration of
the tendering process.
During the year a transition plan setting out the agreed principles,
framework and timeline to ensure the efficient transfer of the
external audit, from the previous Group auditor Deloitte to PwC,
was discussed in detail with the Audit Committee who were
satisfied that it was appropriate. This plan included attendance
by the lead engagement partner at the 2016 Audit Committee
meetings and visits by the Group engagement team to a number
of key global Group locations. Detailed predecessor Deloitte file
reviews were completed, where permitted by local legislation. A
transition workshop involving PwC partners and managers from
key locations also took place, which included presentations from
Group Finance, Tax and Internal Audit.
The Audit Committee approved the remuneration for the external
auditor, details of which are set out in note 3 to the financial
statements.
Independence, Quality and Effectiveness
At the November Audit Committee meeting, PwC brought the
Audit Committee through the external audit plan in detail. The
Committee discussed the significant audit risks and areas of
focus, audit scope and materiality amongst other matters. The
Audit Committee agreed the plan and the level at which any
misstatements should be reported by PwC to the Committee
was appropriate.
The Audit Committee received confirmation from PwC that they
are independent of the Company under the requirements of the
Auditing Practices Board’s Ethical Standards for Auditors.
The lead engagement partner on the Group’s audit is John
McDonnell who was appointed in March 2016 and in order to
ensure continued independence and objectivity it is planned that
he will rotate at the end of financial year 2020.
86 | KERRY GROUP | ANNUAL REPORT 2016
COMPANIES ACT 2014
During the year, the Audit Committee supported the Board of
Directors of the Company in the process of adopting a Directors’
Compliance Policy statement as required by S.225 of the
Companies Act 2014. The Committee received a report on the
review undertaken during the financial year of the compliance
structures and arrangements in place to ensure the Company’s
material compliance with its relevant obligations. On the basis of
this report, the Committee recommended the adoption by the
Board of the Compliance Policy Statement which is included in the
Report of the Directors on page 76.
WHISTLEBLOWING AND FRAUD ARRANGEMENTS
During the year, the Head of Internal Audit 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.
Prior to the finalisation of the 2016 Financial Statements the Audit
Committee received a detailed presentation and final report from
PwC. The Committee also considered feedback from the lead
partner and senior executives in concluding that PwC effectively
delivered against the objectives of the agreed audit plan.
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.
In accordance with the Group’s policy on the hiring of former
employees of the external auditor, the Committee reviews and
approves any appointment of an individual, within three years of
having previously been employed by the external auditor, to a
senior managerial position in the Group.
Having considered all of the above, the Committee concluded
that the Group’s external auditor remained independent and that
the audit process was effective. On that basis, the Committee
recommended to the Board that PwC should continue in office
as the auditor to the Group in respect of the year ending 31
December 2017.
Non-Audit Services
A formal policy governing the provision of non-audit services
by the external auditor is in place and this policy is reviewed
and approved by the Audit Committee on an annual basis. The
policy is designed to safeguard the objectivity and independence
of the external auditor and to prevent the provision of services
which could result in a potential conflict of interest. The policy
outlines the services that can be provided by the external auditor,
the relevant approval process for these services, and those
services which the external auditor is prohibited from providing
(as outlined in Article 5 of EU Regulation 537/2014). Prohibited
services include activities such as certain tax services, book-
keeping and work relating to the preparation of accounting
records and financial statements that will ultimately be subject
to external audit, financial information system design and
implementation, internal auditing and any work where a mutuality
of interest is created that could compromise the independence of
the external auditors.
In line with the policy, during 2016 all non-audit services and
fees were approved by the Audit Committee. The Committee
noted that given the appointment of PwC as external auditor
consideration was given to the transition of some tax advisory
services provided to the Group by PwC. These services related
to work that had commenced prior to 2016 and the Committee
are satisfied that these services are now either complete or have
been transitioned to other providers. The Committee is satisfied
that the fees paid to PwC for non-audit work, which amounted to
€0.5m and represented 17% of the audit fee, did not compromise
their independence or integrity. Full details of the fees paid to
the external auditors during the year are outlined in note 3 to the
financial statements.
87 | KERRY GROUP | ANNUAL REPORT 2016
DIRECTORS' REPORT
NOMINATION COMMITTEE REPORT
—
operations having served in senior leadership positions in a number
of the Group’s businesses across the world.
During 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. Non-Executive Director succession planning
was a particular focus given the planned retirement of four non-
Executive Directors. In February 2017, on the recommendation of
the Committee, the Board approved the appointment of two new
non-Executive Directors, Gerard Culligan and Con Murphy with effect
from 1 June 2017.
The refreshment of the three Board Committees was also considered
following which Tom Moran was appointed to the Remuneration
Committee in February 2016.
An external review of the Committee was conducted by Independent
Audit Limited (Independent Audit) during 2016 and the outcome of
this review was that the Committee is performing well. Further details
are set out on page 91.
The Committee continues to plan strategically for Board refreshment
and senior management succession.
Michael Dowling
Chairman of the Nomination Committee
Michael Dowling
Chairman of the
Nomination Committee
Dear Shareholder,
On behalf of the Nomination Committee, I am pleased to present our
report for the year ended 31 December 2016.
A primary focus of the Committee in 2016 was Executive succession
planning. Stan McCarthy who has served as Group CEO since
January 2008 notified the Board of his intention to retire from
the Group in 2017. On 20 February 2017 the Board, upon the
recommendation of the Committee, appointed Edmond Scanlon as
CEO Designate with immediate effect. Edmond will succeed Stan as
CEO on 1 October 2017 and will join the Board on that date. Details of
the selection process are outlined on page 91 of this report. Edmond
joined the Group’s Graduate Development Programme in 1996
and has considerable knowledge of and experience in the Group’s
ROLE AND RESPONSIBILITIES
The main roles and responsibilities of the Committee, which were reviewed and updated during 2016, are set out in written terms of
reference which are available from the Group’s website (www.kerrygroup.com) or upon request.
The key responsibilities outlined in the terms of reference are included in the following table:
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;
– Ensuring an appropriate nomination process is in place for Board appointments;
– Ensuring a formal induction plan is in place for each new Director on appointment;
– Reviewing a candidate’s other commitments to ensure that on appointment, a candidate has sufficient time to undertake the role;
– Reviewing the Board Diversity Policy and the setting of measurable objectives for reporting the policy;
– 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, including the Chairman, Senior Independent
Director, non-Executive Directors and senior management positions; and
– Overseeing the conduct of the annual evaluation of the Board and its Committees.
88 | KERRY GROUP | ANNUAL REPORT 2016
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.
available for inspection at the Company’s registered office during
normal office hours and at the Annual General Meeting of the
Company.
COMMITTEE MEMBERSHIP
During 2016, the Nomination Committee comprised three
independent non-Executive Directors; Dr. Hugh Brady, Dr. Karin
Dorrepaal, Mr. James Kenny and was chaired by Mr. Michael
Dowling, Chairman of the Board.
The Board ensures that the membership of the Nomination
Committee is refreshed in accordance with the Group’s Corporate
Governance Policy. The quorum for Committee meetings is
two and only Committee members are entitled to attend. The
Nomination Committee may extend an invitation to other persons
to attend meetings to be present for particular agenda items
as required. The Company Secretary acts as Secretary of the
Committee.
The Committee may obtain independent professional advice
and secure the attendance of advisors with relevant experience
and expertise if it considers this necessary. During 2016, the
Committee engaged the services of Mr. Peter Lever, a UK based
independent management consultant to assist with Board
refreshment and Executive succession planning. The Committee
also engaged Heidrick & Struggles, a UK based company
specialising in Executive and non-Executive board member
recruitment services, to assist in the process. Neither Mr. Lever
or Heidrick & Struggles have any other connection to the Group.
In addition, STS Technical Services, a US based Consultancy
Group, were engaged to support Executive leadership
development programmes.
COMMITTEE MEETINGS
The Committee met four times during the year and there was full
attendance by Committee members at all meetings.
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 engages specialist recruitment
consultants to assist in the identification and selection process.
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 reappointment 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
The key stages in the nomination process are outlined in the
following diagram.
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 third 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
– Board of Directors consider the
candidate(s) from the Committee and
approve the candidate(s)
6. Approval
– In accordance with the Articles of
Association, all newly appointed Directors
are subject to election at the AGM
following their appointment.
BOARD REFRESHMENT POLICY
On an ongoing 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.
89 | KERRY GROUP | ANNUAL REPORT 2016
Board Tenure
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. 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 based on the results of the formal performance evaluation.
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.
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’s Diversity and Inclusion policy is an integral 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.
In reviewing Board composition and agreeing a job specification
for new non-Executive Director appointments, the Committee
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 external consultants
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.
A summary of the Group’s current position relating to Board and
10
senior management diversity is provided below:
20
0
30
EXECUTIVE / NON-EXECUTIVE DIRECTORS
BOARD TENURE (YEARS)
0
10
20
30
40
50
Executive
33%
Non-Executive
67%
100
80
60
40
20
0
Executive/Non-Executive Directors
15+
8%
8%
Board Age Profile
11-15
18%
6-10
8%
3-5
0-2
8%
25%
25%
0%
10%
20%
30%
Executive Directors
Non-Executive Directors
Diversity
DIVERSITY
100%
80%
60%
40%
20%
0%
FEMALE
17%
MALE
83%
FEMALE
26%
MALE
74%
BOARD AGE PROFILE
65+
61-65
17%
25%
56-60
17%
Board
Senior Management
0%
10%
20%
30%
40%
50%
51-55
41%
90 | KERRY GROUP | ANNUAL REPORT 2016
KEY ACTIVITIES
The key activities of the Committee throughout the year are detailed below:
Subject
Group CEO
Succession
Committee Activity
During the year the Chairman led the Committee in the process for the selection of a successor to the Group CEO.
The Committee was supported by Philip Toomey (SID) and Mr. Peter Lever (independent management consultant).
The Committee also engaged the services of Heidrick & Struggles (specialists in Executive and non-Executive
board member recruitment) who undertook an external candidate search and review.
Edmond Scanlon, the current President and CEO of the Kerry Asia Pacific region was identified as a candidate
through the Group Executive succession planning process. Edmond was formally President of Kerry China and prior
to that held other senior leadership positions worldwide.
The Committee recommended the appointment of Edmond as CEO Designate and the recommendation was
approved by the Board on 20 February 2017. Edmond will assume the role of CEO on 1 October 2017.
During 2016, the Committee particularly focused on the refreshment of the Board following the planned retirement
of three non-Executive Directors at year end and Patrick Casey’s retirement at the end of April 2017.
Historically, the Group’s largest shareholder, Kerry Co-Operative Creameries Limited (KCC) nominated
candidates for appointment to the Board. Prior to their appointment such candidates required the approval and
recommendation of the Committee. The Committee also engaged a specialist recruitment services provider to
assist in the recommendation process.
In 2016, the Committee, in conjunction with KCC, agreed that the process through which candidates were
historically nominated would no longer prevail. However, recognising the dairy heritage origins of the Group, the
Committee will continue to consider candidates from the Dairy and Agribusiness sectors for future appointments to
the Board but any appointees may not also be members of the Board of KCC.
Following a process agreed by the Committee in conjunction with our appointed external advisor, the Committee
recommended the appointment of Gerard Culligan and Con Murphy as non-Executive Directors. On 20 February
2017, the Board agreed these appointments which will be effective from 1 June 2017.
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 2017 AGM. This recommendation was based on the outcome of the formal
performance evaluation conducted during the year.
In 2016, as part of its remit, the Committee considered the size and composition of the Board. At 31 December 2015,
the Board comprised 15 members. Following the retirement of Patrick Casey and the appointments outlined above,
the Board size will reduce to 13 members. The Committee will continue to consider both Board size and composition
during 2017.
As outlined in detail on pages 80 and 81 an external review of the Board and its Committees took place in 2016. The
Committee agreed the terms of reference of the evaluation of the Board and its Committees with Independent Audit.
The Nomination Committee’s evaluation was carried out based on Committee member’s responses to Thinking
Board, Independent Audit’s self-assessment questionnaire software and an interview held between Independent
Audit and the Chair and Secretary of the Committee. The Committee considered the outcome of this review. Each
recommendation was assessed and an action plan has been developed to address areas for potential improvement.
These recommendations will form part of the agenda for Committee meetings in the coming year. The conclusion
from the evaluation process is that the Committee is performing well.
Resulting from the Committee’s ongoing focus on committee membership refreshment, the Committee
recommended the appointment of Tom Moran to the Remuneration Committee and this appointment was approved
by the Board in February 2016.
The Committee oversees the Group management development programme and reviews this programme with the
Chief Executive before it is presented to the Board.
At the 2016 AGM, a significant proportion of votes were cast by shareholders against the re-election of four non-
Executive Directors; Michael Ahern, Patrick Casey, James Devane and John Joseph O’Connor, as they were also
Directors of KCC.
The terms of office of Michael, James and John Joseph ceased on 31 December 2016 and they retired from
the Board on that date. As outlined earlier in this report, Patrick will step down from the Board on 30 April 2017.
Following Patrick’s retirement, no Board member will be a Director of KCC.
Appointment of
Non-Executive
Directors
Re-appointment
of Directors
Board Size &
Composition
Board and
Committees
Effectiveness
Evaluation
Committee
Changes
Senior
Management
Succession
AGM 2016
Shareholder
Voting
91 | KERRY GROUP | ANNUAL REPORT 2016
DIRECTORS' REPORT
REMUNERATION COMMITTEE REPORT
—
2016 ANNUAL INCENTIVE
For 2016, the STIP payouts to Executive Directors were on average
63% of the maximum opportunity.
Although Group performance has been very good over the last
five years, the accompanying chart illustrates the challenging and
stretching nature of the annual incentive metrics targets set by the
company.
TSR Growth & Annual Incentive Payout
68%
2012
75%
2013
46%
2014
57%
2015
63%
2016
TSR Growth
Annual Incentive Achieved as a %
of Maximum Opportunity
LONG TERM INCENTIVE PLAN 2014-2016
The outturn of the 2014-16 LTIP award was 29.4% of maximum
opportunity, which was disappointing given that this was the first full
year payment from the new LTIP introduced in 2013.
The main factor for this was due to the EPS metric (which accounts
for 50% of the award) failing to achieve its threshold over the
three year performance period (i.e. 7.8% achieved v 8% threshold).
The adverse currency effects encountered last year significantly
impacted EPS growth and contributed to the threshold not being
achieved.
2016 FINANCIAL YEAR
In the face of challenging external global business environment
conditions in 2016, and in particular the impact of Brexit on the
translation of our sterling profit, the Group again delivered a
good financial performance for the year as is shown in the 2016
performance table.
2016 Performance
Adjusted EPS Growth
Group Free Cash Flow
ROACE
Target
10%
€478m
12%
Results
7.1%
€570m
12.9%
The adjusted EPS growth metric came in below the target of 10% for
2016, however it is worth mentioning that, on a constant currency
basis, the Group achieved 12.3% adjusted EPS growth.
Joan Garahy
Chairperson of the
Remuneration Committee
SECTION A: CHAIRPERSON'S
ANNUAL STATEMENT
Dear Shareholder,
On behalf of the Remuneration Committee, I am pleased to present
the Directors’ Remuneration Report for the year ended 31 December
2016. The Group’s remuneration policy is outlined on pages 97 to 100
and remains unchanged since it was approved at the 2016 AGM.
The Committee is confident that the Group’s policy operates to the
highest standards in achieving its strategic objectives, is properly
governed and is in line with best market practice.
PAY FOR PERFORMANCE
The Committee is dedicated to structuring a remuneration policy
which is stretching to incentivise performance, with remuneration
metrics directly aligned to the Group’s business model, strategic
objectives and shareholder value.
DRIVERS OF SHAREHOLDER RETURN
TOTAL
SHAREHOLDER
RETURN
SHARE PRICE
DIVIDEND
GROWTH
EPS
RETURN
ROACE
ROAE
CFROI
VOLUME
GROWTH
MARGIN
EXPANSION
As outlined in the Strategic Report on page 22, Adjusted Earnings
Per Share (EPS) is the key performance metric for measuring the
components of growth (i.e. volume and margin expansion). Return
on Average Capital Employed (ROACE) is a key measure of the
return the Group achieves on its invested capital. Group Free Cash
Flow is an important indicator of the cash the Group generates for
reinvestment or for return to shareholders.
These three metrics are the main Group metrics which drive the
Executive Directors Short Term Incentive Plan (STIP) and Long
Term Incentive Plan (LTIP). Together these metrics deliver Total
Shareholder Return which aligns the interest of the Executive
Directors with that of the shareholders.
92 | KERRY GROUP | ANNUAL REPORT 2016
100
80
60
40
20
0
160
140
120
100
80
60
40
20
0
€300
€250
€200
€150
€100
300
250
200
150
100
TOTAL SHAREHOLDER RETURN
5 YEAR TOTAL SHAREHOLDER RETURN
(VALUE OF €100 INVESTED ON 31/12/2011)
€300
€250
€200
€150
€100
2012
2013
2014
2015
2016
Kerry
MSCI Europe Food Producer
E300 Food & Beverage
As can be seen in the Total Shareholder Return graph, since 2011
Kerry has generated a 148% return for shareholders despite the
general declines in share price which has occurred in the Food and
Beverage industry in late 2016, as a result of changes in investor
sentiment post Brexit and the US elections.
Kerry’s Total Shareholder Return declined by 10.3% during 2016
mainly as a result of the change in the sterling/euro exchange rate,
however it should be noted that this was on the back of significant
growth during 2015 of 35%.
EXECUTIVE DIRECTOR REMUNERATION POLICY
FOR 2017
The previous three year review cycle of CEO & Executive Director
remuneration arrangements was completed in 2015 and formed the
basis of pay decisions implemented in 2016. For 2017 the Committee
recommend that base pay adjustments for Executive Directors
(excluding the CFO) will be in line with general inflation (a range of
2.5% to 3%).
As committed to last year and in recognition of his excellent
performance, phase two of the CFO’s pay increase will be
implemented in 2017. The increase of 11.5% will align his salary closer
to the mid-range pay of CFO’s in our Irish, UK, USA & European
benchmark peer group. No other planned substantive changes will
be made to the CEO and Executive Director remuneration in 2017.
We are confident that our Executive Directors will continue to
deliver significant value to our shareholders as history has clearly
demonstrated and that our performance measures remain relevant,
stretching and appropriate.
INCENTIVE PLANS
With the winding up of the 2006 LTIP during 2016, a much simplified
remuneration structure is in place for 2017 with only one Short
Term and one Long Term Incentive Plan applying to the Executive
Directors.
300
250
In line with best market practice, malus and clawback provisions
apply to the Executive Directors STIP and LTIP and both incentive
programmes have built-in two year deferral periods applying to
significant elements of their awards.
200
150
100
As illustrated on page 110, all Executive Directors have shareholdings
well in excess of the 180% - 200% of basic salary minimum set by
the Group, again illustrating their alignment with long term Group
strategic objectives and shareholders’ interests.
FUTURE INCENTIVE AND PERFORMANCE CONDITIONS
The Committee believes that the Rewards programme, while
challenging and stretching needs also to be realistically capable
of rewarding the commitment and performance of the Executive
and senior management team over the rolling three year cycles. It
needs to bear in mind that external factors, such as currency, can
mitigate against a strong underlying performance, e.g. adjusted EPS
growth for 2016 on a constant currency basis was 12.3%, but 7.1%
on a reported currency basis. The adverse impact of currency has
meant no pay-out for this metric, which represents 50% of the LTIP
opportunity.
In setting the threshold for the 2017 LTIP award the Committee has
taken into account the adjusted EPS performance for 2016 and the
market guidance for 2017, together with the other three year rolling
performance periods currently inflight. In this regard the Committee
has decided to make an adjustment to the adjusted EPS threshold
(down from 8% to 6%) for the 2017 award but with the target retained
at 10% and maximum at 12%. The Committee believes that the
adjustment to threshold, while keeping the adjusted EPS target and
maximum stretching, will better incentivise Executive Directors &
senior management to continue to deliver shareholder value.
We believe this approach taken in the context of our overall
competitive and stretching programme is appropriate and in the best
interests of our shareholders.
NON-EXECUTIVE DIRECTOR REMUNERATION POLICY
FOR 2017
The last review of non-Executive Director Remuneration levels
was undertaken in 2014 and increases were made effective from
1 January 2015. There are no proposed changes to either the
Chairperson or other non-Executive Directors fees / Committee fees
for 2017.
93 | KERRY GROUP | ANNUAL REPORT 2016
REMUNERATION POLICY REVIEW
In line with Group strategy, we have a five year business planning
cycle and this is being renewed and reassessed during 2017. In
parallel, to ensure remuneration is linked with the plan, we will be
reviewing the remuneration policy and will undertake a review of
both Executive Director and non-Executive Director remuneration,
including Short and Long Term Incentive Plans during 2017. Any
recommended changes required to align with the new strategic plan
will be implemented from 2018 following shareholder consultation.
COMMITTEE PERFORMANCE
An external third party review of the Remuneration Committee’s
performance was undertaken during 2016 by Independent Audit
Limited. Results from the review found that the Committee was
running effectively.
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 Executive
Directors 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 who voted, voted in favour of the report. On behalf
of the Remuneration Committee, I believe that we have put
together a Rewards programme for 2017 which is again worthy of
shareholder support.
Joan Garahy
Chairperson, of the Remuneration Committee
94 | KERRY GROUP | ANNUAL REPORT 2016
SECTION B: REMUNERATION COMMITTEE
& KEY ACTIVITIES
COMMITTEE MEMBERSHIP
During 2016, the Remuneration Committee comprised four
independent non-Executive Directors; Mr. James C. Kenny,
Dr. Karin Dorrepaal, Mr. Tom Moran (appointed February 2016)
and was chaired by Ms. Joan Garahy. Details of the skills and
experience of the Directors are contained in the Directors’
biographies on pages 70 to 71.
ROLE AND RESPONSIBILITIES
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.
An external review of the Remuneration Committee’s performance
was undertaken during 2016 by Independent Audit Limited. Results
from the review found that the Committee was running effectively
with only minor administrative areas recommended for improvement.
The main responsibilities of the Committee, which were reviewed
and updated during 2016, are set out in its written terms of reference
and are available from the Group’s website (www.kerrygroup.com)
and upon request.
Primary Responsibilities of the Remuneration Committee
– 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 Group’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.
REMUNERATION COMMITTEE MEETINGS AND ACTIVITIES 2016
The Committee met four times during the year and there was full attendance by Committee members at the meetings. Tom Moran attended
the three meetings held post his appointment on 22 February 2016.
The key activities undertaken by the Committee in discharging its duties during 2016 are set out below:
Subject
Remuneration
Report
Basic Salary
Short Term
Incentive Plan
(STIP)
Long Term
Incentive Plan
(LTIP)
Chairman &
Non-Executive
Directors’ Fees
Remuneration Committee Activity
A review of best practice remuneration reporting was completed during 2016 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 updates and guidance by the main shareholder
representative bodies and proxy agencies, together with the 2014 Irish Companies Act and is satisfied that the Group is
complying fully with relevant best practice reporting. The Committee continues to monitor the ongoing discussions and
commentary on the pending EU Shareholders’ Rights Directive to prepare for its introduction and implementation.
Following the detailed benchmark review of Executive Directors’ salaries which occurred in 2015, during the year
the Committee continued to monitor the level of basic salaries of Executive Directors in line with market practice.
[See Implementation Section on page 100 for details on the outcome of the review].
STIP awards were reviewed during 2016 by the Committee to ensure that the plan targets remain appropriately stretching
and aligned with the Group strategy. [See Implementation Section on page 101 for details on the outcome of the review].
The Committee considered the overall effectiveness of the LTIP during 2016 to ensure it is structured appropriately to
incentivise Executive Directors and senior management across the Group. [See Implementation Section on page 102 for
details on the outcome of the review].
A detailed benchmark review of the Chairman and non-Executive Directors’ fees was undertaken in 2014 with the
assistance of Willis Towers Watson. In the intervening years, the Committee continues to monitor the level of the Chairman
and non-Executive Directors fees and report to the Board. The Board proposed no changes to fee levels for the Chairman
and non-Executive Directors for 2017.
95 | KERRY GROUP | ANNUAL REPORT 2016
Subject
Shareholder
Consultation
Remuneration Committee Activity
The Committee reviewed the results of the vote by shareholders on the “Say on Pay” at its first meeting following the
2016 AGM. The resolution of the shareholder vote was 98% in support of the report.
Senior
Management
Review
Committee
Evaluation
In the context of the 2015 review implemented in 2016, the Committee engaged with major institutional shareholders
who provided important input and commentary which were considered by the Committee in 2016. These inputs together
with inputs received from shareholder representative bodies/governance groups and the result of shareholders votes,
informed the final pay change proposals for 2017.
Within its terms of reference, there is a requirement for the Committee to have oversight of the salaries and overall
remuneration of senior management. Following the benchmark review of senior management remuneration completed
in 2015, a further review was undertaken during 2016 of the next layer of management. Further recommendations and
proposed changes following this review were presented to the Committee for information purposes.
The Remuneration Committee’s evaluation was carried out based on Committee members responses to Thinking Board,
Independent Audit Limited’s self-assessment questionnaire software and an interview held between Independent Audit
and the Chair and Secretary of the Committee. The Committee considered the evaluation report which concluded that
the Committee is running effectively with only minor administrative areas recommended for improvement, which will form
part of the agenda for Committee meetings in the coming year.
REMUNERATION COMMITTEE ADVISORS
The Remuneration Committee is authorised by the Board to appoint external advisors and Willis Towers Watson is 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. 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 2016 were €107,000 (2015: €244,000).
96 | KERRY GROUP | ANNUAL REPORT 2016
SECTION C: REMUNERATION POLICY
There have been no changes to the remuneration policy report
since it was approved by shareholders at the 2016 AGM and it is
reproduced in full below for ease of reference.
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, USA and European companies in the sector in terms of both
the size of the Group and the geographical spread and complexity
of its 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 for 2017. 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%
97 | KERRY GROUP | ANNUAL REPORT 2016
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%
SERVICE CONTRACTS
The Group does not have any service contracts with its Executive 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 Committee
will review non-Executive Directors’ fees 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 remained unchanged in 2016 and will again be reviewed 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 which are paid on a net of tax basis.
REMUNERATION POLICY TABLE
The following table details the remuneration policy for the Group’s Executive Directors:
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
Executive Directors to deliver
strong performance for the
Group in line with the Group’s
strategic objectives
Benefits
To provide a competitive benefit
package aligned with the role
and responsibilities of Executive
Directors
– Remuneration Committee sets the basic salary and
– Set at a level to
– Not applicable
benefits of each Executive Director
– Determined after taking into account a number
of elements including the Executive Directors’
performance, experience and level of responsibility
– Paid monthly in Ireland and bi-weekly 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 Executive
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 (STIP)*
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
targets
– Achievement of predetermined earnings growth
and other performance targets set by the
Remuneration Committee
– Performance targets aligned to published strategic
– Maximum
– Adjusted Earnings
opportunity is 125% -
150% of basic salary
– Target opportunity
is 70% of maximum
opportunity for on-
target performance
Per Share
– Group Free Cash
Flow
– Business
Performance Metrics
– Personal and
Strategic Objectives
A 25% deferral in shares/options
provides a 2 year retention
element and aligns Executive
Directors interests with
shareholders’ interests
– 75% of the award payable in cash
– 25% awarded by way of 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)
98 | KERRY GROUP | ANNUAL REPORT 2016
Share based to provide
alignment with shareholder
interests
A 50% deferral provides a
retention element and aligns
Executive Directors’ 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 Executive Directors
Purpose and Link to Strategy
Operation
Opportunity
Performance Metrics
Long Term Performance Related Incentives (LTIP)*
Retention of key personnel and
incentivisation of sustained
performance against key Group
strategic metrics over a longer
period of time
the Group
– The awards vest depending on a number of
separate performance metrics being met over a
three year performance period
– Conditional awards over shares or share options in
– Maximum
– Adjusted Earnings
opportunity is 180% -
200% of basic salary
– Target opportunity
is 50% of maximum
opportunity for on-
target performance
Per Share
– Total Shareholder
Return
– Return on Average
Capital Employed
– 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 LTIP (see below)
– Executive Directors are expected to build and to
– Not applicable
hold shares in the Company to a level not less than
180% - 200% of their basic salary over a five year
time period
– 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 Executive Directors receive a
contribution to an after tax savings scheme
* The Committee may at its discretion, amend or vary the performance conditions of the STIP related Incentives and LTIP related Incentives
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 Executive Directors have thus been offered a contribution (on a cost neutral basis to the Company) to an after tax savings
scheme as an option, in lieu of pension benefits. Both Executive Directors affected have taken up this option. The US resident Executive
Directors participate in a US defined contribution scheme and 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
All Executive Directors have significantly exceeded the minimum shareholding requirement. [See table on page 110 in section D for details].
DILUTION
The Group offers Executive Directors and senior management 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 Group’s share capital. The dilution resulting from vested share awards/share options
for the ten year period to 31 December 2016 is 1.7%.
The potential future dilution level from unvested share awards/share options as a result of these schemes is a further 0.7%.
99 | KERRY GROUP | ANNUAL REPORT 2016
MALUS / CLAWBACK
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 two 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 Group 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 malus or clawback provisions.
CONSIDERATION OF EMPLOYMENT CONDITIONS ELSEWHERE IN THE GROUP
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 Group. 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 POLICY
BASIC SALARY AND BENEFITS
The Remuneration Committee sets the basic salary and benefits for each Executive Director. A detailed benchmark review of Executive
Directors’ salaries was last completed in 2015. The Committee determines the basic salary and benefits for Executive Directors after taking
into account a number of elements including the Directors’ performance, experience and level of responsibility. The Committee also considers
the pay conditions across the Group when determining any basic salary adjustments in addition to considering comparable Irish, UK, USA and
European companies in the sector.
The 2015 review, performed in conjunction with Willis Towers Watson, determined that there was a shortfall between our CEO and CFO’s
remuneration and that of our Irish, UK, USA and European market peers and increases were implemented with effect from 1 January 2016.
As outlined in last year’s report, in the case of the CFO, the 2016 increase was part one of a phased process to align his basic salary closer
to the market. Phase two will be implemented with effect from 2017 and will provide for an increase of 11.5%. This will complete the phased
implementation of the total increase agreed last year. For 2017, the basic salaries of the other Executive Directors will be adjusted by 2.5% - 3%
in line with inflation.
Benefits relate primarily to the use of a company car/car allowance. Any travel arrangements or travel costs required for business purposes will
also be met by the Group, on a net of tax basis.
100 | KERRY GROUP | ANNUAL REPORT 2016
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 2016 to ensure the metrics are appropriate, 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 return for shareholders,
increasing profit and cash generation. Furthermore, the malus and clawback provisions of the STIP, which include a two year clawback
provision (outlined on page 100), are deemed to be appropriate and effective.
2017 STIP – Performance Metrics and Weightings
Group Metrics
Adjusted EPS Growth
Group Cash Flow
Personal and Strategic
Total
Business Metrics
Business Performance Metrics
Total
CEO
CFO
% of award
% of award
CEO Taste
& Nutrition
% of award
CEO Consumer
Foods
% of award
Target
49%
14%
7%
70%
-
70%
Max
70%
20%
10%
100%
-
100%
Target
49%
14%
7%
70%
-
70%
Max
70%
20%
10%
100%
-
100%
Target
35%
14%
7%
56%
14%
70%
Max
50%
20%
10%
80%
20%
100%
Target
35%
14%
7%
56%
14%
70%
Max
50%
20%
10%
80%
20%
100%
ALIGNMENT TO STRATEGY
The above are considered key metrics as they align with the Group’s strategic 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. Group Free Cash Flow is key to ensuring there are sufficient funds available
for reinvestment or for return to shareholders. 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. These metrics represent 100% of the overall
maximum weighting for the CEO and the CFO and 90% of the overall maximum weighted average for all four Executive Directors.
The business metrics reflect the operational performance of the business.
25% of the overall annual incentive payment is delivered through shares/share options, with the remaining 75% being delivered in cash. A two
year deferral period is in place for share/share option awards made under the scheme.
HOW REMUNERATION LINKS WITH STRATEGY
Performance Measure
Adjusted EPS
Group Free Cash Flow
Personal & Strategic
TSR
ROACE
Strategic Priority
Delivery of the Group’s growth strategy
Incentive Scheme
STIP & LTIP
Cash generation for reinvestment or return to shareholders
Sustainability and talent to grow the business and our people
Continued delivery of shareholder value
Balance growth and return
STIP
STIP
LTIP
LTIP
See Group Key Performance Indicators (KPIs) on pages 22 and 23 for more information on the link between the performance metrics used for
incentive purposes and the Group’s strategy.
101 | KERRY GROUP | ANNUAL REPORT 2016
LONG TERM PERFORMANCE RELATED INCENTIVE PLAN (LTIP)
LTIP Award Year
2017
2016
Performance Metrics
Threshold
Target
Maximum
Threshold
Target
Maximum
EPS (50% weighting)
Kerry's EPS growth per annum
% of award which vests
ROACE (20% weighting)
ROACE Return Achieved
% of award which vests
Relative TSR (30% weighting)
Position of Kerry in
peer group
6%
25%
10%
25%
10%
50%
12%
50%
12%
100%
14%
100%
8%
25%
10%
25%
10%
50%
12%
50%
12%
100%
14%
100%
Median
Median
to 75th%
Greater
than 75th%
Median
Median
to 75th%
Greater
than 75th%
% of award which vests
30%
30% - 100%
100%
30%
30% - 100%
100%
The Committee reviewed the overall effectiveness of the LTIP in 2016 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 (currently
200%/180%) is to remain unchanged following the review. Similarly, the LTIP performance metrics and weightings were also reviewed in 2016
and are to remain unchanged.
The Committee believes that the Rewards programme, while challenging and stretching, also needs to be realistically capable of rewarding
the commitment and performance of the Executive and senior management team over the rolling three year cycles. It needs to bear in mind
that external factors, such as currency, can mitigate against a strong underlying performance, e.g. adjusted EPS growth for 2016 on a constant
currency basis was 12.3%, but 7.1% on a reported currency basis. The adverse impact of currency has meant no pay-out for this metric, which
represents 50% of the LTIP opportunity.
In setting the threshold for the 2017 LTIP award the Committee has taken into account the adjusted EPS performance for 2016 and the market
guidance for 2017, together with the other three year rolling performance periods currently inflight. In this regard the Committee has decided
to make an adjustment to the adjusted EPS threshold (down from 8% to 6%) for the 2017 award but with the target retained at 10% and
maximum at 12%. The Committee believes that the adjustment to threshold while keeping the adjusted EPS target and maximum stretching,
will better incentivise Executives and senior management to continue to deliver shareholder value.
We believe this approach taken in the context of our overall competitive and stretching programme is appropriate and in the best interests of
our shareholders.
REMUNERATION POLICY REVIEW
In line with Group strategy, we have a five year business planning cycle and this is being renewed and reassessed during 2017. In parallel,
to ensure remuneration is linked with the plan, we will be reviewing the remuneration policy and will undertake a review of both Executive
Director and non-Executive Director remuneration, including Short and Long Term Incentive plans during 2017. Any significant changes
required to align with the new strategic plan will look to be implemented from 2018 following shareholder consultation.
SHAREHOLDER ENGAGEMENT
The Committee considers the guidelines issued by the bodies representing the major institutional shareholders and the feedback provided
by such shareholders, when completing its annual review of the Group’s Executive Remuneration policies and practices. This Committee
welcomes this engagement and commits to informing the major institutional shareholders of any significant changes to policy. We look forward
to continuing this consultation in 2017.
102 | KERRY GROUP | ANNUAL REPORT 2016
SECTION D: 2016 DIRECTORS’ REMUNERATION
Disclosures regarding Directors’ remuneration have been drawn up on an individual Director basis in accordance with the requirements of the
2014 Irish Companies Act, the UK Corporate Governance Code, the Irish Annex, the Irish Stock Exchange and the UK Listing Authority.
The information in the tables 1, 4, 5, 6, 7 and 8 below, including relevant footnotes (identified as audited), forms an integral part of the financial
statements as described in the basis of preparation on page 126. All other information in the remuneration report is additional disclosure and
does not form an integral part of the financial statements.
EXECUTIVE DIRECTORS’ REMUNERATION
As Stan McCarthy and Gerry Behan are paid in the USA in US dollars, the reporting of their year-on-year remuneration can be impacted by the
exchange rate movement of the US dollar against the euro. We have therefore shown their remuneration in their home country currency (US
dollars) for comparison purposes.
Table 1: Individual Remuneration for the year ended 31 December 2016 (Audited)
Basic
Salaries
Benefits
Pensions2
Performance
Related3
LTIP4
Total
Stan McCarthy
Gerry Behan
Total US $
Total US $ in EUR€1
Brian Mehigan2
Flor Healy2
2016
$’000
1,450
851
2,301
€’000
2,083
616
568
2015
2016
2015
2016
$’000
$’000
$’000
$’000
1,330
835
2,165
109
31
140
109
33
142
333
185
518
2015
$’000
273
173
446
2016
$’000
1,346
696
2015
2016
$’000
$’000
768
522
768
478
2,042
1,290
1,246
2015
$’000
2,139
1,329
3,468
2016
$’000
4,006
2,241
6,247
€’000
€’000
€’000
€’000
€’000
€’000
€’000
€’000
€’000
€’000
1,950
522
557
128
29
14
171
128
30
11
169
469
182
134
785
143
126
671
402
1,848
1,162
1,127
3,124
5,655
479
434
271
243
339
361
900
960
1,645
1,511
3,267
3,029
2,761
1,676
1,827
4,984
8,811
10,529
2015
$’000
4,619
2,892
7,511
€’000
6,766
1,866
1,897
Note 1: The table shows the Executive Directors’ pay in the currency of payment to ensure clarity in reflecting the year-on-year payment comparisons.
Note 2: The pension figures outlined above for both Stan McCarthy and Gerry Behan include both defined benefit and defined contribution retirement benefits. 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
A detailed benchmark review of Executive Directors’ salaries was completed in 2015, which included amongst other things, a study of
comparable Irish, UK, USA 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. Following the
review an increase in basic salaries of 9% for the CEO and 18% for the CFO was agreed which is reflected in the table above. The base
remuneration levels of the other Executive Directors increased by 2% in line with inflation. The average increase for all employees across
the Group in 2016 was approximately 3.6%.
Over the previous seven years to 2016 there had been minimal increases to basic salaries for the CEO, CFO and other 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. Throughout this period
the same Executive team have delivered significant value to shareholders in the form of continued Total Shareholder Return growth (in
excess of 500% over seven years). In this context, it was agreed that such increases were now merited.
103 | KERRY GROUP | ANNUAL REPORT 2016
ANNUAL INCENTIVE OUTCOMES (STIP)
Table 2: Annual Bonus Achievement against Targets
Group Financial Metrics: (CEO & CFO – 90% weighting)
Metric
s Threshold
Target
t
e
g
r
a
T
Max
Actual Performance
Bonus Outcome
Link to Strategy
1. Adjusted EPS (CEO & CFO – 70% weighting)
301.9 cent
2. Group Cash Flow (CEO & CFO – 20% weighting)
€433m
332.1 cent
347.2 cent
323.4 cent
49.8 %
€478m
€524m
€570m
100%
Key performance metric as it encompasses all the
components of growth (volume and margin expansion)
that are important to Group stakeholders.
Important indicator of the strength and quality of the
business and of the availability to the Group of funds for
reinvestment and for return of stakeholders.
Personal and Strategic Objectives & Business Metrics
Metric
s Threshold
Target
t
e
g
r
a
T
Max
Actual Performance
Bonus Outcome
Link to Strategy
3. Personal and Strategic
0
4. Business Operating Profit/Cash Flow
7
10
7.4
74%
Measure
Threshold
0%
Target
70%
Maximum
100%
Performance
BOP/
Cash Flow
76.5%
Specific to the Executive’s individual areas of
responsibility linked to the strategic plan and the
priorities of the overall Group.
Measures the underlying profit generated by the
business and whether management is converting
growth into profit and cash efficiently.
Details of Personal and Strategic Objectives (CEO and CFO – 10% weighting)
Directors
CEO
Achievements
• Effective engagement with major shareholders to explain the strategic direction of the Group, the
Bonus Outcome
70%
Group’s sustainability objectives and to provide regular updates on performance.
• Strong leadership of the Group’s talent management process to ensure appropriate structures,
resources and succession plans are in place at Executive level.
CFO
• Support the CEO in effectively engaging with major shareholders to explain the strategic direction of
72.5%
the Group, the Group’s sustainability objectives and to provide clear updates on performance.
• Further developed the talent management process in the Finance function to ensure appropriate
structures, resources and succession plans are in place.
• Significant progress achieved in the deployment of an enhanced end to end and integrated
performance management process and ICT system, and in the deployment of a multi functional
Global Shared Services strategy.
CEO Taste &
Nutrition &
CEO Consumer
Foods
• Successfully led the process of organisation change in the Taste & Nutrition and Consumer Foods
businesses including putting in place appropriate structures, resources and succession plans to
deliver on the Group’s Strategic Objectives.
77.5%
• Continued to drive innovation to deliver new products that meet changing consumer preferences
and trends, and to leverage our technologies and market insights to provide a superior service to our
customers.
104 | KERRY GROUP | ANNUAL REPORT 2016
The Committee considers the metrics shown above, to be appropriate and aligned to our strategic plan with a key focus on the Group financial
metrics of adjusted EPS and Group Free Cash Flow (overall weighting for CEO and CFO of 90%). These are vital in driving Group growth and
ensuring there are sufficient funds available for reinvestment or for return to shareholders.
The Executive Directors are also measured against Personal and Strategic objectives, which focus on improvements within their individual
areas of responsibility. Performance against these objectives is determined by the Committee by reference to key targets agreed with the
Executives at the start of the year. In addition to the aforementioned metrics, the CEO of Taste & Nutrition and the CEO of Consumer Foods
are also assessed on internal business metrics, with specific and measurable targets, necessary to drive strategic growth and profitability in
their respective divisions.
In 2016, the Group achieved performance below the target opportunity level set by the Remuneration Committee, with an average weighted
pay-out of 63% (89.5% of target opportunity). The Committee believes that the targets were challenging and stretching in the current
environment particularly with the 2016 performance outcomes impacted by the change in the sterling/euro exchange rate arising from the
decision of the UK to exit the European Union.
As detailed in the 2015 Annual Report, the maximum annual incentive opportunity was increased for all Executive Director’s for 2016 with the
CEO’s maximum opportunity increasing from 100% to 150% of basic salary and for the other Executive Directors the maximum opportunity
increased from 90% - 100% to 125% of basic salary.
LONG TERM INCENTIVE PLAN (LTIP)
Closed Incentive Plan - 2006 LTIP
From 2016, there is one Long Term Incentive Plan in operation (2013 LTIP) within the Group, the details of which are provided below. Prior to
2016, there were two Long Term Incentive Plans in operation (2006 LTIP and the 2013 LTIP). Shareholders approved the terms and conditions
of the 2006 plan in 2006, with the final awards vesting in March 2016, following a three year performance period. There are no outstanding
conditional awards to Executive Directors under the 2006 plan.
2013 LTIP
The terms and conditions of the plan were approved by shareholders at the 2013 AGM. 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.
Subject to performance metrics being met, the 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.
The first conditional awards under this scheme were made to Executive Directors in 2013. Awards made under the plan potentially vest or
partially vest three years after the award date if the predetermined performance targets are achieved. The maximum award that can be made
to an individual Executive 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.
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.
105 | KERRY GROUP | ANNUAL REPORT 2016
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.
The outcome of the measurement of the adjusted EPS condition in relation to the 2014 awards is that at an outcome of 7.8% the threshold
condition of 8% was not achieved.
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%
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.
The performance graph below shows Kerry’s TSR compared to the peer companies over the three year performance period from 1 January
2014 to 31 December 2016 for the LTIP awards which issued in 2014. These awards have a vesting date on or before 30 April 2017.
The outcome of the measurement of the TSR condition in relation to the 2014 awards is in the 2nd Quartile resulting in an award
outcome of 11.2%.
106 | KERRY GROUP | ANNUAL REPORT 2016
3 YEAR TSR: KERRY AND COMPARATOR 1 JAN 2014 - 31 DEC 2016
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
9
r
e
e
P
Y
R
R
E
K
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 111, which illustrates the Group’s TSR performance from 2008 to 2016.
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:
200
150
Threshold
Target
Maximum
Return on Average Capital Employed
10%
Percentage of the Award which Vests
25%
12%
14%
50%
100%
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.
50
The outcome of the measurement of the ROACE condition in relation to the 2014 awards is a ROACE of 13.6% which resulted in a reward
outcome of 18.2%.
Table 3: Overall Outcome of the 2014 LTIP Award vesting in 2017
0
TSR
Performance
(30% of Award)
Second
Quartile*
-50
Long Term
Incentive
Plan
2013 LTIP
Plan
-100
* See TSR, EPS and ROACE tables above for details of performance metrics.
Actual Vesting
of TSR Award
11.2%
EPS
Performance
(50% of Award)
7.8% growth*
Actual
Vesting
of EPS Award
0%
ROACE
Performance
(20% of Award)
13.6%*
Actual Vesting
of ROACE
Award
18.2%
Total %
Vested
29.4%
107 | KERRY GROUP | ANNUAL REPORT 2016
NON-EXECUTIVE DIRECTORS’ REMUNERATION PAID IN 2016
Table 4: Remuneration paid to non-Executive Directors in 2016 (Audited)
Michael Ahern
Hugh Brady
Paddy Casey
James Devane
Karin Dorrepaal
Michael Dowling
Joan Garahy
James C. Kenny
John Joseph O’Connor
Philip Toomey
Tom Moran*
Fees 2016
€
Fees 2015
€
43,000
78,000
43,000
43,000
78,000
230,000
93,000
97,000
43,000
98,000
76,333
922,333
43,000
78,000
43,000
43,000
69,666
230,000
93,000
97,000
43,000
98,000
16,167
853,833
* Appointed to the Board on 29 September 2015 and to the Remuneration Committee on 22 February 2016.
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.
The following table shows the Executive Directors’ and Company Secretary’s interests under the LTIP. Conditional awards at 1 January 2016
relate to awards made in 2013, 2014 and 2015 which have a three year performance period. The 2013 awards vested in 2016. The 2014 awards
will potentially vest in 2017 and 2015 awards will potentially vest in 2018. The market price of the shares on the date of each award is disclosed
in note 28 to the financial statements.
EXECUTIVE DIRECTORS’ AND COMPANY SECRETARY’S INTERESTS IN LONG TERM INCENTIVE PLAN
Table 5: Individual Interests in LTIP (Audited)
Conditional
Awards at
1 January
2016
Share
Awards
vested
during
the Year
Share
Option
Awards
vested during
the year
LTIP
Scheme
Share Awards
Relinquished
during
the year
Conditional
Awards made
during
the year
Conditional
Awards at
31 December
2016
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
20,527
(14,430)
95,902
(12,112)
9,722
42,062
10,368
44,858
12,753
59,815
3,112
9,522
-
-
-
-
(8,965)
(7,525)
-
-
-
-
(6,835)
(5,566)
(7,289)
(5,935)
-
-
(2,188)
(925)
(6,097)
(10,613)
(2,887)
(4,876)
(3,079)
(5,201)
(3,788)
(6,594)
(924)
(810)
-
-
32,537
105,714
€79.80
-
-
13,905
45,525
€79.80
-
-
12,818
46,540
€79.80
-
-
19,102
64,798
€79.80
-
2,960
-
10,747
€79.80
108 | KERRY GROUP | ANNUAL REPORT 2016
Conditional awards made in 2016 have a three year performance period and will potentially vest in 2019. 50% of the shares/share options which
potentially vest under the LTIP, are issued immediately upon vesting. The remaining 50% of the award is 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 STIP and LTIP:
Table 6: Share Options held under the STIP and LTIP (Audited)
Share Options
outstanding at
1 January 2016
Share Options
exercised during
the Year
Share Options
vested during
the Year*
Share Options
outstanding at
31 December 2016
Exercise price
per Share
Directors
Brian Mehigan
Flor Healy
Company Secretary
Brian Durran
66,655
90,049
24,518
(11,098)
(4,400)
(8,230)
13,251
13,985
3,385
68,808
99,634
19,673
€0.125
€0.125
€0.125
* 50% of share options vested under the 2013 LTIP are subject to a two year deferral period. 25% of the 2015 STIP payment vested in 2016 is paid in share
options and is also subject to a two year deferral period. These share options vested in March 2016 cannot be exercised until after March 2018.
Once vested, share options under the LTIP can be exercised for up to seven years before they lapse. For share options subject to the two year
deferral period, they can be exercised for up to five years following the end of the two year deferral period, before they lapse i.e. seven years
following the vest date.
EXECUTIVE 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.
Table 7: Defined Benefit – Pensions Individual Summary (Audited)
Accrued benefits on leaving service at end of year
Stan McCarthy
Brian Mehigan1
Flor Healy1
Gerry Behan
2016
2015
Increase during year
(excluding inflation)
€’000
Accumulated total
at end of year
€’000
Transfer value of increase in
accumulated accrued benefits
€’000
84
75
5
14
178
44
1,000
-
255
412
1,667
1,793
1,267
-
112
76
1,455
440
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. During the year Brian Mehigan transferred
the value of his past service accrued benefit from the Company’s defined benefit scheme into the Company’s defined contribution scheme.
PAYMENTS TO FORMER DIRECTORS
There were no payments made to former Directors or connected persons in 2016 (2015: €nil).
PAYMENTS FOR LOSS OF OFFICE
There were no payments for loss of office in 2016 (2015: €nil).
DIRECTORS’ AND COMPANY SECRETARY’S INTERESTS
There have been no contracts or arrangements 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.
109 | KERRY GROUP | ANNUAL REPORT 2016
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, are shown below:
Table 8: Directors and Company Secretary Shareholdings (Audited)
31 December
2016
Ordinary Shares
Number
31 December
2016 Share
Options
Number
31 December
2016
Total
Number
1 January
2016
Ordinary Shares
Number
1 January
2016
Share Options
Number
1 January
2016
Total
Number
Directors
Michael Ahern
Gerry Behan
- Deferred1
Hugh Brady
Paddy Casey
James Devane
Karin Dorrepaal
Michael Dowling
Joan Garahy
Flor Healy
- Deferred1
James C. Kenny
Stan McCarthy
- Deferred1
Brian Mehigan
- Deferred1
John Joseph O’Connor
Philip Toomey
Tom Moran
Company Secretary
Brian Durran
- Deferred1
3,241
57,969
6,562
-
20,052
4,994
-
4,200
1,050
58,210
-
-
127,105
10,866
40,334
-
20,232
6,000
-
13,000
-
-
-
-
-
-
-
-
-
-
95,409
4,225
-
-
-
64,164
4,644
-
-
-
18,614
1,059
3,241
57,969
6,562
-
20,052
4,994
-
4,200
1,050
153,619
4,225
-
127,105
10,866
104,498
4,644
20,232
6,000
-
31,614
1,059
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
Note 1: The deferred shares and share options above, relate to 25% of the Executive Directors and Company Secretary’s 2014 and 2015 STIP awards and 50%
of the 2013 LTIP award (vested in March 2016). These awards are subject to a two year deferral period and will be delivered in shares/share options in
March 2017 and March 2018 respectively.
SHAREHOLDING GUIDELINES
The table below sets out the Executive Directors’ shareholding at 31 December 2016 shown as a multiple of basic salary. Please refer to the
Remuneration Policy Table on page 99 in Section C for details of the Executive Director shareholding requirements.
Table 9: Individual Shareholdings as a multiple of Basic Salary
Stan McCarthy
Brian Mehigan
Flor Healy
Gerry Behan
As a Multiple of Basic Salary1
7x
12x
18x
5x
Note 1: The share price used to calculate the above is the share price as at 31 December 2016.
110 | KERRY GROUP | ANNUAL REPORT 2016
700
600
500
400
300
200
100
0
TSR PERFORMANCE AND CHIEF EXECUTIVE OFFICER REMUNERATION
The graph below illustrates the TSR performance of the Group over the past eight years showing the increase in value of €100 invested the
Group’s shares from 31 December 2008 to 31 December 2016. 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.
8 YEAR TOTAL SHAREHOLDER RETURN
(VALUE OF €100 INVESTED ON 31/12/2008)
€700
€600
€500
€400
€300
€200
€100
€0
2008
2009
2010
2011
2012
2013
Kerry
MSCI Europe Food Producer
2014
2015
E300 Food & Beverage
2016
Table 10: Remuneration paid to the CEO 2009 - 2016
Chief Executive Officer
Total remuneration $’000
Annual incentive achieved as a % of maximum
LTIP achieved as a % of maximum
2009
$'000
2,434
57%
N/A1
2010
$'000
2,804
90%
N/A1
2011
$'000
4,596
73%
100%
2012
$'000
4,528
74%
100%
2013
$'000
4,742
70%
100%
2014
$'000
4,366
57%
91.9%
2015
$'000
4,619
58%
61.8%2
2016
$'000
4,006
62%
29.4%
Note 1: There was no LTIP with a performance period ending in 2009 or 2010.
Note 2: This is the combined average of the 2015 LTIP paid out from the 2006 and 2013 plans.
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.
2016
Director
Remuneration (0.5%)
Profit after tax
before NTIs (29.5%)
Dividends Paid (4.9%)
Taxation Paid (8%)
Employee costs (57.1%)
2015
Director
Remuneration (0.6%)
Profit after tax
before NTIs (29.1%)
Dividends Paid (4.6%)
Taxation Paid (7.1%)
Employee costs (58.6%)
STATEMENT ON SHAREHOLDER VOTING
Below is an overview of the voting which took place at the most recent AGM to approve the Directors’ Remuneration Report.
Table 11: 2016 AGM - Votes on Remuneration
Total Votes Cast
98,942,291
Votes For
96,591,185
97.6%
Votes Against
2,351,106
2.4%
Votes Withheld/Abstained
1,230,733
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.
111 | KERRY GROUP | ANNUAL REPORT 2016
500
450
400
350
300
250
200
150
100
50
0
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF KERRY GROUP PLC
—
REPORT ON THE FINANCIAL STATEMENTS
In our opinion, the consolidated financial statements comply with
IFRSs as issued by the IASB.
OUR OPINION
In our opinion:
– Kerry Group plc’s consolidated financial statements and
company financial statements (the “financial statements”) give
a true and fair view of the Group’s and the company’s assets,
liabilities and financial position as at 31 December 2016 and of
the Group’s profit and the Group’s and the company’s cash flows
for the year then ended;
– the consolidated financial statements have been properly
prepared in accordance with International Financial Reporting
Standards (“IFRSs”) as adopted by the European Union;
– the company financial statements have been properly prepared
in accordance with IFRSs as adopted by the European Union as
applied in accordance with the provisions of the Companies Act
2014; and
– the financial statements have been properly prepared in
accordance with the requirements of the Companies Act 2014
and, as regards the consolidated financial statements, Article 4
of the IAS Regulation.
SEPARATE OPINION IN RELATION TO IFRSs AS
ISSUED BY THE IASB
As explained in note 1 to the financial statements, the Group, in
addition to applying IFRSs as adopted by the European Union,
has also applied IFRSs as issued by the International Accounting
Standards Board (IASB).
OUR AUDIT APPROACH
Overview
WHAT WE HAVE AUDITED
The financial statements, included within the Annual Report,
comprise:
– the Consolidated and Company Balance Sheets as at 31
December 2016;
– the Consolidated Income Statement and Consolidated
Statement of Comprehensive Income for the year then ended;
– the Consolidated and Company Statement of Changes in Equity
for the year then ended;
– the Consolidated and Company Statement of Cash Flows for
the year then ended; and
– the notes to the financial statements, which include a summary
of significant accounting policies and other explanatory
information.
Certain required disclosures have been presented elsewhere in
the Annual Report, rather than in the notes to the financial
statements and are described as being an integral part of the
financial statements as set out in the Basis of preparation on
page 126. These are cross-referenced from the financial
statements and are identified as audited.
The financial reporting framework that has been applied in the
preparation of the financial statements is Irish law and
IFRSs as adopted by the European Union and, as regards the
company financial statements, as applied in accordance with
the provisions of the Companies Act 2014.
– Overall Group materiality: €31.5m which represents 5% of profit before taxation and
non-trading items.
Materiality
Audit scope
– We conducted audit work in 39 reporting components. We paid particular attention to these
components due to their size or characteristics and to ensure appropriate audit coverage. An
audit on the full financial information of 35 components and specified procedures on selected
account balances of a further 4 components were performed.
– Taken together, the reporting components where an audit on the full financial information was
performed accounted for in excess of 90% of Group revenues and 90% of Group profit before
taxation and non-trading items.
Areas of
focus
– Goodwill and indefinite life intangible assets impairment assessment
– Business combinations
– Taxation
– Pension liabilities
112 | KERRY GROUP | ANNUAL REPORT 2016
The scope of our audit and our areas of focus
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).
controls, including evaluating whether there was evidence of bias
by the directors that represented a risk of material misstatement
due to fraud.
We designed our audit by determining materiality and assessing
the risks of material misstatement in the financial statements.
In particular, we looked at where the directors made subjective
judgements, for example in respect of significant accounting
estimates that involved making assumptions and considering
future events that are inherently uncertain. As in all of our audits
we also addressed the risk of management override of internal
The risks of material misstatement that had the greatest effect on
our audit, including the allocation of our resources and effort, are
identified as “areas of focus” in the table below. We have also set
out how we tailored our audit to address these specific areas in
order to provide an opinion on the financial statements as a whole.
This is not a complete list of all risks identified by our audit.
Area of focus
Goodwill and indefinite life intangible assets
impairment assessment
The Group has goodwill and indefinite life
intangible assets of €3.1 billion at 31 December
2016 representing approximately 42% of the
Group’s total assets at year end (see note 12).
The most significant allocation of the carrying
value of goodwill and indefinite life intangible
assets relates to the America’s region and to the
Taste and Nutrition segment.
These assets are subject to impairment testing
on an annual basis or more frequently if there are
indicators of impairment.
We focused on this area given the scale of the
assets and because the determination of whether
an impairment charge for goodwill or indefinite
life intangible assets was necessary involves
significant judgement in estimating the future
results of the business.
Business combinations
The Group completed 4 acquisitions during
2015, for which the fair value of assets and
liabilities, including brand related intangibles were
determined provisionally.
The Group was required to update these
provisional fair values in the current year
(note 31).
We focused on this area as significant judgement
is exercised in selecting an appropriate valuation
methodology and determining appropriate
assumptions such as discount rate and excess
earnings rate.
How our audit addressed the area of focus
Our audit team assisted by our valuation experts interrogated the Group's
impairment models and evaluated the methodology followed and key
assumptions used.
We assessed management's future cash flow forecasts, and the process by which
they were drawn up, including comparing them to the latest Board approved
business plan and testing the underlying calculations.
We also considered the appropriateness of the Group's forecast growth rate
assumptions used in the cash flow forecasts and to calculate terminal values
by comparing them to independent sources, (for example, OECD statistics) of
projected growth rates for each region. We also considered the Group’s past
record of achieving strategic objectives.
We challenged management’s calculation of the discount rates used by
recalculating the cost of capital (adjusted to reflect risks associated with each
model) using observable inputs from independent external sources.
We also performed our own sensitivity analysis on the impact of changes in
key assumptions on the impairment assessment, for example the cash flows,
discount rate and the rates of growth assumed by management. We assessed the
appropriateness of the related disclosures within the financial statements. The
directors have described their impairment review in detail in note 12.
We obtained and evaluated the reports prepared by management's valuation
specialists to value brand related intangibles.
We performed procedures to assess the reasonableness of the assumptions
applied in valuing such assets, ensuring they were valued on a market
participant basis.
We were assisted by our in house valuation experts who assessed the
reasonableness of the material valuation methodologies and assumptions used by
the Group, in particular the excess earnings approach applied for the valuation of
know-how, the relief from royalty approach in valuing trademarks and patents and
consideration of a normal return from the assets acquired.
We performed sensitivity analysis around the key drivers of the valuation
models including the excess earnings rate and the discount rate applied to the
cash flow forecasts.
We also assessed the appropriateness of the related disclosures within note 31
to the financial statements.
113 | KERRY GROUP | ANNUAL REPORT 2016
How our audit addressed the area of focus
We obtained an understanding of the Group tax strategy through discussions with
management and the Group's in-house tax specialists.
The team, assisted by PwC International and Irish taxation specialists, challenged
judgements used and estimates made by management to determine the provision
for uncertain tax positions. This included evaluating the assumptions and
methodologies used by the Group in calculating tax liabilities.
We read the relevant correspondence between the Group and relevant tax
authorities.
Our in-house actuarial experts considered and challenged the reasonableness of
the actuarial assumptions used by management regarding discount rates, salary
and pension increases, inflation and mortality rates, by comparing the assumptions
to in-house benchmark data.
We considered the disclosures at note 26, including the sensitivity analysis in
relation to key actuarial assumptions.
Area of focus
Taxation
The global nature of the Group means that it
operates across a large number of jurisdictions
and is subject to periodic challenges by local tax
authorities on a range of tax matters during the
normal course of business. Tax legislation is open
to different interpretations and the tax treatments
of many items is uncertain. Tax audits can require
several years to conclude and transfer pricing
judgements may impact the Group’s tax liability.
Management judgement and estimation is
needed to determine the liability required for
these exposures.
This area required our focus due to its inherent
complexity and the estimation and judgement
involved in calculating such liabilities.
Pension liabilities
The Group operates pension plans in a number of
jurisdictions principally, Ireland, the UK and
USA. As at 31 December 2016 the deficit on
the Retirement Benefit Obligation amounted to
€352.8million. The liability in respect of these
plans is valued on an actuarial basis and this
valuation is subject to a number of assumptions,
the most significant of which is the discount rate.
Assumptions in respect of mortality, inflation
rates, salary and pension increases are also
important.
We focussed on this area because a modest
change in the assumptions above can result in a
material change in the amount of the overall deficit.
How we tailored the audit scope
The Group is structured along two business segments: Taste
and Nutrition and Consumer Foods across 28 countries. The
majority of the Group’s components are supported by one of
three principal shared service centres in Ireland, Malaysia and the
United States.
We tailored the scope of our audit to ensure that we performed
sufficient work to be able to give an opinion on the financial
statements as a whole, taking into account the geographic
structure of the Group, the accounting processes and controls
including those performed at the Group’s shared service centres,
and the industry in which the Group operates. As this was our
first year as auditors of the Group, our planning and transition
procedures included a review of the predecessor auditor’s working
papers to obtain an understanding of the audit work performed
on opening balances. In addition, a two day meeting between the
Group team, members of the component teams and management
was held as part of our audit planning and transition. These
procedures assisted the team in determining the type of work that
needed to be performed on the individual financial statement line
items, depending on risk assessment and materiality and where
such work should be completed, at component, shared service
centre and Group level.
We determined that an audit of the full financial information
should be performed at 35 components due to their size or risk
characteristics and to ensure appropriate coverage. These 35
components span 15 countries and included components that
control central Group functions such as Treasury and Employee
Benefits. Taken collectively these components represent the
principal business of the Group and account for in excess of
90% of Group revenue and 90% of Group profit before tax and
non-trading items. Specific audit procedures on certain balances
and transactions were performed at 4 of the remaining reporting
components primarily to ensure appropriate audit coverage.
The Group team performed the audit of the Central function
components and component auditors within PwC ROI and from
other PwC network firms operating under our instruction performed
the audit on all other components and the required supporting audit
work at each of the three principal shared service centres.
114 | KERRY GROUP | ANNUAL REPORT 2016
The Group team were responsible for the scope and direction of
the audit process. Where the work was performed by component
auditors, we determined the level of involvement the Group
team needed to have to be able to conclude whether sufficient
appropriate audit evidence had been obtained as a basis for our
opinion on the consolidated financial statements as a whole.
The Group team has commenced a programme of planned site
visits that is designed so that senior team members will visit the
full scope audit locations regularly on a rotational basis. In the
current year, subsequent to the planning and transition meeting
referred to above, representatives from the Group team visited
component locations in Ireland, the UK, the USA, Asia Pacific and
South America.
These visits involved meeting with our component teams to
confirm their audit approach, discussing and understanding
the significant audit risk areas, holding meetings with local
management, touring manufacturing facilities and obtaining
updates on local laws and regulations and other relevant matters.
In addition to the visits noted above, the Group team interacted
regularly with the component teams during all stages of the audit
including obtaining detailed findings of their transition procedures
and subsequent interim audits. Post audit conference calls were
held with all in scope audit teams to discuss their final key audit
findings memoranda which were reviewed in detail by members of
the Group team.
This, together with audit procedures performed by the Group
team over IT systems, treasury, the consolidation process and
areas of focus including taxation, impairment testing of goodwill
and indefinite lived intangible assets, Business Combinations and
post-retirement benefits, gave us the evidence we needed for our
opinion on the consolidated financial statements as a whole.
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us
to determine the scope of our audit and the nature, timing
and extent of our audit procedures on the individual financial
statement line items and disclosures and in evaluating the
effect of misstatements, both individually and on the financial
statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Overall Group
materiality
How we
determined it
Rationale for
benchmark
applied
Component
materiality
€31.5m
5% of profit before taxation and non-trading
items.
We applied this benchmark because in
our view this is a metric against which the
recurring performance of the Group is
commonly measured by its stakeholders and it
results in using a materiality level that excludes
the impact of volatility in earnings.
For each component in our audit scope,
we allocated a materiality that is less than
our overall Group materiality. The range of
materiality allocated across components
was €1m to €25m. Certain components were
audited to a local statutory audit materiality.
We agreed with the Audit Committee that we would report to
them misstatements identified during our audit above €1.6m
as well as misstatements below that amount that, in our view,
warranted reporting for qualitative reasons.
Going concern
Under the Listing Rules we are required to review the directors’
statement, set out on page 68, in relation to going concern. We
have nothing to report having performed our review.
Under ISAs (UK & Ireland) we are required to report to you if we
have anything material to add or to draw attention to in relation
to the directors’ statement about whether they considered it
appropriate to adopt the going concern basis in preparing the
financial statements. We have nothing material to add or to draw
attention to.
As noted in the directors’ statement, the directors have concluded
that it is appropriate to adopt the going concern basis in preparing
the financial statements. The going concern basis presumes that
the Group and company has adequate resources to remain in
operation, and that the directors intend them to do so, for at least
one year from the date the financial statements were signed. As
part of our audit we have concluded that the directors’ use of
the going concern basis is appropriate. However, because not all
future events or conditions can be predicted, these statements
are not a guarantee as to the Group’s and company’s ability to
continue as a going concern.
115 | KERRY GROUP | ANNUAL REPORT 2016
OTHER REQUIRED REPORTING
CONSISTENCY OF OTHER INFORMATION
Companies Act 2014 opinion
In our opinion the information given in the Report of the Directors is consistent with the financial statements.
ISAs (UK & Ireland) reporting
Under ISAs (UK & 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 and
We have no
exceptions to report.
company acquired in the course of performing our audit; or
− otherwise misleading.
• the statement given by the directors on page 76, in accordance with provision C.1.1 of the UK Corporate
Governance Code (the “Code”), that they consider the Annual Report taken as a whole to be fair, balanced
and understandable and provides the information necessary for members to assess the Group’s and
company’s position and performance, business model and strategy is materially inconsistent with our
knowledge of the Group and company acquired in the course of performing our audit.
We have no
exceptions to report.
• the section of the Annual Report on pages 84 and 85, as required by provision C.3.8 of the Code,
describing the work of the Audit Committee does not appropriately address matters communicated by us
to the Audit Committee.
We have no
exceptions to report.
THE DIRECTORS’ ASSESSMENT OF THE PROSPECTS OF THE GROUP AND OF THE PRINCIPAL RISKS THAT WOULD
THREATEN THE SOLVENCY OR LIQUIDITY OF THE GROUP
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to:
• the directors’ confirmation on page 81 of the Annual Report, in accordance with provision C.2.1 of the
Code, 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 in the Annual Report that describe those risks and explain how they are being managed
or mitigated.
• the directors’ explanation on page 68 of the Annual Report, in accordance with provision C.2.2 of the
Code, 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 have nothing material
to add or to draw
attention to.
We have nothing material
to add or to draw
attention to.
We have nothing material
to add or to draw
attention to.
Under the Listing Rules we are required to review the directors’ statement that they have carried out a robust assessment of the principal
risks facing the Group and the directors’ statement in relation to the longer-term viability of the Group. Our review was substantially less in
scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking
that the statements are in alignment with the relevant provisions of the Code; and considering whether the statements are consistent with
the knowledge acquired by us in the course of performing our audit. We have nothing to report having performed our review.
DIRECTORS’ REMUNERATION AND TRANSACTIONS
Under the Companies Act 2014, we are required to report to you
if, in our opinion, the disclosure of directors’ remuneration and
transactions specified by sections 305 to 312 of that Act have
not been made, and under the Listing Rules we are required to
review the six specified elements of disclosures in the report to
shareholders by the Board on directors’ remuneration. We have no
exceptions to report arising from these responsibilities.
CORPORATE GOVERNANCE STATEMENT
• In our opinion, based on the work undertaken in the course of
our audit of the financial statements:
− the description of the main features of the internal control and
risk management systems in relation to the financial reporting
process in the Corporate Governance Report; and
− the information required by Section 1373(2)(d) of the
Companies Act 2014 in the Report of the Directors;
is consistent with the financial statements and has been
prepared in accordance with section 1373(2) of the Companies
Act 2014.
116 | KERRY GROUP | ANNUAL REPORT 2016
• Based on our knowledge and understanding of the company
and its environment obtained in the course of our audit of
the financial statements, we have not identified material
misstatements in the description of the main features of the
internal control and risk management systems in relation to
the financial reporting process and the information required by
section 1373(2)(d) of the Companies Act 2014 included in the
Corporate Governance Report and the Report of the Directors.
• In our opinion, based on the work undertaken during the course
of our audit of the financial statements, the information required
by section 1373(2)(a),(b),(e) and (f) is contained in the Directors’
Report.
• Under the Listing Rules we are required to review the part of
the Directors’ Report relating to the company’s compliance
with ten provisions of the UK Corporate Governance Code and
the two provisions of the Irish Corporate Governance Annex
specified for our review. We have nothing to report having
performed our review.
OTHER MATTERS ON WHICH WE ARE REQUIRED TO
REPORT BY THE COMPANIES ACT 2014
• 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 company financial statements to be
readily and properly audited.
• The Company Balance Sheet is in agreement with the
accounting records.
RESPONSIBILITIES FOR THE FINANCIAL
STATEMENTS AND THE AUDIT
OUR RESPONSIBILITIES AND THOSE OF THE
DIRECTORS
As explained more fully in the Directors’ Responsibility Statement
set out on pages 75 and 76, the directors are responsible for the
preparation of the financial statements and for being satisfied that
they give a true and fair view.
WHAT AN AUDIT OF FINANCIAL STATEMENTS
INVOLVES
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’s
and the 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.
We primarily focus our work in these areas by assessing the
directors’ judgements against available evidence, forming our
own judgements, and evaluating the disclosures in the financial
statements.
We test and examine information, using sampling and other
auditing techniques, to the extent we consider necessary to
provide a reasonable basis for us to draw conclusions. We obtain
audit evidence through testing the effectiveness of controls,
substantive procedures or a combination of both.
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.
John McDonnell
for and on behalf of PricewaterhouseCoopers
Chartered Accountants and Statutory Audit Firm
Dublin
Our responsibility is to audit and express an opinion on the
financial statements in accordance with Irish law and ISAs (UK &
Ireland). Those standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors.
20 February 2017
This report, including the opinions, has been prepared for and only
for the company’s members as a body in accordance with section
391 of the Companies Act 2014 and for no other purpose. We do
not, in giving these opinions, accept or assume responsibility for
any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly
agreed by our prior consent in writing.
117 | KERRY GROUP | ANNUAL REPORT 2016
FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016
—
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
2016
€’m
Non-Trading
Items
2016
€’m
Notes
Before
Non-Trading
Items
2015
€’m
Total
2016
€’m
Non-Trading
Items
2015
€’m
2
6,130.6
749.6
(46.4)
-
703.2
1.1
(71.5)
632.8
(86.7)
546.1
2/3
12
5
3
6
6
7
9
9
-
-
-
(21.0)
(21.0)
-
-
(21.0)
8.0
(13.0)
6,130.6
6,104.9
749.6
700.1
(37.4)
-
662.7
1.8
(71.1)
593.4
(81.1)
512.3
(46.4)
(21.0)
682.2
1.1
(71.5)
611.8
(78.7)
533.1
Cent
302.9
302.0
-
-
-
9.4
9.4
-
-
9.4
3.7
13.1
Total
2015
€’m
6,104.9
700.1
(37.4)
9.4
672.1
1.8
(71.1)
602.8
(77.4)
525.4
Cent
298.7
298.4
118 | KERRY GROUP | ANNUAL REPORT 2016
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016
—
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 (expense)/income recognised directly in other comprehensive income
Total comprehensive income
Notes
24
17
30
17
26
17
2016
€'m
533.1
29.3
(13.3)
0.9
(17.9)
-
(170.3)
25.5
(145.8)
387.3
2015
€'m
525.4
10.3
2.9
(1.4)
(25.5)
(0.3)
141.1
(25.2)
101.9
627.3
119 | KERRY GROUP | ANNUAL REPORT 2016
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2016
—
31 December
2016
€'m
31 December
2015
€'m
Notes
Non-current assets
Property, plant and equipment
Intangible assets
Financial asset investments
Investment in associates
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 20 February 2017 and signed on its behalf by:
Michael Dowling, Chairman
Stan McCarthy, Chief Executive Officer
120 | KERRY GROUP | ANNUAL REPORT 2016
11
12
13
14
23
17
16
19
23
23
18
20
23
23
25
21
23
23
26
22
17
25
21
27
1,451.9
3,444.3
39.3
40.7
153.0
52.7
5,181.9
743.0
847.3
564.7
80.1
4.9
2,240.0
7,421.9
1,351.6
192.5
20.9
95.2
30.4
2.8
1,410.4
3,482.6
34.0
38.9
174.4
43.2
5,183.5
727.5
831.2
236.4
15.7
21.5
1,832.3
7,015.8
1,288.6
38.4
25.1
94.1
31.7
2.7
1,693.4
1,480.6
1,867.0
7.3
352.8
95.1
247.2
40.8
24.3
2,634.5
4,327.9
3,094.0
22.0
398.7
(98.0)
2,771.3
3,094.0
2,011.5
6.5
305.7
93.9
243.8
59.1
24.6
2,745.1
4,225.7
2,790.1
22.0
398.7
(103.9)
2,473.3
2,790.1
FINANCIAL STATEMENTS
COMPANY BALANCE SHEET
AS AT 31 DECEMBER 2016
—
31 December
2016
€'m
31 December
2015
€'m
Notes
11
15
23
19
20
23
21
27
0.6
637.7
638.3
0.1
99.4
99.5
737.8
10.4
0.1
10.5
0.1
0.1
10.6
727.2
22.0
398.7
40.3
266.2
727.2
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
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
Deferred income
Total liabilities
Net assets
Issued capital and reserves
Share capital
Share premium
Other reserves
Retained earnings
Shareholders' equity
The financial statements were approved by the Board of Directors on 20 February 2017 and signed on its behalf by:
Michael Dowling, Chairman
Stan McCarthy, Chief Executive Officer
121 | KERRY GROUP | ANNUAL REPORT 2016
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016
—
Share
Capital
€'m
Share
Premium
€'m
Other
Reserves
€'m
Retained
Earnings
€'m
Notes
Group:
At 1 January 2015
Profit after tax attributable to owners of the parent
Other comprehensive income
Dividends paid
Share-based payment expense
At 31 December 2015
Profit after tax attributable to owners of the parent
Other comprehensive income
Dividends paid
Share-based payment expense
10
28
10
28
Total
€'m
2,235.6
525.4
101.9
(81.8)
9.0
22.0
398.7
-
-
-
-
-
-
-
-
(100.6)
-
(12.3)
-
9.0
1,915.5
525.4
114.2
(81.8)
-
22.0
398.7
(103.9)
2,473.3
2,790.1
-
-
-
-
-
-
-
-
-
(1.9)
-
7.8
533.1
(143.9)
(91.2)
-
533.1
(145.8)
(91.2)
7.8
At 31 December 2016
22.0
398.7
(98.0)
2,771.3
3,094.0
Other Reserves comprise the following:
At 1 January 2015
Total comprehensive (expense)/income
Share-based payment expense
At 31 December 2015
Total comprehensive (expense)/income
Share-based payment expense
At 31 December 2016
28
28
1.7
-
-
1.7
-
-
1.7
Capital
Redemption
Reserve
€'m
Other
Undenominated
Capital
€'m
Share-Based
Payment
Reserve
€'m
Translation
Reserve
€'m
Note
0.3
-
-
0.3
-
-
21.5
-
9.0
(103.6)
(25.5)
-
30.5
(129.1)
-
7.8
(17.9)
-
Hedging
Reserve
€'m
(20.5)
13.2
-
(7.3)
16.0
-
Total
€'m
(100.6)
(12.3)
9.0
(103.9)
(1.9)
7.8
0.3
38.3
(147.0)
8.7
(98.0)
The nature and purpose of each reserve within shareholders' equity are described in note 36.
122 | KERRY GROUP | ANNUAL REPORT 2016
FINANCIAL STATEMENTS
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016
—
Share
Capital
€'m
Share
Premium
€'m
Other
Reserves
€'m
Retained
Earnings
€'m
Notes
Company:
At 1 January 2015
Profit after tax
Other comprehensive income
Dividends paid
Share-based payment expense
At 31 December 2015
Profit after tax
Other comprehensive income
Dividends paid
Share-based payment expense
22.0
398.7
23.5
8
10
28
8
10
28
-
-
-
-
-
-
-
-
22.0
398.7
-
-
-
-
-
-
-
-
-
-
-
9.0
32.5
-
-
-
7.8
92.4
228.0
-
(81.8)
-
238.6
118.8
-
(91.2)
-
At 31 December 2016
22.0
398.7
40.3
266.2
Other Reserves comprise the following:
At 1 January 2015
Share-based payment expense
At 31 December 2015
Share-based payment expense
At 31 December 2016
Note
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
21.5
9.0
30.5
7.8
38.3
The nature and purpose of each reserve within shareholders' equity are described in note 36.
Total
€'m
536.6
228.0
-
(81.8)
9.0
691.8
118.8
-
(91.2)
7.8
727.2
Total
€'m
23.5
9.0
32.5
7.8
40.3
123 | KERRY GROUP | ANNUAL REPORT 2016
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016
—
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)
Purchase of share in associates
Income received from associates
Disposal of businesses
Payments relating to previous acquisitions
Net cash used in investing activities
Financing activities
Dividends paid
Issue of share capital
Repayment of borrowings
Increase in other borrowings
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
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 increase/(decrease) in cash and cash equivalents
Cash inflow/(outflow) 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
124 | KERRY GROUP | ANNUAL REPORT 2016
Notes
29
3
29
30
29
31
14
14
10
27
30
29
30
23
2016
€'m
749.6
129.8
61.7
(118.2)
(21.2)
0.1
801.8
(57.3)
1.1
(62.6)
683.0
(223.8)
12.1
1.5
(22.2)
(6.7)
5.0
(2.0)
(0.1)
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)
(236.2)
(1,002.6)
(91.2)
-
(25.6)
-
(116.8)
330.0
231.2
(0.1)
561.1
330.0
25.6
355.6
(5.4)
(23.8)
326.4
(1,650.1)
(1,323.7)
(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)
FINANCIAL STATEMENTS
COMPANY STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016
—
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 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
Notes
29
11
29
10
27
29
2016
€'m
116.0
0.2
(24.4)
91.8
(91.2)
-
(91.2)
0.6
(0.6)
-
2015
€'m
226.2
0.1
(144.4)
81.9
(81.8)
-
(81.8)
0.1
(0.7)
(0.6)
125 | KERRY GROUP | ANNUAL REPORT 2016
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016
—
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. The financial
statements comprise of the Consolidated Income Statement, the
Consolidated Statement of Comprehensive Income, the Consolidated
Balance Sheet, the Company Balance Sheet, the Consolidated
Statement of Changes in Equity, the Company Statement of Changes
in Equity, the Consolidated Statement of Cash Flows, the Company
Statement of Cash Flows and the notes to the financial statements.
The financial statements include the information in the remuneration
report that is described as being an integral part of the financial
statements. 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's 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) 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 investments in
associates are accounted for using the equity method.
The consolidated and company financial statements have been
prepared on a going concern basis.
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.
In the 2016 consolidated financial statements, the Group has
re-presented corresponding 2015 balances to align with current year
presentation in income taxes (note 7) and financial instruments (notes
23 and 24). These changes in presentation do not impact on the
classification of any line items on the Group's Consolidated Income
Statement and Balance Sheet or other primary statements.
The 2015 consolidated balance sheet represents the measurement
period adjustments relating to acquisitions made in 2015 in accordance
with IFRS 3 'Business Combinations'. The measurement period
adjustments are disclosed in note 31 and are reflected in the relevant
note comparitives.
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 profit/(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.
126 | KERRY GROUP | ANNUAL REPORT 2016
1. STATEMENT OF ACCOUNTING POLICIES (continued)
Basis of consolidation (continued)
Associates (continued)
Unrealised gains arising from transactions with associates are
eliminated to the extent of the Group's interest in the entity.
Unrealised losses are eliminated to the extent that they do not
provide evidence of impairment. The accounting policies of
associates are amended where necessary to ensure consistency of
accounting treatment at Group level.
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. Rebates and discounts
are provided for based on agreements or contracts with customers,
agreed promotional arrangements and accumulated experience. Any
unutilised accrual is released after assessment that the likelihood of
such a claim being made is no longer probable.
Trading profit
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 not reflective of underlying
trading performance and therefore hinder comparison of the trading
performance of the Group’s businesses, either year-on-year or with
other businesses.
Segmental analysis
Operating segments are reported in a manner consistent with the
internal management structure of the Group and the internal financial
information provided to the Group’s Chief Operating Decision Maker
(the executive directors) who is responsible for making strategic
decisions, allocating resources, monitoring and assessing the
performance of each segment. Trading Profit as reported internally by
segment is the key measure utilised in assessing the performance of
operating segments within the Group. Other 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'.
Intangible asset amortisation, non-trading items, net finance costs
and income taxes are managed on a centralised basis and therefore,
these items are not allocated between operating segments and are not
reported per segment in note 2.
The Group has determined it has two reportable segments: Taste
& Nutrition and Consumer Foods. The Taste & Nutrition segment
manufactures and distributes an innovative portfolio of taste &
nutrition solutions and functional ingredients & actives for the global
food, beverage and pharmaceutical industries. The Consumer Foods
segment manufactures and supplies added value branded and
consumer branded chilled food products to the Irish, UK and selected
international markets.
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%
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 cash generating units or groups of cash
generating units (CGUs) provided they represent the lowest level at
which management monitor goodwill for impairment purposes.
127 | KERRY GROUP | ANNUAL REPORT 2016
1. STATEMENT OF ACCOUNTING POLICIES (continued)
Intangible assets (continued)
(i) Goodwill (continued)
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.
(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 the nature and type of the
intangible asset, the absence of any legal or other limits on the assets use,
the fact the business and products have a track record of stability, the
high barriers to market entry and the Group’s commitment to continue
to invest for the long-term to extend the period over which the intangible
asset is expected to continue to provide economic benefits. 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 for
impairment or when indications exist that the asset may be impaired.
For the purpose of assessing impairment, these assets are allocated
to CGUs using a reasonable and consistent basis for corporate
assets. 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 during the financial year
for the value in use calculations are discount rates, cash flows and
growth rates.
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.
The carrying amounts of property, plant and equipment are reviewed
at each balance sheet date to determine whether there is any
indication of impairment. An impairment loss is recognised when the
carrying value of an asset exceeds its recoverable amount.
Inventories
Inventories are valued at the lower of cost and net realisable value.
Cost includes raw materials, direct labour and all other expenditure
incurred in the normal course of business in bringing the products
to their present location and condition. Cost is calculated at the
weighted average cost incurred in acquiring inventories. 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 is subject to uncertainties, including tax audits, in any of
the jurisdictions in which it operates. Amounts accrued in respect
of such uncertainties 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.
128 | KERRY GROUP | ANNUAL REPORT 2016
1. STATEMENT OF ACCOUNTING POLICIES (continued)
Income taxes (continued)
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
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.
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. Scheme assets are accounted for
at fair value using bid prices.
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.
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.
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 the consolidated financial statements.
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 not related to normal trading activities and
are labelled collectively as ‘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.
Non-trading items are disclosed in note 5 to the consolidated financial
statements.
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. Accordingly, 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.
129 | KERRY GROUP | ANNUAL REPORT 2016
1. STATEMENT OF ACCOUNTING POLICIES (continued)
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/share options.
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 IFRS’s.
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.
130 | KERRY GROUP | ANNUAL REPORT 2016
1. STATEMENT OF ACCOUNTING POLICIES (continued)
Financial instruments (continued)
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.
(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 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.
(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 carried at amortised cost 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.
(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.
131 | KERRY GROUP | ANNUAL REPORT 2016
1. STATEMENT OF ACCOUNTING POLICIES (continued)
Financial instruments (continued)
Impairment of financial assets (continued)
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.
Derivative financial instruments and hedge accounting
Derivatives are carried at fair value. 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 exchange 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 exchange 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 exchange 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 when the qualifying conditions are met. 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 ongoing
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.
132 | KERRY GROUP | ANNUAL REPORT 2016
correspondence with the relevant tax authorities and external tax
advisors, a probability weighted expected value, and past practices
of the tax authorities. Where the final outcome of these tax matters
is different from the amounts that were initially recorded, such
differences will impact the income tax and deferred tax charge in the
period in which such determination is made.
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 the consolidated financial statements, respectively.
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.
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 non-trading
items (note 5), property, plant and equipment (note 11), intangible
assets (note 12), financial assets investment (note 13), investment in
associates (note 14), assets classified as held for sale (note 18), rebates
included in trade and other receivables (note 19), financial instruments
(notes 23 and 24) and provisions (note 25).
1. STATEMENT OF ACCOUNTING POLICIES (continued)
Critical accounting estimates and judgements (continued)
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.
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 CGUs (or groups of 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 terminal values. 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.
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 the consolidated
financial statements.
Income taxes and deferred tax assets and liabilities
Significant judgement and a high degree of estimation is required in
determining the income tax charge as the Group operates in many
jurisdictions and the tax treatment of many items is uncertain with
tax legislation being open to different interpretation. Furthermore, the
Group can also be subject to uncertainties, including 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
for anticipated tax authority review matters are based on estimates
of whether additional tax will be due, having regard to all information
available on the tax matter. Such estimates are determined based
on management judgement, interpretation of the relevant tax laws,
133 | KERRY GROUP | ANNUAL REPORT 2016
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 2016 but not material to the results and financial position of the Group:
Effective Date
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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 16 (amendments) Property, Plant and Equipment
IAS 19 (amendment) Employee Benefits
IAS 27 (amendment) Separate Financial Statements
IAS 28 (amendments) Investments in Associates and Joint Ventures
IAS 34 (amendment)
Interim Financial Reporting
IAS 38 (amendment)
Intangible Assets
IAS 41 (amendment) Agriculture
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 2 (amendment) Classification and Measurement of Share-Based Payment Transactions
IFRS 4 (amendment)
Insurance Contracts
IAS 7 (amendments) Statement of Cash Flows
IAS 12 (amendments)
Income Taxes
IAS 40 (amendment)
Investment Property
IFRIC 22
Foreign Currency Transactions and Advance Consideration
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
Effective Date
1 January 2018
1 January 2018
1 January 2017
1 January 2017
1 July 2018
1 January 2018
The following revised standards are not yet effective and the impact on Kerry Group is currently under review:
Effective Date
-
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. Our initial review of IFRS 9 has indicated that the impact of
this new standard on the Groups’ results is unlikely to be material.
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. Findings from our initial review of IFRS 15 are that the impact of this new standard on
the Groups’ results is unlikely to be material.
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. Early indications from our initial review of IFRS 16 is that this will result in an increase in
finance leased assets of approximately €58.0m, and a corresponding increase in financial liabilities of the same
amount, on the consolidated balance sheet of the Group’s financial statements.
1 January 2018
1 January 2018
1 January 2019
134 | KERRY GROUP | ANNUAL REPORT 2016
2. ANALYSIS OF RESULTS
The Group has determined it has two reportable segments: Taste & Nutrition and Consumer Foods. The Taste & Nutrition segment manufactures and
distributes an innovative portfolio of taste & nutrition solutions and functional ingredients & actives for the global food, beverage and pharmaceutical
industries. The Consumer Foods segment manufactures and supplies added value branded and consumer branded chilled food products to the Irish, UK
and selected international markets.
Taste &
Nutrition
2016
€’m
Consumer
Foods
2016
€’m
Group
Eliminations
and
Unallocated
2016
€’m
Taste &
Nutrition
2015
€’m
Consumer
Foods
2015
€’m
Total
2016
€’m
Group
Eliminations
and
Unallocated
2015
€’m
Total
2015
€’m
4,800.1
1,330.5
-
6,130.6
79.4
2.0
4,879.5
1,332.5
(81.4)
(81.4)
-
6,130.6
4,637.5
78.4
4,715.9
1,467.4
8.3
1,475.7
-
6,104.9
(86.7)
(86.7)
-
6,104.9
External revenue
Inter-segment revenue
Revenue
Trading profit
716.4
117.3
(84.1)
749.6
662.9
125.7
(88.5)
700.1
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
(46.4)
(21.0)
682.2
1.1
(71.5)
611.8
(78.7)
533.1
(37.4)
9.4
672.1
1.8
(71.1)
602.8
(77.4)
525.4
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
4,441.5
(1,156.9)
928.3
(428.1)
2,052.1
7,421.9
4,376.9
984.1
1,654.8
7,015.8
(2,742.9)
(4,327.9)
(1,052.0)
(436.0)
(2,737.7)
(4,225.7)
3,284.6
500.2
(690.8)
3,094.0
3,324.9
548.1
(1,082.9)
2,790.1
160.7
109.2
0.9
19.6
EMEA
2016
€’m
2,777.0
4,510.4
83.3
16.2
36.8
16.2
0.9
6.1
2.1
3.8
14.7
20.7
199.6
129.2
16.5
46.4
Americas
2016
€’m
Asia Pacific
2016
€’m
2,588.5
2,373.5
76.9
0.3
765.1
538.0
39.4
-
Total
2016
€’m
6,130.6
7,421.9
199.6
16.5
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
Americas
2015
€’m
Asia Pacific
2015
€’m
2,307.9
2,237.7
66.7
0.6
783.7
496.0
40.6
0.1
216.4
126.0
31.6
37.4
Total
2015
€’m
6,104.9
7,015.8
216.4
31.6
135 | KERRY GROUP | ANNUAL REPORT 2016
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 €429.4m
(2015: €455.0m). The non-current assets located in the Republic of Ireland are €936.8m (2015: €931.9m).
Revenues from external customers include €1,534.8m (2015: €1,710.5m) in the UK and €2,053.1m (2015: €1,789.2m) in the USA. The non-current assets
in the UK are €673.3m (2015: €786.7m) and in the USA are €1,385.7m (2015: €1,327.4m).
There are no material dependencies or concentrations on individual customers which would warrant disclosure under IFRS 8 ‘Operating 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 (gains)/losses
Change in inventories of finished goods
Share of associate (profit)/loss after tax
Trading profit
Intangible asset amortisation
Non-trading items
Operating profit
And is stated after charging:
Research and development costs
Continuing
Operations
2016
€’m
6,130.6
Continuing
Operations
2015
€’m
6,104.9
Notes
11
21
14
12
5
3,318.3
469.9
1,142.0
132.8
(3.0)
348.0
(14.1)
(12.8)
(0.1)
749.6
46.4
21.0
682.2
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
260.7
234.2
136 | KERRY GROUP | ANNUAL REPORT 2016
3. OPERATING PROFIT (continued)
Auditors’ remuneration
On 29 March 2016, Deloitte (former auditor) resigned as Auditor of the Group, and on 27 April 2016, PricewaterhouseCoopers (current auditor)
were appointed.
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
Current
Auditor
Ireland
2016
€’m
Current
Auditor
Other
2016
€’m
Current
Auditor
Worldwide
2016
€’m
Former
Auditor
Ireland
2015
€’m
Former
Auditor
Other
2015
€’m
Former
Auditor
Worldwide
2015
€’m
1.2
-
1.2
0.1
-
0.1
1.3
1.3
-
1.3
0.4
-
0.4
1.7
2.5
-
2.5
0.5
-
0.5
3.0
83%
17%
100%
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%
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 €4,720 (2015: €7,000) which were paid to the Group’s auditor in respect of the Parent Company. Reimbursement of auditors’ expenses amounted to
€0.2m (2015: €0.2m). Non-audit services primarily relate to work that had commenced pre-2016 and these services are now either complete or have
been transitioned to other providers.
4. TOTAL STAFF NUMBERS AND COSTS
The average number of people employed by the Group was:
EMEA
Americas
Asia Pacific
Taste &
Nutrition
2016
Number
Consumer
Foods
2016
Number
5,723
7,088
3,108
15,919
7,117
-
-
7,117
The aggregate payroll costs of employees (including Executive Directors) were:
EMEA
Americas
Asia Pacific
Taste &
Nutrition
2016
€’m
310.4
461.0
104.2
875.6
Consumer
Foods
2016
€’m
271.7
-
-
Total
2016
Number
12,840
7,088
3,108
23,036
Total
2016
€’m
582.1
461.0
104.2
Taste &
Nutrition
2015
Number
5,905
6,613
3,453
15,971
Taste &
Nutrition
2015
€’m
313.9
405.8
103.9
823.6
Consumer
Foods
2015
Number
7,252
-
-
7,252
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
271.7
1,147.3
Social welfare costs of €91.0m (2015: €86.6m) and share-based payment expense of €7.8m (2015: €9.0m) 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 €5.3m (2015: €8.4m) which has been capitalised as
part of computer software in intangible assets.
137 | KERRY GROUP | ANNUAL REPORT 2016
5. NON-TRADING ITEMS
(Loss)/profit on disposal of businesses and assets
Acquisition integration and restructuring costs
Impairment of assets held for sale
Tax
(i) Loss on disposal of businesses and assets
Businesses and assets
Property, plant and equipment
Assets classified as held for sale
Net businesses and assets disposed
Consideration
Cash received
Disposal related costs
Total consideration received
2016
€’m
(1.3)
(19.6)
(0.1)
(21.0)
8.0
(13.0)
Notes
(i)
(ii)
(iii)
7
Notes
11
Cumulative exchange difference on translation recycled on disposal
30
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
2015
€’m
22.5
(7.8)
(5.3)
9.4
3.7
13.1
Total
2016
€’m
(3.8)
(7.6)
(11.4)
12.7
(2.6)
10.1
-
(1.3)
Total
2016
€’m
12.7
-
(2.6)
10.1
During the year the Group disposed of property, plant and equipment and assets classified as held for sale primarily in Ireland and the UK and a small
business in the Taste & Nutrition segment.
In 2015, the Group disposed of the Pinnacle lifestyle bakery business in Australia from the Taste & Nutrition segment and two businesses in the
Consumer Foods segment 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 USA and Ireland.
A net tax credit of €1.0m (2015: €1.7m) arose on the disposal of businesses and assets.
138 | KERRY GROUP | ANNUAL REPORT 2016
5. NON-TRADING ITEMS (continued)
(ii) Acquisition integration and restructuring costs
During the year, acquisition integration and restructuring costs of €19.6m (2015: €7.8m) related to costs of integrating acquisitions into the Group’s
operations, primarily Island Oasis and Red Arrow, which were acquired in late 2015. Acquisition integration costs represent additional investment by
the Group in the recently acquired businesses, in order to realise their full value and achieve expected synergies. These costs reflect restructuring of
operations, integration of R&D and administration functions, redundancies, relocation of resources and transaction expenses in order to integrate the
businesses into the existing Kerry operating model.
In the year ended 31 December 2016, a tax credit of €7.0m (2015: €2.0m) arose due to tax deductions available on acquisition integration and
restructuring costs.
(iii) Impairment of assets held for sale
In 2016, assets classified as held for sale were impaired to their fair value less costs to sell by €3.7m (2015: €5.3m). In addition in 2016 it was determined
that the value of the Group’s remaining businesses held for sale, would no longer be recovered principally through a sale. As a result, the assets were
reclassified from ‘Assets classified as held for sale’ (note 18). A remeasurement gain of €3.6m was recorded in ‘Non-trading items’ to recognise the assets
at their recoverable amount, which was determined using a value in use calculation.
6. FINANCE INCOME AND COSTS
Finance income:
Interest income on deposits
Finance costs:
Interest payable
Interest rate derivative
Net interest cost on retirement benefits obligation
Finance costs
Notes
24
26
2016
€’m
1.1
(64.1)
0.5
(63.6)
(7.9)
(71.5)
2015
€’m
1.8
(52.6)
(5.0)
(57.6)
(13.5)
(71.1)
The interest rate derivative credit/(cost) represents the current year movement for credit value adjustments to the fair values of derivative financial
instruments designated in a hedge relationship of €0.5m (2015: (€5.0m)).
139 | KERRY GROUP | ANNUAL REPORT 2016
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
Notes
17
5
2016
€’m
68.6
(3.7)
64.9
13.8
78.7
0.6
(8.6)
(8.0)
2015
€’m
78.6
(6.0)
72.6
4.8
77.4
0.4
(4.1)
(3.7)
The Group considers that the most relevant rate to be used for the reconciliation of the tax expense is the standard corporate tax rate applicable in
Ireland of 12.5% in 2016 (2015: 12.5%), as an alternative to the weighted average of the standard tax rates applicable in the jurisdictions in which the
Group operates used in previous years. The 2015 comparative has therefore been restated to reflect this method of reconciliation.
The tax on the Group’s profits before tax differs from the amount that would arise applying the standard corporation tax rate in Ireland as follows:
Profit before taxation
Taxed at Irish Standard Rate of Tax (12.5%)
Adjustments to current tax and deferred tax in respect of prior years
Net effect of differing tax rates
Changes in standard rates of taxes
Income not subject to tax
Utilisation of unprovided deferred tax assets
Other adjusting items
Income tax expense
2016
€’m
611.8
76.5
1.3
12.8
(2.8)
(2.2)
(5.6)
(1.3)
78.7
2015
€’m
602.8
75.4
(2.8)
16.6
(2.6)
(2.5)
(6.0)
(0.7)
77.4
An increase in the Group’s applicable tax rate of 1% would reduce profit after tax by €6.1m (2015: €6.0m). 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 is €118.8m
(2015: €228.0m).
140 | KERRY GROUP | ANNUAL REPORT 2016
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
302.9
13.1
7.4
323.4
2016
€’m
533.1
23.0
13.0
569.1
EPS
cent
298.7
10.6
(7.4)
301.9
2015
€’m
525.4
18.7
(13.1)
531.0
302.0
322.4
533.1
569.1
298.4
301.5
525.4
531.0
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.
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
Note
27
2016
m’s
176.0
0.5
176.5
176.0
2015
m’s
175.9
0.2
176.1
175.9
10. DIVIDENDS
Group and Company:
Amounts recognised as distributions to equity shareholders in the financial year
Final 2015 dividend of 35.00 cent per A ordinary share paid 13 May 2016
(Final 2014 dividend of 31.50 cent per A ordinary share paid 15 May 2015)
Interim 2016 dividend of 16.80 cent per A ordinary share paid 18 November 2016
(Interim 2015 dividend of 15.00 cent per A ordinary share paid 13 November 2015)
2016
€’m
2015
€’m
61.6
55.4
29.6
91.2
26.4
81.8
Since the financial year end the Board has proposed a final 2016 dividend of 39.20 cent per A ordinary share which amounts to €69.0m. The payment
date for the final dividend will be 19 May 2017 to shareholders registered on the record date as at 28 April 2017. The consolidated financial statements do
not reflect this dividend.
141 | KERRY GROUP | ANNUAL REPORT 2016
11. PROPERTY, PLANT AND EQUIPMENT
Group:
Cost
At 1 January 2015
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
Businesses acquired
Additions
Transfer from construction in progress
Businesses disposed
Disposals
Transfer to/from held for sale
Exchange translation adjustment
At 31 December 2016
Accumulated depreciation and impairment
At 1 January 2015
Charge during the financial year
Impairments
Businesses disposed
Disposals
Transfer to held for sale
Exchange translation adjustment
At 31 December 2015
Charge during the financial year
Businesses acquired
Impairments
Businesses disposed
Disposals
Transfer to/from held for sale
Exchange translation adjustment
At 31 December 2016
Carrying value
At 31 December 2015
At 31 December 2016
Land and
Buildings
€’m
Notes
Plant,
Machinery
and
Equipment
€’m
Construction
in Progress
€’m
Motor
Vehicles
€’m
Total
€’m
845.3
1,591.0
31
30
31
5
5
30
3
3
30
3
31
3
5
5
30
21.0
72.8
(5.0)
89.8
(9.9)
(9.5)
(36.1)
35.5
1,003.9
2.0
20.0
4.1
2.2
(7.5)
38.7
(19.5)
1,043.9
315.1
28.6
0.9
(0.9)
(8.7)
(32.1)
11.6
314.5
30.8
0.5
3.7
(0.3)
(3.8)
42.4
(10.0)
377.8
689.4
666.1
19.8
76.8
(1.0)
57.4
(21.4)
(53.3)
(4.7)
57.8
1,722.4
4.6
55.7
55.6
(3.3)
(38.4)
52.4
(37.0)
1,812.0
1,021.1
96.7
3.2
(13.1)
(41.7)
(4.3)
34.1
1,096.0
100.4
3.2
3.6
(2.8)
(36.5)
48.6
(29.9)
1,182.6
626.4
629.4
180.8
(0.7)
65.4
-
(147.2)
(12.5)
(0.2)
-
6.0
91.6
-
123.0
(59.7)
-
-
0.3
(1.6)
153.6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18.8
-
1.4
-
-
(0.1)
(1.5)
-
(0.3)
18.3
0.3
0.9
-
-
(1.3)
(3.4)
0.1
14.9
16.3
0.7
-
-
(1.6)
-
(0.1)
15.3
1.0
0.3
-
-
(1.1)
(3.4)
-
12.1
2,635.9
40.1
216.4
(6.0)
-
(43.9)
(64.5)
(40.8)
99.0
2,836.2
6.9
199.6
-
(1.1)
(47.2)
88.0
(58.0)
3,024.4
1,352.5
126.0
4.1
(14.0)
(52.0)
(36.4)
45.6
1,425.8
132.2
4.0
7.3
(3.1)
(41.4)
87.6
(39.9)
1,572.5
91.6
153.6
3.0
2.8
1,410.4
1,451.9
* The Group finalised the fair value exercise on the acquisitions made in 2015 in the period allowed by IFRS 3 and the measurement period adjustments
have been included in the business acquired line in 2015 as required by IFRS 3. The measurement period adjustments are disclosed in note 31.
Included in the impairments above is €6.7m (2015: €1.7m) charged to non-trading items.
142 | KERRY GROUP | ANNUAL REPORT 2016
11. PROPERTY, PLANT AND EQUIPMENT (continued)
Company:
Cost
At 1 January 2015
At 31 December 2015 and 2016
Accumulated depreciation
At 1 January 2015
Charge during the financial year
At 31 December 2015
Charge during the financial year
At 31 December 2016
Carrying value
At 31 December 2015
At 31 December 2016
Land and
Buildings
Total
€’m
4.7
4.7
3.8
0.1
3.9
0.2
4.1
0.8
0.6
143 | KERRY GROUP | ANNUAL REPORT 2016
12.
INTANGIBLE ASSETS
Notes
Goodwill
€’m
Brand
Related
Intangibles
€’m
Computer
Software
€’m
Group:
Cost
At 1 January 2015
Businesses acquired*
Additions
Purchase adjustments
Transferred to held for sale
Businesses disposed
Disposals
Exchange translation adjustment
At 31 December 2015
Businesses acquired
Additions
Transferred to/from held for sale
Businesses disposed
Disposals
Exchange translation adjustment
At 31 December 2016
Accumulated amortisation and impairment
At 1 January 2015
Charge during the financial year
Businesses disposed
Disposals
Impairment
Transferred to held for sale
Exchange translation adjustment
At 31 December 2015
Charge during the financial year
Businesses acquired
Disposals
Impairment
Transferred to/from held for sale
Exchange translation adjustment
At 31 December 2016
Carrying value
At 31 December 2015
At 31 December 2016
31
30
31
30
3
30
3
31
30
1,906.7
315.4
-
11.2
(3.6)
(39.3)
-
55.5
2,245.9
8.5
-
-
-
-
846.4
504.5
-
3.2
-
(27.9)
-
24.0
1,350.2
11.7
-
-
-
-
(35.1)
2,219.3
(4.7)
1,357.2
36.9
-
(14.5)
-
3.6
(3.6)
2.1
24.5
-
-
-
-
-
(1.9)
22.6
2,221.4
2,196.7
169.1
18.7
(15.2)
-
-
-
11.4
184.0
23.0
-
(0.3)
-
-
(9.0)
197.7
1,166.2
1,159.5
164.1
-
31.6
-
-
-
(0.5)
1.3
196.5
0.2
16.5
0.9
-
(1.3)
(0.4)
212.4
82.2
18.7
-
(0.5)
-
-
1.1
101.5
23.4
0.1
(1.1)
-
0.8
(0.4)
124.3
95.0
88.1
Total
€’m
2,917.2
819.9
31.6
14.4
(3.6)
(67.2)
(0.5)
80.8
3,792.6
20.4
16.5
0.9
-
(1.3)
(40.2)
3,788.9
288.2
37.4
(29.7)
(0.5)
3.6
(3.6)
14.6
310.0
46.4
0.1
(1.4)
-
0.8
(11.3)
344.6
3,482.6
3,444.3
* The Group finalised the fair value exercise on the acquisitions made in 2015 in the period allowed by IFRS 3 and the measurement period adjustments
have been included in the business acquired line in 2015 as required by IFRS 3. The measurement period adjustments are disclosed in note 31.
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 €893.7m (2015: €884.1m) 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.
144 | KERRY GROUP | ANNUAL REPORT 2016
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.
These assets are allocated to CGUs. The recoverable amount of each of the four 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.
No impairment was recognised in 2016 or 2015 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 2016, there was no specific impairment charge (2015: €3.6m) in relation to goodwill 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 CGU, is as follows:
Taste & Nutrition
EMEA
Americas
Asia Pacific
Consumer Foods
EMEA
Goodwill
2016
€’m
531.8
1,156.4
97.7
410.8
2,196.7
Goodwill
2015
€’m
522.1
1,122.8
96.5
480.0
2,221.4
Indefinite Life
Intangibles
2016
€’m
Indefinite Life
Intangibles
2015
€’m
106.4
690.2
50.0
47.1
893.7
104.6
675.6
52.5
51.4
884.1
Key assumptions
Forecasts are generally derived from a combination of internal and external factors based on historical experience and take account of expected growth
in the relevant region. 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
2016
6.7%
6.7%
8.3%
Discount
Rates
2015
5.3%
5.5%
6.9%
Growth
Rates
2016
1.9%
2.4%
4.9%
Growth
Rates
2015
1.9%
2.5%
4.7%
6.4%
5.2%
2.0%
2.0%
Management estimate discount rates using pre-tax rates consistent with the Group’s weighted average cost of capital 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 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, management’s past experience, management’s expectation of future trends affecting the
industry and other developments and initiatives in the business. Capital expenditure requirements to maintain the CGUs performance and profitability
are based on the Group’s strategic plans and broadly assume that historic investment patterns will be maintained. Working capital requirements are
forecast to move in line with activity.
145 | KERRY GROUP | ANNUAL REPORT 2016
12.
INTANGIBLE ASSETS (continued)
Impairment testing (continued)
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 2016 or 2015. Further changes to the discount rate (for example, a 5% increase)
would not have resulted in an impairment charge in 2016 or 2015 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 2016 or 2015. 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 2016 or 2015. 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 2015
Additions
Exchange translation adjustment
At 31 December 2015
Additions
Exchange translation adjustment
At 31 December 2016
Available-for-sale
Investments
€’m
Other
Investments
€’m
Note
4.1
-
-
4.1
-
-
4.1
23.8
3.3
2.8
29.9
4.5
0.8
35.2
30
30
Total
€’m
27.9
3.3
2.8
34.0
4.5
0.8
39.3
Available-for-sale investments
The available-for-sale investments represent investments in equity securities. These investments have no fixed maturity or coupon rate. A fair value
assessment was performed in 2016 which did not result in any change to the carrying value of these assets.
A 10% decrease in the valuation of these shares in 2016 would have resulted in a loss in the Consolidated Income Statement of €0.4m (2015: €0.4m).
Other investments
The Group maintains Rabbi Trusts in respect of non-qualified deferred compensation plans in the USA. The assets of the trusts primarily consist of
equities, bonds and cash which are restricted for use. The equities and bonds are fair valued through profit or loss at each financial year end using
quoted market prices. The corresponding liability is recognised within other non-current liabilities (note 22).
14.
INVESTMENTS IN ASSOCIATES
At 1 January
Acquisition
Share of profit/(loss) after tax during the financial year
Income received from associate
At 31 December
Note
3
2016
€’m
38.9
6.7
0.1
(5.0)
40.7
2015
€’m
40.2
-
(1.3)
-
38.9
In 2016, the Group acquired two investments in private companies which are treated as associate undertakings and whose financial year end dates are
31 December and 26 February respectively, the dates established on their incorporation. The amounts included in these Group consolidated financial
statements in respect of the post-acquisition profits or losses of these associates 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.
146 | KERRY GROUP | ANNUAL REPORT 2016
2015
€’m
637.7
2015
€’m
313.0
390.3
24.2
727.5
Total
€’m
135.3
4.8
26.9
33.3
0.3
200.6
15.
INVESTMENTS IN SUBSIDIARIES
Company:
At beginning and end of year - at cost
16.
INVENTORIES
Group:
Raw materials and consumables
Finished goods and goods for resale
Expense inventories
2016
€’m
637.7
2016
€’m
312.4
403.1
27.5
743.0
Write-downs of inventories recognised as an expense approximates to 1.5% (2015: 1.2%) 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:
Property,
Plant and
Equipment
€’m
Notes
Intangible
Assets
€’m
Tax Credits
and NOLs
€’m
Retirement
Benefits
Obligation
€’m
Short Term
Temporary
Differences
and Other
Differences
€’m
(48.6)
0.8
1.7
(1.6)
(5.9)
(53.6)
(22.6)
11.4
-
1.4
(0.7)
(10.5)
(78.7)
3.8
25.2
-
(2.8)
(52.5)
(2.3)
16.1
(4.2)
13.8
-
(25.5)
(0.9)
(0.7)
(0.4)
(26.4)
0.2
6.3
-
-
(61.9)
(59.8)
194.5
(1.8)
(0.4)
(15.0)
At 1 January 2015
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
7
30
98.7
(1.5)
-
(2.3)
7.6
102.5
Consolidated Income Statement movement
7
(4.2)
Recognised in other comprehensive income during the
financial year
Related to businesses acquired/disposed
Exchange translation adjustment
At 31 December 2016
30
-
0.8
0.2
99.3
186.5
(9.7)
-
35.8
2.1
214.7
8.4
-
1.9
6.9
231.9
The short term temporary differences and other temporary differences recognised in other comprehensive income comprise fair value movements on
cash flow hedges of (€0.9m) (2015: €1.4m) and an exchange difference on translation of foreign operations of €nil (2015: €0.3m). In the above table,
NOLs refers to Net Operating Losses.
147 | KERRY GROUP | ANNUAL REPORT 2016
17. DEFERRED TAX ASSETS AND LIABILITIES (continued)
The following is an analysis of the deferred tax balances (after offset) for balance sheet purposes:
Deferred tax assets
Deferred tax liabilities
2016
€’m
(52.7)
247.2
194.5
2015
€’m
(43.2)
243.8
200.6
The total deductible temporary differences for which deferred tax assets have not been recognised is €29.7m (2015: €38.1m). The Group does not have
any unrecognised losses which have an expiry date.
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 €7.4m (2015: €6.9m).
18. ASSETS CLASSIFIED AS HELD FOR SALE
Group:
Property, plant and equipment (net of grants)
Inventory
2016
€’m
4.9
-
4.9
2015
€’m
12.4
9.1
21.5
In 2016, the Group held certain property, plant and equipment classified as held for sale in the Taste & Nutrition segment in Malaysia, the UK and the
USA. Additionally a small Taste & Nutrition business and property, plant and equipment in the Consumer Foods segment across Ireland and the UK,
which were classified as held for sale in 2015 were sold.
During 2016 it was determined that the value of the Group’s remaining businesses held for sale in the Consumer Foods segment, would no longer be
recovered principally through sale. As a result, assets with a carrying value of €14.7m were reclassified from ‘Assets classified as held for sale’ to ‘Property,
plant and equipment’, ‘Intangible assets’, ‘Deferred income’ and ‘Inventory’. A re-measurement gain of €3.6m was recorded in ‘Non-trading items’ (note 5)
to recognise the assets at their recoverable amount. The recoverable amount was determined on value in use calculations.
148 | KERRY GROUP | ANNUAL REPORT 2016
19. TRADE AND OTHER RECEIVABLES
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
Group
2016
€’m
781.1
(23.4)
757.7
41.7
-
45.1
2.8
847.3
Group
2015
€’m
760.5
(26.6)
733.9
37.0
-
57.4
2.9
831.2
Company
2016
€’m
Company
2015
€’m
-
-
-
-
99.4
-
-
99.4
-
-
-
-
63.3
-
-
63.3
All receivable balances are due within 1 year except for €2.8m (2015: €2.9m) 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
2016
€’m
627.2
108.5
15.9
5.8
0.3
757.7
2016
€’m
26.6
8.4
(11.7)
0.1
23.4
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
Trade and other receivables are stated at amortised cost less allowance for impairment. The fair value of these receivables approximates their carrying
value as these are short term in nature; 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 2016 or 2015.
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.
149 | KERRY GROUP | ANNUAL REPORT 2016
20. TRADE AND OTHER PAYABLES
Trade payables
Other payables and accruals
Deferred payments on acquisition of businesses
PAYE
Social security costs
Group
2016
€’m
1,159.0
175.1
8.7
2.9
5.9
Group
2015
€’m
1,090.6
182.1
6.8
2.9
6.2
1,351.6
1,288.6
Company
2016
€’m
Company
2015
€’m
-
4.5
5.9
-
-
10.4
-
3.4
5.9
-
-
9.3
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
Transfer from held for sale
Grants received during the financial year
Amortised during the financial year
Disposal
Exchange translation adjustment
At end of the financial year
Analysed as:
Current liabilities
Non-current liabilities
Notes
3
30
Group
2016
€’m
27.3
1.0
2.3
(3.0)
(0.5)
-
27.1
2.8
24.3
27.1
Group
2015
€’m
Company
2016
€’m
Company
2015
€’m
25.6
-
3.7
(2.5)
-
0.5
27.3
2.7
24.6
27.3
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
Group
2016
€’m
94.0
1.1
95.1
Group
2015
€’m
90.7
3.2
93.9
Company
2016
€’m
Company
2015
€’m
-
-
-
-
-
-
All of the above balances are due within 2 to 5 years except for €0.5m (2015: €0.7m) which is not due until after 5 years.
150 | KERRY GROUP | ANNUAL REPORT 2016
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
2016
€’m
Assets/
(Liabilities)
at Fair Value
through Profit
or Loss
2016
€’m
Derivatives
Designated as
Hedging
Instruments
2016
€’m
Available-
for-sale
Investments
2016
€’m
Notes
13
24 (i.i)
24 (ii.ii)
19
24 (iii.i)
24 (iii.i)
24 (i.i)
24 (ii.ii)
20/22
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
-
-
-
847.3
564.7
1,412.0
1,412.0
-
1,412.0
(2,031.1)
-
-
(1,446.7)
(3,477.8)
(1,544.1)
(1,933.7)
(3,477.8)
(2,065.8)
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
(3.6)
(6.9)
(2,020.6)
(2,031.1)
-
564.7
(1,466.4)
Total
2016
€’m
39.3
54.8
178.3
847.3
564.7
1,684.4
1,492.1
192.3
1,684.4
(2,059.5)
(21.0)
(7.2)
(1,446.7)
(3,534.4)
(1,565.0)
(1,969.4)
(3,534.4)
(1,850.0)
(3.6)
(6.9)
(2,049.0)
(2,059.5)
171.1
564.7
(1,323.7)
35.2
8.3
-
-
-
43.5
8.3
35.2
43.5
(28.4)
(2.7)
-
-
(31.1)
(2.7)
(28.4)
(31.1)
12.4
-
-
(28.4)
(28.4)
-
-
(28.4)
-
46.5
178.3
-
-
224.8
71.8
153.0
224.8
-
(18.3)
(7.2)
-
(25.5)
(18.2)
(7.3)
(25.5)
199.3
-
-
-
-
171.1
-
171.1
4.1
-
-
-
-
4.1
-
4.1
4.1
-
-
-
-
-
-
-
-
4.1
-
-
-
-
-
-
-
151 | KERRY GROUP | ANNUAL REPORT 2016
23. ANALYSIS OF FINANCIAL INSTRUMENTS BY CATEGORY (continued)
All Group borrowings are guaranteed by Kerry Group plc. No assets of the Group have been pledged to secure the borrowings.
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 €28.4m (2015: €31.7m) 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 corresponding hedge item being the underlying cross currency interest rate swap.
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)
20/22
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
-
-
-
831.2
236.4
1,067.6
1,067.6
-
1,067.6
(2,018.2)
-
-
(1,382.5)
(3,400.7)
(1,327.0)
(2,073.7)
(3,400.7)
(2,333.1)
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)
Total
2015
€’m
34.0
20.2
169.9
831.2
236.4
1,291.7
1,083.3
208.4
1,291.7
(2,049.9)
(25.1)
(6.5)
(1,382.5)
(3,464.0)
(1,352.1)
(2,111.9)
(3,464.0)
(2,172.3)
(5.2)
(33.2)
(2,011.5)
(2,049.9)
163.4
236.4
(1,650.1)
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
-
-
-
-
-
-
-
152 | KERRY GROUP | ANNUAL REPORT 2016
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 assets
24. FINANCIAL INSTRUMENTS
Notes
2016
€’m
2015
€’m
19
20
0.1
99.4
99.5
99.5
(0.1)
(10.4)
(10.5)
(10.5)
89.0
0.1
63.3
63.4
63.4
(0.7)
(9.3)
(10.0)
(10.0)
53.4
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, deferred payments on acquisitions of
businesses 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, as represented in the table below:
Issued capital and reserves attributable to owners of the parent
Total net debt
Deferred payments on acquisition of businesses
Notes
23
20/22
2016
€’m
3,094.0
1,323.7
9.8
4,427.5
2015
€’m
2,790.1
1,650.1
10.0
4,450.2
In 2015, 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. During 2016 the Group exercised the first extension option to extend maturity to April 2021.
In September 2015, 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.
153 | KERRY GROUP | ANNUAL REPORT 2016
24. FINANCIAL INSTRUMENTS (continued)
Capital management (continued)
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.
2016
Times
1.5
14.0
2015
Times
1.9
17.3
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 €0.3m (2015: €48.5m) and a sterling liability of €2.8m (2015: €18.7m). Based on
these net positions, as at 31 December 2016, a weakening of 5% of the US dollar and sterling against all other key operational currencies, and holding all
other items constant, would have increased/(decreased) the profit after tax of the Group for the financial year by €0.1m (2015: (€1.4m)).
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 2016 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 €12.2m (2015: €9.2m) and €20.4m (2015: €18.9m) respectively.
154 | KERRY GROUP | ANNUAL REPORT 2016
24. FINANCIAL INSTRUMENTS (continued)
(i) Foreign exchange rate risk management (continued)
(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:
2016
€’m
Asset
2016
€’m
Liability
Notes
Designated in a hedging relationship:
Forward foreign exchange contracts - cash flow hedges
(a)
- current
- non-current
At Fair Value through Profit or Loss:
Forward foreign exchange contracts - trading derivatives
(b)
- current
46.5
46.3
0.2
8.3
8.3
(18.3)
(18.2)
(0.1)
(2.7)
(2.7)
2016
€’m
Total
28.2
28.1
0.1
5.6
5.6
2015
€’m
Total
7.9
3.4
4.5
2015
€’m
Asset
2015
€’m
Liability
(5.6)
(5.6)
-
13.5
9.0
4.5
6.7
6.7
(19.5)
(19.5)
(12.8)
(12.8)
Forward foreign exchange contracts
54.8
(21.0)
33.8
20.2
(25.1)
(4.9)
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
Notional Principal
2016
€’m
28.1
0.1
28.2
2015
€’m
3.4
4.5
7.9
2016
€’m
1,044.5
10.5
1,055.0
2015
€’m
711.4
135.6
847.0
At 31 December 2016, an asset of €28.9m (2015: €7.1m) of the fair value is included in the hedging reserve, which will primarily be released to the
Consolidated Income Statement within 14 months (2015: 18 months) of the balance sheet date. All forward contracts relate to sales revenue and
purchases made in their respective currencies.
During 2016, a gain of €14.1m (2015: a loss of €1.8m) 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 2016 or 2015 which were designated as hedges
that did not occur, nor are there hedges on forecast transactions that are no longer expected to occur.
During 2016 €2.6m (2015: €0.8m) of the gains and losses in other comprehensive income on forward foreign exchange contracts as at 31 December 2015
were released to the Consolidated Income Statement as follows:
-
-
-
-
within 3 months: €0.3m (2015: €0.3m);
within 3 to 6 months: €nil (2015: €0.1m);
within 6 to 9 months: €0.4m (2015: €0.2m); and
within 9 to 12 months: €1.9m (2015: €0.2m)
The remaining balance of €4.5m in 2015 has a mark to market of €17.3m at the end of 2016.
At 31 December 2016 and 2015 no ineffectiveness was recognised in the Consolidated Income Statement from foreign currency cash flow hedges.
155 | KERRY GROUP | ANNUAL REPORT 2016
24. FINANCIAL INSTRUMENTS (continued)
(i) Foreign exchange rate risk management (continued)
(i.i) Forward foreign exchange contracts (continued)
(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 in 2015, 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 Asset/(Liability)
Notional Principal
2016
€’m
5.6
2015
€’m
(12.8)
2016
€’m
795.8
2015
€’m
1,241.2
The fair value gain of €5.6m (2015: a loss of €12.8m) is directly offset by a loss of €5.6m (2015: a loss of €5.5m) on the retranslation to balance sheet
rates on foreign currency receivables from ‘within Group’ lending and cash pooling. The balance of €nil (2015: a loss of €7.3m) relates to other economic
hedges as outlined above.
(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 2016
Euro
Sterling
US Dollar
Others
At 31 December 2015
Total
Pre CCS
€’m
404.6
(116.8)
1,225.8
(47.2)
1,466.4
675.0
(19.4)
1,205.0
(78.8)
1,781.8
Impact
of CCS
€’m
536.0
-
(536.0)
-
-
513.9
-
(513.9)
-
-
Total
after CCS
€’m
Floating
Rate Debt
€’m
Fixed
Rate Debt
€’m
940.6
(116.8)
689.8
(47.2)
1,466.4
1,188.9
(19.4)
691.1
(78.8)
1,781.8
41.4
(116.8)
358.0
(47.2)
235.4
299.8
(19.4)
369.6
(78.8)
571.2
899.2
-
331.8
-
1,231.0
889.1
-
321.5
-
1,210.6
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 €179.4m (2015: €157.4m) which is directly offset by a gain of €179.4m (2015: €157.4m) 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 of the related debt. The fair value of the related derivative includes a liability of €9.7m (2015:
€4.0m) for movement in exchange rates since the date of execution which is directly offset by a loss of €9.7m (2015: €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 2016 is 2.57% (2015: 2.61%) and the weighted average period for which the
rate is fixed is 6.6 years (2015: 7.6 years).
156 | KERRY GROUP | ANNUAL REPORT 2016
24. FINANCIAL INSTRUMENTS (continued)
(ii) Interest rate risk management (continued)
(ii.i) Interest rate profile of financial liabilities excluding related derivatives fair value (continued)
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 16% (2015: 32%) of net debt and 39%
(2015: 40%) of gross debt was held at floating rates. If the interest rates applicable to floating rate net 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 0.4% (2015: 0.7%).
(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.
The following table details the portfolio of interest rate derivative contracts at the balance sheet date:
2016
€’m
Asset
2016
€’m
Liability
Notes
Designated in a hedging relationship:
Interest rate swap contracts - cash flow hedges
(a)
- current
- non-current
Interest rate swap contracts - fair value hedges
(b)
- current
- non-current
Interest rate swap contracts
45.2
25.5
19.7
133.1
-
133.1
178.3
-
-
-
(7.2)
-
(7.2)
(7.2)
2016
€’m
Total
45.2
25.5
19.7
125.9
-
125.9
171.1
2015
€’m
Asset
40.7
-
40.7
129.2
-
129.2
169.9
2015
€’m
Liability
-
-
-
(6.5)
-
(6.5)
(6.5)
2015
€’m
Total
40.7
-
40.7
122.7
-
122.7
163.4
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
2016
%
4.38
-
-
2.58
2015
%
-
4.38
-
2.58
2016
€’m
25.5
-
-
19.7
45.2
2015
€’m
-
22.7
-
18.0
40.7
Notional
Principal
2015
€’m
-
84.5
-
229.6
314.1
2016
€’m
87.2
-
-
237.0
324.2
157 | KERRY GROUP | ANNUAL REPORT 2016
24. FINANCIAL INSTRUMENTS (continued)
(ii) Interest rate risk management (continued)
(ii.ii) Interest rate swap contracts (continued)
(a) Interest rate swap contracts - cash flow hedges (continued)
Of the fair value asset of €45.2m at 31 December 2016 (2015: €40.7m), a gain of €66.9m (2015: €56.9m) is attributed to foreign exchange rate
fluctuations. The current year foreign exchange gain of €10.0m (2015: €32.4m) 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 2016 a liability of €20.2m (2015: €14.4m 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 of this debt. During 2016, a charge of €0.8m (2015: €1.1m) has been taken to finance costs
in the Consolidated Income Statement in respect of amounts held in the hedging reserve at 31 December 2015. The balance of €1.5m (2015: €1.8m)
relates to the recognition of credit value adjustments. The current year movement of €0.3m (2015: (€3.6m)) is recognised in the Consolidated
Income Statement.
The interest rate swaps settle on a 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.
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
2016
%
4.83
3.52
2015
%
4.83
3.51
2016
€’m
64.1
61.8
125.9
2015
€’m
61.8
60.9
122.7
Notional
Principal
2015
€’m
191.1
588.3
779.4
2016
€’m
197.2
601.6
798.8
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 €125.9m (2015: €122.7m) at 31 December 2016, a gain of €102.8m (2015: €96.5m) is attributed to foreign exchange rate
fluctuations. The current year foreign exchange gain of €6.3m (2015: €34.7m) 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 €28.4m (2015: €31.7m)
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 €5.3m (2015: €5.5m) relates to the
recognition of credit value adjustments. The current year movement of €0.2m (2015: (€1.4m)) 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:
-
-
sufficient facilities are available to cover its gross forecast debt by at least 1.25 times; and
75% of total facilities available are committed.
Both targets were met at 31 December 2016 and 2015.
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.
158 | KERRY GROUP | ANNUAL REPORT 2016
24. FINANCIAL INSTRUMENTS (continued)
(iii) Liquidity risk management (continued)
At 31 December 2016, the Group had undrawn committed bank facilities of €1,100m (2015: €1,100m), and a portfolio of undrawn standby facilities
amounting to €360.0m (2015: €340.3m). In April 2016 the Group exercised a 1 year extension option on the revolving credit facility. The undrawn
committed facilities comprise primarily of a revolving credit facility maturing between 4 - 5 years (2015: between 4 - 5 years).
(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 payables
(note 20) and other non-current liabilities (note 22), of which €1,351.6m (2015: €1,288.6m) is payable within 1 year, €94.6m (2015: €93.2m) between 2
and 5 years and €0.5m (2015: €0.7m) is payable after 5 years. 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
Total
€’m
3.6
6.9
2,020.6
2,031.1
9.8
2,040.9
385.7
2,426.6
-
-
1,641.4
1,641.4
-
1,641.4
106.1
1,747.5
1,641.4
17.7
2,031.1
28.4
1,659.1
2,059.5
(81.4)
-
(171.1)
(564.7)
1,323.7
143.8
1,577.7
-
-
197.2
197.2
0.8
198.0
160.1
358.1
197.2
10.7
207.9
(64.1)
-
Bank overdrafts
Bank loans
Senior notes
Borrowings and overdrafts
Deferred payments on acquisition of businesses
Interest commitments
At 31 December 2016
Reconciliation to net debt position:
Borrowings and overdrafts
Senior notes - fair value adjustment
Borrowings - reported
Interest rate swaps
Cash at bank and in hand
Total net debt as at 31 December 2016
3.6
6.9
182.0
192.5
8.7
201.2
60.0
261.2
192.5
-
192.5
(25.6)
(564.7)
(397.8)
-
-
-
-
0.3
0.3
59.5
59.8
-
-
-
-
-
-
159 | KERRY GROUP | ANNUAL REPORT 2016
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 2015
Reconciliation to net debt position:
Borrowings and overdrafts
Senior notes - fair value adjustment
Borrowings - reported
Interest rate swaps
Cash at bank and in hand
Total net debt as at 31 December 2015
On demand &
up to 1 year
€’m
Up to
2 years
€’m
2 - 5 years
€’m
> 5 years
€’m
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)
-
143.9
-
-
1,612.3
1,612.3
-
1,612.3
153.8
1,766.1
1,612.3
17.1
1,629.4
(78.9)
-
1,550.5
Total
€’m
5.2
33.2
1,979.8
2,018.2
10.0
2,028.2
444.4
2,472.6
2,018.2
31.7
2,049.9
(163.4)
(236.4)
1,650.1
(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 inflow
At 31 December 2016
Interest rate swaps inflow
Interest rate swaps outflow
Net interest rate swaps inflow
Forward foreign exchange contracts (outflow)/inflow
At 31 December 2015
On demand &
up to 1 year
€’m
63.9
(20.2)
43.7
33.7
77.4
On demand &
up to 1 year
€’m
41.0
(20.9)
20.1
(9.4)
10.7
Up to
2 years
€’m
38.4
(20.7)
17.7
0.1
17.8
Up to
2 years
€’m
60.2
(19.7)
40.5
4.5
45.0
2 - 5 years
€’m
> 5 years
€’m
153.9
(64.7)
89.2
-
89.2
143.0
(57.0)
86.0
-
86.0
2 - 5 years
€’m
> 5 years
€’m
154.4
(63.5)
90.9
-
90.9
156.9
(70.9)
86.0
-
86.0
Total
€’m
399.2
(162.6)
236.6
33.8
270.4
Total
€’m
412.5
(175.0)
237.5
(4.9)
232.6
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
-
-
-
-
Up to 1 year - swap inflow of €25.4m (2015: €nil)
1 - 2 years - swap inflow of €nil (2015: €22.7m)
2 - 5 years - swap inflows of €57.3m (2015: €51.2m)
Greater than 5 years - swap inflows of €96.7m (2015: €83.5m)
Swap outflows
-
Greater than 5 years - swap outflows of €9.7m (2015: €4.0m)
160 | KERRY GROUP | ANNUAL REPORT 2016
24. FINANCIAL INSTRUMENTS (continued)
(iii) Liquidity risk management (continued)
(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 2021, with 1 year extension option on the 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 10 September 2025.
(c) 2013 US dollar senior notes
The Group issued a 10 year USA 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 USA 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 USA 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 for the financial years 2016 and 2015.
(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 2016 and 2015 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.
161 | KERRY GROUP | ANNUAL REPORT 2016
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
Interest rate swaps
Forward foreign exchange contracts
Fair Value
Hierarchy
Level 2
Level 2
Level 1
Level 3
Level 2
Level 2
2016
€’m
178.3
54.8
35.2
4.1
(7.2)
(21.0)
2015
€’m
169.9
20.2
29.9
4.1
(6.5)
(25.1)
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
2016
€’m
(1,451.8)
(568.8)
(2,020.6)
Fair
Value
2016
€’m
(1,471.0)
(585.4)
(2,056.4)
Carrying
Amount
2015
€’m
(1,428.7)
(551.1)
(1,979.8)
Fair
Value
2015
€’m
(1,398.6)
(566.7)
(1,965.3)
162 | KERRY GROUP | ANNUAL REPORT 2016
24. FINANCIAL INSTRUMENTS (continued)
(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 2016
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 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
564.7
54.8
178.3
797.8
-
-
-
-
314.0
20.2
169.9
504.1
77.6
-
-
77.6
-
-
-
-
(3.6)
(21.0)
(7.2)
(31.8)
(77.6)
-
-
(77.6)
(82.8)
(25.1)
(6.5)
(114.4)
564.7
54.8
178.3
797.8
(3.6)
(21.0)
(7.2)
(31.8)
236.4
20.2
169.9
426.5
(5.2)
(25.1)
(6.5)
(36.8)
-
(15.7)
(6.2)
(21.9)
-
15.7
6.2
21.9
-
(15.4)
(6.3)
(21.7)
-
15.4
6.3
21.7
564.7
39.1
172.1
775.9
(3.6)
(5.3)
(1.0)
(9.9)
236.4
4.8
163.6
404.8
(5.2)
(9.7)
(0.2)
(15.1)
163 | KERRY GROUP | ANNUAL REPORT 2016
25. PROVISIONS
Group:
At 1 January 2015
Provided during the financial year
Utilised during the financial year
Transferred to payables and accruals
Exchange translation adjustment
At 31 December 2015
Provided during the financial year
Utilised during the financial year
Transferred to payables and accruals
Exchange translation adjustment
At 31 December 2016
Analysed as:
Current liabilities
Non-current liabilities
Note
Insurance
€’m
Non-Trading
Items
€’m
73.3
2.3
(5.0)
-
2.9
73.5
1.6
(9.7)
-
(6.6)
58.8
30
30
32.2
1.4
(9.8)
(6.5)
-
17.3
0.5
(1.6)
(3.6)
(0.2)
12.4
2016
€’m
30.4
40.8
71.2
Total
€’m
105.5
3.7
(14.8)
(6.5)
2.9
90.8
2.1
(11.3)
(3.6)
(6.8)
71.2
2015
€’m
31.7
59.1
90.8
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 during 2017.
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.
Defined benefit post-retirement schemes exist in a number of countries in which the Group operates, primarily in Ireland and the Netherlands
(Eurozone), the UK and the USA (included in Rest of World). These defined benefit plans mostly include final salary pension plans but also include career
average salary pension plans and post-retirement medical plans. The post-retirement medical plans operated by the Group relate primarily to a number
of USA employees. Defined benefit schemes in Ireland, the UK, and the USA 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.
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 2016 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.
164 | KERRY GROUP | ANNUAL REPORT 2016
26. RETIREMENT BENEFITS OBLIGATION (continued)
As part of the 1 Kerry strategy the Group is endeavouring to harmonise, standardise and integrate the benefit offering to employees across the countries
in which it operates. This programme is being rolled out across our European, American and Asian entities over a five year period. The review in 2016
focused on a number of countries in Europe and Asia including Ireland. As a result of the review a number of benefit changes were introduced which
included a decision to close the defined benefit schemes in Ireland to future accrual effective from September 2016 with future service being offered to
employees in the Irish defined contribution scheme. As part of this transition members were also offered an opportunity to transfer their past service
benefits to the defined contribution scheme. The impact of the benefit changes relating to pensions implemented in 2016 on the Consolidated Income
Statement was €13.5m while scheme liabilities were reduced by €88.4m. In 2015, €14.5m was recognised in the Consolidated Income Statement relating
primarily to a number of deferred members who transferred their benefits out of the Irish and UK defined benefit schemes.
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:
- Costs relating to defined contribution schemes
- Current service cost relating to defined benefit schemes
- Past service and settlements
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 (gains)/losses arising from changes in demographic assumptions
- Actuarial losses/(gains) arising from changes in financial assumptions
Recognised in the Consolidated Statement of Comprehensive Income
Total
2016
€’m
30.5
20.7
(13.5)
7.9
45.6
(149.4)
(4.1)
(14.5)
338.3
170.3
215.9
2015
€’m
27.0
28.3
(14.5)
13.5
54.3
6.2
(49.5)
6.0
(103.8)
(141.1)
(86.8)
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).
165 | KERRY GROUP | ANNUAL REPORT 2016
26. RETIREMENT BENEFITS OBLIGATION (continued)
(i) Recognition in the Consolidated Income Statement and Consolidated Statement of Comprehensive Income (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%; while the levy for the final year, 2015, was reduced
to a rate of 0.15%. The levy is payable on the value of assets at the previous year end date. The final levy payment made in respect of the assets held
at 31 December 2015 was €0.5m.
(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
2016
€’m
31 December
2015
€’m
(1,718.4)
1,365.6
(352.8)
60.9
(291.9)
(1,576.0)
1,270.3
(305.7)
52.4
(253.3)
(iii) Financial and demographic assumptions
The principal financial assumptions used by the pension schemes' 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
2016
2015
UK
%
3.20
3.00
Rest of
World
%
2.50
3.00
Eurozone
%
1.50
1.80 - 2.50
UK
%
3.10
3.10
Eurozone
%
1.70
2.70*
Rate of increase for pensions in payment and deferred pensions
1.70
2.20 - 3.20
-
1.00 - 1.50
2.10 - 3.10
Rest of
World
%
2.50
3.00
-
Rate used to discount schemes’ liabilities
2.00
2.70
3.25 - 4.00
2.70
4.00
3.50 - 4.25
* The rate of increase in salaries applies to the defined benefit plans in the Netherlands only, as the Irish defined benefit plans are closed to future accrual.
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
2016
2015
Eurozone
Years
UK
Years
22 - 23
24 - 25
24 - 25
26 - 27
21
23
23
25
Rest of
World
Years
21 - 22
23 - 24
22 - 24
24 - 25
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
166 | KERRY GROUP | ANNUAL REPORT 2016
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 2016 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 12.0%
Increase/decrease of 8.2%
Increase/decrease of 1.0%
Increase/decrease of 7.0%
Mortality
Increase/decrease in life expectancy of 1 year
Increase/decrease of 3.2%
(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
Note
2016
€’m
2015
€’m
(1,576.0)
(1,667.4)
Current service cost
Past service and settlements
Interest expense
Contributions by employees
Benefits paid
Re-measurements:
- experience gains on schemes’ liabilities
- actuarial gains/(losses) arising from changes in demographic assumptions
- actuarial (losses)/gains 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
30
(20.7)
13.5
(50.0)
(6.0)
51.5
4.1
14.5
(338.3)
74.9
-
114.1
(1,718.4)
(30.1)
(1,688.3)
(1,718.4)
(28.3)
14.5
(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)
167 | KERRY GROUP | ANNUAL REPORT 2016
26. RETIREMENT BENEFITS OBLIGATION (continued)
(iv) Reconciliations for defined benefit plans (continued)
The weighted average duration of the defined benefit obligation at 31 December 2016 is approximately 23 years (2015: approximately 21 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 fair values of each of the categories of the pension schemes’ assets at 31 December were as follows:
Equities
- Global Equities
- Emerging Market Equities
- Global Small Cap Equities
Government Fixed Income
Other Fixed Income
Multi-asset Funds
- Diversified Growth Funds
- Hedge Funds
Cash and other
Note
30
2016
€’m
1,270.3
42.1
125.4
6.0
(51.5)
149.4
(74.9)
(101.2)
1,365.6
2016
€’m
683.5
64.9
67.7
321.0
121.5
52.8
1.6
52.6
2015
€’m
1,194.6
39.9
71.2
7.9
(53.2)
(6.2)
(32.1)
48.2
1,270.3
2015
€’m
702.3
56.5
58.5
288.0
108.5
-
52.2
4.3
Total fair value of pension schemes’ assets
1,365.6
1,270.3
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 2016 and 2015 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 2016 or 2015.
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 pension schemes’ 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 USA. During the financial year ending 31
December 2017, the Group expects to make contributions of approximately €51.4m in relation to its defined benefit plans.
168 | KERRY GROUP | ANNUAL REPORT 2016
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.
2016
€’m
2015
€’m
35.0
22.0
-
22.0
35.0
22.0
-
22.0
Shares issued
During 2016 a total of 126,362 (2015: 77,867) A ordinary shares, each with a nominal value of 12.50 cent, were issued at nominal value per share under the
Long Term and Short Term Incentive Plans.
The total number of shares in issue at 31 December 2016 was 176,010,831 (2015: 175,884,469).
Share buy back programme
At the 2016 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 2016 and 2015, 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/share options after a 2 year deferral period. Details on each of these plans are outlined below.
The Group recognised an expense of €7.8m (2015: €9.0m) 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 2013 vested during 2016.
Up to 50% of the shares/share 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/share 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.
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 2014, 2015 and 2016 will potentially vest in 2017, 2018 and in 2019 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/share 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/share 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/share 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.
169 | KERRY GROUP | ANNUAL REPORT 2016
28. SHARE-BASED PAYMENTS (continued)
(i) Long Term Incentive Plan (continued)
2013 Long Term Incentive Plan scheme (continued)
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 year 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
Relinquished
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
Number of
Conditional
Awards
2016
1,035,376
(80,418)
(75,923)
(62,369)
(98,130)
337,232
1,055,768
Number of
Conditional
Awards
2015
752,766
(32,187)
(52,148)
(42,299)
-
409,244
1,035,376
Number of
Share Options
2016
Number of
Share Options
2015
255,928
40,520
(65,686)
230,762
239,348
42,299
(25,719)
255,928
Share options under the LTIP scheme have an exercise price of 12.5 cent. The remaining weighted average life for share options outstanding is 4.1 years
(2015: 3.92 years). The weighted average share price at the date of exercise was €78.10 (2015: €53.06). 21,849 share options which vested in the financial
year are deferred and therefore are not exercisable at year end.
170 | KERRY GROUP | ANNUAL REPORT 2016
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:
Conditional Award Invitation date
Year of potential vesting
Share price at grant date
Exercise price per share/share options
Expected volatility
Expected life
Risk free rate
Expected dividend yield
Expected forfeiture rate
2013 LTIP Scheme
2006 LTIP Scheme
2016
Conditional
Award at
Grant Date
March 2016
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
2019
2018/2020/2021
2017/2020
€79.80
€0.125
19.1%
3 years
(0.5%)
0.7%
5.0%
€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%
2016
€46.49
€0.125
22.6%
3 years
0.2%
1.0%
5.0%
€33.75
Weighted average fair value at grant date
€68.72
€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
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. The TSR performance
over the period is measured against the TSR performance of a peer group of listed companies. 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/share 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 cash value of the bonus to be paid by
way of shares/share options. The first shares/share options issued under the Short Term Incentive Plan, which relate to the 2013 financial year, vested in
2014 and were deferred until 2016. The second tranche of the issuance of the shares/share 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/share options under the Short Term
Incentive Plan, which relate to the 2015 financial year, vested in 2016 and will be deferred until 2018. The fourth tranche of the issuance of the shares/
share options under the Short Term Incentive Plan, which relate to the 2016 financial year, will vest in 2017 and will be deferred until 2019.
171 | KERRY GROUP | ANNUAL REPORT 2016
29. CASH FLOW COMPONENTS
Profit before taxation
Intangible asset amortisation
Non-trading items
Finance income
Finance costs
Trading profit
Change in working capital
(Increase)/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
2016
€’m
611.8
46.4
21.0
(1.1)
71.5
749.6
(5.3)
(18.5)
77.7
7.8
61.7
(202.8)
-
(16.5)
(4.5)
(223.8)
564.7
(3.6)
561.1
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
Company
2016
€’m
116.0
Company
2015
€’m
226.2
-
-
-
-
-
-
-
-
116.0
226.2
-
(16.1)
(16.1)
7.8
(24.4)
-
-
-
-
-
0.1
(0.1)
-
-
(61.7)
(91.7)
9.0
(144.4)
-
-
-
-
-
0.1
(0.7)
(0.6)
172 | KERRY GROUP | ANNUAL REPORT 2016
30. EFFECT OF EXCHANGE TRANSLATION ADJUSTMENTS
Group:
(Decrease)/increase 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
Deferred tax assets
Decrease/(increase) 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
Notes
2016
€’m
2015
€’m
11
12
13
17
26
17
25
21
5
(18.1)
(28.9)
0.8
(3.4)
(9.1)
(0.1)
(1.0)
0.1
49.1
6.1
(23.7)
12.9
(3.1)
(6.4)
6.8
-
0.1
-
(17.9)
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)
The above exchange translation adjustments arise primarily on the retranslation of the Group’s opening net investment in its foreign currency subsidiaries.
173 | KERRY GROUP | ANNUAL REPORT 2016
31. BUSINESS COMBINATIONS
During 2016, the Group completed a total of two bolt-on acquisitions, both of which are 100% owned by the Group. In March 2016, the Group acquired
Jungjin Food Co. Ltd., a manufacturer and supplier of seasonings, savoury powders and flavours based in South Korea. In June 2016, the Group acquired
Vendin S.L., a Spanish based manufacturer of dry beverages powders for use in vending machines and in the foodservice industry.
Recognised amounts of identifiable assets acquired and liabilities assumed:
Non-current assets
Property, plant and equipment
Brand related intangibles
Computer software
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
Other
Net cash outflow on acquisition:
Cash
Less: cash and cash equivalents acquired
Plus: debt acquired
Other
Notes
11
12
12
12
Total
2016
€’m
2.9
11.7
0.1
0.2
1.6
5.1
(4.1)
(3.6)
13.9
8.5
22.4
21.7
0.1
0.6
22.4
2016
€’m
21.7
(0.2)
0.1
0.6
22.2
The acquisition method of accounting has been used to consolidate the businesses acquired in the Group’s financial statements. The valuation of the fair
value of assets and liabilities will be completed within the measurement period. This valuation has yet to be finalised.
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. No goodwill recognised is expected to be deductible for income
tax purposes.
Transaction expenses related to these acquisitions of €1.0m 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 €5.1m and a gross contractual value of €5.2m.
The revenue and trading results of the acquisitions in the period since acquisition and the impact on the Group’s results had the acquisitions taken place at
the beginning of the financial year, are not considered material to the Group (combined less than €1.0m profit after tax). The identifiable net assets acquired
as part of the Jungjin Food Co. Ltd. and Vendin S.L. acquisitions were not material to the Group, therefore were not disclosed separately in this note.
174 | KERRY GROUP | ANNUAL REPORT 2016
31. BUSINESS COMBINATIONS (continued)
2015 Acquisitions
During 2015, the Group completed a total of ten acquisitions, all of which are 100% owned by the Group. The initial assessment of fair values to identifiable
net assets acquired was performed on a provisional basis in respect of certain acquisitions. As part of the finalisation of the fair value exercise in respect of
certain 2015 acquisitions, the Group considered the overall level of goodwill arising on the acquisitions and the valuations applied to intangible and tangible
assets acquired, reducing the overall level of goodwill arising on acquisitions by €93.9m. The amendments to these fair values were made to the comparative
figures during the subsequent reporting window within the measurement period imposed by IFRS 3. The provisional fair value of these assets recorded at
31 December 2015, together with the adjustments made to those carrying values to arrive at the final fair values were as follows:
Property, plant and equipment
Goodwill arising on acquisition
Other brand-related intangibles
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Total identifiable assets
Total consideration
32. CONTINGENT LIABILITIES
Company:
(i) Guarantees in respect of borrowings of subsidiaries
Provisional fair
values of 2015
acquisitions
2015
€’m
Measurement
period
adjustments
2015
€’m
61.2
409.3
377.3
847.8
118.1
(33.9)
(38.8)
893.2
893.2
(21.1)
(93.9)
127.2
12.2
(9.4)
-
(2.8)
-
-
Total
2015
€’m
40.1
315.4
504.5
860.0
108.7
(33.9)
(41.6)
893.2
893.2
2016
€’m
2015
€’m
2,031.1
2,018.2
(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 2016 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 Netherlands and Ireland.
The Company does not expect any material loss to arise from these guarantees and considers their fair value to be negligible.
175 | KERRY GROUP | ANNUAL REPORT 2016
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
2016
€’m
44.9
198.9
243.8
2016
€’m
20.3
34.6
12.2
67.1
2015
€’m
30.2
64.8
95.0
2015
€’m
24.1
35.7
16.0
75.8
The operating lease charges during 2016 amounted to €27.5m (2015: €29.9m).
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. These leases range from
less than 1 year to 65 years.
176 | KERRY GROUP | ANNUAL REPORT 2016
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 €0.4m (2015: €0.3m) and €0.1m (2015: €0.1m) respectively. The trading balance
outstanding to the Group at the financial year end was €nil (2015: €nil).
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 €124.0m (2015: €241.0m), cost
recharges of €5.3m (2015: €10.9m), and trade and other receivables of €99.3m (2015: €63.3m). 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:
Rendering of services
Purchase of goods
Amounts receivable
at 31 December
2016
€’m
0.5
2015
€’m
1.0
2016
€’m
(0.1)
2015
€’m
(4.0)
2016
€’m
-
2015
€’m
0.9
Associate
These trading transactions are undertaken and settled at normal trading terms. No loans were advanced in 2016 and 2015 and no interest was received.
(iv) Trading with other related parties
As detailed in the Directors’ Report, 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. During 2016, dividends of €12.5m (2015: €11.2m) were paid to Kerry Co-operative Creameries Limited based on its
shareholding. A subsidiary of Kerry Group plc traded product to the value of €0.1m (2015: €0.1m) on behalf of Kerry Co-operative Creameries Limited.
(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
2016
€’m
7.1
0.8
1.7
-
-
9.6
2015
€’m
5.8
0.7
3.2
-
-
9.7
Retirement benefit charges of €0.3m (2015: €0.2m) arise under a defined benefit scheme relating to 2 directors (2015: 2 directors) and charges of €0.5m
(2015: €0.5m) arise under a defined contribution scheme relating to 4 directors (2015: 4 directors). The LTIP accounting charge above is determined in
accordance with the Group’s accounting policy for share-based payments.
Post-retirement benefits in the above table and the statutory and listing rules disclosure in respect of pension contributions in the executive directors
remuneration table in the remuneration report are determined on a current service cost basis.
The aggregate amount of gains accruing to Executive Directors on the exercise of share options is €1.2m (2015: €nil). Dividends totalling €0.1m (2015:
€0.1m) were also received by key management personnel during the financial year, based on their personal interests in the shares of the company.
177 | KERRY GROUP | ANNUAL REPORT 2016
35. EVENTS AFTER THE BALANCE SHEET DATE
Since the financial year end, the Group has:
-
reached agreement to acquire Tianning Flavour & Fragrance Co. Ltd based in Shanghai, China and Taste Master based in Adelaide, Australia for a
combined consideration of €83.0m; and
proposed a final dividend of 39.20 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 2016.
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/share 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.
178 | KERRY GROUP | ANNUAL REPORT 2016
37. GROUP ENTITIES
Principal subsidiaries and associated undertakings
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 Holdings Limited
Golden Vale Investments 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
Rye Investments Limited
Rye Valley Foods 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
Investment
Investment
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
Consumer Foods
Consumer Foods
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
179 | KERRY GROUP | ANNUAL REPORT 2016
37. GROUP ENTITIES (continued)
Principal subsidiaries and associated undertakings (continued)
Country
Ireland
Company Name
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
Addo Food Group Limited (22.5% shareholding)
The Bodychef Limited (27.7% shareholding)
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.
Kerry Polska Sp. z.o.o.
Belarus
Denmark
Italy
Poland
Nature of Business
Registered Office
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
Consumer Foods
Consumer Foods
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
Taste & Nutrition
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
9
10
10
10
11
12
12
12
13
14
14
15
15
16
17
18
19
20
180 | KERRY GROUP | ANNUAL REPORT 2016
37. GROUP ENTITIES (continued)
Principal subsidiaries and associated undertakings (continued)
Country
Hungary
Company Name
Kerry Hungaria KFT.
Luxembourg
Kerry Luxembourg S.a.r.l.
Zenbury International Limited S.a.r.l.
Everdine Holding S.a.r.l. (28.6% shareholding)
Romania
Russia
Kerry Romania s.r.l.
Kerry LLC
South Africa
Kerry Ingredients South Africa (Pty) Limited
Orley Foods (Proprietary) Limited
Spain
Slovakia
Sweden
Ukraine
USA
Canada
Mexico
Brazil
Vendin S.L.
Dera SK s.r.o.
Tarber 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.
Kerry Manufacturing Philippines, Inc.
Singapore
Kerry Ingredients (S) Pte Limited
Malaysia
Kerry Ingredients (M) Sdn. Bhd.
Japan
China
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
South Korea
Kerry Ingredients Korea LLC
Jungjin Food Co. Limited
Nature of Business
Taste & Nutrition
Registered Office
21
Services
Services
Consumer Foods
Taste & Nutrition
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
Taste & Nutrition
22
22
23
24
25
26
27
28
29
30
31
32
32
33
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
Notes
(1) All group entities are wholly owned subsidiaries unless otherwise stated.
(2) Country represents country of incorporation and operation. Ireland refers to the Republic of Ireland.
(3) With the exception of the USA, Canadian and Mexican subsidiaries, where the holding is in the form of common stock, all holdings are in the form of
ordinary shares.
181 | KERRY GROUP | ANNUAL REPORT 2016
37. GROUP ENTITIES (continued)
Registered Office
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
Prince’s Street, Tralee, Co. Kerry, Ireland.
6 Corcrain Road, Portadown, Craigavon, Co. Armagh NT32 3UF, Northern Ireland.
Millburn 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.
59 Kelvin Avenue, Hillington, Glasgow G52 4LR, Scotland.
Queens Drive, Nottingham, NG2 1LU, England.
20 Central Avenue, St. Andrews Business Park, Norwich NR7 OHR, England.
Havenlaan 86C, Bus 204, 1000 Brussels, Belgium.
Maarssenbroeksedijk 2a, 3542 DN Utrecht, The Netherlands.
Marikova, 36 Brno, Czech Republic.
43 rue Louis Pasteur, 62575 Blendecques, France.
Zone Industrielle du Plan, BP 82067, 06131 Grasse, CEDEX, France.
Hauptstrasse 22-26, D-63924 Kleinheubach, Germany.
Neckarstraße 9, 65239 Hochheim/Main, Germany.
Hanna-Kunath-Strasse 25, 28199, Bremen, Germany.
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.
1093 Budapest, Vámház krt. 13, Hungary.
17 Rue Antoine Jans, L-1820 Luxembourg, Grand-Duchy of Luxembourg, Luxembourg.
5, Heienhaff, L-1736 Senningerberg, Grand-Duchy of Luxembourg, Luxembourg.
Sectorul 3, 42 Dudesti-Pantelimon Road, 033094 Bucharest, Romania.
RigaLand Business Centre, 26 km Baltiya Highway , Krasnogorskiy District, 143421, Moscow, Russia.
Block 3, 4-6 Lucas Drive, Hillcrest, Durban, Kwazulu-Natal, South Africa.
15a Chain Avenue, Montague Gardens, Cape Town, South Africa.
Calle Coto de Doñana, 15, 28320 Pinto, Madrid, Spain.
Sancova 50, 811 04 Bratislava, Slovakia.
Nytorpsvägen 34, SE 18371 Täby, 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.
C.M. El Trovador No. 4280, Of 1205, Las Condes, Suc. Cerro Portezuelo 9901, Quilicura, 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.
No 618, Moo 4, Bangpoo Industrial Estate, Praksa Sub District, Muang District, Samutprakarn Province, Thailand.
GF/SFB#1, Mactan Economic Zone 1, Lapulapu City, Cebu, Philippines.
182 | KERRY GROUP | ANNUAL REPORT 2016
37. GROUP ENTITIES (continued)
Registered Office (continued)
49
50
51
52
53
54
55
56
57
58
59
60
61
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.
Unit No. 302, 3rd Floor, Ecospace Campus 3B, Marathahalli – Sarjapur Outer Ring Road, Bellandur, Bangalore – 560103, Karnataka, India.
No 8 Holker Street, Newington, NSW 2127, Australia.
11-13 Bell Avenue, Otahuhu, Auckland, New Zealand.
2th Fl., Sheenbang Bldg, 1366-18, Seocho-dong, Seocho-Gu, Seoul, 137-863, Republic of Korea.
#82 Yuolgum-5gil, Sunghwan-eup, Cheonan-si, Choongchungnam-do, Republic of Korea.
183 | KERRY GROUP | ANNUAL REPORT 2016
SUPPLEMENTARY INFORMATION
(NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
—
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.
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. 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%
2.1%
3.6%
Price
(2.1%)
(2.0%)
(2.1%)
Transaction
currency
Translation
currency
Acquisitions /
Disposals
(0.1%)
(1.1%)
(0.3%)
(3.2%)
(6.6%)
(4.1%)
4.9%
(2.1%)
3.3%
Reported
revenue
growth
3.5%
(9.7%)
0.4%
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
2016
€’m
533.1
(1.1)
71.5
78.7
21.0
46.4
132.8
882.4
2015
€’m
525.4
(1.8)
71.1
77.4
(9.4)
37.4
128.4
828.5
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 not reflective of underlying trading performance and therefore
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 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.
6. OPERATING PROFIT
Operating profit is profit before income taxes, finance income and finance costs.
184 | KERRY GROUP | ANNUAL REPORT 2016
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.
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
2016
EPS
cent
302.9
13.1
7.4
323.4
2015
EPS
cent
298.7
10.6
(7.4)
301.9
Free Cash Flow is trading profit plus depreciation, movement in average working capital, capital expenditure, pensions 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 calculating free cash flow as 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
2016
€’m
683.0
76.0
21.2
(223.8)
12.1
1.5
(0.1)
569.9
2015
€’m
721.3
(66.4)
26.4
(252.2)
12.7
10.1
0.7
452.6
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 154 these ratios are calculated in accordance with lender’s facility
agreements and these agreements specifically require these adjustments in 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 related 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.
185 | KERRY GROUP | ANNUAL REPORT 2016
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 related tax), brand related intangible
asset amortisation and finance income and costs expressed as a percentage of average capital employed. Average Capital Employed is calculated by
taking the average shareholder’s funds and net debt over a 12 month period plus an additional €528m relating to goodwill written off to reserves pre
conversion to IFRS.
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 plc 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.
18. CONSTANT CURRENCY
Constant currency reporting eliminates the translational effect of changes in foreign exchange rates on the Group’s results. Constant currency year-
on-year change is calculated by retranslating prior year results at current year average exchange rates and comparing the outcome to the current year
reported number.
186 | KERRY GROUP | ANNUAL REPORT 2016
KERRY GROUP
Prince's Street
Tralee
Co. Kerry
Ireland
T: +353 66 718 2000
F: +353 66 718 2961
www.kerrygroup.com
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KERRY GROUP
ANNUAL REPORT 2016
—
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