Leading
to Better
KERRY GROUP ANNUAL REPORT • 2017
CHAIRMAN'S
STATEMENT
Chief
Executive's
Review
pages 10-13
Business
Reviews
pages 34-41
CONTENTS
Strategic Report
Directors' Report
Financial Statements
70 Board of Directors
72 Report of the Directors
78 Corporate Governance Report
83 Audit Committee Report
88 Nomination Committee Report
92 Remuneration Committee Report
116 Independent Auditors’ Report
122 Group Financial Statements
130 Notes to the Financial Statements
Supplementary Information
187 Financial Definitions
3 2017 Results
Highlights of the Year
4 Kerry Group at a Glance
8 Chairman’s Statement
10 Chief Executive’s Review
14 Business Model
16 Our Markets
18 Strategy & Financial Targets
21 Strategic Advantage
22 Our People
24 Financial Key
Performance Indicators
26 Financial Review
34 Business Review:
Taste & Nutrition
39 Business Review:
Consumer Foods
42 Sustainability Review
60 Risk Report
Kerry Group is the 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.
Development
& Applications
Culinary
& Insights
Product Process
Technologies
Business
Model
pages 14-15
Leading to Better
Innovative
Technologies
STRATEGY
IN ACTION
2
Kerry Group Annual Report 2017
STRATEGIC
REPORT
2017 RESULTS
HIGHLIGHTS OF THE YEAR
Continued
strong
underlying
performance
+
Details of the Group’s
business performance
in 2017 are presented
in the Chief Executive’s
Review pages 10-13 and
in the Business Reviews
pages 34-41
Group Revenue of
€6.4 billion
2016: €6.1 billion
Volume Growth (Like-For-Like)* of
+4.3%
2016: +3.6%
Net Cash from Operating Activities of
Free Cash Flow* of
€671 million
2016: €683 million
Trading Profit up 4.2%
€781 million
2016: €750 million
Basic EPS up 10.1%
333.6 cent
2016: 302.9 cent
€501 million
(83% cash
conversion)
2016: €570 million (100% cash conversion)
Group Trading Margin* of
12.2%
2016: 12.2%
Constant Currency Adjusted EPS*
+9.4%
2016: +12.3%
Total Dividend per Share up 12.0% to
Return on Average Capital Employed* of
62.7 cent
2016: 56.0 cent
13.0%
2016: 12.9%
Resulting in Total Shareholder Return of +38.6% (2016: -10.3%)
Strong underlying growth across
Group businesses.
Kerry Foods portfolio performs well in a
changing consumer foods marketplace.
Group margin maintained despite
currency related headwinds.
Kerry’s Taste & Nutrition Technologies
and Systems drive a strong pipeline
of innovation.
The Board recommends a final dividend of
43.9 cent per share (an increase of 12%
on the final 2016 dividend) payable on 18
May 2018 to shareholders registered on
the record date 20 April 2018.
* See Financial Key Performance Indicators section pages 24-25 and the Supplementary Information section page 187 for
definitions, calculations and reconciliations of Alternative Performance Measures.
Kerry Group Annual Report 2017
3
STRATEGIC
REPORT
KERRY GROUP
AT A GLANCE
Delivering taste and
nutrition to millions
of people around
the world every day
Our Mission Statement
Kerry Group will be:
– the 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.
+ Sustainability Review pages 42-59
4
Kerry Group Annual Report 2017
STRATEGIC REPORT 900+
R&D Scientists
Operations in
27
countries
24,000
Employees
130
Manufacturing
locations
About Us
Kerry Group has a well established Strategy
for Growth embracing Kerry’s global Taste
& Nutrition business and Kerry Foods’ –
consumer foods business.
+ Business Model pages 14-15 Strategy & Financial Targets pages 18-20
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.
+ Business Review – Taste & Nutrition pages 34-38
Kerry Foods, the Group’s consumer foods business,
has also established strong strategic and commercial
alliances with its retail partners in the Irish, UK
and selected international markets. Its brands are
household names in their respective markets including
category leading brands such as Dairygold, Richmond,
Fridge Raiders, Cheestrings and Denny to name
but a few. Kerry Foods is also a leading provider of
‘Food-to-go’ and snacking solutions, and customer
branded chilled foods.
+ Business Review – Consumer Foods pages 39-41
15,000
Products
140
Sales in over
140 countries
Kerry Group Annual Report 2017
5
STRATEGIC
REPORT
KERRY GROUP
AT A GLANCE
Group Revenue by Division
Group Trading Profit by Division
€6.4 bn
Revenue
€781m
Trading Profit
79% Taste & Nutrition
21% Consumer Foods
88% Taste & Nutrition
12% Consumer Foods
A global footprint with
operations in 27 countries
Naas
Group HQ
Beloit
Shanghai
Bangalore
Singapore
Campinas
Durban
San Juan del Rio
Global Headquarters
Global and Regional
Technology &
Innovation Centres
Manufacturing Plants
Sales Offices
6
Kerry Group Annual Report 2017
TASTE & NUTRITION
Everyday millions of people
throughout the world
consume food or beverage
products incorporating
Kerry’s Taste & Nutrition
technologies or systems.
+
Business Review –
Taste & Nutrition
pages 34-38
Strategy &
Financial Targets
pages 18-20
#1
Taste &
Nutrition
#1
Market
Positions
#1
Technology &
Innovation Centre
Network
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.
+
Business Review –
Consumer Foods
pages 39-41
Strategy &
Financial Targets
pages 18-20
Kerry’s market leading insight and
innovation, food and beverage
heritage, science and technology,
applications/culinary excellence, and
product process technologies provide
the foresight and technology to deliver
products that nourish and delight
consumers throughout the world.
Kerry Taste & Nutrition is the largest
and broadest industry innovation and
solutions provider in the fragmented
$70 billion global specialty 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.
Region
End Use Markets
€5.2bn
Revenue
53% Americas
30% EMEA
17% Asia-Pacific
73% Developed
27% Developing
Meat
Bakery &
Confectionery
Cereal, Sweet
& Other
Meals
Dairy
Snacks
Beverages
Pharma
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 high profile
brands across three major market sectors;
Everyday Fresh (Meat & Dairy),
Convenience Meal Solutions and
Food to Go.
Kerry Foods 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 ‘food-to-go’
offerings and channel distribution
in the ‘out-of-home’ sector.
Category
Channel
Region
Everyday Fresh
Convenience
Meal Solutions
Food to Go
Brand
Private Label
GB
Ireland
Rest of Europe
Kerry Group Annual Report 2017
7
STRATEGIC
REPORT
CHAIRMAN'S
STATEMENT
12%
Total dividend
for the year is
62.7 cent, an
increase of 12%
on 2016.
+
Business Reviews –
pages 34-41
Strategy &
Financial Targets
pages 18-20
Another year of solid
business performance
with strong top line
growth and successful
business development
across all regions.
Michael Dowling
Chairman
In my final Annual Report Statement to
shareholders as Chairman, I am pleased to report
another year of solid business performance.
The Group achieved strong top line growth and
successful business development in all regions, in
particular in Asian markets. Kerry’s performance
in the EMEA region showed a welcome recovery,
benefiting from the Group’s innovation capabilities
and ability to support our customer requirements
in a rapidly changing marketplace. Foodservice
applications in all regions provided excellent
opportunities for Kerry technologies and systems.
The Group has established a strong global
manufacturing footprint and regional business
development is supported by our Global Innovation
& Technology Centres, Regional Development &
Application Centres and ‘in-market’ commercial
and customer engagement centres.
In 2017, we continued to invest successfully in
broadening Kerry’s technology portfolio and
industry-leading RD&A capabilities. Significant
organic and M&A investment continued to meet
market requirements and Group growth strategies.
Our consumer foods business in the UK and
Ireland has continued to align its structures and
business portfolio for today’s consumer and market
environment, in particular in respect of ‘food-to-go’,
snacking and occasion led propositions.
In recent years, the Group has focused critical
attention on Kerry’s ‘go-to-market’ and 1Kerry
Programmes. Building on the Group’s strong
balance sheet and scalable business model,
Kerry businesses are well positioned to achieve
the Group’s new medium term strategic financial
targets as presented by management at a Capital
Markets Day in October 2017.
8
Kerry Group Annual Report 2017
Sustainability
Sustainable development is at the heart
of our Group mission and our ‘Towards
2020’ Sustainability Programme represents
a journey of continuous improvement
which now underpins the Group’s strategic
objectives and medium term financial
targets. Good progress was maintained
in delivery of the Group’s sustainability
objectives in 2017 – an update on
performance details across the programme
metrics is presented on pages 42 to 59 of
this Report.
Dividend
The Board recommends a final dividend
of 43.9 cent per share (an increase of 12%
on the 2016 final dividend) payable on 18
May 2018 to shareholders registered on the
record date 20 April 2018. Together with
the interim dividend of 18.8 cent per share,
this brings the total dividend for the year to
62.7 cent, an increase of 12% on 2016.
Board & Management Changes
On 30 September 2017, Stan McCarthy,
who became Chief Executive of the Group
in January 2008, retired as Chief Executive
and was succeeded by Chief Executive
Designate Edmond Scanlon.
Stan retired as a Director of the Group at
year end. On behalf of the Board, I would
like to pay tribute to Stan in recognition of
his enormous personal contribution to the
development of the Kerry organisation - in
particular to the success of the Group
during his tenure as Chief Executive over
the past decade. Stan’s vision for the
growth of the business and his unrelenting
customer-led focus, inspired and informed
the Group’s 1Kerry Strategies which
contributed enormously to the successful
development of our Kerry Taste & Nutrition
and Kerry Foods’ business model. He also
led the successful establishment of our
Kerry Technology & Innovation Centre
network and our Regional Development &
Application Centres to support technology
development and speedy innovation in
support of our valued customers in a
rapidly changing marketplace.
Prior to his appointment as Chief Executive,
Stan was one of the pioneers of our
successful business development in the
Americas region.
Flor Healy also retired as Executive
Director of the Board in August and
stepped down as CEO of Kerry Foods,
the Group’s consumer foods division prior
to year end. I would like to thank Flor for
his contribution to the Kerry organisation
throughout his career, and in particular
for his dedication to the development
of Kerry Foods’ business interests. Flor
was succeeded as CEO of Kerry Foods
by Duncan Everett, formerly Kerry Foods’
Meats Technology Managing Director
and previously Chief Financial Officer of
Kerry Foods.
As previously announced, I retire from
the Board at the Group’s Annual General
Meeting on 03 May, and will be succeeded
by Chairman Designate Philip Toomey.
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’s
appointment as Chairman Designate
followed a selection process by the
Nomination Committee of the Board
led by James C. Kenny.
+
Sustainability Review
pages 42-59
Directors' Report
pages 69-115
Shareholder Analysis
28% Retail
14% Kerry Co-operative
58% Institutions
19% North America
14% UK
17% Continental Europe
5% Rest of World
Ireland
3%
Positive 2018 Outlook
The Board is confident that the Group’s
business model and strategies will
continue to deliver shareholder value.
Management’s views regarding
the business outlook for 2018 are
presented in the Chief Executive’s
Review of this Report.
Our people are central to Kerry’s continued
successful growth and development. The
Group is well positioned to achieve its
future objectives based on the strength
of the executive leadership teams and the
commitment of all Kerry employees. The
organisation is now ably led by Edmond
Scanlon and on a personal note I would
like to thank Edmond and everyone
throughout the Kerry organisation for their
contribution to the success of the Group,
and to wish the Group continued success
into the future.
Michael Dowling
Chairman
19 February 2018
Kerry Group Annual Report 2017
9
STRATEGIC
REPORT
CHIEF EXECUTIVE'S
REVIEW
+
Business Model
pages 14-15
Our Markets
pages 16-17
Strong volume driven
business performance
above market growth
rates in 2017 reflected
the Group’s foundational
technology capabilities
and speed of innovation in
response to consumer and
customer requirements.
Edmond Scanlon
Chief Executive
Kerry Group achieved a strong volume driven
business performance above market growth
rates in 2017, reflecting the Group’s foundational
technology capabilities and speed of innovation
in response to consumer and customer
requirements. The global marketplace
continues to change at an unrelenting
pace driven by health & wellness demands,
convenience trends, channel proliferation and
in particular the growth of out-of-home food
and beverage consumption with continued
blurring of the landscape between food
retail and ‘food-to-go’. Nutritional labelling
requirements and regulatory changes continue
to drive demand for clean label offerings across
all end-use-markets providing significant
opportunities for differentiated
product development.
In 2017 the adaptability and agility of the Kerry
Business Model proved highly effective across
the increasingly fragmented marketplace through
multiple retail, foodservice and ecommerce
channels. The Group’s focus on profitable growth
was further assisted by technology investment
and industry-leading RD&A expenditure in Taste
& Nutrition. Taste & Nutrition Technologies and
Systems achieved sustained volume growth in
North America, a good performance in Latin
America, a solid recovery in the EMEA region
and continued double digit growth in Asia.
In the Group’s UK and Irish consumer foods
markets, while Kerry Foods maintained a strong
category and business development focus,
benefiting in particular from the increased
snacking and ‘food-to-go’ consumption trends,
the underlying satisfactory divisional business
performance was impacted by adverse sterling
exchange rate movements.
10
Kerry Group Annual Report 2017
Leading to Better
Consumer
Insights
STRATEGY
IN ACTION
Results
Group revenue on a reported basis
increased by 4.5% to €6.4 billion reflecting
strong volume growth offset by adverse
currency movements. Business volumes
grew by 4.3% year-on-year. Net pricing
increased by 2% against a background
of approximately 4% raw material price
inflation. Currency headwinds accelerated
during the year contributing an adverse
2.4% translation impact and an adverse
0.2% transaction currency impact
relative to revenue. Business acquisitions
contributed 0.8%.
Taste & Nutrition delivered 4.7% volume
growth and pricing increased by 2%. Kerry
Foods’ business volumes increased by
2.4% and pricing increased by 2%.
The Group trading margin was maintained
at 12.2%, reflecting 20 basis points
improvement in Taste & Nutrition, positive
underlying margin improvement in Kerry
Foods offset by adverse sterling exchange
rates resulting in a 70 basis points margin
reduction, and an increased spend on the
Kerryconnect programme.
Basic earnings per share increased by 10.1%
to 333.6 cent. Adjusted earnings per share
increased by 5.5% to 341.2 cent (2016:
323.4 cent) reflecting growth of 9.4% on a
constant currency basis over the prior year.
The Board recommends a final dividend of
43.9 cent per share, an increase of 12% on
the final 2016 dividend. Together with the
interim dividend of 18.8 cent per share, this
brings the total dividend for the year to
62.7 cent, an increase of 12% on 2016.
Expenditure on research and development
increased due to increased investment in
Taste & Nutrition to €269m (2016: €261m).
Net capital expenditure amounted to
€297m (2016: €210m) due to increased
investment in Group growth platforms,
in particular in taste technologies and
developing market facilities. The Group
achieved a free cash flow of €501m
(2016: €570m).
+
Financial Key
Performance Indicators
pages 24-25
Financial Review
pages 26-32
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
11
11
Business Reviews
Taste & Nutrition
Taste & Nutrition reported revenue
increased by 5.7% to €5.2 billion, reflecting
4.7% volume growth. Net pricing increased
by 2%. Trading profit grew by 7.1% to €767m,
reflecting a 20 basis points improvement
in trading margin to 14.9%. In 2017 Taste
& Nutrition accounted for 79% of Group
revenue and 88% of Group trading profit.
The Group continued to advance business
development and performance in the
pharmaceutical sector. Ganeden, acquired
in August, performed well in particular
in the beverage sector. Headquartered
in Cleveland, Ohio, Ganeden produces
highly stable probiotic ingredients and
significantly strengthens Kerry’s position in
the nutritional actives market.
Sales revenue in the EMEA region on
a reported basis increased by 6.2% to
€1,537m, reflecting 4.2% volume growth,
a 3.4% increase in net pricing, an adverse
0.1% transaction currency impact, business
acquisitions of 0.8% and an adverse
2.1% translation currency impact. A solid
performance was achieved in the UK
market against a background of inflationary
food and beverage trends and continuing
uncertainty following the UK electorate
decision to leave the European Union.
In regional developing markets, trading
conditions improved in Sub-Saharan Africa
and Middle Eastern markets, and Kerry
also continued to achieve good growth
in Russia.
The meat industry across Europe provided
good opportunities for growth through
retail and foodservice applications.
Establishment of a new production facility
to meet customer requirements in the
meat and savoury snack sectors in Russia
was significantly advanced in 2017. The
meat and savoury snack sectors in Middle
Eastern markets also provided good growth
opportunities for Kerry technologies in
2017. Prior to year end, the Group acquired
Galicia, Spain based Hasenosa – a leading
producer of coatings (including gluten-free
lines), marinades and sauces serving the
meat and seafood industries in Europe.
Since year end, the Group has also reached
agreement to acquire Johannesburg, South
Africa based Season to Season – a leading
supplier of Taste ingredients and systems
to the African snack and food sectors.
Excellent growth and business
development momentum was maintained
in Asia-Pacific markets in 2017. Sales
revenue in the Asia-Pacific region on
a reported basis increased by 13.1% to
€866m, reflecting 11.1% volume growth,
1.8% increase in net pricing, business
acquisitions of 2.9% and an adverse
currency translation impact of 2.7%.
4.7%
Taste & Nutrition business
volumes increased by 4.7%
Sales revenue in the Americas region
on a reported basis increased by 3.5% to
€2,678m, reflecting 3.3% volume growth,
a 1.3% increase in net pricing, business
acquisitions of 0.4% and an adverse
translation currency impact of 1.5%. ‘Centre
of store’ branded offerings continued to be
adversely impacted by consumer trends in
North America. In Latin American markets,
a solid overall performance was achieved
in Brazil, Mexico and Central America but
development in the Caribbean region
slowed relative to the prior year.
The North American meat sector continued
to provide strong growth opportunities
for Kerry’s clean label and authentic taste
technologies. Seasonings, coatings and
functional meat systems achieved a strong
performance in Latin America. Mississippi,
US based Dottley Spice was acquired in
October 2017 – furthering Kerry’s position
as a leading supplier of seasonings and
coatings to the meat processing industry
and foodservice sector in North America.
The foodservice sector and convenience
store channel provided a solid platform
for growth across American markets
through extended day-part-menus and
‘better-for-you’ lines of food and beverage
convenient offerings. The acquisition of the
US based Kettle business of Tyson Foods
was completed prior to year end. Operating
from a production and development
facility in Fort Worth, Texas; the Kettle
business has a strong heritage in the North
American foodservice industry with well-
established key customer alliances in the
QSR and fast-casual restaurant sectors.
12
Kerry Group Annual Report 2017
All Kerry technologies established in the
region achieved solid growth. Development
in the dynamic regional foodservice
channel proved highly favourable
– capitalising on Kerry’s innovation
capabilities and speed to market. Further
expansion of Kerry’s manufacturing and
technology footprint was achieved through
continued investment in Group facilities
and strategic acquisitions.
The Group’s operational footprint in the
Asia-Pacific region was significantly
expanded in 2017 through organic
investment and the completion of a number
of acquisitions. A regional Technology
& Innovation Centre was established in
Bangalore, India. Regional Application &
Development Centres were established in
Jakarta, Indonesia; Bangpoo, Thailand and
Ho Chi Minh, Vietnam. New production
facilities were established across sites
located in Plentong, Malaysia; Cikarang,
Indonesia; Tumkur, India; Nantong,
China; Batangas, Philippines and
Brisbane, Australia.
In March 2017, Taste Master was acquired
in Adelaide, Australia strengthening the
Group’s taste capabilities in the beverage,
snack, meat and culinary industries in
Australia and New Zealand. In April,
the acquisition of Jurong, China based
Tianning Flavours was completed providing
a significant boost to Kerry’s savoury and
sweet flavour development capabilities.
Since year end, the Group completed the
acquisition of Hangzhou, China based
Hangman Flavours, further strengthening
Kerry’s taste positioning and capabilities
in Greater China. Agreement has also
been reached to acquire Dachang, China
based SIAS Food Co. – a leading supplier of
culinary and fruit ingredients and systems
to the foodservice and food manufacturing
industries in China.
x%
11.1%
Business volumes in
the Asia-Pacific region
increased by 11.1%
Consumer Foods
Kerry Foods’ business volumes grew by
2.4%. While there was some lag in price
recovery in response to the impact of
sterling depreciation on products exported
from Ireland to the UK, pricing increased
by 2%. The divisional trading profit margin
decreased by 70 basis points to 8.1% as
the underlying margin improvement was
more than offset by the adverse sterling
exchange rate movements, resulting in a
trading profit decrease of 8.1% to €108m.
2.4%
Kerry Foods’ business
volumes grew by 2.4%
Consumer shopping trends across multiple
channels have continued to heighten
competitiveness in the UK and Irish
consumer foods markets. At retail level, the
focus on delivery of ‘better value’ continues
through range simplification, EDLP
strategies and investment in customer
brands. In the UK market, in an inflationary
environment, such trends have adversely
impacted trading margins. Discounter
chains have continued to gain market
share, whilst online shopping continues to
grow at pace – driven by innovation and
new entrants. Snacking and ‘on-the-go’
consumption continues to grow, blurring
the market landscape between food retail
and foodservice.
A strong focus on expanding channel
reach in 2017 led to strong growth in ‘out-
of-home’ segments. ‘Rollover’ recorded
good growth and encouraging progress
was achieved through pub chains and
restaurant chains. The acquisition of
Oakhouse Foods was completed in
November, expanding Kerry Foods’ chilled
foods route to market through a new
‘direct-to-customer’ platform.
Consumer shopping
trends across multiple
channels have
continued to heighten
competitiveness in the
UK and Irish consumer
foods markets.
Building on Kerry’s
breadth and depth
of foundational
technologies and
geographic footprint,
Kerry Taste &
Nutrition is well
placed to deliver the
continued organic
growth of the business
across developed and
developing markets.
+
Business Review –
Taste & Nutrition
pages 34-38
Business Review –
Consumer Foods
pages 39-41
Strategy and
Financial Targets
pages 18-20
Future Prospects
Despite the changing market landscape
and significant currency volatility, Kerry
businesses are well positioned to continue
to grow and develop profitability, and to
achieve the Group’s new medium term
strategic financial targets as presented
at its Capital Markets Day in October
2017. The Group expects its targets to
be delivered through above industry
average volume growth and continued
business margin expansion. Building on
Kerry’s breadth and depth of foundational
technologies and geographic footprint,
Kerry Taste & Nutrition is well placed to
deliver the continued organic growth of the
business across developed and developing
markets. In European consumer foods
markets, building on Kerry Foods’ deep
consumer insight and core dairy, meals
and meat technologies, the business will
continue to focus on its ‘strategic value
creation model’ through occasion led
propositions in response to consumer,
customer and channel requirements.
The Group is in a strong position to
continue to invest in the organic growth
of its global businesses and to lead the
continued consolidation of the industry
benefiting from the Group’s strong balance
sheet and scalable business model.
Edmond Scanlon
Chief Executive
19 February 2018
Kerry Group Annual Report 2017
13
STRATEGIC
REPORT
BUSINESS
MODEL
+
Strategy &
Financial Targets
pages 18-20
Kerry is leading to better,
by offering so much more
to customers
Foundational
Technologies
Leading to Better
Development
& Applications
Culinary
& Insights
Product Process
Technologies
Integrated
Solutions
Value-add
Single
Ingredient
Multiple
Ingredients
Offering
The speciality ingredients and flavours
sector is made up of many single
ingredient specialists, a few multiple
ingredient players, and very few
integrated solutions providers. Since
the organisation's establishment Kerry
has evolved and developed its integrated
solutions portfolio.
This has been achieved through
investment in its capabilities to create
integrated solutions across a range of end
use applications and acquiring additional
technologies to provide a broad foundation
of customer-tailored solutions. In this
context Kerry is uniquely global, with
unrivalled scale and footprint.
Importantly, while the Group has proven
its ability to innovate and leverage
our globally interconnected capabilities
in an agile and seamless fashion, we have
successfully deployed our wide ranging
capabilities locally through our expansive
local infrastructure and the skill sets of
our local teams.
Kerry's Business Model
A. Foundational Technologies
B. Integrated Technology Value Creation
C. Channels & Customers
Authentic Taste
Dairy, Savoury, Smoke
& Grill, Citrus, Tea & Coffee,
Beverage & Sweet
Development
& Applications
Culinary
& Insights
Product Process
Technologies
Farm ingredients
and third party
commodi(cid:127)es
Nutrition, Wellness
& Functionality
Proteins, Fibre,
Enzymes, Probio(cid:127)cs,
Fermented ingredients,
Texturants
Meat
Dairy
Meals
Snacks
Beverages
Bakery &
Confectionery
Cereal & Sweet
Pharma
Taste &
Nutrition
Solutions
Kerry Foresight & Insight
Consumer, Customer, Sensory & Analytical, Market and Regulation
Global & Regional CPG
Emerging/
Natural Brands
Global & Regional
Retailers
(Store Brands)
Kerry Brands
Global & Regional
Chains
Independent
Operators
Convenience
Brands
Emerging Channels
Pharma
Retail
Consumer
Food
Service
14
Kerry Group Annual Report 2017
Kerry's Business Model
Our business model comprises of 3 core elements:
A. Foundational Technologies – Authentic Taste and Nutrition, Wellness & Functionality
B. Our unique integrated technology value creation engine
C. Our unparalleled channels & customers
A. Foundational Technologies
Our differentiated combination of
Foundational Technologies provides the
widest breadth and depth of innovation
support to assist our customers in meeting
the needs of today’s consumer.
Our Authentic Taste platform is founded
and built on a ‘from-food-for-food’
philosophy; while our Nutrition, Wellness
and Functionality platform delivers
benefits such as natural preservation,
immunity support, digestive health,
fortification and cleaner labels.
Together they enable better, more
authentic taste with simple, natural,
better-for-you nutrition.
B. Integrated Technology Value Creation
The engine of our model is powered by
three core elements - Culinary & Insights,
Development & Applications, and Product
Process Technologies – driving maximum
value through their seamless integration,
and the targeted leveraging and layering of
our expertise and capabilities.
Kerry's Culinary & Insights spans every
end-use-market, channel and geography
across the world, helping the Group to
stay ahead of ever-changing consumer
preferences and providing foresight into
future consumer demands.
Our globally-connected network of
professional chefs are immersed in
the local/regional cuisines, tastes and
consumer preferences. They leverage
Kerry's state-of-the-art culinary kitchen
suites and authentic processes to create
wholesome recipes that deliver unique
taste solutions derived from natural
cooking methods. Our proprietary
Taste & Nutrition Discovery platform is
purposefully built to facilitate insightful,
interactive discovery with our customers,
serving as a catalyst for ideation and the
rapid co-creation of innovative taste and
nutrition solutions.
Our dedicated and inter-connected
Development and Applications teams
are the innovative artisans who bring
our recipes and products to life. Working
shoulder to shoulder with our Taste &
Nutrition experts, Sensory & Consumer
Analytics and Regulatory teams
throughout the product development,
commercialisation and production
process, our Development and
Applications teams innovate and
provide solutions in response to rapidly
changing consumer requirements.
The Group's industry leading Product
Process Technology, together with
our unparalleled breadth and depth of
process engineering expertise and an
understanding of the entire supply chain,
enables Kerry to drive value by finding
new ways of manufacturing consistent,
safe and high quality products that
consumers can trust.
Kerry’s state-of-the-art pilot plant facilities
replicate the breadth of both our Taste
& Nutrition manufacturing processes as
well as those of our customers. Located
within our Global Technology & Innovation
Centres, these commercialisation centres
are accessible to both our development
and applications teams and product
process technology teams, which is critical
to enabling efficient product development
and speed to market.
C. Channels & Customers
Kerry is ideally positioned across the
retail and foodservice channels which
provides the broadest routes to market to
successfully grow our business and exploit
our unique taste & nutrition solutions.
We will continue to invest in existing,
new and emerging sub-channels and
selectively leverage the breadth of our
capabilities across this range of channels.
Our customer set is well diversified from
global to local leaders, with the common
need for support in meeting today and
tomorrow’s consumer demands.
The Kerry business model is truly unique
and has enabled the organisation to
strengthen and evolve our value-add
relationships with our valued customers.
We believe this uniquely differentiates
us in collaboratively working shoulder
to shoulder, from concept to launch –
enabling our customers to take on the
challenges and opportunities that today’s
marketplace presents.
Kerry Group Annual Report 2017
15
15
STRATEGIC
REPORT
OUR
MARKETS
Consumer
revolution
driving
unprecedented
fragmentation
The pace of consumer-driven change and its
impact on our industry is truly unprecedented
– driving disruption which is leading to
increased fragmentation, and creating
significant opportunity for Kerry.
This informs our commercial focus for the future.
Our strategic growth priorities play to our unique
capabilities, how we deploy our business model
and innovation and investment to ensure that our
offering is relevant and differentiated for the future.
Kerry has positioned consumers very much
at the heart of our strategic thinking and at
the heart of our strategic planning process.
Consumer trends are translated into key insights
which drive our product innovation delivery.
The Millennial
Consumer –
Personalisation
& Authenticity
Rise of the MIddle
Class in Developing
Markets
Digital, E-Commerce
& the Connected
Consumer
Foodservice &
Out of Home
Nutrition,
Health &
Wellness
+79%
Increase in
middle class
by 2030
Urbanisation
in Developing
Markets
Food From Food
& Clean Label
Food Safety
& Regulation
Social Polarisation &
decline of the Middle
Class in Developed
Markets
Healthy
Ageing
16
Kerry Group Annual Report 2017
Leading to Better
Market
Reach
STRATEGY
IN ACTION
Kerry is
positioned to
play right across
the global
marketplace
Kerry’s customers span across the major retail
food and beverage categories and the foodservice
channel. These markets are highly fragmented
where the top 10 in the global food & beverage
market and the foodservice sector represent a
relatively small percentage of the total market.
Outside of the top 10, this market is highly
fragmented and made up of many players.
+
Business Review –
Taste & Nutrition
pages 34-38
Strategy &
Financial Targets
pages 18-20
Kerry's customer profile is broadly one third global
companies, one third regional leaders and one third
local/smaller players. Our business model is a key
enabler for us to win across all customer segments
and end-use-markets.
Our customers look to Kerry for support in
partnering with them to meet the challenges and
opportunities that consumer trends present on a
daily basis. We believe that Kerry’s business model is
uniquely positioned to help customers navigate this
ever changing environment.
Food – Retail
€2.2TR
Beverages – Retail
€2.5TR
Foodservice
€3.3TR
Top 10
Globals
Top 10
Globals
Top 10
Globals
Top 10
Globals
Top 10
Globals
Top 10
Globals
Top 10
Globals
Top 10
Globals
Top 10
Globals
Local
Local
Local
Smaller
Globals
Smaller
Globals
Smaller
Globals
Local
Local
Local
Smaller
Globals
Smaller
Globals
Smaller
Globals
Local
Local
Local
Smaller
Globals
Smaller
Globals
Smaller
Globals
Regional
Regional
Regional
Regional
Regional
Regional
Regional
Regional
Regional
Source: Kerry Internal Estimates, Euromonitor, RTS Food Trending, MC Allegra, Technomic, Globaldata
Kerry Group Annual Report 2017
17
STRATEGY &
FINANCIAL TARGETS
A combination of
growth and return
TASTE & NUTRITION
CONSUMER FOODS
Authentic
Taste
Nutrition,
Wellness &
Functionality
Developing
Markets
Foodservice
Group Strategic Priorities for Growth
Our Taste & Nutrition Strategic Growth Priorities:
Industry Leading Authentic Taste Delivery Capability
−
Activated through our enhanced
sensory and analytical capability
− Delivering value for our customers
both in direct use and through our
industry leading applications and
culinary expertise
Industry Unique Nutrition, Wellness &
Functionality Portfolio
−
Continued investment in scientific and clinical
validation programmes for our nutrition
portfolio for differentiation and sustainability
Creating innovative applications and
Taste & Nutrition solutions fully aligned with
the needs of today’s consumer
−
A.
B.
Core
New occasions
New channels
New customers
Adjacencies
Leveraging Kerry’s
Global Taste & Nutrition
Business Model
− Market led Foundational
Technology innovation focused
on our growth platforms
− Leveraging our Innovation
Centres of Excellence and
external partners
− Guided by an expanded
global and local regulatory
infrastructure
− Pro-active investment in
complementary Foundational
Technologies
C.
Global Leader in Developing Markets
− Winning with rapidly growing key regional
−
CPG and Retail players
Expand and leverage our Industry Leading
Consumer Centric Customer Application &
Product Process Technology Infrastructure
− Ongoing strategic deployment of our Unique
Kerry Authentic Taste & Nutrition Solutions
Business Model
In our industry
we are
largest
fastest
growing
+
2017
€1.3bn
D.
Global Market Leader in Foodservice Added Value Solutions
Strategic customised deployment of our holistic and
−
unique Business Model across Global Chains, Regional
and local accounts
Some of our Foodservice Brands
2017
€1.2bn
− Geographical category expansion
−
Expansion in Foodservice Channel with Global,
Regional and Independent players (Brands)
Targeted channel expansion in emerging high growth
sub-channels – Convenience and Healthcare
−
18
Kerry Group Annual Report 2017
STRATEGIC REPORT
Our Consumer Foods Strategic Growth Priorities:
Growth is key to our success and we will
continue to drive growth and outperform in our
core business by responding to key consumer
trends in meat, meals and dairy, while also
leveraging this core expertise to expand our
adjacent categories.
In our core business we will continue to
outperform by innovating to meet key
consumer trends of authentic taste, new
health (free from, natural & clean label)
and convenience.
Our adjacent category growth priorities
of snacking, out-of-home and food-to-go
solutions will be driven by new consumption
occasions, new channels (e.g. e-commerce)
and a broader customer base.
CURRENT WINNING POSITIONS
FUTURE WINNING POSITIONS
Dairy
Meals
Meat
No.1 positions
Grow and outperform in our
Core
New occasions
New channels
New customers
Snacking
Out of home
Food-to-go
solutions
Expand our footprint into
Adjacencies
Deep
Consumer
Insight
Leading
Edge
Innovation
Engaged
Customer
Networks
Market
Responsive
Teams
Group Strategic Priorities for Margin Expansion
Operating
Leverage
Portfolio
Evolution
KerryExcel
Savings
KerryExcel
Investment
OPTIMISE LEVERAGE
DIFFERENTIATE
DRIVE EFFICIENCY
RE-INVEST TO GROW
• Leverage 1 Kerry platform
• New foundation technologies
• Manufacturing excellence
• Fragmentation response
• Leverage routes to market
• New markets
• Supply chain excellence
• Localisation of footprint
• Leverage customer centres
• New channels / geographies
• Commercial excellence
•
Increased R&D
• Leverage footprint
• Manage churn with agility
• Service excellence
• Kerryconnect/Business Services
Kerry Group Annual Report 2017
19
STRATEGIC
STRATEGIC
REPORT
REPORT
STRATEGY &
FINANCIAL TARGETS
Medium Term Financial Targets
Our medium
term financial
targets are based
on a combination
of growth and
return.
Our overall target of 10%+ average Adjusted EPS
Growth represents a balance of volume growth and
margin expansion, supported by the reinvestment
of cash in our strategic priorities.
Our return metrics ensure that there is an appropriate
balance between growth and return.
The overall metrics chosen of Return on Average
Capital Employed and Cash Conversion represent a
balanced assessment of our performance over time.
We believe the delivery of these financial targets
should underpin a Total Shareholder Return
outperformance relative to our peers.
Strategic Targets
On average over life of plan
Growth
Volume growth
Margin Expansion
Taste & Nutrition
4% to 6% p.a.
Taste & Nutrition
40bps p.a.
Consumer Foods
2% to 3% p.a.
Consumer Foods
20bps p.a.
Group
3% to 5% p.a.**
Group
30bps p.a.
Adjusted EPS Growth* 10%+ p.a.
* Assumes Constant Currency
** Assumes 2% above market growth
Return
ROACE 12%+ Cash Conversion >80%
Relative TSR – Outperforming Peers
20
20
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
STRATEGIC
ADVANTAGE
+
10 Year earnings history
page 33
Business Review –
Taste & Nutrition
pages 34-38
Business Review –
Consumer Foods
pages 39-41
+
Business Model
pages 14-15
Strategy &
Financial Targets
pages 18-20
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 foundational
technology portfolio
Fundamental science &
research capability
Unparalleled breadth of
product process expertise
Unique taste & nutrition
positioning
Application & culinary
leadership
Global Technology &
Innovation Centre platform
The market leader
in Taste & Nutrition
#1 in Americas, Europe
and ROW for Savoury,
Dairy & Beverage
Leader in clean label
natural preservation
Largest Taste & Nutrition
business in Developing
Markets
In 5 of the top 10
blockbuster drugs
Leader in our chilled foods'
categories in UK and Ireland
Consistent delivery of
results 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
Growth
Potential
People
Sustainable
Unique Kerry business model
Winning across all
customer segments
Unparalleled offering to
Foodservice channel
Continued strong growth
in developing markets
Extensive global
footprint platform
Proven consolidator
Proven leadership and
management capability
Ambitious and 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
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
21
21
STRATEGIC
STRATEGIC
REPORT
REPORT
OUR
PEOPLE
+
Sustainability Review –
pages 42-59
Enabling sustainable growth
locally and globally
With 24,000 employees
throughout the world,
the Group’s diverse high
performance teams
are central to our innovative
culture and ongoing success.
Our Shared Values
How we create sustainable value
Developing the unique talents and
capabilities in our business and functional
areas, combining and leveraging our
strengths through our unique 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.
Commitment
Teamwork
Excellence
Entrepreneurial
Value Creation
Customers | Passion |
Science | Technology
Respect | Diversity |
Empowered |
Accountable
We are wholeheartedly
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.
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 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.
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.
Branded ‘ourVoice’, the purpose of the
survey was to seek feedback with a
view to better enabling and empowering
employees to develop their careers, deliver
high performance and make Kerry a better
organisation and place to work.
Partnering with IBM, a global leader in
employee engagement surveys, the survey
was carried out online over a three week
period using 28 different languages. Over 88%
of Kerry employees participated worldwide,
a best in class participation level for
organisations of Kerry’s size.
Following the compilation and analysis of the
survey results a comprehensive engagement
process took place to inform employees of the
results at a region, business, function, site and
team level.
Action plans were initiated across the
Group to build on the collective strengths
of the organisation and to prioritise areas
for improvement as identified in the
‘ourVoice’ survey.
In May 2017, Kerry
Group initiated its
first ever groupwide
global employee
engagement
survey of all Kerry
employees.
22
Kerry Group Annual Report 2017
Our approach to Diversity, Inclusion and Belonging
Further to the launch of
the Group’s Global Diversity
Programme in 2016, we
have introduced a number
of initiatives during
2017 to progress this
important agenda.
This programme demonstrates Kerry’s
continued commitment to fostering a
dynamic workforce culture and an inclusive
environment where all our employees can
contribute to the organisation’s success
and excel in their own Kerry career.
Highlights in 2017 include the launch of
our ‘world of opportunity’ series promoting
Kerry’s career philosophy, global career
opportunities and new career development
frameworks; the establishment of
employee led networks to raise awareness,
enhancements to our recruitment
processes to attract new sources of
diverse talent; volunteering programmes
activated across our main locations and
local policies updated to offer more flexible
working arrangements.
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.
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.
Reward and Recognition
Kerry Group’s aim is to attract, retain
and motivate employees through reward
programmes which are competitively
advantageous, support the business
strategy, align with employee needs and
recognise employee performance,
potential and value added contribution.
At Kerry, ‘Total Reward’ is more than just
pay – it encompasses financial rewards
including base salary, incentives and
benefits; non financial rewards including
learning, career development, growth
and international opportunities as
well as providing a culture where
employees can flourish.
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 2017 we achieved a further 14%
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 2017
we achieved
a further 14%
improvement in global
safety metrics
14%
Learning, Leadership and Talent
In 2017 Kerry made further investments to
strengthen our approach to developing
the critical skills, knowledge, behaviours
and experiences that will be required to
grow our business both now and into the
future through the provision of targeted
learning and development interventions
that will enhance individual, leadership
and team performance.
In addition, the Group launched a new
Group annual talent review process
supported by the introduction of a
more structured global approach
to identifying and accelerating the
development of high potential leadership
and functional talent in order to strengthen
our internal succession pipelines.
The Group’s successful Graduate
Development Programme continues to
play a central role in attracting and
developing future talent to enable
longer term sustainable growth of
the organisation.
Kerry Group Annual Report 2017
23
+
Non-Financial KPIs
are detailed in our
Sustainability Review
pages 42-59
FINANCIAL KEY
PERFORMANCE
INDICATORS
(2013–2017)
Drivers of Shareholder Return (2013-2017)
Total
Shareholder
Return
Share Price
Dividend
Volume
Growth
Margin
Expansion
Growth
EPS
Return
ROACE
ROAE
CFROI
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.
GROWTH
Total Shareholder
Return
+38.6%
5 Year Average Compound Growth 19.1%
5 Year Total Growth 139%
Definition*
Total Shareholder Return
(TSR) represents the change
in the capital value of Kerry
Group shares plus dividends
reinvested.
Adjusted
EPS Growth
5.5%
5 Year Average 7.8%
5 Year Total 39.1%
�
Volume
Growth
4.3%
5 Year Average 3.4%
5 Year Total Growth 17.1%
�
Trading
Margin Expansion
0bps
5 Year Average +52bps
5 Year Total Growth +260bps
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.
Definition*
This represents sales growth
year-on-year, excluding
pass-through pricing,
currency impacts, acquisitions
(net of disposals) and
rationalisation volumes.
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.
39%
39%
39%
39%
35%
35%
(10%)
35%
(10%)
35%
(10%)
(10%)
5.5%
341.2
7.1%
5.5%
341.2
7.1%
5.5%
341.2
7.1%
5.5%
341.2
3.0%
7.1%
8.2%
323.4
8.2%
323.4
8.2%
323.4
8.2%
323.4
2.4%
3.0%
3.0%
2.4%
3.0%
2.4%
2.4%
4.3%
3.8%
3.8%
3.6%
3.8%
3.6%
4.3%
3.8%
3.6%
4.3%
4.3%
3.6%
10.5%
11.1%
10.5%
11.5%
12.2%
12.2%
12.2%
11.5%
11.1%
11.5%
11.1%
10.5%
11.1%
10.5%
14%
27%
14%
27%
14%
27%
14%
27%
8.1%
301.9
8.1%
301.9
8.1%
301.9
8.1%
301.9
10.2%
278.9
10.2%
10.2%
278.9
10.2%
278.9
278.9
257.9
257.9
257.9
257.9
2014
2013
2015
2014
2013
2016
2013
2015
2014
2017
2014
2016
2015
2015
2017
2016
2016
2017
2013
2017
2014
2013
2015
2014
2013
2016
2013
2015
2014
2017
2014
2016
2015
2015
2017
2016
2016
2017
2013
2017
2014
2013
2015
2014
2013
2016
2013
2015
2014
2017
2014
2016
2015
2015
2017
2016
2016
2017
2013
2017
2014
2013
2015
2014
2013
2016
2013
2015
2014
2017
2014
2016
2015
12.2%
12.2%
11.5%
12.2%
12.2%
12.2%
2015
2017
2016
2016
2017
2017
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 +38.6% in 2017.
The Group has achieved
Compound Growth of +139%
in TSR since the beginning of
2013 over the course of the last
five year plan. This is compound
growth at an equivalent annual
rate of 19.1%.
14.2%
14.4%
14.2%
13.6%
14.4%
14.2%
13.6%
Link to Remuneration
Performance metric for
13.6%
18.0%
13.0%
12.9%
13.0%
long term incentive plan.
14.4%
13.6%
12.9%
12.9%
13.0%
12.9%
18.6%
18.0%
18.6%
18.0%
17.5%
13.0%
2013
14.2%
14.4%
2013
2014
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 5.5% 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 currency headwinds
in 2017. Constant currency EPS
18.6%
18.6%
growth achieved in the year
18.0%
17.5%
17.5%
16.5%
was 9.4%.
16.5%
16.5%
15.7%
17.5%
16.5%
15.7%
15.7%
15.7%
Over the course of the five year
plan, the Group achieved average
adjusted EPS growth of 7.8% in
reporting currency and 9.7% on a
constant currency basis, slightly
below the target range.
12.6%
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 2017 of
4.3%, within the Group’s target
12.8%
12.6%
range of 3-5% p.a. and a strong
11.3%
11.3%
performance relative to the
10.9%
marketplace.
12.6%
11.3%
12.8%
12.6%
9.1%
9.1%
9.1%
9.1%
12.8%
11.3%
10.9%
Over the course of the five year
plan, the Group achieved average
volume growth of 3.4%, which was
within the target range.
2013
2014
2014
2013
Link to Remuneration
2015
2013
2015
2017
2016
2014
2015
2016
Key driver of adjusted EPS growth
(performance metric for short &
long term incentive plans).
2014
2016
2015
2017
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 maintained its trading
margin at 12.2% in 2017, as
underlying growth was offset
by sterling related challenges
arising in the Consumer
Foods business and increased
Kerryconnect spend.
Over the course of the five year
plan, the Group achieved total
570
margin expansion of 260bps
12.8%
(average margin expansion of
453
412
412
+52bps per annum) just above
the Group target, which included
303
303
the benefit arising from the
Kerryconnect project.
10.9%
412
303
453
412
10.9%
570
501
453
303
Link to Remuneration
Key driver of adjusted EPS growth
(performance metric for short &
2016
2013
2014
2015
2017
2014
2013
long term incentive plans).
2017
2013
2014
2016
2015
2013
2017
2014
2016
2015
570
501
453
570
501
501
2015
2017
2016
2016
2017
2017
2013
2015
2014
2013
2016
2013
2015
2014
2017
2014
2016
2015
2015
2017
2016
2016
2017
2013
2017
2014
2013
2015
2014
2013
2017
2013
2015
2014
Link to Remuneration
2014
2016
2015
2016
Performance metric for short &
long term incentive plans.
2015
2017
2016
2016
2017
2017
2013
24
Kerry Group Annual Report 2017
STRATEGIC REPORT KPI
Target (p.a.)
Performance 2013-2017 (p.a.)
Adjusted EPS Growth 10%+
+7.8% (+9.7% constant currency)
39%
The metrics and results outlined below
were the important measurement
indicators of Group performance in
meeting its strategic objectives from
39%
39%
2013-2017. Business strategy is set
by the Board of Directors and all
35%
Kerry employees work towards
(10%)
achieving these goals. Remuneration
8.2%
is directly linked with performance
14%
14%
301.9
versus targets.
27%
(10%)
(10%)
39%
35%
8.1%
8.1%
7.1%
323.4
27%
35%
35%
(10%)
14%
14%
27%
27%
Growth
Revenue
3% to 5% LFL volume growth
5.5%
341.2
8.2%
301.9
Margin
5.5%
341.2
ROACE
7.1%
3.0%
ROAE
323.4
8.2%
8.2%
7.1%
Return
323.4
8.1%
301.9
CFROI
8.1%
301.9
3.8%
5.5%
341.2
3.0%
5.5%
341.2
7.1%
2.4%
323.4
4.3%
3.8%
2.4%
3.6%
3.0%
2.4%
+50bps
3.6%
12%+
4.3%
3.8%
3.0%
2.4%
15%+
12%+
+3.4%
4.3%
+52bps
11.1%
3.6%
13.6%
4.3%
11.5%
10.5%
3.8%
3.6%
10.5%
2013
2014
2013
2015
2014
2016
2015
2013
2017
2015
2017
2014
2016
2017
2016
2014
10.2%
278.9
10.2%
278.9
10.2%
10.2%
278.9
278.9
257.9
257.9
257.9
2014
2016
2017
2013
2015
2016
2015
2014
2017
2016
2014
2013
2013
Return on Average Capital
Employed (ROACE)
13.0%
257.9
RETURN
2013
2017
2016
2015
2014
2014
2017
2013
2015
2016
2015
2013
Return on Average Equity
(ROAE)
15.7%
2016
2015
2013
2013
2017
2015
2016
2015
2013
2016
2014
2013
2017
2014
2017
2015
2014
Cash Flow Return on
Investment (CFROI)
10.9%
5 Year Average 13.6%
5 Year Average 17.3%
5 Year Average 11.3%
12.2%
11.1%
12.2%
11.5%
10.5%
12.2%
11.1%
10.5%
12.2%
11.5%
11.1%
12.2%
11.5%
12.2%
12.2%
12.2%
17.3%
11.3%
2016
2014
2013
2015
2014
2017
2016
2015
2017
2016
2017
2017
2016
2015
2014
2013
2017
2013
2015
2017
CASH
2016
2014
Free
Cash Flow
€501m
5 Year Average €448m
Total Cash Generated €2.2bn
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.
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.
Definition*
CFROI is calculated as free
cash flow before finance costs
paid (net), expressed as a
percentage of average capital
employed.
Definition*
Free Cash Flow is trading
profit plus depreciation,
movement in average working
capital, capital expenditure,
pension costs less pension
expense, finance costs paid
(net) and income taxes paid.
14.2%
14.4%
14.2%
14.4%
13.6%
14.2%
13.6%
13.0%
14.4%
14.2%
12.9%
14.4%
13.6%
13.0%
12.9%
13.6%
18.0%
12.9%
18.6%
12.9%
13.0%
18.0%
17.5%
13.0%
18.6%
18.0%
17.5%
15.7%
18.6%
18.0%
16.5%
18.6%
17.5%
15.7%
16.5%
17.5%
16.5%
12.6%
16.5%
15.7%
15.7%
12.6%
11.3%
12.8%
12.8%
12.6%
12.6%
11.3%
10.9%
11.3%
10.9%
12.8%
11.3%
12.8%
10.9%
412
453
10.9%
412
570
570
570
570
501
453
412
412
501
453
453
501
501
2013
2014
2013
2015
2014
2016
2017
2013
2015
2016
2014
2013
2017
2015
2014
2013
2016
2015
2014
2017
2016
2013
2015
2017
2014
2016
2017
2015
2013
2016
2014
2013
2017
2015
2014
2016
2015
2013
2017
2016
2014
2017
2013
2015
2014
2016
2017
2013
2015
2016
2014
2013
2017
2015
2014
2016
2015
2013
2017
2016
2014
2017
2013
2015
2014
2016
2017
2013
2015
2016
2014
2013
2017
2015
2014
2016
2015
2017
2016
2017
9.1%
9.1%
9.1%
9.1%
303
303
303
303
Strategic Linkage
ROACE is a key measure of the
return the Group achieves on its
investment in capital expenditure
projects, acquisitions and other
strategic investments, expressed
as a percentage of what resources
are available to the Group.
Performance
The Group achieved ROACE of
13.0% in 2017, which is above the
Group’s target of 12%.
Over the course of the five year
plan, the Group achieved average
ROACE of 13.6%, which was above
the Group target.
Link to Remuneration
Performance metric for
long term incentive plan.
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 15.7% in 2017, above the
Group’s target of 15%.
Over the course of the five year
plan, the Group achieved average
ROACE of 17.3%, which was above
the Group target.
Link to Remuneration
Similar metric to ROACE
(performance metric for
long term incentive plan).
Strategic Linkage
CFROI is important as it
measures the Group’s cash
return on invested assets.
Performance
The Group achieved a CFROI
of 10.9% in 2017.
Over the course of the five year
plan, the Group achieved average
CFROI of 11.3%. This was slightly
below the Group's target of 12%
due to the significant spend on
capital expenditure in the period
linked with the 1 Kerry Programme,
in particular the Group's Global
Technology & Innovation Centre
architecture and investment in
Kerryconnect.
Link to Remuneration
Free Cash Flow (performance
metric for short term incentive
plan) is the key driver of CFROI.
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 strong
free cash flow of €501m in 2017,
reflecting strong cash generation,
offset by an increase in capital
expenditure.
Over the course of the five year
plan, the Group generated €2.2bn
of free cash flow – reflecting 84%
cash conversion (free cash flow
to adjusted earnings after tax).
Link to Remuneration
Performance metric for
short term incentive plan.
* 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 187-191.
Kerry Group Annual Report 2017
25
STRATEGIC
STRATEGIC
REPORT
REPORT
FINANCIAL
REVIEW
Volume Growth
+4.3% (2016: 3.6%)
Margin Improvement
0bps (2016: +70bps)
Adjusted
EPS
Constant
Currency EPS
+5.5% +9.4%
(2016: +7.1%)
(2016: +12.3%)
Basic EPS
+10.1% (2016: +1.4%)
Free Cash Flow
€501m
(2016: €570 million)
Brian Mehigan
Chief Financial Officer
+
Financial Key
Performance Indicators
pages 24-25
Non-Financial KPIs –
Sustainability Review
pages 42-59
Delivering another year
of solid performance
The Group delivered a strong underlying
business performance in 2017 with
adjusted earnings per share growth
of 5.5% (2016: 7.1%), which was 9.4%
growth in constant currency (2016:
12.3%). Basic EPS growth was 10.1%
(2016: 1.4%). This was achieved thanks
to good revenue growth, including
volume growth of 4.3% (2016: 3.6%) and
maintaining the Group margin at 12.2%.
The Financial Review provides an overview of the Group’s
financial performance for the year ended 31 December 2017
and of the Group’s financial position at that date.
Financial Key Performance Indicators
(2013-2017)
The performance metrics outlined below were identified
as the Group’s Financial Key Performance Indicators (KPIs)
for the five year plan cycle (2013-2017). These KPIs are
used to measure the financial and operational performance
of the Group and to track progress in achieving long term
targets. The targets and performance for these KPIs are
summarised in the table below. A more expansive analysis
of the Group’s performance for each KPI is included in the
Financial Key Performance Indicators section of the
Strategic Report.
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 p.a.
10%+
3% to 5%1
+50bps p.a.2
Target p.a.
12%+
15%+
12%+
(2013–2017)
Average p.a.
7.8%
3.4%
+52bps
(2013–2017)
Average p.a.
13.6%
17.3%
11.3%
Constant Currency
9.7%
The targets above assume neutral currency and raw material costs
* Before brand related intangible asset amortisation and non-trading items (net of related tax)
1. Assumes market growth rate of 2% to 3% p.a.
2. Includes 100bps benefit arising from the Kerryconnect project
26
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
Delivering another year
of solid performance
Analysis of Results
Revenue
Trading profit
Trading margin
Computer software amortisation
Finance costs (net)
Adjusted earnings before taxation
%
change
4.5%
4.2%
Income taxes (excluding non-trading items)
Adjusted earnings after taxation
5.8%
Brand related intangible asset amortisation
Non-trading items (net of related tax)
Profit after taxation
Basic EPS
Brand related intangible asset amortisation
Non-trading items (net of related tax)
Adjusted* EPS
Constant currency adjusted* EPS growth
10.1%
5.5%
2017
€’m
6,407.9
781.3
12.2%
(24.3)
(65.6)
691.4
(89.5)
601.9
(23.6)
10.2
588.5
EPS
Cent
333.6
13.4
(5.8)
341.2
+9.4%
2016
€’m
6,130.6
749.6
12.2%
(23.4)
(70.4)
655.8
(86.7)
569.1
(23.0)
(13.0)
533.1
EPS
Cent
302.9
13.1
7.4
323.4
+12.3%
* Before brand related intangible asset amortisation and non-trading items (net of related tax)
Revenue
On a reported basis, Group revenue increased by 4.5% to €6.4 billion (2016: €6.1 billion). Volumes grew by 4.3%, product pricing increased
by 2.0% and transaction related currency had a negative impact of 0.2%. Business acquisitions contributed 0.8%, and there was a negative
reporting currency impact of 2.4%.
2016: Group reported revenue +0.4%, volumes +3.6%, product pricing (2.1%), transaction currency (0.3%), acquisitions +3.3%, translation
currency (4.1%).
In Taste & Nutrition, reported revenue increased by 5.7% to €5.2 billion (2016: €4.9 billion). Volumes grew by 4.7% and product pricing
increased by 2.0%. Business acquisitions contributed 0.9% and there was a negative reporting currency impact of 1.9%.
2016: Taste & Nutrition reported revenue +3.5%, volumes +4.0%, product pricing (2.1%), transaction currency (0.1%), acquisitions +4.9%,
translation currency (3.2%).
In Consumer Foods, reported revenue decreased slightly by 0.1% to €1.3 billion (2016: €1.3 billion). Volumes increased by 2.4%, product
pricing increased by 2.0% and transaction related currency had a negative impact of 0.9%. Business acquisitions contributed 0.2% and
there was a negative reporting currency impact of 3.8%.
2016: Consumer Foods reported revenue (9.7%), volumes +2.1%, product pricing (2.0%), transaction currency (1.1%), disposals (2.1%),
translation currency (6.6%).
Trading Profit & Margin
On a reported basis, Group trading profit increased by 4.2% to €781.3m (2016: €749.6m). Group trading profit margin was maintained at
12.2%. Underlying margin expansion attributable to portfolio enhancement, operating leverage and efficiencies was offset by transaction
currency headwinds, increased Kerryconnect investment and the denominator pricing effect.
Trading profit margin in Taste & Nutrition increased by 20bps to 14.9% (2016: 14.7%), due to the benefits of portfolio enhancement, operating
leverage and efficiencies, offset by the denominator pricing effect and currency headwinds. Trading profit margin in Consumer Foods
decreased by 70bps to 8.1% (2016: 8.8%) due to significant transaction currency headwinds, partly offset by underlying margin expansion.
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 34 to 41.
Kerry Group Annual Report 2017
27
Computer Software Amortisation
Computer software amortisation increased to €24.3m (2016: €23.4m) reflecting the ongoing progression of the Kerryconnect project.
The capitalised element of the cost of this project is being amortised over a seven year period.
Finance Costs (net)
Finance costs (net) for the year decreased by €4.8m to €65.6m (2016: €70.4m) due to strong cash generation in the year and the repayment
of US $192m of senior notes which matured on 20 January 2017. The Group’s average interest rate for the year was 3.5% (2016: 3.5%).
Taxation
The tax charge for the year before non-trading items was €89.5m (2016: €86.7m) representing an effective tax rate of 13.4% (2016: 13.7%).
On 22 December 2017, the US Tax Cuts and Jobs Act (‘the Act’) was enacted into law. This Act brings about fundamental changes to the
US tax system, both from an individual and corporate tax perspective. As a result of the Act, the statutory rate of US federal corporate
income tax has been reduced from 35% to 21% with effect from 1 January 2018. The reduction in the US corporate income tax rate to 21%
required revaluation of Kerry’s US deferred tax liabilities. This resulted in a one-off deferred tax credit in 2017, which is reported in the
Income Statement as a non-trading item of €52.8m.
The final impact of the changes from this new law are subject to a number of detailed provisions in the legislation and any implementation
guidance issued by the Treasury Department and the IRS. Kerry will continue to monitor any developments and give due consideration to
the impact of any guidance, along with ongoing market interpretation and assessment on the accounting implications of this Act.
Acquisitions
During the year the Group completed eight acquisitions at a net cost of €397.2m. The acquisition of Hangman Flavours in China was also
completed shortly after year end.
Non-Trading Items
Non-trading items totaling an income of €10.2m (2016: charge of €13.0m) net of tax were recorded in 2017. The Group recorded an exceptional
deferred tax credit arising from the recent US tax reform changes as noted above, which was partly offset by costs relating to the integration of
businesses acquired in recent years and the Brexit mitigation programme underway in the Consumer Foods division.
Adjusted EPS
Adjusted EPS increased by 5.5% to 341.2 cent (2016: 323.4 cent). The year-on-year increase was negatively impacted by translation
currency headwinds. On a constant currency basis, adjusted EPS increased by 9.4% over the prior year.
Basic EPS
Basic EPS increased by 10.1% to 333.6 cent (2016: 302.9 cent) after accounting for brand related intangible asset amortisation of 13.4 cent
(2016: 13.1 cent) and a non-trading item credit of 5.8 cent net of related tax (2016: charge of 7.4 cent).
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 2017 the Group achieved
ROACE of 13.0% (2016: 12.9%) and ROAE of 15.7% (2016: 16.5%) which were above the Group’s return on investment hurdles. The Group
achieved CFROI of 10.9% (2016: 12.8%) which was below the Group target as a result of capital expenditure and other strategic investments
which are expected to drive business growth in the longer term.
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
Chinese Yuan Renminbi
Malaysian Ringgit
Mexican Peso
South African Rand
US Dollar
28
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
Average Rates
Closing Rates
2017
1.47
3.62
0.88
1.46
7.62
4.85
21.30
15.03
1.13
2016
1.48
3.84
0.82
1.46
7.32
4.58
20.67
16.08
1.11
2017
1.53
3.96
0.89
1.50
7.80
4.87
23.72
14.76
1.20
2016
1.46
3.44
0.86
1.42
7.31
4.73
21.87
14.50
1.05
Dividends
The Board has proposed a final dividend of 43.9 cent per A ordinary share, payable on 18 May 2018 to shareholders registered
on the record date of 20 April 2018. When combined with the interim dividend of 18.8 cent per share, the total dividend for the
year amounted to 62.7 cent per share (2016: 56.0 cent per share), which is an increase of 12.0%.
Kerry’s policy is to pay a dividend each year and has an unbroken record of dividend growth. Over 31 years as a listed
company, the Group has grown its dividend at a compound rate of 17.0%. The Group’s aim is to have double digit dividend
growth each year, in line with EPS growth ambitions.
Impact of Brexit
While the exact outcome of the UK’s exit from the European Union is still unclear, our Business Brexit teams continue to
work through the potential implications for Kerry. Sterling mitigation plans are well progressed, as the Group continues to
restructure less profitable businesses, execute the KerryExcel cost optimisation programme and reduce transaction currency
exposure. Given our well established manufacturing footprint in the UK and in the Eurozone, we are very well positioned to
deal with the potential challenges and realise the opportunities that will arise.
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
2017
€’m
1,529.6
3,646.7
192.2
2,031.7
7,400.2
1,567.8
2,259.2
3,827.0
3,573.2
3,573.2
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
Intangible Assets & Acquisitions
Intangible assets increased by €202.4m to €3,646.7m (2016: €3,444.3m) as additions of €401.3m during the year were
partially offset by foreign exchange movements and the annual amortisation charge.
Current Assets
Current assets decreased by €208.3m to €2,031.7m (2016: €2,240.0m), primarily due to a decrease in cash on hand at 31
December 2017 arising from the repayment of US $192m of senior notes during the year.
Retirement Benefits
At the balance sheet date, the net deficit for defined benefit schemes (after deferred tax) was €102.0m (2016: €291.9m).
The decrease in the net deficit since the previous year arises primarily from strong investment returns and cash
contributions. The net deficit expressed as a percentage of market capitalisation at 31 December 2017 was 0.6% (2016: 2.4%).
Shareholders’ Equity
Shareholders’ equity increased by €479.2m to €3,573.2m (2016: €3,094.0m), 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 126.
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
29
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 2017 the Group achieved another strong year of
free cash flow of €501.3m (2016: €569.9m) despite higher capital expenditure to support future growth.
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
Cash conversion*
2017
€’m
781.3
134.0
93.5
(95.3)
913.5
(60.2)
(54.7)
(297.3)
501.3
83%
2016
€’m
749.6
129.8
137.7
(118.2)
898.9
(61.5)
(57.3)
(210.2)
569.9
100%
* Cash conversion is free cash flow expressed as a percentage of adjusted earnings after tax
Net Debt
Net debt at the end of the year was €1,341.7m (2016: €1,323.7m). The increase during the year is analysed in the
table below:
Movement in Net Debt
Free cash flow
Acquisitions (net of disposals) including payments relating to previous acquisitions
Difference between average working capital and year end working capital
Non-trading items
Equity dividends paid
Exchange translation adjustment
(Increase)/decrease in net debt resulting from cash flows
Fair value movement on interest rate swaps
Exchange translation adjustment on net debt
(Increase)/decrease in net debt in the year
Net debt at beginning of year
Net debt at end of year
2017
€’m
501.3
(367.9)
(84.4)
(34.0)
(102.2)
(8.8)
(96.0)
2.8
75.2
(18.0)
(1,323.7)
(1,341.7)
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)
30
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
Exchange impact on net debt
The exchange rate translation adjustment of €75.2m results primarily from borrowings denominated in US dollar translated
at a year end rate of $1.20 versus a rate of $1.05 in 2016.
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)
2017
€’m
299.2
-
(226.9)
(1,414.0)
(1,341.7)
6.0
2016
€’m
397.8
-
(143.8)
(1,577.7)
(1,323.7)
6.4
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 1.4 times, the organisation has sufficient
headroom to support future growth plans. Group Treasury monitors compliance with all financial covenants and at 31 December
the key covenants were as follows:
2017
Times
1.4
16.2
2016
Times
1.5
14.0
Net debt: EBITDA*
EBITDA: Net interest*
Covenant
Maximum 3.5
Minimum 4.75
Net debt: EBITDA*
EBITDA: Net interest*
3.5x
3.0x
2.5x
2.0x
1.5x
1.0x
2013
2014
2015
2016
2017
19.0x
17.0x
15.0x
13.0x
11.0x
9.0x
7.0x
5.0x
2013
2014
2015
2016
2017
* Calculated in accordance with lenders’ facility agreements which take account of adjustments as outlined on page 158.
Credit Facilities
Undrawn committed facilities at the end of the year were €1,100.0m (2016: €1,100.0m) while undrawn standby facilities were
€323.0m (2016: €360.0m).
Full details of the Group’s financial liabilities, cash at bank and in hand and credit facilities are disclosed in notes 23 and 24 to
the consolidated financial statements.
Share Price and Market Capitalisation
The Company’s shares traded in the range €64.18 to €94.30 during the year. The share price at 31 December 2017 was €93.50
(2016: €67.90) giving a market capitalisation of €16.5 billion (2016: €12.0 billion). Total Shareholder Return for 2017 was +38.6%
(2016: -10.3%).
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
31
31
31
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 consolidated financial statements.
New Strategic Targets
The Group outlined its new medium term targets at its Capital Markets Day held in October 2017. These key metrics, as
outlined below, have been identified as the Financial Key Performance Indicators (KPIs) for the Group for the new strategic
plan, and continue to be a combination of growth and return metrics. These KPIs will be used to measure the financial and
operational performance of the Group and will track progress in achieving long term targets. The Group will report on progress
against these targets each year.
Strategic Targets
On average over the life of the plan
GROWTH
Volume growth
Trading profit margin expansion
Adjusted* EPS growth
RETURN
Return on average capital employed (ROACE*)
Cash Conversion²
Target p.a.
3% to 5%¹
+30bps
10%+
Target p.a.
12%+
>80%
Relative Total Shareholder Return (TSR)
Outperforming Peers
Targets assume constant currency
* Calculated before brand related intangible asset amortisation and non-trading items (net of related tax)
¹ Assumes 2% above market growth rate
² Cash conversion is free cash flow expressed as a percentage of adjusted earnings after tax
Summary and Financial Outlook
Against the backdrop of a volatile economic and market environment, the Group delivered another strong performance in 2017
generating revenue of €6.4 billion, trading profit of €781m and free cash flow of €501m. At year end the balance sheet is also in a
good position and with a net debt: EBITDA ratio of 1.4 times, the Group has sufficient headroom to support the future growth plans
of the organisation.
The Group looks forward to further underlying financial growth and development in the year ahead.
32
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
STRATEGIC
STRATEGIC
REPORT
REPORT
10 YEAR
EARNINGS HISTORY
A strong history
of positive results
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 attributable
to owners of the parent
Adjusted EPS (cent)*
2008
€’m
2009
€’m
2010
€’m
2011
€’m
**2012
€’m
2013
€’m
2014
€’m
2015
€’m
2016
€’m
2017
€’m
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
6,407.9
409.2
(3.6)
(77.6)
328.0
(62.7)
265.3
(11.3)
(77.0)
177.0
151.8
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
749.6
(23.4)
(70.4)
655.8
(86.7)
569.1
(23.0)
(13.0)
781.3
(24.3)
(65.6)
691.4
(89.5)
601.9
(23.6)
10.2
0.1
(135.5)
(352.2)
201.2
324.2
360.7
260.7
84.4
479.9
525.4
533.1
588.5
163.9
192.1
213.4
234.0
257.9
278.9
301.9
323.4
341.2
*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.
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
33
33
33
STRATEGIC
REPORT
BUSINESS
REVIEW
Leading to Better
Tailored
Solutions
Taste & Nutrition
Consumers want
great-tasting products made
from trusted, authentic
and wholesome ingredients
and flavours. Kerry delivers
these solutions to food and
beverage producers.
34
34
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
STRATEGIC REPORT CHAIRMAN'S STATEMENT STRATEGIC
REPORT
BUSINESS
REVIEW
TASTE &
NUTRITION
Kerry, the industry’s leading,
globally-connected Taste & Nutrition
company, provides the largest most
innovative portfolio of Taste &
Nutrition Technologies and Systems,
and Functional Ingredients & Actives
for the global food, beverage and
pharmaceutical industries
‘Mindful’ consumption, driven by the connected consumer
revolution, has increased demand for speedy innovation
as the marketplace aligns to consumer trends favouring
enhanced taste profiles, premiumisation, clean label,
‘free-from’, personalised, convenient, sustainably sourced
food and beverage offerings. Kerry’s Technology &
Innovation Centre network, supporting the Group’s in-
market application and commercial centres achieved solid
market development across all regions. Development
in regional developing markets continued to advance
favourably, with an excellent performance reported in
the Asia-Pacific region. Demand for ‘food-to-go’ and
out-of-home consumption continued to drive increased
innovation requirements in the foodservice channel in all
regions. Business performance also benefited from Kerry’s
commercial effectiveness programmes and the Group’s
continued industry-leading RD&A investment and capital
expenditure programmes.
Taste & Nutrition reported revenue increased by 5.7% to
€5.2 billion, reflecting 4.7% volume growth. Net pricing
increased by 2%. Trading profit grew by 7.1% to €767m,
reflecting a 20 basis points improvement in trading margin
to 14.9%. In 2017 Taste & Nutrition accounted for 79% of
Group revenue and 88% of Group trading profit.
Revenue
2017
€5,159m
Growth
4.7%*
Trading Profit
2017
€767m
Growth
+7.1%
Trading Margin
2017
14.9%
Growth
+20bps
* Volume growth
+
Business Model
pages 14-15
Strategy &
Financial Targets
pages 18-20
STRATEGY
IN ACTION
Kerry Group Annual Report 2017
35
Taste & Nutrition Americas Region
Clean label and elevated
taste requirements were to
the fore in driving innovation
across American end-use-
markets in 2017.
‘Centre of store’ branded offerings
continued to be adversely impacted by
consumer trends in North America but
demand for health & wellness, natural,
organic, non-GMO, meat-free snacking
lines and natural food preservation led
to strong development and innovation
opportunities throughout food and
beverage categories across retail and
foodservice channels. In Latin American
markets, a solid overall performance
was achieved in Brazil, Mexico and
Central America but development in the
Caribbean region slowed relative to the
prior year.
Sales revenue in the Americas region
on a reported basis increased by 3.5% to
€2,678m, reflecting 3.3% volume growth,
a 1.3% increase in net pricing, business
acquisitions of 0.4% and an adverse
translation currency impact of 1.5%.
AMERICAS
REGION
3.3%
Business volumes in
the Americas region
increased by 3.3%
36
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
The North American meat sector
continued to provide strong growth
opportunities for Kerry’s clean label and
authentic taste technologies. Seasonings,
coatings and functional meat systems
achieved a strong performance in Latin
America. Savoury Taste grew well in the
stocks and broths segments. Mississippi,
US based Dottley Spice was acquired in
October 2017 – furthering Kerry’s position
as a leading supplier of seasonings and
coatings to the meat processing industry
and foodservice sector in North America.
Culinary Foundations achieved
encouraging growth in the prepared meals
category. 2017 also saw an increased
focus on plant based proteins and
premium meat alternatives – in particular
in the foodservice channel as providers
launched new vegan and meal alternative
menu options. Global and regional chains
in Brazil also provided good growth
opportunities for Culinary Systems and
sauce applications.
Kerry’s fermented ingredients technologies
recorded strong growth in the North
American meat and bakery sectors.
Introduction of gluten-free, organic and
non-GMO lines to the portfolio contributed
to the continuing strong performance in
2017. The US $28m expansion programme
at the Group’s Rochester, Minnesota facility
was significantly advanced to increase
manufacturing capacity of naturally
derived fermented ingredients.
Dairy systems recorded good growth in
Brazil and the South Cone. Ben Alimentos
was acquired in June expanding the
Group’s dairy technology capacity in
Brazil. In the North American snacks
sector good growth was achieved through
strategic accounts across multiple
technologies including sweet, dairy and
culinary systems. Savoury snacks achieved
continued growth in Central America and
through regional accounts in Mexico.
The traditional breakfast cereal category
continued to decline in North America.
Kerry’s TasteSense sugar reduction
technology received US regulatory
approval in October which will assist
development in the soft drinks sector.
Functional ingredients achieved good
growth in the craft beer sector. Strong
growth was achieved in the RTD coffee
sector in North America where Kerry’s ‘Cold
Brew’ technology continues to achieve
encouraging results. The foodservice
sector and convenience store channel
provided a solid platform for growth across
American markets through extended
day-part-menus and ‘better-for-you’ lines
of food and beverage convenient offerings.
The acquisition of the US based Kettle
business of Tyson Foods was completed
prior to year end. Operating from a
production and development facility in
Fort Worth, Texas; the Kettle business has
a strong heritage in the North American
foodservice industry with well-established
key customer alliances in the QSR and
fast-casual restaurant sectors.
The Group continued to advance
business development and performance
in the pharmaceutical sector. Cell
nutrition recorded continued growth
through custom-developed complex
media systems. Excipients performed
strongly in North America – in particular
through Sheffield Anhydrous premium
lines. Wellmune® recorded excellent
growth in all regions including new
applications in the North American dietary
supplements market. Ganeden, acquired
in August, performed well in particular
in the beverage sector. Headquartered
in Cleveland, Ohio, Ganeden produces
highly stable probiotic ingredients and
significantly strengthens Kerry’s position in
the nutritional actives market.
Taste & Nutrition EMEA Region
Despite the prevailing
competitive environment
compounded by currency
volatility and market
uncertainty due to
geopolitical issues, Kerry
achieved a strong business
and operational performance
in the EMEA region in 2017.
A renewed focus on commercial
effectiveness and ‘in-market’ customer
engagement throughout the region
assisted overall business performance.
Growth in the foodservice sector was
particularly encouraging through
innovative seasonal launches and
‘limited-time-offerings’.
EMEA
REGION
4.2%
Business volumes in
the EMEA region
increased by 4.2%
A solid performance was achieved in
the UK market against a background of
inflationary food and beverage trends
and continuing uncertainty following
the UK electorate decision to leave the
European Union. In regional developing
markets, trading conditions improved in
Sub-Saharan Africa and Middle Eastern
markets, and Kerry also continued to
achieve good growth in Russia.
Sales revenue in the EMEA region on
a reported basis increased by 6.2% to
€1,537m, reflecting 4.2% volume growth,
a 3.4% increase in net pricing, an adverse
0.1% transaction currency impact,
business acquisitions of 0.8% and an
adverse 2.1% translation currency impact.
Kerry taste technologies achieved double
digit growth across geographies and end-
use-markets in the region. TasteSense
delivered a strong innovation pipeline in
food and beverage categories responding
to consumer demand and regulatory
changes for reduced sugar.
The meat industry across Europe provided
good opportunities for growth through
retail and foodservice applications. Kerry
recorded good growth through regional
QSRs and through retail suppliers in
the UK, Ireland and Russia. Coatings
technologies performed well leading
to investment in additional production
capacity in Germany. Establishment of a
new production facility to meet customer
requirements in the meat and savoury
snack sectors in Russia was significantly
advanced in 2017. The meat and savoury
snack sectors in Middle Eastern markets
also provided good growth opportunities
for Kerry technologies in 2017. Prior to
year end, the Group acquired Galicia,
Spain based Hasenosa – a leading
producer of coatings (including gluten-
free lines), marinades and sauces
serving the meat and seafood industries
in Europe. Since year end, the Group
has also reached agreement to acquire
Johannesburg, South Africa based Season
to Season – a leading supplier of Taste
ingredients and systems to the African
snack and food sectors.
Dairy & Culinary technologies achieved
solid growth in 2017, in particular in the
foodservice sector through seasonal QSR
applications including appetisers, desserts
and beverages. Sweet technologies
performed well in the ice cream sector,
benefiting from consumer trends favouring
premium lines, ‘better-for-you’ variants and
indulgent offerings. Hydrolysed proteins
recorded good growth in the confectionery
and bar markets.
Beverage applications grew strongly across
Europe capitalising on clean label demands
and Kerry’s TasteSense and Simply Nature
technologies, in addition to the Group’s
branded foodservice offerings and delivery
systems. Island Oasis was successfully
launched across the Iberian market
and Da Vinci continued to achieve
above-market growth rates.
Nutritional technologies maintained good
growth through infant and life-stage
applications. Lower dairy exports from
some exporting countries and strong
butterfat demand contributed significant
upward momentum to international dairy
pricing in the first half of 2017. However, a
rapid growth in milk output from Q3 saw
supply outpacing demand which led to
considerably lower dairy market pricing.
Kerry Group Annual Report 2017
37
Taste & Nutrition Asia-Pacific Region
Sales revenue in the Asia-Pacific region
on a reported basis increased by 13.1% to
€866m, reflecting 11.1% volume growth,
1.8% increase in net pricing, business
acquisitions of 2.9% and an adverse
currency translation impact of 2.7%.
Beverage systems grew strongly through
tea, coffee and nutritional applications.
Liquid beverage systems performed well
through foodservice chains, in particular
in China, Japan and Thailand. Culinary
systems also performed well in the
foodservice sector and through soup,
sauce, and dressings applications and
the bakery and snack sectors in Malaysia,
Singapore, China, Australia and New
Zealand. Dairy systems grew strongly
throughout the region. Meat systems
maintained solid growth across all
channels in Australia, New Zealand,
Thailand and China.
Enzymes and specialised proteins
maintained good growth in Asia.
Wellmune® achieved solid growth, in
particular through functional beverage
applications in China. The Group’s
operational footprint in the Asia-Pacific
region was significantly expanded in
2017 through organic investment and the
completion of a number of acquisitions.
A regional Technology & Innovation
Centre was established in Bangalore, India.
Regional Application & Development
Centres were established in Jakarta,
Indonesia; Bangpoo, Thailand and Ho Chi
Minh, Vietnam. New production facilities
were established across sites located in
Plentong, Malaysia; Cikarang, Indonesia;
Tumkur, India; Nantong, China; Batangas,
Philippines and Brisbane, Australia.
In March 2017, Taste Master was acquired
in Adelaide, Australia strengthening
the Group’s taste capabilities in the
beverage, snack, meat and culinary
industries in Australia and New Zealand.
In April, the acquisition of Jurong, China
based Tianning Flavours was completed
providing a significant boost to Kerry’s
savoury and sweet flavour development
capabilities.
Since year end, the Group completed the
acquisition of Hangzhou, China based
Hangman Flavours, further strengthening
Kerry’s taste positioning and capabilities in
Greater China. Agreement has also been
reached to acquire Dachang, China based
SIAS Food Co. – a leading supplier of
culinary and fruit ingredients and systems
to the foodservice and food manufacturing
industries in China.
Excellent growth and
business development
momentum was maintained
in Asia-Pacific markets in
2017. All Kerry technologies
established in the region
achieved solid growth.
Development in the dynamic regional
foodservice channel proved highly
favourable – capitalising on Kerry’s
innovation capabilities and speed to
market. Further expansion of Kerry’s
manufacturing and technology footprint
was achieved through continued
investment in Group facilities and
strategic acquisitions.
ASIA-
PACIFIC
REGION
11.1%
Business volumes in
the Asia-Pacific region
increased by 11.1%
38
38
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
STRATEGIC
REPORT
BUSINESS
REVIEW
CONSUMER
FOODS
Consumer Foods
We combine ‘telling
insights’ with superior
technology to develop
products and foods
that consumers love.
+
Business Model
pages 14-15
Strategy &
Financial Targets
pages 18-20
Revenue
2017
€1,331m
Growth
2.4%*
Trading Profit
2017
€108m
Growth
(8.1%)
Trading Margin
2017
8.1%
Growth
(70bps)
* Volume growth
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.
Consumer shopping trends across multiple channels have
continued to heighten competitiveness in the UK and
Irish consumer foods markets. At retail level, the focus
on delivery of ‘better value’ continues through range
simplification, EDLP strategies and investment in customer
brands. In the UK market, in an inflationary environment,
such trends have adversely impacted trading margins.
Discounter chains have continued to gain market share,
whilst online shopping continues to grow at pace –
driven by innovation and new entrants. Snacking and
‘on-the-go’ consumption continues to grow, blurring the
market landscape between food retail and foodservice.
Kerry Group Annual Report 2017
39
STRATEGY
IN ACTION
Leading to Better
Added-value
Kerry Foods’ business volumes grew by
2.4%. While there was some lag in price
recovery in response to the impact of
sterling depreciation on products exported
from Ireland to the UK, pricing increased
by 2%. The divisional trading profit margin
decreased by 70 basis points to 8.1% as
the underlying margin improvement was
more than offset by the adverse sterling
exchange rate movements, resulting in a
trading profit decrease of 8.1% to €108m.
Snacking occasions continued to drive
strong category growth in the meat
and cheese categories. ‘Fridge Raiders’
achieved strong growth in the meat sector
assisted by an increase in promotional
frequency and a successful ‘Call of Duty’
marketing campaign. Dairy snacking
grew by 11% with ‘Cheestrings’ and
‘Attack-a-Snak’ performing well in
response to increased marketing support
and wider distribution. In Ireland, Kerry
Foods also successfully launched an
innovative adult cheese snacking range
under the ‘Go Go’s’ brand.
‘Charleville’ also introduced the premium
range ‘Crafty Creations’ and ‘Charleville
Snackfulls’ snacking products.
In the grocery meats sector, the rebrand of
‘Richmond’ had a positive impact in the UK
sausage category. ‘Richmond Perfect Bake’
was rebranded to ‘Oven Ready’ to highlight
the brand’s convenience benefit. Kerry
Foods’ brands performed satisfactorily
in the Irish meats sector despite the
continued focus of retailers on private
label and growth of discounter sales.
40
40
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
In Ireland ‘Dairygold’ maintained its
market leadership positioning, assisted by
innovative product launches and a successful
‘Make a Minute’ marketing campaign.
Kerry Foods outperformed market growth
rates in chilled and frozen ready meals
ranges. This performance was driven by
an ongoing focus on enhanced nutrition,
lower calories and salt, and clean label
declarations – with a number of range
relaunches and an increasing presence in
health and ‘free from’ segments.
A strong focus on expanding channel
reach in 2017 led to strong growth in
‘out-of-home’ segments. ‘Rollover’ recorded
good growth and encouraging progress
was achieved through pub chains and
restaurant chains. The acquisition of
Oakhouse Foods was completed in
November, expanding Kerry Foods’ chilled
foods route to market through a new
‘direct-to-customer’ platform.
‘Denny’ remains the number 1 meats brand
in its core categories. ‘Galtee’ saw good
growth in the sausage and sliced cooked
meat categories. ‘Denny Fresh Pack’ was
successfully launched in the cooked
meats category. ‘Fire & Smoke’ maintained
strong growth in the Irish and UK prepack
meats segment. ‘Fire & Smoke Snack Pots’
achieved continued growth in the chilled
snacking sector.
Kerry Foods’ grocery dairy business
maintained growth in a challenging
category environment. In the UK good
volume growth was achieved through
private label customer brands incorporating
Kerry’s spreadable butter technologies.
In Ireland ‘Dairygold’ maintained its
market leadership positioning, assisted
by innovative product launches and a
successful ‘Make a Minute’ marketing
campaign. The ‘Dairygold Deli’ range
launch in 2017 created a new ‘Fresh
Flavours’ category segment.
11%
Dairy snacking
grew by 11%
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
41
41
STRATEGIC
STRATEGIC
REPORT
REPORT
CHAIRMAN'S
SUSTAINABILITY
REVIEW
STATEMENT
Leading to Better
Sustainable
Growth
ENVIRONMENT
Climate / Efficiency / Waste
pages 46-47
MARKETPLACE
Quality / Sourcing / Nutrition
pages 48-51
WORKPLACE
People / Ethics
pages 52-55
COMMUNITY
Economic / Social
pages 56-59
42
42
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
Securing Sustainable Growth
“ At Kerry, our goal is leading to better
for all those we interact with and
2017 saw us continue to manage our
sustainability commitments as part of
our overall business performance. We
remain on track for the achievement
of our environmental targets and have
delivered our waste reduction goal
two years ahead of schedule.
We lead the industry in the delivery
of Taste & Nutrition solutions and
provide an unrivalled platform
to support our customers in the
creation of healthier, more nutritious
products. We have engaged further
with our supply base around our
expectations and we are the first
large dairy processor to achieve 100%
certification of our milk suppliers
under Ireland’s internationally
accredited ‘Sustainable Dairy
Assurance Scheme’.
Internally, we continue to build a
better place to work, supporting
people to flourish and grow with the
organisation. Across communities, we
remain an active supporter of projects
that contribute to improving lives in
the countries where we operate and
in areas of extreme poverty.
In 2018, we will further integrate
sustainability within our business
operations. We will explore new
and innovative ways of working
that benefit the business and its
stakeholders and will seek to
collaborate with others as we
advance our journey towards
sustainable growth.”
– Edmond Scanlon, Chief Executive
At Kerry Group, sustainability is at
the heart of our business. As a world
leader in Taste & 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 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 reduce
adverse impacts and create value, and we have set
measurable targets for improvement in these areas over
a five year period.
ENVIRONMENT
SUSTAINABILITY
MARKETPLACE
SUSTAINABILITY
WORKPLACE
SUSTAINABILITY
COMMUNITY
SUSTAINABILITY
SECURING SUSTAINABLE GROWTH
Kerry Group Annual Report 2017
43
STRATEGIC
STRATEGIC
REPORT
REPORT
SUSTAINABILITY
REVIEW
+
‘Towards 2020’
page 45
In 2015, members of the United
Nations adopted a set of 17 Sustainable
Development Goals (SDGs) that outline
priority areas for global action over the
period to 2030. The private sector has
a crucial role to play in the realisation
of these goals and Kerry can make an
important contribution. In this review,
we highlight the SDGs we impact on
under each pillar, however, there are
a small number of the SDGs that
have greater strategic relevance for
our business.
As a global leader in the food and beverage
industry, our most significant contribution
to the SDGs will come through supporting
our customers to improve the health and
nutrition of their products, and by doing
so in a manner that does not compromise
the environment, the rights of others or the
long term effectiveness of our business.
We will continue to be successful while
playing a positive role in the broader
sustainable development agenda and we
see the greatest potential for impact and
opportunity in SDGs 2, 3 and 12.
‘Towards 2020’
and the UN
Sustainable
Development
Goals
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 2017, we engaged
in a number of new collaborative projects, details of which are
laid out in this review.
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 track our engagement with key 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.
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.
44
44
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
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 2018
Implement Kerry Carbon Reduction
Projects for 2018 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 2018 in line with our
2020 targets
Implement Kerry Waste Reduction
Projects for 2018 in line with our
2020 targets
Continue to advance our Origin Green
Programme in Ireland
S
L
A
O
G
8
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
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
45
45
ENVIRONMENT
As environmental indicators
continue to show signs of
a world under increasing
pressure, the urgent need for
action to decouple growth
from environmental impacts
becomes ever clearer.
Reduction in CO2 intensity
versus base year
-9.4%
Reduction in Water intensity
versus base year
-4.3%
Reduction in Waste intensity
versus base year
-18%
Reduction in Waste sent to
Landfill versus base year
-30%
Food redistribution in the UK
and Ireland
>290,000 meals
Performance versus ISO
14001 approval targets
100%
Carbon Reduction at Menstrie
(Scotland)
Our Menstrie site in Scotland is the
global production centre for Kerry’s
yeast business. We manufacture yeast
based ingredients for a variety of food
and cell nutrition applications, as well
as being a leading supplier of yeast to
the beverage industry. As one of the
largest users of energy in Kerry, it was
an obvious target for improvement,
when looking to make carbon savings.
In 2017, Kerry implemented a suite
of energy saving technologies, all
designed to reduce the sites carbon
footprint. The project required
significant capital investment, and
the major elements were successfully
delivered in Q3 2017. The investment
aims to deliver a 10% reduction in site
energy use.
46
Kerry Group Annual Report 2017
Climate change, the availability of fresh water, waste materials and the continuing loss of
biodiversity represent global challenges that have serious implications for the food and
beverage industry. Given our sectors dependence on the natural environment for its long
term success, there is a compelling business case for acting now to preserve
and enhance it.
Under the environmental pillar of our ‘Towards 2020’ programme, Kerry is focused on
minimising direct impacts from its manufacturing operations. Kerry’s Environmental Policy
outlines requirements for all sites and we have an established management system in place
to track key environmental performance metrics across the Group. Performance is regularly
reviewed by both functional teams and the Group’s Sustainability Council to ensure that we are
on track to deliver against each of our stated environmental targets.
Our Environmental activities contribute
to the following UN Sustainable
Development Goals.
Emissions
With concentrations of carbon dioxide in the atmosphere at record levels, 2017 was among
the warmest years on record. The continuing change to climate has wide ranging implications
for our business and at Kerry we are committed to reducing our carbon intensity.
Our current goal is a further 13% reduction between 2015 and 2020, versus a 2013 base year.
We calculate our footprint in accordance with the GHG Protocol (see note 1) and our data is
independently assured by a third party, Jacobs. This assurance is provided in accordance with
AA1000AS(2008) and a summary assurance statement is provided in this review. We report on
our performance to a range of stakeholders, including through the CDP platform.
Our performance in 2017, saw the Group reduce its emissions intensity by over 9% versus our
base year and we remain firmly on track to deliver our target reduction by 2020.
Carbon
Co2 per Tonne FG*
% Change
*Novem Adjusted
2013 Base Year
2020 Target
2017 Target
2017 Performance
307.88
–
267.86
-13%
289.13
-6%
279.02
-9.4%
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, scope two
emissions and selected scope three emissions) as well as water withdrawal and discharge
data from its manufacturing facilities for 2017 in accordance with AA1000AS (2008).
Jacobs evaluated the systems and processes used to collate and report the greenhouse gas,
water withdrawal and water discharge performance data. Jacobs has been able to obtain a
moderate level of assurance for the data reported in the Group Annual Report 2017.
Water
Water plays a crucial role in our business from the production of
our raw materials to the end use of our final products, yet there is
increasing pressure being placed on this shared resource. At Kerry,
we are focused on reducing our water intensity and have targeted
a further 7% reduction in the water used to make our products
between 2015 and 2020, versus a 2013 base year. We are also
focused on water quality and seek to ensure that any water
which we return to the natural environment meets the necessary
quality standards.
In 2017, we expanded our reporting through CDP’s water
programme and our 2017 water data is now subject to independent
assurance. Our 2017 performance has seen some significant
reductions in water use at key sites although operational
requirements have created a challenging environment for the
achievement of our water goals. In 2017, we delivered a reduction
of 4.3%, marginally behind our target for the year. We remain
committed to our 2020 goal and will explore further initiatives
in 2018 that will help us deliver on our water target.
Water
m3 per Tonne FG
% Change
2013
Base Year
2020
Target
2017
Target
2017
Performance
4.69
–
4.36
-7%
4.47
-4.7%
4.49
-4.3%
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.
We also continue to view of our water footprint within the wider
context of global water risk. With the help of the World Resources
Institute’s ‘Aqueduct Tool’ we have identified a number of water
priority sites across the Group. These are sites operating in areas
of potential water scarcity where we are taking measures to
improve water stewardship. In 2017, total water withdrawals across
these sites was down 12% versus our 2016 water intake and water
intensity improved by 4%.
AMERICAS
2 Priority
Sites
EMEA
2 Priority
Sites
ASIA-
PACIFIC
5 Priority
Sites
Water Reduction at Newmarket (Ireland)
Our Newmarket site in Ireland is a producer of dairy products,
including cheese, and typically uses up to 200 million litres of water
per year. Given local water constraints, we began to look at other
ways to secure the water requirement for the site. The cheese-
making process at Newmarket produces whey as a by-product from
the milk. This whey is concentrated using a filtration system and
leaves behind a waste stream that is mostly water.
Traditionally, this was discharged as a waste, however in 2017,
Newmarket began to recover this permeate, bringing it up to
potable standard for use on site. As a result of the project, the site
saw water reductions of over 52,000m3 in 2017.
Waste
Kerry’s aim is to reduce the amount of waste produced per tonne of
product while also aiming to divert any waste material towards other
productive uses.
Our target is for a further 12% reduction in waste intensity between
2015 and 2020, versus a 2013 base year, building on a 20% reduction
achieved up to 2014. We are also aiming to achieve the goal of zero
waste to landfill, where technically feasible.
In 2017, we achieved an 18% reduction in waste intensity, with the
result that we have now surpassed our 2020 goal, two years ahead
of target. Over the next two years we will continue to focus on waste
reduction at site level and evaluate ways to further conserve the
natural resources which we use.
Waste
2013
Base Year
2020
Target
2017
Target
2017
Performance
Kgs per Tonne FG
97.05
85.40
% Change
–
-12%
87.16
-10%
79.66
-18%
Waste to Landfill
Where we do have waste streams, we look for opportunities to turn
this waste into a resource and aim to achieve Zero Waste to Landfill
by 2020, (where technically feasible). In 2017, the proportion of total
waste sent to landfill was reduced by 4%. As a result landfill volumes
in 2017 made up 7% of the Group’s total waste, down from 9% in
2016, and a further 10 sites achieved the zero waste to landfill goal.
We expect to see further progress in 2018, with continuing reductions
to landfill volumes across the remaining years of our current
‘Towards 2020’ programme.
Waste to Landfill Trend
Total Waste
Waste to
Landfill
7%
Diverted
Waste
Landfill
2013
2014
2015
2016 2017
2013
93%
Notes
1) Our target is a relative measure of waste divided by tonnes of product produced.
Focus on Food Waste (UK & Ireland)
Kerry Foods is a leading producer of consumer foods in Ireland and
the UK and has been diverting food from waste for redistribution
since 2015. In 2017, we donated almost 130 tonnes of food to those
in need, enough for over 290,000 meals, through our charity
partners, ‘FareShare’ in the UK and ‘Heart to Hand’ in Ireland.
In 2017, Kerry Foods signed up to the food waste targets under
Sustainable Development Goal 12. Through engagement with the
Champions 12.3 initiative, a coalition inspiring progress toward
achieving SDG Target 12.3, Kerry Foods has committed to halving
food waste across its business by 2030. With the requisite systems
already in place as part of the Group’s overall environmental
management system, Kerry Foods will begin reporting on food
waste volumes and progress in 2018.
Environmental Management Systems
In 2017, we continued the roll out of the ISO 14001 Environmental
Management System across our major manufacturing sites and are
ahead of target for completion. We expect to complete certification
of all targeted sites in 2018, ahead of our 2020 deadline. We have
also begun to deploy the ISO 50001 Energy Management System
at a number of selected sites, which are large energy users within
the Group.
Kerry Group Annual Report 2017
47
MARKETPLACE
In today’s marketplace, the
pace of change within our
industry is unprecedented
and technology continues
to drive disruptive innovation
and alternative business
models.
Consumers have instant access to information and an unparalleled level of product choice.
Brands are increasingly being challenged about product ingredients and the potential
consequences on consumer health. Transparency is also increasingly being demanded with
regard to how these ingredients have been produced and the implications for people and
the environment. Our product impact extends from the raw material suppliers we work with
through to our customers and the end consumer. Our mission is to deliver the highest quality
products that create value for all our stakeholders while contributing positively to the health
and sustainability of consumer diets.
Spend on Research,
Development & Application
In 2017
€269m
Kerry manufacturing sites
with GFSI certification
99%
Kerry manufacturing sites
with SEDEX membership
100%
Kerry developing region sites
with SMETA or
equivalent certification
100%
Kerry milk suppliers certified
under an accredited farm
level sustainability programme
100%
Our Marketplace
activities contribute to the
following UN Sustainable
Development Goals.
Health & Nutrition
Dietary risk remains a leading cause of
mortality and yet many of these deaths are
preventable. Today we are confronted by the
double burden of malnutrition, where we face
dual threats of undernutrition and obesity.
According to the World Health Organisation
(WHO), if current trends continue, the number
of obese children globally will surpass that
of the undernourished by 2022. The WHO
outlines that sustainability as it applies to
health should consider the management
of resources in ways which support the
health and well-being of present and
future generations.1
1. World Health Statistics 2017: Monitoring health for the SDGs.
48
Kerry Group Annual Report 2017
As the world’s leading Taste & Nutrition
company, we are focused on improving
diets through enhanced nutrition
and critically, we understand the
interdependent nature of the relationship
between nutrition and taste. Although
health and wellness is an increasingly
important consideration for consumers
when choosing food and beverage
products, taste remains the primary driver
of purchase decisions so development
of healthier products must not require
consumers to compromise.
In a holistic approach to new product
development, we seek to balance our
customer requirements with consumer
insights and leverage our expertise and
unrivalled portfolio of technologies and
solutions to deliver great tasting products
that contribute to enhanced wellbeing. At
€269 million, we have an industry leading
investment in Research, Development and
Application. We bring all of this expertise
and knowledge together to deliver our
customers goals around nutrition and
satisfy the growing consumer demand
for cleaner, healthier diets.
In 2017, we continued to work with a range
of partners from industry and academia to
advance the understanding of these topics
and the Kerry Health & Nutrition Institute
continues to make a growing contribution
to the expert discourse on the science
and policy of health, nutrition and
general wellness.
In 2017, the Kerry Health & Nutrition
Institute sponsored three global webinars
to advance our thought leadership, on
topics relevant to the industry, which
included “How Can Nutrition Address
the Immune Health Needs of Today’s
Consumers;” “Plant Proteins: Overcoming
Inherent Hurdles;” and “Clean Label: More
Than Ingredients.”
These webinars contributed to significant
global reach and engagement with Kerry
teams. The Kerry Health & Nutrition
Institute was also actively engaged
in scientific conferences, sponsoring
two key sessions at global Food and
Nutrition Conference and Expo (health
care professional conference), while also
presenting at leading global food and
beverage trade meetings.
Kerry Health & Nutrition Institute
(KHNI)
Supported by a Scientific Advisory Council,
the Institute aims to translate taste and
nutrition science and policy into actionable
insights for the food and beverage industry.
The website, khni.kerry.com, provides
a digital platform for stakeholders
from students to experienced industry
professionals and researchers to find
timely and relevant information on
market challenges and evolutions in
scientific research.
Kerry Foods’ ‘Better For You’ Programme
POSITIVE
NUTRITION
Yollies yoghurt lolly
is a source of calcium
and vitamin D
CLEAN
LABEL
Go Go's cheese
spread contains
no emulsifiers
SODIUM
SUGAR
5% reduction
achieved within
cheese category
5% reduction
achieved within
yoghurt category
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, sugars and sodium, and add
positive nutrition as appropriate without
compromising on taste.
Following on from previous reformulation
work and in line with Public Health
England’s sugar reformulation targets, in
2017 we achieved a 5% sugar reduction
in the yoghurt category and a 5% sodium
reduction within the cheese category.
In Ireland, Kerry Foods is one of 14 major
food and drink manufacturers participating
in the FDII (Food and Drink Industry
Ireland) Reformulation project. The first
phase of the project assessed the impact
of reformulation activity by 14 companies,
between 2005 and 2012 and Kerry Foods is
a signatory to phase 2 of this project, which
will be published in 2018.
Building on previous reformulation
achievements, Kerry Foods continues
to explore new technologies to achieve
further reformulation across our portfolio.
Kerry Group Annual Report 2017
49
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 proactive risk assessment
with a farm to fork review. The supply
quality team, in conjunction with the
procurement function, operate strict
controls to ensure that raw materials
are sourced from approved vendors
that meet Kerry standards. Suppliers
are annually assessed at their site of
manufacture through our risk-based
audit plan and the Group’s supply
quality team had a food safety audit
footprint in 42 of the countries we
sourced from in 2017.
Kerry continuously seeks to improve
the process of standardisation and
accuracy of specifications for global
raw materials and from 2017, a newly
formed Global Raw Material Centre of
Excellence will centrally manage the
creation of global specifications for
specific raw material categories. At our
manufacturing sites, 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. In 2017, 99%
of our sites were accredited under
GFSI standards.
We also recognise that challenges
around food safety and food fraud are
not unique to Kerry and our Supply
Quality team continues to work closely
with industry peers on various food
fraud initiatives. In August 2017, we
were featured in Michigan State
University (MSU) Food Fraud Initiative
as an outcome of our ongoing efforts
and work with SSAFE’s2 food
fraud initiative.
Responsible Sourcing
As the world leader in Taste & Nutrition, we
provide the largest portfolio of technology
and customised solutions to the food,
beverage and pharmaceutical industries.
With operations in 27 countries and 15,000
products, our suppliers are integral to our
ongoing success. They are also important
actors in supporting our responsible
sourcing efforts, given that many of the
most significant sustainability challenges
we face lie upstream. Given the complexity
of our raw material supply chains and
our distance from agricultural production
across many commodities, it is important
that we work collaboratively with
our suppliers to better understand
our sustainability impacts and how
to drive improvement.
As part of our ‘Towards 2020’ goals, we
aim to ensure that those involved in the
production of our raw materials are treated
fairly and that human rights are respected.
We want to minimise the environmental
impacts associated with the production of
key commodities and work with customers,
suppliers and other industry partners to
ensure the long term sustainability of our
raw material sources.
Sustainable Agriculture
In 2017, Kerry continued to refine its
category level approach, placing a focus
on the commodities outlined below. We
assess customer requirements across other
categories on an ongoing basis and all
suppliers are subject to the requirements
of the Group’s Supplier Code of Conduct.
Dairy
Meat
Vanilla
Herbs & Spices
Palm Oil
Paper Packaging
Although we retain close links to farming
through our dairy heritage, we do not own
or operate any farms. In most instances our
relationship with farmers is an indirect one,
maintained through our suppliers.
Through the identification of high level
impacts associated with key commodities,
we focus our efforts on improvements
in priority areas. We understand that the
issues and the methods for achieving
progress will vary depending on the context
and we do not prescribe a single best
approach. Instead we look for engagement
with our suppliers and commitments to
measurable and continuous improvement.
We are members of a number of important
multi-stakeholder initiatives, through
which we seek to work collaboratively
with others in advancing responsible
sourcing at a category and industry
level. These initiatives include the SAI
Platform, Innovation Centre for US Dairy,
Sustainable Spices Initiative, Origin Green,
Roundtable on Sustainable Palm Oil and
the Sustainable Vanilla Initiative.
Focus on Palm Oil
Kerry continues to pursue its commitment to responsibly sourced palm oil and publishes a
detailed progress report on the Group website annually. Our 2017 publication highlighted that
88% of our volume in scope had been sourced from suppliers that operate in accordance with
the requirements set out in the Group’s palm oil policy. We have also achieved traceability
to the mill for 97% of our global palm oil volumes. To further our impact on sustainable palm
production, Kerry is identifying opportunities to work with suppliers, growers and other
industry stakeholders to support small palm growers. Smallholders are responsible for 40%
of palm production, yet these farmers often lack the resources and access to information
that could help them to produce more sustainably.
For more see www.kerrygroup.com/sustainability
2. SSAFE is a global non-profit that helps integrate food safety, animal health and plant health across food supply chains.
50
Kerry Group Annual Report 2017
Deforestation
Forests cover almost 30% of the
world’s surface and play a vital role in
supporting sustainable agriculture and
livelihoods. However, the production
of some agricultural commodities
has been linked with deforestation.
At Kerry, we want to ensure that the
raw materials we use are sourced
from areas that do not contribute to
further tropical forest loss. In 2017, we
published our commitment to ensuring
that no deforestation is associated with
targeted supply chains by 2025. We
will engage with suppliers and other
industry partners directly and through
platforms such as Tropical Forest
Alliance 2020 in our efforts to realise
this goal.
Sustainable Dairy
Developed by Bord Bia (the Irish
Food Board) under Origin Green, the
Sustainable Dairy Assurance Scheme
(SDAS) is a rigorous, independently
verified and internationally accredited
assurance programme. In 2017, Kerry
became the first major milk processor
to achieve 100% certification of its
milk suppliers under SDAS.
The Group’s 3,200 milk suppliers,
located in South West Ireland, provide
Kerry with over 1.2 billion litres of
milk annually. Using a natural grass
based production system, they are
already considered to be among the
most sustainable producers. Having
now completed an initial audit, these
family farms will undergo independent
assessment every 18 months, a
process that enables the carbon
footprinting of each individual farm.
The SDAS audit satisfies Kerry’s
longstanding requirements on
quality, food safety and traceability
at farm level, while the evaluation of
performance on sustainability criteria
such as environmental management,
animal health and welfare, pasture
management, and health and
safety will now help to ensure more
sustainable production.
Social Compliance
At Kerry, we are committed to upholding
internationally recognised human rights,
both in our own organisation and within
our wider sphere of influence. We are a
member of SEDEX (Social and Ethical Data
Exchange), the world’s leading collaborative
platform for sharing responsible sourcing
data, which aims to drive continuous
improvement across global value chains.
100% of our sites are registered on
SEDEX and complete the self-assessment
questionnaire (SAQ), making our performance
across labour rights, health and safety, the
environment and business ethics at each
site visible to selected stakeholders. In
addition, we have SEDEX Members Ethical
Trade Audits (SMETA) covering each of
our sites in developing regions.
In 2017, the Group’s Supplier Code of
Conduct was communicated to all our
direct vendors.
This document clearly sets out our
expectations with respect to upholding
the rights of workers. It explicitly prohibits
the use of child or forced labour in any
activities connected with Kerry Group, and
sets forth the detailed standards we expect
our supply partners to uphold.
We adopt a targeted approach to
monitoring supplier compliance with this
Code. Through the use of independent risk
evaluation tools and internal assessment,
we have identified higher risk suppliers,
based on geographic location and/or the
risk associated with the product supplied
to Kerry. For each of these suppliers, we
seek further engagement through SEDEX
to help us assess their performance.
In 2017, 40% of these suppliers were
registered on SEDEX, in line with our target
for 100% registration of all ‘higher risk’
suppliers by 2020.
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
Origin Green is Ireland’s national food and drink sustainability
programme, uniting government, the private sector and food
producers through Bord Bia, the Irish Food Board. The programme is
unique in terms of its scale and the collaboration among stakeholders.
It is a comprehensive, evidence based initiative with independent
verification of results that aims to make Ireland a world leader in
sustainably produced food and beverage.
As a founder member, Kerry continues to play a leading role in the achievement of the
programmes objectives. In 2017, we became the first major dairy processor to achieve
100% certification of our milk suppliers under the Sustainable Dairy Assurance Programme,
developed as part of Origin Green.
As a condition of membership, Kerry has adopted a sustainability charter covering each
of its manufacturing locations in the Republic of Ireland. Under this charter, these sites
have targeted reductions in key environmental areas. We also have responsible sourcing
commitments and stated goals with respect to health, nutrition and community support, all
of which are aligned with our Group-wide sustainability objectives. We report our progress
to Bord Bia on an annual basis and our report is subject to independent verification as part
of our continued membership.
Kerry Group Annual Report 2017
51
WORKPLACE
Our 24,000 people are the
key to Kerry’s success and
under the Workplace pillar
we are focused on creating
an environment where people
feel valued and encouraged
to contribute.
Our innovative and entrepreneurial culture is key to our success and we want to engage our
people through the way we conduct our business, rewarding talent, providing prospects to
grow and develop and the opportunity to make a difference.
Under the Workplace pillar, we contribute to the
following UN Sustainable Development Goals.
Kerry’s Global Workforce
24,000
employees
Improvement in
Health & Safety Metrics
14%
Learning & Development
118,000
Courses Taken
Kerry’s Position on Child
and Forced Labour
Zero
Tolerance
The Group’s Code
of Conduct clearly
defines the standards
of behaviour that are
expected from all
colleagues and every
day we seek to live out
the values it enshrines.
52
Kerry Group Annual Report 2017
Ethics & Integrity
At Kerry we believe that acting with integrity
is the foundation for long term success and
we are resolute in our view that business
results must always be achieved ethically
and legally. The Group’s Code of Conduct
clearly defines the standards of behaviour
that are expected from all colleagues and
every day we seek to live out the values it
enshrines. The Code covers a comprehensive
range of potential workplace challenges and
provides clear guidance for colleagues across
four key themes:
Live Our Values
Obey The Law
Protect Our Assets
Respect Each Other
The code is made available across the Group
in multiple languages and is clear on each
colleague's responsibility to uphold the
requirements under the headings above.
In 2016, training on the Group’s Code of
Conduct was introduced for all colleagues
and in 2017 we achieved a 70% increase in
module completions.
The Group provides clear guidance for
anyone that wishes to report an issue. The
Employee Concerns Disclosure Policy details
the appropriate means of reporting alleged
misconduct and encourages employees
to freely voice concerns without feeling
intimidated. Retaliation against any individual
for reporting a concern or cooperating in
an investigation is not tolerated. The Group
operates an Ethics Hotline through which
employees and third parties can report their
concerns anonymously.
We also seek to extend our values on
ethical business practice to those whom
we do business with and our requirements
are reflected in our Supplier Code of
Conduct (see the Group website
www.kerrygroup.com).
Human Rights
We conduct our business in a manner
that respects the rights and dignity of
all people. Our support of internationally
recognised Human Rights is consistent
with our dedication to enriching our
workplace, partnering with our supply
chain, and supporting the communities
where we operate.
Kerry’s Global Human Rights Policy
reflects our commitment to upholding
internationally recognised Human
Rights, as established in the Universal
Declaration on Human Rights and the
International Labour Organisation’s
Core Conventions. The Group’s Human
Rights policy applies to all Kerry
Group employees and also sets out
expectations on our business and
supply chain partners to conduct
their business in ways that uphold the
principles set out in the policy.
The use of child or forced labour
is strictly prohibited across all our
operations and facilities. We do not
tolerate any form of unacceptable
treatment of workers and we respect
all laws establishing a minimum age
for employment.
We have processes in place to
ensure compliance and to support
implementation and monitoring of the
Group’s Human Rights policy. All Group
businesses are members of SEDEX
and complete the Self-Assessment
Questionnaire, which includes questions
regarding young employees, forced
labour and human rights. In developing
regions, where there is potential for
an increased risk of infringement, all
of our sites are covered by SMETA, or
equivalent, audits.
Our Supplier Code of Conduct is
explicit in demanding that those who
seek to do business with the Group
also uphold the rights of workers and
expressly forbids the use of child
labour, forced or involuntary labour of
any type. For more information on our
engagement with suppliers in this area
see our Responsible Sourcing Section
on page 50.
The Group also publishes an annual
Slavery and Human Trafficking
Statement which is available on the
Group website at www.kerrygroup.com.
Health & Wellbeing
Ensuring the health and safety of our
employees is a priority for Kerry. Led by
the Global Health Safety and Environment
(HSE) Steering Team, Kerry has
implemented a Group-wide Health and
Safety Management System that defines
consistent ways of working and creates
standard requirements across each region.
Dedicated HSE personnel in all sites work
with plant managers to ensure that we
consistently promote a culture of safety
and responsibility.
We measure performance on an ongoing
basis and progress reports are presented at
bi-monthly sustainability council meetings.
We celebrate success internally and
share best practice among sites to ensure
consistent performance across all locations
and regions.
As a Group, we have targeted a 5%
year-on-year improvement in our
health and safety metrics and in 2017
we delivered an improvement of 14%.
In 2017
we achieved
a further 14%
improvement in global
safety metrics
14%
While this represents a significant and
ongoing improvement versus target,
we realise that this is an area requiring
continued focus to ensure that we provide
the safest possible working environment.
Given the significant time employees spend
in the workplace, employers can also play
an important role in personal wellbeing
beyond basic health and safety. At Kerry,
we want to support colleagues in leading
healthier, more active lives and in 2017, we
continued to promote greater wellbeing
through a range of initiatives. These
included a number of health and wellness
events across the regions that encourage
employees to pay greater attention to
their physical and mental wellbeing. These
events cater for a wide range of abilities
and interests and include a mixture of
health checks, fitness and team activities,
relaxation and professional advice.
Kerry Group Annual Report 2017
53
Employee Engagement
Employee engagement benefits both our
colleagues and the business as a whole with
outcomes shown to include higher levels of
wellbeing, performance and retention.
While we have previously conducted regional
and divisional engagement activities, May
2017 saw Kerry initiate its first Group-wide
engagement survey for all Kerry employees.
Entitled ‘ourVoice’, the purpose of the survey
was to seek feedback from employees with
a view to better enabling and empowering
them to develop in their careers, deliver
high performance and make Kerry a better
organisation and place to work.
The survey responses highlighted key areas
where Kerry is doing well and also areas where
it has the opportunity to improve. The feedback
noted a high level of consistency across the
Group, a strong sense of purpose and belonging
by employees with a belief in the future success
of Kerry and a very positive focus on quality
right across the organisation.
Areas where employees felt Kerry has the
opportunity to improve included more focus
on the employee experience to ensure people
feel connected with the organisation, and
placing a greater focus on communications
between management teams and the wider
employee population.
Following the compilation and analysis of the
survey results, a comprehensive collaboration
process took place to inform employees of the
results at a regional, business, function, site and
team level. Action plan committees, consisting
of employees and management representatives,
were formed to identify key changes that can
be made in the short, medium and long term to
drive Kerry forward and make it a better place to
work. The implementation of these action plans
is now underway across the Group.
+
Our People page 22
In an increasingly
competitive landscape
for attracting
talent, we aim to
create a workplace
where colleagues
are challenged in
their roles and have
the opportunity to
make a meaningful
contribution to
the success of the
business.
Diversity & Inclusion
Kerry is committed to the principles of equality and diversity and
states its requirements for a discrimination free workplace as part
of the Group’s Code of Conduct. More recently, the integration of
our dedicated Diversity and Inclusion policy seeks to embed these
principles more fully within our core values.
We know that diversity is socially important but research also suggests
a clear business case for embracing a more representative workplace,
with companies that demonstrate a commitment in this area achieving
greater levels of innovation3 and financial returns4 .
To be successful in a global marketplace
companies need to embrace the diverse views,
backgrounds, cultures and abilities that are
reflective of customers, consumers and the
wider world.
We aim to recruit leading talent with different skills and experiences
that can come together to create new ideas, product concepts and
ways of working that deliver a sustained competitive advantage. This
starts with the Group’s Board and senior management where we have
made strides in recent years to ensure more equal representation
based on gender (see page 90).
3. http://onlinelibrary.wiley.com/wol1/doi/10.1111/fima.12205/abstract
4. https://www.mckinsey.com/business-functions/organization/our-insights/why-diversity-matters
54
Kerry Group Annual Report 2017
Learning & Development
In a fast changing world we know that
colleagues have an appetite for ongoing
development and lifelong learning. At Kerry,
we believe in people with big ideas and
want to provide them with opportunities to
acquire the skills and professional expertise
that can deliver ongoing business success
and help to grow their careers.
As part of the development process we
undertake continuous investment in people
and adopt a structured approach to talent
management through our dedicated
‘mySuccess’ platform. We empower
employees to be proactive about their own
career progression with support from line
managers and local HR representatives. We
provide a range of learning opportunities
from graduate training through to
leadership development programmes.
+
‘Towards 2020’ page 45
Performance reviews provide an
opportunity for employees and managers
to set goals and evaluate performance
with ongoing feedback and coaching
conversations, as well as formal year end
reviews. Training or development needs
identified as a result of this two-way
process are then met through the Kerry
Learning Academy, which provides tailored
learning opportunities for employees
across the organisation.
Programmes focus on the development of
functional and core leadership skills that
enhance capability and drive performance.
Learning support is made available through
classroom, online and interactive content
that provides instruction, stimulates
discussion and encourages collaboration.
In 2017, Kerry colleagues collectively
undertook over 118,000 courses with a
19% increase in the number of employees
who had undertaken at least one course
versus 2016.
+19%
increase in the number
of employees who had
undertaken at least one
course versus 2016.
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.
We provide competitive
rates of pay and ensure
fair compensation
practices across all
our locations.
Kerry Group Annual Report 2017
55
COMMUNITY
With facilities in 27 countries,
we play an important part in
the local communities where
we operate and in regions
where our support can help
to transform lives.
Broad Community
Engagement Programme
FIVE
FOCUS
AREAS
Farmers engaged under
‘Project Leche’
68
New ‘Rain’ Project
for West Africa
Agreed
Food donated to those in
need by Kerry and its
employees globally
300,000
Meals
Photo: WFP/Hetze Tosta
56
Kerry Group Annual Report 2017
We have a proud tradition of community engagement, stemming from our history as a
co-operative, and we continue to look at ways to positively impact on those around us.
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
Through our community
activities we contribute to
the following Sustainable
Development Goals.
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
Kerry is the first Irish 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. Together, our pioneering 3 year partnership, ‘Project Leche’, is piloting the safe
and sustainable inclusion of dairy products within WFP’s Home Grown School Meals (HGSM)
programme in the Department of Choluteca, in the dry corridor of Honduras.
Honduras is one of the poorest countries in Latin America, where one in four children suffer
chronic malnutrition. Recurrent natural disasters and a susceptibility to the effects of climate
change contribute to food insecurity. Weather extremes such as prolonged drought and
hurricanes severely affect the ability of subsistence farmers to produce enough food to feed
their families. Project Leche aims to support the work of WFP and the HGSM programme
through 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.
•
Noon Foundation
In 2017, Kerry continued its support under a 5 year partnership with the Noon Trust in India.
Kerry Foods, as the leading UK producer of authentic, convenient Indian cuisine has close ties
to the region through the late Lord Gulam Noon, British based businessman and founder of
Noon Products which is now a Kerry Group business. As part of our programme with the Noon
Trust, Kerry is funding the establishment of a ‘Kerry Wing’ at the Noon Hospital and Research
Centre in Rajasthan. Kerry’s funding will allow for the expansion of affordable ophthalmic
services on site as part of a dedicated Centre of Excellence for Eye Care in the region.
RAIN Project
Kerry continues to partner with Concern Worldwide on the RAIN
(Realigning Agriculture to Improve Nutrition) programme. In 2017,
we finalised plans for a new four year project based in West Africa.
In keeping with Concern Worldwide’s objectives, the project will
work with those facing hunger and malnutrition within the world’s
poorest communities. The project, which will commence in 2018,
builds on the learnings from our previous RAIN initiative in Zambia
and will incorporate a focus on adaptation and resilience in the face
of increasing challenges posed by climate change.
supporting
World Food Programme
In 2017, Kerry and WFP successfully concluded the first full year
of Project Leche and have established a platform in the pilot
region to deliver on the project goals over the next two years.
Highlights from 2017 include:
•
Engagement of local agricultural and nutritional expertise
to help implement the programme on the ground.
• The completion of a baseline survey for milk producers and
processors to establish how milk is currently produced,
highlighting target areas for improvement.
• Creation of a peer-to-peer learning model similar to that
used among Kerry milk suppliers in Ireland.
•
Identification of farm leaders to act as demonstration farms
for best practice and the facilitation of farm workshops in
conjunction with Zamorano University.
• Nutritional assessment of school children in the project
area establishing a baseline for schools against which
progress can be measured.
• Development and implementation of training plans for
producers, processors and teachers.
• Commencement of monitoring for children with obesity,
low weight for their age (underweight), or low height for
their age (stunting).
•
Engagement with important local and regional institutions
to support this work including health authorities, district
directors, municipal directors, teachers and mothers of the
region. The project team has also engaged with SENASA (the
National Food Safety and Security Service of Honduras) and
the Institute of Nutrition of Central America and Panama.
Noon Hospital & Research Centre
The Noon Hospital and Research Centre is a comprehensive 100
bed hospital facility in Rajasthan, India. Located at Bhawani Mandi,
it provides essential health care services for people within a 100km
radius. The hospital provides world-class service based on patient
need and has state-of-the art operating theatres, intensive care
unit, neonatal ICU and eye department.
India has the world’s largest population of blind people and those
worst affected are the rural poor with little access to basic health
care. However, timely treatment can save the sight in over 80% of
cases. Previously, people living in the Bhawani Mandi area either
had to travel long distances at great expense or the majority lost
their eyesight and they and their families fell into poverty.
To help combat this, the Noon Hospital established its specialist
Eye Department in 2008, providing a range of services that tackle
the leading causes of sight loss. It treats approximately 25,000
patients a year and since April 2013, 2,760 patients have undergone
surgery, 700 of which were cataract surgeries carried out for free.
Due to its success and with only one Consultant, the Eye
Department is functioning at full capacity, yet demand for its
services continues to increase year-on-year. With the support of
Kerry Group, work began on building the new KERRY WING of the
‘Noon Eye Care Centre of Excellence’ in April 2017. The ground
floor of the entire wing will be dedicated to eye care and the
Centre will have three consultation rooms and the latest
ophthalmic equipment.
The increase in staffing capacity and equipment will ensure
that demand for its services can be met and vulnerable patients
requiring treatment will not be turned away. To meet the current
demand, and working closely with the National Programme for
Control of Blindness, the hospital plans to double the number of
free surgeries to 240 per year on opening in March of 2018.
Entrepreneurship
Kerry is driven by a fast paced and entrepreneurial culture and this
is something we seek to extend though our community engagement
activities. We help foster innovation and development through our
community projects, many of which give rise to local employment,
support disadvantaged areas and promote local enterprise. We
provide learning opportunities for young people through work
placement programmes at our major corporate centres.
In 2017, Kerry volunteers in Brazil used their unique expertise to
develop an 80 hour culinary course that would assist young adults
pursue a career in food. Known as ‘Jovem Chef’ (Young Chef) the
programme helped 15 to 24 year old students to start their culinary
journey. In addition to the course learnings, there was an overall
prize of a scholarship for the Institute of Gastronomy for the best
performer in the final course competition.
Kerry Group Annual Report 2017
57
We have a proud
tradition of community
engagement, stemming
from our history as a
co-operative, and we
continue to look at ways
to positively impact on
those around us.
Education, Arts and Sport
Access to quality education is critically
important in helping children to prosper
and in 2017 Kerry continued to engage in
activities that support school children. In
Madagascar a core element of our Tsara
Kalitao programme relates to improving
education (see page 59). In Ireland,
we continue to support the ‘Thomas F
Meagher Foundation’ in its work on civic
responsibility and their efforts to promote
an open and inclusive society.
In South Africa, we established a 'Kerry
Discovery Centre' at the John Wesley
primary school in New Germany. This
reading lab provides an inviting learning
environment for over 600 students, and
will have a positive impact on the children's
education. Aside from the vastly improved
accessibility to information on the internet,
the reading lab will also encourage students
to engage with reading and provide a
place to immerse themselves in their
favourite stories.
In 2017, we also supported ‘Enable Ireland’
to construct an accessible outdoor play
area at their centre in Tralee. Once finalised,
this amenity will help support learning
and development for children with more
complex needs.
In the Art’s, Kerry is proud to support
‘Listowel Writers Week’, an internationally
acclaimed literary festival. In addition to
supporting the wider festival, we also
sponsor the prestigious ‘Kerry Group
Irish Novel of the Year Award’ for Irish
Fiction. Kerry is also corporate sponsor to
‘Siamsa Tire’, the National Folk Theatre of
Ireland, which aims to protect, explore and
develop traditional art-forms in music,
song and dance.
Our connection with community and
amateur sport is ongoing and we are
proud sponsors of all Kerry GAA teams.
We support the local community games,
which aims to encourage children in a
range of sporting disciplines and we
are partners of the Rás Mumhan, an
international amateur cycling event that
takes place in Ireland each spring. In 2017,
we also made a €500,000 commitment to
support the Kerry Sports Academy at the
Institute of Technology Tralee. Scheduled
to open in January 2019, the Kerry Sports
Academy will be home to the UNESCO
Chair in Inclusive Physical Education, Sport
Fitness, and Recreation and the National
Centre for Adapted Physical Activity.
58
Kerry Group Annual Report 2017
Sustainable Agriculture
Sustainable agriculture is a core element
of our responsible sourcing strategy.
Agriculture is of fundamental importance
to the communities where it is practiced,
however, the trend towards greater
urbanisation means that support for
agriculture is of critical importance in
maintaining rural communities.
In Madagascar, where we source our vanilla
beans, we are working with our supply partner
and other experts to improve conditions for
farmers and their families through a range of
measures. Kerry established the Tsara Kalitao
project in Maroambihi district of the Sava
Region, North East Madagascar in 2014.
Meaning ‘Good Quality’ in Malagasy, the
project aims to support farmers and their
families while improving the quality and
traceability of the raw material supplied
to Kerry.
The programme has been developed
with three pillars for improvement:
1. Farmer Livelihood;
2. Empowering Women; and
3. Education.
Starting out in 3 villages
with under 300 farmers,
today we have expanded
our work to almost 900
farmers across 11 villages
with an impact on nearly
5,000 people.
For a more detailed report on progress under
the Tsara Kalitao programme, see our website
www.kerrygroup.com/sustainability
Tsara Kalitao Food Aid
In March 2017, the ‘Tsara Kalitao’ project region was hit by cyclone Enawo. To help
those affected during this period, Kerry provided food aid to more than 3,000 people
across 9 villages, ensuring that farm families could meet their nutritional needs in
the immediate aftermath of the storm.
Community Development
We operate across a diverse range of
communities with differing needs and in
each of our regions we are committed
to supporting projects, many of
which are colleague led, that make
a difference to those around us. In
Honduras, our partnership with a local
customer improved the infrastructure
at the Alfonso Hernández Córdova
Institute. Thanks to this project,
sanitation facilities have been improved
benefiting the institute’s 1500 students
and 54 teachers.
In Malaysia, we continued to support
the Eco-Schools programme, an
international initiative designed by
the Foundation for Environmental
Education (FEE). With participants
from more than 40,000 schools in over
50 countries it helps to guide schools
in implementing a whole-school
approach towards environmental
and sustainability education. Over
the course of 2017, our ECO Mentors,
together with volunteers from our
Plentong and Tampoi sites, worked
closely with WWF Malaysia and
UniWorld International School to
successfully complete a range of
environmental projects.
In the USA, we partner with ‘The United
Way’, an organisation that works to
strengthen the health, education and
financial stability of individuals and
families in our communities. In 2017,
over 300 Kerry volunteers were active
in contributing to their Annual Day of
caring. Elsewhere, at Kerry sites across
North America, colleagues collected
over 13,000kgs of food and other
essentials for those in need within our
local communities.
The total donations were enough to
provide approximately 20,000 meals to
food pantry’s and charities across our
Kerry locations.
At Group level, we make a significant
contribution to a range of community
initiatives, particularly in South West
Ireland where the company was
founded. Among these is our ongoing
support for University Hospital Kerry, a
partnership that has now raised over €2
million for the purchase of vital medical
equipment since its inauguration. We
proudly support the fundraising efforts
for Children’s Medical & Research
Foundation in Dublin, the Kerry Hospice
as well as a number of regional festivals
and cultural events.
We also embarked on a new initiative
in 2017 to recognise community
volunteers. In collaboration with
the North East and West Kerry
Development Company, we launched
the ‘Community Vibrancy Recognition
Programme’. This programme aims to
highlight those projects and volunteers
whose work makes a significant
contribution to enhancing community
life, but which is often known only
to those directly involved. Through
the programme we want to celebrate
this work, promote sharing of best
practice among community groups
and inspire greater support for
community activism.
Kerry Group Annual Report 2017
59
STRATEGIC
STRATEGIC
REPORT
REPORT
RISK
REPORT
Effective Risk Management
Kerry’s risk management framework ensures
that robust processes exist to identify and
effectively manage risks so that Kerry can
continue to grow profitably.
The Board has 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 and manufacturing
footprint, as well as its broad portfolio of customers and products,
helps limit the impact that any one risk may 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 has 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
60
60
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
Board of Directors
The Board has overall responsibility for risk management, internal
control systems, setting the risk appetite and determining the
risk tolerance for the Group. 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.
During the year, as part of the risk management programme,
the Board also considered how the Group’s principal risks
and uncertainties could potentially 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 is
responsible for evaluating the design and effectiveness of the
Group’s risk management and internal control systems and
determining the nature and extent of its principal risks. During
the year the Committee monitors and reviews the Group’s risk
management and internal control systems through its review
of reports received from Internal Audit, the Group External
Auditor and management on the operation of material financial,
operational and compliance controls.
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) comprises of a number of
senior executives and is chaired by the Chief Financial Officer.
The ROC supports the Audit Committee in the risk management
process through ongoing monitoring and evaluation of the
risk environment and ensuring continuous improvement in 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 to the Board and Audit Committee
on the principal risks and uncertainties is agreed at the start of
the year and risk is a regular agenda item at Board and Audit
Committee meetings where members of the ROC, or nominated
functional leadership, present on these risks. 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 internal controls.
Executive Management
Executive management are responsible
for ensuring the effective operation
of internal controls which have been
designed 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 Committee, the Sustainability
Council, the Global Health, Safety and
Environmental (HSE) Leadership Team
and the Brexit Steering Committee.
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. Embedding
risk management into standard ways of
working ensures that potential risks are
identified at an early stage, escalated
as appropriate and that 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 appropriate 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 internal 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 is
facilitated by Internal Audit and overseen
by the ROC. Risks were evaluated through
bottom-up input from management
across all divisional and functional areas
who, through a programme of workshops,
interviews and a survey performed a
detailed review exercise to update the
Group Risk Register.
During this process all existing strategic,
operational and financial & 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 output from the workshops, interviews
and survey are consolidated and ranked
to identify the principal risks and
uncertainties for the Group. 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 are considered and discussed. It is
acknowledged by management and the
Board that 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 operational or financial
& compliance areas such as product
quality and health & safety. 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 and a higher level of risk may
be accepted in these areas e.g. emerging
market expansion, acquisitions or capital
investments.
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.
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61
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. Additionally, each risk has been linked to the Group’s
strategies for growth and margin expansion as outlined in the Strategic Report on pages 18-20.
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 Strategic Report pages 18-20
11
Taste & Nutrition
Strategic Growth
Priorities
2
Consumer Foods
Strategic Growth
Priorities
3
Margin
Expansion
Drivers
Risk Description and
Potential Impact
Strategic Risks
Portfolio Management
The Group operates across many markets and
channels, and demand for products is impacted
by a variety of factors including economic,
demographic, technology and competitor actions.
The Group must adapt and change to meet the
ever increasing demands of the consumer which
is resulting in unprecedented fragmentation of
the marketplace.
Successfully achieving growth targets is
dependent upon the Group’s ability to strategically
evaluate and respond to this dynamic market
place, and ensure it optimises its portfolio of
markets, customers, technologies and channels.
Failure to plan and respond to these evolving
market place dynamics could have an adverse
impact on the future profitability of the Group.
Risk Trend and
Link to Strategy
The Board considers
that this risk is
broadly in line with
the prior year.
1
2
Mitigation
The Group’s business model, strategy and operational activities
are reviewed and approved by the Board on a regular basis to
ensure that the Group is responding effectively to changing
market trends.
As described in ‘Business Model’ on page 14 the positioning of
the Taste & Nutrition business as an integrated solutions provider
underpinned by its unique business model and continuous
investment in ‘Culinary and Insights’ helps it to stay ahead of
ever-changing consumer preferences and provides foresight
into future consumer demands. Kerry Foods has positioned its
portfolio to drive growth in its core businesses of Meat, Meals
and Dairy while also leveraging its consumer insights expertise
to expand into fast growing adjacent categories.
Ongoing portfolio review is a key pillar of the Group’s strategic
planning process as it facilitates a prioritised allocation of
resources based on growth and margin expansion opportunities
as well as return on investment.
In 2017, in line with the strategic planning cycle, the Group
updated investors on its Strategic Plan for the next five years.
This was underpinned by a top-down and bottom-up approach
with significant involvement from senior management,
cross-functional regional teams and the Board who provided
support and constructive challenge throughout the process.
The Strategic Plan was approved by the Board and subsequently
presented to the investment community at the Capital Markets
Day held in October.
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Risk Description and
Potential Impact
Strategic Risks
Geopolitical Risk and Brexit
A key pillar in the Group’s growth strategy is its
continued expansion in developing markets which
exposes it to external factors which may impact
the results of the Group. 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.
Brexit: There is ongoing uncertainty surrounding
the impact of the United Kingdom's impending
departure from the European Union. This
uncertainty has resulted in negative consumer
sentiment in the UK market and adverse sterling
exchange rate movements which have negatively
impacted the Group’s Irish based Consumer
Foods business. The outcome of negotiations may
expose the Group to a number of additional risks
including trade tariffs and labour restrictions.
Risk Trend and
Link to Strategy
Given the current
political and
macro-economic
environment the
Board believes
that this risk has
increased.
1
2
3
Mitigation
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 structures ensure
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.
Brexit: The Group has an established manufacturing footprint in
the UK and across Europe and is working to ensure that it is well
positioned to deal with the challenges and opportunities arising
from Brexit negotiations. An executive steering committee is in
place to assess the impact of the potential scenarios which may
arise once negotiations are complete. In addition, contingency
plans are being developed and the Group has identified
cost optimisation (KerryExcel) and business reorganisation
opportunities to mitigate any negative impact.
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Risk Description and
Potential Impact
Strategic Risks
Business Acquisition and Divestiture
Acquisitions and divestitures continue to be a
core element of the Group’s growth and portfolio
management 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.
A failure to deliver on an acquisition’s
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.
Risk Trend and
Link to Strategy
The Board considers
that this risk is
broadly in line with
the prior year.
1
2
3
Mitigation
The Group continually reviews its overall business portfolio
in the context of its long term Strategic Plan.
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.
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 who monitor the integration project and review
the performance of the acquired entities.
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 management team of the
acquired entity is strengthened by the transfer of experienced
Kerry management.
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Kerry Group Annual Report 2017
Risk Description and
Potential Impact
Operational Risks
Quality, Food Safety and Regulatory
Adherence to stringent food quality and safety
controls is critical to ensure the safety and
integrity of raw materials and products throughout
the Group’s supply chain.
The Group must also ensure compliance with
continuously evolving legal and regulatory
obligations in the areas of food safety, quality,
labelling and the environment.
Breach of food quality or safety controls or
other regulations could expose the Group to
product liability claims, product recalls, customer
complaints or litigation, which may have a
negative impact on the Group’s results and /
or reputation.
Mitigation
Risk Trend and
Link to Strategy
A Global Quality and Food Safety structure has been established
providing leadership in key areas such as Hazard Analysis and
Critical Control Points (HACCP), global supply quality and crisis
management. A global steering committee supports a strong
quality and food safety culture across the Group and ensures
best practices are implemented across the organisation.
The Board considers
that this risk is
broadly in line with
the prior year.
1
2
3
Food safety risk is mitigated through detailed and proactive risk
assessments across the full product lifecycle. A Global Quality
Management System (GQMS), consisting of robust policies,
procedures and training, supports the Group’s manufacturing
and supply chain functions. Kerry manufacturing sites are
subject to regular audits by internal teams, customers and
independent bodies who audit against recognised global food
safety standards.
The global 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.
The Group has a strong regulatory function and employs
suitably qualified and experienced staff with global and regional
expertise. Employees receive quarterly regulatory updates
and continuous training on best practices. In addition, the
Group closely monitors and engages with external industry
organisations on emerging issues.
Adequate product liability insurance is maintained across
the Group.
Kerry Group Annual Report 2017
65
Risk Description and
Potential Impact
Operational Risks
Margin Management
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
and demand, weather events, political decisions
or changes in regulations. Given increased
competitive pressures in the market place, an
inability to pass on cost increases to customers
may impact the Group's margins.
Mitigation
The Group maintains a strong commercial focus on
procurement, pricing and cost improvement initiatives to
manage and mitigate this risk. In addition, all global commercial
teams have been trained in margin management principles.
Material commodity exposures are monitored continuously 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.
The Group employs skilled and experienced purchasing and
commercial managers to ensure that fluctuations in input costs
are 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.
Talent Management
The ongoing success of the Group is dependent
on attracting, developing, engaging and retaining
qualified and appropriately skilled employees.
An integrated talent management framework is in place to
assess and plan for people development through talent reviews
and critical role succession planning.
An inability to secure, build and engage a robust
talent pipeline could impact the Group's ability to
achieve its strategic growth objectives.
This includes a continued emphasis 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 ongoing focus on the diversity of our talent pipeline and
nurturing 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.
During 2017, employee engagement was measured via a Group
wide survey. Following the consolidation and analysis of the
results a comprehensive engagement process took place to
communicate results to employees. Action plans were initiated
across the Group to build on the collective strengths of the
organisation and prioritise areas for improvement.
The Global Mobility Team supports the deployment of key talent
as they move across locations within the organisation.
The Group continues to evolve its organisational structure to
ensure it remains responsive to changing market place dynamics.
Risk Trend and
Link to Strategy
The Board considers
that this risk is
broadly in line with
the prior year.
1
2
3
Given the
increasingly
competitive global
talent marketplace
the Board believe
that this risk has
increased.
1
2
3
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Kerry Group Annual Report 2017
Risk Description and
Potential Impact
Operational Risks
Cybercrime and Information Security
The Group is dependent on a robust ICT
infrastructure for the operation of its principal
business processes. There is a global threat
of significant and increasingly sophisticated
cyber-attacks including phishing, ransomware,
malware and social engineering. These attacks
may result in ICT systems being compromised
and / or confidential data being accessed, and
may have a significant customer, financial,
reputational and operational impact.
Other issues leading to disruption of the Group’s
ICT systems could impact business operations in
a number of ways, including disruption to sales,
production and supply chain, ultimately impacting
the Group’s results and ability to serve customers.
Kerryconnect
As part of the strategy to roll out a common ICT
solution and standard ways of working across
the Group, the deployment of Kerryconnect
will commence in the Americas region in 2018.
Any delay to the project or go-live issues may
dilute business resources and disrupt operations
reducing the Group’s ability to serve customers.
An over-run in costs due to scope creep, delayed
implementation or failure to deliver projected
efficiencies may have a negative financial impact
on the Group.
Operational Risks
Intellectual Property Management
Risk Trend and
Link to Strategy
Given that globally
reported incidents
of cybercrime are
increasing as are
levels of persistence
and sophistication,
the Board believes
this risk has
increased.
3
Mitigation
The Group, as part of its ICT Governance framework, have an
ICT Security Steering Committee to ensure that resources are
being effectively utilised to prevent critical system breaches and
protect the Group's assets.
An ongoing security enhancement programme is in place
which continuously develops and deploys additional layers of
protection in areas such as intrusion prevention, document
control and identity management.
ICT carries out business impact assessments on core systems
and continually tests and refines business recovery plans to
ensure efficient system recovery. The Group continually invests
in ICT and during the year a significant project was undertaken
to migrate critical infrastructure to a cloud platform, thus
enabling restoration of key enterprise applications rapidly in the
event of a major system failure.
There is a continual focus on raising the awareness of ICT
security to all employees.
The Kerryconnect programme is supported by an executive
steering team and a robust governance framework. The
Kerryconnect implementation team has accumulated significant
knowledge and experience from prior rollouts in Europe
and APAC, and takes these learnings into the next stage of
deployment.
As in previous deployments a phased approach to rollout will
be taken in the Americas region, with rollout in Latin America to
commence in Q1 2018 and planning for the deployment in North
America beginning in Q3 2018. Critical KPIs and other issues are
reviewed at regular steering meetings.
Given the significant
knowledge and
experience of the
Kerryconnect team,
the Board considers
that this risk
is stable.
3
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.
Kerry Group continues to focus on developing, enhancing
and protecting its IP portfolio. As a global leader in the taste
& nutrition market, Kerry considers its IP security and that of
its customers to be paramount. In addition to Kerry’s policy
on trade secret protection, Kerry has developed sophisticated
tailored IP policies and strategies to protect and defend against
infringements or misuse by employees or third parties. All of
these policies form the foundation of Kerry’s IP regime and
represent a key area of focus for the Group.
Kerry has made a number of patent applications and patent
acquisitions during 2017 to enable the Group to safeguard the
investment made in developing new technologies.
Protection of IP is also a key focus of the ICT Security Steering
Committee and IP protection clauses are a standard element of
employment contracts.
The Board considers
that this risk is
broadly in line with
the prior year.
1
2
3
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Risk Description and
Potential Impact
Financial & Compliance Risks
Taxation
Given the Group’s global network it is exposed to
an increasingly complex and evolving 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.
Failure to accumulate and appropriately
consider relevant tax information may result in
non-compliance with tax regulations or adverse
tax consequences.
Treasury Risk
The international nature of the Group’s operations
means that it has transactions and activities
across many jurisdictions which expose it to
liquidity, foreign exchange, interest rate and
counterparty risks.
Mitigation
The Group employs a team of dedicated tax experts who
support the Group in ensuring compliance with all taxation
matters globally. The Group also engages external taxation
advisors for additional tax advice and research and guidance
on matters of compliance where appropriate.
A strong emphasis is placed on proactively engaging with tax
authorities in all material jurisdictions.
Risk Trend and
Link to Strategy
Given significant
ongoing changes
in the international
tax environment,
including the recent
US tax reform, the
Board believes this
risk has increased.
3
The Group’s financial position remains strong with significant
cash resources and relatively long debt maturities. The Group’s
Treasury function actively manages all treasury risks through
cash-flow forecasts, foreign currency exposure netting and
hedging, monitoring of funding requirements and management
of interest rate and counterparty risk.
The Board considers
that this risk is
broadly in line with
the prior year.
A Group Finance Committee, which is described on page 32 is
in place and oversees the Group’s treasury and funding policies
and activities. The Board routinely review and approve Group
financing options.
3
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
of accounting.
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 34 to 41. The Group’s
2018 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 26
to 32 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 2020.
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
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Kerry Group Annual Report 2017
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.
DIRECTORS'
REPORT
CONTENTS
Directors' Report
70 Board of Directors
72 Report of the Directors
78 Corporate Governance Report
83 Audit Committee Report
88 Nomination Committee Report
92 Remuneration Committee Report
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69
DIRECTORS’
REPORT
BOARD OF
DIRECTORS
Chairman & Executive Directors
Committee
Membership Key
A Audit
Committee
N Nomination
Committee
R
Remuneration
Committee
Indicates
Committee Chair
N
Mr. Michael Dowling (73)
Chairman of the Board
Michael is a former Secretary General of the Irish
Department of Agriculture, Food and Forestry
and a Board member of the Agricultural Trust.
He is also Chairman of the Board of Management
of the University College Cork (UCC) / Teagasc
Food Innovation Alliance. He was appointed
Chairman of the Board in 2015 and has served
as a Director for 20 years. He is also a member
of the Nomination Committee since January
2001 and was appointed as Committee
Chairman in 2015.
Appointed: 3 March 1998 and as Chairman
1 January 2015
Mr. Edmond Scanlon (44)
Executive Director
Chief Executive Officer
Edmond joined Kerry’s graduate development
programme in Ireland in 1996. He was appointed Vice
President Finance, Supply Chain and Operations of
Kerry’s Global Flavours Division in 2004. In 2007, he
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. Edmond
was appointed Executive Director and Group CEO on
1 October 2017.
Appointed: 1 October 2017
Mr. Brian Mehigan (56)
Executive Director
Chief Financial Officer
Brian joined Kerry Group in 1989, having
previously worked in practice for six years. He
held a number of senior finance positions within
Kerry between 1989 and 2002. He is a Fellow of
Chartered Accountants Ireland and a graduate
of UCC. Brian has served as CFO and as an
Executive Director on the Board for 16 years.
Appointed: 25 February 2002
Mr. Gerry Behan (53)
Executive Director
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 in 2011. Gerry
has served as an Executive Director on the Board
for 10 years.
Appointed: 13 May 2008
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Kerry Group Annual Report 2017
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Non-Executive Directors
Mr. Gerard Culligan (43)
Independent Non-Executive Director
Gerard operates his own business
in the agribusiness sector.
Gerard is a Director and co-owner
of two private companies in the
marine industry.
Appointed: 1 June 2017
A
N
Dr. Hugh Brady (58)
Independent Non-Executive Director
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 to 2013.
Prior to this, Hugh 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 UCD.
Hugh is a non-Executive Director on the
Board of ICON Plc.
In addition, Hugh has held many national
and international leadership roles
including Chairman of the Irish Health
Research Board and Chairman of the
Universitas 21 Network of global
research universities.
Hugh joined both the Audit and
Nomination Committees in 2015.
Appointed: 24 February 2014
R
N
Dr. Karin Dorrepaal (56)
Independent Non-Executive Director
Karin was an Executive Director on the
Board of Schering AG in Berlin, a Dax30
pharmaceutical company, from 2004
until 2006 when it was acquired by
Bayer AG. In this role Karin was
responsible for the Diagnostic
Imaging business as well as worldwide
manufacturing and procurement.
Between 1990 and 2004, Karin was a
partner at Booz & Co., a consultancy
firm where she specialised in the
pharmaceutical industry advising clients
on issues regarding strategy, sales,
marketing and supply chain.
Karin 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.
Currently, Karin is a non-Executive
Director on the Boards of Gerresheimer
AG, Paion AG (vice Chairperson) and
Almirall S.A. Karin is also a Director of
a number of private companies.
Karin joined the Remuneration Committee
in January 2015 and Nomination
Committee in December 2015.
A
R
Ms. Joan Garahy (55)
Independent Non-Executive Director
Joan is Managing Director of ClearView
Investments & Pensions Limited. She
has 29 years experience 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, Joan worked with the National
Treasury Management Agency (Ireland)
as head of research at the National
Pension Reserve Fund (Ireland) and was
also head of research with Hibernian
Investment Managers.
Joan is a non-Executive Director on
the Boards of ICON Plc and Irish
Residential Properties REIT Plc as
well as being a Director of a number
of private companies.
In February 2012, Joan was appointed
Chairperson of the Remuneration
Committee and joined the Audit
Committee on the same date.
Appointed: 11 January 2012
R
N
Mr. James C. Kenny (64)
Independent Non-Executive Director
James was formerly Executive
Vice President of US based Kenny
Construction Inc. and President of
Kenny Management Services Inc. He
previously served as US Ambassador to
Ireland from July 2003 to June 2006.
James is a non-Executive Director on
the Board of Hub Group, a multimodal
transportation company, listed on
the NASDAQ.
James joined both the Remuneration
and Nomination Committees in
February 2012.
Appointed: 1 June 2011
Appointed: 1 January 2015
Mr. Con Murphy (53)
Independent Non-Executive Director
Con operates his own business
in the agribusiness sector and is
Chairman of the Irish Montbeliarde
Cattle Society. Con is a member of
the Board of Murrowside Limited,
a small private company.
Appointed: 1 June 2017
A
R
Mr. Tom Moran (62)
Independent Non-Executive Director
Tom has had a long and distinguished
career within the Irish Public Sector
and most recently was Secretary
General of the Irish Department of
Agriculture, Food and the Marine from
2005 to 2014. Tom also held a number
of international policy and international
trade negotiation leadership roles. Tom
formerly served as Ireland's Agriculture
Attaché to France and to the OECD.
Tom is currently a Board member of
An Bord Bia, the Irish Food Board, and
chairs its Dairy Subsidiary Board. He is
Chairman of the Irish Government Public
Appointments Service and also sits on a
number of Government Committees.
Tom joined the Audit Committee in
December 2015 and the Remuneration
Committee in February 2016.
Appointed: 29 September 2015
A
Mr. Philip Toomey (64)
Independent Non-Executive Director
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.
Philip is a Board member of UDG
Healthcare Plc where he served as
Chairman of the Audit Committee from
2008 to 2017.
Philip was appointed as Senior
Independent Director in February 2012
and joined the Audit Committee on the
same date. He was appointed Chairman
of the Audit Committee in February
2013. Philip was appointed Chairman
designate to the Board in November
2017 and will succeed Mr. Michael
Dowling in this role in May 2018.
Appointed: 20 February 2012
Kerry Group Annual Report 2017
Kerry Group Annual Report 2017
71
71
DIRECTORS’
REPORT
REPORT OF
THE DIRECTORS
Directors and
Other Information
Directors
Michael Dowling, Chairman
Edmond Scanlon, Chief Executive Officer*
Brian Mehigan, Chief Financial Officer*
Gerry Behan, President & CEO Taste & Nutrition*
Hugh Brady
Gerard Culligan
Karin Dorrepaal
Joan Garahy
James C. Kenny
Tom Moran
Con Murphy
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 2017
The Directors submit their Annual Report
together with the audited financial
statements for the year ended 31
December 2017.
Principal Activities
Kerry Group is a world leader in the global
food industry. The Group’s industry leading
portfolio of taste & nutrition foundational
technologies and integrated systems
deliver unique, innovative solutions to
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 and UK 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 2017
with an increase in adjusted earnings
per share (EPS) which is before brand
related intangible asset amortisation and
non-trading items (net of related tax) of
5.5% over 2016 to 341.2 cent (2016: 323.4
cent) and an increase in basic EPS to 333.6
cent (2016: 302.9 cent). Trading margin for
the year was maintained at 12.2% (2016:
12.2%). The Group achieved a free cash
flow of €501m (2016: €570m). 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
financial key performance indicators of the
Group are discussed on pages 24 to 25.
Events after the Balance
Sheet Date
On 19 February 2018, the Directors
recommended a final dividend totaling
43.9 cent per share in respect of the
year ended 31 December 2017 (see note
10 to the financial statements). This final
dividend per share is an increase of 12.0%
over the final 2016 dividend per share
paid on 19 May 2017. This dividend is in
addition to the interim dividend paid to
shareholders on 10 November 2017, which
amounted to 18.8 cent per share.
The payment date for the final dividend is
18 May 2018 to shareholders registered on
the record date 20 April 2018.
Since year end, the Group has completed
the acquisition of China based Zhejiang
Hangman Food Technologies Co. Ltd.
The Group has also reached agreement to
acquire Dachang, China based SIAS Food
Co. and Johannesburg, South Africa based
Season to Season Flavour Manufacturers
(Pty) Limited.
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
176,182,405 shares were in issue at 31
December 2017.
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 4
August 2018 and it is intended to seek
shareholder approval to renew the
authority at the Annual General Meeting
(AGM) to be held on 3 May 2018.
Kerry Group Annual Report 2017
73
Shareholders approved the authority for the Directors to allot
shares for cash on a non-pro rata basis up to a maximum
of 8,805,450 shares at the AGM held on the 4 May 2017,
representing 5% of the A Ordinary Shares in issue on 6 March
2017. Shareholders also approved an authority to allot a further
8,805,450 A Ordinary Shares (5%) for cash on a non-pro rata
basis provided the additional authority will only be used for
the purpose of an acquisition or specified capital investment
announced contemporaneously with the issue or which has taken
place in the preceding six month period and is disclosed with
the announcement of the issue. Neither authorities have been
exercised and will expire on the 4 August 2018 and it is intended to
seek shareholder approval for their renewal at the 2018 AGM.
During 2017, 25,898 shares and 41,980 share options vested under
the Company’s Short and Long Term Incentive Plans. In the same
period, 129,596 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 2017 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 4
August 2018 and it is intended to seek shareholder approval for its
renewal at the 2018 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 a number of acquisitions during the year.
The businesses acquired are described in the Chief Executive’s
Review and in note 30 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 €268.7m in 2017
(2016: €260.7m).
Sustainability
The Group delivered good progress on its sustainability objectives
in 2017 and in the implementation of the 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 published its new Strategic Plan in October 2017 setting out
medium term targets for growth and return. 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,
its focus on product innovation and positioning in convenience
growth categories, as well as expansion into adjacent markets such
as snacking, out-of-home and food-to-go solutions 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. Further details regarding the
Group’s Strategic Plan are included in the ‘Strategy & Financial
Targets’ section of this report on pages 18 to 20.
Board and Committee Changes
Stan McCarthy retired as Group CEO on 30 September 2017 and
retired from the Board on 31 December 2017.
Edmond Scanlon was appointed Group CEO on 1 October 2017 and
was appointed to the Board on the same date.
Flor Healy retired as CEO of Kerry Foods effective 8 August 2017
and stepped down from the Board on the same date.
Patrick Casey retired from the Board on 30 April 2017.
Gerard Culligan and Con Murphy were appointed to the Board on
1 June 2017.
74
Kerry Group Annual Report 2017
There were no changes to the composition of the Committees of
the Board during 2017.
Directors
The Board, at the date of this report, consists of a Chairman, three
Executive and eight independent non-Executive Directors. The
names and biographical details of the Directors are set out on
pages 70 to 71.
The Chairman, Mr. Michael Dowling, will retire from the Board
following the 2018 AGM. In November 2017, the Senior Independent
Director, Mr. Philip Toomey, was appointed as Chairman designate
to the Board and will assume the role of Chairman on 4 May 2018.
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.
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’) and 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 and
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 and IFRSs
as adopted by the European Union; and
– prepare the financial statements on the going concern basis
The Directors’ and Company Secretary’s interests in shares and
debentures are included in the Remuneration Report on page 113.
unless it is inappropriate to presume that the Group will continue
in business.
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
Sun Life Financial Group
9,165,717
5,546,214
5.2%
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 2016 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 68.
Directors’ Responsibility Statement
The Directors are responsible for preparing the Annual Report and
the financial statements in accordance with applicable laws and
regulations.
The Directors are responsible for ensuring that the company
keeps adequate accounting records which correctly explain and
record the transactions of the company, enabling at any time
the assets, liabilities, financial position and profit or loss of the
company to be determined with reasonable accuracy and ensuring
that the financial statements are prepared in accordance with
IFRSs and IFRSs as adopted by the European Union, 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.
Kerry Group Annual Report 2017
75
Each of the Directors, whose names and functions are listed on
page 72, confirms that, to the best of their knowledge and belief:
– the consolidated financial statements for the year ended 31
December 2017 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 and 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 2017;
– the Business Review includes a fair review of the development
and performance of the business for the year ended 31
December 2017 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 Company complies with its relevant obligations (as defined
in the Companies Act 2014). The Directors have drawn up a
compliance policy statement (as defined in section 225(3)(a) of
the Companies Act 2014) and arrangements and structures are
in place that are, in the Directors’ opinion, designed to secure
material compliance with the Company’s relevant obligations. The
Directors confirm that these arrangements and structures were
reviewed during the financial year. As required by Section 225(2)
of the Companies Act 2014, the Directors acknowledge that they
are responsible for the Company’s compliance with the relevant
obligations. In discharging their responsibilities under Section 225,
the Directors relied on the advice both of persons employed by
the Company and of third parties who the Directors believe have
the requisite knowledge and experience to advise the Company on
compliance with its relevant obligations.
Accounting Records
To ensure that proper accounting records are kept for the
Company in accordance with section 281 to 285 of the Companies
Act 2014, the Directors employ appropriately qualified accounting
personnel and maintain appropriate accounting systems.
The accounting records of the Company are maintained at the
Company’s registered office.
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 121.
The financial statements on pages 122 to 186 have been audited by
PricewaterhouseCoopers (PwC), Chartered Accountants.
The statutory Auditors, PwC, have expressed their willingness
to continue in office in accordance with Section 383(2) of the
Companies Act 2014.
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 36 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 2017.
Financial Instruments
The financial risk management objectives and policies along with
a description of the use of financial instruments are set out in note
24 to the financial statements.
76
Kerry Group Annual Report 2017
Information Required to be Disclosed by Listing Rule
6.8.1, Republic of Ireland Listing Authority
For the purposes of Listing Rule 6.8.1, the information required to
be disclosed can be found in the following locations:
Section
(1)
Topic
Interest capitalised
Location
Statement of
accounting policies
Publication of unaudited
financial information
Supplementary
information
Details of small related
party transactions
Note 33 to the financial
statements
Details of long term
incentive schemes
(5) – (14)
Section 5 – 14 of Listing
Rule 6.8.1
Remuneration
Committee Report
Not applicable
(2)
(3)
(4)
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
19 February 2018
Edmond Scanlon
Chief Executive Officer
19 February 2018
Kerry Group Annual Report 2017
77
DIRECTORS’
REPORT
CORPORATE GOVERNANCE
REPORT
Each year the Board undertakes a formal evaluation of its
effectiveness and that of its Committees. In 2017, this was an
internal self-assessment which was conducted by the Chairman
of the Board and the Senior Independent Director using Thinking
Board, a software programme provided by a UK based external
consultancy firm, Independent Audit Limited. The evaluation
concluded that the Board and its Committees are performing well.
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 and tasks, including
a Code of Conduct which defines business conduct standards
for anyone working for, or on behalf of, the Group. As Chairman,
I will ensure, with Board support, that the principles of the Code
continue to be implemented in 2018, maintaining 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
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 2017.
On behalf of the Board I can confirm that for the year under
review the Group has fully complied with the 2016 UK Corporate
Governance Code and the Irish Annex (the Code).
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 2017, the Board
oversaw the CEO transition process together with undertaking
a formal process to recruit a new Board Chairman. A number of
Executive and non-Executive Director changes occurred during
the year, the details of which are set out in the Nomination
Committee Report on page 88.
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, one
other Executive Director, and eight non-
Executive Directors.
Mr. Michael Dowling will not seek re-
election at the AGM to be held on 3 May
2018 and will step down as Chairman of
the Board on the same date. The Senior
Independent Director, Mr. Philip Toomey,
who was appointed as the Chairman
designate, will assume this role on 4 May
2018.
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
industry and international experience,
necessary to provide effective governance
and oversight of the Group.
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 overleaf 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.
78
Kerry Group Annual Report 2017
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.
New Group Strategic Plan and Capital Markets Day
The Board collaborated with Executive management in the
development of the new Group Strategic Plan to help ensure that the
direction of the plan was appropriate and a good fit for the Group in
the long term. During 2017, the Board provided input and strategic
guidance to Executive management in relation to the priorities for
growth, capital investment requirements, the key risks facing the
plan and how these are to be addressed and managed. The Board
also travelled to the Group’s operations in the United States, met with
senior management and agreed the strategic plan for the Americas
region. During the year, the Board met with management of other
Taste & Nutrition regions and the Consumer Foods business to review
their respective strategic plans. The Board approved the Group
Strategic Plan at the October Board meeting prior to its release at
the Capital Markets Day held later that month at its Kerry Global
Technology and Innovation Centre in Naas. Mr. Michael Dowling,
Chairman of the Board, Mr. Philip Toomey, Senior Independent
Director, and Ms. Joan Garahy, Chairperson of the Remuneration
Committee, attended the Capital Markets Day on behalf of the Board.
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 2017, the Board met seven times and there was full
attendance by all members of the Board at meetings held during
their time in office.
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, 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
The principal role of the Senior Independent Director is to provide
a sounding board for the Chairman and to act as an intermediary
for other Directors as required. The Senior Independent Director
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
The Board, as a whole, has assessed the non-Executive Directors
independence and confirmed that, in its opinion, all non-Executive
Directors are independent in accordance with the Code.
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
Kerry Group Annual Report 2017
79
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, operations and activities of all Board
Committees can be found in their respective reports on pages 83
to 115.
Kerry Group Governance Framework
Kerry Group has a clear Governance Framework with defined
responsibilities and accountabilities as outlined in the diagram
below. This Governance Framework is designed to safeguard long
term shareholder value.
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
Kerry Group Governance Framework
their understanding of the Group’s activities and meet with local
senior management. The June 2017 Board meeting was held in the
Group’s Technology and Innovation Centre in Beloit, Wisconsin,
following which the Board visited its new Taste & Nutrition
Discovery Centre and three manufacturing facilities in Jackson and
Manitowoc, Wisconsin and Clark, New Jersey. These visits focused
on Kerry’s Taste & Nutrition Strategy as well as Kerry’s newly
acquired authentic taste technologies and expertise.
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 2017.
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 2017, the Board performed an internal self-evaluation
of the performance of the Board, Board Committees, the Chairman
and individual Directors against a set of pre-defined key criteria. The
review was conducted by the Chairman of the Board and the Senior
Independent Director and was facilitated by the Company Secretary.
The review was undertaken using Thinking Board, Independent Audit
Limited’s governance self-assessment process. Independent Audit
Limited, based in the UK, is recognised as a leading firm of board
reviewers, and has no other connections to the Group.
The Chairman appraised the performance of each of the non-
Executive Directors by meeting each Director individually. The key
areas reviewed were independence, contribution and attendance at
Board meetings, interaction with Executive Directors, the Company
Secretary and senior management, ability to communicate issues
of importance and concern, their knowledge and effectiveness at
meetings and the overall time and commitment to their role on
the Board.
Shareholders
Board of Directors
Executive Management
Audit
Committee
(pg 83)
Nomination
Committee
(pg 88)
Remuneration
Committee
(pg 92)
Finance
Committee
(pg 32)
Risk Oversight
Committee
(pg 60)
Sustainability
Council
(pg 44)
80
Kerry Group Annual Report 2017
In addition, the Senior Independent Director formally appraised the
performance of the Chairman. This appraisal was similar to the non-
Executive Director evaluation process which included feedback from
all Directors on the Chairman’s performance during the year.
In November 2017, the non-Executive Directors met without the
presence of the Executive Directors and, led by the Chairman,
undertook a formal review of the performance of the individual
Executive Directors.
To conclude on the appraisal of the non-Executive Directors,
the Chairman and the Executive Directors, results were collated,
summarised and presented to the Board. The appraisal process
concluded that each Director is performing well and is committed to
their role in terms of dedication of time and attendance at meetings.
At the December Board meeting, the Board considered the outcome
of the Board evaluation report (including the Board Committees).
Topics Covered During Board Performance Evaluation Included
– Board Remit and Responsibilities
– Board Skills and Dynamics
– Board Meetings
– Strategy, Risk and Performance
– Decision Making Process
– Board Communications
– Support for the Board
Overall, the Board concluded that no area of significant weakness
had been identified and that it operated effectively throughout the
period under review. A number of points for improvement were
identified and action plans established to address them.
The Chairman, along with the Company Secretary, will ensure that
suggestions from the 2017 self-evaluation report and areas for
consideration arising from the Directors’ appraisal, where identified,
will be addressed during 2018.
The review resulted in a number of suggestions to which the Board
will give further consideration in 2018. The main areas for potential
improvements arising from the review are included in the table below:
Key Action Points Arising from Board Performance Self-
Evaluation
– Continued focus on succession planning for Board and
Committee refreshment
– Enhancing the quality of Board discussion through focus on
strategic issues
– Continued oversight of key risks
– Increased involvement of internal & external subject matter
experts to provide deeper insight into business and strategic
issues
Progress against recommendations from the previous evaluation
was also considered and the Board is satisfied that improvements
have been made that have enhanced the operation and
effectiveness of both the Board and its Committees.
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 on:
– 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 its 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 Group, including
those that could threaten the business model, future performance,
solvency or liquidity are described on pages 62 to 68. 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;
– 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;
Kerry Group Annual Report 2017
81
– 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 that remedial action is taken as
necessary;
– The Group has a Financial 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 a number of key Financial and Operational
functions within 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;
During the year, the Chief Executive, Chief Financial Officer and the
Investor Relations team engaged with investors through a variety
of formats including hosting a Capital Markets Day for investors in
October 2017.
At the Capital Markets Day, the investment community was
updated on Kerry Group’s Strategic Plan which included its’
strategies for growth and return, and new medium term financial
targets. It was also an opportunity for many investors to meet
with Kerry’s leadership team and to get an insight into the
Group’s business model, market trends and strategic initiatives.
Simultaneously, the presentations were available to investors
globally through an on-line webcast and a formal press release that
was issued that day.
– 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 reviews the internal
controls and systems and makes recommendations for
improvement which are reported to the Audit Committee.
The Investor Relations team maintains constant engagement with
the investment community answering financial, sustainability and
other queries as they arise. Throughout the year, the Investor
Relations team met over 600 investors through participation at
roadshows and attendance at conferences in 15 cities globally.
In addition, 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
online application, which is available on iPad, iPhone and Android.
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.
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 84.
Relations with Shareholders
Shareholder Communications
The Board ensures that an effective 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 Plan, 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.
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 adoption of the Directors’ and Auditors’ reports
and the 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. At the AGM held on 4 May 2017, there were no material votes
cast against any resolutions.
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82
Kerry Group Annual Report 2017
DIRECTORS’
REPORT
AUDIT COMMITTEE
REPORT
and effectiveness 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 has confirmed to the
Board that the report when taken as a whole is fair, balanced
and understandable and provides the information necessary for
shareholders to assess the performance, business model and
strategy of the Group.
The Committee has considered the requirements of the Companies
Act 2014 in relation to the Directors’ Compliance Statement and
is satisfied that appropriate steps have been undertaken by the
Company to ensure that it is materially compliant with its relevant
obligations.
During the year, KPMG performed an External Quality Assessment
on the Internal Audit function which concluded that the function
was effective in providing independent assurance to the Group
and conforms with the vast majority of the Chartered Institute of
Internal Auditors (CIIA) standards.
In November 2017, I was appointed Chairman designate to the
Board and I will assume my role as Chairman on 4 May 2018. The
Nomination Committee is overseeing a formal process to identify and
select a candidate to succeed me as Audit Committee Chairman.
I will be available to shareholders at the forthcoming AGM to
answer any questions relating to the role of the Committee.
Philip Toomey
Chairman of the
Audit Committee
Dear Shareholder,
On behalf of the Audit Committee it is my pleasure to present our
report for the year ended 31 December 2017.
The report details how the Audit Committee fulfilled its
responsibilities during the year under the 2016 UK Corporate
Governance Code and the Irish Annex (the Code) and the 2016
Financial Reporting Council (FRC) Guidance on Audit Committees.
During the year the Committee dedicated significant time
supporting the Board in executing its duties in relation to reviewing
and monitoring on an ongoing basis the Group’s risk management
and internal control systems. The Committee received detailed
presentations on a number of key risk areas including management
of intellectual property, the deployment of Kerryconnect, margin
management and an update on ICT risks with a particular focus on
cybercrime.
The Committee is responsible for assisting the Board in monitoring
the Group’s financial reporting process including the independence
Philip Toomey
Chairman of the Audit Committee
Roles and Responsibilities
The main roles and responsibilities of the Committee, which reflect
the Code and the 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 Board is satisfied that together, the members of the
Committee bring a broad range of relevant experience and
expertise from a wide variety of industries and backgrounds, and
as a whole has competence relevant to the sectors in which the
Group operates.
The key responsibilities outlined in the terms of reference are
included in the table overleaf.
Committee Membership
During 2017, 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.
The Company Secretary is the Secretary of the Committee.
During the year the Audit Committee Chairman provided a letter to
the Board outlining how the Committee discharged its duties in 2017.
Committee Meetings
The Committee met six times during the year and there was full
attendance by Committee members at all meetings.
As required by the Code, the Board is satisfied that both Mr. Philip
Toomey and Ms. Joan Garahy have recent and relevant financial
experience, as set out in their biographical details on page 71.
Typically the Chief Executive, the Chief Financial Officer, the
Group Financial Controller, the Head of Internal Audit, as well
Kerry Group Annual Report 2017
83
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;
– Making recommendations to the Board in relation to the appointment, reappointment and removal of the Group’s 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 or impact the Group’s long term viability;
– 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.
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 Committee meeting, the Chairman of the Committee
reports to the Board on the key issues which have been discussed.
Committee Evaluation
The internal evaluation of Board effectiveness described on
pages 80 to 81 included a review by the Committee of its own
effectiveness. The Audit Committee was deemed to be operating
effectively and efficiently. The Committee is satisfied that formal
and transparent arrangements for considering corporate reporting,
risk management, internal control principles and for maintaining an
appropriate relationship with the Company’s auditor exist.
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 2017.
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.
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 was
presented to the Audit Committee outlining the process through
which they assessed the narrative and financial sections of the
2017 Annual Report and accounts to ensure that the criteria of
fair, balanced and understandable has been achieved; 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.
84
Kerry Group Annual Report 2017
Significant Financial Reporting Judgements
Carrying
Value of
Intangible
Assets
Taxation
Retirement
Benefit
Obligations
Intangible assets, as disclosed in note 12 to the financial statements, represents the largest number on the Group
balance sheet at €3.6bn. The Committee considered the process used to identify and value intangible assets arising
on acquisitions as well as the process to complete the annual impairment review of the Group’s intangible assets and
specifically the assumptions used for the future cash flows, discount rates, perpetuity rates and growth rates. The
Committee found that the assumptions used for the above valuation and annual impairment review are appropriate
following discussions with senior management and the external auditor.
Significant judgement and a high degree of estimation is required when arriving at the Group’s tax charge and
liability. The Committee, in conjunction with tax professionals, reviewed and discussed the basis for the judgments in
relation to uncertain tax positions and challenged management on their assertions and also considered the outcome
of the external auditors’ review of the tax charge and liability. As a result, the Committee believes the impact of
uncertain tax positions has been appropriately reflected in the tax charge and liability.
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.
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.
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 68;
– 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;
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
– reviewed quarterly reports from the Head of Internal Audit based
on internal audits completed outlining non-compliances with
Group controls and management’s action plans to address them;
overall context of the Group’s risk management framework and
were satisfied that the function has appropriate standing within
the Group;
– considered reports from the Head of Internal Audit on fraud
– received quarterly updates from the Head of Internal Audit on
investigations or other significant control failures which occurred
during the year and approved plans to address and remediate
the issues identified;
progress against the agreed plan including the results of internal
audit reports and management’s actions to remediate issues
identified;
– received updates from the Group Financial Controller on any
– received updates on the nature and extent of non-audit activity
control weaknesses identified through monthly financial review
meetings;
performed by internal audit;
– held a meeting with the Head of Internal Audit without the
– considered the results of the Kerry Control Reporting System
presence of management;
(the internal control self-assessment review of material finance,
operational and compliance controls) and concluded that the
controls are operating effectively;
– 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
– assessed the Group’s risk management and internal control
framework in line with the FRC Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting;
and
– reviewed the report from the external auditor in respect of
significant financial accounting and reporting issues, together
with significant internal control weakness observations.
– ensured co-ordination between Group Internal Audit and
the external auditor to maximise the benefits from clear
communication and co-ordinated activities.
Kerry Group Annual Report 2017
85
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 2017 all non-audit services and fees
were approved by the Audit Committee. The Committee is satisfied
that the fees paid to PwC for non-audit work, which were minimal,
did not compromise their independence or integrity. Further
details of the fees paid to the external auditors during the year are
outlined in note 3 to the financial statements. Having considered all
of the above, the Committee concluded that the Group’s external
auditor is independent.
Effectiveness
Post completion of the 2016 audit, in conjunction with PwC, review
meetings were held with senior finance management across all
regions and it was confirmed by both parties that no issues had
arisen during the audit process.
At the November Audit Committee meeting, PwC outlined to
the Committee in detail the external audit plan. The Committee
discussed the significant audit risks and key audit matters,
audit scope and materiality amongst other matters. The Audit
Committee agreed that the plan and the materiality at which any
misstatements should be reported by PwC to the Committee was
appropriate.
Prior to the finalisation of the 2017 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.
In assessing the effectiveness of the external auditor the Audit
Committee also considered the following:
– the quality of presentations to the Board and Audit Committee;
– the technical insights provided relevant to the Group; and
– demonstration of a clear understanding of the Group’s business
and key risks.
On the basis of the above the Committee is satisfied with the
effectiveness of the external auditors.
Appointment
The Audit Committee reviews annually the appointment of the
external auditor, taking into account the auditor’s effectiveness
and independence. 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 2018.
In order to comply with the Chartered Institute of Internal Auditors
(CIIA) requirements, an External Quality Assessment (EQA) by
an independent body is conducted at least every five years to
confirm conformance with the International Professional Practice
Framework of the CIIA. KPMG was engaged during 2017 to
complete a full external assessment. This assessment considered
the positioning, people and processes of the function, and these
were assessed against the CIIA standards and also against best
practice and peer organisations. The output from the review was
presented by KPMG to the Audit Committee at the November
meeting.
The assessment found that the Internal Audit function was
effective in providing independent assurance to the Group and
conforms with the vast majority of the CIIA standards. In addition,
the assessment contained a number of recommendations to be
considered to further evolve and strengthen the Internal Audit
function’s effectiveness.
On the basis of the above the Committee concluded that for 2017
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
On behalf of the Board the Audit Committee has primary
responsibility for overseeing the relationship with, and performance
of, the external auditor. This includes making recommendations to
the Board on the appointment, reappointment and removal of the
external auditor, assessing their independence and effectiveness
and negotiating the audit fee.
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.
Independence and provision of Non-Audit Services
The Committee is responsible for ensuring that the external auditor
is independent and for implementing appropriate safeguards where
the external auditor also provides non-audit services to the Group.
PwC confirmed to the Audit Committee that they are independent
from the Group 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 2016 and it is planned that he will rotate at the end of financial
year 2020 in order to ensure continued independence and
objectivity. 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.
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. This 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
86
Kerry Group Annual Report 2017
The Audit Committee approved the remuneration of the external
auditor, details of which are set out in note 3 to the financial
statements.
Directors’ Compliance Statement
During the year, the Audit Committee reviewed the
appropriateness of the Directors Compliance Policy Statement
which was developed in 2016. The Committee received a report
from senior management 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
confirmed to the Board its opinion that the Company is in material
compliance with its relevant obligations.
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.
Kerry Group Annual Report 2017
87
NOMINATION COMMITTEE
REPORT
On 19 February 2018 the Board, upon the recommendation of the
Committee, agreed its intention to appoint Ms. Marguerite Larkin
to the Board and as Chief Financial Officer with effect from 30
September 2018. Ms. Larkin will succeed Mr. Brian Mehigan who
will assume the role of Chief Strategy Officer on the same date.
A primary focus of the Committee in 2017 was succession planning
for the role of the Chairman of the Board. In November 2017,
following a process undertaken by an independent sub-committee
and supported by external advisors, Mr. Philip Toomey was
appointed as the Chairman designate and will assume the role of
Chairman on 4 May 2018.
During the year under review, the Committee 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 continues
to be a focus as we identify a pipeline of appropriate talent.
An internal review of the effectiveness of the Board and its’
Committees was conducted during 2017 and the outcome of this
review is that the Board and its Committees are performing well.
Further details are set out on page 91.
The Committee continues to plan strategically for Board 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 2017.
The Nomination Committee is responsible for evaluating the
structure, size, composition and successional needs of the Board
and making recommendations on same, with due regard for Board
diversity. Additionally, the Committee is responsible for the review
of the results of the annual Board evaluation process as it relates to
the Board and Committee performance and composition.
In February 2017, upon the recommendation of the Nomination
Committee, the Board appointed Mr. Edmond Scanlon to succeed
Mr. Stan McCarthy as CEO with effect from 1 October 2017. Mr.
Scanlon was appointed as an Executive Director to the Board on
the same date.
Role and Responsibilities
The main roles and responsibilities of the Committee, which were reviewed during 2017, 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;
– 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 Chairs 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 2017
DIRECTORS’ REPORT 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.
Committee Membership
During 2017, 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 or to be present for particular agenda items
as required. The Company Secretary acts as Secretary of the
Committee.
During 2017, the Committee engaged Heidrick & Struggles, an
international specialist recruitment firm, and Mr. Peter Lever, a UK
based independent management consultant, to assist with Board
refreshment and Executive succession planning. Neither Heidrick
& Struggles nor Mr. Lever have any other connection to the Group.
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 Group.
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 available for
inspection at the Company’s registered office during normal office
hours and at the AGM of the Company.
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.
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 it believes the individual should be re-
elected based on the results of the formal performance evaluation.
Kerry Group Annual Report 2017
89
Board Tenure
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.
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, gender, skills, experiences, nationality and other
attributes are considered in determining the optimum composition
of the Board and with the aim to balance it appropriately. With
regard to the specific issue of gender diversity, the Board currently
has 2 (17%) female representatives. In line with its diversity policy,
and recommended best practice, the Board’s ambition is to further
increase this number in the short to medium term. All Board
appointments are made on merit, with due regard to diversity.
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
senior management diversity is provided below:
30
20
10
0
40
Executive / Non-Executive Directors
Board Tenure (Years)
Executive
25%
Non-Executive
75%
100
80
60
40
20
0
Diversity
Diversity
100%
80%
60%
40%
20%
0%
FEMALE
17%
MALE
83%
FEMALE
24%
MALE
76%
90
Kerry Group Annual Report 2017
Executive/Non-Executive Directors
0
10
20
30
40
50
15+
8%
8%
Board Age Profile
11-15
6-10
8%
25%
3-5
0-2
18%
8%
0%
10%
25%
20%
30%
40%
Executive Directors
Non-Executive Directors
Board Age Profile
65+
8%
61-65
56-60
40-55
25%
25%
42%
Board
Senior Management
0%
10%
20%
30%
40%
50%
Key Activities
The key activities of the Committee throughout the year are detailed below:
Subject
Group CEO
Succession
Committee Activity
In February 2017, the Board approved the appointment of Mr. Edmond Scanlon as CEO designate to succeed
Mr. Stan McCarthy upon his retirement. Mr. Scanlon assumed the role of CEO on 1 October 2017 and was
appointed to the Board on the same date. Edmond had previously served as the President and CEO of the Kerry
Asia-Pacific region and was formerly President of Kerry China.
Mr. Stan McCarthy officially retired as Group CEO on 30 September 2017 and retired from the Board on 31
December 2017.
Chairman
Succession
In May 2017, Mr. Michael Dowling notified the Board of his intentions to step down as Chairman and retire from
the Board.
A separate sub-committee comprising Dr. Hugh Brady, Dr. Karin Dorrepaal, Mr. Tom Moran and chaired by
Mr. James Kenny conducted a formal process to identify and recommend a candidate to succeed Mr. Dowling.
The Committee engaged external consultants to assist in the process to identify a candidate. Following the
conclusion of this process, the sub-committee recommended the appointment of Mr. Philip Toomey and this was
endorsed by the Board at its meeting in November 2017.
Group CFO
Succession
Following the conclusion of a process to identify and appoint a new Chief Financial Officer, the Nomination
Committee recommended to the Board that the successful candidate, Ms. Marguerite Larkin, be appointed to the
Board when she assumes the CFO role on 30 September 2018. This recommendation was approved by the Board
on 19 February 2018.
Board
Refreshment
Following a process overseen by the Committee, in conjunction with external advisors, two new non-Executive
Directors, Mr. Gerard Culligan and Mr. Con Murphy, were appointed to the Board on 1 June 2017.
Audit
Committee
Chairman
Board Size and
Composition
The Nomination Committee has commenced a formal process to identify a suitable candidate to succeed
Mr. Philip Toomey as Chairman of the Audit Committee.
In 2017, as part of its remit, the Committee considered the size and composition of the Board. At 31 December
2016, the Board comprised 12 members. Following the retirement of Mr. Flor Healy and Mr. Patrick Casey and the
appointments of Mr. Edmond Scanlon, Mr. Gerard Culligan and Mr. Con Murphy, the Board size increased to 13
members and reduced to 12 following the retirement of Mr. Stan McCarthy on 31 December 2017. The Committee
will continue to consider both Board size and composition during 2018.
Re-election of
Directors
The Committee recommended that all Directors, subject to and seeking re-election, be put forward for re-election
at the Group’s 2018 AGM.
Board and
Committees
Effectiveness
Evaluation
Company
Secretary
As outlined in detail on pages 80 and 81, an internal evaluation of the Board and its Committees took place in 2017
in line with the provisions of the 2016 UK Corporate Governance Code and the Irish Annex.
The Committee considered the outcome of this evaluation and identified the areas relevant to the Nomination
Committee. Each recommendation was assessed and an action plan was developed to address areas for potential
improvement. These recommendations will be reviewed and considered by the Committee in 2018.
During 2017, the Company Secretary, Mr. Brian Durran, notified the Board of his intention to retire from his role in
February 2018. A process was undertaken to identify a candidate to replace Mr. Durran. Upon the recommendation
of the Nomination Committee, the candidate selected, Mr. Ronan Deasy, the current Group Financial Controller, was
approved by the Board and will assume this role on 1 March 2018.
Kerry Foods
CEO Succession
The Nomination Committee was consulted on the appointment of the new Kerry Foods CEO following the
resignation of Mr. Flor Healy.
Kerry Group Annual Report 2017
91
REMUNERATION COMMITTEE
REPORT
Drivers of Shareholder Return
TOTAL
SHAREHOLDER
RETURN
SHARE PRICE
DIVIDEND
VOLUME
GROWTH
MARGIN
EXPANSION
GROWTH
EPS
RETURN
ROACE
CASH
CONVERSION
As outlined in the Strategic Report on page 24, Volume Growth and
Margin Expansion are the main drivers of Adjusted Earnings Per
Share (EPS) which is the key performance metric for measuring
growth. Return on Average Capital Employed (ROACE) is a key
measure of how efficiently the Group employs its available capital.
Cash Conversion is also an important indicator of the cash the
Group generates for reinvestment or for return to shareholders.
These 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. Our remuneration
philosophy also supports our long term approach by deferring a
significant part of annual and long term variable remuneration into
share awards, which provides clear alignment with the long term
interests of shareholders, together with requiring executives to
acquire and maintain significant shareholdings in the Group.
In line with best market practice, Malus and Clawback provisions
apply to the Executive Directors STIP and LTIP awards.
Remuneration Policy Implementation 2018
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 and 2017. In line
with the Group’s strategic planning cycle, new medium term
targets were communicated to the market during 2017. In parallel,
to ensure remuneration is linked with the plan, we undertook a
review during 2017 of the Executive Director remuneration policy,
including Short and Long Term Incentive Plans, one year earlier
than normal.
Basic Salary
The review, performed in conjunction with Willis Towers Watson,
determined that there were no significant base salary adjustments
or STIP/LTIP opportunity increases required and that current
levels of remuneration are in line with our Irish, UK, USA and
European market peers and are appropriate to the roles. For 2018,
the basic salaries of the CFO and the CEO of Taste & Nutrition will
be increased by 2.5% - 3% in line with general wage inflation. As
outlined below, the new CEO Edmond Scanlon’s initial base salary
is being set at €1,050,000 effective from 1 October 2017 and will be
reviewed on an annual basis in line with performance.
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 2017.
Remuneration Policy
The Group’s Remuneration Policy is outlined in Section C on pages 98
to 102 and has been updated to align it with our new strategic plan.
The Committee is confident that the Group’s Remuneration Policy
operates to the highest standards in achieving its strategic objectives,
is properly governed and is in line with best market practice.
The updated Remuneration Policy is being put to a separate advisory
(non-binding) shareholder vote for the first time at the AGM on 3
May 2018, in addition to a further advisory shareholder vote on the
rest of the Directors Remuneration Report. The Remuneration Policy
will provide the framework for remuneration decisions made by the
Committee for three years from the date of the AGM.
Pay for Performance
The Committee ensures alignment with Shareholder long term
interests by aligning remuneration metrics with the Group’s
business model and strategic objectives and by ensuring sufficient
stretch in the performance targets.
92
Kerry Group Annual Report 2017
DIRECTORS’ REPORT
Updates to 2018 Short and Long Term Incentive Plans
The structure of both the STIP and LTIP incentive schemes were
reviewed in 2017 to ensure that they develop in line with the
Group’s strategic goals and that the metrics and calibrations are
appropriate and linked to the strategic plan.
STIP
The outcome of the review concluded that in the past a high
percentage of the STIP award was associated with the annual
adjusted EPS growth metric and it was also the heaviest weighted
metric in the LTIP plan. In order to reduce the emphasis on the EPS
growth metric, and to more closely align remuneration metrics with
our new strategic plan and the drivers of sustainable EPS growth,
the Remuneration Committee decided that for Executive Directors
the EPS metric would be replaced by Volume Growth and Margin
Expansion metrics.
LTIP
In setting the EPS threshold for the 2018 LTIP award the
Committee has taken into account a number of factors including
adjusted EPS growth performance for recent years, the strategic
€300
plan presented recently to shareholders, current market guidance
and three year rolling performance for LTIP’s currently inflight. In
this regard, the Board are comfortable that the threshold for the
€250
adjusted EPS growth metric remains at 6% for the 2018 award, with
a more challenging target and maximum remaining at 10% and 12%
respectively.
€200
€150
The Group reports in euros, but the significant majority of its
revenues are generated outside of the Eurozone. As a result of
this, currency volatility has a significant impact on our adjusted
EPS growth when calculated on a reported currency basis. The
Board decided in 2017 as part of the strategic planning process
to permanently move to constant currency Adjusted EPS as
our core measure of financial growth and communicated this to
shareholders at our Capital Markets Day held in Naas, Ireland
on 11 October 2017, which I attended. In addition, on behalf of
the Committee I consulted directly with the Irish Association of
Investment Managers (IAIM), the proxy agencies and a number
of our major shareholders by conference call in December 2017
to discuss the change. There was significant support from the
parties consulted. The Committee thus decided that from 2018
onwards, including current LTIP programmes, Kerry will measure
the adjusted EPS growth metric on a constant currency basis when
reporting Group results and when assessing performance for LTIP
outturn purposes.
€100
The Committee believes that these adjustments will appropriately
align the incentives for Executive Directors and senior
management with the strategic targets communicated to
the market.
We are confident that our Remuneration Policy will ensure
executives continue to deliver significant value to our shareholders
as history has clearly demonstrated they have, and that our
performance measures remain relevant, stretching and aligned to
the strategic plan.
Non-Executive Director Remuneration Policy for 2018
The last review of non-Executive Director Remuneration levels
was undertaken in 2014 and increases were made effective from
1 January 2015.
In line with the three year review cycle the Chairman and non-
Executive Directors fees were reviewed and benchmarked against
3 Peer groups during 2017 (i.e. ISEQ 10, Kerry’s TSR Peer Group
and a combined FTSE-TSR Peer Group). The review found that
our basic non-Executive Director fees were well below the median
fee levels of the 3 peer groups analysed and that the Chairman’s
fee was in the lower quartile. This result is reflective of the Group’s
heritage, historical Board composition and the fact that non-
Executive Director fees have not, in the past, been subject to
annual increases for inflation. Following consultation with major
shareholders, market aligned adjustments are therefore being
applied effective from January 2018. The Chairman’s annual fee
is being increased by 55% to €357,500 and the non-Executive
Director basic fee is being increased by 34% to €78,000, bringing
their total fees in line with the median fee levels of the peer groups
analysed. It was agreed to maintain the separate fees applying to
membership/chair of Committees and other fees at current levels,
as these are deemed to be correctly benchmarked.
Remuneration Policy Outturn 2017
In the face of challenging external global business environment
conditions in 2017, and in particular the ongoing impact of adverse
currency movements, the Group again delivered a good financial
performance for the year as is shown in the 2017 performance
table.
2017 Performance
Adjusted EPS
Group Free Cash Flow
ROACE
Target
342.8 cent
Results
341.2 cent
€400m
12%
€501m
13%
The outturn for the Adjusted EPS growth metric was slightly below
the target for 2017. The outturn for the Group free cash flow and
ROACE metrics exceeded target performance.
As can be seen in the Total Shareholder Return graph, Kerry’s
Total Shareholder Return increased by 39% during 2017 and with
reinvestment of dividends returned 142% over the last 5 years.
5 Year Total Shareholder Return
(Value of €100 Invested on 31/12/2012)
€300
€250
€200
€150
€100
2012
2013
2014
2015
2016
2017
Kerry
MSCI Europe Food Producer
E300 Food & Beverage
Kerry Group Annual Report 2017
93
300
250
200
150
100
300
250
200
150
100
160
140
120
100
The net result of these two decisions was to decrease the
calculated outturn of the 2015-2017 LTIP award by 8.8% of the
maximum opportunity.
80
The final outturn of the 2015-17 LTIP award following the
above Committee discretion exercised, was 62.3% of maximum
opportunity.
60
40
20
Other Matters
New Appointments to the Board
As announced in February 2017, Stan McCarthy our Group CEO
announced his retirement after 40 years with Kerry and 10 years
as Group CEO. He stepped down as Group CEO on 30 September
2017 and was succeeded by Edmond Scanlon who had previously
served as President and CEO of the Kerry Asia-Pacific region.
0
160
140
120
100
80
60
40
20
0
Edmond Scanlon’s base salary, as new Group CEO, has been set
at €1,050,000 effective from 1 October 2017 and will apply up until
the end of 2018. The initial salary level has been set 20% lower
than that of his predecessor Stan McCarthy and will be reviewed
on an annual basis in line with performance. Current STIP and LTIP
opportunities for the Group CEO were deemed appropriate and will
remain the same at 150% and 200% of basic pay respectively.
Departing Executives
As noted above, Stan McCarthy retired as Group CEO with effect
from 30 September 2017. Stan McCarthy continued to serve Kerry
in an executive capacity on his existing terms until he retired on 31
December 2017.
Flor Healy also retired from the Board on 8 August 2017 and
stepped down as CEO of Consumer Foods after 33 years with
Kerry and worked with his successor Duncan Everett to provide a
smooth handover.
Severance Payments
No ex gratia severance payments were made to Executive
Directors on leaving the Group and only payments covered under
their employment agreements were paid.
Contractual Non-Compete/Non-Solicitation Payments
In consideration for abiding with the contractual non-compete/
non-solicitation requirements of Stan McCarthy’s employment
agreement (and in order to protect the Group’s customer base,
employees and intellectual property), he is to be paid a non-
compete payment of 12 months’ base salary (monthly in arrears).
His accumulated entitlements under the LTIP scheme will be based
on the actual future outcomes for the inflight schemes, reduced for
the time periods post his retirement on a pro-rated basis. These
conditional awards also remain subject to the normal performance
conditions/vesting dates and are still bound by the further two year
deferral requirements.
Committee Performance
An internal review of the Remuneration Committee’s performance
was undertaken by the Committee during 2017 and found that the
Committee was operating effectively.
TSR Growth & Annual Incentive Payout
2017 Annual Incentive Outturn
When assessing the annual incentive outturn for 2017, the
Committee discussed whether or not the €52.8m deferred tax
credit arising from the recently enacted US Tax Cuts & Jobs Act
should be included in the outturn for the adjusted EPS growth
metric. Following discussion, the Committee exercised its discretion
and decided to exclude the tax credit from the calculation which
resulted in a 35.8% lower outturn for the metric than if it had
been included.
75%
68%
46%
The accompanying chart, which shows the very good group
performance over the last 5 years, also illustrates the challenging
and stretching nature of targets set by the Committee for
performance metrics used for annual incentive purposes.
57%
63%
TSR Growth, Enterprise Value Growth &
Annual Incentive Payout
TSR Growth
160%
EV €’billion
20
140%
120%
100%
80%
60%
40%
20%
0%
2012
15
10
5
0
75%
2017
75%
46%
57%
63%
2016
2013
2015
2014
TSR Growth (%)
Annual Incentive Achieved
as a % of Maximum Opportunity
Enterprise value (€ billions)
For 2017, the STIP payouts to Executive Directors were on average
75.3% of the maximum available opportunity.
Long Term Incentive Plan 2015-2017 Outturn
When assessing the outcome of the EPS metric the Committee
addressed two areas of discretion. Firstly, the Committee decided
to exclude the €52.8m benefit of the deferred tax credit arising
from the recently enacted US Tax Cuts & Jobs Act. Secondly
the Committee decided, having consulted with IAIM, the proxy
agencies and a number of our major shareholders, to change the
calculation of the adjusted EPS metric to bring it into line with
the decision announced at the recent Capital Markets Day, to use
constant currency rates when measuring financial performance
rather than reported rates.
94
Kerry Group Annual Report 2017
Conclusion
The Committee continues to review the Group’s remuneration
policy to ensure that it remains aligned to long term 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. I would also like
to take this opportunity to thank the members of the Remuneration
Committee for their commitment during what proved to be a very
busy and productive year.
As noted earlier the remuneration policy and implementation
thereof will be put to shareholders as two separate advisory votes
at this year’s AGM. Last year 97% of our shareholders who voted,
voted in favour of the Directors Remuneration report. On behalf of
the Remuneration Committee, I believe that we have put together
a Rewards policy and programme for 2018 which is again worthy of
shareholder support.
Joan Garahy
Chairperson, of the Remuneration Committee
Kerry Group Annual Report 2017
95
Section B: Remuneration
Committee & Key Activities
Committee Membership
During 2017, the Remuneration Committee comprised four
independent Non-Executive Directors; Mr. James C. Kenny, Dr.
Karin Dorrepaal, Mr. Tom Moran 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.
The Remuneration Committee also completes an assessment
of its own performance on an annual basis and reports any
recommendations to the Board.
The main responsibilities of the Committee, which were reviewed
during 2017, 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;
– To review annually its own performance and terms of reference
to ensure it is operating effectively; and
– To exercise discretion when appropriate, in the interest of
alignment and fairness.
Remuneration Committee Meetings and Activities 2017
The Committee met five times during the year and there was full attendance by Committee members at the meetings.
The key activities undertaken by the Committee in discharging its duties during 2017 are set out below:
Subject
Remuneration
Report
Remuneration Committee Activity
A review of best practice remuneration reporting was completed during 2017 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 the recently introduced EU Shareholders’ Rights Directive. The Committee is satisfied that the Group is
complying fully with relevant best practice reporting.
Basic Salary
A detailed benchmark review of Executive Directors’ salaries is scheduled on a three year cycle however due to
the Group strategic planning exercise carried out during 2017, this review was brought forward by one year and
completed in 2017 with the assistance of Willis Towers Watson.
See Implementation Section on page 103 for details on the outcome of the review.
Short Term
Incentive Plan
(STIP)
A detailed benchmark review of the Group’s STIP plan was undertaken in 2017 by the Committee with the assistance
of Willis Towers Watson, to ensure that the plan design, metrics and targets are appropriately stretching and aligned
with the new strategic plan. While there were no changes to the overall opportunity arising from this review the
Committee decided to change the metrics that will be used in future awards.
The Committee exercised discretion where required when reviewing all matters in relation to the 2017 STIP
outcomes and the targets for 2018.
See Implementation Section on page 103 for details on the outcome of the review.
96
Kerry Group Annual Report 2017
Subject
Long Term
Incentive Plan
(LTIP)
Remuneration Committee Activity
A detailed benchmark review of the Group’s LTIP plan was undertaken in 2017 by the Committee, with the assistance
of Willis Towers Watson, to ensure that the plan design, metrics and targets are appropriately stretching and aligned
with the new strategic plan. While there were no changes to the overall opportunity or metrics used arising from this
review, the calculation of the adjusted EPS metric was changed to align with how it will be reported in the future.
The Committee exercised discretion where required when reviewing all matters in relation to the 2015-17 LTIP
outcomes and the targets for 2018-20.
See Implementation Section on page 104 for details on the outcome of the review.
Chairman &
Non-Executive
Directors’ Fees
In line with the 3 year review cycle, a detailed benchmark review of the Chairman and non-Executive Directors’ fees
was undertaken in 2017 with the assistance of Willis Towers Watson. The Chairman’s fee and the non-Executive
Directors basic fee were changed following this review.
See Implementation Section on page 105 for details on the outcome of the review.
Executive
Contracts
During 2017 the Committee formalised the service contracts with the new Group CEO and the existing Executive
Directors. This was achieved through discussion and agreement with each Executive Director. In addition, a new
Executive Directors Recruitment and Payment for Loss of office policy was agreed with the assistance of Willis
Towers Watson.
Shareholder
Consultation
See Remuneration Policy Section on page 99 for details on the new policy.
The Committee reviewed the results of the vote by shareholders on the ‘Say on Pay’ at its first meeting following the
2017 AGM. The resolution of the shareholder vote was 97% in support of the report. In the context of the 2017 review
to be implemented in 2018, the Committee engaged with major institutional shareholders who provided important
input and commentary which were considered by the Committee in 2017. These inputs together with inputs received
from shareholder representative bodies/governance groups (including the Irish Association of Investment Managers)
and the result of shareholders votes, informed the final remuneration proposals for 2018.
Senior
Management
Review
Within its terms of reference, there is a requirement for the Committee to have oversight of the salaries and overall
remuneration of senior management. During 2017 routine benchmarking was undertaken in relation to senior
management together with a review of gender pay. Recommendations and proposed changes following this review
were presented to the Committee for information purposes.
Committee
Evaluation
During the year the Committee reviewed and updated its’ Terms of Reference. A copy of these terms is available on
the group website www.kerrygroup.com.
Remuneration Committee Advisors
The Remuneration Committee is authorised by the Board to appoint external advisors 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 2017
were €247,000 (2016: €107,000).
Kerry Group Annual Report 2017
97
Section C: Remuneration Policy
In line with the Group’s business planning cycle, our strategic plan
was updated during 2017. In parallel, to ensure remuneration is
linked with the plan, a review of the remuneration policy together
with a detailed benchmarking review of both Executive Director
and non-Executive Director remuneration, including Short and
Long Term Incentive plans, was undertaken during 2017.
Following the review, no changes to opportunity levels are
proposed for the CEO or Executive Directors, however refinements
are required to align the Remuneration policy with the Strategic
plan and these are outlined below.
The Group’s Executive Director remuneration philosophy is to
ensure that executive remuneration properly reflects the duties
and responsibilities of the executives, and is sufficient to attract,
retain and motivate individuals of the highest quality on an
international basis. 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.
Peer Group
We benchmark ourselves against comparable companies (our
‘compensation peer group’) to ensure that our Executive Director
compensation is competitive in the marketplace. The Committee
uses peer group data to benchmark our compensation with
respect to base salary, short and long term incentives and total
compensation. For the review completed in 2017, our compensation
peer group was comprised of 28 Irish, UK, USA and European
companies (including all the companies in the LTIP peer group),
which are comparable to the Group in terms of size, geographical
spread and complexity of business, and operate in the Food
& Beverage and other sectors. It also considered pay and
employment conditions elsewhere in the Group.
The Committee 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 2018. The
inner most circle represents the minimum potential scenario for
remuneration, with the middle circle representing target and the
outer circle representing maximum potential.
Edmond Scanlon
43%
21%
31%
31%
16%
84%
32%
32%
41%
23%
29%
33%
23%
77%
Basic Salary
Pension
LTIP
STIP
4%
6%
Basic Salary
Pension
LTIP
STIP
7%
Brian Mehigan
28%
10%
29%
Gerry Behan
Basic Salary
Pension
LTIP
STIP
45%
22%
32%
33%
18%
82%
28%
28%
5%
7%
98
Kerry Group Annual Report 2017
The Committee will ensure that any arrangements agreed will be in
the best interests of the Company and shareholders.
Payments for Loss of Office
In the event of an Executive Director’s departure, the Group’s policy
on termination is as follows:
– The Group will pay any amounts it is required to make in
accordance with or in settlement of a director’s statutory
employment rights and in line with their employment agreement;
– The Group will seek to ensure that no more is paid than is
warranted in each individual case;
– STIP and LTIP awards will be paid out in line with plan rules
on exit (i.e. for good leavers as defined in the LTIP rules), with
awards prorated to normal vesting date, subject to performance
and the 2 year holding requirement.
– Other payments, such as legal or other professional fees,
repatriation or relocation costs and/or outplacement fees, may
be paid if it is considered appropriate and at the discretion of the
Committee.
A Director’s service contract may be terminated without notice and
without any further payment or compensation, except for sums
accrued up to the date of termination, on the occurrence of certain
events such as gross misconduct.
Change of Control
Outstanding STIP and LTIP awards/options would normally vest
and become exercisable on a change of control, subject to plan
rules, including the satisfaction of any performance conditions and
pro-rating. The Committee may exercise its discretion to vary the
level of vesting having regard to the circumstances and reasons for
the events giving rise to the change of control.
Service Contracts
The Executive Directors and the new CEO have service contracts
in place which can be terminated by either party giving 12 months’
notice. In addition, all service contracts include pay in lieu of notice,
non-compete and non-solicitation provisions of up to 12 months’
post departure, in order to protect the Group’s customer base,
employees and intellectual property.
No ex-gratia severance payments are provided for in respect of the
CEO or Executive Directors.
Remuneration Policy for Recruitment of
New Executive Directors
The Remuneration Committee will determine the contractual terms
for new Executive Directors, subject to appropriate professional
advice to ensure that these reflect best practice and are subject
to the limits specified in the Group’s approved policy as set out in
this report.
Salary levels for new Executive Directors will take into account the
experience and calibre of the individual and his/her remuneration
expectations. Where it is appropriate to offer a lower salary initially,
a series of increases to the desired salary positioning may be made
over subsequent years, subject to individual performance and
development in the role.
Benefits and pension will be provided in line with the approved
policy, with relocation, travel or other expenses provided if
necessary.
The structure of the variable pay element will be in accordance
with and subject to the limits set out in the Group’s approved policy
detailed below. Different performance measures may be set initially
for STIP in the year an Executive Director joins the Group taking
into account the responsibilities of the individual and the point
in the financial year that he or she joins the Board. Subject to the
rules of the scheme, an LTIP award may be granted after joining
the Group.
If it is necessary to buy-out incentive pay or benefit arrangements
(which would be forfeited on leaving the previous employer) in the
case of an external appointment, this would be provided for taking
into account the form (cash or shares), timing and expected value
(i.e. likelihood of meeting any existing performance criteria) of the
remuneration being forfeited. The general policy is that payment
should be no more than the Committee considers is required to
provide reasonable compensation for remuneration being forfeited
and any payment made will be restricted to a maximum of one
year’s target remuneration.
The Group’s policy is that the period of notice for new Executive
Directors should not exceed 12 months and should include pay
in lieu of notice, non-compete and non-solicitation provisions to
protect the Group.
Kerry Group Annual Report 2017
99
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
promote the long term success
of the company and 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
– Set at a level to
– Not applicable
and 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
– Maximum
opportunity is
125% - 150% of
basic salary
– Target opportunity
is 70% of maximum
opportunity for on-
target performance
– Volume Growth
– Margin Expansion
– Cash Conversion
– Personal and
Strategic Objectives
– 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
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
strategic targets
– Achievement of predetermined performance
targets set by the Remuneration Committee
– Performance targets aligned to published
– 75% of the award payable in cash
– 25% awarded by way of shares/options to
A 25% deferral in shares/
options provides a 2 year
retention element and aligns
Executive Directors interests
with shareholders’ interests
be issued two years after vesting following a
deferral period
– Malus & clawback provisions are in place for
awards under the STIP (see page 101)
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
in 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
Share based to provide
alignment with shareholder
interests
A 50% deferral provides a
retention element and aligns
Executive Directors’ interests
with shareholders’ interests
– 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 LTIP (see page 101)
100
Kerry Group Annual Report 2017
Purpose and Link to Strategy Operation
Opportunity
Performance Metrics
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
– Executive Directors are expected to build and to
hold shares in the Company to a minimum level
of 180% - 200% of their basic salary over a five
year period
– Not applicable
– 180% - 200% of
basic salary
– Pension values may
vary based on local
practice
– Not applicable
– Pension arrangements may vary based on the
executives’ location
– Irish resident Executive Directors participate
in the general employee defined contribution
pension scheme or receive a contribution to an
after tax savings scheme (where the lifetime
earnings cap has been reached)
– The existing Executive Director in the US
participates in the Group’s defined benefit and
defined contribution pension schemes
*
**
The Committee may at its discretion, when it considers it appropriate and in the best interest of the Company and shareholders,
amend or vary the performance metrics of the STIP related Incentives and the calculation methodology thereof, to ensure alignment,
fairness and to comply with new laws, regulations/regulatory guidance.
In line with plan rules the Committee may, at its discretion when it considers it appropriate, in the best interest of the Company and
shareholders, (after consulting with the Irish Association of Investment Managers), amend or vary the performance metrics of the LTIP
related Incentives, the calculation methodology thereof and the composition of the TSR peer group, to ensure alignment, fairness and
to comply with new laws, regulations/regulatory guidance.
Any changes to performance conditions will not be materially less challenging than the original conditions.
Pensions
The Group CEO participates in the general employee Irish defined contribution scheme and the CFO participates in an after tax savings
scheme, in lieu of pension benefits. The existing US resident Executive Director participates in a US defined contribution scheme and a US
defined benefit pension scheme.
Shareholding Requirement
All existing Executive Directors, have significantly exceeded the minimum shareholding requirement. See table on page 113 in section D for
details. Edmond Scanlon, the new CEO, has already achieved a shareholding of 123% of basic salary and, in line with policy, has 5 years to
increase his shareholding to the minimum 200%.
Malus / Clawback
The Committee has the discretion to reduce or impose further conditions on the STIP and LTIP awards prior to vesting (malus). The
Committee 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.
The company retains the right to apply malus and clawback provisions to former directors STIP and LTIP awards. Other elements of
remuneration are not subject to malus or clawback provisions.
Kerry Group Annual Report 2017
101
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.
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 non-
Executive 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 reviews non-Executive Directors’ fees and present any recommendations to the full Board for approval. The
last review was undertaken in 2014 and in line with the 3 year cycle a detailed benchmarking exercise was undertaken during 2017. Non-
Executive Directors do not participate in the Group’s incentive plans, pension arrangements or other elements of remuneration provided to
the Executive Directors. Non-Executive Directors are reimbursed for travel and accommodation expenses (and any personal tax that may
be due on those expenses). Non-Executive Directors are encouraged to build up a shareholding in Kerry.
102
Kerry Group Annual Report 2017
Section D: Remuneration Policy Implementation
PART I: REMUNERATION POLICY IMPLEMENTATION 2018
The main proposed changes to the Remuneration policy and Executive Director and non-Executive Director remuneration following the
detailed benchmarking review carried out during 2017 are outlined below.
Basic Salary and Benefits
The benchmark review completed in 2017, concluded that the existing Executive Directors remuneration is in line with market peers. For
2018, the basic salaries of the CFO and CEO of Taste & Nutrition will be increased by 2.5%-3% in line with general wage inflation. The new
CEO Edmond Scanlon’s base salary was set at €1,050,000 effective from 1st October 2017 and will remain at this level for 2018.
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.
Short Term Performance Related Incentive Award (STIP)
The structure of the scheme was reviewed in 2017 to ensure that it develops in line with the Group’s strategic goals, the metrics are
appropriate, linked to strategy and appropriately calibrated. The outcome of the review concluded that in the past a high % of the STIP
award was based on the adjusted EPS metric, which is also the heaviest weighted metric covered in the LTIP plan. In order to reduce
the emphasis on EPS growth and to more closely align remuneration metrics with our new Strategic plan, the Remuneration Committee
decided that the EPS metric should be replaced by Volume Growth and Margin Expansion metrics both of which are the key drivers of EPS
growth.
2018 STIP – Performance Metrics and Weightings
Group Metrics
Volume growth*
Margin expansion*
Cash conversion
Personal and strategic
Total
CEO
% of award
CFO
CEO Taste & Nutrition
% of award
% of award
Target
28%
21%
14%
7%
70%
Max
40%
30%
20%
10%
100%
Target
28%
21%
14%
7%
70%
Max
40%
30%
20%
10%
100%
Target
28%
21%
14%
7%
70%
Max
40%
30%
20%
10%
100%
* The above metrics are measured at a Group level for the CEO and CFO and at a Taste and Nutrition level for the CEO of Taste & Nutrition
The Committee is of the view that the targets for the STIP are commercially sensitive and it would be detrimental to the Company to
disclose them in advance of or during the relevant performance period. The Committee will disclose those targets at the end of the
relevant performance period in that year’s Annual Report, if those targets are no longer considered commercially sensitive.
Finally, the malus and clawback provisions of the STIP, which include a two year clawback provision (outlined on page 101), were reviewed
and were deemed to be appropriate and effective and continue to apply to former Directors.
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. Volume Growth and Margin Expansion are key performance metrics as they are the main drivers of
Adjusted EPS Growth. Cash Conversion 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.
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.
Kerry Group Annual Report 2017
103
How Remuneration Links with Strategy
Performance Measure
Volume growth
Margin expansion
Cash conversion
Strategic Priority
Key driver of revenue growth
Key driver of profit growth
Cash generation for reinvestment or return to shareholders
Personal and strategic objectives
Reward the development and execution of business strategies
Adjusted EPS growth
Delivery of the Group’s long term growth strategy
TSR
ROACE
Delivery of shareholder value
Balance growth and return
Incentive Scheme
STIP
STIP
STIP
STIP
LTIP
LTIP
LTIP
See Financial Key Performance Indicators (KPIs) on pages 24 and 25 for more information on the link between the performance metrics
used for incentive purposes and the Group’s strategy for the 5 years ending 2017.
Long Term Performance Related Incentive Plan (LTIP)
LTIP Award Year
Performance Metrics
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
2018
2017
Threshold
Target
Maximum
Threshold
Target
Maximum
6%
25%
10%
25%
10%
50%
12%
50%
12%
100%
14%
100%
6%
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%
* Adjusted EPS growth is measured on a constant currency basis
The Committee reviewed the overall effectiveness of the LTIP in 2017 in conjunction with Willis Towers Watson 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 Directors (currently 200%/180%) is to remain unchanged following the review. Similarly, the LTIP
performance metrics and weightings were also reviewed in 2017 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 Directors and senior management team over the rolling three year cycles. It recognises
in a global organisation that external factors, such as currency translation, can misrepresent a strong underlying performance.
To ensure that the adjusted EPS growth metric properly reflects the appropriate measure of the Group’s strategy as shared with
shareholders at our recent Capital Markets Day in October 2017 and after consulting with the IAIM, the proxy agencies and a number of
major shareholders on conference calls in December 2017, from 2018 onwards, Kerry will calculate adjusted EPS growth on a constant
currency basis when reporting Group results and when assessing performance for LTIP outturn purposes.
In setting the EPS threshold for the 2018 LTIP award the Committee has taken into account a number of factors including adjusted EPS
growth performance for recent years, the strategic plan presented recently to shareholders, current market guidance and three year rolling
performance for LTIP’s currently inflight. In this regard, the Board are comfortable that the threshold for the adjusted EPS growth metric
remains at 6% for the 2018 award, with a more challenging target and maximum remaining at 10% and 12% respectively.
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.
104
Kerry Group Annual Report 2017
Non-Executive Remuneration Review
In line with the three year review cycle the Chairman and non-Executive Directors fees were reviewed and benchmarked against 3 Peer
groups during 2017 (i.e. ISEQ 10, Kerry’s TSR Peer Group and a combined FTSE-TSR Peer Group). It was found that our basic non-
Executive Director fees were significantly lower than the median of the three peer groups analysed. This result is reflective of the Group’s
heritage, historical Board composition and the fact that non-Executive Director fees have not in the past, been subject to annual increases
for inflation. Therefore, following consultation with IAIM, the proxy agencies and a number of our major shareholders, increases are being
applied effective from January 2018. The Chairman’s annual fee is being increased by 55% to €357,500 and the non-Executive Director
basic fee is being increased by 34% to €78,000 to bring their total fees in line with median fee levels of the peer groups analysed. It was
agreed to maintain the separate fees applying to membership/chair of Committees and other fees at current levels, as these are deemed to
be correctly benchmarked.
Non-Executive Directors may be reimbursed for travel and accommodation expenses (and any personal tax that may be due on those
expenses). Non-Executive Directors are not remunerated in Kerry shares or options, however non-Executive Directors are encouraged to
build up a personal shareholding.
Shareholder Engagement
The Committee considers the guidelines issued by the bodies representing the major institutional shareholders and the feedback provided
by such proxy groups and shareholders, when completing its annual and tri-annual review of the Group’s Executive Remuneration policies
and practices. The Committee engaged with a number of major institutional shareholders and proxy agencies (including the IAIM) during
late 2017 to consult with them on the proposed changes to policy for 2018 and took on board their feedback. The Committee is committed
to continued consultation with shareholders in regards to its remuneration policy.
Kerry Group Annual Report 2017
105
PART II: REMUNERATION POLICY OUTTURN 2017
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
audited financial statements as described in the basis of preparation on page 130. All other information in the remuneration report is
additional disclosure and does not form an integral part of the audited 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 2017 (Audited)
Basic
Salaries
Benefits
Pensions2
Performance
Related3
LTIP4
Total
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Stan McCarthy
1,486
1,450
Gerry Behan5
Total US $1
877
851
2,363
2,301
115
280
395
109
31
140
359
192
551
333
185
518
1,671
1,346
2,341
835
696
1,469
768
478
5,972
4,006
3,653
2,241
2,506
2,042
3,810
1,246
9,625
6,247
€’000
€’000
€’000
€’000
€’000
€’000
€’000
€’000
€’000
€’000
€’000
€’000
Total US $ in EUR €1
2,091
2,083
Edmond Scanlon6
Brian Mehigan
Flor Healy7
263
687
351
–
616
568
350
168
39
13
3,392
3,267
570
128
–
29
14
171
487
51
204
91
833
–
182
134
785
469
2,218
1,848
3,372
1,127
8,518
5,655
295
644
–
–
479
434
31
789
–
–
339
361
808
–
2,363
1,645
455
1,511
8,811
3,157
2,761
4,192
1,827
12,144
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 pension figure for
Edmond Scanlon relates to Irish defined contribution benefits. Both Brian Mehigan and Flor Healy participated in an after tax savings scheme in lieu of pension benefits 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.
Note 5: Included in Gerry Behan’s benefits figure is a once off relocation allowance of €200,000 to assist with housing costs as part of his ongoing global assignment to Ireland.
Note 6: The new CEO Edmond Scanlon was appointed to the Board on 1 October 2017 and his remuneration including STIP and LTIP reflected in the table above, relates to the period
1 October to 31 December 2017. Included in his benefits figure is a once off gross taxable housing allowance of €159,375 to cover his rental costs on relocating to Ireland from
Singapore.
Note 7: Flor Healy retired from the Board on 8 August and his remuneration reflected in the table above relates to the period 1 January to 8 August 2017. He was paid €297,788
remuneration in the period 9 August to 31 December 2017 in respect of his employment up to date of leaving (2016: €nil).
Basic Salary Increases
As outlined in last year’s report, phase two of the CFO’s agreed pay increase was implemented with effect from 2017 and provided for an
increase of 11.5%. This completed the phased implementation of the total increase agreed in 2015. For 2017, the basic salaries of the other
Executive Directors were adjusted by 2.5% - 3% in line with general wage inflation.
Edmond Scanlon’s initial base salary as new Group CEO has been set at €1,050,000 effective from 1 October 2017, which is 20% lower than
that of his predecessor Stan McCarthy but will be reviewed on an annual basis in line with performance.
106
Kerry Group Annual Report 2017
Annual Incentive Outcomes (STIP)
Table 2: Annual Bonus Achievement Against Targets
Group Financial Metrics (CEO & CFO – 90% weighting)
Metric
s Threshold
t
e
g
r
a
T
Target
Max
Actual performance
Bonus outcome
Link to strategy
1. Adjusted EPS (CEO & CFO – 70% weighting)
323.4 cent
2. Group Cash Flow (All – 20% weighting)
€300m
342.8 cent
355.7 cent
341.2 cent
64.2%
€400m
€500m
€501m
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 to stakeholders.
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 growth and Group Free Cash Flow (overall weighting for CEO and CFO of 90%). These are vital in driving
growth and ensuring there are sufficient funds available for reinvestment or for return to shareholders.
Personal and Strategic Objectives & Business Metrics
Metric
s Threshold
t
e
g
r
a
T
Target
Max
Actual performance
Bonus outcome
Link to strategy
3. Personal and Strategic (All – 10% weighting)
0
4. Business Operating Profit (CEO T&N – 20% weighting)
0
7
10
10
100%
7
10
7.1
71%
Specific to the Executive’s responsibility linked
to the strategic plan and supporting the
successful transition to a new CEO.
Measure the underlying profit generated by the
business and whether management is converting
growth into profit efficiently.
Details of Personal and Strategic Objectives
The Executive Directors are also measured against Personal and Strategic objectives, which this year focus on the development and
communication of a new strategic plan for the Group and supporting the new CEO to transition into his role. Performance against these
objectives is determined by the Committee by reference to key targets agreed with the Executives at the start of the year.
Directors
Retiring CEO, new CEO, CFO,
CEO Taste & Nutrition
Objectives
– Develop a new strategic plan and
communicate effectively to all
stakeholders
Achievements
– New strategic plan developed and
successfully communicated to all
stakeholders (including the Capital
Markets Day held in October 2017)
Bonus Outcome
– 100%
– Implementation of CEO
– Successful transition to the new
succession plan
CEO completed
The Committee reviewed the annual bonus outcome and concluded that excellent progress was made by the Executive Directors against
the objectives outlined above, which resulted in a maximum award for this metric being achieved.
When assessing the annual incentive outturn for 2017 the Committee discussed whether or not the €52.8m deferred tax credit arising
from the recently enacted US Tax Cuts & Jobs Act, should be included in the outturn for the adjusted EPS growth metric. Following
discussion, the Committee exercised its discretion and decided to exclude the tax credit from the calculation on the grounds of size and
the uncontrollable circumstances surrounding the US tax change events. This decision resulted in a 35.8% lower outturn for the metric
than if it had been included.
Kerry Group Annual Report 2017
107
The internal targets for the Executive Directors which were set by the Remuneration Committee were challenging and stretching in the
current environment and as a result an average weighted pay-out of 75.3% of max opportunity (107.6% of target opportunity) was achieved.
Long Term Incentive Plan (LTIP)
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 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 award 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 growth, TSR and ROACE performance of the Group during the relevant three year
performance period.
EPS Performance Test
Up to 50% of the award vests according to the Group’s average adjusted EPS growth over the performance period. This measurement is
determined by reference to the growth in the Group’s adjusted EPS calculated on a constant currency basis 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
Adjusted EPS Growth Per Annum
8%
Percentage of the Award Which Vests
25%
10%
12%
50%
100%
Below 8% none of the award vests. Between 8% and 10%, 25% - 50% vesting occurs on a straight line basis. Between 10% and 12%, 50% -
100% vesting occurs on a straight line basis.
When assessing the outturn for this metric on the 2015 LTIP award the Committee decided to exclude the €52.8m benefit of the deferred
tax credit arising from the recently enacted US Tax Cuts & Jobs Act on the grounds of size and the uncontrollable circumstances
surrounding the US tax rate changes. This decision to exercise discretion had a negative impact of 25% on the overall measurement of the
outturn for the 2015 LTIP award.
In addition, the Committee decided to exercise its discretion to adapt the calculation of adjusted EPS for the EPS performance test to take
account of the change to the Group’s strategic measures as presented at the Group’s recent Capital Markets Day on October 2017 and as
discussed with the IAIM, the proxy agencies and a number of major shareholders on conference calls in December 2017. The calculated
outcome was measured on a constant currency basis across the three year performance period resulting in an annual average adjusted
EPS growth of 8.6%. This decision to exercise discretion had a positive impact of 16.3% on the overall measurement of the outturn for the
2015 LTIP award.
The outcome of the EPS performance test, calculated on a constant currency basis, is an annual average adjusted EPS growth of 8.6%
which results in an award outcome of 16.3% out of a possible maximum of 50%.
108
Kerry Group Annual Report 2017
200
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:
150
Aryzta
100
Chr. Hansen
Barry Callebaut
50
Corbion
General Mills
Givaudan
Glanbia
Greencore
Danone
IFF
Kellogg’s
McCormick & Co.
Nestlé
Novozymes
Premier Foods
Sensient Technologies
Symrise
Tate & Lyle
Unilever
When assessing whether the performance hurdle has been met, this measurement is determined by reference to the ranking of Kerry’s
TSR over the three year performance period, in comparison with the TSR performance of the companies in the peer group. The awards
vest in line with the following table:
0
-50
Position of Kerry in the Peer Group
Below median
-100
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 performance graph below shows Kerry’s TSR compared to the peer companies over the three year performance period from 1 January
2015 to 31 December 2017 for the LTIP awards which issued in 2015. These awards have a vesting date on or before 30 April 2018.
3 Year TSR: Kerry and Comparator 1 Jan 2015 - 31 Dec 2017
See chart on page 114, which illustrates the Group’s TSR performance from 2008 to 2017
200%
150%
100%
50%
0%
-50%
-100%
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
Y
R
R
E
K
6
r
e
e
P
7
r
e
e
P
8
r
e
e
P
9
r
e
e
P
0
1
r
e
e
P
1
1
r
e
e
P
2
1
r
e
e
P
3
1
r
e
e
P
4
1
r
e
e
P
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
The outcome of the measurement of the TSR condition in relation to the 2015 awards is in the 1st Quartile, resulting in a maximum award
outcome of 30%.
Kerry Group Annual Report 2017
109
ROACE Performance Test
20% of the award vests according to the Group’s ROACE over the performance period. ROACE represents a good perspective on the
Group’s internal rate of return and financial added value for shareholders. ROACE supports the strategic focus on growth and margins
through ensuring cash is reinvested to generate appropriate returns.
This measurement will be determined by reference to the ROACE in each of the three financial years included in the performance period:
Threshold
Target
Maximum
Return on Capital Employed
10%
Percentage of the Award Which Vests
25%
12%
14%
50%
100%
Below 10% none of the award vests. Between 10% and 12%, 25% - 50% vesting occurs on a straight line basis. Between 12% and 14%, 50% -
100% vesting occurs on a straight line basis.
The outcome of the measurement of the ROACE condition in relation to the 2015 awards is a ROACE of 13.2% which resulted in a reward
outcome of 16% out of a maximum of 20%.
Table 3: Overall Outcome of the 2015 LTIP Award Vesting in 2018
Long Term
Incentive Plan
2013 LTIP Plan
TSR
Performance
(30% of Award)
1st Quartile*
Actual Vesting
of TSR Award
30%
EPS
Performance
(50% of Award)
8.6% growth*
Actual
Vesting of
EPS Award
16.3%
ROACE
Performance
(20% of Award)
13.2%
Actual Vesting
of ROACE
Award
16%
Total %
Vested
62.3%
* See TSR, EPS and ROACE tables above for details of performance metrics.
The following table shows the Executive Directors’ and Company Secretary’s interests under the LTIP. Conditional awards at 1 January
2017 relate to awards made in 2014, 2015 and 2016 which have a three year performance period. The 2014 awards vested in 2017. The 2015
awards will potentially vest in 2018 and 2016 awards will potentially vest in 2019. 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 4: Individual Interest in LTIP (Audited)
Conditional
Awards at
1 January
2017
LTIP
Scheme
Share
Awards
Vested
During
the Year
Share
Option
Awards
Vested During
the Year
Share Awards
Relinquished
During the
Year
Conditional
Awards Made
During the
Year
Conditional
Awards at 31
December
2017
Share Price
at Date of
Conditional
Award Made
During
the Year
Directors
Stan McCarthy
Edmond Scanlon1
Brian Mehigan
Flor Healy2
Gerry Behan
Company Secretary
Brian Durran
2013
2013
2013
2013
2013
105,714
(10,333)
40,295
45,525
46,540
64,798
–
–
–
(6,420)
–
–
(5,038)
(5,373)
–
(24,814)
–
(12,098)
(55,237)
(15,417)
37,534
–
16,602
14,070
22,144
108,101
40,295
44,991
–
65,105
€74.52
–
€74.52
€74.52
€74.52
2013
10,747
–
(1,612)
(2,608)
3,489
10,016
€74.52
Note 1: Edmond Scanlon was appointed to the Board on 1 October 2017, his opening conditional awards are reflected as at that date and include 9,146 career share awards granted to
him prior to his appointment as an Executive Director. No new conditional awards were made in the period 1 October to 31 December 2017.
Note 2: Flor Healy stepped down from the Board on 8 August 2017 and his closing conditional awards are reflected as at that date.
110
Kerry Group Annual Report 2017
Conditional LTIP awards made in 2017 have a three year performance period and will potentially vest in 2020. 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.
Career shares have a three year performance period. The amount of career shares actually awarded will be contingent upon performance
measured over the three year performance period and are subject to a 4 year deferral period. Therefore, the award will only vest and be
available after 7 years from date of conditional award.
The following table shows the share options which are held by the Executive Directors and the Company Secretary under the STIP and LTIP:
Table 5: Share Options Held Under the STIP and LTIP (Audited)
Share Options
Outstanding at
1 January 2017
Share Options
Exercised During
the Year
Share Options
Vested During
the Year3
Share Options
Outstanding at
31 December 2017
Exercise Price
Per Share
Directors
Edmond Scanlon1
Brian Mehigan
Flor Healy2
Company Secretary
Brian Durran
4,167
68,808
99,634
19,673
–
(10,000)
(51,730)
(9,946)
–
6,643
6,829
1,905
4,167
65,451
54,733
11,632
€0.125
€0.125
€0.125
€0.125
Note 1: Edmond Scanlon was appointed to the Board on 1 October 2017 and his opening share option balance is reflected as at that date. No options were exercised or vested in the
period 1 October to 31 December.
Note 2: Flor Healy stepped down from the Board on 8 August 2017 and his closing share option balance is reflected as at that date and his exercised options/vested options cover the
period 1 January to 8 August.
Note 3: Share Options which vested in March 2017 related to 2014 LTIP awards and 25% of the 2016 STIP (paid in March 2017). 50% of share options vested under the LTIP are
subject to a two year deferral period and 25% of the STIP payments which are delivered in share options are subject to a two year deferral period.
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 under defined benefit pension plans of each of the Executive Directors during the year are outlined in the
following table.
Table 6: Defined Benefit – Pensions Individual Summary (Audited)
Accrued Benefits on Leaving Service at End of Year
Increase During the Year
(Excluding Inflation)
€’000
Accumulated Total
at End of Year
€’000
Transfer Value of Increase in
Accumulated Accrued Benefits
€’000
142
25
–
167
178
1,121
428
255
1, 804
1,667
2,143
148
–
2,291
1,455
Stan McCarthy
Gerry Behan
Flor Healy1
2017
2016
Note 1: Flor Healy retired from the Board on 8 August 2017 and his accumulated total above is reflected as at that date. There is no increase in the deferred benefits for Flor Healy as
the link to salary was removed in August 2016.
Note 2: Contributions were made to an Irish defined contribution plan in respect of Edmond Scanlon. Brian Mehigan participated in an after tax savings scheme in lieu of pension
benefits. These contributions are reflected in the single figure table (table 1) on page 106.
Kerry Group Annual Report 2017
111
Non-Executive Directors’ Remuneration Paid in 2017
Table 7: Remuneration Paid to Non-Executive Directors in 2017 (Audited)
Michael Ahern
Hugh Brady
Paddy Casey*
Gerard Culligan**
James Devane
Karin Dorrepaal
Michael Dowling
Joan Garahy
James C. Kenny
Con Murphy**
John Joseph O’Connor
Philip Toomey
Tom Moran
* Retired on 30 April 2017
** Appointed to the Board on 1 June 2017
Fees 2017
€
Fees 2016
€
–
78,000
14,333
33,833
–
78,000
230,000
93,000
97,000
33,833
–
98,000
78,000
833,999
43,000
78,000
43,000
–
43,000
78,000
230,000
93,000
97,000
–
43,000
98,000
76,333
922,333
Non-Executive Directors’ remuneration consists of fees only. Non-Executive Directors are reimbursed for travel and accommodation
expenses and any personal tax that may be due on those expenses. The gross amount of these expenses that were deemed to be taxable
is €24,849.
Payments to Former Directors
Flor Healy was paid €297,788 remuneration in the period 9 August to 31 December 2017 in respect of his employment up to date of leaving
(2016: €nil).
Payments for Loss of Office
There were no payments for loss of office in 2017 (2016: €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. 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 overleaf:
112
Kerry Group Annual Report 2017
Table 8: Directors and Company Secretary Shareholdings (Audited)
31 December 2017
Ordinary Shares
Number
31 December 2017
Share Options
Number
31 December 2017
Total
Number
1 January 2017
Ordinary Shares
Number
1 January 2017
Share Options
Number
1 January 2017
Total
Number
Directors
Gerry Behan
- Deferred1
Hugh Brady
Gerard Culligan4
Paddy Casey5
Karin Dorrepaal
Michael Dowling
Joan Garahy
Flor Healy3
- Deferred1
James C. Kenny
Stan McCarthy
- Deferred1
Brian Mehigan
- Deferred1
Tom Moran
Con Murphy4
Edmond Scanlon2
- Deferred1
Philip Toomey
Company Secretary
Brian Durran
- Deferred1
58,379
10,636
500
–
20,052
–
4,200
1,050
58,210
–
–
132,927
17,627
40,334
–
–
7,721
9,611
–
6,000
13,000
–
–
–
–
–
–
–
–
–
46,861
7,872
–
–
–
57,694
7,757
–
–
2,083
2,084
–
9,798
1,834
58,379
10,636
500
–
20,052
–
4,200
1,050
105,071
7,872
–
132,927
17,627
98,028
7,757
–
7,721
11,694
2,084
6,000
22,798
1,834
57,969
6,562
–
–
20,052
–
4,200
1,050
58,210
–
–
127,105
10,866
40,334
–
–
7,721
9,611
–
6,000
13,000
–
–
–
–
–
–
–
–
–
95,409
4,225
–
–
–
64,164
4,644
–
–
2,083
2,084
–
18,614
1,059
57,969
6,562
–
–
20,052
–
4,200
1,050
153,619
4,225
–
127,105
10,866
104,498
4,644
–
7,721
11,694
2,084
6,000
31,614
1,059
Note 1: The deferred shares and share options above, relate to 25% of the Executive Directors and Company Secretary’s 2015 and 2016 STIP awards and 50% of the 2013 and 2014
LTIP award (vested in March 2016 and 2017 respectively). These awards are subject to a two year deferral period and will be delivered in shares/share options in March 2018
and March 2019 respectively.
Note 2: The new CEO Edmond Scanlon was appointed to the Board on 1 October 2017 and his opening shareholdings are reflected as at that date.
Note 3: Flor Healy retired from the Board on 8 August 2017 and his closing shareholding above is reflected as at that date.
Note 4: Con Murphy and Gerard Culligan were appointed to the Board on 1 June 2017 and their opening shareholdings are reflected as at that date.
Note 5: Paddy Casey retired from the Board on 30 April 2017 and his closing shareholding above is reflected as at that date.
Shareholding Guidelines
The table below sets out the Executive Directors’ shareholding at 31 December 2017 shown as a multiple of basic salary. Please refer to the
Remuneration Policy Table on page 101 in Section C for details of the Executive Director shareholding requirements.
Table 9: Individual Shareholding as a Multiple of Basic Salary
Executive Director
Edmond Scanlon
Brian Mehigan
Gerry Behan
As a Multiple of Basic Salary
1.2x
14.5x
8.3x
Note 1: The share price used to calculate the above is the share price as at 31 December 2017.
Kerry Group Annual Report 2017
113
900
800
700
600
500
400
300
200
100
TSR Performance and Chief Executive Officer Remuneration
The graph below illustrates the TSR performance of the Group over the past nine years showing the increase in value of €100 invested
in Group’s shares from 31 December 2008 to 31 December 2017. Also outlined in the table below, the remuneration of the Chief Executive
Officer is calculated in line with the methodology captured under legislation which was enacted for UK incorporated companies.
9 Year Total Shareholder Return
(Value of €100 Invested on 31/12/2008)
€900
€800
€700
€600
€500
€400
€300
€200
€100
2008
2009
2010
Kerry
2013
2012
2011
MSCI Europe Food Producers
2014
2015
2016
E300 Food & Beverage
2017
Table 10: Remuneration Paid to the CEO 2009 – 2017
Chief Executive Officer – Stan McCarthy
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
2015
$’000
4,619
2016
$’000
4,006
2017
$’000
5,972
57%
58%
62%
75%
91.9%
61.8%2
29.4%
62.3%
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.
Chief Executive Officer – Edmond Scanlon
Total remuneration €’0001
Annual incentive achieved as a % of maximum
LTIP achieved as a % of maximum
2017
€’000
808
75%
62.3%
Note 1: The new CEO Edmond Scanlon was appointed to the Board on 1 October 2017 and his remuneration reflected in the table above relates to remuneration from that date.
Table 11: CEO Pay v Normal Employee Pay Comparison
In line with the recently enacted European Shareholders Rights directive, outlined below is the annual change over the last five financial
years for:
– the remuneration of the CEO,
– the average remuneration of employees of the company (calculated on a full time equivalent basis) other than directors, and
– the performance of the company.
Chief Executive Officer
Basic pay YoY % change
All Group Employees
Average basic pay YoY % change
2013
2014
2015
2016
2017
2%
3.1%
2%
3.4%
2%
3.6%
9%
3.5%
2.5%
3.1%
114
Kerry Group Annual Report 2017
300
250
200
150
100
Performance of the company: 5 Year Total Shareholder Return
€300
€250
€200
€150
€100
2012
2013
Kerry
2014
2015
MSCI Europe Food Producers
2016
2017
E300 Food & Beverage
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.
2017
Director
Remuneration (0.6%)
Profit after tax
before NTIs (29.8%)
Dividends Paid (5.3%)
Taxation Paid (7.1%)
Employee costs (57.2%)
2016
Director
Remuneration (0.5%)
Profit after tax
before NTIs (29.5%)
Dividends Paid (4.9%)
Taxation Paid (8.0%)
Employee costs (57.1%)
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 2017 is 1.3%.
The potential future dilution level from unvested share awards/share options as a result of these schemes is a further 0.6%.
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 12: 2017 AGM – Votes on Remuneration
Total Votes Cast
98,942,291
Votes For
98,216,695
96.8%
Votes Against
3,216,421
3.2%
Votes Withheld/Abstained
155,938
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.
Kerry Group Annual Report 2017
115
INDEPENDENT
AUDITORS’ REPORT
INDEPENDENT AUDITORS’ REPORT TO THE
MEMBERS OF KERRY GROUP PLC
Separate opinion in relation to IFRSs as issued by
the IASB
As explained in note 1 to the financial statements, the Group
and Company, in addition to applying IFRSs as adopted by
the European Union, has also applied IFRSs as issued by the
International Accounting Standards Board (IASB).
In our opinion, the consolidated and company financial statements
comply with IFRSs as issued by the IASB.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (Ireland) (‘ISAs (Ireland)’) and applicable
law. Our responsibilities under ISAs (Ireland) are further described
in the Auditors’ responsibilities for the audit of the financial
statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Independence
We remained independent of the Group in accordance with the
ethical requirements that are relevant to our audit of the financial
statements in Ireland, which includes IAASA’s Ethical Standard
as applicable to listed public interest entities, and we have
fulfilled our other ethical responsibilities in accordance with these
requirements.
To the best of our knowledge and belief, we declare that non-audit
services prohibited by IAASA’s Ethical Standard were not provided
to the Group or the Company.
Other than those disclosed in note 3 to the financial statements, we
have provided no non-audit services to the Group or the Company
in the period from 1 January 2017 to 31 December 2017.
Report on the audit of the
financial statements
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 2017
and of the Group’s profit and the Group’s and the Company’s
cash flows for the year then ended;
– have been properly prepared in accordance with International
Financial Reporting Standards (‘IFRSs’) as adopted by the
European Union and, as regards the Company’s financial
statements, 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.
We have audited the financial statements, included within the
Annual Report, which comprise:
– the Consolidated and Company balance sheets as at
31 December 2017;
– the Consolidated income statement and statement of
comprehensive income for the year then ended;
– the Consolidated and Company statements of changes in equity
for the year then ended;
– the Consolidated and Company cash flow statements for the
year then ended; and
– the notes to the financial statements, which include a description
of the significant accounting policies.
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 130. These are cross-
referenced from the financial statements and are identified as audited.
Our opinion is consistent with our reporting to the Audit Committee.
116
Kerry Group Annual Report 2017
Our Audit Approach
Overview
Materiality
– €33m (2016: €31.5m) - Consolidated financial statements
Based on 5% of profit before tax and non-trading items.
– €7m (2016: €7m) – Company financial statements
Based on 1% of net assets.
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 Group profit before taxation and
non-trading items.
Key audit matters
– Goodwill and indefinite life intangible assets impairment assessment
– Business combinations
– Taxation
– Pension liabilities
The scope of our audit
As part of designing our audit, we determined materiality and assessed 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 controls, including evaluating whether there was evidence of bias by the directors that represented a
risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon,
were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Key audit matter
Goodwill and indefinite life intangible assets
impairment assessment
Refer to note 1 ‘Statement of accounting policies’
and note 12 ‘Intangible assets’.
The Group has goodwill and indefinite life intangible
assets of €3.3 billion at 31 December 2017
representing approximately 44% of the Group’s total
assets at year end. The most significant allocation
of the carrying value of goodwill and indefinite life
intangible assets relates to the America’s region of
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 and determining the
appropriate discount rate to use.
How our audit addressed the key audit matter
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, and concluded they were consistent with the latest Board approved
strategic plan. In evaluating these forecasts we considered the Group’s historic
performance and its past record of achieving strategic objectives. We also tested the
mathematical accuracy of the cash flow model.
We considered the appropriateness of the Group’s forecast growth rate assumptions
used to calculate terminal values at year five, by comparing them to independent
sources (for example, OECD statistics) of projected growth rates for each region.
We challenged management’s calculation of the discount rates used by recalculating an
acceptable range of discount rates (adjusted to reflect risks associated with each group
of CGUs) using observable inputs from independent external sources and concluded
the discount rates used by management fell within that range.
We 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.
Kerry Group Annual Report 2017
117
Key audit matter
Business combinations
Refer to note 1 ‘Statement of accounting policies’ and note 31
‘Business combinations’.
The Group completed 8 acquisitions during 2017, the most significant
of which were Ganeden Biotech Inc. and the Kettle business of Tyson
Foods in the Americas region of the Taste and Nutrition segment.
The Group was required to determine the fair values of all acquired
assets and liabilities including the identification and valuation of
intangible assets. The most significant acquired asset in all cases was
brand related intangibles.
In accordance with IFRS3, ‘Business Combinations’, the valuations
referred to above have been prepared on a provisional basis. The group
will finalise its valuations within the 12 month measurement period.
We focused on this area as significant judgement is exercised in
selecting an appropriate valuation model.
Judgement is also exercised in determining assumptions such as
revenue growth rates and the excess earnings rate which underlie the
cash flows in the model.
Other important estimates include the discount rate and contributory
asset charge.
Taxation
Refer to note 1 ‘Statement of accounting policies’ and note 7 ‘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 liabilities. Management judgement and estimation is
required in the measurement of uncertain tax positions, in the context
of the recognition of current and deferred tax assets/liabilities.
This area required our focus due to its inherent complexity and the
estimation and judgement involved in the measurement of uncertain
tax positions in the context of the recognition of current and deferred
tax assets/liabilities.
Pension liabilities
Refer to note 1 ‘Statement of accounting policies’ and note 26
‘Retirement benefit obligation’.
The Group operates defined benefit pension plans in a number of
jurisdictions principally, Ireland, the UK and USA. As at 31 December
2017 the deficit on the Retirement Benefit Obligation amounted to
€124.3 million. The liability in respect of these defined benefit plans is
valued on an actuarial basis and this valuation is subject to a number
of assumptions, which include the discount rate and mortality rates.
Mortality rates have been revised when compared with the prior year in
Ireland and the UK.
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 our audit addressed the key audit matter
We obtained and evaluated the reports prepared by management’s
valuation specialists to value brand related intangibles.
We were assisted by our in house valuation experts who
assessed the reasonableness of the valuation methodologies and
assumptions used by the Group.
We considered the assumptions used to derive the cash flows
underlying the valuation model, (including growth rates and the
excess earnings rate) by agreeing them to the board approved
business case and external data where available.
We also considered the discount rate and contributory asset charge
in light of the acquiree’s industry and geography.
We were satisfied that the methodology and assumptions used
were reasonable.
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 measure uncertain tax positions, in the context
of the recognition of current and deferred tax assets/liabilities.
This included obtaining explanations regarding the tax treatment
applied to material transactions and evidence to corroborate
management’s explanations. Such evidence included management’s
communications with local tax authorities and copies of tax advice
obtained by management from its external tax advisors. Based on
the evidence obtained, while noting the inherent uncertainty with
such tax matters, we determined the measurement of uncertain
tax positions, in the context of the recognition of current and
deferred tax assets/liabilities as at 31 December 2017 to be within
an acceptable range of reasonable estimates.
Our in-house actuarial experts assisted us in considering and
challenging the reasonableness of the actuarial assumptions used
by management regarding discount rates, mortality rates and
inflation by comparing the assumptions to in-house benchmark
data.
Based on our procedures, we found that the actuarial assumptions
used were within an acceptable range of reasonable estimates.
We considered the disclosures at note 26, including the sensitivity
analysis in relation to key actuarial assumptions and found them to
be reasonable.
118
Kerry Group Annual Report 2017
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the
Group, the accounting processes and controls, and the industry in
which the Group operates.
The Group is structured along two business segments: Taste and
Nutrition and Consumer Foods across 27 countries. The majority
of the Group’s components are supported by one of five principal
shared service centres in Ireland, Malaysia, the United Kingdom
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.
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 13 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 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 five principal shared service
centres.
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.
In 2016, our first year of auditors of the Group, the Group team
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, representatives
from the Group team visited component locations in Ireland, the
UK, the USA and Asia Pacific.
These visits involved meeting with our component teams to
confirm their audit approach. The visits also involved discussing
and understanding the significant audit risk areas, holding
meetings with local management, 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. Post audit
conference calls were held with all in scope audit teams to discuss
their final key audit findings 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
key audit matters including uncertain tax positions, 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 in aggregate 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
materiality
How we
determined it
Rationale for
benchmark
applied
Consolidated
financial
statements
€33.0m
(2016: €31.5m).
Company
financial
statements
€7.0m
(2016: €7.0m).
5% of profit before taxation
and non-trading items.
1% of net assets
of the Company.
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.
The entity is a
holding company
whose main
activity is the
management of
investments in
subsidiaries.
For each component in the scope of our Group audit, we allocated
a materiality that is less than our overall Group materiality. The
range of materiality allocated across components was €1m to
€24m. Certain components were audited to a local statutory audit
materiality that was also less than our overall Group materiality.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above €1.65m (Group
audit) (2016: €1.6m) and €0.35m (Company audit) (2016: €0.35m)
as well as misstatements below that amount that, in our view,
warranted reporting for qualitative reasons.
Kerry Group Annual Report 2017
119
Going concern
In accordance with ISAs (Ireland) we report as follows:
Reporting obligation
We are required to report if we have anything material to add or draw attention to in
respect of the directors’ statement, on page 68, in the financial statements about whether
the directors considered it appropriate to adopt the going concern basis of accounting
in preparing the financial statements and the directors’ identification of any material
uncertainties to the Group’s or the Company’s ability to continue as a going concern over
a period of at least twelve months from the date of approval of the financial statements.
Outcome
We have nothing material to add or to draw
attention to. However, because not all future
events or conditions can be predicted,
this statement is not a guarantee as to the
Group’s or the Company’s ability to continue
as a going concern.
We are required to report if the directors’ statement relating to going concern in
accordance with Rule 6.8.3(3) of the Listing Rules for the Main Securities Market of the
Irish Stock Exchange is materially inconsistent with our knowledge obtained in the audit.
We have nothing to report.
Reporting on other information
The other information comprises all of the information in the
Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other
information. Our opinion on the financial statements does not cover
the other information and, accordingly, we do not express an audit
opinion or, except to the extent otherwise explicitly stated in this
report, any form of assurance thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If we identify
an apparent material inconsistency or material misstatement, we
are required to perform procedures to conclude whether there is
a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We
have nothing to report based on these responsibilities.
With respect to the Directors’ Report, we also considered whether
the disclosures required by the Companies Act 2014 have been
included.
Based on the responsibilities described above and our work
undertaken in the course of the audit, ISAs (Ireland), the
Companies Act 2014 (CA14) and the Listing Rules applicable to the
Company (Listing Rules) require us to also report certain opinions
and matters as described below (required by ISAs (Ireland) unless
otherwise stated).
Directors’ Report
– In our opinion, based on the work undertaken in the course
of the audit, the information given in the Directors’ Report
for the year ended 31 December 2017 is consistent with the
financial statements and has been prepared in accordance
with applicable legal requirements. (CA14)
– Based on our knowledge and understanding of the Group and
Company and their environment obtained in the course of the
audit, we have not identified any material misstatements in the
Directors’ Report. (CA14)
Corporate governance statement
– In our opinion, based on the work undertaken in the course of
the 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 included in the Corporate Governance
report; and
– the information required by Section 1373(2)(d) of the
Companies Act 2014 included 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. (CA14)
– Based on our knowledge and understanding of the Company
and its environment obtained in the course of the 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. (CA14)
– In our opinion, based on the work undertaken during the
course of the audit of the financial statements, the information
required by section 1373(2)(a),(b),(e) and (f) is contained in
the Directors’ Report. (CA14)
The directors’ assessment of the prospects of the Group and
of the principal risks that would threaten the solvency or
liquidity of the Group
We have nothing material to add or to draw attention to regarding:
– The directors’ confirmation on page 81 of the Annual Report
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 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.
120
Kerry Group Annual Report 2017
The directors’ assessment of the prospects of the Group and
of the principal risks that would threaten the solvency or
liquidity of the Group (continued)
We have nothing to report having performed a review of
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
UK Corporate Governance Code (the ‘Code’); and considering
whether the statements are consistent with the knowledge
and understanding of the Group and the Company and their
environment obtained in the course of the audit. (Listing Rules)
Other code provisions
We have nothing to report in respect of our responsibility to
report when:
– The statement given by the directors, on page 76, that they
consider the Annual Report taken as a whole to be fair,
balanced and understandable, and provides the information
necessary for the 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 obtained in the course of performing
our audit.
– The section of the Annual Report on pages 84 and 85
describing the work of the Audit Committee does not
appropriately address matters communicated by us to the
Audit Committee.
– The directors’ statement relating to the Company’s
compliance with the Code and the Irish Corporate Governance
Annex does not properly disclose a departure from a relevant
provision of the Code or the Annex specified, under the Listing
Rules, for review by the auditors.
Responsibilities for the financial statements
and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors’ Responsibilities Statement
set out on pages 75 and 76, the directors are responsible for the
preparation of the financial statements in accordance with the
applicable framework and for being satisfied that they give a true
and fair view. The directors are also responsible for such internal
control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are responsible
for assessing the Group’s and the Company’s ability to continue as
a going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless
the directors either intend to liquidate the Group or the Company
or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditors’ report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (Ireland) will always detect
a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these
consolidated financial statements.
A further description of our responsibilities for the audit of the
financial statements is located on the IAASA website at:
https://www.iaasa.ie/getmedia/b2389013-1cf6-458b-9b8f-
a98202dc9c3a/Description_of_auditors_responsibilities_for_audit.pdf
This description forms part of our auditors’ report.
Use of this report
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.
Other required reporting
Companies Act 2014 opinions on other matters
– 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’s Balance Sheet is in agreement with the
accounting records.
Companies Act 2014 exception reporting
Directors’ remuneration and transactions
Under the Companies Act 2014 we are required to report to you
if, in our opinion, the disclosures of directors’ remuneration and
transactions specified by sections 305 to 312 of that Act have
not been made. We have no exceptions to report arising from this
responsibility.
Appointment
We were appointed by the directors on 28 April 2016 to audit the
financial statements for the year ended 31 December 2016 and
subsequent financial periods. The period of total uninterrupted
engagement is 2 years, covering the years ended 31 December
2016 to 31 December 2017.
John McDonnell
for and on behalf of PricewaterhouseCoopers
Chartered Accountants and Statutory Audit Firm
Dublin
19 February 2018
Kerry Group Annual Report 2017
121
FINANCIAL
STATEMENTS
CONSOLIDATED INCOME STATEMENT
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
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 attributable to owners of the parent
Earnings per A ordinary share
- basic
- diluted
Before
Non-Trading
Items
2017
€’m
Non-Trading
Items
2017
€’m
Notes
Before
Non-Trading
Items
2016
€’m
Total
2017
€’m
Non-Trading
Items
2016
€’m
2
6,407.9
781.3
(47.9)
-
733.4
0.1
(65.7)
667.8
(89.5)
578.3
2/3
12
5
3
6
6
7
9
9
-
-
-
(54.5)
(54.5)
-
-
(54.5)
64.7
10.2
6,407.9
6,130.6
781.3
749.6
(46.4)
-
703.2
1.1
(71.5)
632.8
(86.7)
546.1
(47.9)
(54.5)
678.9
0.1
(65.7)
613.3
(24.8)
588.5
Cent
333.6
333.2
-
-
-
(21.0)
(21.0)
-
-
(21.0)
8.0
(13.0)
Total
2016
€’m
6,130.6
749.6
(46.4)
(21.0)
682.2
1.1
(71.5)
611.8
(78.7)
533.1
Cent
302.9
302.0
122
Kerry Group Annual Report 2017
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
Profit after taxation 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 of foreign operations
Fair value movement on revaluation of available for sale financial assets
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 recognised directly in total other comprehensive income
Total comprehensive income
Notes
2017
€’m
588.5
2016
€’m
533.1
24
17
13
26
17
5.3
(29.2)
(0.6)
(108.8)
3.5
130.1
(20.2)
(19.9)
568.6
29.3
(13.3)
0.9
(17.9)
-
(170.3)
25.5
(145.8)
387.3
Kerry Group Annual Report 2017
123
FINANCIAL
STATEMENTS
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2017
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 19 February 2018 and signed on its behalf by:
Michael Dowling, Chairman
Edmond Scanlon, Chief Executive Officer
124
Kerry Group Annual Report 2017
31 December
2017
€’m
31 December
2016
€’m
Notes
11
12
13
14
23
17
16
19
23
23
18
20
23
23
25
21
23
23
26
22
17
25
21
27
1,529.6
3,646.7
44.6
5.8
95.4
46.4
1,451.9
3,444.3
39.3
40.7
153.0
52.7
5,368.5
5,181.9
797.5
893.1
312.5
20.3
8.3
2,031.7
7,400.2
1,410.5
13.3
9.1
108.4
25.3
1.2
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
1,567.8
1,693.4
1,728.4
1,867.0
7.9
124.3
96.7
241.9
37.1
22.9
2,259.2
3,827.0
3,573.2
22.0
398.7
(214.4)
3,366.9
3,573.2
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
COMPANY BALANCE SHEET
AS AT 31 DECEMBER 2017
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 company earned a profit of €107.9m for the year ended 31 December 2017 (2016: €118.8m).
31 December
2017
€’m
31 December
2016
€’m
Notes
11
15
23
19
20
23
21
27
0.4
637.7
638.1
-
115.9
115.9
754.0
8.2
-
8.2
0.1
0.1
8.3
745.7
22.0
398.7
53.1
271.9
745.7
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
The financial statements were approved by the Board of Directors on 19 February 2018 and signed on its behalf by:
Michael Dowling, Chairman
Edmond Scanlon, Chief Executive Officer
Kerry Group Annual Report 2017
125
FINANCIAL
STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
Group:
At 1 January 2016
Profit after tax attributable to owners of the parent
Other comprehensive expense
Total comprehensive (expense)/income
Dividends paid
Share-based payment expense
At 31 December 2016
Profit after tax attributable to owners of the parent
Other comprehensive (expense)/income
Total comprehensive (expense)/income
Dividends paid
Share-based payment expense
At 31 December 2017
Other Reserves comprise the following:
Share
Capital
€’m
Share
Premium
€’m
Other
Reserves
€’m
Retained
Earnings
€’m
Total
€’m
Notes
22.0
398.7
(103.9)
-
-
-
-
-
-
-
-
-
-
-
(1.9)
(1.9)
-
7.8
2,473.3
533.1
(143.9)
2,790.1
533.1
(145.8)
389.2
387.3
(91.2)
-
(91.2)
7.8
22.0
398.7
(98.0)
2,771.3
3,094.0
-
-
-
-
-
-
-
-
-
-
-
(129.2)
588.5
109.3
588.5
(19.9)
(129.2)
697.8
568.6
-
12.8
(102.2)
(102.2)
-
12.8
22.0
398.7
(214.4)
3,366.9
3,573.2
10
28
10
28
AFS
Reserve
€’m
Capital
Redemption
Reserve
€’m
Other
Undenominated
Capital
€’m
Share-Based
Payment
Reserve
€’m
Note
Translation
Reserve
€’m
Hedging
Reserve
€’m
30.5
-
7.8
(129.1)
(17.9)
-
(7.3)
16.0
-
Total
€’m
(103.9)
(1.9)
7.8
38.3
(147.0)
8.7
(98.0)
-
12.8
51.1
(108.8)
(23.9)
(129.2)
-
-
12.8
(255.8)
(15.2)
(214.4)
At 1 January 2016
Other comprehensive (expense)/income
Share-based payment expense
At 31 December 2016
Other comprehensive income/(expense)
Share-based payment expense
At 31 December 2017
28
28
-
-
-
-
3.5
-
3.5
1.7
-
-
1.7
-
-
1.7
0.3
-
-
0.3
-
-
0.3
The nature and purpose of each reserve within shareholders’ equity are described in note 35.
126
Kerry Group Annual Report 2017
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
Company:
At 1 January 2016
Profit after tax
Other comprehensive income
Total comprehensive income
Dividends paid
Share-based payment expense
At 31 December 2016
Profit after tax
Other comprehensive income
Total comprehensive income
Dividends paid
Share-based payment expense
At 31 December 2017
Other Reserves comprise the following:
At 1 January 2016
Share-based payment expense
At 31 December 2016
Share-based payment expense
At 31 December 2017
Share
Capital
€’m
Share
Premium
€’m
Other
Reserves
€’m
Retained
Earnings
€’m
Notes
8
10
28
8
10
28
Note
28
28
22.0
398.7
32.5
-
-
-
-
-
-
-
-
-
-
22.0
398.7
-
-
-
-
-
-
-
-
-
-
22.0
398.7
-
-
-
-
7.8
40.3
-
-
-
-
12.8
53.1
238.6
118.8
-
118.8
(91.2)
-
266.2
107.9
-
107.9
(102.2)
-
271.9
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
30.5
7.8
38.3
12.8
51.1
Total
€’m
691.8
118.8
-
118.8
(91.2)
7.8
727.2
107.9
-
107.9
(102.2)
12.8
745.7
Total
€’m
32.5
7.8
40.3
12.8
53.1
The nature and purpose of each reserve within shareholders’ equity are described in note 35.
Kerry Group Annual Report 2017
127
FINANCIAL
STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
Notes
29
29
2017
€’m
781.3
134.0
9.1
(95.3)
(34.0)
(8.8)
786.3
(54.7)
0.1
(60.3)
671.4
2016
€’m
749.6
129.8
61.7
(118.2)
(21.2)
0.1
801.8
(57.3)
1.1
(62.6)
683.0
29
(301.3)
(223.8)
3.1
0.9
(396.5)
29.5
-
-
(0.9)
(665.2)
(102.2)
-
(144.3)
(246.5)
(240.3)
561.1
(15.2)
305.6
(240.3)
144.3
(96.0)
2.8
75.2
(18.0)
(1,323.7)
(1,341.7)
30
5/14
14
10
27
29
29
23
12.1
1.5
(22.2)
(6.7)
5.0
(2.0)
(0.1)
(236.2)
(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)
Operating activities
Trading profit
Adjustments for:
Depreciation (net)
Change in working capital
Pension contributions paid less pension expense
Payments on non-trading items
Exchange translation adjustment
Cash generated from operations
Income taxes paid
Finance income received
Finance costs paid
Net cash from operating activities
Investing activities
Purchase of assets
Proceeds from the sale of assets
Capital grants received
Purchase of businesses (net of cash acquired)
Disposal/(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 (net of swaps)
Net cash movement due to financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of the financial year
Exchange translation adjustment on cash and cash equivalents
Cash and cash equivalents at end of the financial year
Reconciliation of Net Cash Flow to Movement in Net Debt
Net (decrease)/increase in cash and cash equivalents
Cash flow 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
128
Kerry Group Annual Report 2017
COMPANY STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
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
2017
€’m
106.2
0.2
(4.2)
102.2
(102.2)
-
(102.2)
-
-
-
2016
€’m
116.0
0.2
(24.4)
91.8
(91.2)
-
(91.2)
0.6
(0.6)
-
Kerry Group Annual Report 2017
129
FINANCIAL
STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017
1. Statement of accounting policies
General information
Kerry Group plc is a public limited company incorporated in the
Republic of Ireland. The registered number is 111471 and 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 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 IFRS 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 of accounting.
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.
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
130
Kerry Group Annual Report 2017
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 associates’ post-acquisition profits or losses
is recognised in ‘Share of associate loss/(profit) after tax’ within
Trading Profit in the Consolidated Income Statement, and its share
of post-acquisition movements in reserves is recognised in reserves.
The cumulative post-acquisition movements are adjusted against the
carrying amount of the investment, less any impairment in value. Where
indicators of impairment arise, the carrying amount of the associate
is tested for impairment by comparing its recoverable amount with its
carrying amount.
Unrealised gains arising from transactions with associates are
eliminated to the extent of the Group’s interest in the entity. Unrealised
losses are 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.
1. Statement of accounting policies (continued)
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.
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.
Kerry Group Annual Report 2017
131
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 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. The Group accounts for
uncertain tax positions in line with IFRIC 23 ‘Uncertainty over Income
Tax Treatments’. The Group considers each uncertain tax treatment
separately or together with one or more uncertain tax treatments based
on which approach better predicts the resolution of the uncertainty. If
the Group concludes that it is not probable that a taxation authority will
accept an uncertain tax treatment the Group reflects the effect of the
uncertainty in determining the related taxable profit, tax bases, unused
tax losses, unused tax credits or tax rate. The Group reflects the effect
of uncertainty for each uncertain tax treatment using an expected value
approach or a most likely approach depending on which method the
Group expects to better predict the resolution of the uncertainty. The
unit of account for recognition purposes is the income tax/deferred
tax assets or liabilities and the Group does not provide separately for
uncertain tax positions. When the final tax outcome for these items
is different from amounts recorded, such differences will impact the
income tax and deferred tax in the period in which such a determination
is made, as well as the Group’s cash position.
Deferred taxes are calculated based on the temporary differences that
arise between the tax base of the asset or liability and its carrying value
in the Consolidated Balance Sheet. Deferred taxes are recognised on all
temporary differences in existence at the balance sheet date except for:
temporary differences which arise from the initial recognition
-
of an asset or liability in a transaction other than a business
combination that at the time of the transaction does not
affect accounting or taxable profit or loss, or on the initial
recognition of goodwill for which a tax deduction is not available;
and
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.
-
1. Statement of accounting policies (continued)
Intangible assets (continued)
(ii) Brand related intangibles (continued)
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 have
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.
Costs relating to the development of computer software for internal use
are capitalised once the recognition criteria outlined as follows are met:
-
-
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.
-
-
-
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.
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Kerry Group Annual Report 2017
1. Statement of accounting policies (continued)
Income taxes (continued)
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 income tax assets and current income tax liabilities are offset
where there is a legally enforceable right to offset the recognised
amounts and the Group intends to settle on a net basis. Deferred
income tax assets and deferred income tax liabilities are offset where
there is a legally enforceable right to offset the recognised amounts,
the deferred tax assets and deferred tax liabilities relate to taxes levied
by the same taxation authority 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 include 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 restructuring
costs and material transaction, integration and restructuring costs
associated with acquisitions. 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.
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.
Dividends are disclosed in note 10 to the consolidated financial
statements.
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.
Kerry Group Annual Report 2017
133
1. Statement of accounting policies (continued)
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. Share-based payments are disclosed in note 28 to the
consolidated financial statements.
Foreign currency
Foreign currency transactions are translated into functional currency
at the rate of exchange ruling at the date of the transaction. Exchange
differences arising from either the retranslation of the resulting
monetary assets or liabilities at the exchange rate at the balance
sheet date or from the settlement of the balance at a different rate are
recognised in the Consolidated Income Statement when they occur.
On consolidation, the income statements of foreign currency
subsidiaries are translated into euro at the average exchange rate. If this
average is not a reasonable approximation of the cumulative effect of
the rates prevailing on the transaction dates, a weighted average rate is
used. The balance sheets of such subsidiaries are translated at the rate
of exchange at the balance sheet date. Resulting exchange differences
arising on the translation of foreign currency subsidiaries are taken
directly to a separate component of shareholders’ equity.
Goodwill and fair value adjustments arising on the acquisition of
foreign subsidiaries are treated as assets and liabilities of the foreign
subsidiaries and are translated at the closing rate.
On disposal of a foreign currency subsidiary, the cumulative translation
difference for that foreign subsidiary is recycled to the Consolidated
Income Statement as part of the profit or loss on disposal.
Borrowing costs
Borrowing costs incurred for qualifying assets, which take a substantial
period of time to construct, are added to the cost of the asset during
the period of time required to complete and prepare the asset for its
intended use. Other borrowing costs are expensed to the Consolidated
Income Statement in the period in which they are incurred.
Business combinations
The acquisition method of accounting is used for the acquisition of
subsidiaries. The cost of the acquisition is measured at the aggregate
fair value of the consideration given. The acquiree’s identifiable
assets, liabilities and contingent liabilities that meet the conditions for
recognition under IFRS 3 ‘Business Combinations’ are recognised at
their fair value at the date the Group assumes control of the acquiree.
Acquisition related costs are recognised in the Consolidated Income
Statement as incurred. If the business combination is achieved in
stages, the acquisition date fair value of the Group’s previously held
investment in the acquiree is remeasured to fair value at the acquisition
date through profit or loss.
Certain assets and liabilities are not recognised at their fair value at
the date control was achieved as they are accounted for using other
applicable IFRSs. These include deferred tax assets/liabilities and also
any assets related to employee benefit arrangements.
If the initial accounting for a business combination is incomplete by the
end of the reporting period in which the combination occurs, the Group
reports provisional amounts for the items for which the valuation of
the fair value of assets and liabilities acquired is still in progress. Those
provisional amounts are adjusted during the measurement period of
one year from the date control is achieved when additional information
is obtained about facts and circumstances which would have affected
the amounts recognised as of that date.
Where applicable, the consideration for the acquisition includes any
asset or liability resulting from a contingent consideration arrangement
measured at fair value at the date control is achieved. Subsequent
changes in such fair values are adjusted against the cost of acquisition
where they qualify as measurement period adjustments. All other
subsequent changes in the fair value of contingent consideration
classified as an asset or liability are accounted for in accordance with
relevant IFRSs.
Any fair value adjustments in relation to acquisitions completed prior
to 1 January 2010 have been accounted for under IFRS 3 ‘Business
Combinations (2004)’.
Investments in subsidiaries
Investments in subsidiaries held by the Parent Company are carried at
cost less accumulated impairment losses.
Financial instruments
Financial assets and financial liabilities are recognised on the
Consolidated Balance Sheet when the Group becomes party to the
contractual provisions of the instrument.
Financial assets and liabilities are initially measured at fair value plus
transaction costs, except for those classified as fair value through profit
or loss, which are initially measured at fair value.
All financial assets are recognised and derecognised on a trade date
basis, where the purchase or sale of a financial asset is under a contract
whose terms require delivery of the financial asset within the timeframe
of the market concerned.
Financial assets and liabilities are offset and presented on a net basis in
the Consolidated Balance Sheet, only if the Group holds an enforceable
legal right of set off for such amounts and there is an intention to
settle on a net basis or to realise an asset and settle the liability
simultaneously. In all other instances they are presented gross in the
Consolidated Balance Sheet.
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Kerry Group Annual Report 2017
1. Statement of accounting policies (continued)
Financial instruments (continued)
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.
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;
Kerry Group Annual Report 2017
135
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 on-going
basis. Changes in accounting estimates may be necessary if there are
changes in the circumstances on which the estimate was based or
as a result of new information or more experience. Such changes are
recognised in the period in which the estimate is revised.
1. Statement of accounting policies (continued)
Financial instruments (continued)
Impairment of financial assets (continued)
-
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
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Kerry Group Annual Report 2017
the Group bases its assessment on the probability of a tax authority
accepting its general treatment having regard to all information
available on the tax matter and when it is not probable reflects the
uncertainty in income tax/deferred tax assets or liabilities. When
applying its accounting policy at the year end the Group generally
considered each uncertain tax treatment separately and reflected
the effect of the uncertainty in the income tax/deferred tax assets or
liabilities using an expected value approach as this better predicts
the resolution of the uncertainty. Such estimates are determined
based on management judgement, interpretation of the relevant tax
laws, correspondence with the relevant tax authorities and external
tax advisors and past practices of the tax authorities. Where the final
outcome of these tax matters is different from the amounts that were
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 asset investments (note 13), 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 30 to the consolidated
financial statements.
Income tax charge and income/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. The Group
considers these uncertain tax positions in the recognition of its income
tax/deferred tax assets or liabilities. In line with its accounting policy,
Kerry Group Annual Report 2017
137
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. The Group intends to adopt the relevant new and revised standards when they become effective and the Group’s assessment of the impact of
these standards and interpretations is set out below:
Standards and Interpretations effective for Kerry Group in 2017 but not material to the results and financial position of the Group:
- IAS 7 (amendments) Statement of Cash Flows
- IAS 12 (amendments) Income Taxes
Effective Date
1 January 2017
1 January 2017
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
Effective Date
1 January 2018
1 January 2018
- IFRS 9
- IFRS 15
1 January 2018
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 has assessed the potential impact on its consolidated financial statements
resulting from the application of IFRS 9. The vast majority of financial assets held are trade receivables and cash,
which will continue to be accounted for at amortised cost. The majority of financial asset investments will continue
to be accounted for at fair value through profit or loss. On this basis, the classification and measurement changes
will not have a material impact on the Group’s consolidated financial statements. Given historic loss rates, normal
receivable ageing and the significant portion of trade receivables that are within agreed terms, the move from an
incurred loss model to an expected loss model will not have a material impact. The new hedging requirements of
IFRS 9 will align hedge accounting more closely to the Group’s risk management policies, as well as making more
hedging relationships eligible for hedge accounting. Current hedging arrangements continue to be appropriate
under IFRS with the only difference being a change to the cost of hedging. This change to cost is not material.
Based on analysis to date the impact of IFRS 9 will not be material. In line with the transition guidance in IFRS 9 the
Group will not restate the 2017 prior period on adoption.
1 January 2018
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 has assessed the potential impact
on its consolidated financial statements resulting from the application of IFRS 15. Findings from our review of IFRS
15 are that the impact of this new standard on the Group’s results is unlikely to be material. Kerry do not supply
services and generally legal title of goods sold is transferred on shipment.
In general there is one performance obligation in each of our sale contracts. In certain parts of the Group’s
business, the performance does not create an asset with an alternative use to the Group and the Group has an
enforceable right to payment (cost plus a margin) for performance completed to date. In these circumstances,
revenue should be recorded over time rather than at a point in time as is our current policy.
Based on analysis conducted to date of its contractual and trading relationships, the Group currently estimates
that the impact of IFRS 15 is not material and no material impact on profits in future periods is expected. In line with
the transition guidance in IFRS 15 the Group will not restate the 2017 prior period on adoption.
- IAS 40 (amendment) Investment Property
- IFRIC 22
Foreign Currency Transactions and Advance Consideration
1 July 2018
1 January 2018
The following revised standards are not yet effective and the impact on Kerry Group is currently under review:
- IFRS 16
Effective Date
1 January 2019
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. During 2017 the Group commenced
a review of its contractual leases and early indications from this initial review is that IFRS 16 will result in an increase in
finance leased assets (right-of-use asset) of approximately €57.5m, and a corresponding increase in financial liabilities
of the same amount, on the Consolidated Balance Sheet of the Group’s financial statements.
138
Kerry Group Annual Report 2017
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
2017
€’m
Consumer
Foods
2017
€’m
5,080.5
1,327.4
78.3
3.6
5,158.8
1,331.0
Group
Eliminations
and
Unallocated
2017
€’m
Taste &
Nutrition
2016
€’m
Consumer
Foods
2016
€’m
Total
2017
€’m
Group
Eliminations
and
Unallocated
2016
€’m
Total
2016
€’m
-
6,407.9
4,800.1
1,330.5
(81.9)
(81.9)
-
79.4
2.0
6,407.9
4,879.5
1,332.5
-
6,130.6
(81.4)
(81.4)
-
6,130.6
External revenue
Inter-segment revenue
Revenue
Trading profit
767.2
107.8
(93.7)
781.3
716.4
117.3
(84.1)
749.6
Intangible asset amortisation
Non-trading items
Operating profit
Finance income
Finance costs
Profit before taxation
Income taxes
Profit after taxation attributable to owners of the parent
(47.9)
(54.5)
678.9
0.1
(65.7)
613.3
(24.8)
588.5
(46.4)
(21.0)
682.2
1.1
(71.5)
611.8
(78.7)
533.1
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
4,671.6
(1,150.5)
944.2
(351.8)
1,784.4
7,400.2
(2,324.7)
(3,827.0)
4,441.5
(1,156.9)
928.3
(428.1)
2,052.1
7,421.9
(2,742.9)
(4,327.9)
3,521.1
592.4
(540.3)
3,573.2
3,284.6
500.2
(690.8)
3,094.0
246.4
108.5
1.0
17.2
28.8
18.1
1.4
6.2
0.9
7.3
21.2
24.5
276.1
133.9
23.6
47.9
EMEA
2017
€’m
Americas
2017
€’m
Asia Pacific
2017
€’m
2,864.0
4,300.2
100.6
22.6
2,678.3
2,451.0
122.4
1.0
865.6
649.0
53.1
-
Total
2017
€’m
6,407.9
7,400.2
276.1
23.6
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
Kerry Group Annual Report 2017
139
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 €447.8m (2016: €429.4m).
The non-current assets located in the Republic of Ireland are €906.1m (2016: €936.8m).
Revenues from external customers include €1,550.1m (2016: €1,534.8m) in the UK and €2,091.2m (2016: €2,053.1m) in the USA. The non-current assets in
the UK are €669.9m (2016: €673.3m) and in the USA are €1,483.9m (2016: €1,385.7m).
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:
Continuing
Operations
2017
€’m
6,407.9
Continuing
Operations
2016
€’m
6,130.6
Notes
11
21
14
12
5
3,591.7
436.8
1,196.1
136.2
(2.2)
339.3
(29.0)
(43.4)
1.1
781.3
47.9
54.5
678.9
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
268.7
260.7
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 loss/(profit) after tax
Trading profit
Intangible asset amortisation
Non-trading items
Operating profit
And is stated after charging:
Research and development costs
140
Kerry Group Annual Report 2017
3. Operating profit (continued)
Auditors’ remuneration
Statutory disclosure:
Group audit
Other assurance services
Total assurance services
Tax advisory services
Other non-audit services
Total non-audit services
Total auditors’ remuneration
Assurance services
Non-audit services
Total
PwC
Ireland
2017
€’m
PwC
Other
2017
€’m
PwC
Worldwide
2017
€’m
PwC
Ireland
2016
€’m
PwC
Other
2016
€’m
PwC
Worldwide
2016
€’m
1.3
-
1.3
-
0.1
0.1
1.4
1.3
-
1.3
-
-
-
1.3
2.6
-
2.6
-
0.1
0.1
2.7
96%
4%
100%
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%
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 (2016: €4,720) which are due to the Group’s auditor in respect of the Parent Company. Reimbursement of auditors’ expenses amounted
to €0.2m (2016: €0.2m).
4. Total staff numbers and costs
The average number of people employed by the Group was:
EMEA
Americas
Asia Pacific
Taste &
Nutrition
2017
Number
6,087
7,438
3,320
16,845
Consumer
Foods
2017
Number
7,124
-
-
Total
2017
Number
13,211
7,438
3,320
7,124
23,969
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) was:
EMEA
Americas
Asia Pacific
Taste &
Nutrition
2017
€’m
332.0
472.3
109.7
914.0
Consumer
Foods
2017
€’m
282.1
-
-
282.1
Total
2017
€’m
614.1
472.3
109.7
1,196.1
Taste &
Nutrition
2016
€’m
310.4
461.0
104.2
875.6
Consumer
Foods
2016
€’m
271.7
-
-
271.7
Total
2016
Number
12,840
7,088
3,108
23,036
Total
2016
€’m
582.1
461.0
104.2
1,147.3
Social welfare costs of €83.3m (2016: €91.0m) and share-based payment expense of €12.8m (2016: €7.8m) 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 €6.8m (2016: €5.3m) which has been capitalised as
part of computer software in intangible assets.
Kerry Group Annual Report 2017
141
5. Non-trading items
Loss on disposal of assets and businesses
Acquisition integration and restructuring costs
Consumer Foods Brexit mitigation programme
Impairment of assets held for sale
Tax on above
Tax credit due to change in tax rates
(i) Loss on disposal of assets and businesses
Assets and businesses
Property, plant and equipment
Investments in associates
Assets classified as held for sale
Net assets and businesses disposed
Consideration
Cash received
Disposal related costs
Total consideration received
Loss on disposal of assets and businesses
Net cash inflow on disposal:
Cash
Less: cash at bank and in hand balance disposed of
2017
€’m
(5.8)
(36.0)
(11.7)
(1.0)
(54.5)
11.9
52.8
64.7
10.2
Notes
(i)
(ii)
(iii)
(iv)
(i)-(iv)
(v)
Note
14
2016
€’m
(1.3)
(19.6)
-
(0.1)
(21.0)
8.0
-
8.0
(13.0)
Total
2017
€’m
(4.3)
(34.4)
(0.4)
(39.1)
33.3
-
33.3
(5.8)
Total
2017
€’m
33.3
-
33.3
During the year, the Group disposed of its 22.5% shareholding in Addo Foods for a consideration of €30.1m resulting in a loss of €4.3m and also disposed
of unused property, plant and equipment resulting in a loss of €1.5m.
In 2016, 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.
A tax credit of €0.1m (2016: a tax credit of €1.0m) arose on the disposal of assets and businesses.
142
Kerry Group Annual Report 2017
5. Non-trading items (continued)
(ii) Acquisition integration and restructuring costs
The acquisition integration and restructuring costs of €36.0m (2016: €19.6m) primarily relates to costs of integrating acquisitions completed since 2015,
including Red Arrow and Island Oasis, plus acquisitions completed during 2017 into the Group’s operations. This cost also includes transaction expenses
incurred in completing current year acquisitions. Acquisition integration costs represent additional investment by the Group in the 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 other related expenses in order to integrate the businesses into the existing Kerry operating model.
In the year ended 31 December 2017, a tax credit of €10.8m (2016: €7.0m) arose due to tax deductions available on acquisition integration and
restructuring costs.
(iii) Consumer Foods Brexit mitigation programme
As a result of the decision of the UK electorate to leave the European Union, Kerry has initiated a programme to optimise and restructure its cost base and
product lines in order to maintain the competitiveness of the parts of the Consumer Foods business that have substantial sterling transaction exposure.
The charge relating to this in 2017 is €11.7m and the associated tax credit is €1.0m.
(iv) Impairment of assets held for sale
In 2017, assets classified as held for sale were impaired to their fair value less costs to sell by €1.0m.
(v) Tax credit due to change in tax rates
On 22 December 2017, the US Tax Cuts and Jobs Act (‘the Act’) was enacted into law. This Act brings about fundamental changes to the US tax system,
both from an individual and corporate tax perspective. As a result of the Act, the statutory rate of US federal corporate income tax has been reduced
from 35% to 21% with effect from 1 January 2018. The reduction in the US corporate income tax rate to 21% required revaluation of Kerry’s US deferred tax
liabilities. This resulted in a one-off deferred tax credit in 2017, which is reported in the Income Statement as a non-trading item of €52.8m.
The final impact of the changes from this new law are subject to a number of detailed provisions in the legislation and any implementation guidance issued
by the Treasury Department and the Internal Revenue Service (IRS). Kerry will continue to monitor any developments and give due consideration to the
impact of any guidance, along with ongoing market interpretation and assessment on the accounting implications of this Act.
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
Note
26
2017
€’m
0.1
(58.1)
0.6
(57.5)
(8.2)
(65.7)
2016
€’m
1.1
(64.1)
0.5
(63.6)
(7.9)
(71.5)
Kerry Group Annual Report 2017
143
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 (credit)/charge on non-trading items:
Current tax
Deferred tax
Notes
17
5
2017
€’m
81.9
(0.7)
81.2
(56.4)
24.8
(1.2)
(63.5)
(64.7)
The tax on the Group’s profit 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
2017
€’m
613.3
76.7
(0.2)
11.1
(52.8)
(1.9)
(6.9)
(1.2)
24.8
2016
€’m
68.6
(3.7)
64.9
13.8
78.7
0.6
(8.6)
(8.0)
2016
€’m
611.8
76.5
1.3
12.8
(2.8)
(2.2)
(5.6)
(1.3)
78.7
An increase in the Group’s applicable tax rate of 1% would reduce profit after tax by €6.1m (2016: €6.1m). 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 €107.9m (2016: €118.8m).
144
Kerry Group Annual Report 2017
9. Earnings per A ordinary share
Basic earnings per share
Profit after taxation 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 attributable to owners of the parent
Adjusted earnings
Notes
12
5
EPS
cent
333.6
13.4
(5.8)
341.2
2017
€’m
588.5
23.6
(10.2)
601.9
EPS
cent
302.9
13.1
7.4
323.4
333.2
340.8
588.5
601.9
302.0
322.4
2016
€’m
533.1
23.0
13.0
569.1
533.1
569.1
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 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
2017
m’s
176.4
0.2
176.6
176.2
2016
m’s
176.0
0.5
176.5
176.0
10. Dividends
Group and Company:
Amounts recognised as distributions to equity shareholders in the financial year
Final 2016 dividend of 39.20 cent per A ordinary share paid 19 May 2017
(Final 2015 dividend of 35.00 cent per A ordinary share paid 13 May 2016)
Interim 2017 dividend of 18.80 cent per A ordinary share paid 10 November 2017
(Interim 2016 dividend of 16.80 cent per A ordinary share paid 18 November 2016)
2017
€’m
2016
€’m
69.0
61.6
33.2
102.2
29.6
91.2
Since the financial year end the Board has proposed a final 2017 dividend of 43.90 cent per A ordinary share which amounts to €77.3m. The payment date
for the final dividend will be 18 May 2018 to shareholders registered on the record date as at 20 April 2018. The consolidated financial statements do not
reflect this dividend.
Kerry Group Annual Report 2017
145
11. Property, plant and equipment
Land and
Buildings
€’m
Notes
Plant,
Machinery
and
Equipment
€’m
Construction
in Progress
€’m
Motor
Vehicles
€’m
Total
€’m
Group:
Cost
At 1 January 2016
Businesses acquired
Additions
Transfer from construction in progress
Businesses disposed
Disposals
Transfer from/(to) held for sale
Exchange translation adjustment
At 31 December 2016
Businesses acquired
Additions
Transfer from construction in progress
Businesses disposed
Disposals
Transfer to held for sale
Exchange translation adjustment
At 31 December 2017
Accumulated depreciation and impairment
At 1 January 2016
Charge during the financial year
Businesses acquired
Impairments
Businesses disposed
Disposals
Transfer from/(to) held for sale
Exchange translation adjustment
At 31 December 2016
Charge during the financial year
Impairments
Businesses disposed
Disposals
Transfer to held for sale
Exchange translation adjustment
At 31 December 2017
Carrying value
At 31 December 2016
At 31 December 2017
1,003.9
1,722.4
2.0
20.0
4.1
2.2
(7.5)
38.7
(19.5)
1,043.9
19.0
17.2
53.1
-
(10.0)
(14.5)
(57.2)
1,051.5
314.5
30.8
0.5
3.7
(0.3)
(3.8)
42.4
(10.0)
377.8
31.7
3.8
-
(1.3)
(9.3)
(18.8)
383.9
666.1
667.6
4.6
55.7
55.6
(3.3)
(38.4)
52.4
(37.0)
1,812.0
17.0
70.0
65.9
-
(24.7)
(19.9)
(98.1)
1,822.2
1,096.0
100.4
3.2
3.6
(2.8)
(36.5)
48.6
(29.9)
1,182.6
103.4
1.2
-
(24.7)
(19.9)
(67.8)
1,174.8
629.4
647.4
30
5
5
3
3
3
3
5
5
91.6
-
123.0
(59.7)
-
-
0.3
(1.6)
153.6
0.9
187.6
(119.0)
-
-
-
(11.6)
211.5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18.3
0.3
0.9
-
-
(1.3)
(3.4)
0.1
14.9
0.3
1.3
-
-
(1.2)
-
(0.6)
14.7
15.3
1.0
0.3
-
-
(1.1)
(3.4)
-
12.1
1.0
-
-
(1.1)
-
(0.4)
11.6
2,836.2
6.9
199.6
-
(1.1)
(47.2)
88.0
(58.0)
3,024.4
37.2
276.1
-
-
(35.9)
(34.4)
(167.5)
3,099.9
1,425.8
132.2
4.0
7.3
(3.1)
(41.4)
87.6
(39.9)
1,572.5
136.1
5.0
-
(27.1)
(29.2)
(87.0)
1,570.3
153.6
211.5
2.8
3.1
1,451.9
1,529.6
Included in the impairments above is €4.9m (2016: €6.7m) charged to non-trading items.
146
Kerry Group Annual Report 2017
11. Property, plant and equipment (continued)
Company:
Cost
At 1 January 2016
At 31 December 2016 and 2017
Accumulated depreciation
At 1 January 2016
Charge during the financial year
At 31 December 2016
Charge during the financial year
At 31 December 2017
Carrying value
At 31 December 2016
At 31 December 2017
Land and
Buildings
Total
€’m
4.7
4.7
3.9
0.2
4.1
0.2
4.3
0.6
0.4
Kerry Group Annual Report 2017
147
12. Intangible assets
Notes
Goodwill
€’m
Brand
Related
Intangibles
€’m
Computer
Software
€’m
Cost
At 1 January 2016
Businesses acquired
Additions
Transferred from held for sale
Disposals
Exchange translation adjustment
At 31 December 2016
Businesses acquired
Additions
Purchase adjustment
Transferred (to)/from held for sale
Disposals
Exchange translation adjustment
At 31 December 2017
Accumulated amortisation and impairment
At 1 January 2016
Charge during the financial year
Businesses acquired
Disposals
Impairment
Transferred from held for sale
Exchange translation adjustment
At 31 December 2016
Charge during the financial year
Disposals
Impairment
Transferred (to)/from held for sale
Exchange translation adjustment
At 31 December 2017
Carrying value
At 31 December 2016
At 31 December 2017
30
3
3
2,245.9
8.5
-
-
-
(35.1)
2,219.3
125.3
-
(0.2)
-
-
(115.1)
2,229.3
24.5
-
-
-
-
-
(1.9)
22.6
-
-
-
-
(4.1)
18.5
1,350.2
11.7
-
-
-
(4.7)
1,357.2
252.3
-
-
-
-
(56.6)
1,552.9
184.0
23.0
-
(0.3)
-
-
(9.0)
197.7
23.6
-
-
-
(17.0)
204.3
2,196.7
2,210.8
1,159.5
1,348.6
196.5
0.2
16.5
0.9
(1.3)
(0.4)
212.4
0.1
23.6
-
-
(0.1)
(1.4)
234.6
101.5
23.4
0.1
(1.1)
-
0.8
(0.4)
124.3
24.3
-
-
-
(1.3)
147.3
88.1
87.3
Total
€’m
3,792.6
20.4
16.5
0.9
(1.3)
(40.2)
3,788.9
377.7
23.6
(0.2)
-
(0.1)
(173.1)
4,016.8
310.0
46.4
0.1
(1.4)
-
0.8
(11.3)
344.6
47.9
-
-
-
(22.4)
370.1
3,444.3
3,646.7
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 €1,062.9m (2016: €893.7m) which have indefinite lives.
Approximately €8.0m (2016: €6.0m) of computer software additions during the year were internally generated. Included in this are payroll costs of €6.8m
(2016: €5.3m). The Group has not capitalised product development expenditure in 2017 (2016: €nil).
The Group has no separate individual intangible asset that is material, as all intangibles acquired are integrated and developed within the existing business.
148
Kerry Group Annual Report 2017
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 groups of cash generating units (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 based on the Group’s Strategic Plan approved by the Directors 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 weighted average long term growth rates for each CGU.
No impairment was recognised in 2017 or 2016 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 2017, there was no specific impairment charge (2016: €nil) 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
2017
€’m
529.5
1,155.5
118.6
407.2
2,210.8
Goodwill
2016
€’m
531.8
1,156.4
97.7
410.8
2,196.7
Indefinite Life
Intangibles
2017
€’m
Indefinite Life
Intangibles
2016
€’m
106.1
855.1
55.5
46.2
1,062.9
106.4
690.2
50.0
47.1
893.7
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 long term growth rates used in the terminal value for each CGU:
Taste & Nutrition
EMEA
Americas
Asia Pacific
Consumer Foods
EMEA
Discount
Rates
2017
Discount
Rates
2016
Growth
Rates
2017
7.4%
7.5%
9.0%
7.2%
6.7%
6.7%
8.3%
6.4%
2.0%
2.4%
5.1%
2.0%
Growth
Rates
2016
1.9%
2.4%
4.9%
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.
Long term 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 based on the Group’s Strategic Plan. 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.
Kerry Group Annual Report 2017
149
12. Intangible assets (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 2017 or 2016. Further, a 5% increase would not have resulted in an impairment charge in 2017
or 2016 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 2017 or 2016. 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 2017 or 2016. 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
At 1 January 2016
Additions
Exchange translation adjustment
At 31 December 2016
Additions
Fair value movement recognised in other comprehensive income
Exchange translation adjustment
At 31 December 2017
Available-for-sale
Investments
€’m
Other
Investments
€’m
4.1
-
-
4.1
-
3.5
(0.4)
7.2
29.9
4.5
0.8
35.2
6.4
-
(4.2)
37.4
Total
€’m
34.0
4.5
0.8
39.3
6.4
3.5
(4.6)
44.6
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 2017 which resulted in an uplift to the carrying value of these assets of €3.5m (2016: €nil).
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
Disposal
Share of (loss)/profit after tax during the financial year
Income received from associate
At 31 December
Notes
5
3
2017
€’m
40.7
0.6
(34.4)
(1.1)
-
5.8
2016
€’m
38.9
6.7
-
0.1
(5.0)
40.7
During the year, the Group disposed of its 22.5% shareholding in Addo Foods for a consideration of €30.1m resulting in a loss of €4.3m. The amounts
included in these 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.
150
Kerry Group Annual Report 2017
2016
€’m
637.7
2016
€’m
312.4
403.1
27.5
743.0
Total
€’m
200.6
13.8
(26.4)
0.2
6.3
194.5
20.8
47.2
(10.6)
195.5
15. Investments in subsidiaries
Company:
At beginning and end of year - at cost
16. Inventories
Raw materials and consumables
Finished goods and goods for resale
Expense inventories
At 31 December
2017
€’m
637.7
2017
€’m
318.5
446.5
32.5
797.5
Write-downs of inventories recognised as an expense approximates to 1.2% (2016: 1.5%) 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:
Short Term
Temporary
Differences
and Other
Differences
€’m
(53.6)
(4.2)
(0.9)
(0.7)
(0.4)
(59.8)
(52.5)
16.1
(25.5)
-
-
(61.9)
16.9
20.2
-
2.4
Property,
Plant and
Equipment
€’m
Intangible
Assets
€’m
Tax Credits
and NOLs
€’m
Retirement
Benefits
Obligation
€’m
Note
7
At 1 January 2016
Consolidated Income Statement movement
Recognised in other comprehensive income during
the financial year
Related to businesses acquired/(disposed)
Exchange translation adjustment
At 31 December 2016
102.5
(4.2)
-
0.8
0.2
99.3
214.7
8.4
-
1.9
6.9
231.9
(10.5)
(2.3)
-
(1.8)
(0.4)
(15.0)
Consolidated Income Statement movement
7
(24.0)
(63.7)
(4.7)
Recognised in other comprehensive income during
the financial year
Related to businesses acquired/(disposed)
Exchange translation adjustment
At 31 December 2017
-
0.2
(7.7)
67.8
-
51.5
(14.4)
205.3
-
(2.5)
1.0
(21.2)
0.6
(2.0)
8.1
(22.4)
(34.0)
19.1
(56.4)
The short term temporary differences and other temporary differences recognised in other comprehensive income comprise fair value movements on cash
flow hedges of €0.6m (2016: (€0.9m)) and an exchange difference on translation of foreign operations of €nil (2016: €nil). In the above table, NOLs refers
to Net Operating Losses.
Kerry Group Annual Report 2017
151
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
2017
€’m
(46.4)
241.9
195.5
2016
€’m
(52.7)
247.2
194.5
The total deductible temporary differences for which deferred tax assets have not been recognised is €10.7m (2016: €29.7m). 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 €9.2m (2016: €7.4m).
18. Assets classified as held for sale
Property, plant and equipment (net of grants)
2017
€’m
8.3
8.3
2016
€’m
4.9
4.9
In 2017, the Group held certain property, plant and equipment classified as held for sale in the Taste & Nutrition segments in Asia-Pacific and EMEA.
152
Kerry Group Annual Report 2017
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
2017
€’m
800.7
(29.0)
771.7
60.0
-
57.6
3.8
893.1
Group
2016
€’m
781.1
(23.4)
757.7
41.7
-
45.1
2.8
847.3
Company
2017
€’m
Company
2016
€’m
-
-
-
-
115.9
-
-
115.9
-
-
-
-
99.4
-
-
99.4
All receivable balances are due within 1 year except for €3.8m (2016: €2.8m) 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
2017
€’m
642.9
108.1
14.9
4.2
1.6
771.7
2017
€’m
23.4
13.7
(6.2)
(1.9)
29.0
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
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 2017 or 2016.
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.
Kerry Group Annual Report 2017
153
20. Trade and other payables
Trade payables
Other payables and accruals
Deferred payments on acquisition of businesses
PAYE
Social security costs
Group
2017
€’m
1,200.7
186.2
13.8
3.8
6.0
Group
2016
€’m
1,159.0
175.1
8.7
2.9
5.9
1,410.5
1,351.6
Company
2017
€’m
Company
2016
€’m
-
2.4
5.8
-
-
8.2
-
4.5
5.9
-
-
10.4
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
Note
3
Group
2017
€’m
Group
2016
€’m
Company
2017
€’m
Company
2016
€’m
27.1
-
0.1
(2.2)
(0.5)
(0.4)
24.1
1.2
22.9
24.1
27.3
1.0
2.3
(3.0)
(0.5)
-
27.1
2.8
24.3
27.1
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
2017
€’m
92.7
4.0
96.7
Group
2016
€’m
94.0
1.1
95.1
Company
2017
€’m
Company
2016
€’m
-
-
-
-
-
-
All of the above balances are due within 2 to 5 years except for €0.3m (2016: €0.5m) which is not due until after 5 years.
154
Kerry Group Annual Report 2017
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
2017
€’m
Assets/
(Liabilities)
at Fair Value
through Profit
or Loss
2017
€’m
Derivatives
Designated as
Hedging
Instruments
2017
€’m
Available-
for-sale
Investments
2017
€’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
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
-
-
-
893.1
312.5
1,205.6
1,205.6
-
1,205.6
37.4
-
-
-
-
37.4
-
37.4
37.4
(1,721.7)
(20.0)
-
-
(1,507.2)
(3,228.9)
(1,423.8)
(1,805.1)
(3,228.9)
(2,023.3)
(6.9)
(6.4)
(1,708.4)
(1,721.7)
-
312.5
-
-
-
(20.0)
-
(20.0)
(20.0)
17.4
-
-
(20.0)
(20.0)
-
-
(1,409.2)
(20.0)
-
20.3
95.4
-
-
115.7
20.3
95.4
115.7
-
(9.1)
(7.9)
-
(17.0)
(9.1)
(7.9)
(17.0)
98.7
-
-
-
-
87.5
-
87.5
7.2
-
-
-
-
7.2
-
7.2
7.2
-
-
-
-
-
-
-
-
7.2
-
-
-
-
-
-
-
Total
2017
€’m
44.6
20.3
95.4
893.1
312.5
1,365.9
1,225.9
140.0
1,365.9
(1,741.7)
(9.1)
(7.9)
(1,507.2)
(3,265.9)
(1,432.9)
(1,833.0)
(3,265.9)
(1,900.0)
(6.9)
(6.4)
(1,728.4)
(1,741.7)
87.5
312.5
(1,341.7)
Kerry Group Annual Report 2017
155
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.
Part of the Group’s debt portfolio includes US$750m of senior notes issued in 2013 and US$408m (2016: 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. US$192m
of the 2010 senior notes were repaid in January 2017 and the related swaps matured at that date. 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 €20.0m (2016: €28.4m) represents the part adjustment to
the carrying value of debt from applying fair value hedge accounting for interest rate risk. This amount is primarily offset by the fair value adjustment on
the corresponding hedge items being the underlying cross currency interest rate swaps.
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
-
-
-
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)
(3.6)
(6.9)
(2,020.6)
(2,031.1)
-
564.7
(1,466.4)
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
-
-
-
-
-
-
-
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)
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
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
156
Kerry Group Annual Report 2017
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 - all current
Financial liabilities at amortised cost
Borrowings and overdrafts
Trade and other payables
Total financial liabilities - all current
Total net financial assets
24. Financial instruments
Notes
2017
€’m
2016
€’m
19
20
-
115.9
115.9
-
(8.2)
(8.2)
107.7
0.1
99.4
99.5
(0.1)
(10.4)
(10.5)
89.0
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
2017
€’m
3,573.2
1,341.7
17.8
4,932.7
2016
€’m
3,094.0
1,323.7
9.8
4,427.5
During 2017 the Group exercised the second extension option on the €1.1bn revolving credit facility agreement entered into in April 2015. The Group had
previously exercised the first extension option during 2016. The facility now matures in April 2022.
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.
Kerry Group Annual Report 2017
157
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*
2017
Times
1.4
16.2
2016
Times
1.5
14.0
* Calculated in accordance with lenders’ facility agreements which take account of adjustments as outlined on page 189.
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.
The principal objectives of the Group’s Financial Risk Management Programme are further discussed across the following categories:
(i) Foreign exchange rate risk management - key foreign exchange exposure of the Group and the disclosures on forward foreign exchange contracts.
(ii) Interest rate risk management - key interest rate exposures of the Group and the disclosures on interest rate derivatives.
(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 €6.3m (2016: €0.3m) and a sterling liability of €4.3m (2016: €2.8m). Based on these
net positions, as at 31 December 2017, a weakening of 5% of the US dollar and sterling against all other key operational currencies, and holding all other
items constant, would have (decreased)/increased the profit after tax of the Group for the financial year by (€0.1m) (2016: €0.1m).
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 2017 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 €15.7m (2016: €12.2m) and €17.8m (2016: €20.4m) respectively.
158
Kerry Group Annual Report 2017
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:
2017
€’m
Asset
2017
€’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
20.3
20.3
(9.1)
(9.1)
-
-
-
-
-
-
2017
€’m
Total
11.2
11.2
-
-
-
Forward foreign exchange contracts
20.3
(9.1)
11.2
2016
€’m
Asset
2016
€’m
Liability
2016
€’m
Total
46.5
46.3
0.2
8.3
8.3
54.8
(18.3)
(18.2)
(0.1)
(2.7)
(2.7)
(21.0)
28.2
28.1
0.1
5.6
5.6
33.8
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
2017
€’m
11.2
-
11.2
2016
€’m
28.1
0.1
28.2
2017
€’m
1,951.2
65.2
2,016.4
2016
€’m
1,044.5
10.5
1,055.0
At 31 December 2017, an asset of €2.8m (2016: €28.9m) of the fair value is included in the hedging reserve, which will primarily be released to the
Consolidated Income Statement within 3 months (2016: 14 months) of the balance sheet date. All forward contracts relate to sales revenue and
purchases made in their respective currencies and forward foreign exchange contracts that provide a hedge against foreign currency receivables from
‘within Group’ lending.
During 2017, a gain of €29.9m (2016: a gain of €14.1m) has been taken to foreign exchange gains in the Consolidated Income Statement in respect of
forward foreign exchange contracts that matured during the year. There were no transactions during 2017 or 2016 which were designated as hedges that
did not occur, nor are there hedges on forecast transactions that are no longer expected to occur.
During 2017 €28.9m (2016: €2.6m) of the gains and losses in other comprehensive income on forward foreign exchange contracts as at 31 December 2016
were released to the Consolidated Income Statement as follows:
-
-
-
-
within 3 months: €12.6m (2016: €0.3m);
within 3 to 6 months: €7.2m (2016: €nil);
within 6 to 9 months: €5.3m (2016: €0.4m); and
within 9 to 12 months: €3.8m (2016: €1.9m).
At 31 December 2017 and 2016 no ineffectiveness was recognised in the Consolidated Income Statement from foreign currency cash flow hedges.
Kerry Group Annual Report 2017
159
24. Financial instruments (continued)
(i) Foreign exchange rate risk management (continued)
(i.i) Forward foreign exchange contracts (continued)
(b) Forward foreign exchange contracts - trading
In 2016 the Group held forward foreign exchange contracts that provided a hedge against foreign currency receivables from ‘within Group’ lending. These
derivatives were classified as trading derivatives and held at fair value through profit or loss.
The following table details the forward foreign exchange contracts classified as trading derivatives at 31 December:
Forward foreign exchange contracts - trading
Fair Value Asset
Notional Principal
2017
€’m
-
2016
€’m
5.6
2017
€’m
-
2016
€’m
795.8
The fair value gain of €nil (2016: a gain of €5.6m) is directly offset by a loss of €nil (2016: a loss of €5.6m) on the retranslation to balance sheet rates on
foreign currency receivables from ‘within Group’ lending and cash pooling.
(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 2017
Euro
Sterling
US Dollar
Others
At 31 December 2016
Total
Pre CCS
€’m
682.6
(123.7)
916.9
(66.6)
1,409.2
404.6
(116.8)
1,225.8
(47.2)
1,466.4
Impact
of CCS
€’m
373.9
-
(373.9)
-
-
536.0
-
(536.0)
-
-
Total
after CCS
€’m
Floating
Rate Debt
€’m
Fixed
Rate Debt
€’m
1,056.5
(123.7)
543.0
(66.6)
1,409.2
940.6
(116.8)
689.8
(47.2)
1,466.4
272.9
(123.7)
334.4
(66.6)
417.0
41.4
(116.8)
358.0
(47.2)
235.4
783.6
-
208.6
-
992.2
899.2
-
331.8
-
1,231.0
The currency profile of debt highlights the impact of the US$658m (2016: 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. The retranslation of the foreign currency
debt of US$658m (2016: US$750m) to the balance sheet rate resulted in a foreign currency loss of €79.3m (2016: €179.4m) which is directly offset by a
gain of €79.3m (2016: €179.4m) 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 an asset of €12.4m (2016: €9.7m
liability) for movement in exchange rates since the date of execution which is directly offset by a loss of €12.4m (2016: €9.7m gain) on the application of
hedge accounting on the cross currency swaps.
The weighted average interest rate for fixed borrowings as at 31 December 2017 is 2.55% (2016: 2.57%) and the weighted average period for which the rate
is fixed is 6.7 years (2016: 6.6 years).
160
Kerry Group Annual Report 2017
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 30% (2016: 16%) of net debt and 42%
(2016: 39%) 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 0.6% (2016: 0.4%).
(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:
Designated in a hedging relationship:
Interest rate swap contracts - cash flow hedges
- current
- non-current
Interest rate swap contracts - fair value hedges
- non-current
Interest rate swap contracts
Notes
(a)
(b)
2017
€’m
Asset
2017
€’m
Liability
-
-
-
95.4
95.4
95.4
(4.5)
-
(4.5)
(3.4)
(3.4)
(7.9)
2017
€’m
Total
(4.5)
-
(4.5)
92.0
92.0
87.5
2016
€’m
Asset
2016
€’m
Liability
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
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 a floating or a 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
(Liability)/Asset
Notional Principal
2017
%
-
-
-
2.58
2016
%
4.38
-
-
2.58
2017
€’m
-
-
-
(4.5)
(4.5)
2016
€’m
25.5
-
-
19.7
45.2
2017
€’m
-
-
-
208.6
208.6
2016
€’m
87.2
-
-
237.0
324.2
Kerry Group Annual Report 2017
161
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 (liability)/asset of (€4.5m) (2016: €45.2m), a gain of €13.2m (2016: €66.9m) is attributed to foreign exchange rate fluctuations. The current
year foreign exchange movement of (€53.7m) (2016: €10.0m) includes an amount of (€25.4m) on the expiry of interest rate swap contracts during the year
while the remaining balance 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 2017 a liability of €18.0m (2016: €20.2m) 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 2017, a charge of €0.7m (2016: €0.8m) has been taken to finance costs in the
Consolidated Income Statement in respect of amounts held in the hedging reserve at 31 December 2016. The balance of €0.3m (2016: €1.5m) relates to
the recognition of credit value adjustments.
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 a fixed interest rate and
pays a 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
2016
%
2017
%
4.78
3.14
4.83
3.52
Fair Value
Asset
2016
€’m
Notional Principal
2016
€’m
2017
€’m
64.1
61.8
125.9
277.8
446.1
723.9
197.2
601.6
798.8
2017
€’m
62.2
29.8
92.0
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 €92.0m (2016: €125.9m) at 31 December 2017, a gain of €78.5m (2016: €102.8m) is attributed to foreign exchange rate
fluctuations. The current year foreign exchange movement of (€24.3m) (2016: €6.3m) 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 €16.4m (2016:
€28.4m) relates to interest rate risk and the current year movement has been recognised in the Consolidated Income Statement, offset by €20.0m for
the fair value adjustment to the underlying hedged foreign currency borrowings for interest rate risk. The balance of €2.9m (2016: €5.3m) relates to the
recognition of credit value adjustments.
(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 2017 and 2016.
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.
162
Kerry Group Annual Report 2017
24. Financial instruments (continued)
(iii) Liquidity risk management (continued)
At 31 December 2017, the Group had undrawn committed bank facilities of €1,100m (2016: €1,100m), and a portfolio of undrawn standby facilities
amounting to €323.0m (2016: €360.0m). In April 2017 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 (2016: 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 €1,410.5m (2016: €1,351.6m) is payable within 1 year, €96.4m (2016: €94.6m) between 2 and 5 years
and €0.3m (2016: €0.5m) 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.
Bank overdrafts
Bank loans
Senior notes
Borrowings and overdrafts
Deferred payments on acquisition of businesses
Interest commitments
At 31 December 2017
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 2017
On demand &
up to 1 year
€’m
Up to
2 years
€’m
6.9
6.4
-
13.3
13.8
27.1
54.5
81.6
13.3
-
13.3
-
(312.5)
(299.2)
-
-
-
-
1.3
1.3
54.5
55.8
-
-
-
-
-
-
2 - 5
years
€’m
-
-
277.8
277.8
2.7
280.5
134.1
414.6
277.8
11.3
289.1
> 5 years
€’m
-
-
1,430.6
1,430.6
-
1,430.6
59.9
Total
€’m
6.9
6.4
1,708.4
1,721.7
17.8
1,739.5
303.0
1,490.5
2,042.5
1,430.6
8.7
1,439.3
(62.2)
(25.3)
-
-
226.9
1,414.0
1,721.7
20.0
1,741.7
(87.5)
(312.5)
1,341.7
Kerry Group Annual Report 2017
163
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 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
On demand &
up to 1 year
€’m
Up to
2 years
€’m
2 - 5 years
€’m
> 5 years
€’m
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
-
-
-
-
-
-
-
-
197.2
197.2
0.8
198.0
160.1
358.1
197.2
10.7
207.9
(64.1)
-
143.8
-
-
1,641.4
1,641.4
-
1,641.4
106.1
1,747.5
1,641.4
17.7
1,659.1
(81.4)
-
1,577.7
Total
€’m
3.6
6.9
2,020.6
2,031.1
9.8
2,040.9
385.7
2,426.6
2,031.1
28.4
2,059.5
(171.1)
(564.7)
1,323.7
(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 2017
Interest rate swaps inflow
Interest rate swaps outflow
Net interest rate swaps inflow
Forward foreign exchange contracts inflow
At 31 December 2016
On demand &
up to 1 year
€’m
34.2
(20.4)
13.8
11.2
25.0
On demand &
up to 1 year
€’m
63.9
(20.2)
43.7
33.7
77.4
Up to
2 years
€’m
34.2
(21.6)
12.6
-
12.6
Up to
2 years
€’m
38.4
(20.7)
17.7
0.1
17.8
2 - 5 years
€’m
> 5 years
€’m
127.0
(61.6)
65.4
-
65.4
59.2
(23.9)
35.3
-
35.3
2 - 5 years
€’m
> 5 years
€’m
153.9
(64.7)
89.2
-
89.2
143.0
(57.0)
86.0
-
86.0
Total
€’m
254.6
(127.5)
127.1
11.2
138.3
Total
€’m
399.2
(162.6)
236.6
33.8
270.4
Included in the interest rate swaps inflow and outflow is the foreign currency differential on final maturity of the cross currency interest rate swaps as follows:
Swaps inflow
-
-
-
Up to 1 year - swaps inflow of €nil (2016: €25.4m)
2 - 5 years - swaps inflow of €53.9m (2016: €57.3m)
Greater than 5 years - swaps inflow of €37.8m (2016: €96.7m)
Swaps outflow
-
Greater than 5 years - swaps outflow of €nil (2016: €9.7m)
164
Kerry Group Annual Report 2017
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 2022; 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 - matured and repaid 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
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 2017 and 2016.
(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 2017 and 2016 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.
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.
Kerry Group Annual Report 2017
165
24. Financial instruments (continued)
(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
2017
€’m
95.4
20.3
37.4
7.2
(7.9)
(9.1)
2016
€’m
178.3
54.8
35.2
4.1
(7.2)
(21.0)
The reconciliation of Level 3 assets is provided in note 13. There have been no transfers between levels during the current or prior financial year.
(b) Fair value of financial instruments carried at amortised cost
Except as detailed in the following table, it is considered that the carrying amounts of financial assets and financial liabilities recognised at amortised cost
in the financial statements approximate their fair values.
Financial liabilities
Senior notes - Public
Senior notes - Private
Fair Value
Hierarchy
Level 2
Level 2
Carrying
Amount
2017
€’m
(1,368.0)
(340.4)
(1,708.4)
Fair
Value
2017
€’m
(1,407.0)
(354.9)
(1,761.9)
Carrying
Amount
2016
€’m
(1,451.8)
(568.8)
(2,020.6)
Fair
Value
2016
€’m
(1,471.0)
(585.4)
(2,056.4)
(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.
166
Kerry Group Annual Report 2017
24. Financial instruments (continued)
(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 2017
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 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
312.5
20.3
95.4
428.2
-
-
-
-
564.7
54.8
178.3
797.8
-
-
-
-
-
-
-
-
(6.9)
(9.1)
(7.9)
(23.9)
-
-
-
-
(3.6)
(21.0)
(7.2)
(31.8)
312.5
20.3
95.4
428.2
(6.9)
(9.1)
(7.9)
(23.9)
564.7
54.8
178.3
797.8
(3.6)
(21.0)
(7.2)
(31.8)
-
(8.1)
(5.7)
(13.8)
-
8.1
5.7
13.8
-
(15.7)
(6.2)
(21.9)
-
15.7
6.2
21.9
312.5
12.2
89.7
414.4
(6.9)
(1.0)
(2.2)
(10.1)
564.7
39.1
172.1
775.9
(3.6)
(5.3)
(1.0)
(9.9)
Kerry Group Annual Report 2017
167
25. Provisions
Group:
At 1 January 2016
Provided during the financial year
Utilised during the financial year
Transferred to payables and accruals
Exchange translation adjustment
At 31 December 2016
Provided during the financial year
Utilised during the financial year
Transferred to payables and accruals
Exchange translation adjustment
At 31 December 2017
Analysed as:
Current liabilities
Non-current liabilities
Insurance
€’m
Non-Trading
Items
€’m
73.5
1.6
(9.7)
-
(6.6)
58.8
0.4
(7.0)
-
(0.9)
51.3
17.3
0.5
(1.6)
(3.6)
(0.2)
12.4
4.4
(2.7)
(3.0)
-
11.1
2017
€’m
25.3
37.1
62.4
Total
€’m
90.8
2.1
(11.3)
(3.6)
(6.8)
71.2
4.8
(9.7)
(3.0)
(0.9)
62.4
2016
€’m
30.4
40.8
71.2
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 to restructuring and acquisition integration provisions incurred in 2017 together with a residual amount incurred in 2013. These
costs are expected to be paid within 18 months.
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 comprise final salary pension plans, 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 generally 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 2017 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.
168
Kerry Group Annual Report 2017
26. Retirement benefits obligation (continued)
As part of the 1Kerry strategy the Group continues 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 2017 primarily
focused on a number of countries in Europe including Ireland and the Netherlands. As a result of the review a number of benefit changes were introduced
which included a decision to close the defined benefit schemes in the Netherlands effective from January 2017 with future service being offered to
employees in a multi-employer scheme. In Ireland members continued to avail of an opportunity to transfer their past service benefits to the defined
contribution scheme. The impact of the benefit changes relating to pensions implemented in 2017 on the Consolidated Income Statement was €23.6m
while scheme liabilities were reduced by €163.5m. In 2016, €13.5m was recognised in the Consolidated Income Statement relating primarily to the closure
of the Irish defined benefit schemes to future accrual and a number of members who transferred their benefits out of the Irish defined benefit scheme.
Consequently the defined contribution costs have significantly increased.
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 arising from changes in demographic assumptions
- Actuarial (gains)/losses arising from changes in financial assumptions
Recognised in the Consolidated Statement of Comprehensive Income
Total
2017
€’m
54.8
13.8
(23.6)
8.2
53.2
(85.3)
(5.2)
(38.8)
(0.8)
(130.1)
(76.9)
2016
€’m
30.5
20.7
(13.5)
7.9
45.6
(149.4)
(4.1)
(14.5)
338.3
170.3
215.9
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).
Kerry Group Annual Report 2017
169
26. Retirement benefits obligation (continued)
(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
2017
€’m
31 December
2016
€’m
(1,477.3)
1,353.0
(124.3)
22.3
(102.0)
(1,718.4)
1,365.6
(352.8)
60.9
(291.9)
(iii) Financial and demographic assumptions
The principal financial assumptions used by the Group’s actuaries in order to calculate the defined benefit obligation at 31 December, some of which have
been shown in range format to reflect the differing assumptions in each scheme, were as follows:
Inflation assumption
Rate of increase in salaries
Rate of increase for pensions in payment and deferred pensions
2017
UK
%
3.10
3.00
2.10 - 3.10
Eurozone
%
1.70
N/A*
1.70
Rest of
World
%
2.50
3.00
-
Rate used to discount schemes’ liabilities
2.00 - 2.10
2.60
3.20 - 3.50
2016
UK
%
3.20
3.00
2.20 - 3.20
Rest of
World
%
2.50
3.00
-
2.70
3.25 - 4.00
Eurozone
%
1.70
2.70*
1.70
2.00
* Not applicable due to closure of the Netherlands and Irish defined benefit plans to future accrual (2016: The rate applies to the defined benefit plans in
the Netherlands only).
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
2017
2016
Eurozone
Years
UK
Years
21 - 22
23 - 25
23 - 24
25 - 27
21
23
23
25
Rest of
World
Years
21 - 22
23 - 24
22 - 24
24 - 25
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
170
Kerry Group Annual Report 2017
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 the 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 pension 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. The impact
on the defined benefit obligation at 31 December 2017 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 11.2%
Increase/decrease of 7.5%
Increase/decrease of 1.4%
Increase/decrease of 3.2%
Mortality
Increase/decrease in life expectancy of 1 year
Increase/decrease of 3.4%
(iv) Reconciliations for defined benefit plans
The movements in the defined benefit schemes’ obligation during the financial year were:
Present value of the defined benefit obligation at beginning of the financial year
Current service cost
Past service and settlements
Interest expense
Contributions by employees
Benefits paid
Re-measurements:
- experience gains on schemes’ liabilities
- actuarial gains arising from changes in demographic assumptions
- actuarial gains/losses arising from changes in financial assumptions
Decrease arising on settlement
Other movements
Exchange translation adjustment
2017
€’m
2016
€’m
(1,718.4)
(1,576.0)
(13.8)
23.6
(40.2)
(2.9)
48.2
5.2
38.8
0.8
139.9
(5.9)
47.4
(20.7)
13.5
(50.0)
(6.0)
51.5
4.1
14.5
(338.3)
74.9
-
114.1
Present value of the defined benefit obligation at end of the financial year
(1,477.3)
(1,718.4)
Present value of the defined benefit obligation at end of the financial year that relates to:
Wholly unfunded plans
Wholly or partly funded plans
(30.4)
(1,446.9)
(1,477.3)
(30.1)
(1,688.3)
(1,718.4)
Kerry Group Annual Report 2017
171
26. Retirement benefits obligation (continued)
(iv) Reconciliations for defined benefit plans (continued)
The weighted average duration of the defined benefit obligation at 31 December 2017 is approximately 21 years (2016: approximately 23 years).
The movements in the schemes’ assets during the financial year were:
Fair value of plan assets at beginning of the financial year
Interest income
Contributions by employer
Contributions by employees
Benefits paid
Re-measurements:
- return on plan assets (excluding amounts included in net interest cost)
Decrease arising on settlement
Other movements
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
2017
€’m
1,365.6
32.0
85.5
2.9
(48.2)
85.3
(139.9)
5.9
(36.1)
1,353.0
2017
€’m
681.1
70.4
65.0
311.7
122.9
95.7
-
6.2
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
Total fair value of pension schemes’ assets
1,353.0
1,365.6
The majority of equity securities and bonds have quoted prices in active markets. The schemes’ assets are invested with professional investment
managers. 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 2017 and 2016 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 2017 or 2016.
(v) Funding for defined benefit plans
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 where applicable 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 2018, the
Group expects to make contributions of approximately €56.9m in relation to its defined benefit plans.
172
Kerry Group Annual Report 2017
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.
2017
€’m
2016
€’m
35.0
22.0
-
22.0
35.0
22.0
-
22.0
Shares issued
During 2017 a total of 171,574 (2016: 126,362) 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 2017 was 176,182,405 (2016: 176,010,831).
Share buy back programme
At the 2017 Annual General Meeting shareholders passed a resolution authorising the Company to purchase up to 5% of its own issued share capital. In
2017 and 2016, 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 €12.8m (2016: €7.8m) 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
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. 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 2015,
2016 and 2017 will potentially vest in 2018, 2019 and in 2020 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.
Under the 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, 2015 and 2017
will potentially vest in 2020, 2021/2022 and 2023 respectively. An invitation may lapse if a participant ceases to be employed within the Group before the
vesting date.
Kerry Group Annual Report 2017
173
28. Share-based payments (continued)
(i) Long Term Incentive Plan (continued)
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
Lapsed
Outstanding and exercisable at end of the financial year
Number of
Conditional
Awards
2017
Number of
Conditional
Awards
2016
1,055,768
(54,860)
(56,751)
(77,122)
(227,871)
468,171
1,107,335
1,035,376
(80,418)
(75,923)
(62,369)
(98,130)
337,232
1,055,768
Number of
Share Options
2017
Number of
Share Options
2016
230,762
43,379
(129,596)
(3,028)
141,517
255,928
40,520
(65,686)
-
230,762
Share options under the LTIP scheme have an exercise price of 12.5 cent. The remaining weighted average life for share options outstanding is 4.2 years
(2016: 4.1 years). The weighted average share price at the date of exercise was €77.60 (2016: €78.10). 36,973 share options which vested in the financial
year are deferred and therefore are not exercisable at year end. 3,230 of the share options which vested during the year had previously been deferred.
174
Kerry Group Annual Report 2017
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:
LTIP Scheme
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
Weighted average fair value at grant date
Valuation model
2017
Conditional
Award at
Grant Date
March 2017
2020/2023
€74.52
€0.125
20.7%
3/6 years
(0.8%)
0.7%
5.0%
2014
Conditional
Award at
Grant Date
March 2014
2017/2020
€53.80
€0.125
20.8%
2016
Conditional
Award at
Grant Date
March 2016
2015
Conditional
Award at
Grant Date
March 2015
2019
2018/2020/2021
€79.80
€0.125
19.1%
3 years
(0.5%)
0.7%
5.0%
€64.92
€0.125
18.4%
3/5/6 years
3/6 years
0.0%
0.8%
5.0%
0.4%
0.9%
5.0%
€61.64/€70.94
Monte Carlo
Pricing
€68.72
€52.96/€61.74
€44.74/€50.47
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 were 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, vested in 2017 and will be deferred until 2019.
Kerry Group Annual Report 2017
175
29. Cash flow components
Profit before taxation
Intangible asset amortisation
Non-trading items
Finance income
Finance costs
Trading profit
Change in working capital
Increase in inventories
Increase in trade and other receivables
Increase/(decrease) in trade and other payables
Increase/(decrease) in non-current liabilities
Share-based payment expense
Purchase of assets
Purchase of property, plant and equipment
Purchase of intangible assets
Purchase of financial assets
Cash and cash equivalents
Cash at bank and in hand
Bank overdrafts
Net debt reconciliation
Notes
12
5
6
6
28
12
13
23
23
Group
2017
€’m
613.3
47.9
54.5
(0.1)
65.7
781.3
(77.7)
(48.7)
107.9
14.8
12.8
9.1
(271.3)
(23.6)
(6.4)
(301.3)
312.5
(6.9)
305.6
Group
2016
€’m
611.8
46.4
21.0
(1.1)
71.5
749.6
(5.3)
(18.5)
78.6
(0.9)
7.8
61.7
(202.8)
(16.5)
(4.5)
(223.8)
564.7
(3.6)
561.1
Company
2017
€’m
106.2
Company
2016
€’m
116.0
-
-
-
-
-
-
-
-
106.2
116.0
-
(16.5)
(0.5)
-
12.8
(4.2)
-
-
-
-
-
-
-
-
(16.1)
(16.1)
-
7.8
(24.4)
-
-
-
-
0.1
(0.1)
-
Other assets
Liabilities from financing activities
Cash at bank
and in hand
€’m
Interest Rate
Swaps
€’m
Overdrafts due
within 1 year
€’m
Borrowings due
within 1 year
€’m
Borrowings due
after 1 year
€’m
Note
Total
€’m
Net debt as at 1 January 2016
Cash flows
Foreign exchange adjustments
Other non-cash movements
Net debt as at 31 December 2016
23
Cash flows
Foreign exchange adjustments
Other non-cash movements
Net debt as at 31 December 2017
23
236.4
328.4
(0.1)
-
564.7
(236.9)
(15.3)
-
312.5
163.4
-
(0.2)
7.9
171.1
(25.4)
0.9
(59.1)
87.5
(5.2)
1.5
0.1
-
(3.6)
(3.4)
0.1
-
(6.9)
(33.2)
(2,011.5)
(1,650.1)
(152.9)
(2.8)
-
(188.9)
170.7
11.8
-
(6.4)
178.6
(20.8)
(13.3)
355.6
(23.8)
(5.4)
(1,867.0)
(1,323.7)
(1.0)
77.7
61.9
(96.0)
75.2
2.8
(1,728.4)
(1,341.7)
176
Kerry Group Annual Report 2017
30. Business combinations
During 2017, the Group completed a total of eight acquisitions, all of which are 100% owned by the Group.
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
Deferred tax liabilities
Other non-current liabilities
Total identifiable assets
Goodwill
Total consideration
Satisfied by:
Cash
Deferred payment
Net cash outflow on acquisition:
Cash
Less: cash and cash equivalents acquired
Prepayments in relation to 2018 acquisitions
Notes
11
12
12
12
Total
2017
€’m
37.2
252.3
0.1
6.3
30.0
15.2
(19.2)
(47.2)
(2.8)
271.9
125.3
397.2
387.7
9.5
397.2
2017
€’m
387.7
(6.3)
15.1
396.5
The acquisition method of accounting has been used to consolidate the businesses acquired in the Group’s financial statements. Given that the valuation
of the fair value of assets and liabilities recently acquired is still in progress, the above values are determined provisionally. The valuation of the fair value of
assets and liabilities will be completed within the measurement period. For the acquisitions completed in 2016, there have been no material revisions of the
provisional fair value adjustments since the initial values were established.
The goodwill is attributable to the expected profitability, revenue growth, future market development and assembled workforce of the acquired
businesses and the synergies expected to arise within the Group after the acquisition. €16.3m of goodwill recognised is expected to be deductible
for income tax purposes.
Transaction expenses related to these acquisitions of €4.7m 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 €15.2m and a gross contractual value of €15.6m.
From the date of acquisition, the acquired businesses have contributed €33.9m of revenue and €1.9m of profit after taxation attributable to owners of the
parent to the Group. If the acquisition dates had been on the first day of the financial year, the acquired businesses would have contributed €256.8m of
revenue and €11.1m of profit after taxation attributable to owners of the parent to the Group.
Kerry Group Annual Report 2017
177
30. Business combinations (continued)
The following acquisitions were completed by the Group during 2017:
Acquisition
Taste Master
Acquired
March
Tianning Flavours
April
Ben Alimentos
June
Ganeden
August
Dottley Spice
October
Hasenosa
November
Oakhouse Foods
November
Kettle business of
Tyson Foods
December
Principal activity
Taste Master is a flavours business with its R&D centre and main factory located in South Australia. Taste
Master operates in five process areas, namely; Fragrance, Dry Blending, Liquid Flavours, Spray Drying and
Extruded Products.
Tianning is a leading flavour manufacturer based in China. The company is recognised in the Chinese
market for supplying high-quality products and its customer base spans across a number of end-use-
market categories, including dairy, beverage, ice cream, bakery, culinary and snacks.
Ben Alimentos, based in Goias, Brazil, was purchased in order to facilitate increased capacity for our existing
dairy systems business in Brazil.
Ganeden is a leading US technology innovation company, focused on patented probiotics and related
technologies. Ganeden has an extensive library of published studies and more than 135 patents for
technologies in the supplement, food, beverage, nutrition and personal care markets. Ganeden‘s proprietary
probiotic brand, BC30, is being formulated in an increasing number of key food and beverage brands
throughout the world.
Dottley Spice is a US based dry blending operation that supplies coatings and seasoning blends to some of
the leading poultry processors, restaurant chains and food distribution companies in North America.
Hasenosa, based in Spain, produces speciality flours, batters and tempuras, conventional and Japanese
breadcrumbs, texturised vegetable protein, sauces, marinades, products for the fish and meat industry, as
well as other products for the precooked, frozen and chilled food industry.
Oakhouse Foods has become one of the UK’s leading direct to consumer ready meal providers, delivering
meals that are quick and easy to prepare at home for elderly consumers.
The Kettle business of Tyson Foods is a US based business producing artisan-inspired side dishes,
appetisers and dips for consumers and foodservice. The Kettle Collections brand is available for purchase
by consumers and through leading restaurant chains and food distribution companies globally.
178
Kerry Group Annual Report 2017
31. Contingent liabilities
Company:
(i) Guarantees in respect of borrowings of subsidiaries
2017
€’m
2016
€’m
1,721.7
2,031.1
(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 36, in respect of all amounts shown as liabilities or commitments 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 2017 or
any amended financial period incorporating the said financial year. All other provisions of Section 357 have been complied with in this regard. The
Company has given similar indemnities in relation to its subsidiaries in Germany (section 264 of the Commercial Code), Luxembourg (Article 70 of
the Luxembourg law of 19 December 2002 as amended) and the Netherlands (Article 2 of the Dutch Civil Code), as set out in note 36. 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.
32. 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
2017
€’m
108.4
145.9
254.3
2017
€’m
21.9
41.5
11.8
75.2
2016
€’m
44.9
198.9
243.8
2016
€’m
20.3
34.6
12.2
67.1
The operating lease charges during 2017 amounted to €27.8m (2016: €27.5m).
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 94 years.
Kerry Group Annual Report 2017
179
33. Related party transactions
(i) Trading with Directors
In their ordinary course of business as farmers, certain Directors have traded on standard commercial terms with the Group’s Agribusiness division.
Aggregate purchases from, and sales to, these Directors amounted to €0.3m (2016: €0.4m) and €0.1m (2016: €0.1m) respectively. The trading balance
outstanding to the Group at the financial year end was €nil (2016: €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 €120.0m (2016: €124.0m), cost
recharges of €11.5m (2016: €5.3m), and trade and other receivables of €115.8m (2016: €99.3m). The Parent Company has also provided a guarantee in
respect of borrowings of subsidiaries which is disclosed in note 31.
(iii) Trading with associate company
Details of transactions and balances outstanding with associate are as follows:
Associate
Rendering of services
(Sale)/Purchase of goods
Amounts receivable
at 31 December
2017
€’m
-
2016
€’m
0.5
2017
€’m
(0.8)
2016
€’m
(0.1)
2017
€’m
0.1
2016
€’m
-
These trading transactions are undertaken and settled at normal trading terms. No loans were advanced in 2017 and 2016 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 2017, dividends of €13.9m (2016: €12.5m) were paid to Kerry Co-operative Creameries Limited based on its
shareholding. A subsidiary of Kerry Group plc traded product to the value of €0.2m (2016: €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
2017
€’m
8.0
0.8
2.9
-
-
11.7
2016
€’m
7.1
0.8
1.7
-
-
9.6
Retirement benefit charges of €0.3m (2016: €0.3m) arise under a defined benefit scheme relating to 2 directors (2016: 2 directors) and charges of €0.5m
(2016: €0.5m) arise under a defined contribution scheme relating to 5 directors (2016: 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 €4.6m (2016: €1.2m). Dividends totalling €0.1m (2016:
€0.1m) were also received by key management personnel during the financial year, based on their personal interests in the shares of the company.
180
Kerry Group Annual Report 2017
34. Events after the balance sheet date
Since the financial year end, the Group has:
-
completed the acquisition of Zhejiang Hangman Food Technologies Co., Ltd. based in China. The Group also reached agreement to acquire
SIAS Food Co., based in China and Season to Season Flavour Manufacturers (Pty) Limited based in Johannesburg, South Africa. The combined
consideration for these transactions was €76.0m.
proposed a final dividend of 43.90 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 2017.
35. Reserves
Available-for-sale (AFS) reserve
The available-for-sale reserve represents the unrealised gains and losses on the available-for-sale financial assets held by the Group.
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.
Kerry Group Annual Report 2017
181
36. Group entities
Principal subsidiaries and associated undertakings
Country
Ireland
Company Name
Breeo Brands Limited
Breeo Foods Limited
Carteret Investments
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
Pixundo Limited
Plassey Holdings Limited
Platters Food Company Limited
Princemark Holdings Designated Activity Company
Putaxy Limited
Quandu Limited
Rye Developments Limited
Rye Investments Limited
Rye Valley Foods Limited
Selamor Limited
Tacna Investments Limited
Trundu Limited
182
Kerry Group Annual Report 2017
Nature of Business
Consumer Foods
Consumer Foods
Investment
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
Consumer Foods
Investment
Consumer Foods
Services
Investment
Consumer Foods
Services
Consumer Foods
Consumer Foods
Consumer Foods
Investment
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
1
36. Group entities (continued)
Principal subsidiaries and associated undertakings (continued)
Country
Ireland
Company Name
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
RVF (UK) Limited
Kerry Foods Limited
Kerry Holdings (U.K.) Limited
Kerry Savoury Foods Limited
Noon Group Limited
Noon Products Limited
Oakhouse Foods 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
The Bodychef Limited (42.8% shareholding)
Belgium
Kerry Holdings Belgium NV
Netherlands
Kerry (NL) B.V.
Kerry Group 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
Belarus
Denmark
Italy
Poland
Hungary
Unitary Manufacturing Enterprise ‘Vitella’
Cremo Ingredients A/S
Kerry Ingredients & Flavours Italia S.p.A.
Kerry Polska Sp. z.o.o.
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)
Consumer Foods
Nature of Business
Taste & Nutrition
Registered Office
1
Services
Consumer Foods
Taste & Nutrition
Consumer Foods
Investment
Consumer Foods
Investment
Consumer Foods
Consumer Foods
Investment
Consumer Foods
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
Taste & Nutrition
Taste & Nutrition
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
Taste & Nutrition
Services
Services
1
2
2
2
2
2
2
2
3
3
3
3
3
3
3
3
3
4
4
4
4
4
4
5
6
7
8
8
9
10
10
10
11
12
12
13
13
14
15
16
17
18
19
20
20
21
Kerry Group Annual Report 2017
183
36. Group entities (continued)
Principal subsidiaries and associated undertakings (continued)
Country
Romania
Russia
Company Name
Kerry Romania s.r.l.
Kerry LLC
South Africa
Kerry Ingredients South Africa (Proprietary) Limited
Orley Foods (Proprietary) Limited
Spain
Vendin S.L.
Harinas y Sémolas del Noroeste, S.A. (Hasenosa)
Slovakia
Sweden
Ukraine
USA
Canada
Mexico
Brazil
Dera SK s.r.o.
Tarber AB
Kerry Ukraine Limited
Kerry Holding Co.
Kerry, Inc.
Ganeden Biotech, Inc.
Insight Beverages, Inc.
Kerry (Canada) Inc.
Kerry Ingredients (de Mexico) S.A. de C.V.
Ben Alimentos Ltda.
Kerry do Brasil Ltda.
Kerry da Amazonia Ingredientes e Aromas Ltda.
Costa Rica
Baltimore Spice Central America S.A.
Chile
Colombia
Panama
Guatemala
El Salvador
Thailand
Kerry Chile Ingredientes, Sabores Y Aromas Ltda.
Kerry Ingredients & Flavours Colombia S.A.S.
Baltimore Spice Panamá S.A.
Baltimore Spice Guatemala S.A.
Baltimore Spice de El Salvador S.A. de C.V.
Kerry Ingredients (Thailand) Limited
Philippines
Kerry Food Ingredients (Philippines), Inc.
Kerry Manufacturing (Philippines), Inc.
Singapore
Malaysia
Kerry Ingredients (S) PTE Limited
Kerry Ingredients (M) Sdn. Bhd.
Japan
China
Kerry Group Business Services (ASPAC) Sdn. Bhd.
Kerry Japan Kabushiki Kaisha
Kerry Food Ingredients (Hangzhou) Company Limited
Kerry Ingredients Trading (Shanghai) Company Limited
Kerry Food (Nantong) Company Limited
Tianning Flavour & Fragrance (Jiangsu) Co., Limited
Indonesia
India
Australia
PT Kerry Ingredients Indonesia
Kerry Ingredients India Private Limited
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
22
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
23
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30
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49
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58
59
60
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.
184
Kerry Group Annual Report 2017
36. 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.
Millburn Road, Coleraine, Northern Ireland, BT52 1QZ, United Kingdom.
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.
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.
Jindřišská 937/16, Nové Město, 110 00 Praha 1, 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.
P. Brovki Str., 44 210039 Vitebsk, Belarus.
Toftegardsvej 3, DK-5620, Glamsbjerg, Denmark.
Via Capitani Di Mozzo 12/16, 24030 Mozzo, Bergamo, 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.
BIROUL NR.5, Etaj 5, Nr. 4D, CORP C, Strada GARA HERĂSTRĂU, Bucureşti Sectorul 2, 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.
13-15 Chain Avenue, Montague Gardens, 7441 Western Cape, South Africa.
Calle Coto de Doñana, 15, 28320 Pinto, Madrid, Spain.
Polígono Industrial de las Gándaras de Budino, O Porrino, Pontevedra, Spain.
Križkova 9, Bratislava, Slovakia.
Box 1420 - Frejgatan 13, 114 79 Stockholm, Sweden.
4 Korolenkivska str., Kiev, Ukraine.
3400 Millington Road, Beloit WI 53511, United States.
5800 Landerbrook Drive, Suite 300, Mayfield Heights OH 44124, United States.
635 Oakwood Road, Lake Zurich IL 60047, United States.
615 Jack Ross Avenue Woodstock ON N4S 8A4, Canada.
Carr. Panamericana, Salamanca Km 11.2, 36660 Irapuato, Guanajuato, Mexico.
City of Rialma, State of Goiás, at Acesso BR-153, s/n, saída Sul, Fazenda Genipapo, Zona Urbana, Brazil.
Avenida Mercedes Benz 460, Distrito Industrial, Campinas, Sao Paolo, 13054-750, Brazil.
Rua Hidra 188, Santo Agostinho, Manaus, 69036-520, Brazil.
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.
Carrera 7 No 71-52, Torre A Piso 5, Bogota, 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.
5th Ave Bgc, Taguig, Metro Manila, Philippines.
8 Biomedical Grove, #02-01/04 Neuros, Singapore 138665, Singapore.
Kerry Group Annual Report 2017
185
36. Group entities (continued)
Registered Office (continued)
49
50
51
52
53
54
55
56
57
58
59
60
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.
Dujiashan, Huayang, Jurong, Jiangsu Province, 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.
186
Kerry Group Annual Report 2017
SUPPLEMENTARY INFORMATION
(NOT COVERED BY INDEPENDENT AUDITORS’ REPORT)
FINANCIAL DEFINITIONS
1. Revenue
Volume growth
This represents sales growth year-on-year, excluding pass-through pricing, currency impacts, acquisitions (net of disposals) and rationalisation volumes.
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
2017
Taste & Nutrition
Consumer Foods
Group
2016
Taste & Nutrition
Consumer Foods
Group
2. EBITDA
Volume
growth
4.7%
2.4%
4.3%
4.0%
2.1%
3.6%
Price
2.0%
2.0%
2.0%
(2.1%)
(2.0%)
(2.1%)
Transaction
currency
Translation
currency
Acquisitions/
Disposals
0.0%
(0.9%)
(0.2%)
(0.1%)
(1.1%)
(0.3%)
(1.9%)
(3.8%)
(2.4%)
(3.2%)
(6.6%)
(4.1%)
0.9%
0.2%
0.8%
4.9%
(2.1%)
3.3%
Reported
revenue
growth
5.7%
(0.1%)
4.5%
3.5%
(9.7%)
0.4%
EBITDA represents profit before finance income and costs, income taxes, depreciation (including impairment), intangible asset amortisation and non-
trading items.
Profit after taxation 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
2017
€’m
588.5
(0.1)
65.7
24.8
54.5
47.9
136.2
917.5
2016
€’m
533.1
(1.1)
71.5
78.7
21.0
46.4
132.8
882.4
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.
Operating profit
Intangible asset amortisation
Non-trading items
Trading profit
2017
€’m
678.9
47.9
54.5
781.3
2016
€’m
682.2
46.4
21.0
749.6
Kerry Group Annual Report 2017
187
4. Trading Margin
Trading margin represents annual trading profit, expressed as a percentage of revenue.
Trading profit
Revenue
Trading margin
5. Operating Profit
Operating profit is profit before income taxes, finance income and finance costs.
Profit before tax
Finance income
Finance costs
Operating profit
2017
€’m
781.3
6,407.9
12.2%
2017
€’m
613.3
(0.1)
65.7
678.9
2016
€’m
749.6
6,130.6
12.2%
2016
€’m
611.8
(1.1)
71.5
682.2
6. Growth in Adjusted Earnings Per Share on a Constant Currency Basis
In addition to growth in adjusted earnings per share, the growth in adjusted earnings per share on a constant currency basis is also provided as it
is considered more reflective of the Group’s underlying trading performance. Adjusted earnings is profit after taxation 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.
Constant currency eliminates the translational effect that arises from changes in foreign currency year-on-year. The growth in adjusted earnings per
share on a constant currency basis is calculated by comparing current year adjusted earnings per share, to the prior year adjusted earnings per share
retranslated at current year average exchange rates.
Basic earnings per share
Brand related intangible asset amortisation
Non-trading items (net of related tax)
Adjusted earnings per share
Impact of retranslating prior year adjusted earnings per share at current year average exchange rates
Adjusted earnings per share on a constant currency basis
Growth in adjusted earnings per share on a constant currency basis
2017
EPS
cent
333.6
13.4
(5.8)
341.2
-
341.2
9.4%
2016
EPS
cent
302.9
13.1
7.4
323.4
(11.6)
311.8
12.3%
188
Kerry Group Annual Report 2017
7. Free Cash Flow
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 and more accurately reflects fluctuations caused by seasonality and other timing factors. Average working capital is the sum of each month’s
working capital over 12 months. 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 monthly 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
8. Financial Ratios
2017
€’m
671.4
84.4
34.0
2016
€’m
683.0
76.0
21.2
(301.3)
(223.8)
3.1
0.9
8.8
501.3
12.1
1.5
(0.1)
569.9
The Net debt: EBITDA and EBITDA: Net interest ratios disclosed are calculated in accordance with lenders’ 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 158, these ratios are calculated in accordance with lenders’ facility agreements and
these agreements specifically require these adjustments in the calculation.
Net debt: EBITDA
EBITDA: Net interest
9. Average Equity
Covenant
Maximum 3.5
Minimum 4.75
2017
Times
1.4
16.2
2016
Times
1.5
14.0
Average equity is calculated by taking an average of the shareholders’ funds over the last three reported balance sheets plus an additional €527.8m
relating to goodwill written off to reserves pre conversion to IFRS.
Shareholders’ funds
Goodwill amortised (pre conversion to IFRS)
Adjusted equity
Average equity
2017
€’m
3,573.2
527.8
4,101.0
3,833.7
H1 2017
€’m
3,250.4
527.8
3,778.2
2016
€’m
3,094.0
527.8
3,621.8
3,448.2
H1 2016
€’m
2,877.0
527.8
3,404.8
2015
€’m
2,790.1
527.8
3,317.9
Kerry Group Annual Report 2017
189
10. Return on Average Equity (ROAE)
This measure is defined as profit after tax 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.
Profit after tax
Non-trading items (net of tax)
Brand related intangible asset amortisation
Profit after tax before NTIs (net of tax) and brand related intangible asset amortisation
Average equity
Return on average equity
11. Average Capital Employed
2017
€’m
588.5
(10.2)
23.6
601.9
3,833.7
15.7%
2016
€’m
533.1
13.0
23.0
569.1
3,448.2
16.5%
Average capital employed is calculated by taking an average of the shareholders’ funds and net debt over the last three reported balance sheets plus an
additional €527.8m relating to goodwill written off to reserves pre conversion to IFRS.
Shareholders’ funds
Goodwill amortised (pre conversion to IFRS)
Adjusted equity
Net debt
Total
Average capital employed
2017
€’m
3,573.2
527.8
4,101.0
1,341.7
5,442.7
5,129.4
H1 2017
€’m
3,250.4
527.8
3,778.2
1,221.7
4,999.9
2016
€’m
3,094.0
527.8
3,621.8
1,323.7
4,945.5
4,946.0
H1 2016
€’m
2,877.0
527.8
3,404.8
1,519.7
4,924.5
2015
€’m
2,790.1
527.8
3,317.9
1,650.1
4,968.0
12. Return on Average Capital Employed (ROACE)
This measure is defined as profit after tax 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.
Profit after tax attributable to owners of the parent
Non-trading items (net of tax)
Brand related intangible asset amortisation
Net finance costs
Adjusted profit
Average capital employed
Return on average capital employed
2017
€’m
588.5
(10.2)
23.6
65.6
667.5
5,129.4
13.0%
2016
€’m
533.1
13.0
23.0
70.4
639.5
4,946.0
12.9%
190
Kerry Group Annual Report 2017
13. 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.
2017
€’m
671.4
84.4
34.0
2016
€’m
683.0
76.0
21.2
(301.3)
(223.8)
3.1
0.9
8.8
501.3
60.2
561.5
5,129.4
10.9%
12.1
1.5
(0.1)
569.9
61.5
631.4
4,946.0
12.8%
2016
€76.31
16.8
39.2
€67.90
(10.3%)
Net cash from operating activities
Difference between movement in average 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
Finance costs paid (net)
Operating free cash flow
Average capital employed
Cash flow return on investment
14. Total Shareholder Return
Total shareholder return represents the change in the capital value of Kerry Group plc shares plus dividends reinvested in the year.
Share price (1 January)
Interim dividend (cent)
Final dividend (cent)
Share price (31 December)
Total shareholder return
2017
€67.90
18.8
43.9
€93.50
38.6%
15. Market Capitalisation
Market capitalisation is calculated as the share price times the number of shares issued.
Share price (31 December)
Shares in issue (m)
Market capitalisation (€’m)
16. Enterprise Value
2017
€93.50
2016
€67.90
176,182.4
176,010.8
16,473.1
11,951.1
Enterprise value is calculated as per external market sources. It is market capitalisation plus reported borrowings less total cash and cash equivalents.
17. Net Debt
Net debt comprises borrowings and overdrafts, derivative financial instruments and cash at bank and in hand. See full reconciliation of net debt in note 23
to the financial statements on pages 155 to 157.
Kerry Group Annual Report 2017
191
NOTES
192
Kerry Group Annual Report 2017
CHAIRMAN'S
STATEMENT
Chief
Executive's
Review
pages 10-13
Business
Reviews
pages 34-41
CONTENTS
Strategic Report
Directors' Report
Financial Statements
70 Board of Directors
72 Report of the Directors
78 Corporate Governance Report
83 Audit Committee Report
88 Nomination Committee Report
92 Remuneration Committee Report
116 Independent Auditors’ Report
122 Group Financial Statements
130 Notes to the Financial Statements
Supplementary Information
187 Financial Definitions
3 2017 Results
Highlights of the Year
4 Kerry Group at a Glance
8 Chairman’s Statement
10 Chief Executive’s Review
14 Business Model
16 Our Markets
18 Strategy & Financial Targets
21 Strategic Advantage
22 Our People
24 Financial Key
Performance Indicators
26 Financial Review
34 Business Review:
Taste & Nutrition
39 Business Review:
Consumer Foods
42 Sustainability Review
60 Risk Report
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1
7
KERRY GROUP
Prince’s Street
Tralee
Co. Kerry
V92 EH11
Ireland
T: +353 66 718 2000
www.kerrygroup.com
Leading
to Better
KERRY GROUP ANNUAL REPORT • 2017