GLOBALLY
CONNECTED
WINNING
LOCALLY
KERRY GROUP
ANNUAL REPORT
2018
CONTENTS
Globally
Connected
Winning
Locally
+
Our Partners pages 2-3
Our Graduates pages 16-17
Our Chefs pages 40-41
Our Scientists pages 44-45
Our Regulatory Team page 87
900+ R&D
Scientists
32
42
47
49
73
25,000+
Employees
Kerry Group is a 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.
STRATEGIC
REPORT
4
6
10
12
16
22
24
26
29
30
2018 Results Financial Highlights
Kerry Group at a Glance
Chairman’s Statement
Chief Executive’s Review
Our People
Our Business Model
Our Markets
Strategy & Financial Targets
Strategic Advantage
Financial Key
Performance Indicators
Financial Review
Business Review: Taste & Nutrition
Business Review: Consumer Foods
Sustainability Review
Risk Report
How we add value
Kerry has developed an unparalleled
suite of capabilities, deployed through
the engine of Kerry’s business model.
+
Kerry Group at a Glance pages 6-9
Our Business Model pages 22-23
DIRECTORS’
REPORT
88
90
Board of Directors
Report of the Directors
Governance Report
96 Corporate Governance Report
101 Audit Committee Report
106 Nomination Committee Report
110 Remuneration Committee Report
FINANCIAL
STATEMENTS
132
138
146 Notes to the Financial Statements
Independent Auditors’ Report
Financial Statements
SUPPLEMENTARY
INFORMATION
203 Financial Definitions
Sustainable Growth
€1m committed to tackling hunger and
malnutrition through the Realigning
Agriculture to Improve Nutrition (RAIN)
Programme in Niger.
+
Sustainability Review pages 49-72
Pictured: John, Aisling, Makayla and Saoirse Brosnan, Minard West, Lispole, Co. Kerry, Ireland.
2
Kerry Group Annual Report 2018
STRATEGIC
REPORT
We partner with our local customers
and suppliers, fully leveraging our
global capabilities to help nourish
the world through exceptional taste
and nutrition.
Kerry Group Annual Report 2018
3
Strategic ReportDirectors’ ReportFinancial Statements 2018
RESULTS
FINANCIAL
HIGHLIGHTS
+
Details of the Group’s
business performance
in 2018 are presented
in the Chief Executive’s
Review pages 12-15 and
in the Business Reviews
pages 42-48
4
Group
Revenue
€6.6bn
2017: €6.4 billion
Volume Growth
(Like-For-Like)* of
+3.5 %
2017: +4.3%
Net Cash from
Operating Activities of
Free Cash Flow*
of
€651m
2017: €671 million
Trading Profit
up 3.1%
€806m
2017: €781 million (up 4.2%)
€447m
(72% cash
conversion)
2017: €501 million (83% cash conversion)
Group Trading
Margin* of
12.2%
2017: 12.2%
Basic EPS
down 8.3%
305.9 cent
2017: 333.6 cent (up 10.1%)
Constant Currency
Adjusted EPS*
+8.6 %
2017: +9.4%
Total Dividend per Share
up 12.0% to
Return on Average Capital
Employed* of
70.2 cent
2017: 62.7 cent (up 12.0%)
12.0 %
2017: 13.0%
Total Shareholder Return of (6.8%) (2017: +38.6%)
* See Financial Key Performance Indicators section pages 30-31 and the Supplementary Information
section page 203 for definitions, calculations and reconciliations of Alternative Performance Measures.
Kerry Group Annual Report 2018 Continued
strong
underlying
performance
900+
R&D Scientists
• Continued strong business growth ahead of our markets
• Group margin maintained despite currency
related headwinds
• Kerry’s Taste & Nutrition technologies and systems
driving a strong pipeline of innovation
• Foods division performed well relative to a challenging
consumer marketplace
• The Board recommends a final dividend of 49.2 cent per
share (an increase of 12.1% on the final 2017 dividend)
payable on 10 May 2019 to shareholders registered on
the record date 12 April 2019
€6.6bn
Group Revenue
147
Manufacturing
Locations Globally
Pictured: Kerry Global Technology and Innovation Centre in Naas, Co. Kildare, Ireland.
Kerry Group Annual Report 2018
5
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:
− a 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.
25,000+
Employees
Follow our journey of progress
and innovation overleaf
+
Details of the Group’s business
performance in 2018 are presented
in the Chief Executive’s Review
pages 12-15 and in the
Business Reviews pages 42-48
140+
Sales in over
140 countries
About Us
Since our modest beginnings in 1972, in a greenfield site in
Listowel, Co. Kerry, Ireland we have grown from strength to
strength to become a leading player in the global food and
beverage industry, with current annualised sales of €6.6 billion.
This journey has been one of dynamic growth and strategic
acquisition, guided by our in-depth understanding of international
market dynamics, insights into consumer trends, shifting taste
preferences and evolving nutritional requirements.
As an organisation, we never stand still and are clear with our
colleagues, customers and stakeholders; who we are, what we
do, how we do it, where we are going and why we matter –
we call this The Kerry Way.
Kerry Taste & Nutrition has successfully grown to become the
largest and most technologically advanced developer and provider
of taste and nutrition solutions in the world. We are the industry
reference and the customer preference in the global food and
beverage industry.
Kerry Foods, the Group’s consumer foods division, has grown
its presence with retail partners in the Irish, UK and selected
international markets. Many of the division’s brands are household
names in their respective markets including category leading
brands such as Dairygold, Richmond, Fridge Raiders, Cheestrings
and Denny. Kerry Foods is also a leading provider of customer
branded chilled foods.
€6.6bn
Revenue
Group Revenue
by Division
80% Taste & Nutrition
20% Consumer Foods
€806m
Trading
Profit
Group Trading Profit
by Division
89% Taste & Nutrition
11% Consumer Foods
6
Kerry Group Annual Report 2018
Pictured: John and Owen Brosnan on their family farm, which is SDAS certified under the Origin Green programme.
Pictured: Kerry Taste & Nutrition Discovery Centre, Beloit, Wisconsin, USA.
From a small dairy company in the
south west of Ireland to a global
leader, the Kerry journey is a story of
how belief and vision were combined
to create a unique company.
BUILDING
A GLOBAL
ORGANISATION
THE EARLY
YEARS
1972 Establishment of North Kerry Milk Products
in Listowel, Co. Kerry. Dedicated to the
manufacture of dairy proteins for export
to the U.S.
1974 Formation of Kerry Co-operative to grow
integrated dairy processing business.
1978 Opening of new headquarters in Tralee,
Co. Kerry.
1982 Diversification into the convenience meat
business with the acquisition of Denny &
Duffy’s in Ireland.
1984 Established U.S. Office in John Hancock
Tower in Chicago.
1986 Transition from Kerry Co-op to Kerry
Group plc with the launch on the Dublin
Stock Market.
1987 Kerry opened its first overseas food
ingredients manufacturing plant in
Jackson, Wisconsin.
1988 Acquired Beatreme to become the No.1
speciality food ingredients company in the
U.S., at a cost that equated to Kerry’s market
capitalisation at the time.
1990 Listed on London Stock Exchange
19 April 1990.
1994 Invested in Latin America with
acquisition of a facility in Irapuato, Mexico.
Acquisition of DCA Food Industries Inc.
brings international capability in coatings,
bakery and fruit ingredients.
Acquisition of Mattessons Wall’s
brings major UK household brands
into Kerry Foods.
1997 Acquired SDF Foods, Malaysia – Kerry’s first
move into manufacturing in South East Asia.
1998 Further expanded in Europe with the
acquisition of the food ingredients division
of Dalgety (DFI) with manufacturing facilities
located in the UK, France, Germany, Italy, the
Netherlands, Hungary, Poland and Ireland.
With it came dedicated flavour capability
through the UK and Australian based
Mastertaste flavour business. Extended
presence in the Asia Pacific region with the
acquisition of the ingredients business of
Australian food group Burns Philp.
1999 Commissioned processing facility in
Minais Gerais, Três Corações, Brazil.
2001 Acquisition of Golden Vale brings the
Cheestrings brand to Kerry Foods, which
is now marketed in 8 European countries.
2003 Acquisition of foodservice branded business
Da Vinci Gourmet, a supplier of flavoured
syrups for speciality coffee chains.
2004 Global Functional Ingredients & Actives
platform developed, through the acquisition
of Quest; a leader in the innovation and
application of bio-ingredients and
pharma ingredients.
Continued to build a flavour and beverage
portfolio through the acquisition of
Manheimer, Flavurence, Fructamine,
Oregon Chai and Laboratorios Krauss.
2005 Acquisition of Noon Foods, UK, producers
of authentic Asian ready meals for the
UK market.
Announced the establishment of the first
manufacturing plant in Hangzhou, China.
2008 Roll-out of 1 Kerry ‘go-to-market’
programme.
2009 Continued growth of Kerry Foods
with acquisition of Breeo Foods.
Global Technology & Innovation Centre
opened in Beloit, allowing
customers to work side-by-side with
Kerry’s research teams to develop
unique and innovative products.
2011 Completed the acquisition of Cargill
Flavor Systems, strengthening Kerry’s
extracts and flavours capability.
2014 Opened R&D centre in Singapore to
support innovation in the Asia Pacific,
Middle East and Africa region.
Regional Development & Application
Centres opened in Moscow, Dubai
and Durban.
2015 Opening of the Global Technology &
Innovation Centre in Naas, providing
a focal point for scientific research,
innovative processing technologies and
market leading technology platforms.
Acquisition of Red Arrow, a leading
provider of natural smoke flavours.
Expanded beverage systems
capabilities with acquisition of Island
Oasis, a leader in all-natural premium
cocktail mixes.
Kerry Taste & Nutrition is born,
delivering better taste, health and
wellbeing globally.
2017 The acquisition of Ganeden, a producer
of patented probiotics, significantly
strengthens Kerry’s position in the
nutritional actives market.
Acquired Taste Master and Tianning
Flavours in Asia further expanding our
taste foundational technology portfolio
and footprint to meet local consumer
preferences within the region.
2018 Opened our first manufacturing plant
in Russia, producing ingredients for the
meat processing and snacks market.
Extended our taste and clean label
capabilities with the acquisition of
Fleischmann’s Vinegar Company Inc.,
a USDA certified all-natural producer
of specialty ingredients.
Acquisition of AATCO Food Industries
LLC, a leading Oman headquartered
provider of culinary sauces, providing
a strategic platform for business
development in the Middle East
and Africa.
+
Details of the Group’s business performance
in 2018 are presented in the Chief Executive’s
Review pages 12-15 and in the Business Reviews
pages 42-48
DEVELOPING A FOOD
INGREDIENTS BUSINESS
Creating Value for
all Stakeholders
Kerry has a proven track record of sustainable delivery and value
creation for all its stakeholders. The value created by Kerry for a
number of its stakeholders is outlined below:
KERRY GROUP
KERRY GROUP
AT A GLANCE
AT A GLANCE
SHAREHOLDERS
EMPLOYEES
CUSTOMERS
CONSUMERS
SUPPLIERS
GOVERNMENT
COMMUNITY
+
Key Performance
Indicators pages 30-31
Sustainability Review
pages 49-72
Kerry has a longstanding history of sustained delivery of results combined
with delivering on sustainability initiatives. The Group has delivered
compound TSR of 16% since going public in 1986
Kerry has an ambitious collaborative culture. We invest in leadership,
professional and technical capabilities for employees, and provide
opportunities for personal growth and career development
Kerry works across a broad range of customers and end use markets to
improve food and beverage products through innovation and enabling
speed to market
Kerry has a number of platforms to educate and empower customers
and their consumers to make better food, beverage and lifestyle choices,
including the Kerry Health and Nutrition Institute (KHNI)
Kerry has an extensive network of suppliers spread across the globe
Kerry makes a positive contribution to governments in the territories
in which we operate through tax contributions, procurement from local
vendors and job creation
Kerry works with local and international partners (e.g. World Food
Programme and Concern Worldwide) to support local community
development and improve health and nutrition in some of the world’s
poorest communities
900+
R&D scientists
90%
of waste diverted
from landfill
€114m
Dividend paid
to shareholders
€1.2bn
Payroll of €1.2bn
150+
The KHNI has published
150+ articles, 13 white
papers and hosted 6
specialised webinars
since 2016
€1m
Committed further €1m in 2018 to improve
nutrition among some of the world’s poorest
people through the RAIN programme in Niger.
We also work with the World Food Programme.
Taste & Nutrition
At Kerry Taste & Nutrition, we understand
consumers want to enjoy delicious meals and
beverages made from ingredients they know and
trust. This is driving manufacturers, retailers and
foodservice providers to re-evaluate their recipes,
processes and the ingredients they use in the
development of their products.
In a $75 billion fragmented market, Kerry has the
largest and broadest range of taste, nutrition and
functional ingredient solutions and technologies
available to re-formulate existing products and
create new products across all food and beverage
end use markets.
We inspire and are inspired by food, and our
global team of expert food scientists, chefs,
baristas, brewers, mixologists, bakers and
nutritionists bring with them a deep passion and
commitment to their work, building our reputation
as a trusted supplier to the world’s leading food,
beverage and pharma companies.
At Kerry, we know success in the food and
beverage industry requires an ability to stay
ahead of ever-changing consumer demand. We
understand and innovate to fill the gap between
what consumers are looking for and what is
technically possible.
We empower our customers to deliver products
that will delight and nourish their consumers
across the globe.
Kerry Group Annual Report 2018
7
8
Kerry Group Annual Report 2018
+
Taste & Nutrition
Business Review
pages 42-46
Consumer Foods
Business Review
pages 47-48
52% Americas
27% Europe
21% APMEA
73% Developed
27% Developing
Meat
Bakery & Confectionery
Cereal, Sweet & Other
Meals
Dairy
Snacks
Beverage
Pharma
Revenue by Region
€5.4bn
Revenue by End Use Markets (EUM)
15,000+
products
WHERE
WE OPERATE
32 Countries with
manufacturing
facilities
Naas
Tralee
Beloit
San Juan del Rio
Global Headquarters
Global and Regional
Technology & Innovation Centres
Manufacturing Plants
Sales Offices
Campinas
Durban
Shanghai
Bangalore
Singapore
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
D
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r
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t
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F
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a
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S
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t
s
Consumer Foods
Kerry Foods is the consumer foods division of Kerry Group
and is a leading supplier of chilled and frozen food products
in the UK and Ireland, focussing on dairy, meat, snacking
and meal solutions.
Kerry Foods is home to many of the market’s best-performing
and best-loved brands including Dairygold, Richmond, Fridge
Raiders, Cheestrings and Denny. Kerry Foods brands can be
found in kitchens, supermarkets, service stations, convenience
stores and entertainment venues the length and breadth of
the UK and Ireland, as well as in some selected international
markets. In addition to these brands, Kerry Foods customer
branded products can be found in leading supermarkets in
the UK and Ireland.
Key to the success in the categories in which Kerry Foods play
is the ability to bring innovative product offerings to the market
to excite and engage our customers and consumers.
Revenue by Category
Everyday Fresh
Convenience
Meal Solutions
Food to Go
Revenue by Channel
Revenue by Region
Brand
Private Label
GB
Ireland
Rest of Europe
Kerry Group Annual Report 2018
9
CHAIRMAN’S
STATEMENT
10
Kerry Group Annual Report 2018
Kerry continues to
successfully invest in
developing its business
model and deploying it
in local markets across
the globe.
In this, my first Chairman’s statement, I am
pleased to report another year of positive
business performance, as the Group achieved
good volume growth and progress in the
development of the strategic growth priorities.
The Group continued to deliver broad based
volume growth, with very strong performance
in most developing markets across the globe,
particularly in Asia as the Group further invested
in capabilities and capacity to meet evolving local
consumer preferences.
Taste & Nutrition continued to successfully
advance the deployment of its unique business
model into local markets across the globe in
conjunction with investments in the Group’s
strategic growth priorities. Kerry opened its
first manufacturing facility in Russia, as well as
establishing its first manufacturing footprint in
the Middle East through the acquisition of AATCO
Food Industries LLC. There were a number of
significant strategic acquisitions announced
that further enhanced Kerry’s industry-leading
foundational technology portfolio, noteworthy
examples being Fleischmann’s Vinegar Company,
Inc. and Ariake USA.
Consumer Foods further advanced its strategic
growth priorities with the ‘Food To Go’ category
delivering strong growth in the year. This
performance was achieved in a challenging
environment, as the uncertainty in relation to the
UK’s exit from the European Union impacted UK
consumer confidence in the second half of 2018
and resulted in reduced consumption in a number
of the division’s core categories.
In October, the Group hosted its first
investor day in Asia. Its focus was on South
East Asia, where an overview was provided
into Kerry’s intrinsic culture of responsible
sustainable growth in the region. It is
underpinned by a business model that
resonates with local customers and has
provided the platform for a track record
of strong organic growth in the region.
The event was an excellent demonstration
of how Kerry continues to successfully
invest in developing its business model
and deploying it in local markets across
the globe.
Strategic Development
2018 is the first year of the Group’s new
strategic plan and the management team
has made a successful start implementing
the strategic priorities for growth and
margin expansion as noted above. Kerry’s
business model embraces the Group’s
leadership in Taste & Nutrition and Kerry
Foods’ leadership positioning in its selected
consumer foods platforms. Strategic
development of our platforms for growth is
underpinned by continued organic growth
and acquisition investment. In a year of
significant acquisition investment, the
Group completed ten acquisitions at a net
cost of €502m.
We continue to pursue organic and
acquisition growth opportunities which
build on the Group’s business model and
can be structurally integrated.
Sustainability
We see an increasing awareness of
sustainability and the importance
of balancing economic growth with
environmental and social wellbeing.
Sustainability is at the heart of everything
we do and through the Group’s ‘Towards
2020’ programme we promote value
creation that benefits all our stakeholders.
Good progress has been made across our
key target areas in 2018 and more detail on
our sustainability performance is presented
in the Sustainability Review section of this
report on pages 49 to 72.
Dividend
The Board recommends a final dividend of
49.2 cent per share (an increase of 12.1%
on the 2017 final dividend) payable on 10
May 2019 to shareholders registered on the
record date 12 April 2019.
Together with the interim dividend of
21.0 cent per share, this brings the total
dividend for the year to 70.2 cent, an
increase of 12% on 2017.
Board & Management Changes
Michael Dowling retired as Director and
Chairman of the Board following the
Group’s Annual General Meeting on 3 May
2018. As Chairman, I wish to thank Michael
for his enormous contribution to the Kerry
organisation over the years. Michael served
as Chairman since 1 January 2015 and as a
Director since 3 March 1998. On behalf of
the Board, I wish to pay tribute to Michael
for his commitment and dedication to the
success of the Group throughout his years
of service.
As previously announced, Marguerite
Larkin was appointed Chief Financial
Officer on 30 September 2018 succeeding
Brian Mehigan who took up the position
of Chief Strategy Officer. I would like to
welcome Marguerite to this Executive
Board position and to thank Brian for his
personal contribution to the Board and to
the governance of the organisation since
his appointment as an Executive Director
of the Company on 25 February 2002.
Brian provided unstinted service to the
Board and has served as a key member of
the Group’s leadership team over the years.
I also welcome Christopher Rogers who
joined the Board as a non-Executive
Director and Chairman of the Audit
Committee in May 2018. Christopher
has considerable financial and food
and beverage industry experience and I
look forward to him making a significant
contribution to the Board.
Operational Visits
As part of an ongoing programme, the
June 2018 Board meeting was held in
Kerry’s Regional Application Centre, in
Durban, South Africa. The visit focused on
Kerry’s Taste & Nutrition Strategy for Sub
Saharan Africa (SSA) and Middle East,
North Africa and Turkey (MENAT) sub-
regions. It also afforded Board members
the opportunity to meet and engage with
key leaders and emerging talent from many
countries in the sub-regions.
Shareholder Analysis
28%
Retail
14%
Kerry
Co-operative
58%
Institutions
19% North America
13% UK
19% Continental Europe
4% Rest of World
Ireland
3%
While in South Africa the Board visited the
site for the Group’s new manufacturing
facility in Durban and undertook a market
immersion tour during which the Board
saw firsthand the different markets for
the Group’s products in South Africa
and had the opportunity to meet with
major customers. During 2018, I made
additional visits to our operations in Ireland,
Singapore, Turkey and the UK.
Our People
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.
Prospects
Your Board remains confident that the
Group’s business model and strategies
will continue to deliver shareholder value
and benefit our other stakeholders in the
years to come. The view of management
regarding the business outlook for 2019 is
presented in the Chief Executive’s Review.
Finally, on behalf of the Board, and on
a personal note, I would like to thank
Edmond and everyone throughout the
Kerry organisation for their contribution
to the ongoing success of the Group.
Philip Toomey Chairman
18 February 2019
11
Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements
CHIEF
EXECUTIVE’S
REVIEW
The Group achieved
volume growth in
2018 well ahead
of the market,
where the rate of
change continues
to accelerate.
The food and beverage industry and
end-to-end supply chain are experiencing
unprecedented disruption, as consumers
are demanding more than ever before and
are challenging traditional business models.
The application of Kerry’s leading taste and
nutrition technology portfolio through our
leading business model continues to drive
significant value for our customers as they
seek to meet rapidly changing consumer
demands and increase speed to market. Major
global consumer trends such as authenticity,
healthfulness, convenience, clean label,
sustainability and premiumisation, aligned
with local consumer preferences continue to
generate increased innovation opportunities.
Sustainability continues to emerge as a
growing priority, especially for consumers, as
they try to make a positive impact through
their food choices. As the industry seeks to
respond, Kerry’s innovation capabilities and
continued progress against key sustainability
goals supports customer ambition and value
creation for a broader set of stakeholders.
12
Kerry Group Annual Report 2018
The Group again delivered volume growth
ahead of its markets. Taste & Nutrition
achieved sustained volume growth in North
America, solid growth in Latin America,
a good performance in Europe and
continued strong growth in APMEA.
While UK and Irish consumer foods
markets encountered challenges impacting
consumer sentiment, with market growth
rates reducing across the year, Kerry’s
Consumer Foods division delivered a solid
underlying performance.
Results
Group revenue on a reported basis
increased by 3.1% to €6.6 billion reflecting
strong volume growth and contribution
from acquisitions, partially offset by
adverse currency movements. Business
volumes grew by 3.5% and pricing
decreased by 0.5% against a backdrop
of lower raw material costs in the year.
Taste & Nutrition delivered 4.1% volume
growth and pricing decreased by 0.5%.
Consumer Foods’ business volumes
increased by 1.1% and pricing decreased
by 0.4%.
Group trading margin was maintained
at 12.2%, reflecting a 20 basis points
improvement in Taste & Nutrition and
positive underlying margin improvement
in Consumer Foods offset by adverse
sterling exchange rates resulting in a
60 basis points margin reduction.
Constant currency adjusted earnings per
share increased by 8.6% to 353.4 cent
(2017 currency adjusted: 325.4 cent). Basic
earnings per share decreased by 8.3% to
305.9 cent (2017: 333.6 cent) primarily due
to the one-off favourable impact of US tax
reform in the prior year.
Kerry’s industry-leading research and
development expenditure increased to
€275m due to additional investment in
Taste & Nutrition (2017: €269m). Net
capital expenditure amounted to €286m
(2017: €297m) as the Group continued
to invest in its strategic priorities for
growth, in particular taste technologies
and developing market facilities. The
Group achieved free cash flow of €447m
reflecting cash conversion of 72% in the
year (2017: €501m/83%).
4.1%
Volume growth in Taste
& Nutrition of 4.1% – well
ahead of the market
Business Review
TASTE & NUTRITION
Taste & Nutrition reported revenue
increased by 3.7% to €5,351m, as volume
growth and the contribution from business
acquisitions were partially offset by
significant translation currency headwinds.
Trading profit grew by 5.0% to €805m,
reflecting a 20 basis points improvement
in trading margin to 15.1%.
2.8%
Volume growth in Americas of
2.8% driven by Meat, Beverage
and Snacks EUMs
Americas
Reported revenue in the Americas region
increased by 2.5% to €2,745m, reflecting
2.8% volume growth, lower pricing of 0.5%,
contribution from business acquisitions of
6.2% and an adverse translation currency
impact of 6.0%.
In North America, high levels of product
churn continued across the marketplace,
as consumer demands for clean label,
new world taste experiences and new
convenience formats continued to evolve
at pace. Kerry’s Meat End Use Market
(EUM) delivered strong growth, meeting
consumer demands for authentic ethnic
flavours, natural shelf life preservation
and a broader range of alternative
protein-based products. The Beverage
EUM continued to deliver good growth,
as Kerry’s development and applications
expertise helped customers launch a
number of innovative new products across
a variety of categories including cold
brew, refreshing beverages and functional
health beverages. The Snacks EUM
performed well, in particular with growth
through healthier savoury snacks.
Kerry’s Ganeden® probiotics and
Wellmune® branded immunity enhancing
ingredients continued to grow well, as
they broadened their market reach with
a number of new launches into wider
applications. In LATAM, Mexico and
Central America delivered good growth,
while Brazil delivered a solid overall
performance. The Snacks and Bakery
& Confectionery EUMs delivered good
growth, with Kerry’s cleaner label solutions
a key driver. Kerryconnect was also
successfully deployed in the region.
The global Pharma EUM once again
delivered strong growth, driven by the
excellent performance of excipients in
North America and APMEA.
In the last quarter the Group acquired
Fleischmann’s Vinegar Company, Inc.
(FVC), a USDA certified all-natural
producer of specialty ingredients that
further supports Kerry’s taste and clean
label strategies across a number of EUMs.
Since the year end, the Group acquired
Southeastern Mills’ (SEM) coatings and
seasonings business. SEM manufactures
from its strategically located base in
Rome, Georgia. The Group also reached
agreement to acquire Ariake USA,
which produces natural clean label
savoury taste solutions derived from
poultry, pork and vegetables at its facility
in Harrisonburg, Virginia. These
acquisitions further enhance Kerry’s
extensive authentic taste and clean
label portfolio, while complementing
the Group’s from-food-for-food heritage.
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e
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+
Taste & Nutrition
Business Review
pages 42-46
Consumer Foods
Business Review
pages 47-48
Kerry Group Annual Report 2018
13
2.3%
Volume growth in Europe
of 2.3% driven by Beverage,
Meat and Dairy EUMs
10.1%
Volume growth in APMEA
of 10.1% driven by Meat,
Meals and Snacks EUMs
Europe
Reported revenue in the Europe region
increased by 1.7% to €1,422m, reflecting
2.3% volume growth, lower pricing of
0.6%, an adverse transaction currency
impact of 0.2%, contribution from business
acquisitions of 1.4% and an adverse
translation currency impact of 1.2%.
APMEA
Reported revenue in the APMEA region
increased by 10.1% to €1,105m, reflecting
10.1% volume growth, a decrease in pricing
of 0.5%, an adverse transaction currency
impact of 0.1%, contribution from business
acquisitions of 3.4% and an adverse
translation currency impact of 2.8%.
The region delivered a good performance,
given the very strong comparatives
particularly in the second half of 2017.
The Beverage EUM delivered strong
performance across a number of
beverage categories within both retail
and foodservice channels. The Meat
EUM continued to deliver good growth,
with Kerry’s clean label technologies,
innovative texture solutions and meat-free
technologies being successfully deployed
in a number of new market launches.
The Dairy EUM continued to perform well
in the rapidly evolving ice cream category,
with a number of new launches in both
premium and dairy-free ranges using
Kerry’s taste technologies. Russia delivered
strong growth, particularly into the Meat
and Snacks EUMs, while production
commenced in Kerry’s first manufacturing
facility in the country, providing a key
platform for future business development
and growth. Foodservice played a key role
across a number of EUMs, particularly in
the Beverage and Meat EUMs.
The APMEA region continued to deliver
very strong growth well ahead of the
market across the region’s developing
markets. The Meat EUM delivered
very strong growth through customer
partnerships with a number of new
innovations as customers broaden their
ranges to meet consumers’ changing
needs for authentic taste, value and
increasingly, food safety. The Meals EUM
continued to perform strongly in South
East Asia and Greater China across both
the retail and foodservice channels, as
new authentic cooking taste profiles
were deployed across a number of new
products. The Snacks EUM delivered good
growth due to the continued development
of new snacking occasions across the
region. Sub-Saharan Africa achieved strong
growth, through better-for-you applications
into the Beverage and Snacks EUMs.
Good progress was made through
investments in ongoing footprint expansion
in Indonesia, China and Malaysia. Four
acquisitions were completed in the
year; Hangman – a leading China-based
producer of sweet and savoury flavours,
SIAS Food Co. – a leading China-based
supplier of culinary and fruit ingredients
and systems to the foodservice and
food manufacturing industries, Season
to Season – a leading South African
supplier of taste ingredients and systems
to the African snack and food sectors,
and AATCO Food Industries LLC – a
leading Oman headquartered provider of
culinary sauces to the foodservice channel,
providing a strategic platform for business
development in the Middle East and Africa.
The opening of Kerry’s first manufacturing
plant in Russia, 18 September 2018.
Pictured: Andrei Razin, Minister for
Agriculture for the Moscow Region;
Olivier Picard, Managing Director Kerry
Russia; Edmond Scanlon, Chief Executive
Kerry Group and Malcolm Sheil, President
& CEO Kerry Europe.
+
Taste & Nutrition Business Review
pages 42-46
Consumer Foods Business Review
pages 47-48
14
Kerry Group Annual Report 2018 Future Prospects
Kerry continues to adapt to the rapidly
changing marketplace, investing in and
further developing the Kerry business
model to consistently outperform
our markets and respond to evolving
local consumer trends and customer
requirements through industry
leading innovation.
Kerry’s Taste & Nutrition has a strong
innovation pipeline with good growth
prospects, particularly in developing
markets where the business footprint
expansion and successful roll out of
the consumer led in-country approach
continues. Within Consumer Foods we
will continue to build on the strategy
of realigning the core and investing
in adjacencies, whilst navigating the
current uncertain environment.
While there continues to be uncertainty
with respect to the outcome of the UK’s
exit from the European Union, Kerry
currently anticipates that a managed
transition will be the most likely outcome of
the negotiations. The Group has mitigation
plans in place to limit the potential short
term implications of a ‘no-deal’ scenario.
Kerry remains cautious on the UK
consumer landscape, but is confident it
will continue to outperform the market.
The Group will continue to invest in
business development and pursue
M&A opportunities aligned to strategic
growth priorities.
Edmond Scanlon Chief Executive
18 February 2019
1.1%
Volume growth in Consumer
Foods of 1.1% – a solid
performance with market growth
rates reducing across the year
Business Review
CONSUMER FOODS
Reported revenue increased by 0.6%
to €1,339m, as volume growth and the
contribution from business acquisitions
were partially offset by foreign currency
headwinds. The divisional trading profit
margin decreased by 60 basis points to
7.5% as the underlying margin improvement
was more than offset by transaction
currency headwinds, resulting in a trading
profit decrease of 7.1% to €100m.
Consumer confidence softened
noticeably in the second half of the
year, leading to reduced consumption
across a number of categories. The
UK retail environment continues to
undergo major structural change
through increased consolidation
of major retailers, further growth
of discounter volumes and ranges,
and pressure on high street stores
– all leading to the need for more
streamlined and dynamic supply chains.
‘Everyday Fresh’ delivered solid growth,
led by the Richmond range. Richmond
chicken sausages were successfully
launched in Q2 and contributed well
to overall performance. Kerry’s softer
butter offerings delivered good growth
particularly with private label brands in
the UK. ‘Convenience Meal Solutions’
had a difficult year, impacted by reduced
promotional activity as well as the
extended period of warm weather.
‘Food to Go’ performed well with strong
growth in Cheestrings across the year.
The Fridge Raiders brand was relaunched
during the year and now encompasses
a broader range of snacking products
across a wider consumer demographic.
15
Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements Pictured: Kerry Graduates Juan Alda Bechini,
Theresa Ziemer, Tomaz Verdinek and
Kelsey Hunter.
OUR
PEOPLE
Globally connected
and winning locally
Our Culture
Our people are the heartbeat of our business. We
collaborate as a globally connected, locally led, high
performing team. We leverage our diverse, entrepreneurial
and results focused culture, talents and expertise to
innovate and lead to better value for our customers,
our shareholders, our people, our communities and
our environment.
We strive for excellence in the delivery of our core business
capabilities and differentiate ourselves as an organisation
through our people. Our groupwide approach to people
leadership is underpinned by our shared goal of nurturing
a positive environment where all our people are inspired
to develop themselves, to learn together and to grow our
business; winning for our customers and for Kerry. Every
day, our 25,000+ people leverage our global expertise and
taste and nutrition capabilities to develop innovative food
and beverage solutions that offer new growth opportunities
for our customers. We represent more than 117 nationalities
with operations across 147 locations; we are committed
to fostering a great place to work, where our people can
be at their best and are able to contribute fully to our
shared success.
With 25,000+ employees
throughout the world,
the Group’s diverse high
performance teams
are central to our innovative
culture and ongoing success.
16
Kerry Group Annual Report 2018 Our Graduate Programme continues its
successful history of developing the
next generation of Kerry expertise and
sustainable leadership.
INSPIRE
Kerry Group Annual Report 2018
17
Strategic ReportDirectors’ ReportFinancial Statements Our Values
At Kerry, we truly value individual uniqueness and we come together
to uphold our shared commitments to ‘lead to better’ for our customers,
our people and our shareholders. As such, we nurture an inclusive and
collaborative team environment where we deliver with excellence and
embrace our entrepreneurial spirit to create new growth and sustainable
value for our customers. Our core values are:
+
Sustainability Review
pages 49-72
COMMITMENT
Customers | Passion |
Science | Technology
VALUE
CREATION
Success | Results |
Sustainable | ROI
OUR VALUES
TEAMWORK
Respect | Diversity |
Empowered |
Accountable
ENTREPRENEURSHIP
Ownership | Innovation |
Agility | Drive
EXCELLENCE
Quality | Safety |
Integrity | Ethics
Commitment
Teamwork
Excellence
Entrepreneurship
Value Creation
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 innovation
and success. We
are empowered and
accountable for delivering
greater results for our
stakeholders, Kerry and
our careers.
We execute with
excellence in everything
we do. We continuously
develop our skills and
improve our performance.
We strive to deliver
superior quality and
never compromise on the
safety of our colleagues
or products. We operate
with integrity and adhere
to the highest standards
of business and ethical
behaviour.
We are swift and
responsive, adapting
quickly to the changing
market. We seek
innovative ideas to drive
the business forward and
achieve new levels of
success for our customers
and for 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.
18
Kerry Group Annual Report 2018
Fostering Diversity,
Inclusion and
Belonging
As a global business, we appreciate and value our dynamic mix of people who bring
new perspectives, experiences and thought leadership to enable our organisation to
continuously grow and innovate for our customers. Having established our Global
Diversity Programme in 2016, we continue to advance our commitment to nurturing
a diverse workforce culture where everyone can contribute to our success and excel
professionally and personally.
90%
Nearing 90% participation
rates in ourVoice
feedback programmes
Enhancing
our Employee
Experience
Highlights from 2018 include raising awareness and educating our people on the
importance of Diversity, Inclusion and Belonging in Kerry; promoting global career
opportunities through new connected technology; establishing a Groupwide Diversity,
Inclusion & Belonging employee taskforce to collaborate on focused activities across
Kerry; enhancements to our recruitment processes to attract new sources of diverse talent;
local initiatives to offer more flexible working arrangements; and a series of volunteering
programmes activated across our main locations. We have also strengthened strategic
partnerships within Ireland, through our membership of the Irish Chapter of the 30% Club
and the Agri-Food Diversity & Inclusion Forum, in conjunction with Bord Bia.
One significant activity during 2018 has been engaging representative groups from across
Kerry to help us refresh and build upon our current approach to Diversity, Inclusion and
Belonging, which has resulted in a revised strategy and set of objectives for action in 2019.
Two-way dialogue and a focus on continuous improvement are core elements of our
inclusive and collaborative culture. Our Kerry Group ourVoice programme, initiated in 2017,
is a key global platform for engaging and connecting our people more closely with our
business goals. Almost 90% of our people participated in our first Groupwide employee
engagement survey in 2017 and we were delighted with the positive reinforcement by our
people of their belief in the future direction of Kerry. Through our follow-up committees
and focus groups, we identified opportunities for improvement in our people and business
processes, our communications and our leadership capabilities.
Activities undertaken in response to ourVoice at a global level in 2018 include:
–
Investing in new HR technology to manage our people processes more
effectively and efficiently across the organisation. Launched in October 2018,
mySuccess is a one-stop portal which enables a better experience for our people,
external candidates, leaders and HR colleagues. It offers a mobile enabled single
point of access for all people information which will reduce complexity, increase
speed, and drive improved business performance for Kerry. We also upgraded our
learning management system to enhance access to development opportunities,
helping our people to progress their careers within Kerry.
– Strengthening people leader capabilities to grow and lead our business
for the future. At Kerry, inspiring our people relies on our 3,500 people leaders
and their ability to create clarity and alignment to deliver for our customers.
During 2018, through research and focus groups, we rearticulated the role of the
people leader at Kerry, resulting in a new framework and set of objectives for all
people leaders, reinforced through our performance management process. With
ongoing leadership development activities planned, this will help strengthen our
commitments to nurturing talent as a catalyst for growth, to helping our people
develop successful and rewarding careers with Kerry and to building sustainable,
effective and diverse teams that deliver exceptional results.
We continue to monitor progress against our improvement opportunities through
ongoing dialogue with our leadership teams and targeted pulse surveys within
our business, to ensure Kerry continues to be a great place to work, thrive and
succeed. We will be reviewing our approach to employee engagement, including
our groupwide survey in 2019, to ensure its continued effectiveness and alignment
with our business needs.
19
Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements
– Safety First, Quality Always. Food safety and the safety of our people are core
priorities for Kerry, and our commitment to our people and our customers is reinforced
through our ‘Safety First, Quality Always’ way of working. We embed this approach in all
key processes across the company, including research, development and applications
(new product development), procurement (supplier management programmes) and
engineering (sanitation and safety by design).
We continue to invest in our people, our processes and infrastructure, strengthening
our functional capability through technical learning and career development
opportunities, and creating new roles in our supply chain to enhance our global
capabilities. These global capabilities include workplace safety, food microbiology,
food safety innovation and culture, sanitation, and auditing to improve our own global
quality, safety, health and environmental standards and policies as well as to meet
industry and regulatory requirements. With strong capital investment in our plants
and in state-of-the-art quality system management software, we are reinforcing our
best in class systems that will protect our people, consumers, customers and our
planet for the future through our Kerry culture of ‘Safety First, Quality Always’.
– 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. Our
programme of compliance modules, covering Information Security, Intellectual
Property, Anti-Fraud and Code of Conduct, has been completed by 80% of our
people over the past two years. This will be an ongoing focus for our business
throughout 2019.
Achieving results ethically and in compliance with all relevant legislation will always
be an absolute expectation at Kerry Group. We operate a zero tolerance approach to
labour abuses and support effective abolition of child and forced labour worldwide.
The Group’s ‘Express a Concern’ hotline provides a mechanism by which employees
can report issues in confidence through an independent channel.
– Health & Wellbeing. Personal health and wellbeing of all our people is paramount.
At Kerry we appreciate the importance of having a supportive wellbeing programme
in place. Our framework has four pillars – nutritional, physical, emotional and financial
– to support locally appropriate initiatives and drive a better awareness of the
importance of wellbeing throughout our communities. We will continue to develop
and embed wellbeing practices through our leadership development and employee
effectiveness programmes.
8%
Health & Safety 8%
year-on-year improvement
>102,000
Learning & Development
courses completed
Promoting a
safe and healthy
workplace and
working practices
for our people
+
Sustainability Review
pages 49-72
20
Kerry Group Annual Report 2018
Strengthening our
Talent Pipeline
500+
Over 500 moves
supported through
our ‘world of opportunity’
initiative and global
mobility programmes
At Kerry we pride ourselves in our ability to offer opportunities for all our people to
grow professionally and personally. Through our ‘world of opportunity’ initiative
promoted throughout 2018 and our global mobility programmes, we supported over
500 moves during 2018, with our people relocating for assignments in all corners of the
world, contributing their expertise to drive local growth for our customers and Kerry and
to gain new cultural and life experiences. With an explicit focus on leveraging our global
footprint to develop future leaders, we encourage our early career employees, typically
graduates and those with less than 5 year’s experience, to seek out global opportunities
to broaden their experiences to support their career progression; this group currently
represents over a quarter of all international moves in Kerry.
Kerry’s renowned Graduate Development Programme continues to be a core component
of our strategy to strengthen our future talent pipeline, providing opportunities for
graduates to work and develop across a wide range of core disciplines, enabling longer
term sustainable leadership for the organisation. In 2018 we revisited our approach to
ensure Kerry remains competitive in today’s graduate marketplace and to further build
on our offering for 2019.
Our Global Recognition
Framework promotes
the further growth
and consistency of our
regional and local
recognition programmes.
Rewards and
Recognition
In line with our aim to be the first choice for the best talent around the world, our reward
programmes are locally advantageous to support both the business strategy and the
needs of our people as well as focused on recognising their performance, potential and
business value creation.
We are committed to gender pay equality and will continue to proactively monitor the pay
of male and female colleagues doing similar roles to ensure it is comparable. We appoint
and promote based on merit and will continue to encourage the career development of
all our people, paying attention to our promotion and recruitment practices with regards
to gender, to support greater female representation at all levels.
At Kerry, ‘Total Reward’ is about more than just pay and financial rewards, it encompasses
robust learning, career development, personal growth and worldwide opportunities in an
inclusive culture where all our people can flourish. During 2018, we established a Global
Recognition Framework to promote the further growth and consistency of our regional and
local recognition programmes. These programmes enable our people to celebrate each
other’s day-to-day achievements – by living Kerry’s shared values and leading to better to
support our vision.
21
Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements OUR
BUSINESS
MODEL
Adding value by offering
so much more to customers
and consumers
The evolution of Kerry’s model – how we create value
Since our establishment in 1972, Kerry has evolved and developed its
ingredient solutions portfolio, which represents the majority of the Group’s
sales to the Food and Beverage industry. This has been achieved through
investment in the people and in the capabilities needed to drive the three
cogs of Kerry’s value creation engine, as well as through the acquisition
of additional foundational technologies, providing a broad foundation to
create customer-tailored solutions.
Kerry’s proven business model enables us to innovate through leveraging
our globally connected capabilities in an agile and seamless fashion.
A consumer centric culture and the successful deployment of our
wide-ranging capabilities in local markets through our expansive
infrastructure mean that Kerry can successfully meet local consumer
needs, deliver on our strategy and drive sustainable business performance.
Customer value-add staircase
Integrated
Solutions
Single
Ingredient
Multiple
Ingredients
Foundational Technologies
Taste
Nutrition
Value-add
step
Offering
Kerry’s business model – the industry leader
The speciality ingredients and flavours sector is made up of many single
ingredient specialists, a few multiple ingredient players, and very few
providers of integrated solutions.
Integrated solutions providers perform an extra step in the supply chain,
and the value add these providers offer to customers can vary significantly
depending on their capabilities. At one end of the spectrum, there are
companies who can create a limited number of integrated solutions into
a limited number of applications. Kerry, at the other end of the spectrum,
has developed an unparalleled suite of capabilities, deployed through
the engine of Kerry’s business model. This makes Kerry the only truly
holistic integrated solutions provider, with a wide breadth of customised
integrated solutions deployed across a wide range of market applications.
22
Kerry Group Annual Report 2018
A. FOUNDATIONAL TECHNOLOGIES
Authentic Taste
Dairy, Savoury, Smoke & Grill, Citrus,
Tea & Coffee, Beverage & Sweet
Farm ingredients
and third party
commodities
Nutrition, Wellness
& Functionality
Proteins, Fibre, Enzymes, Probiotics,
Fermented ingredients, Texturants
A. FOUNDATIONAL TECHNOLOGIES
Authentic Taste,
Nutrition, Wellness & Functionality
Kerry’s leading foundational technology portfolio
provides an unparalleled platform for the
innovation of new solutions to meet the needs of
today’s consumer, utilising our Authentic Taste
and Nutrition, Wellness & Functionality platforms.
Our Authentic Taste platform is founded on a
‘from-food-for-food’ heritage and philosophy,
with a broad range of foundational technology
capabilities in Dairy, Savoury, Smoke & Grill, Citrus,
Authentic Taste
Tea & Coffee, Beverage and Sweet amongst others.
Dairy, Savoury, Smoke & Grill, Citrus,
Tea & Coffee, Beverage & Sweet
Our Nutrition, Wellness & Functionality platform
delivers benefits such as natural preservation,
immunity support, digestive health, sustainable
efficiencies, fortification and cleaner labels. These
Farm ingredients
benefits are achieved by leveraging this broad
and third party
commodities
foundational technology platform which includes
Nutrition, Wellness
Proteins, Fibre, Enzymes, Probiotics, Fermented
& Functionality
Ingredients and Texturants amongst others.
Proteins, Fibre, Enzymes, Probiotics,
Fermented ingredients, Texturants
Together they enable better, more authentic taste
with simple, natural, better-for-you nutrition.
Kerry’s business
model comprises
3 core inputs
A. Foundational Technologies – Authentic
Taste, Nutrition, Wellness & Functionality
B. A unique integrated technology value
creation engine – deployed through
specialist end use market teams
C. Unparalleled channel and customer access
Development
& Applications
Product Process
Technologies
Culinary
& Insights
Meat
Dairy
Meals
Snacks
Beverage
Bakery & Confectionery
Cereal & Sweet
Pharma
Global & Regional CPGs
Emerging/Natural Brands
Global & Regional
Retailers (Store Brands)
Kerry Brands
Global & Regional Chains
Independent Operators
Convenience
Brands
Emerging Channels
Pharma
Retail
Consumer
Food
Service
Culinary
& Insights
Development
& Applications
Product Process
Technologies
Global & RegionalRetailers (Store Brands)
Retail
Meat
Food
Beverage
Pharma
Pet
Taste &
Nutrition
Solutions
Consumer
Food
Service
Global & Regional CPG
Emerging/Natural Brands
Kerry Brands
Global & Regional Chains
Independent Operators
Convenience
Brands
Emerging Channels
Pharma
KERRY BUSINESS MODEL
B. INTEGRATED TECHNOLOGY VALUE CREATION
C. CHANNELS & CUSTOMERS
Authentic Taste
Dairy, Savoury, Smoke & Grill, Citrus,
Tea & Coffee, Beverage & Sweet
Authentic Taste
Dairy, Savoury, Smoke & Grill, Citrus,
Tea & Coffee, Beverage & Sweet
Farm ingredients
and third party
commodities
Farm ingredients
and third party
commodities
Nutrition, Wellness
& Functionality
Nutrition, Wellness
& Functionality
Proteins, Fibre, Enzymes, Probiotics,
Fermented ingredients, Texturants
Proteins, Fibre, Enzymes, Probiotics,
Fermented ingredients, Texturants
Culinary
& Insights
Development
& Applications
Culinary
& Insights
Development
& Applications
Product Process
Technologies
Product Process
Technologies
Meat
Dairy
Meals
Snacks
Beverage
Bakery & Confectionery
Cereal & Sweet
Pharma
Meat
Dairy
Meals
Snacks
Beverage
Bakery & Confectionery
Cereal & Sweet
Pharma
Kerry Foresight & Insight
Consumer, Customer, Sensory & Analytical, Market and Regulation
Global & Regional CPGs
Emerging/Natural Brands
Global & Regional
Retailers (Store Brands)
Kerry Brands
Global & Regional Chains
Independent Operators
Convenience
Brands
Emerging Channels
Pharma
Global & Regional CPGs
Emerging/Natural Brands
Retail
Global & Regional
Retailers (Store Brands)
Retail
Kerry Brands
Global & Regional Chains
Consumer
Independent Operators
Convenience
Food
Brands
Service
Emerging Channels
Pharma
Consumer
Food
Service
B. INTEGRATED TECHNOLOGY VALUE CREATION
A unique integrated technology value creation engine
– deployed through specialist end use market teams
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 expertise
and capabilities.
Kerry’s Culinary & Insights cover a variety of end use markets, channels and geographies
across the world, enabling the Group to stay ahead of ever-changing consumer preferences
and providing foresight into future consumer demands.
C. CHANNELS & CUSTOMERS
Unparalleled channel
and customer access
Kerry’s Taste & Nutrition and Consumer
Foods divisions are uniquely positioned
across the retail and foodservice
channels to provide the broadest
routes to market to successfully grow
our business and leverage our unique
taste and nutrition solution capabilities.
Authentic Taste
Dairy, Savoury, Smoke & Grill, Citrus,
Tea & Coffee, Beverage & Sweet
Authentic Taste
Dairy, Savoury, Smoke & Grill, Citrus,
Tea & Coffee, Beverage & Sweet
Culinary
& Insights
Farm ingredients
and third party
commodities
Farm ingredients
and third party
Nutrition, Wellness
commodities
& Functionality
Proteins, Fibre, Enzymes, Probiotics,
Fermented ingredients, Texturants
Nutrition, Wellness
& Functionality
Proteins, Fibre, Enzymes, Probiotics,
Fermented ingredients, Texturants
Meat
Food
Taste &
Nutrition
Solutions
Our globally-connected network of professional chefs are immersed in regional and local
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
Development
taste solutions derived from natural authentic cooking methods.
& Applications
Culinary
& Insights
Our proprietary Taste & Nutrition Discovery platform is designed 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.
Product Process
Technologies
Product Process
Technologies
Development
& Applications
Beverage
Kerry’s dedicated and inter-connected Development & Applications teams
are the innovative artisans who bring our recipes and products to life. They work with
our taste and nutrition experts, sensory and consumer analytics and regulatory teams
throughout the product development, commercialisation and production process. Kerry’s
Development & Applications teams innovate and provide solutions in response to rapidly
changing consumer requirements.
Beverage
Pharma
Pharma
Meat
Food
Pet
Pet
The Group’s industry-leading Product Process Technologies, together with our
unparalleled breadth and depth of process engineering expertise, our understanding of
the entire supply chain, and our from-food-for-food heritage, enable 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 and 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, enabling
efficient product development and speed to market.
Our consumer centric model is anchored around End Use Markets as we focus our value
creation engine to develop new winning products in the market.
Global & RegionalRetailers (Store Brands)
Global & Regional CPG
Global & Regional CPG
Emerging/Natural Brands
Global & RegionalRetailers (Store Brands)
We will continue to invest in existing,
Emerging/Natural Brands
new and emerging sub-channels and
Retail
selectively leverage the breadth of our
capabilities across this range
of channels.
Global & Regional Chains
Kerry Brands
Kerry Brands
Global & Regional Chains
Independent Operators
Consumer
Independent Operators
Taste &
Convenience
Nutrition
Brands
Solutions
Emerging Channels
Pharma
Convenience
Our customer set is diversified, and
Food
ranges from global to regional and
Service
local leaders, with a common need
for support in meeting today and
Emerging Channels
tomorrow’s consumer demands.
Brands
Pharma
Retail
Consumer
Food
Service
The Kerry business model is
truly unique and has enabled the
organisation to strengthen and
evolve value-add relationships with
our customers. The ability to work
collaboratively with customers at
every stage from concept to launch
differentiates Kerry in the marketplace,
and enables our customers to take on
the challenges and opportunities that
today’s marketplace presents.
Kerry Group Annual Report 2018
23
Strategic ReportDirectors’ ReportFinancial Statements OUR
MARKETS
Where the consumer is at the
centre of everything we do
Kerry is a consumer-led
organisation. Our business
model, structures and strategies
continue to evolve, centred
around a deep understanding
of diverse local consumer
preferences across the globe.
A.
CONSUMER
PREFERENCES
B.
END USE
MARKETS
Kerry continues to meet a wide range of rapidly evolving consumer
preferences. Across the global consumer landscape, today’s most
pronounced preferences include clean and cleaner label, convenience,
nutrition & wellness, authenticity and premiumisation. These distinct
preferences can mean different things to consumers in different parts of
the world. Central to Kerry’s approach is the fundamental understanding
of how to address these needs and support customers as they seek to
innovate to win in today’s marketplace. These ever-evolving consumer
preferences are redefining consumption occasions right across end use
markets and channels.
Kerry serves the consumer through eight major end use market
categories, across a vast range of applications with over 15,000 different
products. As consumer preferences increasingly transcend traditional
end use market category boundaries, Kerry’s breadth of applications
expertise is more relevant than ever in positioning the Group as the
industry preference as an innovation partner.
+
Business Model
pages 22-23
Business Reviews
pages 42-48
24
C.
CHANNELS
Kerry serves the market through a number of different channels in
Retail and Foodservice. These routes to market are changing at an
unprecedented level, creating challenges and opportunities.
Retail: This channel is experiencing major change as consumer
purchasing behaviour evolves, creating challenges for traditional retail
business models (e.g. traditional high-street) and opportunities for
businesses that can address emerging needs of growing sub-channels
(e.g. online, convenience). Many large consumer packaged goods
companies are struggling to keep pace with this change, as many smaller
companies are gaining share, leading to market fragmentation.
Foodservice: This channel has been revolutionised over the past
decade and menus continue to evolve at pace, as foodservice businesses
seek to meet consumer needs and preferences through new platforms
(e.g. snacking, beverage), enhancement of nutritional aspects of menus
(calorie counts), limited time offers/seasonal products and home delivery
services. These dynamics are leading to increased levels of innovation
within the foodservice channel.
Kerry’s holistic business model and deep understanding of the
end-to-end supply chain ideally positions the Group to support
customers in meeting these continually evolving needs by bringing
more products to market in an expedient manner.
Kerry’s customer base broadly comprises one third global companies,
one third regional leaders and one third local/smaller players. The Group
works effectively across this wide range of customers and tailors its
approach to best serve each individual customer type, addressing the
challenges and opportunities within the categories in which they operate,
and supports them as they innovate and move into new categories, new
channels and new end use markets.
CUSTOMERS
Kerry Group Annual Report 2018 C. CHANNELS
& CUSTOMERS
FOODSERVICE
CHANNEL
RETAIL
CHANNEL
B. END USE
MARKETS
Global
& Regional
Chains
Bakery &
Confectionery
Convenience
Meat
A. CONSUMER
PREFERENCES
Food
safety
Brands
Global
customers
Global
& Regional
CPG
Pharma
Global
& Regional
Retailers
(Store
Brands)
Emerging/
Natural
Brands
Convenience
Nutrition
& Wellness
Authenticity
CONSUMER
Sustainability
Cereal, Sweet
& Other
Independent
Operators
Clean label
Digital:
connected
customer
Personalisation
Premiumisation
Beverage
Localisation
Meals
Local/
smaller
customers
Dairy
Emerging
Channels
Snacks
Kerry
Brands
Pharma
Regional
customers
140+
Sales in over 140 countries
Kerry Group Annual Report 2018
25
Strategic ReportDirectors’ ReportFinancial Statements STRATEGY
& FINANCIAL
TARGETS
STRATEGIC
PRIORITIES
FOR GROWTH
The Group has clear strategic priorities for growth,
which are the main drivers of our medium-term organic
growth targets and focus areas for capital allocation.
These are complemented by our margin expansion
objectives and underpinned by a returns discipline.
STRATEGIC
PRIORITIES
FOR GROWTH
OVERVIEW
BRANDS/
POSITIONING
TM
TM
TM
TM
TASTE & NUTRITION
AUTHENTIC
TASTE
Our Authentic Taste platform is
founded on a ‘from-food-for-food’
heritage and philosophy, with a
broad range of foundational
technology capabilities in Dairy,
Savoury, Smoke & Grill, Citrus,
Tea & Coffee, Beverage and
Sweet amongst others.
Selected brands
Kerry’s Unique Proposition
NUTRITION, WELLNESS
& FUNCTIONALITY
DEVELOPING
MARKETS
FOODSERVICE
CONSUMER FOODS
The combination of Authentic
Taste and Nutrition, Wellness &
Functionality through application is
where significant value is added for
our customers, and this intersection
is the sweet spot for Kerry –
with our strategic positioning,
industry-leading capabilities and
applications expertise.
TrueTasteTM
UpgradeTM
TrueTasteTM
Our Nutrition, Wellness &
Functionality platform delivers
benefits such as natural preservation,
immunity support, digestive health,
sustainable efficiencies, fortification
and cleaner labels. These benefits
are achieved by leveraging this broad
foundational technology platform which
includes Proteins, Fibre, Enzymes,
ProdiemTM
Probiotics, Texturants, Food Protection
Emulgold
and Natural Preservation Solutions
TrueTasteTM
amongst others.
UpgradeTM
Ultranor
TM
TM
DurafreshTM
TrueTasteTM
ProdiemTM
TrueTasteTM
DurafreshTM
Ultranor
UpgradeTM
TM
UpgradeTM
TM
TM
TM
TM
TM
UpgradeTM
ProdiemTM
TM
TM
TM
ProdiemTM
Ultranor
TM
PlantfareTM
TM
DairySource
TM
TM
TM
TM
TrueTasteTM
PlantfareTM
ProdiemTM
Emulgold
DurafreshTM
TM
DurafreshTM
BiobakeTM
FOCUS
• Enhance authentic
and natural taste
technology portfolio
TM
TM
TM
UpgradeTM
TM
BiobakeTM
DurafreshTM
• Enhance technology portfolio with
technologies that deliver across
both strategic pillars
ProdiemTM
• Drive innovation in new and
PlantfareTM
fast-growing applications areas
– e.g. plant protein
DurafreshTM
PlantfareTM
• Enhance nutrition, wellness &
DairySource
Emulgold
functionality technology portfolio
PlantfareTM
• Further leverage industry-leading
clean label portfolio into a broader
BiobakeTM
range of applications in line with
evolving consumer demands
TM
BiobakeTM
• Advance our leading authentic
cooking taste capabilities
as part of our Chef to Shelf
programme
• Leverage authentic and
natural taste capability
to deliver world taste
experiences
•
Invest in the fundamental food
BiobakeTM
science and further expand
network of research partners
• Evaluate and explore strategic
PlantfareTM
partnership and M&A opportunities
BiobakeTM
• Further investment in scientific
and clinically validated nutrition
DairySource
programmes in conjunction with the
development of the Kerry Health and
Nutrition Institute
• Holistic business model selectively
deployed, aligned to local consumer
• New and emerging sub-channels: e.g.
convenience and health
preferences
•
Invest in capabilities to continue to
• Further embed Kerry’s cross functional
teams within our customers’ innovation
deliver sustainable growth into the future
and culinary development processes
KEY 2018
ACHIEVEMENTS
• Further developed
Taste Sense™ sugar-reduction
technology with a number of
new launches
• Further leveraged our capabilities
and industry-leading technology
position in smoke & grill
• Further expanded our
foundational technology
portfolio with technology
innovation and strategic
authentic taste acquisitions
• Delivered a number of innovations
encapsulating Kerry’s unique taste
& nutrition positioning
• Acquired Fleischmann’s Vinegar
Company – further supporting
Kerry’s clean label strategy
• Agreed to acquire Ariake USA –
significantly complementing the
Group’s authentic taste and clean
label portfolio
• Expanded our industry-leading clean
label capability and bio-processing
technology capacity with our plant
in Rochester
• Further enhanced our existing
plant-based protein capability and
expanded with Ojah technologies
• Ganeden® probiotics & Wellmune®
immunity enhancing ingredients had
a number of new launches across a
wide range of end use markets
26
We have an excellent track record of growth
Kerry has an unrivalled position as a partner
We are a leader in our chilled foods’
in Developing Markets as customers continue
to the Foodservice channel. The breadth of
categories in the UK and Ireland.
to realise the potential of having a partner
our offering and depth of capabilities allows
with Kerry’s local knowledge and global
expertise and capabilities.
Kerry’s target is to continue to achieve
average volume growth in developing
customers to work with Kerry right across
their menu, both in enhancing the taste
proposition and improving the nutritional
value and functionality of their products.
We will continue to drive growth and
outperform our markets in our core
business by responding to key
consumer trends in meat, meals and
dairy, while also leveraging this core
markets of 10%+ per annum over the five
Kerry’s target is to achieve average volume
expertise in developing and expanding
year plan.
growth in Foodservice of 7% per annum over
adjacent categories.
the five year plan.
• Expand our footprint and roll out our
• Targeting strategic accounts: new
Our focus is on continuing to grow and
consumer-led in-country approach
through organic investment
platforms, menu nutritional development,
outperform in our core business, where we
limited time offers and seasonal products
enjoy leading positions, while also expanding
and M&A
• Global foundational technology
portfolio selectively deployed
with strategic customers
• Brand strategy: selective geographical
our offering in targeted adjacencies.
and sub-channel deployment, supported
• Core business: continue to outperform by
by our digital strategy, along with
enhancement of our brand portfolio
innovating to meet key consumer trends
of authentic taste, healthfulness and
convenience
• Adjacent categories: focus on growth
priorities of snacking, out-of-home
and food-to-go solutions which will
be driven by new consumption
occasions, new channels and a broader
customer base
• Achieved strong growth in our adjacent
categories, particularly in snacking through
the Cheestrings and Fridge Raiders ranges
• Fridge Raiders successfully relaunched
to a wider market and demographic
• Strong organic performance, with
volume growth of 9.5% despite a backdrop
of volatility in many developing markets
• Achieved volume growth of 5.8%, a good
• Achieved volume growth ahead of our
performance in light of the very strong
comparatives in the prior year
markets, which were challenged in the
year due to softer consumer demand
• Established first manufacturing
footprint in Russia and also completed
an acquisition in the Middle East,
establishing a platform in these
regions for future business growth
• Acquired a number of different
businesses across a range of
developing markets – China, India,
Middle East and South Africa
• Further strengthened customer
relationships by tailoring our offering
right across the menus of a number of
strategic customers
• Expanded our Foodservice presence
through internal deployment of resources
and leveraging new acquisitions with
positioning in the Foodservice channel
Kerry Group Annual Report 2018
TASTE & NUTRITION
AUTHENTIC
TASTE
STRATEGIC
PRIORITIES
FOR GROWTH
OVERVIEW
Our Authentic Taste platform is
founded on a ‘from-food-for-food’
heritage and philosophy, with a
broad range of foundational
technology capabilities in Dairy,
Savoury, Smoke & Grill, Citrus,
Tea & Coffee, Beverage and
Sweet amongst others.
The combination of Authentic
Taste and Nutrition, Wellness &
Functionality through application is
where significant value is added for
our customers, and this intersection
is the sweet spot for Kerry –
with our strategic positioning,
industry-leading capabilities and
applications expertise.
NUTRITION, WELLNESS
& FUNCTIONALITY
Our Nutrition, Wellness &
Functionality platform delivers
benefits such as natural preservation,
immunity support, digestive health,
sustainable efficiencies, fortification
and cleaner labels. These benefits
are achieved by leveraging this broad
foundational technology platform which
includes Proteins, Fibre, Enzymes,
Probiotics, Texturants, Food Protection
and Natural Preservation Solutions
amongst others.
BRANDS/
POSITIONING
FOCUS
• Enhance authentic
and natural taste
technology portfolio
• Enhance technology portfolio with
• Enhance nutrition, wellness &
technologies that deliver across
functionality technology portfolio
both strategic pillars
• Advance our leading authentic
• Drive innovation in new and
cooking taste capabilities
as part of our Chef to Shelf
programme
• Leverage authentic and
natural taste capability
to deliver world taste
experiences
fast-growing applications areas
– e.g. plant protein
•
Invest in the fundamental food
science and further expand
network of research partners
• Evaluate and explore strategic
partnership and M&A opportunities
• Further leverage industry-leading
clean label portfolio into a broader
range of applications in line with
evolving consumer demands
• Further investment in scientific
and clinically validated nutrition
programmes in conjunction with the
development of the Kerry Health and
Nutrition Institute
KEY 2018
ACHIEVEMENTS
• Further developed
• Delivered a number of innovations
• Expanded our industry-leading clean
Taste Sense™ sugar-reduction
technology with a number of
new launches
• Further leveraged our capabilities
and industry-leading technology
position in smoke & grill
• Further expanded our
foundational technology
portfolio with technology
innovation and strategic
authentic taste acquisitions
encapsulating Kerry’s unique taste
& nutrition positioning
label capability and bio-processing
technology capacity with our plant
• Acquired Fleischmann’s Vinegar
Company – further supporting
Kerry’s clean label strategy
• Agreed to acquire Ariake USA –
significantly complementing the
Group’s authentic taste and clean
label portfolio
in Rochester
• Further enhanced our existing
plant-based protein capability and
expanded with Ojah technologies
• Ganeden® probiotics & Wellmune®
immunity enhancing ingredients had
a number of new launches across a
wide range of end use markets
The Taste & Nutrition division’s leading strategic priorities for growth are Authentic
Taste combined with Nutrition, Wellness & Functionality. These are intrinsically
intertwined, as Kerry’s philosophy and ways of working focus on delivering great
tasting products, whilst enhancing their nutrition, wellness and functionality.
The Group also continues to advance our leading positions in Developing Markets
and the Foodservice channel.
The Consumer Foods division is a leader in its categories in the chilled cabinet, and is
focused on best positioning its offering in the changing marketplace to drive further growth.
+
Business Model
pages 22-23
Strategic Priorities
for Margin Expansion
page 28
DEVELOPING
MARKETS
FOODSERVICE
CONSUMER FOODS
Core
New occasions
New channels
New customers
Adjacencies
We have an excellent track record of growth
in Developing Markets as customers continue
to realise the potential of having a partner
with Kerry’s local knowledge and global
expertise and capabilities.
Kerry’s target is to continue to achieve
average volume growth in developing
markets of 10%+ per annum over the five
year plan.
Kerry has an unrivalled position as a partner
to the Foodservice channel. The breadth of
our offering and depth of capabilities allows
customers to work with Kerry right across
their menu, both in enhancing the taste
proposition and improving the nutritional
value and functionality of their products.
Kerry’s target is to achieve average volume
growth in Foodservice of 7% per annum over
the five year plan.
We are a leader in our chilled foods’
categories in the UK and Ireland.
We will continue to drive growth and
outperform our markets in our core
business by responding to key
consumer trends in meat, meals and
dairy, while also leveraging this core
expertise in developing and expanding
adjacent categories.
In our industry
Selected brands
Selected brands
we
are the
largest
+
we
are the
fastest
growing
=
2018
€1.4bn
• Expand our footprint and roll out our
consumer-led in-country approach
through organic investment
and M&A
• Global foundational technology
portfolio selectively deployed
with strategic customers
• Holistic business model selectively
deployed, aligned to local consumer
preferences
•
Invest in capabilities to continue to
deliver sustainable growth into the future
• Targeting strategic accounts: new
platforms, menu nutritional development,
limited time offers and seasonal products
• Brand strategy: selective geographical
and sub-channel deployment, supported
by our digital strategy, along with
enhancement of our brand portfolio
• New and emerging sub-channels: e.g.
convenience and health
• Further embed Kerry’s cross functional
teams within our customers’ innovation
and culinary development processes
Our focus is on continuing to grow and
outperform in our core business, where we
enjoy leading positions, while also expanding
our offering in targeted adjacencies.
• Core business: continue to outperform by
innovating to meet key consumer trends
of authentic taste, healthfulness and
convenience
• Adjacent categories: focus on growth
priorities of snacking, out-of-home
and food-to-go solutions which will
be driven by new consumption
occasions, new channels and a broader
customer base
• Strong organic performance, with
volume growth of 9.5% despite a backdrop
of volatility in many developing markets
• Achieved volume growth of 5.8%, a good
performance in light of the very strong
comparatives in the prior year
• Achieved volume growth ahead of our
markets, which were challenged in the
year due to softer consumer demand
• Established first manufacturing
footprint in Russia and also completed
an acquisition in the Middle East,
establishing a platform in these
regions for future business growth
• Acquired a number of different
businesses across a range of
developing markets – China, India,
Middle East and South Africa
• Further strengthened customer
relationships by tailoring our offering
right across the menus of a number of
strategic customers
• Expanded our Foodservice presence
through internal deployment of resources
and leveraging new acquisitions with
positioning in the Foodservice channel
• Achieved strong growth in our adjacent
categories, particularly in snacking through
the Cheestrings and Fridge Raiders ranges
• Fridge Raiders successfully relaunched
to a wider market and demographic
27
Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements
STRATEGY
& FINANCIAL
TARGETS
STRATEGIC
PRIORITIES FOR
MARGIN EXPANSION
Operating
Operating
Operating
Operating
Leverage
Leverage
Leverage
Leverage
Portfolio
Portfolio
Portfolio
Portfolio
Evolution
Evolution
Evolution
Evolution
KerryExcel
KerryExcel
KerryExcel
KerryExcel
Savings
Savings
Savings
Savings
KerryExcel
KerryExcel
KerryExcel
KerryExcel
Investment
Investment
Investment
Investment
OPTIMISE LEVERAGE
OPTIMISE LEVERAGE
OPTIMISE LEVERAGE
OPTIMISE LEVERAGE
OPTIMISE LEVERAGE
• Leverage 1 Kerry platform
• Leverage 1 Kerry platform
• Leverage 1 Kerry platform
• Leverage 1 Kerry platform
Leverage 1 Kerry platform
• Leverage routes to market
• Leverage routes to market
• Leverage routes to market
• Leverage routes to market
Leverage routes to market
• Leverage customer centres
• Leverage customer centres
• Leverage customer centres
• Leverage customer centres
Leverage customer centres
• Leverage footprint
• Leverage footprint
• Leverage footprint
• Leverage footprint
Leverage footprint
DIFFERENTIATE
DIFFERENTIATE
DIFFERENTIATE
DIFFERENTIATE
DIFFERENTIATE
• New foundation technologies
• New foundation technologies
• New foundation technologies
• New foundation technologies
New foundational technologies
• New channels / geographies
• New channels / geographies
• New channels / geographies
• New channels / geographies
• New markets
• New markets
• New markets
• New markets
New markets
• Manage churn with agility
• Manage churn with agility
• Manage churn with agility
• Manage churn with agility
New channels/geographies
DRIVE EFFICIENCY
DRIVE EFFICIENCY
DRIVE EFFICIENCY
DRIVE EFFICIENCY
DRIVE EFFICIENCY
• Manufacturing excellence
• Manufacturing excellence
• Manufacturing excellence
• Manufacturing excellence
Manufacturing excellence
• Supply chain excellence
• Supply chain excellence
• Supply chain excellence
• Supply chain excellence
• Commercial excellence
• Commercial excellence
• Commercial excellence
• Commercial excellence
Supply chain excellence
• Service excellence
• Service excellence
• Service excellence
• Service excellence
Commercial excellence
RE-INVEST TO GROW
RE-INVEST TO GROW
RE-INVEST TO GROW
RE-INVEST TO GROW
RE-INVEST TO GROW
• Fragmentation response
• Fragmentation response
• Fragmentation response
• Fragmentation response
Fragmentation response
• Localisation of footprint
• Localisation of footprint
• Localisation of footprint
• Localisation of footprint
Increased R&D
Increased R&D
•
Increased R&D
•
Increased R&D
•
Localisation of footprint
•
• Kerryconnect/Business Services
• Kerryconnect/Business Services
• Kerryconnect/Business Services
• Kerryconnect/Business Services
Increased R&D
Manage churn with agility
Service excellence
Kerryconnect/Business
Services
Medium Term
Financial Targets
The 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. The metrics
of return on average capital employed and cash
conversion represent a balanced assessment of
performance over time.
These return metrics ensure that there
is an appropriate balance between growth
and return.
We believe that the delivery of these financial
targets should underpin a Total Shareholder
Return outperformance relative to our peers.
Strategic
Medium Term
Targets
On average over
life of plan
28
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.
Above assumes 2% above market growth rates
Constant currency adjusted EPS* +10% p.a.
Returns
ROACE* 12%+ Cash conversion >80%
Relative Total Shareholder Return – outperforming peers
Cash conversion is expressed as a percentage of adjusted earnings after tax.
*Adjusted EPS and ROACE are calculated before brand related intangible asset amortisation and non-trading items
(net of related tax).
The medium term targets above for the period commencing FY2018 were outlined at the Group’s Capital Markets Day
in October 2017.
Full definitions can be found on pages 30-31.
Kerry Group Annual Report 2018 STRATEGIC
ADVANTAGE
We have a long history of sustained profitable growth.
Group strategy will continue to be achieved through
the commitment and expertise of our people.
Technology
Leader
Market
Leader
Proven
Success
Unrivalled technology portfolio
Deep science and research expertise
aligned to global network of partners
Unparalleled breadth of product
process expertise
Unique expertise on technology
integration for solution delivery
Industry-leading application
& culinary expertise
Best-in-industry infrastructure
of global and local technology
& application centres
Global Leader in Taste & Nutrition
to Food & Beverage Industry
32 years of consistent 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 dividend per share
Largest Taste & Nutrition business
in Developing Markets
Global Leader in Taste &
Nutrition solutions into Meat/
Meat Alternative market
Global Leader in Clean Label
solutions (in particular natural
preservation & natural taste)
In 5 of the world’s top 10
blockbuster drugs
Leader in our chilled foods’
categories in UK and Ireland
Growth
Potential
People
Sustainable
Industry-leading business model
Unique Taste & Nutrition positioning
with long runway of technology
deployment opportunities
Winning across all customer
segments and channels
Further strong growth
potential in developing markets
Extensive global footprint
platform to meet local needs
Proven consolidator
Proven leadership and
management capability
Ambitious, results-driven
and collaborative culture
Investment in leadership,
professional and technical
capabilities for the future
Opportunities for personal
growth and career fulfilment
Global mobility programme
Diverse and inclusive teams
Reward & recognition focus
Natural, community based heritage
Investing for a sustainable future
Strong delivery against targets
Milestones linked to performance
management
Innovative health & wellbeing
programmes supporting
communities globally
CAGR = Compound Annual Growth Rate.
Kerry Group Annual Report 2018
29
Strategic ReportDirectors’ ReportFinancial Statements FINANCIAL KEY
PERFORMANCE
INDICATORS
The metrics outlined below are the
important measurement indicators of
Group performance in meeting its financial
objectives. The Group’s financial objective
is to maximise shareholder return by
delivering on the targets of growth in
business profitability and meeting return
on investment hurdles.
The Group also has a range of non-financial
metrics that are used to measure performance
with customers, suppliers, community,
environmental targets and employee
engagement. These non-financial metrics
are shown in the Sustainability Report
and complement the financial metrics
detailed below.
Key Financial
Performance
Metric
Definition1
GROWTH
Volume Growth
3.5%
Trading Margin Expansion
+0bps
Volume growth represents sales growth
year-on-year, excluding pass-through
pricing on raw material costs, currency
impacts, acquisitions (net of disposals)
and rationalisation volumes.
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 trading profit
expressed as a percentage of revenue.
Performance
Commentary
Direct from Excel
Direct from Excel
Direct from Excel
The Group achieved continuing volume
growth in 2018 of 3.5%, which was a
strong performance relative to the
marketplace.
Volume Growth
Volume Growth
2014
Volume Growth
2014
2014
The Group maintained its trading
margin of 12.2% in 2018. This represented
good underlying growth being offset
by sterling related challenges arising
in the Consumer Foods business,
Trading Margin
Trading Margin
increased business investments and
Expansion
Kerryconnect spend.
Expansion
Trading Margin
Expansion
Constant Currency
Adjusted EPS Growth
+8.6%
Constant currency adjusted EPS
growth represents adjusted EPS in the
current year compared to adjusted
EPS achieved in the prior year
calculated on a constant currency
basis. Adjusted EPS is considered
more reflective of the Group’s
underlying trading performance than
basic EPS.
The Group achieved constant
currency adjusted EPS growth of 8.6%
in the year reflecting a consistent solid
performance.
EPS
EPS
EPS
This measure is defined as profit after
Cash conversion is defined as free cash
TSR represents the change in the capital value
flow, expressed as a percentage of adjusted
of Kerry Group shares plus dividends reinvested.
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.
earnings after tax.
The Group achieved ROACE of 12.0%
The Group achieved Cash Conversion of
in 2018. This was a strong performance,
72% in 2018. This was impacted by the
The Group achieved a TSR of (6.8%) in 2018,
which outperformed the mean and median of
as it was impacted by the timing of
investments made in the year and
foreign currency movements.
ROACE
ROACE
ROACE
level of planned capital investment for growth
Kerry’s peer set. This result was also ahead of the
and working capital due to revenue growth
MSCI Food, Beverage & Tobacco producers index,
and investment for the rollout of Kerryconnect
in the Americas.
Cash
Cash
Cash
as global markets were affected by a number of
factors including uncertainty around global trade
TSR
TSR
TSR
and Brexit negotiations.
The Group has achieved compound growth of
76% in TSR over the course of the last five years.
Historical
Performance
4.3%
3.8%
3.6%
3.8%
3.8%
3.6%
3.5%
4.3%
3.6%
4.3%
3.5%
+60bps +40bps
11.1%
3.5%
11.5%
2.4%
2.4%
2.4%
+70bps
+60bps +40bps
12.2%
11.1%
+0bps
+0bps
+70bps
+60bps +40bps
12.2%
12.2%
11.5%
12.2%
11.5%
11.1%
+70bps
+0bps
+0bps
+0bps
+0bps
12.2%
12.2%
12.2%
12.2%
12.2%
9.1%
278.9
3.4%
301.9
12.3%
9.1%
323.4
278.9
9.4%
3.4%
9.1%
341.2
301.9
278.9
8.6%
12.3%
3.4%
353.4
323.4
301.9
9.4%
12.3%
341.2
323.4
8.6%
9.4%
8.6%
353.4
341.2
353.4
14.4%
13.6%
14.4%
12.9%
14.4%
13.6%
13.0%
13.6%
12.9%
12.0%
12.9%
13.0%
13.0%
12.0%
12.0%
85%
453
62%
303
100%
570
100%
83%
85%
72%
85%
570
501
453
62%
303
62%
303
453
447
100%
83%
570
501
83%
72%
501
447
72%
447
39%
89%
39%
(7%)
89%
76%
(7%)
76%
(7%)
76%
35%
53%
(10%)
(10%)
37%
37%
39%
89%
35%
53%
14%
14%
35%
53%
(10%)
37%
14%
14%
14%
14%
2014
2015
2016
2014
2017
2014
2015
2018
2015
2016
2016
2017
2017
2018
2018
2014
2015
2016
2014
2014
2017
2015
2015
2016
2018
2016
2017
2017
2018
2018
2014
2015
2016
2014
2014
2017
2015
2015
2016
2018
2016
2017
2017
2018
2018
2014
2015
2016
2014
2017
2014
2015
2018
2015
2016
2016
2017
2017
2018
2018
2014
2015
2016
2014
2017
2014
2015
2018
2015
2016
2016
2017
2017
2018
2018
2014
2015
2016
2014
2014
2017
2015
2015
2018
2016
2016
2017
2017
2018
2018
ROACE %
ROACE %
ROACE %
Cash Conversion %
Cash Conversion %
Cash Conversion %
Free Cash Flow
Free Cash Flow
Free Cash Flow
Annual TSR Growth
Annual TSR Growth
Annual TSR Growth
CompoundTSR Growth
CompoundTSR Growth
CompoundTSR Growth
ROACE is a key measure of the return
Cash conversion is an important metric as it
TSR is an important indicator of how
the Group achieves on its investment in
measures how much of the Group’s adjusted
successful the Group has been in terms
capital expenditure projects, acquisitions
earnings is converted into cash.
of shareholder value creation.
ROACE is a performance metric for the
Cash conversion is a performance metric
TSR is a performance metric for the
long term incentive plan.
for the short term incentive plan.
long term incentive plan.
Volume Growth %
Volume Growth %
Volume Growth %
Trading Margin Expansion
Trading Margin %
Trading Margin Expansion
Trading Margin Expansion
Trading Margin %
Trading Margin %
Constant Currency Adjusted EPS Growth
Adjusted EPS (cent)
Constant Currency Adjusted EPS Growth
Adjusted EPS (cent)
Constant Currency Adjusted EPS Growth
Adjusted EPS (cent)
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.
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.
EPS growth is a key performance
metric as it encompasses the
components of growth important to
the Group’s stakeholders. Volume
growth and margin expansion are the
two key drivers of EPS growth.
and other strategic investments,
expressed as a percentage of what
resources are available to the Group.
Link to
Remuneration
Volume growth is a metric in the short
term incentive plan and is a key driver of
adjusted EPS growth, which is a metric
for the long term incentive plan.
Trading margin expansion is a metric in
the short term incentive plan and is a key
driver of adjusted EPS growth, which is a
metric for the long term incentive plan.
Constant currency adjusted EPS
growth is a performance metric for the
long term incentive plan.
¹ These are non-IFRS measures or Alternative Performance Measures. Definitions, calculations and reconciliations for
these are set out above and within the Supplementary Information section – Financial Definitions on pages 203-206.
30
Raw data
Raw data
Raw data
4
5
3
2
1
0
5
4
3
2
1
0
5
4
3
2
1
0
15
12
9
6
3
0
15
12
9
6
3
0
15
12
9
6
3
0
400
350
300
250
200
150
100
50
0
400
350
300
250
200
150
100
50
0
400
350
300
250
200
150
100
50
0
15
12
9
6
3
0
15
12
9
6
3
0
15
12
9
6
3
0
100
80
60
40
20
0
100
100
100
100
100
80
60
40
20
0
80
60
40
20
0
80
60
40
20
0
80
60
40
20
0
80
60
40
20
0
Kerry Group Annual Report 2018 Key Financial
Performance
Metric
Definition1
Volume growth represents sales growth
Trading margin expansion represents
Constant currency adjusted EPS
year-on-year, excluding pass-through
the change in trading margin in the
growth represents adjusted EPS in the
pricing on raw material costs, currency
impacts, acquisitions (net of disposals)
current year compared to trading
margin achieved in the prior year.
current year compared to adjusted
EPS achieved in the prior year
and rationalisation volumes.
Trading margin represents trading profit
calculated on a constant currency
expressed as a percentage of revenue.
basis. Adjusted EPS is considered
more reflective of the Group’s
underlying trading performance than
basic EPS.
Performance
The Group achieved continuing volume
The Group maintained its trading
The Group achieved constant
Commentary
Direct from Excel
Direct from Excel
Direct from Excel
growth in 2018 of 3.5%, which was a
strong performance relative to the
margin of 12.2% in 2018. This represented
currency adjusted EPS growth of 8.6%
good underlying growth being offset
by sterling related challenges arising
in the year reflecting a consistent solid
performance.
marketplace.
Volume Growth
Volume Growth
Volume Growth
2014
2014
2014
in the Consumer Foods business,
Trading Margin
Trading Margin
Trading Margin
increased business investments and
Expansion
Expansion
Kerryconnect spend.
Expansion
EPS
EPS
EPS
Return on Average Capital
Employed (ROACE)
12.0%
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.
The Group achieved ROACE of 12.0%
in 2018. This was a strong performance,
as it was impacted by the timing of
investments made in the year and
foreign currency movements.
ROACE
ROACE
ROACE
Business strategy is set by the Board of
Directors and all Kerry employees work
towards achieving these goals.
Performance evaluation takes account of all
key performance indicators. Remuneration is
directly linked with performance versus targets.
+
Non-Financial KPIs
are detailed in our
Sustainability Review
page 51
Share
Price
Dividend
Total
Shareholder
Return
Drivers of Shareholder Return
Volume
Growth
Margin
Expansion
Growth
EPS
Return
ROACE
Cash
Conversion
RETURN
Cash Conversion
72%
Total Shareholder Return (TSR)
(6.8%)
Cash conversion is defined as free cash
flow, expressed as a percentage of adjusted
earnings after tax.
TSR represents the change in the capital value
of Kerry Group shares plus dividends reinvested.
The Group achieved Cash Conversion of
72% in 2018. This was impacted by the
level of planned capital investment for growth
and working capital due to revenue growth
and investment for the rollout of Kerryconnect
in the Americas.
Cash
Cash
Cash
100%
100%
100%
The Group achieved a TSR of (6.8%) in 2018,
which outperformed the mean and median of
Kerry’s peer set. This result was also ahead of the
MSCI Food, Beverage & Tobacco producers index,
as global markets were affected by a number of
factors including uncertainty around global trade
and Brexit negotiations.
TSR
TSR
TSR
The Group has achieved compound growth of
76% in TSR over the course of the last five years.
Historical
Performance
2.4%
2.4%
2.4%
4.3%
4.3%
4.3%
3.8%
3.8%
3.8%
3.6%
3.6%
3.6%
3.5%
3.5%
3.5%
+60bps +40bps
+60bps +40bps
+60bps +40bps
+70bps
+70bps
+0bps
+0bps
+70bps
+0bps
+0bps
+0bps
+0bps
11.1%
11.1%
11.5%
11.5%
11.1%
11.5%
12.2%
12.2%
12.2%
12.2%
12.2%
12.2%
12.2%
12.2%
12.2%
9.1%
9.1%
278.9
278.9
3.4%
3.4%
9.1%
301.9
301.9
278.9
12.3%
12.3%
3.4%
323.4
323.4
301.9
9.4%
9.4%
12.3%
8.6%
8.6%
9.4%
341.2
341.2
323.4
353.4
353.4
341.2
8.6%
353.4
14.4%
14.4%
14.4%
13.6%
13.6%
13.6%
12.9%
12.9%
13.0%
13.0%
12.9%
13.0%
12.0%
12.0%
12.0%
85%
85%
570
570
62%
62%
303
303
453
453
62%
303
83%
83%
85%
501
501
453
570
72%
72%
447
447
83%
501
72%
447
35%
35%
53%
53%
2014
2014
2015
2015
2014
2016
2016
2015
2017
2017
2016
2018
2018
2017
2018
2014
2014
2015
2015
2014
2016
2016
2015
2017
2017
2016
2018
2018
2017
2018
2014
2014
2015
2015
2014
2016
2016
2015
2017
2017
2016
2018
2018
2017
2018
2014
2014
2015
2015
2014
2016
2016
2015
2017
2017
2016
2018
2018
2017
2018
2014
2014
2015
2015
2014
2016
2016
2015
2017
2017
2016
2018
2018
2017
14%
14%
14%
14%
2014
2014
2018
39%
39%
89%
89%
39%
(7%)
(7%)
89%
35%
76%
76%
(10%)
(10%)
53%
37%
37%
14%
14%
(10%)
37%
2015
2015
2014
2016
2016
2015
2017
2017
2016
2018
2018
2017
Volume Growth %
Volume Growth %
Volume Growth %
Trading Margin Expansion
Trading Margin Expansion
Trading Margin Expansion
Trading Margin %
Trading Margin %
Trading Margin %
Constant Currency Adjusted EPS Growth
Constant Currency Adjusted EPS Growth
Constant Currency Adjusted EPS Growth
Adjusted EPS (cent)
Adjusted EPS (cent)
Adjusted EPS (cent)
ROACE %
ROACE %
ROACE %
Cash Conversion %
Cash Conversion %
Free Cash Flow
Free Cash Flow
Cash Conversion %
Free Cash Flow
Annual TSR Growth
Annual TSR Growth
CompoundTSR Growth
CompoundTSR Growth
Annual TSR Growth
CompoundTSR Growth
Strategic
Linkage
Volume growth is an important
Trading margin expansion is a key
EPS growth is a key performance
metric as it is seen as the key driver of
measure of profitability. It demonstrates
metric as it encompasses the
top-line business improvement. This
is used as the key revenue metric, as
improvement in the product mix being
components of growth important to
sold and also improvement in the
the Group’s stakeholders. Volume
Kerry operates a pass-through pricing
operating efficiency of the business.
growth and margin expansion are the
two key drivers of EPS growth.
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.
Cash conversion is an important metric as it
measures how much of the Group’s adjusted
earnings is converted into cash.
TSR is an important indicator of how
successful the Group has been in terms
of shareholder value creation.
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.
Link to
Remuneration
Volume growth is a metric in the short
Trading margin expansion is a metric in
Constant currency adjusted EPS
term incentive plan and is a key driver of
the short term incentive plan and is a key
growth is a performance metric for the
adjusted EPS growth, which is a metric
driver of adjusted EPS growth, which is a
long term incentive plan.
for the long term incentive plan.
metric for the long term incentive plan.
ROACE is a performance metric for the
long term incentive plan.
Cash conversion is a performance metric
for the short term incentive plan.
TSR is a performance metric for the
long term incentive plan.
Raw data
Raw data
Raw data
5
5
4
4
3
3
2
2
1
1
0
0
5
4
3
2
1
0
15
15
12
12
9
9
6
6
3
3
0
0
15
12
9
6
3
0
400
400
350
350
300
300
250
250
200
200
150
150
100
100
50
50
0
0
400
350
300
250
200
150
100
50
0
15
15
12
12
9
9
6
6
3
3
0
0
15
12
9
6
3
0
100
100
100
100
100
100
80
80
60
60
40
40
20
20
0
0
80
60
40
20
0
80
80
60
60
40
40
20
20
0
0
80
60
40
20
0
(7%)
76%
2018
31
Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements FINANCIAL
REVIEW
Delivering another
year of solid
performance
+
Group Key Performance
Indicators
pages 30-31
Financial Statements
pages 138-202
The Group delivered another year of solid performance against
a backdrop of economic and market uncertainty, combined
with increased marketplace fragmentation and industry
changes. Adjusted EPS growth in constant currency was
8.6% (2017: 9.4%). This was achieved through consistent
organic growth ahead of our markets, underlying margin
progression, together with the contribution from the
integration of acquired businesses.
The Financial Review provides an overview of the Group’s financial
performance for the year ended 31 December 2018 and of the
Group’s financial position at that date.
The Key Financial Performance Indicators outlined below are used
to track business and operational performance and help the Group
continue to drive value creation. The Group has a disciplined
financial approach of targeting continued growth while meeting
its return on investment objectives. This combination of growth
and return ensures the Group’s financial objective of maximising
shareholder return is achieved.
Marguerite Larkin
Chief Financial Officer
A combination
of Growth
and Return
32
GROWTH
RETURN
Group
Volume Growth
+3.5%
Outperforming
our market
Group
Trading Margin
12.2%
Good underlying
progression
ROACE*
Free Cash Flow
+12.0%
€447m
On target
72% conversion2
Constant Currency
Adjusted EPS*
+8.6%
Basic EPS
(8.3%)1
Increased
Total Dividend
+12.0%
Final dividend of
49.2 cent proposed
Definitions, calculations and reconciliations for these are set out within the Key Performance Indicators
section and within the Supplementary Information section – Financial Definitions on pages 203-206.
* Before brand related intangible asset amortisation and non-trading items (net of related tax).
¹ Basic EPS in the prior year included effect of a one-off deferred tax credit arising from the
US tax reform changes.
² Expressed as a percentage of adjusted earnings after tax.
Kerry Group Annual Report 2018
Analysis of Results
Revenue
Trading profit
Trading margin
Computer software amortisation
Finance costs (net)
Adjusted earnings before taxation
%
change
3.1%
3.1%
Income taxes (excluding non-trading items)
Adjusted earnings after taxation
3.7%
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
Impact of retranslating prior year adjusted earnings per
share at current year average exchange rates
Adjusted* EPS in constant currency
(8.3%)
3.6%
8.6%
* Before brand related intangible asset amortisation and non-trading items (net of related tax).
2018
€’m
6,607.6
805.6
12.2%
(25.0)
(67.0)
713.6
(89.2)
624.4
(28.8)
(55.1)
540.5
EPS
Cent
305.9
16.3
31.2
353.4
-
353.4
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
(15.8)
325.4
Revenue
Group reported revenue increased by 3.1% to €6.6 billion (2017: €6.4 billion), including volume growth of 3.5%, pricing decrease of
0.5% related to raw material deflation passed through to customers, an adverse transaction currency impact of 0.1%, an adverse
translation currency impact of 3.4% and contribution from business acquisitions of 3.6%.
2017: Group reported revenue +4.5%, volume growth +4.3%, pricing +2.0%, transaction currency (0.2%), translation currency (2.4%),
acquisitions +0.8%.
Taste & Nutrition reported revenue increased by 3.7% to €5.4 billion (2017: €5.2 billion), including volume growth of 4.1%, pricing
decrease of 0.5% related to raw material deflation pass through, an adverse transaction currency impact of 0.1%, an adverse
translation currency impact of 4.0% and contribution from business acquisitions of 4.2%.
2017: Taste & Nutrition reported revenue +5.7%, volume growth +4.7%, pricing +2.0%, translation currency (1.9%), acquisitions +0.9%.
Consumer Foods reported revenue increased by 0.6% to €1.3 billion (2017: €1.3 billion), including volume growth of 1.1%, pricing
decrease of 0.4% related to raw material deflation pass through, an adverse transaction currency impact of 0.3%, an adverse
translation currency impact of 0.6% and contribution from business acquisitions of 0.8%.
2017: Consumer Foods reported revenue (0.1%), volume growth +2.4%, pricing +2.0%, transaction currency (0.9%), translation
currency (3.8%), acquisitions +0.2%.
33
Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements Trading Profit & Margin
Group trading profit increased by 3.1% to €805.6m (2017: €781.3m). Group trading profit margin was maintained at
12.2%. Underlying margin expansion attributable to operating leverage, portfolio enhancement, efficiencies and the
effect of lower pricing were offset by transaction currency headwinds and increased Kerryconnect investment due to
the rollout in LATAM and planning for North America.
Trading profit margin in Taste & Nutrition increased by 20 bps to 15.1% (2017: 14.9%), due to the benefits of operating
leverage, portfolio enhancement, efficiencies and the effect from lower pricing, partially offset by foreign currency
headwinds. Trading profit margin in Consumer Foods decreased by 60 bps to 7.5% (2017: 8.1%) due to significant
transaction currency headwinds, partly offset by underlying margin expansion of 10 bps.
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 42-48.
Computer Software Amortisation
Computer software amortisation increased to €25.0m (2017: €24.3m) 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.
Brand Related Intangible Asset Amortisation
Brand related intangible asset amortisation increased to €28.8m (2017: €23.6m) primarily from recent acquisitions.
Finance Costs (net)
Finance costs (net) for the year increased by €1.4m to €67.0m (2017: €65.6m) as acquisition expenditure was partially
offset by cash generation and a reduction in pension interest. The Group’s average interest rate for the year was 3.8%
(2017: 3.5%).
Taxation
The tax charge for the year before non-trading items was €89.2m (2017: €89.5m) representing an effective tax rate of
13.0% (2017: 13.4%). The reduction in the effective tax rate was due to changes in tax rates in a number of jurisdictions.
Acquisitions & Joint Ventures
During the year the Group completed 10 acquisitions at a total consideration of €502.2m and an investment in a joint
venture of €15.6m These investments were aligned to the Group’s strategic priorities for growth, bringing additional taste
and nutritional technologies, expanding our presence in developing markets and adding to our foodservice offering.
The Group also announced it had reached agreement for two further strategic acquisitions for an expected total
consideration of €325.0m, subject to regulatory approval and customary closing conditions. The acquisition of
Southeastern Mills’ North American coatings and seasonings business (SEM) was completed after the year end. The
Group also expects to complete the acquisition of Ariake USA Inc. – a leading producer of natural clean label savoury
taste solutions by the end of Q2 2019.
Non-Trading Items
During the year the Group incurred a non-trading charge of €55.1m (2017: income of €10.2m) net of tax. The charge in
the year related to costs associated with the integration of recent acquisitions and the completion of the Brexit Currency
Mitigation Programme, where good progress was made in reducing the Group’s sterling transaction exposure. The prior year
non-trading income arose primarily due to the one-off deferred tax credit arising from the US tax reform changes.
Adjusted EPS in Constant Currency
Adjusted EPS in constant currency increased by 8.6% in the year (2017: +9.4%). This was achieved through volume
growth ahead of our markets, underlying margin progression, together with the contribution from the effective
integration of acquired businesses. Adjusted EPS increased by 3.6% to 353.4 cent (2017: 341.2 cent) after reflecting
the adverse translation currency impact of 5.0%.
Basic EPS
Basic EPS decreased by 8.3% to 305.9 cent (2017: 333.6 cent) primarily due to the effect in 2017 of a one-off deferred
tax credit arising from US tax reform changes. Basic EPS is calculated after accounting for brand related intangible
asset amortisation of 16.3 cent (2017: 13.4 cent) and non-trading item charge of 31.2 cent net of related tax (2017: net
credit of 5.8 cent).
34
Kerry Group Annual Report 2018 Return on Average Capital Employed
The Group achieved ROACE of 12.0% (2017: 13.0%) which was in line with the Group’s strategic target of 12.0%. The
2018 ROACE was adversely impacted by the timing of investments made in the year and foreign currency movements.
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.
Average Rates
Closing Rates
Australian Dollar
Brazilian Real
British Pound Sterling
Chinese Yuan Renminbi
Mexican Peso
US Dollar
2018
1.58
4.34
0.89
7.82
22.72
1.18
2017
1.47
3.62
0.88
7.62
21.30
1.13
2018
1.62
4.44
0.90
7.85
22.50
1.14
2017
1.53
3.96
0.89
7.80
23.72
1.20
Dividends
The Board has proposed a final dividend of 49.2 cent per A ordinary share, payable on 10 May 2019 to shareholders
registered on the record date of 12 April 2019. When combined with the interim dividend of 21.0 cent per share, the total
dividend for the year amounts to 70.2 cent per share (2017: 62.7 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 32 years as a listed
company, the Group has grown its dividend at a compound rate of 16.9%. The Group’s aim is to have double digit
dividend growth each year.
Balance Sheet
A summary balance sheet as at 31 December is provided below:
Property, plant & equipment
Intangible assets
Other non-current assets
Current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
2018
€’m
1,767.0
4,095.6
189.7
2,271.4
8,323.7
1,650.8
2,638.5
4,289.3
4,034.4
4,034.4
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
Property, Plant & Equipment
Property, plant and equipment increased by €237.4m to €1,767.0m (2017: €1,529.6m) primarily due to capital
expenditure in the year offset by depreciation. Net capital expenditure in the year amounted to €285.5m (2017:
€297.3m). This planned level of capital investment supports our growth initiatives, and included expanding our
industry-leading clean label capability at our facility in Rochester, MI, USA; enhancing our savoury taste centre of
excellence in Clark, NJ, USA; and expanding our facility in Nantong, China.
35
Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements
Intangible Assets
Intangible assets increased by €448.9m to €4,095.6m (2017: €3,646.7m) as additions of €478.6m primarily relating
to the 10 businesses acquired during the year were partially offset by foreign exchange movements and the annual
amortisation charge.
Current Assets
Current assets increased by €239.7m to €2,271.4m (2017: €2,031.7m), primarily due to an increase in cash on hand
at 31 December 2018.
Retirement Benefits
At the balance sheet date, the net deficit for defined benefit schemes (after deferred tax) was €44.0m (2017: €102.0m).
The decrease in the net deficit arises mainly due to favourable movement in discount rates, inflation rates and the liability
management programme. The net deficit expressed as a percentage of market capitalisation at 31 December 2018 was
0.3% (2017: 0.6%).
Shareholders’ Equity
Shareholders’ equity increased by €461.2m to €4,034.4m (2017: €3,573.2m), 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 142.
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 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 2018 the Group achieved free cash flow of €446.5m
(2017: €501.3m).
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 conversion1
1 Cash conversion is free cash flow expressed as a percentage of adjusted earnings after tax.
36
2018
€’m
805.6
134.1
(57.1)
(40.0)
842.6
(64.5)
(46.1)
2017
€’m
781.3
134.0
93.5
(95.3)
913.5
(60.2)
(54.7)
(285.5)
(297.3)
446.5
72%
501.3
83%
Kerry Group Annual Report 2018 Net Debt
Net debt at the end of the year was €1,623.5m (2017: €1,341.7m) reflecting the cashflow generated offset by
investment in acquisitions and the dividends paid in the year. 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 in net debt resulting from cash flows
Fair value movement on interest rate swaps
Exchange translation adjustment on net debt
(Increase) in net debt in the year
Net debt at beginning of year
Net debt at end of year
2018
€’m
446.5
(503.2)
(21.7)
(59.8)
(114.4)
0.5
(252.1)
(2.6)
(27.1)
(281.8)
2017
€’m
501.3
(367.9)
(84.4)
(34.0)
(102.2)
(8.8)
(96.0)
2.8
75.2
(18.0)
(1,341.7)
(1,323.7)
(1,623.5)
(1,341.7)
Exchange impact on net debt
The exchange rate translation adjustment of €27.1m results primarily from borrowings denominated in US dollar
translated at a year end rate of $1.14 versus a rate of $1.20 in 2017.
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)
2018
€’m
400.0
(142.2)
(1,082.8)
(798.5)
(1,623.5)
4.8
2017
€’m
299.2
-
(226.9)
(1,414.0)
(1,341.7)
6.0
37
Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements 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 1.7 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:
Net debt: EBITDA*
EBITDA: Net interest
Covenant
Maximum 3.5
Minimum 4.75
2018
Times
1.7
14.7
2017
Times
1.4
16.2
Net debt: EBITDA*
EBITDA: Net interest*
3.5x
3.0x
2.5x
2.0x
1.5x
1.0x
2014
2015
2016
2017
2018
19.0x
17.0x
15.0x
13.0x
11.0x
9.0x
7.0x
5.0x
2014
2015
2016
2017
2018
* Calculated in accordance with lenders’ facility agreements which take account of adjustments as outlined on page 205.
Credit Facilities
Undrawn committed facilities at the end of the year were €750.0m (2017: €1,100.0m) while undrawn standby facilities
were €320.0m (2017: €323.0m).
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 €78.05 to €98.85 during the year. The share price at 31 December 2018 was
€86.50 (2017: €93.50) giving a market capitalisation of €15.2 billion (2017: €16.5 billion). Total Shareholder Return for 2018
was -6.8% (2017: +38.6%) reflecting a general decline in global equity markets during the last quarter in 2018 arising from
uncertainties due to global trade and Brexit.
Financial Risk Management
Within the Group risk management framework as described in the Risk Report on page 73, 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 73-86 and in note 24 to the consolidated financial statements.
Summary and Financial Outlook
The Group delivered another year of solid performance in 2018 generating revenue of €6.6 billion, trading profit of
€806m and free cash flow of €447m, against a backdrop of economic and market uncertainty, combined with increased
marketplace fragmentation and industry changes. At year end the balance sheet is also in a good position and with a net
debt: EBITDA ratio of 1.7 times, the Group has sufficient headroom to support the future growth plans of the organisation.
The Group looks forward to further financial growth and business development in the year ahead.
38
Kerry Group Annual Report 2018
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
2009
€’m
2010
€’m
2011
€’m
**2012
€’m
2013
€’m
2014
€’m
2015
€’m
2016
€’m
2017
€’m
2018
€’m
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
6,607.6
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
805.6
(25.0)
(67.0)
713.6
(89.2)
624.4
(28.8)
(55.1)
0.1
(135.5)
(352.2)
201.2
324.2
360.7
260.7
84.4
479.9
525.4
533.1
588.5
540.5
Adjusted EPS (cent)*
163.9
192.1
213.4
234.0
257.9
278.9
301.9
323.4
341.2
353.4
* Adjusted EPS, adjusted earnings before taxation and adjusted earnings after taxation are calculated before brand related intangible asset amortisation and
non-trading items (net of related tax) and are considered more reflective of the Group’s underlying trading performance. Growth in Adjusted EPS on a
constancy currency basis is disclosed on page 204.
** 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.
39
Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements Pictured: Kerry Chefs Richard Troman, Donal Lock, Ciara Mulkerrins, Ciaran Ryan and Rian Morris.
CREATE
40
Kerry Group Annual Report 2018
Leveraging our ‘from-food-for-food’
heritage, we excel at creating
authentic taste and improving
nutrition to help customers grow
and win in today’s local
consumer-driven marketplace.
BUSINESS
REVIEW
Kerry Group Annual Report 2018
41
Strategic ReportDirectors’ ReportFinancial Statements BUSINESS
REVIEW
TASTE &
NUTRITION
Kerry’s business model and the application of our leading taste and
nutrition technology portfolio continue to drive significant value
for our customers as they seek to meet rapidly changing consumer
demands and increase speed to market.
The division achieved good growth across an increasingly diverse customer
base. Developing markets delivered strong volume growth of 9.5%, with
APMEA the main driver. Foodservice delivered a good performance of 5.8%
volume growth, particularly considering the strong comparatives in 2017.
Reported revenue increased by 3.7% to €5,351m, as volume growth and the
contribution from business acquisitions were partially offset by significant
translation currency headwinds. Trading profit grew by 5.0% to €805m,
reflecting a 20 basis points improvement in trading margin to 15.1%.
Kerry’s taste technologies recorded a strong performance across all
regions, with TasteSense™ technology and natural extracts being key
drivers of growth, as consumer demands for reduced sugar and authentic
taste were met through innovations across all categories. Kerry’s leading
clean label technologies continued to perform well, with its broad protein
portfolio, nutritional bioactives, enzyme technologies, food protection
and natural preservation solutions all delivering good growth in the
year. An increasing number of innovations brought to market combined
technologies from both Kerry’s authentic taste and nutrition portfolios,
as Kerry’s Technology & Innovation Centres supported customers from
ideation all the way through to launch.
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.
Revenue
2018
€5,351m
Volume Growth
4.1%
Trading Margin
2018
15.1%
Growth
+20bps
42
Kerry Group Annual Report 2018
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
Americas region
High levels of product churn
continued across the marketplace,
as consumer demands for clean label,
new world taste experiences and
new convenience formats continued
to evolve and drive innovation.
2.8%
Business volumes in
the Americas region
increased by 2.8%
AMERICAS
This acquisition complements Kerry’s
authentic taste portfolio and further
develops the Group’s industry-leading
offering into the meat EUM.
The Group also reached agreement to
acquire Ariake USA, which produces
natural clean label savoury taste solutions
derived from poultry, pork and vegetables
at its facility in Harrisonburg, Virginia.
Ariake USA’s highly specialised extraction
technologies and development capabilities
produce a suite of tailored solutions across
a number of EUMs. These acquisitions
further enhance Kerry’s extensive
authentic taste and clean label portfolio,
while complementing the Group’s from-
food-for-food heritage.
Kerry delivered volume growth ahead
of the market by winning market share
through innovation across different
customer categories. Reported revenue
in the Americas region increased by 2.5%
to €2,745m, reflecting 2.8% volume growth,
lower pricing of 0.5%, contribution from
business acquisitions of 6.2% and an
adverse translation currency impact
of 6.0%.
In North America, Kerry’s Meat end
use market (EUM) delivered strong
growth, meeting consumer demands
for authentic ethnic flavours, natural
shelf life preservation and a broader
range of alternative protein-based
products. Smoke & Grill enjoyed strong
growth and business development, as
Kerry’s Red Arrow technologies were
deployed across a broader range of
meat and meat alternative applications,
delivering additional clean label, taste
and colour attributes.
The Beverage EUM continued to deliver
good growth, as Kerry’s development and
applications expertise helped customers
launch a number of innovative new
products across a variety of categories
including cold brew, refreshing beverages
and functional health beverages.
The Snacks EUM performed well, in
particular with growth through innovative
healthier savoury snacks and indulgent
world taste experiences, as that EUM
gains inspiration from other categories.
The cereal category remained challenging
in the year, as traditional consumption
occasions continued to decline. Kerry’s
dairy taste and clean label technologies
benefited from enhanced wellness
and premiumisation trends within the
Meals EUM.
Kerry’s Ganeden® probiotics and
Wellmune® branded immunity enhancing
ingredients continued to grow well, as
they broadened their market reach with
a number of new launches into wider
applications.
In LATAM, Mexico and Central America
delivered good growth, while Brazil
delivered a solid overall performance.
The Snacks and Bakery & Confectionery
EUMs delivered good growth, with Kerry’s
cleaner label solutions a key driver.
Kerryconnect was also successfully
deployed in the region.
The global Pharma EUM once again
delivered strong growth, driven by the
excellent performance of excipients in
North America and APMEA. The Group
acquired the pharmaceutical lactose
manufacturing facility of Foremost Farms
– based in Rothschild, Wisconsin, further
strengthening Kerry’s pharmaceutical
lactose supply base. The Group expanded
its bio-processing capacity for natural
preservation and food protection at
the Rochester, Minnesota facility during
the year.
In the last quarter the Group acquired
Fleischmann’s Vinegar Company, Inc. (FVC),
a USDA certified all-natural producer of
specialty ingredients that further supports
Kerry’s taste and clean label strategies
across a number of EUMs. Headquartered
in California, it has manufacturing facilities
in Washington, New York, Maryland, Illinois,
Missouri, Alabama and California.
Since the year end, the Group acquired
Southeastern Mills’ (SEM) coatings and
seasonings business. SEM manufactures
from its strategically located base in
Rome, Georgia.
Kerry Group Annual Report 2018
43
We innovate with foresight. Working as a locally-led
and globally connected team, we combine our
culinary creativity with in-depth science and
technical expertise to help customers win
with consumers today and in the future.
INNOVA
44
44
Kerry Group Annual Report 2018
Kerry Group Annual Report 2018 We innovate with foresight. Working as a locally-led
and globally connected team, we combine our
culinary creativity with in-depth science and
technical expertise to help customers win
with consumers today and in the future.
Pictured: Dr. Khaled Zitoun,
Dr. Lisa Ryan, Dr. Ciaran Forde
and Dr. Aoife Marie Murphy, Kerry
Health and Nutrition Institute (KHNI).
Europe region
Kerry continued to meet
evolving local consumer
preferences across the region
by progressing its in-market
customer engagement strategy.
2.3%
Business volumes in
the Europe region
increased by 2.3%
The region delivered a good performance,
given the very strong comparatives
particularly in the second half of 2017.
Kerry continued to progress in developing
its in-market customer engagement to
meet evolving local consumer preferences
across the region. Reported revenue
in the Europe region increased by 1.7%
to €1,422m, reflecting 2.3% volume
growth, lower pricing of 0.6%, an adverse
transaction currency impact of 0.2%,
contribution from business acquisitions of
1.4% and an adverse translation currency
impact of 1.2%.
The Beverage EUM delivered strong
performance across a number of
beverage categories within both retail
and foodservice channels, as Kerry’s
TasteSense™ sugar-reduction technology,
natural extracts, and our protein range
were key drivers of growth.
The Meat EUM continued to deliver
good growth, with Kerry’s clean label
technologies, innovative texture solutions
and meat-free technologies being
successfully deployed in a number of
new market launches, as the category
continues to evolve at pace. The recent
Hasenosa acquisition in Spain and the
majority shareholding in Netherlands-
based Ojah are performing well and
contributing to business development
and access to new customers in the
meat category.
The Bakery EUM delivered a solid
performance, with growth delivered
through meeting evolving consumer
demands for both clean label and premium
offerings. Russia delivered strong growth,
particularly into the Meat and Snacks
EUMs, while production commenced in
Kerry’s first manufacturing facility in the
country, providing a key platform for future
business development and growth.
EUROPE
The Dairy EUM continued to perform
well in the rapidly evolving ice cream
category, with a number of new launches
in both premium and dairy-free ranges
using Kerry’s taste technologies.
International dairy markets remained
challenging during the year. Demand
from major dairy importing countries
for primary dairy products continued
to benefit from the appreciation of the
nutritional values of dairy. While demand
for butterfat in particular remained
relatively strong, market stability was
impacted by continued shifts in supply/
demand balances.
Foodservice played a key role across
a number of EUMs, particularly in the
Beverage and Meat EUMs through the
continued nutritional enhancement of
menu ranges, with successful seasonal
products and repeat LTOs delivering a
very good performance across the year.
45
TE
Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements APMEA region
Kerry’s business model continued to
be successfully deployed, with the
selective rollout of our industry-leading
foundational technology portfolio to
meet rapidly evolving local consumer
needs across the region.
10.1%
Business volumes in
the APMEA region
increased by 10.1%
The APMEA region continued to deliver
very strong growth well ahead of the
market across the region’s developing
markets. The APMEA region continues to
evolve as a highly fragmented marketplace
with broad-based market dynamics and
consumer trends including convenience,
authenticity, wellness and a desire for new.
These trends, together with local consumer
taste preferences, are driving major
consumption change across both retail and
foodservice channels. Reported revenue
in the APMEA region increased by 10.1%
to €1,105m, reflecting 10.1% volume growth,
a decrease in pricing of 0.5%, an adverse
transaction currency impact of 0.1%,
contribution from business acquisitions of
3.4% and an adverse translation currency
impact of 2.8%.
The Meat EUM delivered very strong
growth through customer partnerships with
a number of new innovations, as customers
broaden their ranges to meet consumers’
changing needs for authentic taste, value
and increasingly food safety.
The Meals EUM continued to perform
strongly in South East Asia and Greater
China across both the retail and
foodservice channels, as new authentic
cooking taste profiles were deployed
across a number of new products.
The Snacks EUM delivered good growth
due to the continued development of
new snacking occasions across the
region. Local category leaders continued
to innovate through the introduction
of new authentic world flavours, with
Kerry’s Smoke & Grill, Barbecue and Dairy
technologies being deployed across a
range of products.
APMEA
Sub-Saharan Africa achieved strong
growth, through better-for-you applications
into the Beverage and Snacks EUMs.
The foodservice channel continued to
outperform the market, with innovations to
meet consumers’ ‘desire for new’ including
sparkling coffee, and convenience through
home delivery, using Kerry’s technologies
to enhance the overall taste experience.
The Group continued to invest in its
strategic growth priorities in the region
to improve capabilities and capacity to
meet local market opportunities. Good
progress was made through investments in
ongoing footprint expansion in Indonesia,
China and Malaysia. Four acquisitions
were completed in the year; Hangman – a
leading China-based producer of sweet
and savoury flavours, SIAS Food Co. – a
leading China-based supplier of culinary
and fruit ingredients and systems to the
foodservice and food manufacturing
industries, Season to Season – a leading
South African supplier of taste ingredients
and systems to the African snack and food
sectors, and AATCO Food Industries LLC –
a leading Oman headquartered provider of
culinary sauces to the foodservice channel,
providing a strategic platform for business
development in the Middle East and Africa.
+
Strategic Priorities
for growth
pages 26-27
Business Model
pages 22-23
46
Kerry Group Annual Report 2018
BUSINESS
REVIEW
CONSUMER
FOODS
Revenue
2018
€1,339m
Volume Growth
1.1%
Trading Margin
2018
7.5%
Growth
(60bps)
The consumer and retail landscape within the UK
and Ireland continued to change at pace in the year.
Consumer confidence softened noticeably in the second half of the year,
leading to reduced consumption across a number of categories. The UK
retail environment continues to undergo major structural change through
increased consolidation of the multiples, further growth of discounter
volumes and ranges, and pressure on high street stores – all leading to the
need for more streamlined and dynamic supply chains.
Against this backdrop, the business delivered a solid performance in the
year. Reported revenue increased by 0.6% to €1,339m, as volume growth
and the contribution from business acquisitions were partially offset by
foreign currency headwinds. The divisional trading profit margin decreased
by 60 basis points to 7.5% as the underlying margin improvement was more
than offset by transaction currency headwinds, resulting in a trading profit
decrease of 7.1% to €100m.
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.
47
Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements ‘Everyday Fresh’ delivered solid growth, led by the
Richmond range. Richmond chicken sausages were
successfully launched in Q2 and contributed well to overall
performance. The Denny range benefited from increased
marketing support in Ireland. The traditional spreads
category continued to be challenged, however Kerry’s
softer butter offerings delivered good growth particularly
with private label brands in the UK, and the Dairygold
brand in Ireland maintained its market leadership position.
‘Convenience Meal Solutions’ had a difficult year, impacted
by reduced promotional activity as well as the extended
period of warm weather. Kerry had further business
development with ‘better-for-you’ ranges, while its frozen
ready meals outperformed a challenging category.
‘Food to Go’ performed well with strong growth in
Cheestrings across the year. Progress continued to be
achieved in the development of the out of home segments
with good growth particularly with restaurant chains. The
Fridge Raiders brand was relaunched during the year and
now encompasses a broader range of snacking products
across a wider consumer demographic.
48
Kerry Group Annual Report 2018 SECURING
SUSTAINABLE
GROWTH
SUSTAINABILITY
REVIEW
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
As a responsible business, and a leader within the food and
beverage industry, we understand the important contribution
Kerry can make to more sustainable development. In 2018, we
saw numerous reminders of the need for more urgent action on
social and environmental issues, particularly climate change.
As the world’s leading Taste & Nutrition
company, we believe that we can create
the greatest value for our stakeholders
by actively supporting the transition to
healthier, more sustainable diets. With the
emergence of an increasingly conscious
consumer, products must now meet the
dual demands of enhancing individual
wellbeing while protecting people and
the planet.
Kerry Group remains focused on reducing
the environmental footprint of our business
and through the work of our Sustainability
Council and regional teams, we have
delivered against all annual environmental
targets, surpassing our 2020 goals for both
carbon and waste. Additionally, we made a
commitment to the use of more sustainable
plastic packaging through membership of
the UK Plastics Pact.
With the world’s leading portfolio of taste
and nutrition solutions, Kerry is ideally
positioned to support our customers in
the creation of great tasting, clean label
products that are healthier, more nutritious
and have a lower environmental impact. In
2018, we continued to evolve our taste and
nutrition portfolio in this regard through
developments such as our joint venture
with plant protein leader Ojah.
We also look to support those beyond the
reach of our products. On World Food Day
2018, we launched the second phase of the
RAIN (Realigning Agriculture for Improved
Nutrition) Programme in Niger, with the
goal of improving access to nutrition for
some of the world’s poorest people.
In a year when urgent need for action on
climate change was highlighted, we know
that an even greater effort is required by
companies like Kerry. As we enter the final
year of our Towards 2020 Programme,
we are looking at how we can scale up
our positive impact in our workplace, our
marketplace and in our wider society.
In 2019, as we look to further integrate
sustainability in our business, we will
continue to explore new and innovative
ways of working to create value for our
stakeholders and advance our journey of
sustainable growth.
Edmond Scanlon Chief Executive
Kerry Group Annual Report 2018
49
Edmond Scanlon speaking at the EDA
‘European Dairy platform’ forum in November.
RAIN Programme (page 69)
Halima Fbid (28) walks one and a half
hours to gather water each day with her
daughter Lamchara (4). Tahoua, Niger.
Photo: Jennifer Nolan.
50
Kerry Group Annual Report 2018 KEY
HIGHLIGHTS
SUSTAINABILITY
PILLARS
ENVIRONMENTAL
SUSTAINABILITY
Reduction in
carbon intensity
Versus 2013 base year
16.4%
Reduction in
water intensity
Versus 2013 base year
6.6%
Reduction in
waste intensity
Versus 2013 base year
22.7%
MARKETPLACE
SUSTAINABILITY
WORKPLACE
SUSTAINABILITY
COMMUNITY
SUSTAINABILITY
Food Safety
Sites with GFSI
certification
100%
Health & Safety
Year-on-year reduction
in reported incidents
8%
RAIN Programme
Commitment to
tackling malnutrition
€1m
Responsible Sourcing
Certification of milk
suppliers maintained at
100%
Research, Development
& Application
Industry-leading investment
€275m
Workplace Audits
Across sites in
developing markets
100%
Project Leche
Honduran teachers
trained on nutrition
208
Learning & Development
Courses completed
by our people
>102,000
Special Olympics
New partnership to support
athletes over
2 Years
Note: Non-financial KPIs do not include the impact from recently completed acquisitions.
Non-Financial Statement
In accordance with the new regulations relating to non-financial disclosures we provide information on the required topics across
this report. Relevant information on each topic can be found below.
Reporting Requirements
Environmental Matters
Our Policies
Environmental Policy
Social and Employee Matters
Respect for Human Rights
Anti-bribery and Corruption
Business Model
Non-financial KPIs
Health & Safety Policy; Group Code of Conduct;
Diversity, Inclusion & Belonging Policy;
Employee Concerns Disclosure Policy
Human Rights Policy
Anti-Bribery Policy; Group Code of Conduct
Page Reference
Page 55
Pages 65 to 67
Page 65
Page 65
Pages 22 to 23
Pages 55, 58, 64 and 68
Kerry Group Annual Report 2018
51
Strategic ReportDirectors’ ReportFinancial Statements Few industries are as fundamentally linked to sustainability as the
food and beverage industry. With a projected world population
of almost 10 billion people by 2050, producing enough food to
meet the growing demand represents both an opportunity and a
significant challenge.
The current food system has a substantial environmental and
social impact. Agriculture accounts for nearly a quarter of all
greenhouse gas emissions, uses 70% of fresh water and is a
leading cause of deforestation and biodiversity loss. Current diet
and lifestyle choices are also a leading contributor to disease.
According to the World Health Organisation, what we eat and
drink is now the second highest risk factor for early death, making
what we produce, and how we produce it, critical considerations
for the Group.
At Kerry, sustainability is at the heart of our business. We are
focused on making a positive contribution through our everyday
actions and we remain committed to the creation of long term
value for all stakeholders on a socially and environmentally
sustainable basis.
Our Approach
Kerry’s Towards 2020 Sustainability Programme reflects our
vision for making the world of food, beverage and pharma better.
Launched in 2015, the programme builds on previous initiatives
and reflects our heritage as a farmer cooperative. Kerry has grown
from those agricultural roots to become a world leader and now,
through our global reach, we aim to positively impact on the lives
of those we connect with.
The Towards 2020 Programme is structured around four pillars;
Environment, Marketplace, Workplace and Community and
aims to protect the natural environment, enhance the lives of
the people who create and consume our products, and connect
us with the communities around us. Under each pillar, we have
prioritised the most material issues for Kerry and its stakeholders.
We have carefully examined the ways in which we can reduce our
adverse impacts and identified where our skills and support can
make a positive difference. We have set measurable targets for
improvement in these areas over a five-year period. As we enter
the final year of our programme in 2019, we are well positioned to
deliver on these targets, providing momentum for further progress
in the years ahead.
ENVIRONMENTAL
SUSTAINABILITY
MARKETPLACE
SUSTAINABILITY
WORKPLACE
SUSTAINABILITY
COMMUNITY
SUSTAINABILITY
SECURING SUSTAINABLE GROWTH
52
Towards 2020 and the
UN Sustainable Development Goals
The UN Sustainable Development Goals (SDGs) provide a globally
accepted roadmap for addressing many of the most urgent global
economic, environmental and social challenges. Although the
seventeen goals were agreed at international level, the challenges
we face require broad participation and there is a crucial need for
the private sector to play its part.
As a world leader in the food and beverage industry, our most
significant contribution to the SDGs will come through enabling
our customers improve the healthfulness and nutritional value of
their products and doing so in a way 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 throughout
this review, we highlight the SDGs we impact on under each pillar.
While we touch on a number of the goals, we identify below the
SDGs that have greater strategic relevance for our business and
we see the greatest potential for impact and opportunity in SDGs
2, 3 and 12.
Goal 2:
Zero Hunger
Our capabilities support the development of
cost effective, healthier and more nutritious
food. We also support sustainable agricultural
production and greater food security through
our responsible sourcing and community
development programmes.
Goal 3:
Good Health and Wellbeing
Diet is a leading cause in the proliferation
of non-communicable disease and at Kerry,
our technologies and expertise support
customers in the development of healthier
products that can make a positive impact on
the wellbeing of consumers.
Goal 12:
Responsible Consumption & Production
With an increasing population and a tension
between food production and environmental
protection, we are committed to sustainable
sourcing and production across our operations.
Our solutions can also support our customers
in the development of more sustainable
consumer products.
Kerry Group Annual Report 2018 Our Value Chain
Primary
Producer
Processor
Supplier
KERRY
GROUP
Materiality
Our approach to sustainability is centred
on addressing and reporting on the
most material issues for Kerry and its
stakeholders. In 2018, we undertook
a comprehensive review of material
topics to reaffirm that our Towards 2020
Programme is adequately positioned
to address the most significant
sustainability issues.
As part of the revised materiality
assessment, we engaged with a wide
range of stakeholders through a number
of channels. In-depth interviews with
key internal and external stakeholders
were critical in confirming priority
areas and for better understanding our
stakeholders’ expectations. The outputs
from these interviews were supported
by a survey of a broader stakeholder
group. The survey findings helped to
validate the information received through
the interview process and provided an
opportunity for input from a larger and
more diverse stakeholder group.
The outcome of the assessment has
confirmed good alignment among
internal and external stakeholders
across a range of sustainability topics
and confirmed that the Towards 2020
Programme remains well placed to
address our most material issues. The
assessment also supported feedback
received through ongoing engagement
with stakeholders, particularly with regard
to the evolution in some topic areas, for
example, plastic packaging within the
area of waste and the circular economy.
Customer
Retail & Food
Service
Consumer
The assessment will also be central to
the development of the next phase of
our Sustainability Programme as we
seek to ensure continued alignment
with business and stakeholder needs.
The topics covered in this report are
designed to reflect the outputs of this
materiality assessment. All of these topics
are reviewed as part of the broader risk
assessment process, however, at this
point not all are considered to be principal
risks for the Group (see page 75). We will
continue to keep these topics under review,
particularly with respect to organisational
changes and emerging themes.
Materiality Matrix
H
G
H
I
Trust &
Transparency
Ethics &
Human Rights
Responsible Sourcing
& Traceability
Product Safety
& Quality
Climate Change
Taste, Nutrition
& Health
Regulation
Water
Stewardship
Waste & Circular
Economy
Employee Health
& Wellbeing
Innovation & Product
Development
Animal
Welfare
Labour
Relations
Changing Consumer
Preferences
Geo-political
Risk & Brexit
Community
Development
Biodiversity
W
O
L
LOW
IMPACT ON KERRY GROUP
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Diversity
& Inclusion
Talent
Management
Market Leading
Growth
Energy
HIGH
Environment
Marketplace
Workplace
Community
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Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements
The pace of change and the scale of the
challenges within our industry require that
we work collaboratively to develop shared
understanding and common solutions for
many of the issues identified.
Stakeholder Engagement
We are committed to ongoing and constructive engagement with
our key internal and external stakeholders and through a process
of two-way engagement, we incorporate their views into our
business activities.
We are engaged in partnerships with key stakeholder groups and
relevant third parties to help achieve our 2020 goals. In 2018, we
participated in a number of new collaborative projects, details
of which are laid out in this report. Kerry is also a member of a
number of trade organisations and multi-stakeholder initiatives,
through which we seek to advance a healthier, more sustainable
food system.
Before undertaking the materiality assessment in 2018, we revisited
the process for stakeholder analysis to ensure we continue to
interact appropriately with various stakeholder groups. Having
clearly identified those who we impact, and those groups that can
influence and impact Kerry, we tailored our materiality assessment
to ensure input from diverse stakeholder groups.
Among our key stakeholders are employees, shareholders,
communities, customers, consumers, government and suppliers
including farmers. We understand that among and within these
groups, there can be different and sometimes conflicting views.
As part of our engagement we seek to balance these competing
stakeholder interests and respond in a way that maximises the
value for all those connected with the organisation.
Stakeholder Groups
We use a variety of channels to support the engagement process,
many of which are tailored for specific stakeholder groups. Our
ability to demonstrate a robust engagement process is a core part
of our independent AA1000 (AS) accreditation and throughout this
report we provide examples of how we engage and work with the
various stakeholders outlined above. For more on how we create
value for our stakeholders, see page 7.
Government &
Regulatory Bodies
Customers &
Consumers
Community &
Civil Society
Suppliers
Kerry Group mark
Investors
Employees
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 at least
annually 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,
as well as agreeing 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.
Shareholders
Board of Directors
Audit Committee
Nomination Committee
Executive Management
Remuneration Committee
Finance
Committee
Risk Oversight
Committee
Sustainability
Council
54
Kerry Group Annual Report 2018 ENVIRONMENT
16.4%
22.7%
Reduction in carbon intensity
versus 2013 base year
Reduction in waste intensity
versus 2013 base year
6.6%
Reduction in water intensity
versus 2013 base year
30.2% Reduction in waste sent to landfill
versus 2013 base year
At Kerry we are mindful of our impact on the
environment and recognise the fundamental
importance of a healthy ecosystem for our
shared future. We understand that our
day-to-day activities contribute to some of
the world’s key environmental challenges
and our ability to successfully address these
is vital in retaining our licence to operate.
We aim to minimise our impacts in accordance with the Group’s
Environmental Policy and we seek to integrate environmental
considerations into all aspects of our business. Our policy commits
us to carrying out our activities in an environmentally responsible
manner, to complying with all applicable environmental legislation,
implementing good environmental practice and continuously
improving performance.
We have a comprehensive monitoring and reporting framework
in place across all Kerry sites and performance is under ongoing
review by regional Health, Safety and Environmental Directors,
supported by their teams. With bi-monthly reporting to the Group’s
Sustainability Council, we continue to deliver improvements across
the key areas of emissions, water and waste.
This performance is supported by the implementation of
recognised environmental management systems across our
sites. In 2018, 80% of eligible sites were certified to the ISO 14001
Environmental Management System. We also continue to increase
the number of energy intensive sites with ISO 50001 Energy
Management certification, adding a further five locations in 2018.
Our environmental activities contribute to the achievement
of the following UN Sustainable Development Goals.
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Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements
Reducing Emissions
Like many organisations, Kerry is conscious of the potential
impact climate change will have on people and the planet,
and we continue to examine how we can manage the risks and
opportunities that this presents for our business. Key risks include
changing customer and consumer preferences, disruption to
operations and supply chains as well as regulatory and policy
responses to mitigate the worst effects of climate change.
We also see an opportunity for companies like Kerry who are
tackling their own emissions and can support a transition to
products with a lower environmental footprint.
As part of our ongoing commitment on carbon, we track and
report our impact. In 2015, we set a target for a 13% reduction
across Scope 1 and Scope 2 emissions (See note 1). We measure
and report performance in accordance with the GHG Protocol
(See note 2) and our data is independently assured to AA1000AS
(2008). We note the recommendations of the Task Force on
Climate Related Financial Disclosures and aim to incorporate
these as part of future reporting in this area.
We are pleased to report that in 2018 we have surpassed our
2020 carbon target, a year ahead of schedule, with a 16.4%
reduction versus our 2013 base year. These savings have been
delivered through an ongoing focus on energy efficiency and
the delivery of capital projects with significant carbon
reduction potential.
Jacobs Summary
Assurance Statement
Jacobs has assured Kerry’s greenhouse gas performance
data (Scope 1/Scope 2 emissions and selected Scope 3
emissions) as well as water withdrawal and discharge data
from its manufacturing facilities for 2018 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 2018.
Using Water Efficiently
Water plays a critical role in our business from the production of
our raw materials to the manufacture and use of our final products.
There is increasing pressure on this shared resource and by 2025,
the UN estimates that two-thirds of the global population could be
living under water stress conditions.
320
We strive to manage our water use as efficiently as possible,
especially in water stressed areas and our stated goal is to reduce
the amount of water we use by 7% by 2020, versus a 2013 baseline.
We also ensure that we protect natural water sources by meeting
local requirements around waste water that leaves our sites.
310.86
300
290
310
280
277.27
270
250
260
In 2018, we made further progress against our target with a 6.6%
reduction in water intensity, delivering close to our 2020 goal. In
2019, we will continue to pursue opportunities for greater water
efficiency to ensure we meet our 2020 reduction target.
2018
259.94
2013
2017
240
230
Carbon Intensity
kg CO2 per Tonne of Finished Goods
2020 Target
320
310
300
290
280
270
260
250
240
230
310.86
277.27
259.94
2013
2017
2018
Water Intensity
4.8
4.7
4.6
4.5
4.4
4.3
4.2
4.72
4.7
2013
4.45
2017
4.41
2018
kg CO2 per Tonne of Finished Goods
2020 Target
M3 per Tonne of Finished Product
2020 Target
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1.0
0.5
0
120
100
80
60
40
20
0
3.5
3.0
We also continue to view our water footprint within the wider
M3
context of global water risk. Given the uneven distribution of water
resources, some of our locations are potentially more challenged
300,000
2.73
by water stress. To help determine how increasing competition
for scarce water resources may impact Kerry, we use the World
Resources Institute’s Aqueduct Tool to help in our assessment.
400,000
200,000
2.87
1.82
2.0
2.5
1.5
2013
2017
2018
Water Intensity
Absolute Withdrawls
100,000
0
97.96
78.87
75.76
2013
2017
2018
Kg Waste per Tonne of Finished Product
2020 Target
Notes:
1. Our measurement and target performance is of Scope 1 & 2
4.8
emissions from our manufacturing facilities. This accounts
4.7
for 98% of Kerry Group’s Scope 1 & 2 emissions.
2. The GHG Protocol sets the global standard for how to
4.6
measure, manage and report greenhouse gas emissions.
4.72
4.7
4.4
3. Kerry’s actual performance has been adjusted to reflect like-for-like
4.5
performance compared to our baseline year. We use the Novem
Methodology for carbon reporting to adjust our baseline target
4.41
reduction number in order to account for changes to product mix
that have had a material effect on carbon intensity.
4.45
4.3
4.2
2013
2017
2018
M
M3 per Tonne of Finished Product
2020 Target
2.87
2.73
1.82
2013
2017
2018
Water Intensity
Absolute Withdrawls
M3
400,000
300,000
200,000
100,000
0
97.96
78.87
75.76
2013
2017
2018
Kg Waste per Tonne of Finished Product
2020 Target
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3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
120
100
80
60
40
20
0
Kerry Group Annual Report 2018
310.86
With the aid of this tool, we have identified nine locations
320
globally that are priority water sites. We maintain a careful
310
focus on water use at these facilities and our efficiency across
300
these locations significantly exceeds that for the Group. We
290
understand however that absolute water withdrawal is the key
280
metric in these locations and across relevant sites we continue
270
to make progress in reducing these volumes. In 2018, total
260
water withdrawals across the nine sites reduced by 24.6%,
250
versus our 2013 base year.
240
230
259.94
277.27
2013
2017
2018
Location of Priority Water Sites
kg CO2 per Tonne of Finished Goods
2020 Target
4.8
EUROPE
1
4.72
4.7
4.7
AMERICAS
4.6
2
4.5
4.4
4.3
4.2
2013
APMEA
6
4.45
2017
4.41
2018
M3 per Tonne of Finished Product
2020 Target
Water Use – Priority Sites
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3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
2.87
2.73
1.82
2013
2017
2018
Water Intensity
Absolute Withdrawls
M3
400,000
300,000
200,000
100,000
0
80
120
100
97.96
Generating Less Waste
The current linear production model of ‘take-make-dispose’ is
one that fails to adequately capture the full value of resources.
As global population and income levels rise, pressure on
75.76
natural resources continues to grow. For companies to operate
more sustainably and to ensure continued access to the raw
materials required, there is a clear need for a transition to a
more circular economy.
2013
78.87
2018
2017
40
60
20
0
Waste by
320
Disposal Method
310
310.86
300
290
Diverted Waste
Landfill
280
270
260
250
240
230
10%
277.27
90%
259.94
4.72
4.7
2017
2018
2020 Target
kg CO2 per Tonne of Finished Goods
Plastic Packaging
2013
Plastics play a critical role in the
food industry, particularly for product
protection and extending shelf life.
However, the use of plastics has become a key issue
for consumers, customers and regulators, as public
consciousness grows about the long term impacts of
plastics on the natural environment. As a producer of
branded goods and private label, our consumer foods
division, Kerry Foods, use plastic packaging in their
customer offerings. In 2018, Kerry Foods undertook
significant work to understand their plastics footprint
2017
and through membership of the UK Plastics Pact, has set
2020 Target
a target for 100% of its plastic packaging to be reusable,
recyclable or compostable by 2025.
M3 per Tonne of Finished Product
2018
2013
4.45
4.41
4.8
4.7
4.6
4.5
4.4
4.3
4.2
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400,000
M3
At Kerry, we continue to make excellent progress on waste
3.5
reduction having set ourselves a goal of a 12% reduction by
3.0
2020, versus a 2013 base year. In 2017, we surpassed that
2.5
2.73
2.0
target and last year we continued the momentum, realising
1.5
a 22.7% reduction against our 2013 base year. We remain
1.0
committed to further reducing our waste volumes as we enter
100,000
0.5
the final year of our programme and we continue to look at
how we can capture greater value from these waste streams.
300,000
200,000
2018
2013
2017
1.82
0
0
Water Intensity
Absolute Withdrawls
Waste Intensity
120
100
80
60
40
20
0
97.96
78.87
75.76
2013
2017
2018
Kg Waste per Tonne of Finished Product
2020 Target
Kg Waste per Tonne of Finished Product
2020 Target
Across our sites we are exploring ways to reduce, reuse and
recycle materials. Where we do generate waste material, we
seek to find ways in which this can be utilised elsewhere. In
2018, 90% of this waste was diverted from landfill and towards
other productive uses. This represents an increase of 3% of
waste sent to landfill versus 2017, however, this increase is
due largely to a correction to waste classifications at one site.
Overall, we have reduced waste to landfill by 30.2% versus our
2013 base year.
Food Waste
We also maintain a close focus on food waste and we are a
supporter of the Champions 12.3 initiative through our Kerry
Foods business. The initiative aims to halve food waste by
2030 and in 2018, Kerry Foods published its first food waste
data ahead of the second annual Champions 12.3 event in
New York in September. This event brought together leaders
from across business, government and civil society to help
accelerate progress towards achieving this goal.
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Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements
MARKETPLACE
€275m
Spend on research, development
& application in 2018
100% Kerry manufacturing sites
with GFSI certification
100% Kerry manufacturing sites
with Sedex membership
100% Kerry milk suppliers under an accredited
farm level sustainability programme
As in many industries, the food industry faces
a variety of challenges keeping up with the
unprecedented pace of change. Driven by
consumer trends, changing demographics
and the ever-increasing prevalence of
technology, business models are evolving as
the marketplace continues to shift. Growing
preferences for healthier options, concerns
over environmental sustainability, increased
competition from challenger brands and
alternative food sources are creating a new
dynamic within the industry.
Consumers want to know what is in their food and beverage
products. Transparency is increasingly being demanded around
how ingredients have been produced and the implications for
people and the planet. At Kerry, our impact extends from the raw
materials we source right through to the product’s effect on the
end consumer. Our marketplace goal is to deliver the highest
quality products and use our position in the value chain to
contribute positively to the health and sustainability of
consumer diets.
Our Marketplace activities contribute to the achievement
of the following UN Sustainable Development Goals.
58
Kerry Group Annual Report 2018 Health & Nutrition
According to the World Health Organisation, 71% of global
deaths are attributable to non-communicable diseases and with
unhealthy diets identified as one of four primary risk factors, there
is a growing level of scrutiny on how food and beverage products
impact wellbeing. With almost 40% of adults overweight, it’s
evident that current diets and lifestyle are increasingly implicated
in a range of chronic conditions.
Amid growing awareness of the link between diet and health, there
is increasing demand from consumers for products that they can
trust to maintain and enhance wellbeing. As the world’s leading
Taste & Nutrition company, we are ideally placed to support our
customers in the development of healthier, clean label product
offerings that meet these changing consumer expectations, while
continuing to deliver the same authentic taste of firm favourites
and satisfying the demand for new and exciting flavours.
Clean Label
Replace
Reduce
Remove
Re-position
Reinvent
We have the industry’s leading portfolio of taste and nutrition
technologies and our product development and innovation
work brings together Kerry’s unrivalled global capabilities to
develop market leading solutions based on local needs and
taste preferences. We lead the industry with our investment in
Research, Development and Application. In 2018, we invested a
further €275 million in this area to ensure we continue to shape
the future of food. For more see Our Markets page 24.
150+
The KHNI has published
150+ articles, 13 White Papers
and hosted 6 specialised
webinars since 2016
We continue to work with others to support Kerry’s leadership
position and are engaged with external centres of expertise,
through which we share and acquire new knowledge. The
Kerry Health and Nutrition Institute (KHNI) has established
itself as a leading source of thought leadership in the area of
diet and health. In 2018, KHNI published more than 60 articles
and ran a highly successful webinar series attended by the
world’s top 10 food and beverage companies.
Kerry Foods’ ‘Better For You’ Programme
Within our consumer foods division, Kerry Foods, we continue
to look at how to improve our branded products through
the ‘Better For You’ Programme. The primary focus of the
programme is to reduce calories, saturated fat, sugars, salt
and add positive nutrition as appropriate, without
compromising on taste.
Following on from previous reformulation work and in line with
Public Health England’s (PHE) reformulation targets, in 2018
we achieved a 13% reduction in salt in our Richmond sausage
brand and building on the 5% sugar reduction achieved within
the yoghurt category in 2017, we continue to reduce sugar to
meet the PHE’s 2020 sugar reformulation targets.
Building on previous reformulation achievements, Kerry Foods
continues to explore new technologies to achieve further
reformulation across its portfolio.
Creating Sustainable Solutions
TasteSense™
Clean Smoke
Plant Protein
Better for you, naturally.
Natural Flavour. Pure & Simple.
Good for you and for the planet.
Consumers want healthier food and beverage
options, but reformulation can negatively
impact taste.
With a proprietary process using only wood,
heat, water and filtration, condensed natural
smoke is 100% natural and completely
chemical-free.
Consumers are interested in dietary choice
as evidenced by growing trends such as
veganism and interest in more sustainable
foods and beverages.
Our TasteSense™ portfolio helps customers
remove undesirable ingredients (sugar, salt)
from their products, replacing them with
healthier options that preserve aroma,
flavour and texture, while delivering a
clean label solution.
We capture the healthy and flavourful
parts of the smoke, and use the tar and
charcoal filtered out during the production
process to run our plant instead of using
fossil fuels.
We combine taste, nutrition and functionality
across plant protein sources to create
easy-to-use, high protein solutions with a
lower environmental footprint.
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Ensuring Quality & Food Safety
We strive to produce safe, high quality products and have stringent
food and product safety requirements in place across the Group,
as outlined in our Food Safety and Quality Policy. We take a ‘farm
to fork’ view that incorporates preventive controls through to
horizon scanning and embedding best practice. We have rolled out
a global quality management system and in 2018, 100% of our sites
achieved Global Food Safety Initiative (GFSI) certification. GFSI
is an industry-driven initiative that reduces food safety risks by
delivering equivalence between effective food safety management
systems and we leverage this platform to ensure food safety and
compliance with quality standards.
Kerry also requires that its suppliers of raw materials comply
with strict requirements as laid out in the Group’s Supplier
Requirements Manual. In 2018, our global Supply Quality Team
had a food safety verification audit footprint in 45 countries
where direct materials are sourced, in line with Kerry’s annual
supplier risk assessment and geographic expansion. Following the
establishment of our Global Raw Material Centre of Excellence,
we have created and agreed global buying specifications with
strategic suppliers and continue to pursue ongoing category
transformation, reducing complexity, lowering risk and increasing
efficiency and supplier trust.
Like many of the sustainability challenges we face, issues around
food safety and food fraud in the supply chain are not unique to
Kerry. In 2018, our global Supply Quality Team worked closely
with industry organisations and peers to support and influence
the strategic development of global food safety standards.
We participated in the review of the British Retail Consortium
(BRC) Global Food Standard and were part of a joint SSAFE
(Safe Supply of Affordable Food Everywhere) and Accenture
review of six global food and beverage companies, resulting in
an industry best practice guide to help manage food safety in
mergers and acquisitions.
Responsible Sourcing
Much of the environmental impacts associated with our products
occurs in the supply chain, often at farm level. Although we do not
own or operate any farms, Kerry is committed to promoting good
agricultural practices and to upholding the rights of workers who
help to produce our raw materials.
With a raw material spend of almost €4 billion, Kerry sources
products from thousands of suppliers, providing vital support
to agricultural communities around the world. However, some of
the raw materials we use can present social and environmental
challenges. Addressing these challenges can prove difficult within
a complex and global supply chain and, where possible, we seek
to work with other stakeholders on a pre-competitive basis to find
common solutions.
We continue to work to improve the traceability and sustainability
of our raw materials and have a focus on six strategically important
raw material categories. Certification standards play an important
part in demonstrating good practice, however, we also engage
closely with suppliers across these six categories and work
collaboratively at farm level in a number of priority areas.
Dairy
Vanilla
Meat
Herbs & Spices
Palm Oil
Paper Packaging
We are members of a number of important multi-stakeholder
initiatives, through which we seek to work with others to advance
responsible sourcing at category and industry level. These
initiatives include the SAI Platform, Innovation Centre for U.S.
Dairy, Sustainable Spices Initiative, Origin Green, Roundtable on
Sustainable Palm Oil and the Sustainable Vanilla Initiative.
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Kerry Group Annual Report 2018
We also published our second palm oil progress report during
2018, outlining that 96% of our volumes were sourced in
accordance with the Group’s Palm Oil Policy and highlighting
increased traceability for our volumes back to both the mill (98%)
and plantation (48%). For more information see this progress
report on www.kerrygroup.com.
Dairy
Kerry’s liquid milk suppliers use a natural, grass-based production
system that is among the most carbon efficient in the world. Still,
dairy production has a significant environmental footprint and
Kerry’s Agribusiness division works closely with our farmers to
support them in implementing more sustainable practices in
areas such as grassland management, soil health, water quality
and animal welfare.
100% of Kerry’s milk suppliers are certified under the Sustainable
Dairy Assurance Scheme (SDAS), through which each farm is
independently audited against 170 requirements. Sustainability
data is assessed and every farmer is provided with a carbon
footprint for their farm, together with information on what changes
to farm practice could help to reduce this.
In 2018, through our membership of the Sustainable Agriculture
Initiative (SAI) Platform, Kerry was also an active participant in
piloting the Dairy Sustainability Framework (DSF), alongside
other industry partners. Our expectation is that the DSF will
provide a common approach to assessing sustainability at farm
level that can support Kerry’s responsible sourcing targets for
those dairy ingredients where we do not have a direct relationship
with farmers.
100%
100% of Kerry’s milk suppliers are
certified under the Sustainable Dairy
Assurance Scheme (SDAS)
Protecting Workers in our Supply Chain
Our Supplier Code of Conduct sets out our expectation that
all suppliers act ethically, honestly and in accordance with
all applicable laws. It is explicit in stating our respect for
internationally recognised human rights and Kerry does not
tolerate the use of forced or child labour, in any operations
connected with the Group.
We monitor compliance based on risk and use independent input
to help determine our areas of focus. Kerry is a member of SEDEX
(Supplier Ethical Data Exchange), the world’s leading collaborative
platform for sharing responsible sourcing data, and we use this
platform to assess our suppliers and help drive improvements
in labour standards. To further support us in these efforts, we
recently joined the Food Network for Ethical Trade (FNET).
Established in 2016, this industry initiative aims to improve human
rights in global food supply chains through a common approach
to managing ethical trade.
Our 2020 goal is for all direct suppliers classified as high risk to be
members of SEDEX. We continue to make good progress towards
that goal with 60% of these suppliers registered in 2018. Under
our Supplier Code of Conduct, Kerry reserves the right to conduct
independent audits of suppliers to confirm compliance and in
2018, 20% of our high risk suppliers had independent SMETA
(SEDEX Members Ethical Trade Audit) audits in place.
Promoting Sustainable Agriculture:
Palm Oil
At Kerry, we believe that working with industry partners to effect
change is the best long term solution for the palm industry. As a
member of the Roundtable on Sustainable Palm Oil (RSPO), we
continue to pursue the sourcing of more sustainable palm oil and
achieved our 2018 target of 100% physical RSPO certification
across all Kerry Foods branded products.
Project Ilham
In 2018, Kerry launched a smallholder programme in collaboration
with Bunge Loders Croklaan, IOI Plantation and the Fortuna mill
in Sabah, Malaysia. Known as Project Ilham, or ‘Inspiration’ in the
Malay language, the programme aims to support smallholder
farmers to improve their yields, thereby increasing production,
without the need for additional land and helping to improve the
livelihoods of farm families. Our goal with the programme is to
help these smallholders to increase their standard of living while
introducing good agricultural practices that will help them to
meet the levels required by recognised certification standards.
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Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements
Vanilla
In Madagascar, Kerry’s Tsara Kalitao Programme supports
more sustainable vanilla production. With a focus on improving
livelihoods, empowering women and educating children,
the programme takes a holistic and long term approach to
sustainability in the regions where we source.
At farm level, agronomists work to improve agricultural practices
among farmers, helping them to progress production techniques,
boost their yields and thereby increase their income. In 2018,
vanilla beans produced under the programme were awarded
organic certification reflecting the natural methods of cultivation.
We also look at other ways of protecting farm incomes and with
the increase in the price of vanilla, the incentive for theft of beans
prior to harvest has increased, reinforcing the importance of the
community watch programme initiated in participating villages.
We are also focused on ensuring that children across these
villages have the opportunity to stay in school and are pleased
to note the increase in the level of educational attainment by
children at schools participating in this element of the programme.
For more information see our vanilla progress report on www.
kerrygroup.com.
Meat
In 2018, we further engaged with our supply base to understand
our key impact areas. With a focus on the priority issues of
animal welfare, antibiotic use and sources of feed, we examined
how our suppliers are currently addressing these key areas of
risk. The outputs from this engagement are outlined below and
confirm that we work with suppliers who employ leading farm
practices and the majority have third party certification or policy
commitments addressing these topics. We will continue to work
with them and others to look at how further improvements can be
made.
Animal Welfare and Antibiotics
Animal Feed (Deforestation)
87% 3rd Party Certified
13% Policy Statement
56% 3rd Party Certified
13% Policy Statement
31% Limited Action
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Kerry Group Annual Report 2018 Herbs & Spices
Within this category we have established a programme that aims
to source only from primary processors. These supply partners
are chosen for their consistent high quality and reliability, their
proximity to farming communities and their commitment to
working in close collaboration with these farmers. Kerry is also an
active member of the Sustainable Spice Initiative, a platform which
aims for fully sustainable spice production and trade. Sustainably
certified spices are not widely available and certification
programmes are in their infancy relative to other commodities.
However, in 2018 as we seek to build a more sustainable sector,
we have committed to working towards 10% certified sustainable
sourcing in our top 3 product categories by 2021 and to achieve
or exceed 25% certified sustainable sourcing in our top 3 product
categories by 2025.
Paper Packaging
Our 2020 target is to procure 90% of our fibre based packaging
from sources that are certified, verified or recycled. In 2018,
we exceeded that target with 93% of our volume by spend
meeting these requirements. Accepted certification standards
include Forest Stewardship Council (FSC), Programme for the
Endorsement of Forest Certification (PEFC) and the Sustainable
Forestry Initiative (SFI). Having surpassed our 2020 target, we
will continue to look at how we ensure the sustainability of our
remaining volumes into the future.
Paper Packaging
93% Certified
7% Non-Certified
No Deforestation
Forests play a critical role in supporting our ecosystem and are
a source of fuel and food for over a billion people, yet forests
globally are under threat. According to the World Resources
Institute, almost 16 million hectares of tree cover were lost in
2017. Agriculture is a leading cause of deforestation and Kerry
has committed to ensuring that the raw materials we use do not
contribute to further forest loss by 2025. Our no deforestation
commitment is across targeted supply chains that represent a
high risk of deforestation and includes meat, dairy and palm oil.
We also recognise that soy production, particularly for use in
animal feed, is a key risk category. In 2018, we became a member
of the UK Roundtable on Responsible Soy. As part of our efforts
in this category, we will examine the impacts of our direct and
indirect soy purchases in more detail through 2019.
Marketing and Communications
At Kerry, we are committed to providing clear product information,
which supports consumers in making healthy choices. All
advertising and brand positioning conforms to national advertising
codes of practice and we are conscious of the potential impact
of marketing to children and young people. 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.
A National Commitment
Origin Green is Ireland’s national food and drink sustainability
programme led by Bord Bia (Irish Food Board). The programme
brings together farmers, producers, retailers and foodservice
operators with the goal of making Ireland a world leader in more
sustainable food production.
Origin Green enables Ireland’s food industry to set and achieve
measurable sustainability targets and Kerry is proud to be a
founder member. As part of our Origin Green charter, we have
set commitments for improvement across specified target areas
including responsible sourcing, manufacturing operations and
social impact.
These commitments are fully aligned with the Group’s broader
sustainability goals and we continue to lead with the delivery of
our programme. The independent verification of our performance
under Origin Green also helps to provide further assurance
around our progress on these issues.
The Origin Green programme
brings together farmers, producers,
retailers and foodservice operators with
the goal of making Ireland a world leader
in more sustainable food production.
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Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements
WORKPLACE
>25,000
Employees
>102,000
Courses Completed
Kerry’s global
workforce
Learning &
Development
8%
Reduction in reported
health & safety incidents
100% SMETA audits across sites
in developing markets
As a global organisation, our ability to attract
and retain the very best people from around
the world is essential for delivering on our
strategic goals. The 25,000 plus colleagues
who come together within Kerry’s innovative
and entrepreneurial culture are a key source
of competitive advantage, and central to our
ongoing success.
We understand the need for the appropriate policies and
procedures to promote employee wellbeing, and to protect and
enhance the Group’s reputation, and we know that by engaging
people more fully we can realise a shared ambition for success.
Under the Workplace pillar, we are building an environment
where people develop their potential and feel empowered to
succeed. We do this through the way we conduct our business,
reward talent, provide prospects to grow and give people the
opportunity to make a difference.
In an increasingly competitive landscape for talent, and amidst
changing employee expectations, Kerry is focused on creating
a safe and inclusive workplace, where people can thrive. We
recognise that delivering on our goals requires a positive working
environment, where people feel valued.
Under the Workplace pillar, we contribute to the achievement
of the following UN Sustainable Development Goals.
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Kerry Group Annual Report 2018 Doing the Right Thing
Respect
Each Other
Live
Our Values
Code of
Conduct
Protect
Our Assets
Obey
the Law
At Kerry, doing business with integrity is fundamental to the
way we operate and the foundation for our long term success.
Business results must always be achieved ethically and legally
and the Group’s comprehensive Code of Conduct clearly defines
the standards and expectations set for all Kerry colleagues.
The policies behind the code provide clear guidance for our
daily interactions and these policies are reviewed annually. The
ongoing responsibility for their implementation rests with Group
management, supported by relevant functions including HR and
Internal Audit.
The Code of Conduct is made available across the Group in
multiple languages and is applied to all aspects of our business.
All colleagues are required to familiarise themselves with this
code on joining Kerry and we mandate ongoing training through
our learning academy. In 2018, 80% of all eligible colleagues had
achieved Code of Conduct certification.
Where employees have concerns about business conduct, the
Group provides clear guidance on how to report these. The
Employee Concerns Disclosure Policy details the appropriate
means of reporting alleged misconduct. It encourages employees
to speak up if they believe something is not right and is clear
about the protection afforded to whistleblowers. However, we
understand that there can be a reluctance to report in person
and so to ensure that people are comfortable in expressing their
concerns, the Group operates an ethics hotline, through which
employees and third parties can report an issue anonymously
(www.kerrygroup.ethicspoint.com).
In 2018, we continued to monitor and investigate all reported
issues via this ‘Express a Concern Service’. The majority of the
concerns reported (88%) relate to internal HR issues although we
continue to see third party engagement with this service. During
the year, the Group’s Audit Committee reviewed the operation of
this facility and confirmed to the Board that they were satisfied it
was operating effectively (see page 105).
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.
Fighting Bribery & Corruption
As part of the Group Code of Conduct, Kerry’s Anti-Bribery Policy
describes our zero tolerance approach and provides guidelines
to all employees regarding potential situations involving bribery.
This policy, together with policies on fraud, money-laundering, fair
competition and engaging with Government officials, all support
Kerry’s efforts to ensure that corrupt practices do not form part of
our business relationships. Internally, we ask questions on bribery
and corruption of each business unit as part of the ongoing
assessments undertaken by the Group’s Internal Audit Team.
In 2018, no incidences of bribery or corruption were uncovered
across the Group.
As a business, we are also a member of SEDEX (Supplier Ethical
Data Exchange) and each of our sites globally are registered with
the platform. As part of this membership, each site completes
a self-assessment focused on areas aligned with our Code of
Conduct, including ethical business practice. Furthermore, 75% of
our sites, including all those in developing regions, are subject to
an independent SMETA (SEDEX Members Ethical Trade Audit) or
equivalent audit.
Upholding Human Rights
We conduct our business in a manner that respects the rights
and dignity of all people. 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 employees
and also sets out our expectations of business and supply chain
partners to conduct their business in a way that upholds 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 sites are registered with SEDEX and complete
a self-assessment, 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 independent
SMETA, or equivalent, audits.
Our Supplier Code of Conduct is explicit in demanding that those
who seek to do business with the Group uphold the rights of
workers and expressly forbids the use of child labour, or 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 60.
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The Group also publishes an annual Slavery and Human
Trafficking Statement which is available on the Group website
at www.kerrygroup.com.
Improving Health & Safety
Ensuring the health and safety of our employees is a priority for
Kerry. Led by the Global Health, Safety and Environmental (HSE)
steering team, Kerry has implemented a Group-wide Health and
Safety Policy and management system that defines consistent
ways of working and establishes standard requirements across
each region. While calling out responsibilities and accountability
at all levels, our Health and Safety Policy outlines the role for all
employees to work safely and challenge any unsafe behaviour.
Employees are supported by HSE personnel across our sites, who
work with site managers to ensure we consistently promote a
culture of Safety First, Quality Always.
Mental Health Day
In 2018, we recognised World Mental Health Day globally
through various executive sponsored activities. At our site
in Shillelagh, Ireland, 90 colleagues participated in practical
training and guidance on emotional wellbeing through a
partnership with a local charity ‘Talk to Tom’.
Engaging Employees
We aim to create a workplace where our people are challenged
in their roles and have the opportunity to make a meaningful
contribution to the success of the business. Employee
engagement benefits both our people and the business as a
whole, with outcomes shown to include higher levels of wellbeing,
performance and retention.
We measure performance on an ongoing basis and progress
reports are presented at regular intervals to the Group’s
Sustainability Council. We celebrate success internally and share
best practice among our sites to ensure consistent performance
across all locations and regions.
In 2017, we conducted the first Group-wide employee engagement
survey, ‘ourVoice’, providing us with a better understanding of
how our people view our organisation. The results of the survey,
provided an insight into areas where Kerry is doing well and also
areas where there is an opportunity to improve.
As a Group, we have targeted a 5% year-on-year improvement
in our health and safety metrics. In 2018, we delivered an
improvement of 8%, resulting in a cumulative 30% improvement
since the commencement of our Towards 2020 Programme in
2015. While this represents significant progress, we recognise that
there is no acceptable level of accident or injury and so continue
to strive for the safest possible working environment.
Following the survey, action plan committees, consisting of our
people and management representatives, were formed to identify
key changes that could be made in the short, medium and long
term to drive Kerry forward and make it a better place to work.
In 2018, the work of these committees has been ongoing, and
implementation of the action plans has been rolled out across the
Group.
Contributing to Wellbeing
Given the significant time employees spend in the workplace,
we know that as an employer we can play an important role in
personal wellbeing beyond health and safety. At Kerry, we want
to support our colleagues in leading healthier, more active lives
and in 2018, we defined four key areas of support: Nutritional,
Emotional, Physical and Financial. Within this global framework, we
have begun to expand a number of locally relevant initiatives and
promote a greater awareness around the concept of wellbeing.
Our local site wellness champions work hard to ensure that we
have locally appropriate activities to support each area and our
wellbeing and benefits partners offer a wide range of
support such as employee assistance, advice programmes,
talks and workshops, gyms, activity clubs, health screening
and financial education.
Example highlights of group-led activities include, our investment
in new HR technology to manage our people processes more
effectively and efficiently across the organisation which resulted
in the launch of the ‘mySuccess’ platform in October 2018. Also,
in response to an opportunity to strengthen our people leader
capabilities and create greater clarity on the role of the people
leader at Kerry, we have introduced a new framework and set of
objectives for all people leaders, which will be reinforced through
the performance management process in 2019.
In 2019, we will conduct a follow-up survey to assess the
outcomes of action plans both globally and locally to continue
to enhance our approach to engaging our people and improving
their experience at Kerry.
8%
Health & Safety
8% year-on-year
improvement
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Kerry Group Annual Report 2018
The ‘mySuccess’ platform provides a structured mechanism for
our people and managers to discuss performance and career
progression with ongoing feedback and coaching, as well as
formal year end reviews. Training or development needs identified
as a result of this two-way process are supported through the
Kerry Learning Academy, which facilitates the provision of tailored
and more general learning solutions across the organisation.
These solutions include classroom, online and interactive content
that provides instruction, stimulates discussion and encourages
collaboration from structured graduate training through to
leadership development programmes. In 2018, Kerry colleagues
completed over 102,000 courses.
One of the opportunities identified as a result of our most recent
employee engagement survey was the enhancement of our
learning solutions with additional tools and resources. During
2018, we engaged with our people across the organisation,
working within each of our different functions and business areas
to develop a series of career frameworks. These frameworks offer
step-by-step guidance for our people in developing a challenging
and rewarding career within Kerry, aligned to their individual
capabilities and interests. (For more, see Our People, pages 16-21).
Learning Academy
Rewarding Performance
Compensation and benefits are a core part of our talent
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 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.
Promoting Diversity, Inclusion & Belonging
As a global organisation, we understand that Diversity, Inclusion &
Belonging (DIB) are essential elements for a successful workplace
and since the introduction of our Global Diversity Programme
in 2016, we have continued to embrace these principles for
innovation and growth through attracting the best talent to our
business, growing our own people and capabilities and building
more agile working practices.
Our Diversity, Inclusion and Belonging Policy reinforces our focus
on these areas across all Group activities, supported by our
global taskforce established during 2018, to help us gain a better
understanding of the issues facing the organisation and the ways
in which we can take positive action on this agenda.
In addition, Kerry has taken up membership of the Irish Chapter
of the 30% Club and is represented on the advisory group of an
industry led Agri-food D&I Forum, led by Bord Bia and aligned
with the 30% Club. As part of these partnerships, Kerry has
contributed to an industry wide review on gender balance,
results of which were published in an external report entitled
‘Diversity & Inclusion in the Irish Food & Drinks Sector: Women
in Business’ in September 2018. This has helped to inform our
continued approach to diversity, inclusion and belonging across
Kerry as well as beginning to set the standards for all Irish based
companies in our sector.
Other steps taken have included improved internal reporting
to monitor progress of diversity and inclusion initiatives and
commissioning expert research, to engage all our people in
shaping further development of our wider diversity, inclusion and
belonging agenda within Kerry for 2019.
Developing Talent
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. We encourage our people to take responsibility for
developing their own careers through exploring new experiences
and seeking opportunities that will enable them to fulfil their
aspirations, whilst continuing to drive our business forward.
Kerry recognises that talent management is therefore key to
enabling our people to achieve our business goals and we
undertake continuous investment in colleagues, adopting a
structured approach to talent management through our dedicated
‘mySuccess’ platform.
> 102,000
Learning & Development
courses completed
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Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements
COMMUNITY
RAIN Programme
Niger
Addressing
food security
Special
Olympics
Building more
inclusive communities
Project Leche
Honduras
Kerry
Volunteers
Improving
nutrition
Connecting
people locally
With our heritage as a cooperative, Kerry has a
proud tradition of working to positively impact
on the lives of those around us. We play a
critical role in the lives of local communities
through the value created by our business
activities, the jobs we provide, the raw
materials we purchase and the products
we produce. However, we realise that we
can have an even greater impact by working
with others and harnessing the goodwill and
passion of our people.
As a leader in the food industry, the key focus of our community
programmes is on nourishing the lives of those who are beyond
our day-to-day reach. Our flagship programmes centre on
improving health and nutrition, reducing hunger and providing
assistance in ways that will make a lasting difference to those
most in need. With these programmes we work at multiple
levels in countries and communities at different stages of
development. We seek to collaborate with partners who are
established locally and with whom we can work to help effect
transformational change.
Through our community activities we
contribute to the achievement of the following
UN Sustainable Development Goals.
68
Kerry Group Annual Report 2018 RAIN Programme
Realigning Agriculture to Improve Nutrition (RAIN) is a multi-
disciplinary approach to tackling hunger and malnutrition in
some of the world’s poorest regions. In partnership with Concern
Worldwide, a leading international development agency, Kerry has
previously supported the successful implementation of the RAIN
Programme in the Mumbwa district of Zambia, from 2011 to 2015.
Building on the success and learnings from that programme,
Kerry announced in 2018 that it would commit a further €1 million
to bring a second phase of the RAIN programme to Niger, West
Africa. Niger is a landlocked and largely arid state on the edge
of the Sahara desert and is rated by the UN as one of the world’s
least-developed nations.
The Tahoua region, where the RAIN Programme is located, is
one of the most impoverished regions in Niger. Here small-scale
farmers depend on rain-fed subsistence agriculture, but with
erratic rainfall, pest invasion and inadequate responses to
climate change, the poorest families in Tahoua exist in a state
of chronic poverty.
Through the RAIN Programme, Kerry aims to build resilience
within these communities and to achieve this the programme
focuses on the following objectives:
–
– Promoting key health practices for improved maternal and
Increasing food production and diversity of nutrient-rich diet
–
child nutrition
Improving access to reliable and safe water sources and
sanitation
– Reducing inequalities experienced by the extreme poor and
–
vulnerable, particularly women and girls
Strengthening the capacity of local structures to identify
issues and solutions within the community
By addressing these broader factors contributing to hunger and
malnutrition, this second phase of the RAIN Programme will make
a positive, long term impact on the lives of some of the world’s
poorest people.
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2018 marked the first of the four year
implementation period and already we have begun
to see the impacts. In keeping with Concern
Worldwide’s ethos of working with the ‘poorest of
the poor’, 1,000 extremely vulnerable households
have been selected for participation across
seven villages. Baseline surveys were conducted
to help monitor progress and partnerships have
been built with the local community and key
stakeholders to promote ownership and ensure
long term sustainability.
Across the key objective areas, progress
has been made as follows:
Increasing food production and diversity
of nutrient rich diet:
–
Seventy lead farmers were trained on adoptive
climate smart agriculture techniques and
households were provided with short cycle
bio-fortified millet seed. To diversify food
production, kitchen sack gardens were
established among participants enabling
households to produce and consume fresh
vegetables and raise extra income.
Promote key health practices for
improved maternal and child nutrition
– A network of trained community volunteers were
supported to conduct education and awareness
raising activities and promote behaviour change
around health and hygiene practices.
Improve access to reliable and safe water
sources and improved sanitation
– Water management committees were
established in the targeted villages and
provided with hygiene kits to promote safe
water management from source to consumption.
Monthly awareness sessions were conducted to
improve hygiene practices.
Reduce inequalities experienced by the extreme
poor and vulnerable, particularly women and girls
– Community level inter-generational and gender
dialogues were introduced in all seven villages.
Other awareness raising and sensitisation
activities were conducted to help change
prevailing social norms and redress gender
based inequalities.
Strengthen the capacity of local
structures to identify issues and solutions
within the community
– Collaborative agreements were put in place with
relevant government departments and seven
Community Early Warning and Emergency
Response Committees were established across
the targeted villages with support from regional
and village authorities.
Kerry Group Annual Report 2018
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Strategic ReportDirectors’ ReportFinancial Statements
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 three-year partnership,
‘Project Leche’, is piloting the safe and sustainable inclusion of
dairy products within WFP’s Home Grown School Meals (HGSM)
Programme in 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. Here
Kerry’s expertise in nutrition and sustainable dairy production
is supporting small communities to overcome food security
concerns and improve nutrition.
supporting
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.
−
The second year of Project Leche successfully concluded
in 2018, with improvements in the student’s nutrition, the
livelihoods of smallholder farmers and the improvement of
healthy eating practices amongst the wider community. As
part of the project, Kerry Agribusiness brought a number
of Honduran farmers to Ireland in April 2018, and with the
support of our milk suppliers, demonstrated and shared
best practice milk production. Through this peer-to-peer
platform, we aimed to illustrate practical examples of
where improvements can be made on Honduran farms
and the potential benefits these could bring.
Impact in 2018
Nutritional Impact
Sustainable Milk Production
Education & Awareness
1.6% decrease in rates of stunting.
Collaboration and exchange of learnings
amongst smallholder producer
associations, marking a 40% increase
in activity.
121 mothers participating in School Feeding
Committees received training on nutrition,
food hygiene and preparation.
Severe and moderate wasting rates
reduced from 8.1% to 1.5%.
Increases in milk production in both
the summer and winter seasons with
volumes up 33% and 18% respectively,
versus baseline.
208 teachers have received nutrition and
awareness training, empowering them
with the skills and knowledge to educate
children on healthier eating.
8% decrease in the presence of intestinal
parasites amongst participating students.
A selection of farmers, identified as Monitor
Producers have seen a collective increase
in income of $1,200 per year. Monitor
Producers act as leaders in best practices
and facilitate training amongst the wider
farming community.
Teacher and community networks have
been established leading to greater
knowledge and awareness, contributing
towards a cycle of healthier eating in
schools and at home.
70
Kerry Group Annual Report 2018
Noon Foundation
Our Kerry Foods division is the leading UK producer of authentic,
convenient Indian cuisine and has close ties to India through the
late Lord Gulam Noon, British based businessman and founder of
Noon Products, which is a Kerry business.
Connecting People
At Kerry, we are a community of over 25,000 committed and
passionate individuals and under our community pillar, we want to
encourage our people to take the opportunity to engage with the
communities around them.
Prior to his death in 2015, Lord Noon had founded the Noon
Foundation, through which the Noon Hospital and Research
Centre was established. The hospital in Rajasthan, India, provides
essential medical services for rural communities which would
otherwise lack access to quality healthcare. The comprehensive
facility provides world-class services with state-of-the art
operating theatres, an intensive care unit, neonatal ICU and eye
department and boasts highly skilled staff.
In partnership with the Noon Memorial Legacy Trust, Kerry agreed
to support the development of the hospital in 2016 and to enable
the expansion of the services it provides. As part of a five year
programme of support, in March 2018, Kerry was delighted to
officially open a fourth wing at the hospital focusing on eye care.
India is home to the world’s largest population of blind people
and the difficulty of losing vision is exacerbated by the fact that
once blind, many lose their livelihoods forcing them, and often
their families, into a life of poverty. However, in many instances
blindness is preventable with timely access to the right treatment.
Critically for Kerry, the Noon Hospital provides healthcare on
the basis of need rather than ability to pay, and offers those in
the surrounding region access to the high quality treatment
they require.
The new ‘Kerry Wing’ houses the hospital’s ophthalmic
department, which treats a variety of health issues, including
glaucoma, blindness, trachoma and cataracts and is accredited
by the state Government through the District Blindness Control
Society for prevention of blindness.
Since opening its doors in March, this new centre of excellence
for eye care has treated almost 18,000 patients, and has allowed
for a 20% increase in surgeries, including a 79% increase in
cataract surgeries, provided for free to those most in need.
To support this, the Kerry Volunteer Programme provides paid
leave for colleagues who want to engage in local community
programmes. Many employees have already availed of the
opportunity, often alongside their colleagues, and we hope to
substantially grow the number and impact of Kerry volunteers
over time.
Our local community initiatives span a broad range of activities
and include enterprise, education, arts, sport and community
development. With local ownership, each of our sites has the
opportunity to select and engage with activities that make a
difference to their local communities.
Special Olympics
One community programme that has captured the imagination of
our colleagues has been our two-year partnership with the Special
Olympics announced in 2018 and launched in the UK, Ireland, The
Netherlands and Poland.
The mission of Special Olympics is to provide year-round sports
training and athletic competition in a variety of Olympic-type
sports for children and adults with intellectual disabilities, giving
them continuing opportunities to develop physical fitness,
demonstrate courage, experience joy and participate in a sharing
of gifts, skills and friendship with their families, other Special
Olympics athletes and the community. This aligns with our desire
at Kerry to support the inclusion of people with intellectual
disabilities in our local communities.
18,000
The ‘Kerry Wing’ of the Noon
hospital has treated almost
18,000 patients
2 Year
Special Olympics
2 year partnership to
support athletes
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Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements
We are delighted that throughout 2018 our people have fully
embraced all opportunities to volunteer at Special Olympics
events around our partner countries. At the Ireland Games in
June, and the Great Britain games in August, we supported a
total of 120 Kerry volunteers. In addition, our Kerry volunteers
have been fundraising, mentoring athletes and developing their
leadership skills through joint problem-solving with the Special
Olympics Board in Great Britain.
In recognition of the dedication and commitment shown by our
people to this partnership this year, we will be offering a unique
opportunity for Kerry volunteers to attend the World Games in
Abu Dhabi, in March 2019. In addition, we are planning to leverage
our Kerry expertise in food and nutrition in partnership with the
Special Olympic country boards, to offer advice and support at
a grass roots level to athletes and their families on nutrition and
healthy eating.
Sport
We believe that sport can play an important part in a healthy
active lifestyle, helping bring communities together and promoting
both physical and mental wellbeing. Kerry are proud supporters of
many amateur sports including all Kerry county GAA teams, Rás
Mumhan, Ireland’s premier international amateur cycling event,
and local community games which encourage children in a range
of sporting disciplines.
We also continue to support the Kerry Sports Academy at the
Institute of Technology Tralee, Ireland. Scheduled to open in
2019, it will be home to the UNESCO Chair in Inclusive Physical
Education, Sport Fitness and Recreation and CARA, the National
Centre for Adapted Physical Activity.
Community Development
Enterprise plays a key role in maintaining strong and vibrant
communities, however, the increasing trend towards urbanisation
poses a serious challenge for many rural locations. In Ireland, we
are founder members of the Kerry SciTech initiative, which aims
to link talented individuals with exciting opportunities across a
range of startups and more established companies in the south
west region.
We also know that not-for-profit organisations play a vital part
in community life and we are proud supporters of numerous
charities. We understand their reliance on volunteers who
undertake much of the unseen work and as well as our financial
assistance, we are proud that Kerry colleagues help make such
an impact.
Habitat for Humanity
In 2018 our Crossville, Tennessee, site in North America
partnered with the Cumberland County Habitat for Humanity,
an organisation that provides families in need with safe,
affordable homes. As part of the process, future homeowners
work alongside volunteers and other Habitat homeowners on
everything from preparing the building site to construction in
order to build ‘sweat equity’ in their new home and invest in
their long term success.
Support for the Arts
In Southwest Ireland, where the Group is headquartered, we
are a key contributor to the local arts. We are proud to sponsor
the internationally acclaimed literary festival ‘Listowel Writers
Week’, including the festival’s top prize ‘The Kerry Group Novel
of the Year’.
We are also corporate sponsor to Ireland’s National Folk Theatre,
Siamsa Tire, an organisation that helps keep Irish folk traditions
alive through production and training of young people in the
traditional arts.
Education
We understand the importance of education in promoting
economic opportunities and as an organisation we offer a number
of scholarships across our regions each year. In Malaysia, Kerry
has supported primary school children in providing back to school
packs, computers for schools and partnering with WWF (World
Wildlife Fund) to organise an Eco-Schools Training Programme.
Our sustainable vanilla programme in Madagascar also has a key
focus on education (see page 62).
We are sponsors of the Origin Green Ambassador Programme,
through which 10 talented individuals are selected to complete
an MSc in Business Sustainability. The programme is designed
to help equip businesses for the sustainability challenges that
lie ahead by growing the expertise and pool of talent within our
industry. Kerry is also a supporter of post-doctoral research
across the humanities and sciences through University College
Dublin’s Newman Fellowship Programme.
72
Kerry Group Annual Report 2018 RISK
REPORT
EFFECTIVE
RISK
MANAGEMENT
As a leader in the
global taste and
nutrition industry,
it is critical that Kerry
has a robust risk
management framework
in place to identify,
assess, prioritise and
effectively manage its
risks in order to ensure
that it can continue
to grow profitably.
The Group’s success depends on its
ability to identify and exploit the
opportunities generated by the business
and to determine the nature and extent
of the risks it is willing to take 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,
suppliers 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 Board has implemented appropriate
governance structures to ensure that there
is clarity of ownership and responsibility
for risk management throughout the
Group. An overview of the Group’s
risk management and internal control
Kerry Group Risk Management Framework
framework, responsibilities within it and
the relationship between functions is
outlined in the diagram.
Board of Directors
The Board of Directors are ultimately
responsible for the management of risk
and for setting the Group’s risk appetite.
The Board ensures that appropriate risk
management and internal control systems,
designed to identify, manage and mitigate
potential material risks to the achievement
of the Group’s strategic and business
objectives, are in place. The Board also
sets 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
considered how the Group’s principal risks
and uncertainties could potentially impact
the going concern and long term viability
of the Group. The conclusions of this
assessment are outlined on page 86.
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
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Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements Audit Committee
Under delegation from the Board, the Audit
Committee is responsible for providing
structured and systematic oversight of
the Group’s risk management and internal
control systems. The Audit Committee
reviews and monitors the effectiveness
of the Group’s risk management and
internal control systems throughout the
year 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. The Chairman
of the Audit Committee reports to the
Board at each Board meeting on its
activities both in regard to audit matters
and risk management.
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 101-105.
Risk Oversight Committee
The Risk Oversight Committee (ROC) is
chaired by the Chief Financial Officer and
comprises senior Group and divisional
management. The ROC supports the
Audit Committee in the risk management
process through ongoing monitoring and
evaluation of the risk environment and the
controls in place to manage those risks
in addition to consideration of emerging
risks which may impact the Group in the
future. The ROC also ensures that there
is a continuous focus on improving 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 and Board on an annual basis.
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 both
key existing business risks and newly
emerging 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 Quality, Health, Safety
and Environmental (QHSE) 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 is operational
management who have day-to-day
responsibility for implementing and
monitoring effective internal controls
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 involves
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 processes 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
Groupwide approach that facilitates the
identification and evaluation of risks,
as well as assessing how the risks are
monitored, managed and mitigated. As an
enhancement to this process in 2018, a
consideration of key emerging risks was
also completed. This process is facilitated
by Internal Audit and overseen by the
ROC. Both ongoing and emerging risks
were evaluated through bottom-up input
from management across all divisional and
functional areas who, through a programme
of one-on-one interviews and a survey,
performed a detailed review exercise to
update the Group risk register.
During this process all existing strategic,
operational, 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 evaluates
the risks at a residual level after existing
internal controls have been considered.
74
Kerry Group Annual Report 2018 Emerging Risks
The new 2018 UK Corporate Governance
Code which is effective for financial years
commencing on or after 1 January 2019,
includes an additional requirement for
Boards to consider emerging risks as
part of their overall risk management
responsibilities. In order to comply with
this new requirement, the Group’s risk
assessment process was enhanced in
2018 to include a consideration of key
emerging risks.
Having reviewed the outcome of the risk
assessment process, the Board is satisfied
that there are no significant emerging
risks that could impact the achievement
of the Group’s strategic objectives in the
near term. However, there are a number
of risks which must be monitored as they
may have a potential impact for the Group
in the future. Key emerging risks in this
category include, Technology Innovation
and Disruption, Climate Change and
Water Scarcity.
A standard risk scoring matrix provides
guidance on impact and likelihood to
ensure consistency in reporting.
The output from the interviews and survey
are consolidated and ranked to identify
the key 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
that could threaten the business model,
future performance, solvency or liquidity
of the Group. Throughout the year, the
Board considers the appropriateness of
the strategies and actions to address
these risks in pursuit of the Group’s
strategic objectives.
Risk Appetite
The Kerry Group Board of Directors
consider and assess risks in three broad
categories namely; strategic, operational
and financial & compliance. As a Taste &
Nutrition and Consumer Foods business,
the Board has a low risk appetite for risks
which may impact the Group’s reputation
or brands, in the financial & compliance
or operational areas such as product
quality 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.
developing 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.
Principal Risks
and Uncertainties
The table overleaf 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 26-28.
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.
Likewise, some of the current risks may
drop off the schedule as management
actions are implemented or changes in the
operating environment occur.
The Board has reviewed the principal risks
and considers that, while there has not
been a significant change in these risks in
the past year, they do continue to closely
monitor the ongoing political situation in
the UK with regard to the UK’s impending
exit from the EU in March 2019 as it is likely
that the outcome will have implications for
the Group. The Board also continues to
monitor risk in the context of the growth of
the Group through geographic expansion
and ongoing acquisitions, in addition to
regulatory change.
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Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements Principle Risks and Uncertainties
Link to Strategic Priorities for Growth as per the Strategic Report
Taste & Nutrition
Strategic Growth Priorities
Consumer Foods
Strategic Growth Priorities
Margin
Expansion Drivers
Description and Impact
Mitigation
Developments in 2018
The Group operates across a diverse portfolio of markets and
channels, and demand for products is impacted by a variety
of factors including economic, demographic, technology and
competitor actions. In addition, ever increasing consumer
demands are 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 marketplace, and ensure it optimises its portfolio of
markets, customers, technologies and channels. Failure to plan
and respond to these evolving marketplace dynamics could
have an adverse impact on the future growth and profitability
of the Group.
The UK’s scheduled exit from the EU in March 2019 has the
potential to significantly change the terms of trade which
currently exist between the EU and the UK. The Group continues
to monitor the ongoing political situation and whilst the outcome
is difficult to predict, it has considered the potential impacts
across a number of different scenarios.
The Group believes that in a worst case scenario i.e. a ‘no-deal’
Brexit, the risks are manageable in the medium-term. However,
there may be a short term impact to its operational supply chain
which may result in additional costs.
The implementation of World Trade Organisation (WTO) level
tariffs will also have a significant impact on trade, the impact of
which will need to be managed through the Group’s sourcing and
pricing model.
– The Group’s strategy and business plans are designed
–
In 2018, the Group continued to evolve its organisational
to ensure that resources are prioritised towards those
structure to ensure that it remains both responsive to
technologies and markets having greatest long term
changing marketplace dynamics and fit for purpose to
potential for the Group. Proposed investments are assessed
deliver on its strategic plan.
using Return on Average Capital Employed (ROACE) which
–
Significant progress was made in leveraging and
is one of the Group’s key performance indicators as shown
strengthening the Group’s industry-leading portfolio of
on page 31. All significant investments and strategic plans are
foundational technologies e.g. TasteSense, Smoke & Grill
reviewed by the Board on a regular basis.
and Clean Label preservation.
– Post implementation reviews are undertaken of all major
– During the year, the Group CEO hosted a conference for
investment projects to ensure that expected returns are
over 200 leaders from across the globe to support the
achieved and to inform future decisions in relation to
Group’s objective of being a locally led and globally connected,
resource allocation where appropriate.
customer centric organisation. The objective of the conference
– As described in ‘Our Business Model’ on pages 22-23 the
included driving customer driven decision making across the
positioning of the Taste & Nutrition business as an integrated
organisation to maximise the value we create for customers
solutions provider underpinned by its unique business model
and the Group.
is a key differentiator in the marketplace.
–
Investment in ‘Culinary and Insights’ enables the Group to
stay ahead of ever-changing consumer preferences and
provides foresight into future consumer demands and
market and competitor intelligence.
– A cross functional Executive Steering Committee is in place
– The Group has been engaging with key vendors and
that meets on a regular basis to access the consequences of
customers to ensure adequate inventory is in place in the
Brexit, with all major business functions represented.
event of supply chain disruption.
– The Group’s operational footprint across Europe and the UK
– The Group has invested in IT systems and processes to ensure
provides it with a well balanced and flexible platform from
it is ready to deal with the potential increased documentation
which to serve European and Global customers, regardless of
and regulatory requirements.
the outcome of the Brexit process.
–
In order to minimise the cost implications of trade tariffs, the
– The Group has considerable expertise in managing cross-
Group plans to optimise its global sourcing capabilities as
border product movements, having purchases and sales in
well as localising raw material sourcing and finished goods
over 140 countries.
production where feasible.
– Where on-costs due to the change in trade tariffs cannot be
eliminated through other means, the Group plans to recover
increased costs through customer pricing.
Risk
PORTFOLIO
MANAGEMENT
Strategic Risk
Trend/Link
Trend
Link to Strategic Priorities
BREXIT
Strategic Risk
Trend
Link to Strategic Priorities
76
Kerry Group Annual Report 2018
Risk
PORTFOLIO
MANAGEMENT
Strategic Risk
Trend/Link
Trend
The Group operates across a diverse portfolio of markets and
channels, and demand for products is impacted by a variety
of factors including economic, demographic, technology and
competitor actions. In addition, ever increasing consumer
Link to Strategic Priorities
demands are resulting in unprecedented fragmentation of the
marketplace.
BREXIT
Strategic Risk
Trend
Link to Strategic Priorities
Successfully achieving growth targets is dependent upon the
Group’s ability to strategically evaluate and respond to this
dynamic marketplace, and ensure it optimises its portfolio of
markets, customers, technologies and channels. Failure to plan
and respond to these evolving marketplace dynamics could
have an adverse impact on the future growth and profitability
of the Group.
The UK’s scheduled exit from the EU in March 2019 has the
potential to significantly change the terms of trade which
currently exist between the EU and the UK. The Group continues
to monitor the ongoing political situation and whilst the outcome
is difficult to predict, it has considered the potential impacts
across a number of different scenarios.
The Group believes that in a worst case scenario i.e. a ‘no-deal’
Brexit, the risks are manageable in the medium-term. However,
there may be a short term impact to its operational supply chain
which may result in additional costs.
The implementation of World Trade Organisation (WTO) level
tariffs will also have a significant impact on trade, the impact of
which will need to be managed through the Group’s sourcing and
pricing model.
Description and Impact
Mitigation
Developments in 2018
Risk Trend
Risk is unchanged
Risk has increased
Risk has decreased
– The Group’s strategy and business plans are designed
to ensure that resources are prioritised towards those
technologies and markets having greatest long term
potential for the Group. Proposed investments are assessed
using Return on Average Capital Employed (ROACE) which
is one of the Group’s key performance indicators as shown
on page 31. All significant investments and strategic plans are
reviewed by the Board on a regular basis.
–
–
In 2018, the Group continued to evolve its organisational
structure to ensure that it remains both responsive to
changing marketplace dynamics and fit for purpose to
deliver on its strategic plan.
Significant progress was made in leveraging and
strengthening the Group’s industry-leading portfolio of
foundational technologies e.g. TasteSense, Smoke & Grill
and Clean Label preservation.
– Post implementation reviews are undertaken of all major
investment projects to ensure that expected returns are
achieved and to inform future decisions in relation to
resource allocation where appropriate.
– As described in ‘Our Business Model’ on pages 22-23 the
–
positioning of the Taste & Nutrition business as an integrated
solutions provider underpinned by its unique business model
is a key differentiator in the marketplace.
Investment in ‘Culinary and Insights’ enables the Group to
stay ahead of ever-changing consumer preferences and
provides foresight into future consumer demands and
market and competitor intelligence.
– A cross functional Executive Steering Committee is in place
that meets on a regular basis to access the consequences of
Brexit, with all major business functions represented.
– The Group’s operational footprint across Europe and the UK
provides it with a well balanced and flexible platform from
which to serve European and Global customers, regardless of
the outcome of the Brexit process.
– The Group has considerable expertise in managing cross-
border product movements, having purchases and sales in
over 140 countries.
– During the year, the Group CEO hosted a conference for
over 200 leaders from across the globe to support the
Group’s objective of being a locally led and globally connected,
customer centric organisation. The objective of the conference
included driving customer driven decision making across the
organisation to maximise the value we create for customers
and the Group.
– The Group has been engaging with key vendors and
customers to ensure adequate inventory is in place in the
event of supply chain disruption.
– The Group has invested in IT systems and processes to ensure
it is ready to deal with the potential increased documentation
and regulatory requirements.
In order to minimise the cost implications of trade tariffs, the
Group plans to optimise its global sourcing capabilities as
well as localising raw material sourcing and finished goods
production where feasible.
–
– Where on-costs due to the change in trade tariffs cannot be
eliminated through other means, the Group plans to recover
increased costs through customer pricing.
77
Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements
Link to Strategic Priorities for Growth as per the Strategic Report
Taste & Nutrition
Strategic Growth Priorities
Consumer Foods
Strategic Growth Priorities
Margin
Expansion Drivers
Risk
GEOPOLITICAL
Strategic Risk
Trend/Link
Trend
Link to Strategic Priorities
BUSINESS
ACQUISITION
AND DIVESTITURE
Strategic Risk
Trend
Link to Strategic Priorities
Description and Impact
As a global business operating across many jurisdictions, the
Group is exposed to changes in the geopolitical environment.
Such changes include economic or political instability,
increasingly complex legal and regulatory frameworks, currency
volatility and varying standards of quality and security. 2018 has
also seen an increase globally in the level of protectionist trade
policies, tariffs and sanctions. Such ongoing change and volatility
may have a potential impact on the future growth and profitability
of the Group.
In 2018, 27% of Taste & Nutrition’s revenue came from developing
markets. As outlined in the Group’s ‘Strategic Priorities for Growth’
on page 27 developing markets will remain a key pillar for growth
in the future, thereby exposing the Group to potentially increased
economic and political volatility.
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 may not be
delivered resulting in a delay in the achievement 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
Mitigation
Risk is unchanged
Risk has increased
Risk has decreased
Developments in 2018
– The Group conducts rigorous due diligence when entering or
– The Group has invested in enhanced supply chain technology
commencing business activities in new markets.
solutions to support its international business in an
– The diversity of countries in which the Group operates ensures
increasingly complex trading environment.
that it is not overly exposed to any one particular geography.
–
In 2018, the Group continued to invest in its structure to
– The Group’s legal, regulatory and compliance functions ensure
ensure that the appropriate skills and expertise are available
that applicable laws and regulations are complied with. In
to support its growth in developing markets. This included
addition, a dedicated team of experts is in place to oversee
investment in the Group Country Compliance structure,
compliance in the areas of customs, tariffs and duties. This
operations and supply chain management and Country/End
team ensures compliance across all jurisdictions and also
Use Market sales structures.
monitors ongoing developments to ensure the Group is best
positioned to deal with changes as they arise.
– Group policies require businesses to hedge transactional
currency exposures and long term supply or purchase
contracts which give rise to currency exposures.
–
Board approval is required for all transactions and regular
– A significant number of new acquisitions were successfully
updates are presented to the Board on potential targets,
added to the Group during 2018 which included manufacturing
including strategic evaluations of any proposed significant
operations in new countries such as Oman and El Salvador.
investments. This includes an assessment of their ability to
– The Group further strengthened its resource capability in
generate the required return on investment and a review of
the M&A team to support its growth strategy. The internal
their strategic fit within the Group.
team is supplemented by external expert resources when
– The Group has developed significant expertise in identifying
and where required.
and evaluating appropriate targets and conducting due
diligence and subsequent transaction execution.
– A strong governance system is in place to oversee the
integration process for acquisitions including the appointment
of a senior business owner who, supported by a team of
appropriately skilled personnel, 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.
78
Kerry Group Annual Report 2018
Risk
GEOPOLITICAL
Strategic Risk
Trend/Link
Trend
Link to Strategic Priorities
volatility and varying standards of quality and security. 2018 has
As a global business operating across many jurisdictions, the
Group is exposed to changes in the geopolitical environment.
Such changes include economic or political instability,
increasingly complex legal and regulatory frameworks, currency
also seen an increase globally in the level of protectionist trade
policies, tariffs and sanctions. Such ongoing change and volatility
may have a potential impact on the future growth and profitability
of the Group.
In 2018, 27% of Taste & Nutrition’s revenue came from developing
markets. As outlined in the Group’s ‘Strategic Priorities for Growth’
on page 27 developing markets will remain a key pillar for growth
in the future, thereby exposing the Group to potentially increased
economic and political volatility.
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 may not be
delivered resulting in a delay in the achievement of the expected
return on investment and a subsequent impact on the strategic
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.
BUSINESS
ACQUISITION
AND DIVESTITURE
Strategic Risk
Trend
Link to Strategic Priorities
development of the Group.
Description and Impact
Mitigation
Developments in 2018
– The Group conducts rigorous due diligence when entering or
– The Group has invested in enhanced supply chain technology
Risk Trend
Risk is unchanged
Risk has increased
Risk has decreased
–
solutions to support its international business in an
increasingly complex trading environment.
In 2018, the Group continued to invest in its structure to
ensure that the appropriate skills and expertise are available
to support its growth in developing markets. This included
investment in the Group Country Compliance structure,
operations and supply chain management and Country/End
Use Market sales structures.
– A significant number of new acquisitions were successfully
added to the Group during 2018 which included manufacturing
operations in new countries such as Oman and El Salvador.
– The Group further strengthened its resource capability in
the M&A team to support its growth strategy. The internal
team is supplemented by external expert resources when
and where required.
commencing business activities in new markets.
– The diversity of countries in which the Group operates ensures
that it is not overly exposed to any one particular geography.
– The Group’s legal, regulatory and compliance functions ensure
that applicable laws and regulations are complied with. In
addition, a dedicated team of experts is in place to oversee
compliance in the areas of customs, tariffs and duties. This
team ensures compliance across all jurisdictions and also
monitors ongoing developments to ensure the Group is best
positioned to deal with changes as they arise.
– Group policies require businesses to hedge transactional
currency exposures and long term supply or purchase
contracts which give rise to currency exposures.
–
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 expertise in identifying
and evaluating appropriate targets and conducting due
diligence and subsequent transaction execution.
– A strong governance system is in place to oversee the
integration process for acquisitions including the appointment
of a senior business owner who, supported by a team of
appropriately skilled personnel, 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.
79
Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements
Link to Strategic Priorities for Growth as per the Strategic Report
Taste & Nutrition
Strategic Growth Priorities
Consumer Foods
Strategic Growth Priorities
Margin
Expansion Drivers
Risk
QUALITY, FOOD
SAFETY &
REGULATORY
Operational Risk
Trend/Link
Trend
Description and Impact
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.
Link to Strategic Priorities
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,
litigation, customer dissatisfaction or consumer illness, which may
have a negative impact on the Group’s results and/or reputation.
TALENT
MANAGEMENT
Operational Risk
Trend
The ability to attract, develop and retain appropriately qualified
employees is critical if the Group is to continue to compete and
grow effectively.
Link to Strategic Priorities
A failure to identify, attract and retain a strong senior
management talent pipeline may impact the Group’s ability to
achieve its strategic growth objectives.
80
Risk Trend
Mitigation
Risk is unchanged
Risk has increased
Risk has decreased
Developments in 2018
– A Global Quality and Food Safety structure provides leadership
– The Group has maintained a continued focus on
in key areas such as Hazard Analysis and Critical Control
achieving a ‘right first time’ quality culture through people
Points (HACCP) and global supply quality.
development and ongoing training programmes.
–
Food safety risk is mitigated through detailed and proactive
– A strong capital investment programme in the Group’s
risk assessments across the full product lifecycle. A Global
plants supports a continual raising of the bar in terms of
Quality Management System (GQMS), consisting of robust
quality standards.
policies, procedures and training, supports the Group’s
– The Group continues to enhance its global quality
manufacturing and supply chain functions.
standards and policies to include key learnings and
– Kerry manufacturing sites are subject to regular audits by
industry/regulatory change.
internal teams, customers and independent bodies who
– The Group has implemented industry-leading
audit against recognised global food safety standards.
environmental microbiology monitoring programmes to
– The global supply quality team, in conjunction with the
proactively detect and prevent potential issues in its plants.
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. The Group closely monitors and engages
with external industry organisations on emerging issues.
– The Group has appropriate crisis management processes in
place to deal with any incident that may arise.
– Adequate product liability insurance is maintained across
the Group.
regular review.
– The Group’s employment policies and practices are kept under
– The Group continued to implement appropriate responses
to its most recent global employee engagement survey
– The Group has established a Global Community of Expertise
(ourVoice) which was conducted in 2017.
for Leadership, Learning and Talent to assist in mitigating
– The Group maintained ongoing focus on enhancing the
talent risk and building organisational capabilities for the future.
diversity of its talent pipeline and nurturing local talent in
–
Salaries and other benefits are benchmarked regularly to
developing markets.
ensure that the Group remains competitive and the Group
– A new global HR system to support the Group’s talent
operates both short and long term structures to ensure that
management processes was deployed.
high performing employees are adequately rewarded and
–
Succession plans were refreshed with a focus on critical
retained.
leadership roles within the Group and this will further expand
– A wide range of training programmes including a focused
in 2019.
graduate development programme, are in place.
–
Introduction of a robust and objective approach to identifying,
– A Global Mobility Team supports the deployment and
assessing and accelerating talent readiness to meet business
relocation of key talent within the organisation.
needs. This will be further evolved as part of our approach to
– Talent acquisition teams facilitate opportunities to develop
leadership development, supported by appropriate policies
internal talent globally and promote Kerry externally to support
and governance in 2019.
the development of future talent pipelines.
–
Establishment of a Global Recognition Framework to promote
the further growth and consistency of regional and local
recognition programmes, reinforcing our shared values.
Kerry Group Annual Report 2018
Trend/Link
Trend
Risk
QUALITY, FOOD
SAFETY &
REGULATORY
Operational Risk
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.
Link to Strategic Priorities
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,
litigation, customer dissatisfaction or consumer illness, which may
have a negative impact on the Group’s results and/or reputation.
TALENT
MANAGEMENT
Operational Risk
Trend
The ability to attract, develop and retain appropriately qualified
employees is critical if the Group is to continue to compete and
grow effectively.
Link to Strategic Priorities
A failure to identify, attract and retain a strong senior
management talent pipeline may impact the Group’s ability to
achieve its strategic growth objectives.
Description and Impact
Mitigation
Developments in 2018
Risk Trend
Risk is unchanged
Risk has increased
Risk has decreased
–
– A Global Quality and Food Safety structure provides leadership
in key areas such as Hazard Analysis and Critical Control
Points (HACCP) and global supply quality.
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. The Group closely monitors and engages
with external industry organisations on emerging issues.
– The Group has appropriate crisis management processes in
place to deal with any incident that may arise.
– Adequate product liability insurance is maintained across
the Group.
– The Group’s employment policies and practices are kept under
regular review.
–
– The Group has established a Global Community of Expertise
for Leadership, Learning and Talent to assist in mitigating
talent risk and building organisational capabilities for the future.
Salaries and other benefits are benchmarked regularly to
ensure that the Group remains competitive and the Group
operates both short and long term structures to ensure that
high performing employees are adequately rewarded and
retained.
– A wide range of training programmes including a focused
graduate development programme, are in place.
– A Global Mobility Team supports the deployment and
relocation of key talent within the organisation.
– Talent acquisition teams facilitate opportunities to develop
internal talent globally and promote Kerry externally to support
the development of future talent pipelines.
–
– The Group has maintained a continued focus on
achieving a ‘right first time’ quality culture through people
development and ongoing training programmes.
– A strong capital investment programme in the Group’s
plants supports a continual raising of the bar in terms of
quality standards.
– The Group continues to enhance its global quality
standards and policies to include key learnings and
industry/regulatory change.
– The Group has implemented industry-leading
environmental microbiology monitoring programmes to
proactively detect and prevent potential issues in its plants.
– The Group continued to implement appropriate responses
to its most recent global employee engagement survey
(ourVoice) which was conducted in 2017.
– The Group maintained ongoing focus on enhancing the
diversity of its talent pipeline and nurturing local talent in
developing markets.
– A new global HR system to support the Group’s talent
–
–
management processes was deployed.
Succession plans were refreshed with a focus on critical
leadership roles within the Group and this will further expand
in 2019.
Introduction of a robust and objective approach to identifying,
assessing and accelerating talent readiness to meet business
needs. This will be further evolved as part of our approach to
leadership development, supported by appropriate policies
and governance in 2019.
Establishment of a Global Recognition Framework to promote
the further growth and consistency of regional and local
recognition programmes, reinforcing our shared values.
81
Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements
Link to Strategic Priorities for Growth as per the Strategic Report
Taste & Nutrition
Strategic Growth Priorities
Consumer Foods
Strategic Growth Priorities
Margin
Expansion Drivers
Risk
Trend/Link
Description and Impact
Developments in 2018
INFORMATION
SECURITY &
CYBERCRIME
Operational Risk
Trend
Link to Strategic Priorities
The Group is dependent on a robust ICT infrastructure for the
operation of its principal business processes. 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.
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, confidential data being accessed
or theft of Intellectual Property (IP) or financial assets. Such
issues could have a significant customer, financial, operational or
reputational impact.
The Group is responsible for ensuring that appropriate policies
and procedures are in place to ensure that it is compliant with
all relevant data privacy legislation. A breach of such legislation
could result in legal fines and damage to the Group’s reputation.
MARGIN
MANAGEMENT
Operational Risk
Trend
Link to Strategic Priorities
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 the current inflationary environment
and increased competitive pressures in the marketplace, an
inability to pass on cost increases to customers may impact
the Group’s margins.
KERRYCONNECT
Operational Risk
Trend
Link to Strategic Priorities
As part of the strategy to roll out a common ICT solution and
standard ways of working across the Group, the deployment of
Kerryconnect commenced in the North America region at the
end of 2018 and is planned to complete in 2021. Project delays, or
go-live issues may dilute critical resources and disrupt operations
reducing the Group’s ability to serve customers. An overrun in
costs due to scope creep, delayed implementation or failure to
deliver projected efficiencies may have a negative financial impact
on the Group.
82
Risk is unchanged
Risk has increased
Risk has decreased
Risk Trend
Mitigation
– A dedicated ICT security team is in place which is supported
–
In 2018, an external consultant was engaged to conduct a
by an Executive ICT Security Steering Committee.
cyber security risk assessment. This confirmed that the Group
– An ongoing security enhancement programme is in place
has made significant progress in establishing strong cyber
which continuously develops and deploys additional measures
security practices. The recommendations from this review
in the areas of intrusion protection, data loss prevention
have been incorporated into the ICT security team’s roadmap
and identity management. This programme is aligned to the
to further strengthen the overall cyber security maturity
Centre for Internet Security Critical Control framework which
posture of the Group
is a globally recognised best practice tool in the area of ICT
– The Group has invested in cyber insurance to transfer part of
security controls.
the risk of any deliberate attack over to our insurer.
– As part of the Group’s crisis management processes, ICT
– An extensive programme of work was completed to ensure the
carries out business impact assessments on core systems and
Group complies with the requirements of the new EU General
regularly tests and refines business recovery plans to ensure
Data Protection Regulation (GDPR) legislation.
efficient system recovery. Critical infrastructure is hosted in a
cloud platform, which enables the restoration of key enterprise
applications rapidly in the event of a major system failure.
– The ‘Leading to Safer’ awareness programme ensures
continued focus on raising the awareness of ICT security to all
employees through mandatory online training, poster/internal
intranet campaigns and simulated phishing exercises.
– The Group has established an appropriate governance
structure with regards to data protection which has included
the recruitment of an experienced Group Data Protection
Officer.
– The Group maintains a strong commercial focus on
– A strategic review of the commercial pricing processes was
procurement, pricing and cost improvement initiatives to
completed and a number of improvement initiatives were
manage and mitigate this risk. In addition, all global commercial
identified to enhance its ways of working.
teams have been trained in margin management principles.
– The Group continues to strengthen its investment in skilled
– The commercial implications of commodity price movements
and experienced procurement and commercial managers and
are continuously assessed and an active risk management
is also investing in ICT systems to embed standard processes
approach is in place, which includes taking purchasing cover
across the Group.
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 Kerryconnect programme is supported by an Executive
– The LATAM Kerryconnect deployment was completed in 2018
Steering team and a robust governance framework.
without any significant interruption to the business.
– The Kerryconnect implementation team has accumulated
– The North American deployment schedule was approved
significant knowledge and experience from prior roll-outs
by the Executive Steering team and key appointments were
in other regions (Europe, APMEA, LATAM) and takes these
made to support the roll-out. Pre-implementation work has
learnings into the next stage of deployment.
commenced and is operating to schedule.
– As in previous deployments a phased approach to rollout will
be taken in North America with the first sites scheduled to go
live in Q4 2019. Critical KPIs and other issues are reviewed at
regular steering meetings.
Kerry Group Annual Report 2018
Risk
Trend/Link
Description and Impact
Mitigation
Developments in 2018
Risk Trend
Risk is unchanged
Risk has increased
Risk has decreased
INFORMATION
SECURITY &
CYBERCRIME
Operational Risk
Trend
Link to Strategic Priorities
The Group is dependent on a robust ICT infrastructure for the
operation of its principal business processes. 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.
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, confidential data being accessed
or theft of Intellectual Property (IP) or financial assets. Such
issues could have a significant customer, financial, operational or
reputational impact.
The Group is responsible for ensuring that appropriate policies
and procedures are in place to ensure that it is compliant with
all relevant data privacy legislation. A breach of such legislation
could result in legal fines and damage to the Group’s reputation.
MARGIN
MANAGEMENT
Operational Risk
Trend
Link to Strategic Priorities
changes in regulations. Given the current inflationary environment
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
and increased competitive pressures in the marketplace, an
inability to pass on cost increases to customers may impact
the Group’s margins.
KERRYCONNECT
Operational Risk
Trend
Link to Strategic Priorities
go-live issues may dilute critical resources and disrupt operations
As part of the strategy to roll out a common ICT solution and
standard ways of working across the Group, the deployment of
Kerryconnect commenced in the North America region at the
end of 2018 and is planned to complete in 2021. Project delays, or
reducing the Group’s ability to serve customers. An overrun in
costs due to scope creep, delayed implementation or failure to
deliver projected efficiencies may have a negative financial impact
on the Group.
– A dedicated ICT security team is in place which is supported
–
by an Executive ICT Security Steering Committee.
– An ongoing security enhancement programme is in place
which continuously develops and deploys additional measures
in the areas of intrusion protection, data loss prevention
and identity management. This programme is aligned to the
Centre for Internet Security Critical Control framework which
is a globally recognised best practice tool in the area of ICT
security controls.
– As part of the Group’s crisis management processes, ICT
carries out business impact assessments on core systems and
regularly tests and refines business recovery plans to ensure
efficient system recovery. Critical infrastructure is hosted in a
cloud platform, which enables the restoration of key enterprise
applications rapidly in the event of a major system failure.
– The ‘Leading to Safer’ awareness programme ensures
continued focus on raising the awareness of ICT security to all
employees through mandatory online training, poster/internal
intranet campaigns and simulated phishing exercises.
– The Group has established an appropriate governance
structure with regards to data protection which has included
the recruitment of an experienced Group Data Protection
Officer.
– 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.
– The commercial implications of commodity price movements
are continuously assessed 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.
In 2018, an external consultant was engaged to conduct a
cyber security risk assessment. This confirmed that the Group
has made significant progress in establishing strong cyber
security practices. The recommendations from this review
have been incorporated into the ICT security team’s roadmap
to further strengthen the overall cyber security maturity
posture of the Group
– The Group has invested in cyber insurance to transfer part of
the risk of any deliberate attack over to our insurer.
– An extensive programme of work was completed to ensure the
Group complies with the requirements of the new EU General
Data Protection Regulation (GDPR) legislation.
– A strategic review of the commercial pricing processes was
completed and a number of improvement initiatives were
identified to enhance its ways of working.
– The Group continues to strengthen its investment in skilled
and experienced procurement and commercial managers and
is also investing in ICT systems to embed standard processes
across the Group.
– The Kerryconnect programme is supported by an Executive
– The LATAM Kerryconnect deployment was completed in 2018
Steering team and a robust governance framework.
– The Kerryconnect implementation team has accumulated
significant knowledge and experience from prior roll-outs
in other regions (Europe, APMEA, LATAM) and takes these
learnings into the next stage of deployment.
– As in previous deployments a phased approach to rollout will
be taken in North America with the first sites scheduled to go
live in Q4 2019. Critical KPIs and other issues are reviewed at
regular steering meetings.
without any significant interruption to the business.
– The North American deployment schedule was approved
by the Executive Steering team and key appointments were
made to support the roll-out. Pre-implementation work has
commenced and is operating to schedule.
83
Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements
Link to Strategic Priorities for Growth as per the Strategic Report
Taste & Nutrition
Strategic Growth Priorities
Consumer Foods
Strategic Growth Priorities
Margin
Expansion Drivers
Trend/Link
Trend
Risk
INTELLECTUAL
PROPERTY
MANAGEMENT
Operational Risk
Link to Strategic Priorities
Description and Impact
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.
TAXATION
Financial and
Compliance Risk
Trend
Link to Strategic Priorities
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
Financial and
Compliance Risk
Trend
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.
Link to Strategic Priorities
Risk Trend
Mitigation
Risk is unchanged
Risk has increased
Risk has decreased
Developments in 2018
– The Group continues to focus on developing, enhancing and
– Kerry has made a number of patent applications and
protecting its IP portfolio. As a global leader in the taste and
acquisitions during 2018 to enable the Group to safeguard
nutrition market, Kerry considers its IP security, and that of its
the investment made in developing new technologies.
customers, to be paramount. In addition to Kerry’s policy on
– Throughout 2018, the Group has continued to enhance its
trade secret protection, Kerry has developed sophisticated
IP training programmes to ensure all employees are aware of
tailored IP policies and strategies to protect and defend
their responsibilities in protecting the Group’s IP assets.
against infringements or misuse by employees or third parties.
– The Group continued to develop its centre of expertise
All of these policies form the foundation of Kerry’s IP regime
within the IP Legal team.
and represent a key area of focus for the Group.
– Protection of IP is also a key focus of the ICT Security
Steering Committee.
–
IP protection clauses are a standard element of both
commercial and employment contracts.
– The Group employs a team of dedicated tax experts who
– Appropriate actions were taken to address the implemented
support the Group in ensuring compliance with all taxation
statutory tax changes resulting from individual jurisdictional
matters globally. A programme of continuous professional
tax changes.
development ensures that the team is up to date on relevant
– The Group maintained continued focus on addressing the
tax law changes.
OECD Base Erosion and Profit Sharing requirements.
– 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 constructively engaging
with tax authorities across the jurisdictions in which the
Group operates.
– A Group Finance Committee is in place which monitors
– The Group continually evaluates the nature of its
treasury risk on an ongoing basis.
foreign exchange exposures to ensure its hedging
– The Group maintains significant cash and debt resources
strategy is appropriate.
with relatively long term maturities to ensure the Group’s
– Continuous monitoring of exposure to individual banks,
liquidity requirements are met.
tightening counter-party limits where appropriate.
– The Group’s Treasury function actively manages all treasury
– During the year, the Group facilitated liquidity extension
risks through cash-flow forecasts, foreign currency exposure
into a number of additional jurisdictions.
netting and hedging, monitoring and meeting funding
requirements across its jurisdictions and management
of interest rate and counterparty risk.
84
Kerry Group Annual Report 2018
Trend/Link
Trend
Risk
INTELLECTUAL
PROPERTY
MANAGEMENT
Operational Risk
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
Link to Strategic Priorities
prevention of unauthorised access to sensitive data could have
an adverse effect on the Group’s business and cause significant
reputational damage.
TAXATION
Financial and
Compliance Risk
Trend
Link to Strategic Priorities
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
Financial and
Compliance Risk
Trend
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.
Link to Strategic Priorities
Description and Impact
Mitigation
Developments in 2018
Risk Trend
Risk is unchanged
Risk has increased
Risk has decreased
– The Group continues to focus on developing, enhancing and
protecting its IP portfolio. As a global leader in the taste and
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.
– Protection of IP is also a key focus of the ICT Security
–
Steering Committee.
IP protection clauses are a standard element of both
commercial and employment contracts.
– The Group employs a team of dedicated tax experts who
support the Group in ensuring compliance with all taxation
matters globally. A programme of continuous professional
development ensures that the team is up to date on relevant
tax law changes.
– 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 constructively engaging
with tax authorities across the jurisdictions in which the
Group operates.
– A Group Finance Committee is in place which monitors
treasury risk on an ongoing basis.
– The Group maintains significant cash and debt resources
with relatively long term maturities to ensure the Group’s
liquidity requirements are met.
– The Group’s Treasury function actively manages all treasury
risks through cash-flow forecasts, foreign currency exposure
netting and hedging, monitoring and meeting funding
requirements across its jurisdictions and management
of interest rate and counterparty risk.
– Kerry has made a number of patent applications and
acquisitions during 2018 to enable the Group to safeguard
the investment made in developing new technologies.
– Throughout 2018, the Group has continued to enhance its
IP training programmes to ensure all employees are aware of
their responsibilities in protecting the Group’s IP assets.
– The Group continued to develop its centre of expertise
within the IP Legal team.
– Appropriate actions were taken to address the implemented
statutory tax changes resulting from individual jurisdictional
tax changes.
– The Group maintained continued focus on addressing the
OECD Base Erosion and Profit Sharing requirements.
– The Group continually evaluates the nature of its
foreign exchange exposures to ensure its hedging
strategy is appropriate.
– Continuous monitoring of exposure to individual banks,
tightening counter-party limits where appropriate.
– During the year, the Group facilitated liquidity extension
into a number of additional jurisdictions.
85
Strategic ReportKerry Group Annual Report 2018 Directors’ ReportFinancial Statements
GOING CONCERN AND VIABILITY ASSESSMENT
The Board, having reviewed the Group’s principal risks and uncertainties, assessed the going concern and long term viability of
the Group in line with the requirements of the 2016 UK Corporate Governance Code and the Irish Annex. Its’ conclusions on these
assessments are outlined below.
These scenarios were stress tested both
individually and in combination to assess
their impact on the Group’s solvency,
liquidity and cash flow. This analysis
indicated that significant headroom
existed in all scenarios tested. In addition,
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.
Viability Statement
Based on their assessment of prospects
and viability, 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
the assessment.
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 42-48. The Group’s
2019 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 32-38
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 that cast a significant doubt
on the Group’s and the Company’s ability
to continue as a going concern over a
period of at least 12 months.
Viability Assessment
Assessment of Prospects
In line with Provision C.2.2 of the 2016 UK
Corporate Governance Code, the Directors
have carried out a rigorous review of
the prospects of the Group over the
medium term. In assessing the prospects
of the Group and its ability to meet its
liabilities as they fall due, the Board have
taken account of the Group’s strategic
planning cycle, capital investment plans,
the business model, its diverse portfolio
and the innovation pipeline. The Directors
have also considered the Group’s strong
cash generation and debt maturity profile
in addition to the principal risks and
uncertainties detailed on pages 75-85.
The financial position of the Group, its
cash flows, liquidity position and borrowing
facilities are outlined in the financial review
on pages 32-38.
Assessment of Viability
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 long term viability of
the Group as current capital expenditure
plans, commercial arrangements and
financial projections are considered to be
more reliable and robust over this period.
The Board has considered how the
occurrence of one or more of the Group’s
principal risks and uncertainties could
materially impact the Group’s business
model, future performance, solvency or
liquidity by assessing the impact of these
risks in severe but plausible scenarios.
While each of the principal risks and
uncertainties could have an impact on
the Group’s performance, a significant
food quality failure, an acquisition not
delivering expected returns or a failure to
achieve targeted revenue or margins were
considered most likely to threaten the
Group’s long term viability.
86
Kerry Group Annual Report 2018 We are regulatory experts, serving as trusted
partners helping customers navigate the
dynamic regulatory landscape to comply
and grow locally and globally.
INFORM
Pictured: Zeynep Ilkbahar, Dr. Yvonne Traynor and Sarah Hogan,
Kerry Regulatory and Scientific Affairs.
Kerry Group Annual Report 2018
87
BOARD OF
DIRECTORS
CHAIRMAN & EXECUTIVE DIRECTORS
Mr. Philip Toomey (65)
Chairman of the Board
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 was appointed Chairman of
the Board on 3 May 2018 and has
served as a Director for seven years.
He is Chairman of the Nomination
Committee having previously served
as Senior Independent Director and
Chairman of the Audit Committee.
Appointed: 20 February 2012
and as Chairman 3 May 2018
N
Mr. Edmond Scanlon (45)
Executive Director
Chief Executive
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 in October 2017.
Appointed: 1 October 2017
Ms. Marguerite Larkin (47)
Executive Director
Chief Financial Officer
Marguerite was formerly a senior
partner with Deloitte and held a
number of leadership roles within
Deloitte Ireland including Audit
Assurance and Risk Advisory Leader,
Head of Consumer Business Industry
Practice, Client & Industries Partner
and was a member of the Executive
Committee. She has over 25 years
global experience and has served as
lead client partner for a number of
multinationals operating in a broad
range of industries including food &
beverage, pharma and technology.
Marguerite is a Fellow of Chartered
Accountants Ireland and holds a
Bachelor of Commerce degree and
Masters in Accountancy.
Marguerite was appointed Executive
Director and Group Chief Financial
Officer on 30 September 2018.
Appointed: 30 September 2018
Mr. Gerry Behan (54)
Executive Director
President and CEO
Kerry Taste & 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 11 years.
Appointed: 13 May 2008
Changes to the composition of the Board and its Committees for the year ended 31 December 2018
Committee Membership Key
Mr. Michael Dowling
Retired as Chairman and from
the Board on 3 May 2018.
Mr. Philip Toomey
Appointed Chairman of the
Board on 3 May 2018.
Mr. Christopher Rogers
Appointed to the Board and
as Audit Committee Chairman
on 8 May 2018.
Ms. Joan Garahy
Appointed Senior Independent
Director on 3 May 2018.
Mr. Brian Mehigan
Transitioned from Group CFO
to Chief Strategy Officer on 30
September 2018 and resigned from
the Board on 28 December 2018.
Ms. Marguerite Larkin
Appointed Executive Director and
Group CFO on 30 September 2018.
A Audit Committee
N Nomination Committee
R Remuneration Committee
Indicates Committee Chair
88
Kerry Group Annual Report 2018
NON-EXECUTIVE DIRECTORS
Mr. Gerard Culligan (44)
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
Dr. Hugh Brady (59)
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
A
N
Dr. Karin Dorrepaal (57)
Independent Non-Executive Director
Karin was an Executive Director on
the Board of Schering AG in Berlin
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.
Appointed: 1 January 2015
R
N
Ms. Joan Garahy (56)
Senior Independent
Non-Executive Director
Joan is Managing Director of
ClearView Investments & Pensions
Limited. She has 30 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. She
was appointed Senior Independent
Director on 3 May 2018.
Appointed: 11 January 2012 and
as Senior Independent Director
3 May 2018
R
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Mr. Con Murphy (54)
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 a small private company.
Appointed: 1 June 2017
Mr. James C. Kenny (65)
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
R
N
Mr. Tom Moran (63)
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
R
Mr. Christopher Rogers (58)
Independent Non-Executive Director
Christopher was formerly an Executive
Director of Whitbread plc for 11 years
from 2005, serving as Finance Director
for 7 years and then as Global Managing
Director of Costa Coffee.
His current non-Executive positions
include Senior Independent Director at
Travis Perkins plc and non-Executive
Director at Vivo Energy plc and Walker
Greenbank plc (where he was appointed
as Interim Executive Chairman in
October 2018 until a new Chief Executive
is appointed). He is Chairman of the
Audit and Risk Committee at Vivo
Energy plc and a member of the Audit
Committee at Travis Perkins plc.
He is a Fellow of Chartered Accountants
England and Wales. He is also a visiting
Fellow at Durham University (UK).
He was appointed as a non-Executive
Director and Chairman of the Audit
Committee with effect from 8 May 2018.
Appointed: 8 May 2018
A
Kerry Group Annual Report 2018
89
DIRECTORS’
REPORT
REPORT
OF THE
DIRECTORS
Directors and
Other Information
Directors
Philip Toomey, Chairman
Edmond Scanlon, Chief Executive*
Marguerite Larkin, Chief Financial Officer*
Gerry Behan, President & CEO Taste & Nutrition*
Hugh Brady
Gerard Culligan
Karin Dorrepaal
Joan Garahy
James C. Kenny
Tom Moran
Con Murphy
Christopher Rogers
*Executive Director
Secretary and Registered Office
Ronan Deasy
Kerry Group plc
Prince’s Street
Tralee
Co. Kerry
Ireland
Registrar and Share Transfer Office
Ronan Deasy
Registrar’s Department
Kerry Group plc
Prince’s Street
Tralee
Co. Kerry
Ireland
Website
www.kerrygroup.com
90
Kerry Group Annual Report 2018
Events After the Balance Sheet Date
Since year end, the Group has completed the acquisition of
the business and assets of Southeastern Mills, a coatings and
seasonings business based in the USA.
The Group also expects to complete the previously announced
acquisition of Ariake USA Inc., a natural clean label savoury taste
solutions business, in the second quarter of 2019.
Principal Risks and Uncertainties
In accordance with Section 327(1)(b) of the Companies Act 2014,
Regulation 5(4)(c)(ii) of 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 75-85.
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 €274.6m in 2018 (2017:
€268.7m).
Sustainability
The Group delivered good progress on its sustainability objectives
in 2018 and in the implementation of the Kerry Group Sustainability
Strategy ‘Towards 2020’. 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 environment, marketplace,
workplace and the community are outlined in the Sustainability
Review on pages 49-72.
The Directors submit their Annual Report together with the
audited consolidated financial statements for the year ended 31
December 2018.
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 Euronext Dublin and London Stock Exchanges, Kerry
has an international presence with 147 manufacturing facilities
across the world.
Results and Review of the Business
The Directors are pleased to report another strong performance
for 2018 with an increase in constant currency adjusted earnings
per share (EPS), which is before brand related intangible asset
amortisation and non-trading items (net of related tax), of 8.6%
over 2017 to 353.4 cent (2017: 325.4 cent). Basic EPS of 305.9
cent reduced by 8.3% primarily due to a one-off deferred tax credit
arising from the US tax reform in 2017. Trading margin for the year
was maintained at 12.2% (2017: 12.2%). The Group achieved a free
cash flow of €447m (2017: €501m). Further details of the results
for the year are set out in the Consolidated Income Statement and
in the related notes forming part of the Consolidated Financial
Statements. The Group’s financial key performance indicators are
discussed on pages 30-31.
The Chairman’s Statement, the Chief Executive’s Review, the
Business Reviews and the Financial Review, which are included in
the Strategic Report on pages 10-48, report on the performance of
the Group’s business, including acquisitions and disposals, during
the year and on future developments.
Dividends
On 18 February 2019, the Directors recommended a final dividend
totalling 49.2 cent per share in respect of the year ended 31
December 2018 (see note 10 to the financial statements). This
final dividend per share is an increase of 12.1% over the final 2017
dividend per share paid on 18 May 2018. This dividend is in addition
to the interim dividend paid to shareholders on 16 November 2018,
which amounted to 21.0 cent per share.
The payment date for the final dividend is 10 May 2019 to
shareholders registered on the record date 12 April 2019.
91
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements 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 176,298,416 shares were in issue at 31
December 2018.
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 13 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 3 August 2019 and it is intended to
seek shareholder approval to renew the authority at the Annual
General Meeting (AGM) to be held on 2 May 2019.
Shareholders approved the authority for the Directors to allot
shares for cash on a non-pro rata basis up to a maximum
of 8,809,384 shares at the AGM held on the 3 May 2018,
representing 5% of the A Ordinary Shares in issue on 2 March
2018. Shareholders also approved an authority to allot a further
8,809,384 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 3 August 2019. It is intended to
seek shareholder approval for their renewal at the 2019 AGM.
During 2018, 116,011 shares were allotted pursuant to the
Company’s Short and Long Term Incentive Plans as a result of
shares which vested and options which 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 2018 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 3
August 2019 and it is intended to seek shareholder approval for its
renewal at the 2019 AGM.
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
13.6%
Blackrock Investment Management
8,526,222
4.8%
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.
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 88-89.
Following the individual performance evaluation of all Directors,
as outlined in the Corporate Governance Report on page 99, the
Board recommends the election and re-election of all Directors
seeking election and re-election.
The Directors’ and Company Secretary’s interests in shares and
debentures are included in the Remuneration Report on page 129.
Board and Committee Changes
Michael Dowling retired as Chairman and from the Board following
the conclusion of the AGM on 3 May 2018.
Philip Toomey was appointed Chairman of the Board on 3 May
2018. He stepped down from the Audit Committee and as Senior
Independent Director on the same date.
Joan Garahy was appointed as Senior Independent Director on
3 May 2018.
Christopher Rogers was appointed to the Board on 8 May 2018 and
was appointed Chairman of the Audit Committee on the same date.
Brian Mehigan transitioned from Group CFO to Chief Strategy
Officer on 30 September 2018 and retired from the Board on 28
December 2018.
92
Kerry Group Annual Report 2018 Marguerite Larkin was appointed Group CFO on 30 September
2018 and was appointed to the Board on the same date.
There were no other changes to the composition of the Board and
its Committees during 2018.
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. For the purposes of the European Communities
(Takeover Bids (Directive 2004/25/EC)) Regulations 2006 specific
rules regarding the appointment and re-election of Directors are
referred to in the Nomination Committee Report.
Corporate Governance
The Corporate Governance Report on pages 96-100 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).
Going Concern and Long Term Viability
Statements
The going concern and long term viability statements in the
Risk Report on page 86 sets out the Company’s basis for the
adoption of the going concern basis of accounting in preparing the
Consolidated Financial Statements and the basis for the Directors’
conclusion 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 next three years.
Directors’ Responsibility Statement
The Directors are responsible for preparing the Annual Report and
the financial statements in accordance with applicable laws and
regulations.
Irish company law requires the Directors to prepare financial
statements for each financial year, which give a true and fair view of
the assets, liabilities and financial position of the Company and the
Group, and of the profit or loss of the Group for that period. Under
that law the Directors have elected to prepare group financial
statements in accordance with International Financial Reporting
Standards (‘IFRSs’) 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
unless it is inappropriate to presume that the Group will continue
in business.
The Directors are responsible for ensuring that the company
keeps adequate accounting records which correctly explain and
record the transactions of the company, 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 Euronext Dublin and the UK Listing Authority to prepare
a Directors’ Report and reports relating to Directors’ remuneration
and corporate governance.
Each of the Directors, whose names and functions are listed on
page 90, confirm that, to the best of their knowledge and belief:
– the consolidated financial statements for the year ended 31
December 2018 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 2018;
– the Financial and Business Reviews on pages 32-48 include a
fair review of the development and performance of the business
for the year ended 31 December 2018 and the position of the
Company and the Group at the year end;
– the Risk Report 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 position and performance, business
model and strategy and is fair, balanced and understandable.
93
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements Memorandum and Articles of Association
The Company’s Memorandum and Articles of Association set
out the objects and powers of the Company. The Articles of
Association of the Company may only be amended by way of
special resolution approved by shareholders in a general meeting.
They were last amended, effective as of 3 May 2018, by way of a
special resolution passed at the Annual General Meeting held on
the same date.
A copy of the Articles of Association can be obtained from the
Company’s website (www.kerrygroup.com).
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.
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 2018.
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.
Directors’ Compliance Policy Statement
It is the policy of the Company to comply 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 policies and
systems.
The accounting records of the Company are maintained at the
Company’s registered office.
Accountability and External Audit
A statement relating to the Directors’ responsibilities in respect
of the preparation of the financial statements is set out on page
93 with the responsibilities of the Company’s external Auditors
outlined on page 137.
The financial statements on pages 138-202 have been audited by
PricewaterhouseCoopers (PwC), Chartered Accountants.
In accordance with Section 383(2) of the Companies Act 2014
the Company’s external auditors, PwC, will continue in office.
A resolution authorising the Directors to determine their
remuneration will be proposed at the Annual General Meeting.
Disclosure of Information to the External
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 external 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 external
auditors are aware of that information.
94
Kerry Group Annual Report 2018 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:
Philip Toomey
Chairman
18 February 2019
Edmond Scanlon
Chief Executive
18 February 2019
95
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
GOVERNANCE
REPORT
CORPORATE
GOVERNANCE
REPORT
Diversity at Board level has been a focus for
the Nomination Committee for a number of
years and continues to be a key factor when
considering Board refreshment. Improving
and monitoring diversity beyond gender and
below Board level will be a key area of focus
for the Board and the executive team in 2019.
In order to operate effectively companies
must understand those resources and
relationships that matter most to their
success. The Group’s stakeholders include
shareholders, employees, customers,
suppliers and the community in which it
operates. In line with the requirements of
the new revised Code, the Board will ensure
effective engagement with all stakeholders.
Each year the Board undertakes a formal
evaluation of its effectiveness and that of
its Committees. In 2018, this was an internal
self-assessment which was conducted by
the Chairman of the Board and the Senior
Independent Director. 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 page 99.
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.
Philip Toomey
Chairman of the Board
Dear Shareholder,
I am pleased to present the Kerry Group
Corporate Governance Report for the year
ended 31 December 2018.
The Corporate Governance Report describes
how we apply the main principles of good
governance as set out in the 2016 UK
Corporate Governance Code and the Irish
Annex (the Code). On behalf of the Board, I
can confirm that for the year under review the
Group has fully complied with the provisions
of the Code. As Chairman, I will ensure, with
Board support, that the provisions of the new
UK Corporate Governance Code (effective
from 1 January 2019) will be implemented
maintaining the Group’s commitment to
achieving high standards of governance.
The Board sets the tone and shared values
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. Given the importance
of culture to the success of the Business
Model, the Board will continue to assess and
monitor the Group’s culture to ensure that
it is aligned with the Group’s strategy and
values and is adequately embedded across
the Group.
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 2018, the Board appointed
a new Chairman and Senior Independent
Director, oversaw the CFO transition process
and undertook a formal process to recruit a
new non-Executive Director and Chairman of
the Audit Committee. Details of the Executive
and non-Executive Director and Committee
changes that occurred during the year, are
set out in the Nomination Committee Report
on page 109.
Philip Toomey
Chairman of the Board
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Kerry Group Annual Report 2018
Kerry Group 2018 Annual Report & Accounts
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Leadership
Board Composition and Membership
The Board is responsible for ensuring the long term sustainable
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. Philip Toomey was appointed as Chairman of the Board on
3 May 2018, succeeding Mr. Michael Dowling who retired as a
non-Executive Director and Chairman on the same date. On his
appointment Mr. Toomey met the independence requirements as
set out in the Code.
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 financial as well as industry
and international experience, necessary to provide effective
governance and oversight of the Group.
Board Role and Operations
The Board’s role is to promote the long-term sustainable
success of the Company generating value for all its stakeholders,
including shareholders, employees, customers, suppliers and
the communities in which it operates, while exercising business
judgement on developing strategy, delivering objectives and
managing the risks that face the organisation. It is also responsible
for instilling the appropriate culture, values and behaviours
throughout the organisation. The Board has a formal schedule of
matters specifically reserved to it for decision as noted below and
has delegated other responsibilities to management for day-to-
day operations within the context of the Kerry Group Governance
Framework as outlined on page 98.
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;
– Approval of significant capital expenditure;
– Treasury policy including approval of changes to the Group’s
capital structure;
– Approval of dividend policy and dividends;
– Approval of annual budgets;
– 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, performance
and prospects.
The Directors are responsible for strategic oversight 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 responsibilities include ensuring that Board
procedures are followed, assisting the Chairman in relation to
corporate governance matters and ensuring the Company complies
with its legal and regulatory obligations. 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.
Strategy
2018 was the first year of the Group’s new strategic plan which
was communicated to the market at a Capital Markets Day held in
October 2017. During the year the Board received presentations from
Group and divisional management on progress to date implementing
the strategies for growth, margin expansion and return on investment
that underpin the plan and its associated financial targets. During the
presentations the Board provided input and strategic guidance as
required. The Board is happy with the progress achieved in 2018 and
remains confident that the Business Model and strategies will deliver
sustained value for all stakeholders in the years to come.
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 2018, the Board met seven times and there was full attendance
by all members at meetings held during their time in office.
Kerry Group Annual Report 2018
97
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
Ms. Joan Garahy is the Group’s Senior Independent Director (SID).
The principal role of the SID is to provide a sounding board for
the Chairman and to act as an intermediary for other Directors as
required. The SID is responsible for the appraisal of the Chairman’s
performance throughout the year. She 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
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 Chairpersons.
Further details on the duties, operation and activities of all Board
Committees can be found in their respective reports on pages
101-131 and these reports form part of the Governance Report.
Board Effectiveness
Board Induction and Development
On appointment to the Board, each new non-Executive Director
undergoes a full formal induction programme. This induction
includes an overview of their duties and responsibilities as a
Director, presentations on the Group’s operations and results,
meetings with key executive management and an outline of the
principal risks and uncertainties of the Group.
Throughout the year, the Board as a whole engages in
development through a series of consultations with subject
matter experts on a range of topics including risk management,
corporate governance and strategy. Presentations are also made
by Executive Directors and senior management on various topics
throughout the year in relation to their areas of responsibility.
On an annual basis, a Board meeting is combined with a
comprehensive schedule of visits, over a week-long period, to the
Group’s operating facilities to allow Directors further develop their
understanding of the Group’s activities and meet with local senior
management. The June 2018 Board meeting was held in Kerry’s
Regional Application Centre, in Durban, South Africa. The visit
focused on Kerry’s Taste & Nutrition Strategy for Sub Saharan Africa
(SSA) and Middle East, North Africa and Turkey (MENAT) sub-
regions. It also afforded Board members the opportunity to meet and
engage with key leaders and emerging talent from many countries
in the sub-regions. Whilst in South Africa the Board visited the site
for the Group’s new manufacturing facility in Durban and undertook
a market immersion tour during which the Board saw firsthand the
different markets for the Group’s products in South Africa as well as
having the opportunity to meet with major customers.
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 2018.
Individual Board members training requirements are reviewed with
the Chairman and Company Secretary and training is provided to
address these needs.
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.
Shareholders
Board of Directors
Executive Management
Audit
Committee
(page 101)
Nomination
Committee
(page 106)
Remuneration
Committee
(page 110)
Finance Committee
(page 38)
Risk Oversight Committee
(page74)
Sustainability Council
(page 54)
98
Kerry Group Annual Report 2018 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 2018, 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. During his appraisal the Chairman considered the
recent appointment of Mr. Christopher Rogers as Interim Executive
Chairman at Walker Greenbank plc. The Chairman and the Board
are satisfied that this appointment is temporary and it has not
impacted on Mr. Rogers’ time commitment to Kerry where he
continues to make a valuable contribution to the Board. Prior to
accepting the appointment Mr. Rogers discussed the nature of the
role and the time commitment involved with the Chairman.
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.
During the year, 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
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Overall, the Board concluded that no area of significant weakness
had been identified and that it and its committees operated
effectively throughout the period under review. A number of points
for improvement were identified and action plans established to
address them.
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.
The Chairman, along with the Company Secretary, will ensure that
suggestions from the 2018 self-evaluation report and areas for
consideration arising from the Directors’ appraisal, where identified,
will be addressed during 2019. As required by the Code, the
performance evaluation of the Board, its Committees and Directors
will be externally facilitated in 2019, as the last externally facilitated
evaluation was completed in 2016.
Accountability
Risk Management and Internal Controls
The internal control framework in Kerry Group encompasses 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 101-105.
Full details of the risk management systems are described in the
Risk Report on pages 73-75.
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 75-86. 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. Based on the
review performed, the Directors concluded that for the year ended
31 December 2018, the Group’s systems of risk management and
internal control were effective. 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.
Kerry Group Annual Report 2018
99
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 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;
– 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;
– 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.
Fair, Balanced and Understandable
The Directors have concluded that the Annual Report and financial
statements, taken as a whole, provides the information necessary
for shareholders to assess the Company’s and Group’s position and
performance, business model and strategy and is fair, balanced
and understandable. This assessment was completed by the
Audit Committee and the activities undertaken in reaching this
conclusion are discussed on page 103.
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 Chairpersons
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.
During the year, the Chief Executive, the Chief Financial Officer,
other members of Kerry’s Leadership team, the Sustainability Officer
and the Investor Relations team engaged with investors through a
variety of formats including hosting Kerry Investor events and visits
to Kerry Technology & Innovation Centres in Ireland and Singapore
as well as facilitating both foodservice and supermarket investor
tours. In October, Kerry hosted its first Investor Day in Asia at the
Technology & Innovation Centre in Singapore. Focused on South
East Asia, the local team provided a deep dive into the business to
showcase the proven track record in the region, growth potential and
Kerry’s winning business model. Group Chairman Mr. Philip Toomey,
attended the investor day on behalf of the Board.
Overall the Investor Relations team engaged with over 700
investors through participation in roadshows, meetings and
attendance at conferences in 19 cities.
Executive management supported by the Investor Relations team
maintains constant engagement with the investment community
in relation to many topics including Group strategy, financial
performance, capital allocation and investment decision making,
sustainability, Board composition and succession planning. In
addition, a significant amount of published material including
results releases, presentations, share price information 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 email
alerts when new information is posted to the site.
Annual General Meeting
The AGM provides an opportunity for the Directors to deliver
presentations on the business and for shareholders, both
institutional and private, to question the Directors directly.
All Directors attend the AGM and are available to meet with
shareholders and answer questions as required. Notice of the AGM,
proxy statement and the Annual Report and financial statements
are sent to shareholders at least 20 working days before the
meeting. A separate resolution is proposed at the AGM on each
substantially separate issue including a particular resolution
relating to the 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 3 May 2018, there were no material votes
cast against any resolutions.
100
Kerry Group Annual Report 2018 GOVERNANCE
REPORT
AUDIT
COMMITTEE
REPORT
Christopher Rogers
Chairman of the Audit Committee
The work completed in this regard is set out
on page 103
As outlined on page 105, 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.
Our engagement with the Group Internal Audit
function and external auditors is detailed on
page 104-105.
I trust you will find this report useful in
understanding the operation and activities of
the Committee over the year. I will be available
to shareholders at the forthcoming AGM to
answer any questions relating to the role of
the Committee.
Christopher Rogers
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 2018. This is my first Audit
Committee report having been appointed
as Audit Committee Chairman following
the appointment of Mr. Philip Toomey as
Chairman of the Board on 3 May 2018. I would
like to acknowledge and thank Philip for his
support during the transition process and also
for his valued leadership of the Committee
over the last five years. I would also like to
thank the members of the Committee for their
diligence and support during the year.
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, we have continued to focus our
efforts on the Committee’s core areas of
responsibility of maintaining integrity across
all aspects of Group reporting, internal control,
risk management and audit quality. The
chart on page 102 outlines the allocation of
the Committee’s time across these various
activities.
The Committee is responsible for assisting
the Board in regard to the assessment of the
principal risks facing the Group, including
reviewing the Group’s risk management
and internal control systems. The work
performed by the Committee in this regard
encompassing ongoing monitoring and the
review of effectiveness is detailed on page 103.
The Committee is also responsible for
monitoring the integrity of the Group’s
financial statements and any formal
announcement relating to the Group’s financial
performance. In addition, the Committee
assisted the Board in determining that the
Annual Report and Financial Statements,
when taken as a whole, is fair, balanced and
understandable and provides the information
necessary for shareholders to assess
the Group’s and the Company’s position,
performance, business model and strategy.
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Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
Committee Meetings
The Committee met six times during the year and there was full
attendance by Committee members, who were eligible to attend, at
all meetings.
Typically, the Chief Executive, the Chief Financial Officer, the
Group Financial Controller and the Head of Internal Audit as well
as representatives of the external auditor are invited to attend
meetings of the Committee. In addition, the Chairman of the Board
attends meetings at the invitation of the Committee. When required,
other key executives and senior management are invited to attend
meetings to provide a deeper insight on agenda items related to the
Group’s principal risks.
The Committee meet with the external auditor and the Head of
Internal Audit, without other executive management being present,
on an annual basis in order to discuss any issues which may have
arisen in the year under review.
After each Committee meeting, the Chairman of the Committee
reports to the Board on the key issues which have been discussed.
The allocation of the Audit Committee’s time across each of its key
activities is detailed below.
Allocation of Time
Financial Reporting
Internal Control and
Risk Management
External Audit
Internal Audit
Other
Committee Evaluation
The internal evaluation of Board effectiveness described on page
99 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 exist for considering corporate reporting, risk
management, internal control principles and for maintaining an
appropriate relationship with the Company’s external auditor.
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 key responsibilities outlined in the terms of reference are
included in the table below:
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;
– Advising the Board on 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.
During the year, the Audit Committee Chairman provided a letter to
the Board outlining how the Committee discharged its duties in 2018.
Committee Membership
During 2018, the Audit Committee comprised four independent
non-Executive Directors; Dr. Hugh Brady, Ms. Joan Garahy, Mr. Tom
Moran and was chaired by Mr. Christopher Rogers from 8 May 2018
having succeeded Mr. Philip Toomey who stepped down from the
Committee on 3 May 2018.
As required by the Code, the Board is satisfied that both Mr.
Christopher Rogers and Ms. Joan Garahy meet the requirements for
recent and relevant financial experience. Mr. Rogers has joined the
Committee bringing a wide range of international experience both
as a business leader and as a non-Executive Director. He previously
served as an Executive Director of a global food and drinks FTSE
100 listed company for several years and currently holds a number
of non-Executive Directorships, including Chairman of the Audit
and Risk Committee of a leading FTSE 250 listed energy group. The
Board is satisfied that together, the members of the Committee, as
set out in their biographical details on page 89, bring a broad range
of relevant experience and expertise, from a wide variety of industries
and backgrounds, and as a whole have competence relevant to the
sectors in which the Group operates.
The Company Secretary is the Secretary of the Committee.
102
Kerry Group Annual Report 2018 Financial Reporting
Internal Control and
Risk Management
External Audit
Internal Audit
Other
Significant Financial Reporting Judgements
Business
Combinations
The Group acquired ten businesses during the financial year which were accounted for as business combinations.
The Committee reviewed the methodology and assumptions applied in determining these provisionally estimated fair
values and found the methodology and assumptions to be appropriate following discussion with senior management
and the external auditor.
Impairment
of Goodwill
and Indefinite
Life Intangible
Assets
Goodwill and indefinite life intangible assets, as disclosed in note 12 to the financial statements, represents the largest
number on the Group balance sheet at €4.1bn. The Committee considered the process to complete the annual
impairment review of the Group’s goodwill and indefinite life intangible assets and specifically the assumptions used for
the future cash flows, discount rates, terminal values and growth rates. The Committee found that the methodology used
for the above valuation and annual impairment review are appropriate following discussions with senior management and
the external auditor.
Taxation
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.
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
judgements and disclosures. The table above sets out the significant
matters considered by the Committee in relation to the financial
statements for the year ended 31 December 2018.
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 Group’s and the Company’s position,
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 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
2018 Annual Report 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 and Financial Statements, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group’s and the
Company’s position, performance, business model and strategy.
Internal Control and Risk Management
The Audit Committee supports the Board in its duties to review
and monitor, on an ongoing basis, the effectiveness of the Group’s
risk management and internal control systems. A detailed overview
of the Group’s risk management framework is set out in the Risk
Report on pages 73-75.
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 76-85;
– received presentations on a selection of principal risks and
discussed with senior management the material internal controls
that exist to mitigate these to levels within the Group’s risk appetite;
– reviewed quarterly reports from the Head of Internal Audit based
on internal audits completed outlining non-compliances with
Group controls and managements’ action plans to address them;
– considered reports from the Head of Internal Audit on fraud
investigations or other significant control failures which occurred
during the year and approved plans to address and remediate
the issues identified;
103
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements – received updates from the Group Financial Controller on any
control weaknesses identified through monthly financial review
meetings;
– considered the results of the Kerry Control Reporting System
(the internal control self-assessment review of material finance,
operational and compliance controls) and concluded that the
controls are operating effectively;
– assessed the Group’s risk management and internal control
framework in line with the FRC Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting;
and
– reviewed the report from the external auditor in respect of
significant financial accounting and reporting issues, together
with significant internal control weakness observations.
The Audit Committee, having assessed the above information, is
satisfied that the internal control and risk management framework
is operating effectively and has reported this opinion to the Board.
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 function’s
strategy and annual plan to ensure alignment with the Group’s
principal risks;
– considered and were satisfied that the competencies, experience
and level of resources within the internal audit team were
adequate to achieve the proposed plan;
– considered the role and effectiveness of internal audit in the
overall context of the Group’s risk management framework and
was satisfied that the function has appropriate standing within
the Group;
– received quarterly updates from the Head of Internal Audit on
progress against the agreed plan including the results of internal
audit reports and management’s actions to remediate issues
identified;
– received updates on the nature and extent of non-audit activity
performed by internal audit;
– held a meeting with the Head of Internal Audit without the
presence of management;
– ensured that the Head of Internal Audit had regular meetings
with the Chairman of the Audit Committee and had access to
the Chairman of the Board if required; and
– ensured co-ordination between Group Internal Audit and
the external auditor to maximise the benefits from clear
communication and co-ordinated activities.
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. The most recent EQA was completed in
2017, and 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. The
recommendations are being implemented and the Committee will
continue to monitor this.
On the basis of the above the Committee concluded that for 2018
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 approving 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 Irish Auditing and
Accounting Supervisory Authority’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 the audit of the results for 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 current external auditor, the Committee reviews
and approves any appointment of an individual, within three
years of having previously been employed by the current 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
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.
104
Kerry Group Annual Report 2018 Directors Compliance Statement
During the year, the Audit Committee reviewed the
appropriateness of the Directors Compliance Policy Statement
and also 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 review,
the Committee confirmed to the Board that in its opinion the
Company is in material compliance with its relevant obligations.
Whistleblowing and Fraud Arrangements
During 2018, the Committee considered the Group’s arrangements
for its employees to raise concerns in confidence about possible
wrong doings in financial reporting and any other matters, which
included a review of the Group’s ‘Express a Concern Service’. This
service, which is run by an independent external provider, is multi-
lingual and is accessible to all employees and third parties 24 hours
a day either by phone or by email.
The Committee also considered the Group’s procedures for fraud
prevention and detection to ensure that these arrangements
allow for the proportionate and independent investigation of such
matters and appropriate follow up action. Following this review,
the Audit Committee confirmed to the Board that it was satisfied
that the Group’s whistleblowing and fraud prevention procedures
were adequate.
In 2018, all non-audit services and fees were approved by the
Audit Committee in line with policy. The Committee is satisfied
that the fees paid to PwC which were minimal, did not compromise
their independence or objectivity. Full 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 2017 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 2018 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 2019.
The Audit Committee approved the remuneration of the external
auditor, details of which are set out in note 3 to the financial
statements.
105
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements GOVERNANCE
REPORT
NOMINATION
COMMITTEE
REPORT
An internal review of the effectiveness of the
Board and its’ Committees was conducted
during 2018 and the outcome of this review
is that the Board and its’ Committee are
performing well. Further details are set out on
page 99.
The Committee’s priority for the coming year
will continue to be on Board refreshment
taking account of skill sets required, diversity
and planned retirements over the coming
years. The Committee will also focus on
senior management development and
succession planning whilst having regard
to diversity below Board level and taking
account of business growth and geographic
expansion.
The Committee has considered the changes
resulting from the Financial Reporting
Council’s review of the UK Corporate
Governance Code particularly in relation to
Board diversity and director independence
and will take these into account in its work
programme for 2019.
Philip Toomey
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 2018. This report sets out
the Committee’s key activities in 2018 as well
as the Committee’s priorities for 2019.
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.
On 3 May 2018, I was appointed Chairman of
the Board succeeding Mr. Michael Dowling
who retired from the Board on the same date.
On 30 September 2018, Mr. Brian Mehigan
retired as Chief Financial Officer and stepped
down from the Board on 28 December 2018.
Ms. Marguerite Larkin was appointed Chief
Financial Officer on 30 September 2018 and
to the Board on the same date.
During the year under review, the Committee
continued to lead the Board refreshment
process ensuring that the composition of the
Board and its Committees has the correct
balance of skills, knowledge, experience,
diversity and independence. We engaged
independent external agencies to conduct a
search for new independent non-Executive
Directors. Potential non-Executive Directors
were considered by the Committee and a
shortlist was interviewed after assessing their
qualifications against the above criteria and
their time commitments. This culminated in
the appointment of Mr. Christopher Rogers to
the Board and as Audit Committee Chairman
on 8 May 2018. Mr. Rogers is a highly
experienced international board director
and business leader. Non-Executive Director
succession remains a priority as we continue
to identify a pipeline of appropriate talent.
Philip Toomey
Chairman of the
Nomination Committee
106
Kerry Group Annual Report 2018 Role and Responsibilities
The main roles and responsibilities of the Committee, which were
reviewed during 2018, 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.
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 2018, the Nomination Committee comprised three
independent non-Executive Directors; Dr. Hugh Brady, Dr. Karin
Dorrepaal, Mr. James Kenny and was chaired by Mr. Philip Toomey
who was appointed to the role when Mr. Michael Dowling retired on
3 May 2018.
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.
Committee Meetings
The Committee met five times during the year and there was full
attendance by Committee members, who were eligible to attend, 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
– The Nomination Committee conducts Board
Evaluation
– Considers the skill set, experience, balance
and diversity of the Board
2. Requirement
– If a requirement is identified, the 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
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
During 2018, the Committee engaged Korn Ferry and Spencer
Stuart, both international specialist recruitment firms to assist with
Board refreshment. Neither Korn Ferry nor Spencer Stuart have
any other connection to the Group.
6. Approval
– Board of Directors consider the candidate(s)
recommended by the Committee and approve
the candidate(s)
– In accordance with the Articles of Association,
all newly appointed Directors are subject to
election at the AGM following their appointment
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Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements 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.
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.
Board Tenure
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.
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 Board believes in the benefits of having a diverse Board and the
benefits that it can bring to its effective operation. In accordance with
the Board Diversity Policy, differences in background, gender, skills,
experiences, nationality, ethnicity and other attributes are considered
in determining the optimum composition of the Board with the aim
to balance it appropriately. All Board appointments are made on
merit, with due regard to diversity. The Board currently has a 25%
female representation, an increase from the 17% representation in
2017. In line with its diversity policy, and recommended best practice,
the Board’s ambition is to increase this number further. 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.
0
10
20
30
40
A summary of the Group’s current position relating to Board and
senior management diversity is provided below:
0
50
10
20
30
40
50
Executive / Non-Executive Directors
Board Tenure (Years)
Board Age Profile
Executive
25%
Non-Executive
75%
11-15
8%
Executive/Non-Executive Directors
6-10
3-5
0-2
25%
25%
17%
25%
0%
10%
20%
30%
40%
50%
Executive Directors
Non-Executive Directors
Diversity
Board Age Profile
100
80
60
40
20
0
FEMALE
25%
FEMALE
17%
FEMALE
26%
FEMALE
24%
61-65
25%
MALE
75%
MALE
83%
MALE
74%
MALE
76%
56-60
40-55
33%
42%
Board
2018
Board
2017
Senior
Management
2018
Senior
Management
2017
0%
10%
20%
30%
40%
50%
Diversity
100
80
60
40
20
0
108
Kerry Group Annual Report 2018 Key Activities
The key activities of the Committee throughout the year are detailed below:
Subject
Chairman
Succession
Group CFO
Succession
Senior
Independent
Director
Board
Refreshment
Committee Activity
Mr. Michael Dowling retired from the Board on 3 May 2018. The formal process to identify and recommend
a candidate to succeed Mr. Dowling was lead by a separate sub-committee comprising Dr. Hugh Brady,
Dr. Karin Dorrepaal, Mr. Tom Moran and was chaired by Mr. James Kenny. Folllowing the conclusion of this
process Mr. Philip Toomey was appointed Chairman of the Board on 3 May 2018 and stepped down as a member
and Chairman of the Audit Committee and as Senior Independent Director on the same date.
Mr. Brian Mehigan transitioned from Group CFO to Chief Strategy Officer on 30 September 2018 and resigned
from the Board on 28 December 2018. Following the conclusion of a formal process to identify and appoint a new
CFO, the Nomination Committee recommended to the Board that the successful candidate, Ms. Marguerite Larkin,
be appointed to the Board on assuming the role of Group CFO on 30 September 2018. The recommendation was
approved by the Board on 19 February 2018.
Following a process overseen by the Committee, Ms. Joan Garahy was appointed Senior Independent Director
on 3 May 2018.
A new non-Executive Director, Mr. Christopher Rogers was appointed to the Board on 8 May 2018 following a
process conducted by the Committee, in conjunction with external advisors. The Committee and the Board agreed
that Mr. Rogers had a balance of skills, knowledge and experience that matched the requirements set.
Committee
Refreshment
On his appointment as Chairman of the Board, Mr. Toomey was also appointed Chairman of the
Nomination Committee.
Following the conclusion of a process to identify and appoint a new Audit Committee Chairman, the Nomination
Committee recommended to the Board that Mr. Christopher Rogers, given his recent and relevant financial
experience together with his knowledge of the food and beverage industry, be appointed as Audit Committee
Chairman effective on 8 May 2018.
There were no other changes to the composition of the Board Committees during the year.
Board Size and
Composition
In 2018, as part of its remit, the Committee considered the size and composition of the Board. At 31 December
2018, the Board comprised 12 members. Following the retirement of Mr. Michael Dowling and the appointments
of Ms. Marguerite Larkin and Mr. Christoper Rogers, the Board size increased to 13 members and reduced to
12 following the retirement of Mr. Brian Mehigan from the Board on 28 December 2018. The Committee will
continue to consider both Board size and composition during 2019.
Re-appointment
of non-Executive
Directors
During the year Mr. Philip Toomey, Dr. Karin Dorrepaal, Mr. James Kenny and Mr. Tom Moran each completed
terms as non-Executive Directors. After detailed consideration, including a review of their performance
and independence, the Board, upon the recommendation of the Committee, agreed that they should serve
additional terms.
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 2019 AGM.
Company
Secretary
Board and
Committees
Effectiveness
Evaluation
On the recommendation of the Committee, Mr. Ronan Deasy’s appointment as Company Secretary was approved
by the Board and he assumed the role on 1 March 2018.
As outlined in detail on page 99, an internal evaluation of the Board and its Committees took place in 2018 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 2019.
109
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements GOVERNANCE
REPORT
REMUNERATION
COMMITTEE
REPORT
Drivers of Shareholder Return
Volume
Growth
Margin
Expansion
Growth
EPS
Return
ROACE
Cash
Conversion
Share
Price
Dividend
Total
Shareholder
Return
Dear Shareholder,
On behalf of the Remuneration Committee,
I am pleased to present the Directors’
Remuneration Report for the year ended
31 December 2018.
Remuneration Policy
The Group’s Remuneration Policy is outlined
in Section C on pages 115-118. This policy
was 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 Directors’
Remuneration Report, both of which received
strong support from Shareholders. The
Remuneration Policy provides the framework
for remuneration decisions made by the
Committee for the three year period 2018
- 2020. As no changes to the policy are
proposed this year, the policy will not be
subject to a further vote at the 2019 AGM.
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.
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.
Drivers of Shareholder Return
As outlined in the Strategic Report on page
30, 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 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 Director’s 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
Director’s STIP and LTIP awards.
Remuneration Policy
Implementation 2019
During 2018 the Committee reviewed the
Executive Director remuneration policy to
ensure it is aligned with shareholder interests,
promotes long term sustainable success
and can be clearly linked to the successful
delivery of the Group’s long term strategy.
Following this review, the Committee
determined this to be the case.
Basic Salary
On appointment, Edmond Scanlon’s initial
base salary was set at €1,050,000 effective
from 1 October 2017. As Edmond was an
internal appointment, the Remuneration
Committee exercised its discretion and
purposefully set his initial base salary
20% lower than his predecessor’s and our
market references as it was expected that
it would increase over time in line with
his performance and development in the
role. This approach was signaled in my
Chairperson’s statement last year and is
consistent with our Remuneration Policy for
new Executive Directors.
Joan Garahy
Chairperson of the
Remuneration Committee
Section A:
Chairperson’s
Annual
Statement
110
Kerry Group Annual Report 2018 Since his appointment as CEO, Edmond has performed exceptionally well. Under his leadership the Group has embarked on a new
and ambitious strategic plan, continues to achieve above market organic revenue growth and has announced or completed seventeen
acquisitions at a cost of €1 billion. At the Committee’s request, Edmond’s salary was reviewed and benchmarked by Willis Towers Watson
in 2018. The review found that his total direct compensation was significantly lower than median for the market reference peer groups at
target opportunity.
Having considered the above factors, the Committee believes that a base salary adjustment is justified, aligned with policy and will
appropriately reward Edmond for his individual performance and growth in the role. In addition it will bring his remuneration more in line
with market peers. Having consulted with our major institutional shareholders, who provided positive feedback, the Committee has decided
to increase Edmond’s base salary for 2019 by 8% together with a standard inflation increase of 2.5% as provided to the general workforce
and executive team.
For 2019, the basic salaries of the CFO and the CEO of Taste & Nutrition will be increased by 2.5% and 3% in line with the standard wage
inflation available to the general workforce in Ireland and the US respectively.
Updates to 2019 Short and Long Term Incentive Plans
The structure of both the STIP and LTIP incentive schemes were reviewed in 2018 to ensure that they develop in line with the Group’s
strategic goals and that the metrics and targets are appropriate and linked to the strategic plan. The Committee concluded, following the
review, that the changes introduced last year are operating as intended and that no further changes are required for 2019.
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 2019
The last review of non-Executive Director Remuneration levels was undertaken in 2017 and increases were made effective from 1 January
2018. There are no proposed changes to either the Chairman’s or other non-Executive Directors fees / Committee fees for 2019.
Remuneration Policy Outturn 2018
In 2018 the Group delivered a good financial performance with constant currency adjusted earnings per share growth of 8.6% driven by
volume growth well ahead of our markets and underlying margin expansion in line with expectations. The performance table below shows
the performance versus target for the key metrics in our STIP and LTIP plans.
300
250
2018 STIP Performance
Group volume growth
200
Group margin expansion
150
Group cash conversion
100
Target
3.5%
Results
3.5%
0 bps
0 bps
2016-18 LTIP Performance (3 years)
Adjusted EPS growth in
constant currency
Total Shareholder Return
75%
71.5%
ROACE
Target
10%
Results
10.1%
Median to
75th percentile
12%
68.4th
percentile
12.6%
As can be seen in the Total Shareholder Return graph, since 2013, Kerry has generated a 77% return for shareholders (including
reinvestment of dividends) over the last 5 years. The share price did decline by 7% in 2018 but the decline was less than the mean and
median share price decline experienced by Kerry’s TSR peer set, and reflected the general decline suffered by global equity markets during
the last quarter of the year arising from market uncertainties, including those in relation to global trade and Brexit.
5 Year Total Shareholder Return
(Value of €100 Invested on 31/12/2013)
€300
€250
€200
€150
€100
2013
2014
2015
2016
2017
2018
Kerry
MSCI Europe Food Producers
E300 Food & Beverage
111
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements 100
90
80
70
60
50
40
30
20
10
0
100
90
80
70
60
50
40
30
20
10
0
TSR Growth & Annual Incentive Payout
100
90
80
70
60
50
40
30
20
46%
68%
75%
57%
2018 Short Term Incentive Plan Outturn
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.
63%
10
Brian Mehigan transitioned from Group CFO to Chief Strategy
Officer on 30 September 2018 and retired from the Board on 28
December 2018. He received no additional payment in association
with his retirement from the Board.
0
2018 UK Corporate Governance Code
and other Best Practice Changes
The Committee has considered the remuneration related
implications of the new UK Corporate Governance Code which
includes a broader remit for the Committee effective from 1
January 2019. The Committee intends to implement the changes
to the Code associated with the remit of the Committee in 2019
and will give careful consideration to the other recommended
structural changes to remuneration during its next policy review to
be conducted in 2020.
Committee Performance
An internal review of the Remuneration Committee’s performance
was undertaken by the Committee during 2018 and found that the
Committee was operating effectively.
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 in line with the pay for performance principle.
As in previous years, the Remuneration Report is being put
to shareholders for an advisory vote. Last year 96.9% of our
shareholders who voted, voted in favour of the Report. I believe
that we have appropriate policies and practices in place to justify a
similar outcome in 2019 and I would recommend a vote in favour of
the 2018 Remuneration Report at the 2019 AGM.
Finally, I would like to take this opportunity to thank the members
of the Remuneration Committee for their continued commitment
and support during the year.
Joan Garahy
Chairperson of the Remuneration Committee
TSR Growth, Enterprise Value Growth &
Annual Incentive Payout
TSR Growth
100
EV €’billion
20
90
80
70
60
50
40
30
20
10
0
15
10
5
0
59%
2018
46%
57%
63%
75%
2017
2016
2014
2015
TSR Growth (%)
Annual Incentive Achieved
as a % of Maximum Opportunity
Enterprise value (€ billions)
For 2018, STIP payouts to Executive Directors were on average
59% of the maximum available opportunity. The Committee
considers this outcome to be reflective of the Group’s, and the
individual Executive Directors’, performance during the year as well
as the challenging and stretching nature of the targets set.
Long Term Incentive Plan 2016-2018 Outturn
The final outturn of the 2016-18 LTIP award was 63.7% of maximum
opportunity. The Committee considers that this vesting outcome
is reflective of the Group’s underling performance during the three
year performance period.
Other Matters
Board Changes
Marguerite Larkin was appointed Group CFO, and to the Board,
on 30 September 2018. On joining Kerry, Marguerite’s base salary
was set at €700,000. When setting this salary, the Committee
considered several factors including; securing the right candidate,
Marguerite’s exceptional calibre and experience, the previous
incumbent’s salary, appropriate internal benchmarking and external
market expectations. Marguerite was eligible to participate in both
the 2018 short term and long term incentive plans pro-rated for
time of service.
112
Kerry Group Annual Report 2018 Section B: Remuneration Committee
& Key Activities
Committee Membership
During 2018, 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 88-89.
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 have been
updated recently to reflect the impact of the new UK Corporate
Governance Code, 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 determine the remuneration policy for, and set the
remuneration of, the CEO and Executive Directors;
– To review the remuneration of the Chairman and non-
Executive Directors;
– To receive recommendations from the CEO and approve the
salaries and overall remuneration of Executive Committee
members and the Company Secretary;
– 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 review annually its own performance and terms of
reference to ensure it is operating effectively;
– To engage with the workforce to explain how executive
remuneration aligns with the wider company pay policy;
– To review workforce remuneration and related policies and
the alignment of incentives and rewards with the Group’s
culture, and take these into account when setting the policy
for executives; and
– To exercise discretion when appropriate, in the interest of
alignment and fairness.
Remuneration Committee Meetings and Activities 2018
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 2018 are set out below:
Subject
Remuneration
Report
Remuneration Committee Activity
A review of best practice remuneration reporting was completed during 2018 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
issued 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. The Committee also considered the implications of the new 2018 UK
Corporate Governance Code which widens the remit of the Committee and is applicable from 1 January 2019.
Basic Salary
The Committee continued to monitor the level of basic salaries of the CEO and Executive Directors in line with
market practice. The Committee also agreed a service contract with the new CFO.
See Implementation Section on page 119 for details on the outcome of the review.
Short Term
Incentive Plan
(STIP)
STIP awards were reviewed during 2018 to ensure that the newly introduced metrics are aligned with Group strategy
and that the associated targets are appropriately stretching.
The Committee concluded that there was no requirement to exercise discretion as the 2018 STIP outcomes reflected
the underlying performance of the business.
See Implementation Section on page 119 for details on the outcome of the review.
113
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
Subject
Long Term
Incentive Plan
(LTIP)
Remuneration Committee Activity
The Committee considered the overall effectiveness of the LTIP in 2018 to ensure that it is structured appropriately
to incentivise Executive Directors and senior managers across the Group.
The Committee concluded that there was no requirement to exercise discretion as the 2016-18 LTIP outcome
reflected the underlying business performance during the three year performance period.
See Implementation Section on page 120 for details on the outcome of the review.
Chairman &
Non-Executive
Directors’ Fees
In line with the normal 3 year cycle a detailed benchmark review of the Chairman and non-Executive Directors
fees was undertaken in 2017 with the assistance of Willis Towers Watson. In the intervening years, the Committee
continues to monitor the level of the Chairman and non-Executive Directors fees and report to the Board.
Senior
Management
Review
Workforce
Remuneration
and Related
Policies
Shareholder
Consultation
See Implementation Section on page 121 for details on the outcome of the review.
Within its terms of reference applicable in 2018, there is a requirement for the Committee to have oversight of the
salaries and overall remuneration of senior management. During 2018 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.
During the year the Committee was provided with information on pay policies and procedures in the wider workforce
to ensure it is fair, aligned with Group strategy and to enable its decision making in relation to Executive Director
remuneration. This included the approach for the annual pay reviews in all the countries in which the Group operates
as well as the structure and annual cost of the STIP and LTIP awards below Board level.
The Committee reviewed the results of the advisory votes by shareholders on the ‘Say on Pay’ resolutions at its
first meeting following the 2018 AGM which included for the first time a separate advisory vote on the Group’s
Remuneration Policy for the three year period 2018 - 2020. The result of the shareholder vote was 97.7% in support
of the Remuneration Policy and 96.9% in support of the Remuneration Report. This, together with any additional
feedback received from the shareholder proxy groups was considered as part of the Group’s remuneration review
in 2018.
In relation to the CEO’s remuneration for 2019 the Committee consulted with a number of the Company’s major
Institutional shareholders and with shareholder proxy groups in early 2019. They welcomed the engagement and
there was strong support for the proposal put forward.
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 2018 were €81,000
(2017: €247,000).
114
Kerry Group Annual Report 2018 Section C: Remuneration Policy
As an Irish incorporated company Kerry Group plc is not
required to comply with the UK legislation which requires
UK companies to submit their remuneration policies to a
binding shareholder vote. However, in recognition of the
committment that Kerry’s remuneration policies, practices
and reporting reflect best corporate governance practices we
submitted our Remuneration Policy to a non-binding advisory
vote at the 2018 Annual General Meeting.
The Company is operating its remuneration arrangements in line
with the approved Remuneration Policy, which came into effect in
2018 and will apply for up to three years. As no changes are being
made to this policy since it was approved by shareholders it will
not be subject to a shareholder vote at the 2019 AGM and
is reproduced below (updated to reflect personnel changes)
for ease of reference.
The Group’s Executive Director remuneration philosophy is to
ensure that executive remuneration promotes the long term
success of the company and 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.
In setting remuneration levels, the Committee has regard to
comparable 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 2019. 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
Basic Salary
Pension
LTIP
STIP
Basic Salary
Pension
LTIP
STIP
Basic Salary
Pension
LTIP
STIP
4%
6%
4%
6%
5%
7%
43%
21%
31%
31%
15%
85%
32%
32%
Marguerite Larkin
43%
23%
30%
34%
15%
85%
30%
30%
45%
22%
33%
32%
18%
82%
28%
28%
Gerry Behan
115
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements 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 a 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 a 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 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.
116
Kerry Group Annual Report 2018 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 be
issued two years after vesting following a
deferral period
– Malus & clawback provisions are in place for
awards under the STIP (see page 118)
A 25% deferral in shares/
options provides a 2 year
retention element and aligns
Executive Directors interests
with shareholders’ interests
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
– 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 118)
Share based to provide
alignment with shareholders’
interests
A 50% deferral provides a
retention element and aligns
Executive Directors’ interests
with shareholders’ interests
Shareholding Requirement
Maintain alignment of the
interests of the shareholders
and the Executive Directors
and commitment over the
long term
– 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
– 80% - 200% of
basic salary
117
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements Purpose and Link to Strategy Operation
Opportunity
Performance Metrics
Pension
To provide competitive
retirement benefits to attract
and retain Executive Directors
– 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 cash contribution to
an after tax savings scheme, or equivalent (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 amend or vary the performance metrics of the STIP related Incentives and the calculation
methodology for those performance metrics when appropriate, in the interest of alignment and fairness.
** In line with plan rules the Committee may, at its discretion and after consulting with the Irish Association of Investment Managers,
amend or vary the performance metrics of the LTIP related Incentives, the calculation methodology for those performance metrics and
the composition of the TSR peer group when appropriate, in the interest of alignment and fairness.
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.
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 provision to former directors STIP and LTIP awards. Other elements of
remuneration are not subject to malus or clawback provisions.
Consideration of Employment Conditions Elsewhere in the Group
When setting the remuneration policy for Executive Directors, the Remuneration Committee takes into account the pay and employment
conditions of the other employees in the Group. Senior management are invited to participate in both the STIP and LTIP to incentivise
performance through the achievement of short term and long term objectives and through the holding of shares in the Group. While
the Committee currently 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 completes a detailed benchmarking exercise in relation to non-Executive Directors’ fees and present any
recommendations to the full Board for approval. The last benchmarking exercise was undertaken in 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.
118
Kerry Group Annual Report 2018 Section D: Remuneration Policy Implementation
PART I: REMUNERATION POLICY IMPLEMENTATION 2019
This part of the report sets out how the Remuneration Policy as described on pages 115-118 will operate in 2019.
Basic Salary and Benefits
On appointment, Edmond Scanlon’s initial base salary was set at €1,050,000 effective from 1 October 2017. As Edmond was an internal
appointment, the Remuneration Committee exercised its discretion and purposefully set his initial base salary 20% lower than his
predecessor’s and our market references. As signaled in last year’s report, the Committee undertook to review Edmond’s base salary on an
annual basis as it was expected that it would increase over time in line with his performance and development in the role. This approach is
consistent with our Remuneration Policy for new Executive Directors, which was approved by shareholders in 2018, and is also consistent
with the practice commonly followed for the wider employee population when individuals are promoted into new roles.
Since his appointment as CEO, Edmond has performed exceptionally well, has grown significantly in his role and is successfully leading the
Group. Thanks to his leadership, we have seen the development, communication and implementation of an ambitious new strategic plan
with all its implications for the Group’s organisation structure, ways of working and how it is managed. The Group continues to achieve
above market organic revenue growth and, since Edmond’s appointment, has announced or completed seventeen acquisitions at a cost of
€1 billion which expand the Group’s complexity, scale and countries of operation and have increased average employee numbers by c1,300.
The Chief Executives Review, the Business Reviews and the Financial Review report on the performance of the Group’s business, including
M&A activity, during the year.
At the Committee’s request, Edmond’s salary was reviewed and benchmarked by Willis Towers Watson in 2018. The review found that when
compared with similar sized UK, US and European companies his total direct compensation was significantly lower than median for the
market reference peer groups at target opportunity.
The Committee is conscious of the need to apply constraint in executive remuneration and to consider any pay rises in the context of the
general workforce and the overall performance of the Group. Having considered the above factors, the Committee believes that a base salary
adjustment is justified, aligned with policy and will appropriately reward Edmond for his individual performance and growth in the role as well as
making progress towards bridging the deficit versus his predecessor’s base salary and bringing his remuneration more in line with market peers.
Having consulted with our major institutional shareholders, who provided positive feedback, the Committee has decided to increase Edmond’s
base salary for 2019 by 8% together with a standard inflation increase of 2.5% as provided to the general workforce and executive team. The
Committee will keep Edmond’s base salary and total compensation under review as he continues to progress in the role and will consult with
shareholders if the Committee determines that any further changes are appropriate in the future.
In relation to both Marguerite Larkin and Gerry Behan the Committee decided that for 2019, their basic salaries will be increased by 2.5%
and 3% respectively in line with the standard wage inflation available to the general workforce in Ireland and the US.
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 is reviewed regularly to ensure that it develops in line with the Group’s strategic goals. A review of the STIP
was completed in 2018 to ensure that the performance metrics are appropriate, linked to strategy and appropriately calibrated. Following
the review, the Committee concluded that no changes were required to the performance metrics and weightings as they support our
business strategy and the ongoing enhancement of shareholder value through a focus on a return for shareholders, increasing profit and
cash generation.
2019 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 & Nutrition level for the CEO of Taste & Nutrition
119
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
The Committee is of the view that the targets for the STIP are appropriately stretching, but due to their commercial sensitivity, 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 118), 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.
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
% of award which vests
2019
2018
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
30%
Median to
75th%
30% - 100%
Greater than
75th%
100%
Median
30%
Median to
75th%
30% - 100%
Greater than
75th%
100%
* Adjusted EPS growth is measured on a constant currency basis
The Committee reviewed the overall effectiveness of the LTIP in 2018 to ensure it is structured appropriately to incentivise Executive
Directors and senior management across the Group. The level of opportunity under this scheme available to the CEO and Executive
Director’s (currently 200%/180%) is to remain unchanged following the review. Similarly, the LTIP performance metrics, targets and
weightings were also reviewed in 2018 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.
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.
How Remuneration Links with Strategy
Performance Measure
Volume growth
Margin expansion
Cash conversion
Personal and strategic objectives
Adjusted EPS growth
TSR
ROACE
Strategic Priority
Key driver of revenue growth
Key driver of profit growth
Cash generation for reinvestment or return to shareholders
Reward the development and execution of Group strategies for
sustainable growth
Delivery of the Group’s long term growth strategy
Delivery of shareholder value
Balance growth and return
Incentive Scheme
STIP
STIP
STIP
STIP
LTIP
LTIP
LTIP
See Group Key Performance Indicators (KPIs) on pages 30 and 31 for more information on the link between the performance metrics used
for incentive purposes and the Group’s Strategic Plan.
120
Kerry Group Annual Report 2018
Non-Executive Director Remuneration Review
In line with the three year review cycle the Chairman and non-Executive Directors fees were reviewed and benchmarked during 2017
and increases were made effective from 1 January 2018. There are no proposed changes to the Chairman and non-Executive Director
fees for 2019.
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 our major institutional shareholders and proxy agencies during early 2019 to
consult with them on the changes to the CEO base salary and took on board their feedback. The Committee is committed to continued
consultation with shareholders regarding its remuneration policy.
121
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements PART II: REMUNERATION POLICY OUTTURN 2018
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 Euronext Dublin Stock Exchange and the UK
Listing Authority.
The information in the tables 1, 4, 5, 6, 7, 8 and 9 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 146. 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
Table 1: Individual Remuneration for the year ended 31 December 2018 (Audited)
Basic Salaries
2017
2018
Benefits
Pensions1
STIP2
LTIP3
Total
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
€’000
€’000
€’000
€’000
€’000
€’000
€’000
€’000
€’000
€’000
€’000
€’000
Edmond Scanlon
1,050
Stan McCarthy6
Brian Mehigan
Marguerite Larkin 4
Gerry Behan
Flor Healy6
–
703
177
760
–
263
1,315
687
–
776
351
34
–
37
8
63
–
2,690
3,392
142
168
102
39
–
248
13
570
200
–
210
34
170
–
614
51
317
204
–
170
91
833
948
–
530
133
540
–
295
1,479
644
–
739
–
345
–
805
–
31
2,577
2,072
789
–
–
2,285
352
1,105
1,300
2,638
–
–
–
808
5,285
2,363
–
3,233
455
2,151
3,157
2,255
4,192
7,852
12,144
Stan McCarthy5
Gerry Behan5
$’000
-
901
901
$’000
1,486
877
2,363
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
-
74
74
115
280
395
-
201
201
359
192
551
-
640
640
1,671
835
2,506
-
1,310
1,310
2,341
1,469
3,810
-
3,126
3,126
5,972
3,653
9,625
Note 1: The pension figure for Edmond Scanlon relates to Irish defined contribution pension benefits. Brian Mehigan, Marguerite Larkin and Flor Healy received a taxable cash
payment in lieu of pension benefits and the figures included above reflect this including life cover. The pension figures for Stan McCarthy and Gerry Behan include both
defined benefit and defined contribution retirement benefits.
Note 2: This STIP amount represents 75% delivered in cash with 25% delivered by way of shares/share options which are deferred for two years.
Note 3: 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 4: Marguerite Larkin was appointed as CFO and to the Board on 30 September 2018. Her remuneration reflected in the table above relates to remuneration for the period 30
September to 31 December 2018.
Note 5: The table shows the Executive Directors’ pay in the currency of payment to ensure clarity in reflecting the year on year payment comparisons.
Note 6: Stan McCarthy and Flor Healy retired as Directors in 2017.
Basic Salary Increases
As outlined in last year’s report, Edmond Scanlon’s initial base salary on appointment as Group CEO was set at €1,050,000 effective from 1
October 2017 and was not increased in 2018.
Marguerite Larkin’s CFO base salary was set at €700,000 when she joined the Group. When setting this salary, the Committee considered
several factors including; securing the right candidate, Marguerite’s exceptional calibre and experience, the previous incumbent’s salary,
appropriate internal benchmarking and external market expectations. On joining Kerry, and prior to her appointment to the Board,
Marguerite received a taxable cash payment of €500,000 to compensate her for profit share foregone from her previous role. The
Committee is satisfied that the payment was the minimum necessary to compensate Marguerite for the entitlements she forfeited.
Marguerite elected to invest over 50% of the amount received in Kerry shares.
For 2018, the basic salaries of the other Executive Directors were adjusted by 2.5% - 3% in line with the standard wage inflation available to
the general workforce in Ireland and the US.
122
Kerry Group Annual Report 2018
Annual Incentive Outcomes (STIP)
Table 2: Annual Bonus Achievement Against Targets
Financial Metrics (CEO, CFO, & T&N CEO– 90% weighting)
Metric
1. Volume Growth*
(40% weighting)
2. Margin Expansion*
(30% weighting)
3. Cash Conversion
(20% weighting)
s Threshold
t
e
g
r
a
T
Target
Max
Actual performance
Bonus outcome
Link to strategy
Group
0.0%
3.5%
5.5%
3.5%
28.0%
Taste & Nutrition
0.0%
4.0%
6.0%
4.1%
28.6%
Volume Growth is a key
performance metric as it is
one of the main drivers of
Adjusted EPS Growth
Group
-30 bps
0 bps
+30 bps
0 bps
21.0%
Taste & Nutrition
0 bps
+30 bps
+60 bps
+20 bps
14.0%
Margin Expansion is a key
performance metrics as it
is another main driver of
Adjusted EPS Growth
Group
70%
75%
80%
71.5%
4.2%
Cash Conversion is key
to ensuring there are
sufficient funds available
for reinvestment or for
return to shareholders
* The above metrics are measured at Group level for the CEO and CFO (current and former) and at Taste & Nutrition level for the CEO of Taste & Nutrition.
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 Volume Growth, Margin Expansion and Cash Conversion. These are vital in driving sustainable growth and ensuring
there are sufficient funds available for reinvestment or for return to shareholders. The same performance metrics, targets and weightings
apply to the current and former CFO and were time apportioned based on their time in office.
Personal and Strategic Objectives – 10% weighting
Metric
4. Personal and Strategic (All – 10% weighting)
s Threshold
t
e
g
r
a
T
Target
Max
Actual performance
Bonus outcome
Link to strategy
CEO & CFO
0
7
10
7
7%
T&N CEO
0
7
10
10
10%
Specific to the Executive’s responsibility linked to strategic plan implementation and talent management.
Details of Personal and Strategic Objectives
The Executive Directors are also measured against Personal and Strategic objectives, which this year focus on the implementation of the
new strategic plan for the Group. Performance against these objectives is determined by the Committee by reference to key targets agreed
with the Executives at the start of the year.
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
123
Strategic ReportKerry Group Annual Report 2018
Directors Achievements
CEO
– Effective engagement with shareholders in relation to the Group’s strategy and the achievement of
long term sustainable growth.
– Leadership team in place and organisation structure evolved at Group and divisional levels to deliver
the strategic priorities for growth and margin expansion in line with the Group’s culture.
– Incentive programmes amended to align with the new strategic plan metrics and targets.
– Seamless CFO transition achieved.
Bonus Outcome
7%
New CFO – Successfully transitioned to CFO and quickly assumed full responsibility for core finance responsibilities.
7%
– Established relationships with key stakeholders, including major shareholders and key providers of finance.
– Good engagement with shareholders in relation to the Group’s strategic direction, sustainability
7%
objectives and regular performance updates.
Former
CFO
– Continued efficient deployment of Kerryconnect and progressed the shared services strategy.
– Supported the successful CFO transition.
CEO T&N – Deployed an enhanced Taste & Nutrition operating model, including a Go to Market structure based
10%
on End Use Markets to enable the delivery of the strategic priorities for growth.
– Excellent progress on building leadership capability and a strong talent pipeline to support the
division’s growth ambitions.
– Successful execution and integration of acquisition transactions in line with the Group’s strategic
growth priorities.
The Committee reviewed progress against specific metrics and milestones supporting these objectives and concluded that good progress
was made by the Executive Directors against the objectives outlined above, which resulted in an on target award for the CEO and CFOs
and a maximum award for the CEO of Taste & Nutrition.
The 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 59% of max opportunity (85% 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:
Adjusted EPS Growth Per Annum
8%
Percentage of the Award Which Vests
25%
10%
12%
50%
100%
Threshold
Target
Maximum
124
Kerry Group Annual Report 2018 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.
The outcome of the EPS performance test, calculated on a constant currency basis, is an annual average adjusted EPS growth of 10.1%
which results in an award outcome of 26.3% out of a possible maximum of 50%.
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:
200
150
Chr. Hansen
Barry Callebaut
100
Corbion
Aryzta
50
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
Median
-100
Between median and 75th percentile
Percentage of the Award Which Vests
0%
30%
Straight line between 30% and 100%
Greater than 75th percentile
100%
The performance graph below shows Kerry’s TSR compared to the peer companies over the three year performance period from
1 January 2016 to 31 December 2018 for the LTIP awards which issued in 2016. These awards have a vesting date on or before
30 April 2019.
3 Year TSR: Kerry and Comparator 1 Jan 2016 - 31 Dec 2018
See chart on page 130, which illustrates the Group’s TSR performance from 2008 to 2018
200%
150%
100%
50%
0%
-50%
-100%
Top Quartile
2nd Quartile
3rd Quartile
4th Quartile
1
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P
2
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P
3
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P
4
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P
5
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6
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9
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1
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1
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2
1
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3
1
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4
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5
1
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6
1
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1
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8
1
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P
9
1
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P
0
2
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P
The outcome of the measurement of the TSR condition in relation to the 2016 awards is in the second quartile, resulting in award outcome
of 24.4% out of a possible maximum of 30%.
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Strategic ReportKerry Group Annual Report 2018
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 2016 awards is a ROACE of 12.6% which resulted in a reward
outcome of 13% out of a possible maximum of 20%.
Table 3: Overall Outcome of the 2016 LTIP Award Vesting in 2019
Long Term
Incentive Plan
2013 LTIP Plan
TSR
Performance
(30% of Award)
2nd Quartile*
Actual Vesting
of TSR Award
24.4%
EPS
Performance
(50% of Award)
10.1% growth*
Actual
Vesting of
EPS Award
26.3%
ROACE
Performance
(20% of Award)
12.6%
Actual Vesting
of ROACE
Award
13%
Total %
Vested
63.7%
* 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
2018 relate to awards made in 2015, 2016 and 2017 which have a three year performance period. The 2015 awards vested in 2018. The 2016
awards will potentially vest in 2019 and 2017 awards will potentially vest in 2020. 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
2018
LTIP
Scheme
Share
Awards
Vested
During
the Year
Share Option
Awards
Vested During
the Year
Share Awards
Lapsed
During the
Year
Conditional
Awards Made
During the
Year
Conditional
Awards at 31
December
2018
Share Price
at Date of
Conditional
Award Made
During the
Year
Directors
Edmond Scanlon
Brian Mehigan
Marguerite Larkin1
Gerry Behan
Company Secretary
Ronan Deasy2
2013
2013
2013
2013
40,295
44,991
–
–
–
–
65,105
(14,864)
(4,256)
(9,024)
–
–
(2,575)
(5,460)
–
(8,995)
25,625
15,474
7,031
17,909
59,089
45,981
7,031
59,155
€81.95
€81.95
€89.60
€81.95
2013
13,417
–
(2,159)
(1,307)
3,295
13,246
€81.95
Note 1: Marguerite Larkin’s LTIP conditional awards during the year were pro-rated based on her time of service.
Note 2: The Company Secretary Ronan Deasy was appointed to the position on 1 March 2018 and his opening LTIP conditional awards are reflected as at that date.
126
Kerry Group Annual Report 2018 Conditional LTIP awards made in 2018 have a three year performance period and will potentially vest in 2021. 50% of the shares/
share options which potentially vest under the LTIP, are issued immediately upon vesting. The remaining 50% of the award is issued to
participants following a two year deferral period.
The following table shows the share options which are held by the Executive Directors and the Company Secretary under the STIP
and LTIP:
Table 5: Share Options Held Under the STIP and LTIP (Audited)
Share Options
Outstanding at
1 January 2018
Share Options
Exercised During
the Year
Share Options
Vested During
the Year3
Share Options
Outstanding at
31 December 2018
Exercise Price
Per Share
Directors
Edmond Scanlon
Brian Mehigan
Marguerite Larkin1
Company Secretary
Ronan Deasy2
4,167
65,451
–
1,231
0
(13,573)
–
0
5,370
10,971
–
2,159
9,537
62,849
–
3,390
€0.125
€0.125
–
€0.125
Note 1: Marguerite Larkin was appointed to the Board on 30 September 2018 and her opening share option balance is reflected as at that date.
Note 2: The new Company Secretary Ronan Deasy was appointed to the position on 1 March 2018 and his opening share option balance is reflected as at that date.
Note 3: Share Options which vested in March 2018 related to 2015 LTIP awards and 25% of the 2017 STIP (paid in March 2018). 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
Gerry Behan
2018
2017
37
37
167
445
445
1,804
223
223
2,291
Note:
Contributions were made to an Irish defined contribution plan in respect of Edmond Scanlon. Brian Mehigan and Marguerite Larkin received a taxable cash payment in lieu of
pension benefits. These contributions are reflected in the single figure table (table 1) on page 122.
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Strategic ReportKerry Group Annual Report 2018
Non- Executive Directors’ Remuneration Paid in 2018
Table 7: Remuneration Paid to Non-Executive Directors in 2018 (Audited)
Hugh Brady
Paddy Casey*
Gerard Culligan
Karin Dorrepaal
Michael Dowling*
Joan Garahy
James C. Kenny
Tom Moran
Con Murphy
Christopher Rogers**
Philip Toomey
Fees 2018
€
98,000
–
78,000
98,000
148,958
123,000
117,000
98,000
78,000
68,666
277,667
1,185,291
Fees 2017
€
78,000
14,333
33,833
78,000
230,000
93,000
97,000
78,000
33,833
–
98,000
833,999
* Retired on 30 April 2017 and 3 May 2018 respectively
** Appointed to the Board on 8 May 2018
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 €19,814.
Payments to Former Directors
Table 8: Payments to Former Directors (Audited)
Former Director
Stan McCarthy
Flor Healy
2018
€’000
1,259
–
1,259
2017
€’000
–
298
298
Stan McCarthy, who retired from the Board on 31 December 2017, was paid 12 months base salary for abiding with the contractual non-
compete/non-solicitation requirements of his employment agreement. This amounted to €1,259,000 ($1,486,000) during 2018. In addition,
his vested 2013 LTIP awards and vested 2015 STIP awards, which were subject to deferral and disclosed in previous annual reports, were
released to him at the normal applicable release dates following the 2 year deferral period.
Flor Healy, who retired from the Board on 8 August 2017, was paid €298,000 remuneration in the period 9 August to 31 December 2017.
During 2018 he had vested 2013 LTIP awards and vested 2015 STIP awards, which were subject to deferral and disclosed in previous
annual reports, released to him at the normal applicable release dates following the 2 year deferral period.
Payments for Loss of Office
There were no payments for loss of office in 2018 (2017: €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 were 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:
128
Kerry Group Annual Report 2018
Table 9: Directors and Company Secretary Shareholdings (Audited)
31 December 2018
Ordinary Shares
Number
31 December 2018
Share Options
Number
31 December 2018
Total
Number
1 January 2018
Ordinary Shares
Number
1 January 2018
Share Options
Number
1 January 2018
Total
Number
Directors
Gerry Behan
- Deferred1
Hugh Brady
Gerard Culligan
Karin Dorrepaal
Joan Garahy
James C. Kenny
Marguerite Larkin2
Brian Mehigan3
- Deferred1
Tom Moran
Con Murphy
Christopher Rogers4
Edmond Scanlon
- Deferred1
Philip Toomey
Company Secretary
Ronan Deasy5
- Deferred1
58,839
14,905
1,250
–
–
1,050
–
1,500
40,334
–
539
7,721
640
9,611
–
6,000
3,230
–
–
–
–
–
–
–
–
–
52,266
10,583
–
–
–
5,056
4,481
–
1,528
1,862
58,839
14,905
1,250
–
–
1,050
–
1,500
92,600
10,583
539
7,721
640
14,667
4,481
6,000
4,758
1,862
58,379
10,636
500
–
–
1,050
–
–
40,334
–
–
7,721
–
9,611
–
6,000
3,230
–
–
–
–
–
–
–
–
–
57,694
7,757
–
–
–
2,083
2,084
–
–
1,231
58,379
10,636
500
–
–
1,050
–
–
98,028
7,757
–
7,721
11,694
2,084
6,000
3,230
1,231
Note 1: The deferred shares and share options above, relate to 25% of the Executive Directors 2016 and 2017 STIP awards and 50% of the 2014 and 2015 LTIP award (vested in March
2017 and 2018 respectively). These awards are subject to a two year deferral period and will be delivered in shares/share options in March 2019 and March 2020 respectively.
Note 2: Marguerite Larkin was appointed to the Board on 30 September 2018 and her opening shareholdings are reflected as at that date.
Note 3: Brian Mehigan retired from the Board on 28 December 2018 and his closing shareholding above is reflected as at that date.
Note 4: Christopher Rogers was appointed to the Board on 8 May 2018 and his opening shareholdings are reflected as at that date.
Note 5: Ronan Deasy was appointed as Company Secretary on 1 March 2018 and his opening shareholdings are reflected as at that date.
Shareholding Guidelines
The table below sets out the Executive Directors’ shareholding at 31 December 2018 shown as a multiple of basic salary. Please refer to the
Remuneration Policy Table on page 117 in Section C for details of the Executive Director shareholding requirements.
Table 10: Individual Shareholding as a Multiple of Basic Salary
Executive Director
Edmond Scanlon
Marguerite Larkin
Gerry Behan
As a Multiple of Basic Salary
1.6x
0.2x
8.4x
Note 1: The share price used to calculate the above is the share price as at 31 December 2018.
Edmond Scanlon, in line with policy, has four years to increase his shareholding to the minimum 2.0x basic salary. Marguerite Larkin,
the new CFO, in line with policy, has five years to increase her shareholding to the minimum 1.8x basic salary.
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Strategic ReportKerry Group Annual Report 2018
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 ten years showing the increase in value of €100 invested in
Group’s shares from 31 December 2008 to 31 December 2018. 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.
10 Year Total Shareholder Return
(Value of €100 Invested on 31/12/2008)
€900
€800
€700
€600
€500
€400
€300
€200
€100
2008
2009
2010
2011
2012
2013
2014
Kerry
MSCI Europe Food Producers
2017
2016
2015
E300 Food & Beverage
2018
Table 11: Remuneration Paid to the CEO 2009 – 2018
Chief Executive Officer – Stan McCarthy
Total remuneration €’000
Annual incentive achieved as a % of maximum
LTIP achieved as a % of maximum
2009
€’000
1,751
57%
N/A1
2010
€’000
2,116
90%
N/A1
2011
€’000
3,283
73%
100%
2012
€’000
3,538
74%
100%
2013
€’000
3,592
70%
100%
2014
€’000
3,283
57%
2015
€’000
4,161
58%
2016
€’000
3,625
62%
2017
€’000
5,285
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 €’000
Annual incentive achieved as a % of maximum
LTIP achieved as a % of maximum
2017
€’000
808
75%
2018
€’000
2,577
60%
62.3%
63.7%
Note 1: Edmond Scanlon was appointed CEO and to the Board on 1 October 2017 and his remuneration reflected in the table above relates to remuneration from that date.
Table 12: 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
2014
2015
2016
2017
2018
2%
3.4%
2%
3.6%
9%
3.5%
2.5%
3.1%
0%
2.8%
130
Kerry Group Annual Report 2018
300
250
200
150
100
Performance of the company: 5 Year Total Shareholder Return
€300
€250
€200
€150
€100
2013
2014
Kerry
2015
2016
MSCI Europe Food Producers
2017
2018
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.
2018
Director
Remuneration (0.4%)
Profit after tax
before NTIs (30.6%)
Dividends Paid (5.9%)
Taxation Paid (7.0%)
Employee costs (56.1%)
2017
Director
Remuneration (0.6%)
Profit after tax
before NTIs (29.8%)
Dividends Paid (5.3%)
Taxation Paid (7.1%)
Employee costs (57.2%)
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 2018 is 1.1%. This level of dilution is well below the maximum dilution level
recommended for executive share based incentive plans.
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 13: 2018 AGM – Votes on Remuneration
Total Votes Cast
Directors’ Remuneration Report
100,820,472
Remuneration Policy
100,762,070
Votes For
Votes Against
Votes Withheld/Abstained
97,669,720
96.9%
98,418,376
97.7%
3,150,752
3.1%
2,343,694
2.3%
203,299
261,701
The Committee appreciates the level of support shown by the shareholders for the Remuneration Policy and Report and is committed to
continued consultation with shareholders with regard to the remuneration policy.
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131
Strategic ReportKerry Group Annual Report 2018
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, 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 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 2018 to 31 December 2018.
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 2018 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 (‘FRSs’) 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
– 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 2018;
– the Consolidated income statement and Consolidated statement
of comprehensive income for the year then ended;
– the Consolidated and Company cash flow statements for the year
then ended;
– the Consolidated and Company statements of changes in equity
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 146.
These are cross-referenced from the financial statements and are
identified as audited.
Our opinion is consistent with our reporting to the Audit Committee.
132
Kerry Group Annual Report 2018 Our Audit Approach
Overview
Materiality
– €33.5 million (2017: €33 million) – Consolidated financial statements
– Based on c. 5% of profit before taxation and non-trading items.
– €7.3 million (2017: €7 million) - Company financial statements
– Based on c. 1% of net assets of the Company.
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 was performed 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.
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.
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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 €3,534.6 million at 31
December 2018 representing approximately 42%
of the Group’s total assets at year end.
Goodwill and indefinite life intangible 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 management
approved five year forecast. 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 satisfied ourselves as to 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 rates
and the rates of growth assumed by management.
We assessed the appropriateness of the related disclosures within the
financial statements.
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Strategic ReportKerry Group Annual Report 2018Directors’ Report
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 in assessing 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 the growth rate 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.
Key audit matter
Business combinations
Refer to note 1 ‘Statement of accounting policies’ and note 30
‘Business combinations’.
The Group completed 10 acquisitions during 2018, the most significant
of which was Fleischman’s Vinegar Company Inc. in the Americas
region of the Taste & 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 models.
Other important estimates include the discount rate and contributory
asset charge.
Income Taxes
Refer to note 1 ‘Statement of accounting policies’ and note 7
‘Income Taxes’.
We obtained an understanding of the Group tax strategy
through discussions with management and the Group’s
in-house tax specialists.
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.
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.
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.
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 2018 to
be within an acceptable range of reasonable estimates.
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 operating segments: Taste and Nutrition and Consumer Foods across 32 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.
134
Kerry Group Annual Report 2018 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.
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:
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 the current year, senior representatives from the Group
team continued 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. During 2018, the Group
team visited component locations in Ireland, the UK, the USA,
Mexico 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. In addition to this, the Group
engagement team reviewed certain of the audit working papers of
significant components.
This, together with audit procedures performed by the Group team
over IT systems, treasury, post retirement benefits, the consolidation
process and key audit matters including uncertain tax positions,
impairment testing of goodwill and indefinite lived intangible assets,
and business combinations, gave us the evidence we needed for our
opinion on the consolidated financial statements as a whole.
Going concern
In accordance with ISAs (Ireland) we report as follows:
Overall
materiality
How we
determined it
Rationale for
benchmark
applied
Company
financial
statements
€7.3 million
(2017: €7 million)
c. 1% of net assets
of the Company
The entity is a
holding Company
whose main activity
is the management
of investments in
subsidiaries.
Consolidated
financial
statements
€33.5 million
(2017: €33 million)
c. 5% of profit before
taxation and non-trading
items
We applied this
benchmark because
in our view this is a
metric against which the
recurring performance
of the Group is
commonly measured
by its stakeholders
and it results in using
a materiality level that
excludes the impact of
volatility in earnings.
For each component in 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 €0.5m to
€25m. 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 €1.7 million (Group
audit) (2017: €1.65 million) and €360,000 (Company audit) (2017:
€350,000) as well as misstatements below that amount that, in our
view, warranted reporting for qualitative reasons.
Reporting obligation
We are required to report if we have anything material to add or draw attention to in
respect of the directors’ statement 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.
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Strategic ReportKerry Group Annual Report 2018Directors’ 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
(excluding the information included in the ‘Non Financial
Statement’ as defined by that Act on which we are not required to
report) 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
(excluding the information included in the ‘Non Financial
Statement’ on which we are not required to report) for the
year ended 31 December 2018 is consistent with the financial
statements and has been prepared in accordance with the
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 did not identify any material misstatements in
the Directors’ Report (excluding the information included in
the ‘Non Financial Statement’ on which we are not required to
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) of the Companies
Act 2014 and regulation 6 of the European Union (Disclosure
of Non-Financial and Diversity Information by certain large
undertakings and groups) Regulations 2017 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 99 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 86 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.
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)
136
Kerry Group Annual Report 2018
Other Code provisions
We have nothing to report in respect of our responsibility to
report when:
– The statement given by the directors on page 93 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 page 103 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’ Responsibility Statement
set out on page 93, 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 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 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.
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Appointment
We were appointed by the members 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 3 years, covering the years ended 31 December
2016 to 31 December 2018.
John McDonnell
for and on behalf of PricewaterhouseCoopers
Chartered Accountants and Statutory Audit Firm
Dublin
18 February 2019
137
Strategic ReportKerry Group Annual Report 2018Directors’ Report
FINANCIAL
STATEMENTS
CONSOLIDATED INCOME STATEMENT
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018
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
2018
€’m
Non-Trading
Items
2018
€’m
Notes
Before
Non-Trading
Items
2017
€’m
Total
2018
€’m
Non-Trading
Items
2017
€’m
2
6,607.6
805.6
(53.8)
-
751.8
0.5
(67.5)
684.8
(89.2)
595.6
2/3
12
5
3
6
6
7
9
9
-
-
-
(66.9)
(66.9)
-
-
(66.9)
11.8
(55.1)
6,607.6
6,407.9
805.6
781.3
(47.9)
-
733.4
0.1
(65.7)
667.8
(89.5)
578.3
(53.8)
(66.9)
684.9
0.5
(67.5)
617.9
(77.4)
540.5
Cent
305.9
305.7
-
-
-
(54.5)
(54.5)
-
-
(54.5)
64.7
10.2
Total
2017
€’m
6,407.9
781.3
(47.9)
(54.5)
678.9
0.1
(65.7)
613.3
(24.8)
588.5
Cent
333.6
333.2
138
Kerry Group Annual Report 2018 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018
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
Net change in cost of hedging
Deferred tax effect of fair value movements on cash flow hedges
Exchange difference on translation of foreign operations
Fair value movement on revaluation of financial assets held at fair value through
other comprehensive income/available-for-sale
Items that will not be reclassified subsequently to profit or loss:
Re-measurement on retirement benefits obligation
Deferred tax effect of re-measurement on retirement benefits obligation
Net income/(expense) recognised directly in total other comprehensive income
Total comprehensive income
Notes
2018
€’m
540.5
2017
€’m
588.5
24
24
17
13
26
17
2.2
(2.5)
(2.0)
(0.2)
(0.9)
(1.9)
34.5
(6.3)
22.9
563.4
5.3
(29.2)
-
(0.6)
(108.8)
3.5
130.1
(20.2)
(19.9)
568.6
139
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2018
Non-current assets
Property, plant and equipment
Intangible assets
Financial asset investments
Investment in associates and joint ventures
Other 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 18 February 2019 and signed on its behalf by:
Philip Toomey, Chairman
Edmond Scanlon, Chief Executive
140
31 December
2018
€’m
31 December
2017
€’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
1,767.0
4,095.6
35.3
15.6
101.7
37.1
1,529.6
3,646.7
44.6
5.8
95.4
46.4
6,052.3
5,368.5
877.8
967.8
413.8
10.0
2.0
2,271.4
8,323.7
1,482.1
13.8
11.0
122.4
20.3
1.2
1,650.8
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
1,567.8
2,119.7
1,728.4
5.6
53.2
82.6
324.1
32.1
21.2
2,638.5
4,289.3
4,034.4
22.0
398.7
(207.3)
3,821.0
4,034.4
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
Kerry Group Annual Report 2018 COMPANY BALANCE SHEET
AS AT 31 DECEMBER 2018
Non-current assets
Property, plant and equipment
Investments in subsidiaries
Current assets
Trade and other receivables
Total assets
Current liabilities
Trade and other payables
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 €158.9m for the year ended 31 December 2018 (2017: €107.9m).
31 December
2018
€’m
31 December
2017
€’m
Notes
11
15
19
20
21
27
0.3
714.4
714.7
94.1
94.1
808.8
6.3
6.3
0.1
0.1
6.4
802.4
22.0
398.7
65.3
316.4
802.4
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
The financial statements were approved by the Board of Directors on 18 February 2019 and signed on its behalf by:
Philip Toomey, Chairman
Edmond Scanlon, Chief Executive
141
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018
Group:
At 1 January 2017
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
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 2018
Other Reserves comprise the following:
Share
Capital
€’m
Share
Premium
€’m
Other
Reserves
€’m
Retained
Earnings
€’m
Total
€’m
Notes
22.0
398.7
(98.0)
2,771.3
3,094.0
-
-
-
-
-
-
-
-
-
-
-
(129.2)
(129.2)
588.5
109.3
697.8
588.5
(19.9)
568.6
-
12.8
(102.2)
(102.2)
-
12.8
22.0
398.7
(214.4)
3,366.9
3,573.2
-
-
-
-
-
-
-
-
-
-
-
(5.1)
(5.1)
-
12.2
540.5
28.0
540.5
22.9
568.5
563.4
(114.4)
(114.4)
-
12.2
22.0
398.7
(207.3)
3,821.0
4,034.4
10
28
10
28
FVOCI/AFS
Reserve*
€’m
Note
Capital
Redemption
Reserve
€’m
Other
Undenominated
Capital
€’m
Share-Based
Payment
Reserve
€’m
Translation
Reserve
€’m
Hedging
Reserve
€’m
Cost of
Hedging
Reserve
€’m
At 1 January 2017
Other comprehensive income/(expense)
Share-based payment expense
At 31 December 2017
Other comprehensive expense
Share-based payment expense
At 31 December 2018
28
28
-
3.5
-
3.5
(1.9)
-
1.6
1.7
-
-
1.7
-
-
1.7
0.3
-
-
0.3
-
-
0.3
38.3
-
12.8
51.1
-
12.2
(147.0)
(108.8)
-
(255.8)
(0.9)
-
8.7
(23.9)
-
(15.2)
(0.3)
-
-
-
-
-
(2.0)
-
Total
€’m
(98.0)
(129.2)
12.8
(214.4)
(5.1)
12.2
63.3
(256.7)
(15.5)
(2.0)
(207.3)
* The available-for-sale (AFS) reserve under IAS 39 ‘Financial Instruments: Recognition and Measurement’ becomes the fair value through other comprehensive income reserve
(FVOCI) under IFRS 9 ‘Financial Instruments’ at 1 January 2018.
The nature and purpose of each reserve within shareholders’ equity are described in note 35.
142
Kerry Group Annual Report 2018
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018
Company:
At 1 January 2017
Profit after tax
Other comprehensive income
Total comprehensive income
Dividends paid
Share-based payment expense
At 31 December 2017
Profit after tax
Other comprehensive income
Total comprehensive income
Dividends paid
Share-based payment expense
At 31 December 2018
Other Reserves comprise the following:
At 1 January 2017
Share-based payment expense
At 31 December 2017
Share-based payment expense
At 31 December 2018
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
40.3
-
-
-
-
-
-
-
-
-
-
22.0
398.7
-
-
-
-
-
-
-
-
-
-
22.0
398.7
-
-
-
-
12.8
53.1
-
-
-
-
12.2
65.3
266.2
107.9
-
107.9
(102.2)
-
271.9
158.9
-
158.9
(114.4)
-
316.4
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
38.3
12.8
51.1
12.2
63.3
Total
€’m
727.2
107.9
-
107.9
(102.2)
12.8
745.7
158.9
-
158.9
(114.4)
12.2
802.4
Total
€’m
40.3
12.8
53.1
12.2
65.3
The nature and purpose of each reserve within shareholders’ equity are described in note 35.
143
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018
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 (net)
Proceeds from the sale of assets
Capital grants received
Purchase of businesses (net of cash acquired)
(Purchase)/disposal of share in associates and joint ventures
Income received from associates and joint ventures
Disposal of businesses
Payments relating to previous acquisitions
Net cash used in investing activities
Financing activities
Dividends paid
Issue of share capital
Net movement on borrowings (net of swaps)
Net cash movement due to financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the financial year
Exchange translation adjustment on cash and cash equivalents
Cash and cash equivalents at end of the financial year
Reconciliation of Net Cash Flow to Movement in Net Debt
Net increase/(decrease) in cash and cash equivalents
Cash 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
144
Notes
29
29
29
30
14
10
27
29
29
29
23
2018
€’m
805.6
134.1
(78.8)
(40.0)
(59.8)
0.5
761.6
(46.1)
0.5
(65.0)
651.0
(296.1)
10.6
-
(476.8)
(14.5)
-
-
(11.9)
(788.7)
(114.4)
-
350.2
235.8
98.1
305.6
0.2
403.9
98.1
(350.2)
(252.1)
(2.6)
(27.1)
(281.8)
(1,341.7)
(1,623.5)
2017
€’m
781.3
134.0
9.1
(95.3)
(34.0)
(8.8)
786.3
(54.7)
0.1
(60.3)
671.4
(301.3)
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)
Kerry Group Annual Report 2018
COMPANY STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018
Operating activities
Trading profit
Adjustments for:
Depreciation
Change in working capital
Net cash from operating activities
Investing activities
Investments in subsidiary undertakings
Net cash from investing 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
15
10
27
29
2018
€’m
154.9
0.1
36.1
191.1
(76.7)
(76.7)
(114.4)
-
(114.4)
-
-
-
2017
€’m
106.2
0.2
(4.2)
102.2
-
-
(102.2)
-
(102.2)
-
-
-
145
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
FINANCIAL
STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018
Basis of consolidation
Subsidiaries
The consolidated financial statements incorporate the financial
statements of the Company and the entities controlled by the Company
(its subsidiaries), all of which prepare financial statements up to 31
December. Accounting policies of subsidiaries are consistent with the
policies adopted by the Group. Control is achieved where the Company
has the power over the investee, is exposed or has rights to variable
returns from its involvement with the investee and has the ability to
use its power to affect its returns.
The results of subsidiaries acquired or disposed of during the financial
year are included in the Consolidated Income Statement from the
date the Company gains control until the date the Company ceases
to control the subsidiary. All inter-group transactions and balances
are eliminated on consolidation.
Associates
Associates are all entities over which the Group has significant influence
but not control, generally accompanying a shareholding of between
20% and 50% of the voting rights. Significant influence is the power to
participate in the financial and operating policy decisions of the investee
but is not control or joint control over those policies. Investments in
associates are accounted for using the equity method of accounting
and are initially recognised at cost. On acquisition of the investment in
associate, any excess of the cost of the investment over the Group’s
share of the net fair value of the identifiable assets and liabilities of the
investee is recognised as goodwill, which is included within the carrying
value of the investment.
The Group’s share of its associates’ post-acquisition profits or losses
is recognised in ‘Share of associate and joint ventures’ profit/loss after
tax’ within Trading Profit in the Consolidated Income Statement, and
its share of post-acquisition movements in reserves is recognised in
reserves. The cumulative post-acquisition movements are adjusted
against the carrying amount of the investment, less any impairment in
value. Where indicators of impairment arise, the carrying amount of the
associate is tested for impairment by comparing its recoverable amount
with its carrying amount.
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.
Joint ventures
Joint ventures are all entities over which the Group has joint control,
whereby the Group has rights to the net assets of the arrangement,
rather than rights to its assets and obligations for its liabilities.
Investments in joint ventures are accounted for using the equity method
of accounting and are initially recognised at cost. On acquisition of the
investment in joint venture, 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.
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 and joint
ventures 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.
As the available-for-sale reserve (AFS) under IAS 39 ‘Financial
Instruments: Recognition and Measurement’ becomes the fair value
through other comprehensive income reserve (FVOCI) under IFRS 9
‘Financial Instruments’ at 1 January 2018, throughout these financial
statements respective headings will be presented as FVOCI/AFS.
146
Kerry Group Annual Report 2018
1. Statement of accounting policies (continued)
Basis of consolidation (continued)
Joint ventures (continued)
The Group’s share of its joint ventures’ post-acquisition profits or losses is
recognised in ‘Share of associate and joint ventures’ profit/loss after tax’
within Trading Profit in the Consolidated Income Statement, and its share
of post-acquisition movements in reserves is recognised in reserves until
the date on which joint control ceases. 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 joint venture is tested for impairment by
comparing its recoverable amount with its carrying amount.
Unrealised gains arising from transactions with joint ventures 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 joint ventures are amended
where necessary to ensure consistency of accounting treatment at
Group level.
Revenue
Revenue represents the 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 control of the products has transferred, which is
usually upon shipment, or in line with terms agreed with individual
customers. Revenue is recorded when there is no unfulfilled obligation
on the part of the Group. 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 using
the expected value method. Any unutilised accrual is released after
assessment that the likelihood of such a claim being made is highly
probable.
Revenue policy applicable before 1 January 2018
Revenue represents the fair value of the consideration received or
receivable, for taste and nutrition applications and consumer foods
branded and non-branded products, from third party customers.
Revenue is recorded at invoice value, net of discounts, allowances,
volume and promotional rebates and excludes VAT. Revenue is
recognised when the significant risks and rewards of ownership of the
goods have been transferred to the customer, which is usually upon
shipment, or in line with terms agreed with individual customers and
when the amount of revenue and costs incurred can be measured
reliably. Revenue is recorded when the collection of the amount due is
reasonably assured. An estimate is made on the basis of historical sales
returns and is recorded to allocate these returns to the same period as
the original revenue is recorded. Rebates and discounts are provided for
based on agreements or contracts with customers, agreed promotional
arrangements and accumulated experience. Any unutilised accrual
is released after assessment that the likelihood of such a claim being
made is no longer probable.
Trading profit
Trading profit refers to the operating profit generated by the businesses
before intangible asset amortisation and gains or losses generated from
non-trading items. Trading profit represents operating profit before
specific items that are not reflective of underlying trading performance
and therefore hinder comparison of the trading performance of the
Group’s businesses, either year-on-year or with other businesses.
Segmental analysis
Operating segments are reported in a manner consistent with the internal
management structure of the Group and the internal financial information
provided to the Group’s Chief Operating Decision Maker (the executive
directors) who is responsible for making strategic decisions, allocating
resources, monitoring and assessing the performance of each segment.
Trading profit as reported internally by segment is the key measure utilised
in assessing the performance of operating segments within the Group.
Other Corporate activities, such as the cost of corporate stewardship and
the cost of the Kerryconnect programme, are reported along with the
elimination of inter-group activities under the heading ‘Group Eliminations
and Unallocated’. Intangible asset amortisation, non-trading items, net
finance costs and income taxes are managed on a centralised basis and
therefore, these items are not allocated between operating segments and
are not reported per segment in note 2.
The Group has determined it has two reportable segments: Taste
& Nutrition and Consumer Foods. The Taste & Nutrition segment
manufactures and distributes an innovative portfolio of taste & nutrition
solutions and functional ingredients & actives for the global food,
beverage and pharmaceutical industries. The Consumer Foods segment
manufactures and supplies added value branded and consumer branded
chilled food products to the Irish, UK and selected international markets.
Property, plant and equipment
Property, plant and equipment, other than freehold land, are stated at
cost less accumulated depreciation and any accumulated impairment
losses. Cost comprises purchase price and other directly attributable
costs. Freehold land is stated at cost and is not depreciated.
Depreciation on the remaining property, plant and equipment is
calculated by charging equal annual instalments to the Consolidated
Income Statement at the following annual rates:
-
-
-
Buildings
Plant, machinery and equipment
Motor vehicles
2% - 5%
7% - 25%
20%
The charge in respect of periodic depreciation is calculated after
establishing an estimate of the asset’s useful life and the expected residual
value at the end of its life. Increasing/(decreasing) an asset’s expected life
or its residual value would result in a (decreased)/increased depreciation
charge to the Consolidated Income Statement as well as an increase/
(decrease) in the carrying value of the asset.
The useful lives of Group assets are determined by management at the
time the assets are acquired and reviewed annually for appropriateness.
These lives are based on historical experience with similar assets as well as
anticipation of future events, which may impact their life, such as changes
in technology. Historically, changes in useful lives or residual values have
not resulted in material changes to the Group’s depreciation charge.
Assets in the course of construction for production or administrative
purposes are carried at cost less any recognised impairment loss.
Cost includes professional fees and other directly attributable costs.
Depreciation of these assets commences when the assets are ready for
their intended use, on the same basis as other property assets.
Assets classified as held for sale
Assets are classified as held for sale if their carrying value will be
recovered through a sale transaction rather than through continuing use.
This condition is regarded as met if, at the financial year end, the sale is
highly probable, the asset is available for immediate sale in its present
condition, management is committed to the sale and the sale is expected
to be completed within one year from the date of classification.
Assets classified as held for sale are measured at the lower of carrying
value and fair value less costs to sell.
147
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
1. Statement of accounting policies (continued)
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.
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 estimate 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.
-
-
-
148
Computer software is amortised over its expected useful life, which
ranges from 3 to 7 years, by charging equal annual instalments to the
Consolidated Income Statement. Amortisation commences when the
assets are ready for use.
Impairment of non-financial assets
Goodwill and other intangible assets that have an indefinite useful
life are not subject to amortisation. They are tested annually for
impairment or when indications exist that the asset may be impaired.
For the purpose of assessing impairment, these assets are allocated
to CGUs using a reasonable and consistent basis for corporate assets.
An impairment loss is recognised immediately in the Consolidated
Income Statement for the amount by which the asset’s carrying value
exceeds its recoverable amount. The recoverable amount is the higher
of an asset’s fair value less costs to sell or its value in use. Value in use
is determined as the discounted future cash flows of the CGU. The key
assumptions during the financial year for the value in use calculations
are discount rates, cash flows and growth rates.
When an impairment loss (other than on goodwill) subsequently reverses,
the carrying amount of the asset is increased to the revised estimate of
its recoverable amount, not exceeding its carrying amount that would
have been determined had no impairment loss been recognised for the
asset in prior years. Assets that are subject to amortisation are reviewed
for impairment whenever events or changes in circumstances indicate
the carrying amount may not be recoverable. Impairment is reviewed by
assessing the asset’s value in use when compared to its carrying value.
The carrying amounts of property, plant and equipment are reviewed at
each balance sheet date to determine whether there is any indication of
impairment. An impairment loss is recognised when the carrying value
of an asset exceeds its recoverable amount.
Inventories
Inventories are valued at the lower of cost and net realisable value.
Cost includes raw materials, direct labour and all other expenditure
incurred in the normal course of business in bringing the products to
their present location and condition. Cost is calculated at the weighted
average cost incurred in acquiring inventories. Net realisable value is
the estimated selling price of inventory on hand less all further costs
to completion and all costs expected to be incurred in 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.
Kerry Group Annual Report 2018
1. Statement of accounting policies (continued)
Income taxes (continued)
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.
-
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 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.
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Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
1. Statement of accounting policies (continued)
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.
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.
Investments in associates and joint ventures
Investments in associates and joint ventures held by the Group are
accounted for using the equity method, after initially being recognised
at cost in the Consolidated Balance Sheet.
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.
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Kerry Group Annual Report 2018
1. Statement of accounting policies (continued)
Financial instruments (continued)
Financial assets and liabilities are offset and presented on a net basis in
the Consolidated Balance Sheet, only if the Group holds an enforceable
legal right of set off for such amounts and there is an intention to
settle on a net basis or to realise an asset and settle the liability
simultaneously. In all other instances they are presented gross in the
Consolidated Balance Sheet.
The Group has applied IFRS 9 ‘Financial Instruments’ retrospectively but
has elected not to restate the comparatives (see ‘New standards and
interpretations’ on page 154). As a result, the comparative information
continues to be accounted for in accordance with the Group’s previous
accounting policies under IAS 39 ‘Financial Instruments: Recognition
and Measurement’.
From 1 January 2018, the Group classifies its financial assets in the
following measurement categories:
-
Those to be measured subsequently at fair value (either through
OCI or through profit or loss); and
Those to be measured at amortised cost.
-
The classification depends on the Group’s business model for managing
the financial assets and the contractual terms of the cash flows.
For assets measured at fair value, gains and losses will either be
recorded in profit or loss or OCI. For investments in equity instruments
that are not held for trading, this will depend on whether the Group has
made an irrevocable election at the time of initial recognition to account
for the equity investment at fair value through other comprehensive
income (FVOCI).
Debt instruments:
Subsequent measurement of debt instruments depend on the
Group’s business model for managing the asset and the cash flow
characteristics of the asset. There are three measurement categories
into which the Group classifies its debt instruments:
-
Amortised cost: Assets that are held for collection of contractual
cash flows, where those cash flows represent solely payments
of principal and interest, are measured at amortised cost. Any
gain or loss arising on derecognition is recognised directly in the
Consolidated Income Statement. Impairment losses are presented
in the Consolidated Income Statement.
FVOCI: Assets that are held for collection of contractual cash
flows and for selling the financial assets, where the assets’
cash flows represent solely payments of principal and interest,
are measured at FVOCI. The Group have no debt instruments
measured at FVOCI.
FVPL: Assets that do not meet the criteria for amortised cost
or FVOCI are measured at FVPL. In addition, assets that are
irrevocably designated as FVPL at origination to eliminate or
significantly reduce an accounting mismatch are also measured
at FVPL. A gain or loss on a debt investment that is subsequently
measured at FVPL is recognised in the Consolidated Income
Statement.
-
-
Equity instruments:
The Group subsequently measures all equity investments at fair value.
Where the Group’s management has elected to present fair value
gains and losses on equity investments in OCI, there is no subsequent
reclassification of fair value gains and losses to the Consolidated Income
Statement following the derecognition of the investment. Dividends
from such investments continue to be recognised in Consolidated
Income Statement when the Group’s right to receive payments is
established.
Changes in the fair value of financial assets measured at FVPL
(Rabbi Trust assets) are recognised in the Consolidated Income
Statement. Impairment losses (and reversal of impairment losses) on
equity investments measured at FVOCI are not reported separately
from other changes in fair value. Previously, equity instruments were
accounted as FVPL (Rabbi Trust equities) or available-for-sale under
IAS 39 ‘Financial Instruments: Recognition and Measurement’ and were
measured at fair value.
Trade receivables are amounts due from customers for goods sold
or services performed in the ordinary course of business. Trade
receivables are recognised initially at the amount of consideration that
is unconditional unless they contain significant financing components,
when they are recognised at fair value. The Group holds the trade
receivables with the objective to collect the contractual cash flows and
therefore measures them subsequently at amortised cost using the
effective interest method.
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.
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.
Financial liabilities at fair value through profit or loss (FVTPL)
Financial liabilities at FVTPL arise when the financial liabilities are either
derivative liabilities 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.
Financial assets policy applicable before 1 January 2018
The Group classified its financial assets into one of the following
categories:
-
-
-
loans and receivables;
available-for-sale; and
at FVTPL, and within this category as:
- held for trading;
- derivative hedging instruments; and
- derivative as at FVTPL.
151
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
1. Statement of accounting policies (continued)
Financial instruments (continued)
Financial assets subsequent measurement and gains and losses policy
applicable before 1 January 2018
The Group classified its financial assets into one of the following
categories:
-
loans and receivables: measured at amortised cost using the
effective interest method.
available-for-sale financial assets: measured at fair value and
changes therein, other than impairment losses, interest income
and foreign currency differences on debt instruments, were
recognised in OCI and accumulated in the fair value reserve.
When these assets were derecognised, the gain or loss
accumulated in equity was reclassified to profit or loss.
financial assets at FVTPL: measured at fair value and changes
therein, including any interest or dividend income, were
recognised in profit or loss.
-
-
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.
Impairment of financial assets
From 1 January 2018, the Group assesses on a forward looking basis the
expected credit losses associated with its debt instruments carried at
amortised cost and FVOCI. The impairment methodology applied depends
on whether there has been a significant increase in credit risk.
For trade receivables, the Group applies the simplified approach permitted
by IFRS 9 ‘Financial Instruments’, which requires expected lifetime losses to
be recognised from initial recognition of the receivables.
Impairment policy applicable before 1 January 2018
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 a loss 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 loss allowance
account for trade receivables. Subsequent recoveries of amounts
previously written off are credited to ‘other external charges’ in the
Consolidated Income Statement.
For all other financial assets, objective evidence of impairment could
include:
-
significant financial difficulty of the counterparty, indicated
through unusual or increasingly delayed payments or increase in
average credit period taken;
evidence that the counterparty is entering bankruptcy or financial
re-organisation; and
observable changes in local or economic conditions.
-
-
152
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. When
cross currency interest rate swaps are used to hedge interest rates
and foreign exchange rates, the change in the foreign currency basis
spreads element of the contract that relates to the hedged item is
recognised within other reserves under the cost of hedging reserve.
At inception of the hedge relationship, the Group documents the
economic relationship between hedging instruments and hedged items
including whether changes in the cash flows of the hedging instruments
are expected to offset changes in the cash flows of hedged items.
The Group documents its risk management objective and strategy for
undertaking its hedge transactions.
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 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 is recognised in other comprehensive
income and is reclassified to profit or loss in the period the hedged item
is recognised through profit or loss. Any ineffective portion of the hedge
is recognised in the Consolidated Income Statement. When the hedged
firm commitment or forecasted transaction occurs and results in the
recognition of an asset or liability, the amounts previously recognised in
the hedge reserve, within other comprehensive income are reclassified
through profit or loss in the periods when the hedged item is impacting the
Consolidated Income Statement.
When a hedging instrument expires, or is sold or terminated, or when
a hedge no longer meets the criteria for hedge accounting, any
cumulative deferred gain or loss and deferred cost of hedging in equity
at that time remains in equity until the forecast transaction occurs,
resulting in the recognition of a non-financial asset, such as inventory.
When the forecast transaction is no longer expected to occur, the
cumulative gain or loss and deferred cost of hedging that were reported
in equity are immediately reclassified to profit or loss.
Kerry Group Annual Report 2018
1. Statement of accounting policies (continued)
Financial instruments (continued)
Cash flow hedges (continued)
Cash flow hedge accounting is applied to foreign exchange forward
contracts which are expected to offset 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.
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 derecognised when the hedging relationship
ceases to exist. 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) provide a hedge against foreign
currency borrowings without having to apply hedge accounting; or (b)
where management have decided not to apply hedge accounting. In
these cases the instrument is reported independently at fair value with
any changes recognised in the Consolidated Income Statement. In all
other instances, cash flow or fair value hedge accounting is applied.
Critical accounting estimates and judgements
Preparation of the consolidated financial statements requires
management to make certain estimations, assumptions and judgements
that affect the reported profits, assets and liabilities.
Estimates and underlying assumptions are reviewed on an on-going
basis. Changes in accounting estimates may be necessary if there are
changes in the circumstances on which the estimate was based or
as a result of new information or more experience. Such changes are
recognised in the period in which the estimate is revised.
In particular, information about significant areas of estimation 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, 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 are subject to change
as a result of changing economic conditions. As forecasting future cash
flows is dependent upon the Group successfully leveraging its base of
intangible assets over the long term, estimates are required in relation
to future cashflows which will support the asset value. These estimates
may depend upon the outcome of future events and may need to be
revised as circumstances change. Details of the assumptions used
and key sources of estimation involved are outlined 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.
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. Estimation 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’.
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,
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.
Income taxes and deferred tax assets and liabilities are disclosed in notes 7
and 17 to the consolidated financial statements, respectively.
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), provisions (note 25) and
retirement benefits obligation (note 26).
153
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
1. Statement of accounting policies (continued)
New standards and interpretations
Certain new and revised accounting standards and new International Financial Reporting Interpretations Committee (‘IFRIC’) interpretations have been
issued. 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:
The following Standards and Interpretations are effective for the Group in 2018 but do not have a material effect on the results
or financial position of the Group:
Effective Date
- IFRS 2 (amendment) Classification and Measurement of Share-Based Payment Transactions
- IFRS 4 (amendment)
Insurance Contracts
1 January 2018
1 January 2018
1 January 2018
- IFRS 9
- IFRS 15
Financial Instruments
IFRS 9, published in July 2014, replaced 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.
IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial
liabilities. However, it eliminates the previous IAS 39 categories for financial assets of held-to-maturity, loans and
receivables and available-for-sale. Under IFRS 9, on initial recognition, a financial asset is classified as measured
at amortised cost or fair value through other comprehensive income (FVOCI), or fair value through profit or loss
(FVPL). The classification is dependent on the business model for managing the financial assets and on whether
the cash flows represent solely the payment of principal and interest. The Group has quantified the 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 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 with the exception of certain
equity instruments which were previously classified as available-for-sale (AFS). Under IFRS 9, the Group will
continue to measure these instruments at FVOCI. The AFS reserve has become the FVOCI reserve. On this basis,
the classification and measurement changes do 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 has not had a material impact. For
trade receivables, the Group applies the IFRS 9 simplified approach to measure expected credit losses which uses a
lifetime expected loss allowance.
The Group has elected to adopt the new general hedge accounting model in IFRS 9. The new hedging requirements
of IFRS 9 aligns 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. Under IFRS 9 when designating a cross currency swap contract as a hedging instrument the currency
basis spread can be excluded and accounted for separately through other comprehensive income as a cost of
hedging, being recognised in the income statement at the same time as the hedged item affects profit or loss.
Accounting for the cost of hedging, which is not material, has been applied prospectively, without restating
comparatives.
The impact of adopting IFRS 9 on the consolidated financial statements was not material for the Group and there
was no adjustment to retained earnings on application at 1 January 2018. In line with the transition guidance in IFRS
9 the Group has not restated the 2017 prior year 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 adopted IFRS 15 from 1 January 2018, using the modified retrospective approach and has not
restated the 2017 prior year on adoption. At the date of adoption, the Group assessed the impact on its consolidated
financial statements resulting from the application of IFRS 15. 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 is recorded over time rather than at a point in time. Based on the Group’s
contractual and trading relationships, the impact of adopting IFRS 15 on the consolidated financial statements was
not material for the Group and there was no adjustment to retained earnings on application at 1 January 2018.
- IAS 40 (amendment)
Investment Property
- IFRIC 22
Foreign Currency Transactions and Advance Consideration
1 July 2018
1 January 2018
154
Kerry Group Annual Report 2018
1. Statement of accounting policies (continued)
New standards and interpretations (continued)
The following Standards and Interpretations which are not yet effective for the Group and are not expected to have a material
effect on the results or financial position of the Group:
Effective Date
- IFRS 16
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
to recognise depreciation of lease assets separately from interest on lease liabilities in the income statement.
The Group will apply the standard from its mandatory adoption date of 1 January 2019. The Group will apply the
simplified transition approach and will not restate comparative amounts for the year prior to first adoption. Right-
of-use assets for property leases will be measured on transition as if the new rules had always been applied. All
other right-of-use assets will be measured at the amount of the lease liability on adoption. As at the reporting date,
the Group has non-cancellable operating lease commitments of €83.1m. Of these commitments, approximately
€0.3m relate to short-term leases and €0.1m are low value leases which will be recognised on a straight-line basis
as expense in profit or loss. The Group expects to recognise right-of-use assets of approximately €92.4m on 1
January 2019 and lease liabilities of €103.1m, which includes the impact of new leases entered into and leases
acquired through new acquisitions in 2018. The Group has also elected not to separate non-lease components from
lease components, and instead account for each lease component and any associated non-lease components as a
single lease component further increasing the lease liability at 1 January 2019. As at the reporting date, the Group
implementation project was at an advanced state.
- IFRS 17
- IFRIC 23
Insurance Contracts
Uncertainty over Income Tax Treatments
1 January 2021
1 January 2019
155
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
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
2018
€’m
Consumer
Foods
2018
€’m
Group
Eliminations
and
Unallocated
2018
€’m
Total
2018
€’m
5,272.4
1,335.2
-
6,607.6
78.2
3.8
5,350.6
1,339.0
(82.0)
(82.0)
-
6,607.6
Taste &
Nutrition
2017
€’m
5,080.5
78.3
5,158.8
Consumer
Foods
2017
€’m
1,327.4
3.6
1,331.0
Group
Eliminations
and
Unallocated
2017
€’m
Total
2017
€’m
-
6,407.9
(81.9)
(81.9)
-
6,407.9
External revenue
Inter-segment revenue
Revenue
Trading profit
805.3
100.1
(99.8)
805.6
767.2
107.8
(93.7)
781.3
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
(53.8)
(66.9)
684.9
0.5
(67.5)
617.9
(77.4)
540.5
(47.9)
(54.5)
678.9
0.1
(65.7)
613.3
(24.8)
588.5
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
5,492.1
938.1
1,893.5
8,323.7
(1,201.1)
(348.2)
(2,740.0)
(4,289.3)
4,671.6
(1,150.5)
944.2
(351.8)
1,784.4
7,400.2
(2,324.7)
(3,827.0)
4,291.0
589.9
(846.5)
4,034.4
3,521.1
592.4
(540.3)
3,573.2
259.1
115.0
0.3
17.1
23.6
18.5
2.1
6.6
1.0
0.6
28.0
30.1
283.7
134.1
30.4
53.8
Europe
2018
€’m
2,757.0
4,173.7
87.9
30.1
Americas
2018
€’m
2,745.3
3,160.3
142.1
0.3
APMEA*
2018
€’m
Total
2018
€’m
1,105.3
6,607.6
989.7
8,323.7
53.7
-
283.7
30.4
246.4
108.5
1.0
17.2
Europe
2017**
€’m
2,725.4
4,210.1
100.6
22.6
28.8
18.1
1.4
6.2
0.9
7.3
21.2
24.5
276.1
133.9
23.6
47.9
Americas
2017
€’m
2,678.3
2,451.0
122.4
1.0
APMEA*
2017**
€’m
1,004.2
739.3
53.1
-
Total
2017
€’m
6,407.9
7,400.2
276.1
23.6
*Asia Pacific, Middle East & Africa
** The 2017 segmental analysis has been re-presented to reflect the change in management responsibility whereby the revenues of external customers located in the Middle
East & Africa are now reported as part of APMEA (formerly APAC) instead of Europe (formerly EMEA).
156
Kerry Group Annual Report 2018
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 €456.9m (2017: €447.8m).
The non-current assets located in the Republic of Ireland are €1,000.3m (2017: €906.1m).
Revenues from external customers include €1,560.8m (2017: €1,550.1m) in the UK and €2,189.5m (2017: €2,091.2m) in the USA. The non-current assets
in the UK are €668.9m (2017: €669.9m) and in the USA are €1,924.8m (2017: €1,483.9m). Revenue in respect of Europe includes revenue for Taste &
Nutrition of €1,421.8m (2017: €1,398.0m) and Consumer Foods of €1,335.2m (2017: €1,327.4m).
There are no material dependencies or concentrations on individual customers which would warrant disclosure under IFRS 8 ‘Operating Segments’.
The accounting policies of the reportable segments are the same as the Group’s accounting policies as outlined in the Statement of Accounting Policies.
Under IFRS 15 ‘Revenue from Contracts with Customers’ revenue is primarily recognised at a point in time.
3. Operating profit
Operating profit for the financial year has been arrived at after charging/(crediting) the following operating costs:
Revenue
Less operating costs:
Raw materials and consumables
Other external charges
Staff costs
Depreciation (including impairment)
Capital grants amortisation
Other operating charges
Loss allowances on trade receivables
Foreign exchange losses/(gains)
Change in inventories of finished goods
Share of associate and joint ventures loss after tax
Trading profit
Intangible asset amortisation
Non-trading items
Operating profit
And is stated after charging:
Research and development costs
Continuing
Operations
2018
€’m
6,607.6
Continuing
Operations
2017
€’m
6,407.9
Notes
3,693.3
445.1
1,185.3
136.4
(2.3)
363.6
8.5
6.2
(34.4)
0.3
805.6
53.8
66.9
684.9
11
21
19
14
12
5
3,591.7
436.8
1,196.1
136.2
(2.2)
325.6
13.7
(29.0)
(43.4)
1.1
781.3
47.9
54.5
678.9
274.6
268.7
157
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
3. Operating profit (continued)
Auditors’ remuneration
Statutory disclosure:
Group audit
Other assurance services
Total assurance services
Tax advisory services
Other non-audit services
Total non-audit services
Total auditors’ remuneration
Assurance services
Non-audit services
Total
PwC
Ireland
2018
€’m
PwC
Other
2018
€’m
PwC
Worldwide
2018
€’m
PwC
Ireland
2017
€’m
PwC
Other
2017
€’m
PwC
Worldwide
2017
€’m
1.1
0.1
1.2
-
-
-
1.2
1.6
-
1.6
0.1
-
0.1
1.7
2.7
0.1
2.8
0.1
-
0.1
2.9
97%
3%
100%
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%
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 (2017: €4,720) which are due to the Group’s auditor in respect of the Parent Company. Reimbursement of auditors’ expenses amounted to
€0.3m (2017: €0.2m).
4. Total staff numbers and costs
The average number of people employed by the Group was:
Europe
Americas
APMEA
Taste &
Nutrition
2018
Number
5,570
8,214
4,468
18,252
Consumer
Foods
2018
Number
7,003
-
-
7,003
The aggregate payroll costs of employees (including Executive Directors) was:
Europe
Americas
APMEA
Taste &
Nutrition
2018
€’m
353.3
465.8
125.8
944.9
Consumer
Foods
2018
€’m
240.4
-
-
Total
2018
Number
12,573
8,214
4,468
25,255
Total
2018
€’m
593.7
465.8
125.8
Taste &
Nutrition
2017*
Number
Consumer
Foods
2017
Number
5,522
7,438
3,885
16,845
7,124
-
-
7,124
Taste &
Nutrition
2017*
€’m
320.6
472.3
121.1
914.0
Consumer
Foods
2017
€’m
282.1
-
-
282.1
Total
2017
Number
12,646
7,438
3,885
23,969
Total
2017
€’m
602.7
472.3
121.1
1,196.1
240.4
1,185.3
*The 2017 staff numbers and costs has been re-presented to reflect the change in management responsibility whereby the staff located in the Middle East & Africa are now
reported as part of APMEA (formerly APAC) instead of Europe (formerly EMEA).
Social welfare costs of €90.2m (2017: €83.3m) and share-based payment expense of €12.2m (2017: €12.8m) 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 €8.3m (2017: €6.8m) which has been capitalised as
part of computer software in intangible assets.
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Kerry Group Annual Report 2018
5. Non-trading items
Acquisition integration and restructuring costs
Consumer Foods Brexit Currency Mitigation Programme
Loss on disposal of businesses and assets*
Tax on above
Tax credit due to change in tax rates
*including impairment of assets held for sale
Notes
(i)
(ii)
(iii)
(i)-(iii)
(iv)
2018
€’m
(44.2)
(17.3)
(5.4)
(66.9)
11.8
-
11.8
(55.1)
2017
€’m
(36.0)
(11.7)
(6.8)
(54.5)
11.9
52.8
64.7
10.2
(i) Acquisition integration and restructuring costs
During the year, acquisition integration and restructuring costs of €44.2m (2017: €36.0m) primarily related to costs of integrating acquisitions into the
Group’s operations and transaction expenses incurred in completing current year acquisitions. These costs reflect the closure of factories, relocation of
resources and the restructuring of operations in order to integrate the acquired businesses into the existing Kerry operating model. In the year ended 31
December 2018, a tax credit of €10.1m (2017: €10.8m) arose due to tax deductions available on acquisition integration and restructuring costs.
(ii) Consumer Foods Brexit Currency Mitigation Programme
During the year, certain sourcing and production activities have been relocated and other activities restructured as a consequence of Brexit in order
to reduce the Group’s sterling transaction exposure. The charge relating to this in 2018 is €17.3m (2017: €11.7m) and the associated tax credit is
€2.2m (2017: €1.0m).
(iii) Loss on disposal of businesses and assets
During the year, the Group disposed of property, plant and equipment primarily in Italy, Malaysia and the US for a consideration of €10.6m resulting in a
loss of €1.0m. The Group also disposed of investments in associates for a combined consideration of €1.1m resulting in a loss of €4.4m. Please see note 29
for a reconciliation of loss and cash impact on disposal of businesses and assets.
In 2017, 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.
A tax charge of €0.5m (2017: a tax credit of €0.1m) arose on the disposal of assets and businesses.
There were no impairments of assets held for sale recorded in the year. In 2018, assets classified as held for sale were impaired to their fair value less costs
to sell by €nil (2017: €1.0m).
(iv) 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 brought 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 was 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 Consolidated Income Statement as a non-trading item of €52.8m.
159
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
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
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 on non-trading items:
Current tax
Deferred tax
One-off deferred tax credit due to the US Tax Cuts and Jobs Act
Note
26
Notes
17
5
2018
€’m
0.5
(66.3)
0.2
(66.1)
(1.4)
(67.5)
2018
€’m
61.5
(2.7)
58.8
18.6
77.4
(2.8)
(9.0)
-
(11.8)
The tax on the Group’s profit before taxation 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
2018
€’m
617.9
77.2
(1.1)
8.1
(2.9)
(1.3)
(1.4)
(1.2)
77.4
2017
€’m
0.1
(58.1)
0.6
(57.5)
(8.2)
(65.7)
2017
€’m
81.9
(0.7)
81.2
(56.4)
24.8
(1.2)
(10.7)
(52.8)
(64.7)
2017
€’m
613.3
76.7
(0.2)
11.1
(52.8)
(1.9)
(6.9)
(1.2)
24.8
An increase in the Group’s applicable tax rate of 1% would reduce profit after tax by €6.2m (2017: €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.
160
Kerry Group Annual Report 2018
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 €158.9m (2017: €107.9m).
9. Earnings per A ordinary share
Basic earnings per share
EPS
cent
2018
€’m
EPS
cent
2017
€’m
Profit after taxation attributable to owners of the parent
305.9
540.5
333.6
588.5
Diluted earnings per share
Profit after taxation attributable to owners of the parent
305.7
540.5
333.2
588.5
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
10. Dividends
Group and Company:
Amounts recognised as distributions to equity shareholders in the financial year
Final 2017 dividend of 43.90 cent per A ordinary share paid 18 May 2018
(Final 2016 dividend of 39.20 cent per A ordinary share paid 19 May 2017)
Interim 2018 dividend of 21.00 cent per A ordinary share paid 16 November 2018
(Interim 2017 dividend of 18.80 cent per A ordinary share paid 10 November 2017)
2018
m’s
176.7
0.1
176.8
176.3
2018
€’m
2017
m’s
176.4
0.2
176.6
176.2
2017
€’m
77.4
69.0
37.0
114.4
33.2
102.2
Since the financial year end the Board has proposed a final 2018 dividend of 49.20 cent per A ordinary share which amounts to €86.7m. The payment date
for the final dividend will be 10 May 2019 to shareholders registered on the record date as at 12 April 2019. The consolidated financial statements do not
reflect this dividend.
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Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
11. Property, plant and equipment
Group:
Cost
At 1 January 2017
Businesses acquired
Additions
Transfer from construction in progress
Disposals
Transfer to held for sale
Exchange translation adjustment
At 31 December 2017
Businesses acquired
Additions
Transfer from construction in progress
Disposals
Transfer to held for sale
Exchange translation adjustment
At 31 December 2018
Accumulated depreciation and impairment
At 1 January 2017
Charge during the financial year
Impairments
Disposals
Transfer to held for sale
Exchange translation adjustment
At 31 December 2017
Charge during the financial year
Impairments
Disposals
Transfer to held for sale
Exchange translation adjustment
At 31 December 2018
Carrying value
At 31 December 2017
At 31 December 2018
Land and
Buildings
€’m
Notes
Plant,
Machinery
and
Equipment
€’m
Construction
in Progress
€’m
Motor
Vehicles
€’m
Total
€’m
1,043.9
1,812.0
19.0
17.2
53.1
(10.0)
(14.5)
(57.2)
1,051.5
19.3
22.0
53.7
(8.1)
-
12.0
17.0
70.0
65.9
(24.7)
(19.9)
(98.1)
1,822.2
53.1
54.1
89.7
(38.6)
-
19.2
1,150.4
1,999.7
377.8
31.7
3.8
(1.3)
(9.3)
(18.8)
383.9
31.2
0.9
(7.2)
-
4.1
1,182.6
103.4
1.2
(24.7)
(19.9)
(67.8)
1,174.8
104.3
2.5
(34.3)
-
11.6
412.9
1,258.9
30
5
3
3
3
3
5
153.6
0.9
187.6
(119.0)
-
-
(11.6)
211.5
7.4
207.0
(143.4)
-
-
3.5
286.0
-
-
-
-
-
-
-
-
-
-
-
-
-
14.9
0.3
1.3
-
(1.2)
-
(0.6)
14.7
-
0.6
-
(0.5)
-
(0.2)
14.6
12.1
1.0
-
(1.1)
-
(0.4)
11.6
0.9
-
(0.5)
-
(0.1)
11.9
3,024.4
37.2
276.1
-
(35.9)
(34.4)
(167.5)
3,099.9
79.8
283.7
-
(47.2)
-
34.5
3,450.7
1,572.5
136.1
5.0
(27.1)
(29.2)
(87.0)
1,570.3
136.4
3.4
(42.0)
-
15.6
1,683.7
667.6
737.5
647.4
740.8
211.5
286.0
3.1
2.7
1,529.6
1,767.0
Included in the impairments above is €3.4m (2017: €4.9m) charged to non-trading items.
162
Kerry Group Annual Report 2018
11. Property, plant and equipment (continued)
Company:
Cost
At 1 January 2017
At 31 December 2017 and 2018
Accumulated depreciation
At 1 January 2017
Charge during the financial year
At 31 December 2017
Charge during the financial year
At 31 December 2018
Carrying value
At 31 December 2017
At 31 December 2018
Land and
Buildings
Total
€’m
4.7
4.7
4.1
0.2
4.3
0.1
4.4
0.4
0.3
163
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements 12. Intangible assets
Cost
At 1 January 2017
Businesses acquired
Additions
Purchase adjustment
Disposals
Exchange translation adjustment
At 31 December 2017
Businesses acquired
Additions
Purchase adjustment
Disposals
Exchange translation adjustment
At 31 December 2018
Accumulated amortisation and impairment
At 1 January 2017
Charge during the financial year
Disposals
Exchange translation adjustment
At 31 December 2017
Charge during the financial year
Disposals
Exchange translation adjustment
At 31 December 2018
Carrying value
At 31 December 2017
At 31 December 2018
Notes
Goodwill
€’m
Brand
Related
Intangibles
€’m
Computer
Software
€’m
2,219.3
125.3
-
(0.2)
-
(115.1)
2,229.3
1,357.2
252.3
-
-
-
(56.6)
1,552.9
30
133.7
314.5
3
3
-
5.8
-
8.6
2,377.4
22.6
-
-
(4.1)
18.5
-
-
0.2
18.7
-
-
-
12.7
1,880.1
197.7
23.6
-
(17.0)
204.3
28.8
-
2.8
235.9
2,210.8
2,358.7
1,348.6
1,644.2
212.4
0.1
23.6
-
(0.1)
(1.4)
234.6
-
30.4
-
(3.8)
0.4
261.6
124.3
24.3
-
(1.3)
147.3
25.0
(3.8)
0.4
168.9
87.3
92.7
Total
€’m
3,788.9
377.7
23.6
(0.2)
(0.1)
(173.1)
4,016.8
448.2
30.4
5.8
(3.8)
21.7
4,519.1
344.6
47.9
-
(22.4)
370.1
53.8
(3.8)
3.4
423.5
3,646.7
4,095.6
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 €1,175.9m (2017: €1,062.9m) which have indefinite lives.
Approximately €11.4m (2017: €8.0m) of computer software additions during the year were internally generated. Included in this are payroll costs of €8.3m
(2017: €6.8m). The Group has not capitalised product development expenditure in 2018 (2017: €nil).
The Group has no separate individual intangible asset that is material, as all intangibles acquired are integrated and developed within the existing business.
164
Kerry Group Annual Report 2018
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 approved by management and a terminal value which is applied to
the year five cash flows. The terminal value reflects the discounted value of the cash flows beyond year five which is based on the weighted average long
term growth rates for each CGU.
No impairment was recognised in 2018 or 2017 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 2018, there was no specific impairment charge (2017: €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
Europe
Americas
APMEA
Consumer Foods
Europe
Goodwill
2018
€’m
497.1
1,286.1
171.2
404.3
2,358.7
Goodwill
2017
€’m
Indefinite Life
Intangibles
2018
€’m
Indefinite Life
Intangibles
2017
€’m
529.5
1,155.5
118.6
407.2
2,210.8
104.0
974.3
51.6
46.0
1,175.9
106.1
855.1
55.5
46.2
1,062.9
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
Europe
Americas
APMEA
Consumer Foods
Europe
Discount
Rates
2018
Discount
Rates
2017
6.8%
6.8%
9.7%
7.4%
7.5%
9.0%
Growth
Rates
2018
1.9%
2.4%
4.9%
Growth
Rates
2017
2.0%
2.4%
5.1%
6.7%
7.2%
1.9%
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 and working
capital investment. 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.
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Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
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 2018 or 2017. Further, a 5% increase would not have resulted in an impairment
charge in 2018 or 2017 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 2018 or 2017. 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 2018 or 2017. 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 2017
Additions
Fair value movements
Exchange translation adjustment
At 31 December 2017
Additions
Disposals
Fair value movements
Exchange translation adjustment
At 31 December 2018
FVOCI/AFS
Investments
€’m
Other
Investments
€’m
4.1
-
3.5
(0.4)
7.2
-
-
(1.9)
-
5.3
35.2
6.4
-
(4.2)
37.4
4.1
(12.7)
(0.6)
1.8
30.0
Total
€’m
39.3
6.4
3.5
(4.6)
44.6
4.1
(12.7)
(2.5)
1.8
35.3
Investments held at fair value through other comprehensive income/available-for-sale
These represent investments in equity securities. These investments have no fixed maturity or coupon rate. A fair value assessment was performed in
2018 which resulted in a decrease to the carrying value of these assets of €1.9m (2017: uplift of €3.5m) through other comprehensive income.
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 and joint ventures
At 1 January
Acquisition
Disposal
Share of loss after tax during the financial year
Income received from associates and joint ventures
At 31 December
Notes
5
3
2018
€’m
5.8
15.6
(5.5)
(0.3)
-
15.6
2017
€’m
40.7
0.6
(34.4)
(1.1)
-
5.8
In 2018, the Group entered into a joint venture through the purchase of a 55% shareholding in Proparent B.V. for a total consideration of €15.6m.
Proparent B.V. owns Ojah B.V., an alternative protein and extrusion business based in The Netherlands. The amounts included in these Group
consolidated financial statements in respect of the post-acquisition profits or losses of this joint venture are taken for the year ended 31 December 2018.
The Group has a call option to acquire the remaining 45% interest under an agreed valuation methodology in 2022. The Group is satisfied that the fair
value attached to this call option is nominal.
During the year, the Group disposed of its 42.8% shareholding in The Bodychef Limited and its 28.6% shareholding in Everdine Holding S.a.r.l. from the
investment in associates line in the Consolidated Balance Sheet for a combined consideration of €1.1m resulting in a loss of €4.4m.
In 2017, 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.
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Kerry Group Annual Report 2018
15. Investments in subsidiaries
Company:
At 1 January
Additions
At 31 December
In 2018, the Company increased its investment in Kerry Holding Co. in the US in order to fund acquisitions.
16. Inventories
Raw materials and consumables
Finished goods and goods for resale
Expense inventories
At 31 December
2018
€’m
637.7
76.7
714.4
2018
€’m
367.1
480.9
29.8
877.8
Write-downs of inventories recognised as an expense approximates to 0.9% (2017: 1.2%) of raw materials and consumables in the Consolidated
Income Statement.
17. Deferred tax assets and liabilities
The following is an analysis of the movement in the major categories of deferred tax liabilities/(assets) recognised by the Group:
Note
7
7
Property,
Plant and
Equipment
€’m
99.3
(24.0)
-
0.2
(7.7)
67.8
8.5
-
3.9
2.1
82.3
Intangible
Assets
€’m
Tax Credits
and NOLs
€’m
Retirement
Benefits
Obligation
€’m
Short Term
Temporary
Differences
and Other
Differences
€’m
231.9
(63.7)
-
51.5
(14.4)
205.3
2.5
-
59.5
1.6
268.9
(15.0)
(4.7)
-
(2.5)
1.0
(21.2)
(1.0)
-
-
0.7
(21.5)
(61.9)
16.9
20.2
-
2.4
(22.4)
7.3
6.3
-
(0.4)
(9.2)
(59.8)
19.1
0.6
(2.0)
8.1
(34.0)
1.3
0.2
0.7
(1.7)
(33.5)
At 1 January 2017
Consolidated Income Statement movement
Recognised in other comprehensive income during
the financial year
Related to businesses acquired/(disposed)
Exchange translation adjustment
At 31 December 2017
Consolidated Income Statement movement
Recognised in other comprehensive income during
the financial year
Related to businesses acquired/(disposed)
Exchange translation adjustment
At 31 December 2018
2017
€’m
637.7
-
637.7
2017
€’m
318.5
446.5
32.5
797.5
Total
€’m
194.5
(56.4)
20.8
47.2
(10.6)
195.5
18.6
6.5
64.1
2.3
287.0
The short term temporary differences and other temporary differences recognised in other comprehensive income comprise fair value movements on
cash flow hedges of €0.2m (2017: €0.6m). In the above table, NOLs refers to Net Operating Losses.
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Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
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
2018
€’m
(37.1)
324.1
287.0
2017
€’m
(46.4)
241.9
195.5
The total deductible temporary differences for which deferred tax assets have not been recognised is €22.9m (2017: €10.7m). 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 €13.3m (2017: €9.2m).
18. Assets classified as held for sale
Property, plant and equipment (net of grants)
2018
€’m
2.0
2.0
2017
€’m
8.3
8.3
In 2018, the Group held certain property, plant and equipment classified as held for sale in the Taste & Nutrition segment in Europe (2017: Europe and APMEA).
168
Kerry Group Annual Report 2018
19. Trade and other receivables
Trade receivables
Loss allowances
Trade receivables due within 1 year
Other receivables and prepayments
Amounts due from subsidiaries
VAT receivable
Receivables due after 1 year
Group
2018
€’m
906.4
(31.5)
874.9
53.6
-
38.9
0.4
967.8
Group
2017
€’m
800.7
(29.0)
771.7
60.0
-
57.6
3.8
893.1
Company
2018
€’m
Company
2017
€’m
-
-
-
-
94.1
-
-
94.1
-
-
-
-
115.9
-
-
115.9
All receivable balances are due within 1 year except for €0.4m (2017: €3.8m) 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 loss allowances:
At beginning of financial year
Increase in loss allowance charged to the Consolidated Income Statement
Utilised or reversed during the financial year
Exchange translation adjustment
At end of financial year
2018
€’m
734.0
108.2
24.7
6.3
1.7
874.9
2018
€’m
29.0
8.5
(5.7)
(0.3)
31.5
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
Trade and other receivables are stated at amortised cost less loss allowances. 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.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade
receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past
due. The expected loss rates are based on the payment profiles of sales and the corresponding historical credit loss experience. The historical loss rates
are adjusted to reflect current and forward-looking information on macroeconomic factors, including the GDP of the countries in which it sells its goods
and services, that affect the ability of customers to settle receivables.
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. The Group does not typically require collateral in respect of trade
receivables.
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.
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Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
20. Trade and other payables
Trade payables
Other payables and accruals
Deferred payments on acquisition of businesses
PAYE
Social security costs
Group
2018
€’m
1,285.9
177.6
10.1
2.9
5.6
Group
2017
€’m
1,200.7
186.2
13.8
3.8
6.0
1,482.1
1,410.5
Company
2018
€’m
Company
2017
€’m
-
0.5
5.8
-
-
6.3
-
2.4
5.8
-
-
8.2
Trade and other payables are stated at amortised cost, which approximates to fair value given the short term nature of these liabilities. The above balances
are all due within 1 year.
21. Deferred income
Capital grants
At beginning of the financial year
Grants received during the financial year
Amortised during the financial year
Disposal
Exchange translation adjustment
At end of the financial year
Analysed as:
Current liabilities
Non-current liabilities
Note
3
Group
2018
€’m
Group
2017
€’m
Company
2018
€’m
Company
2017
€’m
24.1
0.6
(2.3)
(0.1)
0.1
22.4
1.2
21.2
22.4
27.1
0.1
(2.2)
(0.5)
(0.4)
24.1
1.2
22.9
24.1
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
2018
€’m
82.6
-
82.6
Group
2017
€’m
92.7
4.0
96.7
Company
2018
€’m
Company
2017
€’m
-
-
-
-
-
-
All of the above balances are due within 2 to 5 years except for €0.2m (2017: €0.3m) which is not due until after 5 years.
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Kerry Group Annual Report 2018
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:
Financial Assets/
(Liabilities) at
Amortised Cost
2018
€’m
Assets/
(Liabilities)
at Fair Value
through Profit
or Loss
2018
€’m
Derivatives
Designated as
Hedging
Instruments
2018
€’m
Assets/
(Liabilities) at
FVOCI/Available-
for-sale
Investments
2018
€’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
-
-
-
967.8
413.8
1,381.6
1,381.6
-
1,381.6
30.0
-
-
-
-
30.0
-
30.0
30.0
(2,120.3)
(13.2)
-
-
(1,564.7)
(3,685.0)
(1,495.9)
(2,189.1)
(3,685.0)
(2,303.4)
(9.9)
(355.4)
(1,755.0)
(2,120.3)
-
413.8
-
-
-
(13.2)
-
(13.2)
(13.2)
16.8
-
-
(13.2)
(13.2)
-
-
(1,706.5)
(13.2)
-
10.0
101.7
-
-
111.7
10.0
101.7
111.7
-
(11.1)
(5.5)
-
(16.6)
(11.0)
(5.6)
(16.6)
95.1
-
-
-
-
96.2
-
96.2
5.3
-
-
-
-
5.3
-
5.3
5.3
-
-
-
-
-
-
-
-
5.3
-
-
-
-
-
-
-
Total
2018
€’m
35.3
10.0
101.7
967.8
413.8
1,528.6
1,391.6
137.0
1,528.6
(2,133.5)
(11.1)
(5.5)
(1,564.7)
(3,714.8)
(1,506.9)
(2,207.9)
(3,714.8)
(2,186.2)
(9.9)
(355.4)
(1,768.2)
(2,133.5)
96.2
413.8
(1,623.5)
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Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
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 (2017: US$408m) of senior notes issued in 2010. At the
time of issuance, US$250m of the 2013 senior notes and US$500m of the 2010 US$600m 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 €13.2m (2017: €20.0m) 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.
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
Assets/
(Liabilities) at
FVOCI/Available-
for-sale
Investments
2017
€’m
-
-
-
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)
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
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Kerry Group Annual Report 2018
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:
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
2018
€’m
2017
€’m
19
20
-
94.1
94.1
-
(6.3)
(6.3)
87.8
-
115.9
115.9
-
(8.2)
(8.2)
107.7
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
2018
€’m
4,034.4
1,623.5
10.1
5,668.0
2017
€’m
3,573.2
1,341.7
17.8
4,932.7
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 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.
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Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
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*
2018
Times
1.7
14.7
2017
Times
1.4
16.2
*Calculated in accordance with lenders’ facility agreements which take account of adjustments as outlined on page 205.
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 to manage liquidity risk; 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 - key price risk exposures of 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 (liability)/asset of (€12.3m) (2017: €6.3m) and a sterling asset/(liability) of €4.8m (2017: (€4.3m)).
Based on these net positions, as at 31 December 2018, a weakening of 5% of the US dollar and sterling against all other key operational currencies, and
holding all other items constant, would have increased/(decreased) the profit after tax of the Group for the financial year by €0.4m (2017: (€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 2018 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 €21.5m (2017: €15.7m) and €21.7m (2017: €17.8m) respectively.
174
Kerry Group Annual Report 2018
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 and sales and purchases in US dollar in APMEA. The Group uses forward foreign exchange contracts to hedge these
exposures. All such exposures are highly probable. 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:
2018
€’m
Asset
2018
€’m
Liability
Note
Designated in a hedging relationship:
Forward foreign exchange contracts - cash flow hedges
(a)
- current 1
- non-current 2
Forward foreign exchange contracts
* Location of line item in the Consolidated Balance Sheet
1 Other current financial instruments
2 Other non-current financial instruments
10.0
10.0
-
10.0
(11.1)
(11.0)
(0.1)
(11.1)
2018
€’m
Total
(1.1)
(1.0)
(0.1)
(1.1)
2017
€’m
Asset
2017
€’m
Liability
20.3
20.3
-
20.3
(9.1)
(9.1)
-
(9.1)
2017
€’m
Total
11.2
11.2
-
11.2
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 has elected to adopt the hedge accounting requirements of IFRS 9 ‘Financial Instruments’. The Group enters into hedge relationships when
there is an economic relationship between the underlying highly probable forecasted transactions (hedged item) and the forward foreign exchange
contracts (hedged instruments). As the critical terms match for the prospective assessment of effectiveness, a qualitative assessment is performed.
The Group has established a 1:1 hedge ratio as the underlying risks in the forward foreign currency exchange contract are identical to the hedged risk
components. Hedge effectiveness is determined at the origination of the hedging relationship. In instances where changes occur to the hedged item which
result in the critical terms no longer matching, the Group uses the hypothetical derivative method to assess effectiveness.
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 (Liability)/Asset
Notional Principal
2018
€’m
(1.0)
(0.1)
(1.1)
2017
€’m
11.2
-
11.2
2018
€’m
2,005.7
25.9
2,031.6
2017
€’m
1,951.2
65.2
2,016.4
The following table details the impact of forward foreign exchange contracts - cash flow hedges on the Consolidated Balance Sheet as at 31 December:
Forward foreign exchange contracts - cash flow hedges
Retained earnings and other reserves:
Cash flow hedging reserve
Amount reclassified from OCI to profit or loss
2018
€’m
(1.1)
(3.4)
4.5
1.1
2017
€’m
11.2
(2.8)
(8.4)
(11.2)
The fair value included in the hedging reserve will primarily be released to the Consolidated Income Statement within 6 months (2017: 3 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.
175
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
24. Financial instruments (continued)
(i) Foreign exchange rate risk management (continued)
(i.i) Forward foreign exchange contracts (continued)
(a) Forward foreign exchange contracts - cash flow hedges (continued)
The following table details the impact of forward foreign exchange contracts* - cash flow hedges on the Consolidated Income Statement and Consolidated
Statement of Comprehensive Income during the financial year:
Movements recognised in the Consolidated Statement of Comprehensive Income
Total hedging gain recognised in OCI in the year
Amount reclassified from OCI to profit or loss
Movements Recognised in the Consolidated Income Statement
Income reclassified from OCI to profit or loss 1
Ineffectiveness recognised in profit or loss 1
* Location of line item in the Consolidated Income Statement
1 Other operating charges
2018
€’m
2.7
(2.1)
0.6
2.1
-
2.1
2017
€’m
3.8
(29.9)
(26.1)
29.9
-
29.9
There were no transactions during 2018 or 2017 which were designated as hedges that did not occur, nor are there hedges on forecast transactions that
are no longer expected to occur.
(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, in accordance with Group policy as approved by the Board of Directors. The Group reviews the mix of fixed and floating rate borrowings
on an ongoing basis and adjusts where necessary to comply with Group policy. 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 2018
Euro
Sterling
US Dollar
Others
At 31 December 2017
Total
Pre CCS
€’m
(1,016.2)
51.0
(805.5)
64.2
(1,706.5)
(682.6)
123.7
(916.9)
66.6
(1,409.2)
Impact
of CCS
€’m
(399.8)
-
399.8
-
-
(373.9)
-
373.9
-
-
Total
after CCS
€’m
(1,416.0)
51.0
(405.7)
64.2
(1,706.5)
(1,056.5)
123.7
(543.0)
66.6
(1,409.2)
Floating
Rate Debt
€’m
(622.6)
51.0
(187.3)
64.2
(694.7)
(272.9)
123.7
(334.4)
66.6
(417.0)
Fixed
Rate Debt
€’m
(793.4)
-
(218.4)
-
(1,011.8)
(783.6)
-
(208.6)
-
(992.2)
The currency profile of debt highlights the impact of the US$658m (2017: US$658m) 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 (2017: US$658m) to the balance sheet rate resulted in a foreign currency loss of €105.1m (2017: €79.3m) which is directly offset by a gain
of €105.1m (2017: €79.3m) on the application of hedge accounting on the cross currency swaps.
In addition, the Group holds €750m of senior notes issued in 2015, of which €175m were swapped, using cross currency swaps, from euro fixed to US dollar
floating and are accounted for as fair value hedges of the related debt. The fair value of the related derivative includes an asset of €4.8m (2017: €12.4m
asset) for movement in exchange rates since the date of execution which is directly offset by a loss of €4.8m (2017: €12.4m loss) on the application of
hedge accounting on the cross currency swaps.
The weighted average interest rate for fixed borrowings as at 31 December 2018 is 2.54% (2017: 2.55%) and the weighted average period for which the rate
is fixed is 5.7 years (2017: 6.7 years).
176
Kerry Group Annual Report 2018
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 41% (2017: 30%) of net debt and
52% (2017: 42%) 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 1% (2017: 0.6%).
(ii.ii) Interest rate swap contracts
The Group’s activities expose it to risks of changes in interest rates in relation to long-term debt. The Group uses interest rate swaps, cross currency swaps
and forward rate agreements to hedge these exposures. Derivative financial instruments are held in the Consolidated Balance Sheet at their fair values.
The Group adopts an ‘exit price’ approach to valuing interest rate derivatives to allow for credit risk.
The following table details the portfolio of interest rate derivative contracts* at the balance sheet date:
Notes
(a)
(b)
2018
€’m
Asset
2018
€’m
Liability
5.2
-
5.2
96.5
-
96.5
101.7
-
-
-
(5.5)
-
(5.5)
(5.5)
2018
€’m
Total
5.2
-
5.2
91.0
-
91.0
96.2
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
Designated in a hedging relationship:
Interest rate swap contracts - cash flow hedges
- current 1
- non-current 2
Interest rate swap contracts - fair value hedges
- current 1
- non-current 2
Interest rate swap contracts
* Location of line item in the Consolidated Balance Sheet
� Other current financial instruments
2 Other non-current financial instruments
The Group has elected to adopt the hedge accounting requirements of IFRS 9 ‘Financial Instruments’. The Group enters into hedge relationships when
there is an economic relationship between the identified notional amount of the underlying debt instrument (hedged item) and the interest rate swap
contract (hedged instrument).
Interest rate swap
As the critical terms match for the prospective assessment of effectiveness, a qualitative assessment is performed. The Group has established a 1:1 hedge
ratio as the underlying risks in the interest rate swap contracts are identical to the hedged risk components. Hedge effectiveness is determined at the
origination of the hedging relationship. In instances where changes occur to the hedged item which result in the critical terms no longer matching, the
Group uses the hypothetical derivative method to assess effectiveness. Hedge ineffectiveness may occur due to the credit/debit value adjustment on the
interest rate swaps which is not matched by the loan.
Cross currency interest rate swap
The Group uses the hypothetical derivative method to assess effectiveness for such swaps as while the critical terms match, both qualitative and
quantitative assessments are required to be performed as there remains characteristics in cross currency interest rate swap contracts that are not present
in the hedged item, being basis risks. The Group has established a 1:1 hedge ratio as the underlying risks in the cross currency interest rate swap contracts
are identical to the hedged risk components. Hedge effectiveness is determined at the origination of the hedging relationship and at each reporting date.
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) to (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.
177
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
-
-
-
208.6
208.6
2017
€’m
(4.5)
2018
€’m
5.2
(23.0)
(13.2)
18.9
(1.6)
0.5
(5.2)
18.0
-
(0.3)
4.5
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)
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:
Average Contracted
Fixed Interest Rate
2017
2018
%
%
Fair Value
Asset/(Liability)
2017
€’m
2018
€’m
Notional Principal
2017
2018
€’m
€’m
Interest rate swap contracts
less than 1 year
1 - 2 years
2 - 5 years
> 5 years
Interest rate swap contracts - cash flow hedges
-
-
2.58
-
-
-
-
2.58
-
-
5.2
-
5.2
-
-
-
(4.5)
(4.5)
-
-
218.4
-
218.4
The following table details the impact of interest rate swap contracts - cash flow hedges on the Consolidated Balance Sheet as at 31 December:
Interest rate swap contracts - cash flow hedges
Fixed rate borrowings:
Amount reclassified from hedge reserve to profit or loss re: foreign exchange rate fluctuations
Retained earnings and other reserves:
Cash flow hedging reserve
Cost of hedging reserve
Accumulated hedge ineffectiveness
Of the fair value asset/(liability) of €5.2m (2017: (€4.5m)), a gain of €23.0m (2017: €13.2m) is attributed to foreign exchange rate fluctuations.
The following table details the impact of interest rate swap contracts - cash flow hedges on the Consolidated Statement of Comprehensive Income during
the financial year:
Total hedging gain/(loss) recognised in cash flow hedging reserve
Total hedging loss recognised in cost of hedging reserve
Amount reclassified from hedge reserve to profit or loss re: foreign exchange rate fluctuations
Amount reclassified from OCI to profit or loss re: interest rate fluctuations
Ineffectiveness recognised in profit or loss
Net impact
2018
€’m
10.3
(1.6)
(9.8)
(0.4)
0.8
(0.7)
2017
€’m
(29.4)
-
28.3
0.7
(1.8)
(2.2)
The following table details the income/(expense) impact of interest rate swap contracts* - cash flow hedges and the hedged item on the Consolidated
Income Statement during the financial year:
Interest rate swap contracts - cash flow hedges:
Foreign exchange rate fluctuations 1
Amount reclassified from OCI to profit or loss re: interest rate fluctuations 2
Ineffectiveness recognised in profit or loss 2
Fixed rate borrowings:
Foreign exchange rate fluctuations 1
Net impact
* Location of line item in the Consolidated Income Statement.
1 Other operating charges
2 Finance costs
178
2018
€’m
9.8
0.4
(0.8)
(9.8)
(0.4)
2017
€’m
(28.3)
(0.7)
1.8
28.3
1.1
Kerry Group Annual Report 2018
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)
The current year foreign exchange movement of €9.8m (2017: (€53.7m)) includes an amount of €nil (2017: (€25.4m)) on the expiry of interest rate swap
contracts during the year.
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
1 - 2 years
2 - 5 years
> 5 years
Interest rate swap contracts - fair value hedges
Average Contracted
Fixed Interest Rate
2018
%
4.83
3.78
3.11
2017
%
-
4.78
3.14
Fair Value Asset
Notional Principal
2018
€’m
42.8
22.8
25.4
91.0
2017
€’m
-
62.2
29.8
92.0
2018
€’m
181.7
327.6
240.5
749.8
The interest rate swaps settle on a 6 monthly or annual basis. The floating interest rate paid by the Group is based on 6 month EURIBOR or LIBOR.
All hedges are highly effective on a prospective and retrospective basis.
The following table details the impact of interest rate swap contracts* - fair value hedges and the hedged items on the Consolidated Balance Sheet
as at 31 December:
Interest rate swap contracts - fair value hedges
Fixed rate borrowings:
Foreign exchange rate fluctuations 1
Interest rate movements1
Receivables:
Foreign exchange rate fluctuations 2
Retained earnings and other reserves:
Hedge ineffectiveness
Cost of hedging reserve
* Location of line item in the Consolidated Balance Sheet
� Borrowings and overdrafts
2 Receivables: €175m of the 2015 senior notes issuance were swapped from Euro to US dollars and subsequently on-lent from a Euro entity to a US dollar entity within the Group.
179
2017
€’m
-
277.8
446.1
723.9
2017
€’m
92.0
(66.1)
(20.0)
2018
€’m
91.0
(82.1)
(13.2)
(4.8)
(12.4)
5.5
3.6
(91.0)
6.5
-
(92.0)
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
24. Financial instruments (continued)
(ii) Interest rate risk management (continued)
(ii.ii) Interest rate swap contracts (continued)
(b) Interest rate swap contracts - fair value hedges (continued)
The following table details the impact of interest rate swap contracts - fair value hedges on the Consolidated Statement of Comprehensive Income during
the financial year:
Amounts recognised in the cost of hedging reserve
2018
€’m
3.6
2017
€’m
-
The following table details the income/(expense) impact of interest rate swap contracts*/** - fair value hedges and the hedged items on the Consolidated
Income Statement during the financial year:
Interest rate swap contracts - fair value hedges:
Foreign exchange rate fluctuations 1
Interest rate movements 2
Ineffectiveness recognised in profit or loss 2
Fixed rate borrowings:
Foreign exchange rate fluctuations 1
Interest rate movements 2
Receivables:
Foreign exchange rate fluctuations 3
Net impact
2018
€’m
8.4
(6.8)
1.0
(16.0)
6.8
7.6
1.0
2017
€’m
(24.3)
(8.4)
(1.2)
46.4
8.4
(22.1)
(1.2)
* Location of line item in the Consolidated Income Statement
** Location of line item in the Consolidated Balance Sheet
1 Other operating charges
2 Finance costs
3 Receivables: €175m of the 2015 senior notes issuance were swapped from Euro to US dollars and subsequently on-lent from a Euro entity to a US dollar entity within the Group.
(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
at least 75% of total facilities available are committed.
Both targets were met at 31 December 2018 and 2017.
Funding is sourced from banks via syndicated and bilateral arrangements and from institutional investors.
All Group credit facilities are arranged and managed by Group Treasury and approved by the Board of Directors. Where possible, facilities have common
security, financial covenants and terms and conditions.
At 31 December 2018, the Group had undrawn committed bank facilities of €750m (2017: €1,100m), and a portfolio of undrawn standby facilities
amounting to €320m (2017: €323m). The undrawn committed facilities comprise primarily of a revolving credit facility maturing between 3 - 4 years
(2017: between 4 - 5 years).
180
Kerry Group Annual Report 2018
24. Financial instruments (continued)
(iii) Liquidity risk management (continued)
(iii.i) Contractual maturity profile of non-derivative financial instruments
The following table details the Group’s remaining contractual maturity of its non-derivative financial instruments excluding trade and other payables (note
20) and other non-current liabilities (note 22), of which €1,482.1m (2017: €1,410.5m) is payable within 1 year, €82.4m (2017: €96.4m) between 2 and 5 years
and €0.2m (2017: €0.3m) 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 2018
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 2018
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
(9.9)
(3.9)
-
(13.8)
(10.1)
(23.9)
(56.6)
(80.5)
(13.8)
-
(13.8)
-
413.8
400.0
On demand & up
to 1 year
€’m
(6.9)
(6.4)
-
(13.3)
(13.8)
(27.1)
(54.5)
(81.6)
(13.3)
-
(13.3)
-
312.5
299.2
Up to
2 years
€’m
-
(1.5)
(181.7)
(183.2)
-
(183.2)
(48.8)
(232.0)
(183.2)
(1.8)
(185.0)
42.8
-
2 - 5
years
€’m
-
(350.0)
(762.1)
(1,112.1)
-
(1,112.1)
(118.1)
(1,230.2)
(1,112.1)
1.3
(1,110.8)
28.0
-
> 5 years
€’m
-
-
(811.2)
(811.2)
-
(811.2)
(33.6)
(844.8)
(811.2)
(12.7)
(823.9)
25.4
-
Total
€’m
(9.9)
(355.4)
(1,755.0)
(2,120.3)
(10.1)
(2,130.4)
(257.1)
(2,387.5)
(2,120.3)
(13.2)
(2,133.5)
96.2
413.8
(142.2)
(1,082.8)
(798.5)
(1,623.5)
Up to
2 years
€’m
-
-
-
-
(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)
62.2
-
> 5 years
€’m
-
-
(1,430.6)
(1,430.6)
-
(1,430.6)
(59.9)
(1,490.5)
(1,430.6)
(8.7)
(1,439.3)
25.3
-
Total
€’m
(6.9)
(6.4)
(1,708.4)
(1,721.7)
(17.8)
(1,739.5)
(303.0)
(2,042.5)
(1,721.7)
(20.0)
(1,741.7)
87.5
312.5
(226.9)
(1,414.0)
(1,341.7)
181
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
24. Financial instruments (continued)
(iii) Liquidity risk management (continued)
(iii.ii) Contractual maturity profile of derivative financial instruments
The following table details the Group’s remaining contractual maturity of its derivative financial instruments. The table has been drawn up based on the
undiscounted net cash inflows and outflows on derivative instruments that settle on a net basis. To the extent that the amounts payable or receivable are not
fixed, the rate used is derived from interest rate yield curves at the end of the reporting date and as such are subject to change based on market movements.
Interest rate swaps inflow
Interest rate swaps outflow
Net interest rate swaps inflow
Forward foreign exchange contracts outflow
At 31 December 2018
Interest rate swaps inflow
Interest rate swaps outflow
Net interest rate swaps inflow
Forward foreign exchange contracts inflow
At 31 December 2017
On demand &
up to 1 year
€’m
35.6
(24.9)
10.7
(1.0)
9.7
On demand &
up to 1 year
€’m
34.2
(20.4)
13.8
11.2
25.0
Up to
2 years
€’m
69.2
(23.0)
46.2
(0.1)
46.1
Up to
2 years
€’m
34.2
(21.6)
12.6
-
12.6
2 - 5
years
€’m
108.1
(56.6)
51.5
-
51.5
2 - 5
years
€’m
127.0
(61.6)
65.4
-
65.4
> 5 years
€’m
26.3
(6.3)
20.0
-
20.0
> 5 years
€’m
59.2
(23.9)
35.3
-
35.3
Total
€’m
239.2
(110.8)
128.4
(1.1)
127.3
Total
€’m
254.6
(127.5)
127.1
11.2
138.3
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
-
-
-
1 - 2 years - swaps inflow of €41.9m (2017: €nil)
2 - 5 years - swaps inflow of €48.1m (2017: €53.9m)
Greater than 5 years - swaps inflow of €19.9m (2017: €37.8m)
(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 at an interest rate of 2.375% with a maturity date on 10 September 2025.
(c) 2013 US dollar senior notes
The Group issued a debut 10 year USA public bond of US$750m at an interest rate of 3.2% 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
The interest rates listed above are before the effects of related interest rate swaps.
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 2018 and 2017.
(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 2018 and 2017 all cash, short-term deposits and
other liquid investments had a maturity of less than 3 months.
182
Kerry Group Annual Report 2018
24. Financial instruments (continued)
(iv) Credit risk management (continued)
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.
(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.
(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
Fair value through other comprehensive income/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
2018
€’m
101.7
10.0
30.0
5.3
(5.5)
(11.1)
2017
€’m
95.4
20.3
37.4
7.2
(7.9)
(9.1)
The reconciliation of Level 3 assets is provided in note 13. There have been no transfers between levels during the current or prior financial year.
(b) Fair value of financial instruments carried at amortised cost
Except as detailed in the following table, it is considered that the carrying amounts of financial assets and financial liabilities recognised at amortised cost
in the financial statements approximate their fair values.
Financial liabilities
Senior notes - Public
Senior notes - Private
Fair Value
Hierarchy
Level 2
Level 2
Carrying
Amount
2018
€’m
(1,398.6)
(356.4)
(1,755.0)
Fair
Value
2018
€’m
(1,377.0)
(358.8)
(1,735.8)
Carrying
Amount
2017
€’m
(1,368.0)
(340.4)
(1,708.4)
Fair
Value
2017
€’m
(1,407.0)
(354.9)
(1,761.9)
183
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
24. Financial instruments (continued)
(vi) Fair value of financial instruments (continued)
(c) Valuation principles
The fair value of financial assets and liabilities are determined as follows:
-
-
-
-
assets and liabilities with standard terms and conditions which are traded on active liquid markets are determined with reference to quoted market
prices. This includes equity investments;
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. This includes
interest rate swaps and forward foreign exchange contracts which are determined by discounting the estimated future cash flows;
the fair values of financial instruments that are not based on observable market data (unobservable inputs) requires entity specific valuation
techniques. Disclosures are set out in note 13; and
derivative financial instruments are calculated using quoted prices. Where such prices are not available, a discounted cash flow analysis is performed
using the applicable yield curve for the duration of the instruments. Forward foreign exchange contracts are measured using quoted forward
exchange rates and yield curves derived from quoted interest rates adjusted for counterparty credit risk, which is calculated based on credit default
swaps of the respective counterparties. Interest rate swaps are measured at the present value of future cash flows estimated and discounted based
on the applicable yield curves derived from quoted interest rates adjusted for counterparty credit risk which is calculated based on credit default
swaps of the respective counterparties.
(vii) Offsetting financial instruments
The Group enters into derivative transactions under International Swaps and Derivatives Association (ISDA) master netting agreements. The ISDA
agreements do not meet the criteria for offsetting in the Consolidated Balance Sheet. This is because the Group does not have any current legally
enforceable right to offset recognised amounts, because the right to offset is enforceable only on the occurrence of future events such as a default on the
bank loans or other credit events. No collateral is paid or received.
The following table sets out the carrying amounts of recognised financial instruments that are subject to the above agreements.
The table also sets out where the Group has offset bank overdrafts against cash at bank and in hand based on a legal right of offset as set out in the
banking agreements.
Gross amounts of
financial assets in
the Consolidated
Balance Sheet
€’m
Gross amounts of
financial liabilities
in the Consolidated
Balance Sheet
€’m
Amounts of financial
instruments presented
in the Consolidated
Balance Sheet
€’m
Related financial
instruments that
are not offset
€’m
Net amount
€’m
At 31 December 2018
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
At 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
413.8
10.0
101.7
525.5
-
-
-
-
312.5
20.3
95.4
428.2
-
-
-
-
-
-
-
-
(9.9)
(11.1)
(5.5)
(26.5)
-
-
-
-
(6.9)
(9.1)
(7.9)
(23.9)
413.8
10.0
101.7
525.5
(9.9)
(11.1)
(5.5)
(26.5)
312.5
20.3
95.4
428.2
(6.9)
(9.1)
(7.9)
(23.9)
-
(8.5)
(5.5)
(14.0)
-
8.5
5.5
14.0
-
(8.1)
(5.7)
(13.8)
-
8.1
5.7
13.8
413.8
1.5
96.2
511.5
(9.9)
(2.6)
-
(12.5)
312.5
12.2
89.7
414.4
(6.9)
(1.0)
(2.2)
(10.1)
184
Kerry Group Annual Report 2018
25. Provisions
Group:
At 1 January 2017
Provided during the financial year
Utilised during the financial year
Transferred to payables and accruals
Exchange translation adjustment
At 31 December 2017
(Released)/provided during the financial year
Utilised during the financial year
Transferred to payables and accruals
Exchange translation adjustment
At 31 December 2018
Analysed as:
Current liabilities
Non-current liabilities
Insurance
€’m
Non-Trading Items
€’m
58.8
0.4
(7.0)
-
(0.9)
51.3
(0.4)
(5.5)
-
(0.2)
45.2
12.4
4.4
(2.7)
(3.0)
-
11.1
1.5
-
(5.4)
-
7.2
2018
€’m
20.3
32.1
52.4
Total
€’m
71.2
4.8
(9.7)
(3.0)
(0.9)
62.4
1.1
(5.5)
(5.4)
(0.2)
52.4
2017
€’m
25.3
37.1
62.4
Insurance
The Group operates a level of self-insurance. Under these arrangements, the Group retains certain insurance exposures up to pre-determined self-
insurance levels. The amount of self-insurance is reviewed on a regular basis to ensure it remains appropriate. The provision for these self-insured
exposures represents amounts provided based on advice from insurance consultants, industry information, actuarial valuation and historical data in
respect of claims that are classified as incurred but not reported and outstanding loss reserves. 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 2 to 4 years from claim date.
Non-trading items
Non-trading items relate to restructuring and acquisition integration provisions incurred in 2018 and 2017 together with a residual amount incurred in 2013.
These costs are expected to be paid within 24 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 2018 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.
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 and this programme is being rolled out across our European, American and Asian entities over a five year period. In 2018, the review primarily
focused on the UK and following consultation with employees, a decision was made to close the defined benefit scheme to future accrual from 5 April 2018
with future service being offered to employees in the defined contribution scheme. In 2017, the review resulted in a number of benefit changes including
a decision to close the defined benefit schemes in the Netherlands from January 2017, with future service being offered to employees in a multi-employer
scheme, while in Ireland members continued to avail of an opportunity to transfer their past service benefits to the defined contribution scheme.
The defined benefit plans expose the Group to risks such as interest rate risk, investment risk, inflation risk and mortality risk.
185
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
26. Retirement benefits obligation (continued)
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. Interest rates also impact 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 generate a rate of return 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 asset classes. 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, therefore an increase in inflation rates will increase the defined benefit
obligation. However, a portion of the plan assets are inflation-linked debt securities which will mitigate some of the effects of inflation movements.
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 arising from changes in financial assumptions
Recognised in the Consolidated Statement of Comprehensive Income
Total
2018
€’m
57.9
6.9
(23.1)
1.4
43.1
99.7
(26.8)
(19.4)
(88.0)
(34.5)
8.6
2017
€’m
54.8
13.8
(23.6)
8.2
53.2
(85.3)
(5.2)
(38.8)
(0.8)
(130.1)
(76.9)
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).
(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:
31 December
2018
€’m
(1,280.4)
1,227.2
(53.2)
9.2
(44.0)
31 December
2017
€’m
(1,477.3)
1,353.0
(124.3)
22.3
(102.0)
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
186
Kerry Group Annual Report 2018
26. Retirement benefits obligation (continued)
(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
2018
Eurozone
%
1.60
N/A*
UK
%
3.10
N/A*
Rate of increase for pensions in payment and deferred pensions
1.55 - 1.60
2.10 - 2.90
Rest of
World
%
2.50
3.00
-
Eurozone
%
1.70
N/A*
1.70
2017
UK
%
3.10
3.00
2.10 - 3.10
Rest of
World
%
2.50
3.00
-
Rate used to discount schemes’ liabilities
2.20
3.00
3.75 - 4.25
2.00 - 2.10
2.60
3.20 - 3.50
*Not applicable due to closure of the Irish, Netherlands and UK defined benefit plans to future accrual during 2016 to 2018.
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
2018
2017
Eurozone
Years
UK
Years
22
23 - 25
23 - 24
25 - 26
21
23
22
24
Rest of
World
Years
21 - 22
23 - 24
22 - 24
24 - 25
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
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 2018 is calculated on the basis that only one assumption is changed with all other assumptions remaining unchanged. The
assessment of the sensitivity analysis below could therefore be limited as a change in one assumption may not occur in isolation as assumptions may be
correlated. There have been no changes from the previous year in the methods and assumptions used in preparing the sensitivity analysis.
Assumption
Discount rate
Inflation rate
Salary increases
Change in assumption
Increase/decrease of 0.50%
Increase/decrease of 0.50%
Increase/decrease of 0.50%
Pensions in payment and deferred pensions increases
Increase/decrease of 0.50%
Impact on schemes’ liabilities
Decrease/increase of 10.8%
Increase/decrease of 7.5%
Increase/decrease of 0.0%
Increase/decrease of 4.6%
Mortality
Increase/decrease in life expectancy of 1 year
Increase/decrease of 3.4%
187
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
26. Retirement benefits obligation (continued)
(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
2018
€’m
2017
€’m
(1,477.3)
(1,718.4)
(6.9)
23.1
(35.0)
(1.1)
79.8
26.8
19.4
88.0
0.4
-
2.4
(13.8)
23.6
(40.2)
(2.9)
48.2
5.2
38.8
0.8
139.9
(5.9)
47.4
Present value of the defined benefit obligation at end of the financial year
(1,280.4)
(1,477.3)
Present value of the defined benefit obligation at end of the financial year that relates to:
Wholly unfunded plans
Wholly or partly funded plans
(19.3)
(1,261.1)
(1,280.4)
(30.4)
(1,446.9)
(1,477.3)
The weighted average duration of the defined benefit obligation at 31 December 2018 is approximately 21 years (2017: approximately 21 years).
The movements in the schemes’ assets during the financial year were:
Fair value of plan assets at beginning of the financial year
Interest income
Contributions by employer
Contributions by employees
Benefits paid
Re-measurements:
- return on plan assets (excluding amounts included in net interest cost)
Decrease arising on settlement
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
Total fair value of pension schemes’ assets
188
2018
€’m
1,353.0
33.6
23.8
1.1
(79.8)
(99.7)
(0.4)
-
(4.4)
1,227.2
2018
€’m
567.1
57.1
3.1
96.6
349.0
148.2
0.1
6.0
1,227.2
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
1,353.0
Kerry Group Annual Report 2018
26. Retirement benefits obligation (continued)
(iv) Reconciliations for defined benefit plans (continued)
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 2018 and 2017 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 2018 or 2017.
During the year, the UK scheme invested in a pooled Liability Driven Investment (LDI) fund. The primary goal of this asset class is to mitigate volatility and
enable better matching of investment returns with the cash outflows required to pay benefits. The pooled LDI solution invests in various levered and unlevered
gilts and the value of the LDI assets at 31 December 2018 (€204.3m) (2017: €nil) is based on the latest market bid price for the underlying investments, which
are traded daily on liquid markets.
(v) Funding for defined benefit plans
The Group operates a number of defined benefit plans in a number of countries and 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.
Funding for each plan is carried out by cash contributions from the Group’s subsidiaries and from employees, where applicable. 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 actuarial
deficits, on average over seven to eight 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 2019, the Group expects to make contributions of approximately €16.6m to its
defined benefit plans.
27. Share capital
Group and Company:
Authorised
280,000,000 A ordinary shares of 12.50 cent each
Allotted, called-up and fully paid (A ordinary shares of 12.50 cent each)
At beginning of the financial year
Shares issued during the financial year
At end of the financial year
The Company has one class of ordinary share which carries no right to fixed income.
2018
€’m
2017
€’m
35.0
22.0
-
22.0
35.0
22.0
-
22.0
Shares issued
During 2018 a total of 116,011 (2017: 171,574) 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 2018 was 176,298,416 (2017: 176,182,405).
Share buy back programme
At the 2018 Annual General Meeting, shareholders passed a resolution authorising the Company to purchase up to 5% of its own issued share capital. In 2018
and 2017, no shares were purchased under this programme.
189
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
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 €12.2m (2017: €12.8m) 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
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 2016, 2017 and
2018 will potentially vest in 2019, 2020 and in 2021 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 calculated on a constant currency basis
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, 2017 and 2018 will potentially
vest in 2020, 2021/2022, 2023 and 2024 respectively. An invitation may lapse if a participant ceases to be employed within the Group before the vesting date.
A summary of the status of the LTIP as at 31 December and the changes during the financial year are presented below:
Outstanding at beginning of the financial year
Forfeited
Shares vested
Share options vested
Relinquished
New conditional awards
Outstanding at end of the financial year
Share options arising under the LTIP
Outstanding at beginning of the financial year
Options released at vesting date
Options released from deferral
Exercised
Lapsed
Outstanding and exercisable at end of the financial year
Number of
Conditional
Awards
2018
1,107,335
(124,867)
(90,547)
(110,180)
(121,467)
483,391
1,143,665
Number of
Conditional
Awards
2017
1,055,768
(54,860)
(56,751)
(77,122)
(227,871)
468,171
1,107,335
Number of
Share Options
2018
Number of
Share Options
2017
141,517
59,266
22,385
(42,553)
-
180,615
230,762
40,149
3,230
(129,596)
(3,028)
141,517
Share options under the LTIP scheme have an exercise price of 12.50 cent. The remaining weighted average life for share options outstanding is 4.1 years
(2017: 4.2 years). The weighted average share price at the date of exercise was €87.64 (2017: €77.60). 50,914 share options (2017: 36,973 share options) which
vested in the financial year are deferred and therefore are not exercisable at year end.
190
Kerry Group Annual Report 2018
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
2018
Conditional
Award at
Grant Date
March 2018
2021/2024
€81.95
€0.125
19.8%
3/7 years
(0.5%)
0.7%
5.0%
2017
Conditional
Award at
Grant Date
March 2017
2020/2023
€74.52
€0.125
20.7%
3/7 years
(0.8%)
0.7%
5.0%
2016
Conditional
Award at
Grant Date
2015
Conditional
Award at
Grant Date
March 2016
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%
3/5/7 years
0.0%
0.8%
5.0%
Weighted average fair value at grant date
€66.52/€77.96
€61.64/€70.94
€68.72
€52.96/€61.74
Valuation model
Monte Carlo
Pricing
Monte Carlo
Pricing
Monte Carlo
Pricing
Monte Carlo
Pricing
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years. Market based vesting
conditions, such as the TSR condition, have been taken into account in establishing the fair value of equity instruments granted. The TSR performance
over the period is measured against the TSR performance of a peer group of listed companies. Non-market based performance conditions, such as the EPS
and ROACE conditions, were not taken into account in establishing the fair value of equity instruments granted, however the number of equity instruments
included in the measurement of the transaction is adjusted so that the amount recognised is based on the number of equity instruments that eventually vest.
(ii) Short Term Incentive Plan
In 2013 the Group’s Short Term Incentive Plan for Executive Directors was amended to incorporate a share-based payment element with 25% of the total bonus
to be settled in shares/share options. The shares/share options awarded as part of this scheme will be issued 2 years after the vesting date once a deferral
period has elapsed. There are no further performance conditions relating to the shares/share options during the deferral period.
There are 5,172 share options (2017: 3,289 share options) outstanding and exercisable in relation to the STIP.
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 issuance of shares/share options under the Short Term Incentive Plan, which relate to the 2015 and 2016 financial years were
released from deferral in 2017 and 2018 respectively. The issuance of shares/share options under the STIP which related to the 2017 and 2018 financial years
will be released from deferral in 2019 and 2020 respectively.
191
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
29. Cash flow components
(i) Cash flow analysis
Profit before taxation
Intangible asset amortisation
Non-trading items
Finance income
Finance costs
Trading profit
Change in working capital
Increase in inventories
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
(Decrease)/increase in non-current liabilities
Share-based payment expense
Purchase of assets
Purchase of property, plant and equipment
Purchase of intangible assets
Sale/(purchase) of financial assets
Cash and cash equivalents
Cash at bank and in hand
Bank overdrafts
(ii) Disposal of businesses and assets reconciliation
Assets and businesses
Property, plant and equipment
Investments in associates
Assets classified as held for sale
Net assets and businesses disposed
Consideration
Cash received
Total consideration received
Notes
12
5
6
6
28
12
13
23
23
Group
2018
€’m
617.9
53.8
66.9
(0.5)
67.5
805.6
(50.1)
(44.0)
23.8
(20.7)
12.2
(78.8)
(274.3)
(30.4)
8.6
(296.1)
413.8
(9.9)
403.9
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
Notes
11
14
Loss on disposal of assets and businesses
5
Net cash inflow on disposal:
Cash
Less: cash at bank and in hand balance disposed of
192
Company
2018
€’m
154.9
Company
2017
€’m
106.2
-
-
-
-
-
-
-
-
154.9
106.2
-
21.7
2.2
-
12.2
36.1
-
-
-
-
-
-
-
Group
2018
€’m
(5.2)
(5.5)
(6.3)
(17.0)
11.6
11.6
(5.4)
Total
2018
€’m
11.6
-
11.6
-
(16.5)
(0.5)
-
12.8
(4.2)
-
-
-
-
-
-
-
Group
2017
€’m
(4.3)
(34.4)
(0.4)
(39.1)
33.3
33.3
(5.8)
Total
2017
€’m
33.3
-
33.3
Kerry Group Annual Report 2018
29. Cash flow components (continued)
(iii) Net debt reconciliation
Other assets
Liabilities from financing activities
Note
Cash at bank
and in hand
€’m
564.7
Net debt as at 1 January 2017
Cash flows
Foreign exchange adjustments
Other non-cash movements
Net debt as at 31 December 2017
23
Cash flows
Foreign exchange adjustments
Other non-cash movements
Net debt as at 31 December 2018
23
(236.9)
(15.3)
-
312.5
101.9
(0.6)
-
413.8
Interest Rate
Swaps
€’m
Overdrafts due
within 1 year
€’m
Borrowings due
within 1 year
€’m
Borrowings due
after 1 year
€’m
Total
€’m
171.1
(25.4)
0.9
(59.1)
87.5
-
0.6
8.1
96.2
(3.6)
(3.4)
0.1
-
(6.9)
(3.8)
0.8
-
(9.9)
(188.9)
(1,867.0)
(1,323.7)
170.7
11.8
-
(6.4)
2.5
-
-
(3.9)
(1.0)
77.7
61.9
(96.0)
75.2
2.8
(1,728.4)
(1,341.7)
(352.7)
(252.1)
(27.9)
(10.7)
(27.1)
(2.6)
(2,119.7)
(1,623.5)
193
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
30. Business combinations
During 2018, the Group completed a total of ten acquisitions, all of which are 100% owned by the Group unless otherwise stated.
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
Less: prepayments made in 2017 in relation to 2018 acquisitions
Notes
11
12
12
12
Total
2018
€’m
79.8
314.5
-
6.7
26.4
42.1
(27.9)
(65.7)
(7.4)
368.5
133.7
502.2
498.6
3.6
502.2
2018
€’m
498.6
(6.7)
(15.1)
476.8
The acquisition method has been used to account for 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 2017, there have been no material revisions of the provisional fair value
adjustments since the initial values were established. No individual acquisition completed during 2018 exceeded the Group’s quantitative materiality thresholds
or met the qualitative materiality considerations. Therefore, no individual acquisition warranted separate disclosure in the above table.
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. €8.0m 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 €42.1m and a gross contractual value of €42.4m.
From the date of acquisition, the acquired businesses have contributed €34.0m of revenue and €0.2m 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 €206.9m of
revenue and €10.1m of profit after taxation attributable to owners of the parent to the Group.
194
Kerry Group Annual Report 2018
30. Business combinations (continued)
The following acquisitions were completed by the Group during 2018:
Acquisition
Zhejiang Hangman Food Technologies Co. Ltd
Acquired
January
Season to Season Flavour Manufacturers (Pty) Limited
February
SIAS (Dachang) Food Co., Ltd
Foremost Farms Pharma Lactose
Ricap S.A. de C.V.
RTI
Flavor Source
AATCO Food Industries LLC*
Fleischmann’s Vinegar Company Inc.
Aromateca, S.A. de C.V.
March
May
July
August
September
November
November
November
Principal activity
Hangman is a China based sweet and savoury flavour and natural extract
manufacturer that serves primarily the Chinese market.
Season to Season is a leading South African supplier of taste ingredients and
systems to the African snack and food sectors.
SIAS is a leading China based supplier of culinary and fruit ingredients and
systems to the foodservice and food manufacturing industries.
Foremost Farms is a producer of pharma lactose, based in the USA.
Ricap is a Mexico based Dairy Taste supplier.
RTI is a browning and smoke technology business based in Canada which serves
both North American and European markets.
Flavor Source is a meat coatings and seasonings supplier based in the USA.
AATCO is an Omani headquartered producer of sauce and condiments sold to
foodservice and industrial customers in Asia, the Middle East and Africa.
Fleischmann’s is a market leader and all natural producer of specialty ingredients
based in the USA, serving a range of food and beverage end-use applications.
Aromateca is a company dedicated to the production of flavours with operations
in both Guatemala and El Salvador.
*The Group has an 80% equity shareholding in AATCO Food Industries LLC. It is consolidated in the Group financial statements as a 100% owned subsidiary on
the basis of contractual arrangements.
31. Contingent liabilities
Company:
(i) Guarantees in respect of borrowings of subsidiaries
2018
€’m
2017
€’m
2,120.3
1,721.7
(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 2018 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 2:403 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, Germany, 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.
195
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
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
2018
€’m
104.6
113.7
218.3
2018
€’m
27.7
46.1
9.3
83.1
2017
€’m
108.4
145.9
254.3
2017
€’m
21.9
41.5
11.8
75.2
The operating lease charges during 2018 amounted to €29.9m (2017: €27.8m).
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 96 years.
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 €0.2m (2017: €0.3m) and €0.1m (2017: €0.1m) respectively. The trading balance outstanding to the
Group at the financial year end was €0.1m (2017: €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 €177.5m (2017: €120.0m), cost recharges of
€19.6m (2017: €11.5m), and trade and other receivables of €94.1m (2017: €115.8m). The Parent Company has also provided a guarantee in respect of borrowings
of subsidiaries which is disclosed in note 31.
(iii) Trading with associates and joint ventures
Details of transactions and balances outstanding with associates and joint ventures are as follows:
Associates
Joint ventures
Rendering of services
Sale of goods
Amounts receivable
at 31 December
2018
€’m
-
-
2017
€’m
-
-
2018
€’m
(0.3)
-
2017
€’m
(0.8)
-
2018
€’m
-
-
2017
€’m
0.1
-
These trading transactions are undertaken and settled at normal trading terms. No loans were advanced in 2018 and 2017 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 2018, dividends of €15.6m (2017: €13.9m) were paid to Kerry Co-operative Creameries Limited based on its
shareholding. A subsidiary of Kerry Group plc traded product to the value of €0.1m (2017: €0.2m) 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 (note 26). The Directors also participate in the Group’s Long Term Incentive Plan (LTIP) (note 28).
196
Kerry Group Annual Report 2018
33. Related party transactions (continued)
(v) Transactions with key management personnel (continued)
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
2018
€’m
6.7
0.6
2.4
-
-
9.7
2017
€’m
8.0
0.8
2.9
-
-
11.7
Retirement benefit charges of €0.1m (2017: €0.3m) arise under a defined benefit scheme relating to 1 director (2017: 2 directors) and charges of €0.5m (2017:
€0.5m) arise under a defined contribution scheme relating to 3 directors (2017: 5 directors). The LTIP accounting charge above is determined in accordance
with the Group’s accounting policy for share-based payments.
Post-retirement benefits in the above table and the statutory and listing rules disclosure in respect of pension contributions in the Executive Directors’
remuneration table in the remuneration report are determined on a current service cost basis.
The aggregate amount of gains accruing to Executive Directors on the exercise of share options is €1.1m (2017: €4.6m). Dividends totalling €0.1m (2017: €0.1m)
were also received by key management personnel during the financial year, based on their personal interests in the shares of the company.
34. Events after the balance sheet date
Since the financial year end, the Group has:
-
completed the acquisition of the business and assets of Southeastern Mills, Inc. based in the US. The Group also expects to complete the previously
announced acquisition of Ariake U.S.A., Inc. based in the US in the second quarter of 2019. The combined consideration for these acquisitions is
expected to be €325m; and
proposed a final dividend of 49.20 cent per A ordinary share (note 10).
-
There have been no other significant events, outside the ordinary course of business, affecting the Group since 31 December 2018.
35. Reserves
Fair value through other comprehensive income reserve (FVOCI)/Available-for-sale (AFS) reserve
The fair value through other comprehensive income reserve/available-for-sale reserve represents the unrealised gains and losses on the financial assets
held at fair value through other comprehensive income by the Group. The available-for-sale reserve under IAS 39 ‘Financial Instruments: Recognition and
Measurement’ becomes the fair value through other comprehensive reserve (FVOCI) under IFRS 9 ‘Financial Instruments’ at 1 January 2018.
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.
Cost of hedging reserve
The cost of hedging reserve arises from where the Group has entered into cross currency interest rate swaps. Such cross currency interest rate swaps have
basis risk as there are characteristics in the cross currency interest rate swap contracts that are not present in the hedged item, being currency basis spreads.
Retained earnings
Retained earnings refers to the portion of net income, which is retained by the Group rather than distributed to shareholders as dividends.
197
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
36. Group entities
Principal subsidiaries, associates and joint venture undertakings
Country
Ireland
Company Name
Accommodation Tralee Limited
Ballyfree Farms Limited
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
Helios Limited
Henry Denny & Sons (Ireland) Limited
Ichor Management Limited
Ivernia Pig Developments Limited
Kerry Agribusiness Holdings Limited
Kerry Agribusiness Trading Limited
Kerry Creameries Limited
Kerry Food Ingredients (Cork) Limited
Kerry Foods 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
Maddens Milk 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
198
Nature of Business
Investment
Registered Office
1
Consumer Foods
Consumer Foods
Consumer Foods
Investment
Taste & Nutrition
Consumer Foods
Investment
Consumer Foods
Consumer Foods
Consumer Foods
Consumer Foods
Investment
Agribusiness
Investment
Investment
Investment
Investment
Consumer Foods
Investment
Consumer Foods
Investment
Agribusiness
Agribusiness
Taste & Nutrition
Consumer Foods
Services
Services
Services
Services
Services
Taste & Nutrition
Investment
Taste & Nutrition
Taste & Nutrition
Investment
Services
Consumer Foods
Consumer Foods
Investment
Taste & Nutrition
Taste & Nutrition
Consumer Foods
Investment
Consumer Foods
Services
Investment
Consumer Foods
Services
Consumer Foods
Consumer Foods
Consumer Foods
Investment
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
1
1
1
1
1
Kerry Group Annual Report 2018
36. Group entities (continued)
Principal subsidiaries, associates and joint venture undertakings (continued)
Country
Ireland
Company Name
Trundu Limited
William Blake Limited
Zenbury International Limited
UK
Henry Denny & Sons (NI) Limited
Dairy Produce Packers Limited
Golden Cow Dairies Limited
Golden Vale (NI) Limited
Leckpatrick Dairies Limited
Leckpatrick Holdings Limited
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
Belgium
Kerry Holdings Belgium NV
Netherlands
Kerry (NL) B.V.
Kerry Group B.V.
Proparent B.V. (55% shareholding)
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.
Romania
Russia
Kerry Romania s.r.l.
Kerry LLC
South Africa
Kerry Ingredients South Africa (Proprietary) Limited
Season to Season Flavour Manufacturers (Pty) Limited
Nature of Business
Consumer Foods
Taste & Nutrition
Services
Consumer Foods
Consumer Foods
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
Taste & Nutrition
Taste & Nutrition
Investment
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
Services
Services
Taste & Nutrition
Taste & Nutrition
Taste & Nutrition
Taste & Nutrition
Registered Office
1
1
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
7
8
9
10
10
10
11
12
12
13
13
14
15
16
17
18
19
20
20
21
22
23
24
199
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
36. Group entities (continued)
Principal subsidiaries, associates and joint venture undertakings (continued)
Country
Spain
Slovakia
Sweden
Ukraine
USA
Canada
Mexico
Brazil
Company Name
Vendin S.L.
Harinas y Sémolas del Noroeste, S.A. (Hasenosa)
Dera SK s.r.o.
Tarber AB
Kerry Ukraine Limited
Kerry Holding Co.
Kerry, Inc.
Ganeden Biotech, Inc.
Insight Beverages, Inc.
Fleischmann’s Vinegar Company 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
Philippines
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
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., Ltd
Zhejiang Hangman Food Technologies Co. Ltd
Indonesia
India
Australia
SIAS (Dachang) Food Co., Ltd
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
Oman
AATCO Food Industries LLC (80% shareholding)
Nature of Business
Taste & Nutrition
Registered Office
25
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
Taste & Nutrition
Taste & Nutrition
Taste & Nutrition
Taste & Nutrition
26
27
28
29
30
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
Notes
(a) All group entities are wholly owned subsidiaries unless otherwise stated.
(b) Country represents country of incorporation and operation. Ireland refers to the Republic of Ireland.
(c)
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.
200
Kerry Group Annual Report 2018
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
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.
Havenlaan 86C, Bus 204, 1000 Brussels, Belgium.
Maarssenbroeksedijk 2a, 3542 DN Utrecht, The Netherlands.
Cuneraweg 9c, Ochten, 4051 CE, 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.
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.
Stand 372, Angus Cresent, Northlands Business Park, Northriding, 2164, 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.
12604 Hiddencreek Way # A, Cerritos, CA 90703, 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.
201
Strategic ReportKerry Group Annual Report 2018Directors’ ReportFinancial Statements
36. Group entities (continued)
Registered Office (continued)
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
8 Biomedical Grove, #02-01/04 Neuros, Singapore 138665, Singapore.
Suite 1301, 13th Floor, City Plaza, Jalan Tebrau, 80300 Johor Bahru, Johor, Malaysia.
Kamiyacho Sankei Building. 2F, 1-7-2, Azabudai 1-chome, Minato-ku, Tokyo 106-0041, Japan.
Renhne Industry Zone, Jiulong Village, Hangzhou, China.
Room 248, Ximmao Building, 2 Tai Zhong Road South, Waigaoqiao Free Trade Zone, Shanghai, China.
North side of Xiang, Jiang Road, RuDong County, Nantong, China.
Dujiashan, Huayang, Jurong, Jiangsu Province, China.
26 Tai Ping Qiao Industry Park, Xin’an, Deqing Country, Zheijiang Province, China.
North side of XinYe Road, West side of LiDaXian, DaChang Industrial District, LangFang City, HeBei 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.
9th 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.
Ghoua Industrial Area, Bousher, Muscat, Sultanate of Oman.
202
Kerry Group Annual Report 2018
SUPPLEMENTARY
INFORMATION
(NOT COVERED BY INDEPENDENT AUDITORS’ REPORT)
FINANCIAL
DEFINITIONS
FINANCIAL DEFINITIONS
1. Revenue
Volume growth
This represents the sales growth year-on-year, excluding pass-through pricing on raw material costs, 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. Pricing therefore impacts like-for-like revenue growth
positively or negatively depending on whether raw material prices move up or down. A full reconciliation to reported revenue growth is detailed in the
revenue reconciliation below.
Revenue Reconciliation
2018
Taste & Nutrition
Consumer Foods
Group
2017
Taste & Nutrition
Consumer Foods
Group
2. EBITDA
Volume
growth
4.1%
1.1%
3.5%
4.7%
2.4%
4.3%
Price
(0.5%)
(0.4%)
(0.5%)
2.0%
2.0%
2.0%
Transaction
currency
Acquisitions/
Disposals
Translation
currency
(0.1%)
(0.3%)
(0.1%)
0.0%
(0.9%)
(0.2%)
4.2%
0.8%
3.6%
0.9%
0.2%
0.8%
(4.0%)
(0.6%)
(3.4%)
(1.9%)
(3.8%)
(2.4%)
Reported
revenue
growth
3.7%
0.6%
3.1%
5.7%
(0.1%)
4.5%
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
2018
€’m
540.5
(0.5)
67.5
77.4
66.9
53.8
136.4
942.0
2017
€’m
588.5
(0.1)
65.7
24.8
54.5
47.9
136.2
917.5
Trading profit refers to the operating profit generated by the businesses before intangible asset amortisation and gains or losses generated from non-
trading items. Trading profit represents operating profit before specific items that are not reflective of underlying trading performance and therefore hinder
comparison of the trading performance of the Group’s businesses, either year-on-year or with other businesses.
Operating profit
Intangible asset amortisation
Non-trading items
Trading profit
2018
€’m
684.9
53.8
66.9
805.6
2017
€’m
678.9
47.9
54.5
781.3
203203
Kerry Group Annual Report 2018
4. Trading Margin
Trading margin represents 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
2018
€’m
805.6
6,607.6
12.2%
2018
€’m
617.9
(0.5)
67.5
684.9
2017
€’m
781.3
6,407.9
12.2%
2017
€’m
613.3
(0.1)
65.7
678.9
6. Adjusted Earnings Per Share and Growth in Adjusted Earnings Per Share on a Constant Currency Basis
The growth in adjusted earnings per share on a constant currency basis is 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 to basic earnings is provided below. 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
2018
EPS
cent
305.9
16.3
31.2
353.4
-
353.4
8.6%
2017
EPS
cent
333.6
13.4
(5.8)
341.2
(15.8)
325.4
9.4%
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
204
2018
€’m
651.0
21.7
59.8
2017
€’m
671.4
84.4
34.0
(296.1)
(301.3)
10.6
-
(0.5)
446.5
3.1
0.9
8.8
501.3
Kerry Group Annual Report 2018
8. Cash Conversion
Cash conversion is defined as free cash flow, expressed as a percentage of adjusted earnings after tax.
Free cash flow
Adjusted earnings after tax
Cash Conversion
9. Financial Ratios
2018
€’m
446.5
624.4
72%
2017
€’m
501.3
601.9
83%
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 174, 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
10. Average Capital Employed
Covenant
Maximum 3.5
Minimum 4.75
2018
Times
1.7
14.7
2017
Times
1.4
16.2
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
2018
€’m
4,034.4
527.8
4,562.2
1,623.5
6,185.7
5,777.7
H1 2018
€’m
3,773.6
527.8
4,301.4
1,403.3
5,704.7
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
11. 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
2018
€’m
540.5
55.1
28.8
67.0
691.4
5,777.7
12.0%
2017
€’m
588.5
(10.2)
23.6
65.6
667.5
5,129.4
13.0%
205
Kerry Group Annual Report 2018
12. 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)
Dividend paid (cent)
Share price (31 December)
Total shareholder return
13. Market Capitalisation
Market capitalisation is calculated as the share price times the number of shares issued.
Share price (31 December)
Shares in issue (‘000)
Market capitalisation (€’m)
14. Enterprise Value
2018
€93.50
21.0
43.9
€86.50
(6.8%)
2017
€67.90
18.8
39.2
€93.50
38.6%
2018
€86.50
176,298.4
15,249.8
2017
€93.50
176,182.4
16,473.1
Enterprise value is calculated as per external market sources. It is market capitalisation plus reported borrowings less total cash and cash equivalents.
15. 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 171-173.
206
Kerry Group Annual Report 2018
KERRY GROUP
Prince’s Street
Tralee
Co. Kerry
V92 EH11
Ireland
T: +353 66 718 2000
www.kerrygroup.com