KERRY GROUP
ANNUAL REPORT
2019
Kerry Group is the global leader in
taste and nutrition serving the food,
beverage and pharmaceutical industries,
and is a leader in its consumer foods
categories in the chilled cabinet.
STRATEGIC REPORT
DIRECTORS’ REPORT
CONTENTS
2019 Results Financial Highlights
Our Purpose
Kerry Group at a Glance
Chairman’s Statement
Chief Executive Officer’s Review
5
6
8
12
14
18 Our People
24 Our Business Model
26 Our Markets
28
31
32
Strategy & Financial Targets
Strategic Advantage
Financial Key
Performance Indicators
Financial Review
34
42 Business Review: Taste & Nutrition
47 Business Review: Consumer Foods
49
73
Sustainability Review
Risk Report
90 Board of Directors
92
Report of the Directors
Governance Report
Corporate Governance Report
98
107 Audit Committee Report
112 Nomination Committee Report
116 Remuneration Committee Report
FINANCIAL STATEMENTS
Independent Auditors’ Report
140
146 Financial Statements
154 Notes to the Financial Statements
SUPPLEMENTARY INFORMATION
216 Financial Definitions
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Kerry Group Annual Report 2019
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Kerry Group Annual Report 2019Kerry Group Annual Report 2019
Kerry Group is the global leader in
taste and nutrition serving the food,
beverage and pharmaceutical industries,
and is a leader in its consumer foods
categories in the chilled cabinet.
Kerry Group Annual Report 2019
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2
Kerry Group Annual Report 2019
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Kerry Group Annual Report 2019
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STRATEGIC REPORT
2019 RESULTS
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Kerry Group Annual Report 2019
STRATEGIC REPORT
2019 RESULTS
FINANCIAL HIGHLIGHTS
Group
Revenue
€7.2bn
2018: €6.6 billion
Volume Growth1
of
+2.8%
2018: +3.5%
Trading Profit
up 12.1%
Group Trading
Margin¹ Expansion
€903m
2018: €806 million (up 3.1%)
+30bps
2018: Maintained
Net Cash from
Operating Activities of
Free Cash Flow1
of
€764m
2018: €651 million
€515m
(74% cash
conversion)
2018: €447 million (72% cash conversion)
Basic EPS
up 4.7%
Adjusted EPS Growth
in Constant Currency1
320.4 cent
2018: 305.9 cent (down 8.3%)
+8.3%
2018: +8.6%
Total Dividend per Share
up 12.0% to
Return on Average Capital
Employed1 of
78.6 cent
2018: 70.2 cent (up 12.0%)
11.8%
2018: 12.0%
Total Shareholder Return of 29.3% 2018: (6.8%)
Continued delivery
and strategic
development
> Strong overall revenue
growth resulting in
record Group revenue
> Good margin expansion
achieved in the year
> Taste & Nutrition made
significant progress
across its strategic
priorities
> Consumer Foods
division delivered
a solid underlying
performance in a
subdued marketplace
> The Board recommends
a final dividend of 55.1
cent per share
1
See Financial Key Performance Indicators section pages 32-33 and the Supplementary Information section
page 216 for definitions, calculations and reconciliations of Alternative Performance Measures.
5
Kerry Group Annual Report 2019 STRATEGIC REPORT
OUR PURPOSE
Our
Purpose
As the world leader in
taste and nutrition, our
Purpose is to Inspire Food
and Nourish Life.
Our Purpose is central to The Kerry Way and
serves as our guiding light on our journey to make
it easier and more valuable for customers to do
business with us, as we seek to make a greater,
more lasting difference in the world by inspiring
innovative, natural and sustainable taste and
nutrition solutions for consumers, customers, the
industry and the world.
Inspire Food · Nourish Life puts food, drink and
wellbeing front and centre. Food matters. It brings
people together; across cultures, countries and
generations. Food is heritage, happiness and
health. Food is family and friends. Food is life.
6
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Kerry Group Annual Report 2019
Kerry Group Annual Report 2019
Inspiring Food is about
Innovation
Nourishing Life is about
Sustainability
It is about co-creating better tasting,
better performing and better-for-you
consumer focused solutions for the
food and beverage industry with our
customers and partners. Solutions that
are enabled by world class science and
differentiated through our leading Taste
and Nutrition, Wellness and Functionality
foundational technologies. Innovative
solutions that inspire new growth for
customers and a sustainable food future
for all.
It is about adding value to aspects of life
including the safety of our people and
the safety and quality of our products
which nourish the lives of millions of
people around the world every day.
Nourishing life also means something
broader, encouraging the professional
growth of our people, supporting our
teams and their overall wellbeing and
contributing to our communities and the
environment. Through our Values, voice
and visibility we can strive to solve the
bigger sustainability challenges facing
the world.
Our Values
The Group’s Values of Courage, Ownership, Inclusiveness,
Open-mindedness and Enterprising Spirit are also a central
element of The Kerry Way and underpin our Purpose.
Further details of our Values are outlined in Our People on page 19.
Kerry Group Annual Report 2019
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STRATEGIC REPORT
KERRY GROUP AT A GLANCE
Our Mission Statement
About Us
Kerry Group will be:
> the world leader in Taste and Nutrition
serving the food, beverage and
pharmaceutical industries, and
> a leader in its categories in the
chilled cabinet primarily in the Irish
and UK 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.
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 annual sales of €7.2 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 is the global leader in the
development of taste and nutrition solutions for the food,
beverage and pharmaceutical markets. Its broad technology
foundation, customer-centric business model, and industry-
leading integrated solutions capability makes Kerry the
co-creation partner of choice.
Kerry Foods, the Group’s Consumer Foods division, has
grown its presence with retail partners primarily in the
Irish and UK markets. It is a leader in its categories in the
chilled cabinet.
Group Revenue
by Division
Group Trading Profit
by Division
€7.2bn
Revenue
82% Taste & Nutrition
18% Consumer Foods
€903m
Trading Profit
90% Taste & Nutrition
10% Consumer Foods
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Kerry Group Annual Report 2019
26,000+
Employees
151
Manufacturing locations globally
32
Countries with
manufacturing facilities
150+
Sales in 150+ countries
90%
Employee participation in
The Kerry Way workshop
Kerry Group Annual Report 2019
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STRATEGIC REPORT
KERRY GROUP AT A GLANCE
Where we
operate
+
Our Markets
pages 26-27
Taste & Nutrition
Business Review
pages 42-46
Consumer Foods
Business Review
pages 47-48
18,000+
Products
€291.4m
Investment in R&D
23%
Reduction in
carbon intensity
1,000+
R&D
Scientists
Revenue by Region
€6.0bn
54% Americas
24% Europe
22% APMEA
Revenue by End Use Market
(EUM)
€6.0bn
70% Food
25% Beverage
5% Pharma
Taste & Nutrition
At Kerry Taste & Nutrition, we understand consumers
want to consume food and beverage products that
meet their individual taste preferences, nutrition and
wellness requirements, while enhancing their lives and
contributing to a more sustainable world. Customers
including global, regional and local manufacturers, retailers
and foodservice providers all continue to re-evaluate the
recipes, processes and the ingredients they use in the
development of their products.
In a highly fragmented market, Kerry has the broadest
range of taste, nutrition and functional ingredient
technologies and solutions capability available to
re-formulate existing products and create new products
across all food and beverage end use markets.
In Kerry, we Inspire Food and Nourish Life through the
passion, commitment and work of our global team of
expert food scientists, chefs, baristas, brewers, mixologists,
bakers and nutritionists. Our leading business model,
unique taste and nutrition positioning and leading
integrated solutions capabilities differentiate Kerry as the
co-creation partner of choice for the food, beverage and
pharma industry. We know success requires an ability
to stay ahead of ever-changing consumer demand. We
partner with our customers to deliver products that will
delight and nourish their consumers across the globe.
10
Kerry Group Annual Report 2019 Global Headquarters
Global and Regional
Technology &
Innovation Centres
Manufacturing Plants
Sales Offices
Note
Ireland & UK: 34 manufacturing plants, 4 sales offices
Consumer Foods
Kerry’s Consumer Foods division is a leader in its
categories in the chilled cabinet primarily in the
Irish and UK markets.
Kerry Foods has many strong and well loved
brands including Dairygold, Richmond, Fridge
Raiders, Cheestrings and Denny. These brands
can be found in kitchens, supermarkets, service
stations, convenience stores and entertainment
venues the length and breadth of Ireland and
the UK. In addition to these brands, Kerry Foods
manufactures customer branded products, which
can be found in leading supermarkets in Ireland
and the UK.
Key to the success of Kerry Foods is its ability
to focus on best positioning its offering in the
changing marketplace to drive further growth.
+
Our Business Model
pages 24-25
Strategy & Financial Targets
pages 28-30
11
Kerry Group Annual Report 2019 STRATEGIC REPORT
CHAIRMAN’S STATEMENT
Kerry’s strategic positioning
and leading business model
continue to be key drivers of growth
In June, the Group opened a new facility in Tumkur,
India, which will serve our rapidly expanding South West
Asia market. Further to the acquisition of AATCO at the
end of 2018, the Group also invested in expanding our
capabilities in the Middle East region.
The recent acquisitions of Fleischmann’s (FVC) business,
Southeastern Mills (SEM) and Ariake U.S.A., all performed
well, and integration is progressing to plan. These
acquisitions were complemented by the acquisitions of
Isoage Technologies, Biosecur Lab, Diana Food (Georgia,
USA) and Pevesa Biotech, further enhancing Kerry’s leading
authentic taste and clean label technology portfolio which
the Group plans to leverage to meet increasing demand
across a broader range of applications.
During the year, we continued to evolve our industry-
leading integrated solutions portfolio, with the launch
of the Radicle™ portfolio of plant-based offerings as a
notable example.
Kerry delivered a robust performance in the context of a
subdued UK marketplace and excluding the impact of the
previously reported ready meals contract exit. A number of
new plant-based products were launched under the Naked
Glory and Richmond brands in the year.
Strategic Development
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 acquisitive activity. In
a year of significant acquisition investment, the Group
completed eleven acquisitions at a net cost of €561.7m.
Philip Toomey Chairman
I am pleased to report another successful
year for the Group, characterised overall
by good business performance and
strategic development.
The Group expanded its strategic footprint in developing
markets, made good progress integrating a number of
strategic acquisitions and further enhanced its integrated
solutions portfolio.
The Group’s strategic expansion in China progressed well.
We upgraded the recently acquired SIAS facility to serve
our customers in the Greater Beijing region, and continued
the expansion programme at our Nantong facility.
We continue to pursue organic and acquisitive growth
opportunities which build on the Group’s business model
and can be structurally integrated.
12
Kerry Group Annual Report 2019 Governance
The Board is firmly committed to
maintaining the highest standards
of corporate governance in line with
best practice. During 2019, the Board
reviewed the Company’s corporate
governance policy and implemented
appropriate changes in accordance
with the Provisions of the 2018 UK
Corporate Governance Code. This
included broadening the remit of
the Remuneration Committee and
strengthening our stakeholder
engagement structures with the
appointment of Mr. Tom Moran as
designated workforce engagement
Director. We also engaged with all
our other stakeholders during the
year, as we believe that listening to
their views and needs is fundamental
to building a sustainable business.
Further details of our stakeholder
engagement activities are outlined
on pages 100-103.
In 2019, the Board engaged
Independent Audit Limited to
facilitate a performance evaluation of
the Board and its Committees. The
Board concluded that the outcomes
of the evaluation process have been
positive and have confirmed to the
Chairman that the Board and its
Committees operate effectively. A
number of areas of improvement
were identified and action plans
were agreed which will be addressed
during 2020. Further details of the
performance evaluation are outlined
on page 105.
Purpose and Values
During 2019, the Group articulated
its Purpose, refreshed its Values, and
communicated and embedded both
across the organisation following
a collaborative process with input
from employees across the Group.
Our Purpose to Inspire Food and
Nourish Life, and our Values of
Courage, Ownership, Inclusiveness,
Open-mindedness and Enterprising
Spirit are core elements of The Kerry
Way organisational framework. The
Board will continue to ensure that
management throughout the Group
promote our Purpose and Values to
guide our employees in the way we
do business.
Sustainability
We understand the importance of
delivering long term sustainable
economic growth in an ethical
manner, aligned to our Purpose and
in line with societal expectations.
During 2019, the Group made
good progress on its sustainability
objectives with the successful
conclusion of the Towards 2020
Programme.
Building on the success of this
programme, taking into account the
feedback received from ongoing
engagement with our stakeholders,
we developed a new sustainability
programme with even greater
ambition, to be launched in the
second quarter of 2020. This strategy
will address the most material issues
for Kerry and our stakeholders and
our objective as an organisation, is to
continue to integrate sustainability
into all aspects of our business to
support our Purpose to Inspire Food
and Nourish Life.
Further details of our sustainability
programme are outlined in the
Sustainability Review on pages
49-72.
Operational Visits
As part of an ongoing programme,
the June 2019 Board meeting
was held in Krakow, Poland. The
visit focused on Kerry’s Taste &
Nutrition strategy for Europe and
Russia and featured presentations
on strategy, market updates and
trading performance from the
Polish, Russian, Eastern Europe and
Northern Europe senior management
teams. An economic update on the
Polish market was also presented
by an external industry expert.
Representatives from a major
customer in Eastern Europe were
invited to present and engage in
discussions with the Board on their
experience of working with Kerry.
While in Poland, the Board hosted
a dinner with key stakeholders
including employees and customers,
representatives of government,
trade and enterprise agencies. This
provided an informal opportunity
for the Board to engage with
stakeholders in the local market.
In 2019, I visited the North America
Savoury Taste Centre of Excellence
and manufacturing facility in Clark,
New Jersey, USA, the opening of our
new manufacturing facility in Tumkur,
India as well as sites in France
and Ireland.
27%
Retail
Shareholder Analysis
60%
Institutions
20% North
America
15% UK
19% Continental
Europe
4% Rest of World
2% Ireland
13% Kerry Co-operative
Our People
Central to Kerry’s continued success
is the hard work and commitment of
all our employees and the strength
of our senior management teams.
During 2019, the Board reviewed
senior management development
and succession plans having regard
to agreed diversity targets, ensuring
the appropriate level of skills and
diversity exist in the Group to achieve
our future growth and development
objectives. As I visit sites throughout
the Group, I continue to be impressed
by the quality, commitment and
enthusiasm of our people.
Dividend
The Board recommends a final
dividend of 55.1 cent per share (an
increase of 12% on the 2018 final
dividend) payable on 15 May 2020 to
shareholders registered on the record
date 17 April 2020.
Together with the interim dividend
of 23.5 cent per share, this brings
the total dividend for the year to 78.6
cent, an increase of 12% on 2018.
Prospects
The 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. We will continue to pursue
organic and acquisitive growth
opportunities and the Group’s
balance sheet is well placed to
support our objectives. The view of
management regarding the business
outlook for 2020 is presented in the
Chief Executive Officer’s Review.
Finally, on behalf of the Board, I would
like to thank Edmond and all our
employees for their contribution to
the ongoing success of the Group.
Philip Toomey
Chairman
17 February 2020
13
Kerry Group Annual Report 2019 STRATEGIC REPORT
CHIEF EXECUTIVE OFFICER’S REVIEW
Strong growth was achieved in the year,
driven by good volume growth in
Taste & Nutrition and the contribution
from strategic acquisitions
The food and beverage industry continues to
evolve at pace, with a heightened focus on
sustainability as consumers are demanding
more, which is challenging traditional business
models right along the end-to-end supply chain.
Consumers want great taste, including authentic, natural
and local taste experiences. They want enhanced nutrition
for better health and overall wellbeing, and they expect
more convenient and affordable options to match today’s
on-the-go and digital lifestyles. Consumers are demanding
that these experiences are produced and delivered
without compromise, in ways that are good for people
and the planet. Products are increasingly required to
reflect consumers’ values on sustainability and provide
additional fulfilment by creating positive outcomes beyond
the consumption occasion. Our Purpose to Inspire Food
and Nourish Life helps define the key role Kerry plays in
addressing these needs. As our customers continue to
meet these rapidly changing consumer demands and
increase speed to market, Kerry is best positioned as the
co-creation partner of choice with our unique business
model, broad taste and nutrition technology portfolio, and
industry-leading integrated solutions capability.
The Group delivered a solid volume growth performance
in the year. Taste & Nutrition achieved good volume
growth in the Americas, a solid performance in Europe
and continued strong growth in APMEA. Consumer Foods
delivered a robust underlying performance versus the
market, offset by the impact of the ready meals contract
exit previously announced.
Edmond Scanlon Chief Executive Officer
14
Kerry Group Annual Report 2019 4.0%
Volume
Growth
Taste & Nutrition
Volume growth ahead of markets
across Food and Beverage EUMs
Reported revenue increased by
12.5%, reflecting good volume
growth, significant contribution
from business acquisitions and a
favourable translation currency
impact. Trading profit grew by
14.1% to €918.5m, reflecting a
20bps improvement in trading
margin to 15.3%.
2.7%
Americas
Volume
Growth
Volume growth in the Americas
driven by Food EUMs of Meat
and Snacks
Reported revenue in the region
increased by 16.5% to €3,198m,
reflecting 2.7% volume growth, 0.2%
increase in net pricing, a favourable
translation currency impact of 4.4%
and contribution from business
acquisitions of 9.2%.
North America delivered good volume
growth against a backdrop of softer
market volume growth rates. LATAM
performed well with good growth
in Brazil and Mexico, and a solid
performance in Central America.
Results
Group revenue on a reported basis
increased by 9.6% to €7.2 billion
reflecting volume growth of 2.8%,
flat overall pricing, favourable
translation currency impact of 2.1%
and contribution from business
acquisitions of 4.7%.
Taste & Nutrition delivered 4.0%
volume growth and Consumer Foods’
business volumes reduced by 2.2%.
Group trading margin increased
by 30bps to 12.5%, resulting in an
overall increase in trading profit of
12.1% to €903m. This trading margin
increase reflects growth in both the
Taste & Nutrition and Consumer
Foods divisions.
Constant currency adjusted earnings
per share increased by 8.3% to
393.7 cent (2018 currency adjusted:
363.5 cent). Basic earnings per share
increased by 4.7% to 320.4 cent
(2018: 305.9 cent).
Kerry’s industry-leading research
and development expenditure
increased to €291m due to additional
investment in Taste & Nutrition (2018:
€275m). Net capital expenditure
amounted to €315m (2018: €286m)
as the Group continued to invest in
its strategic priorities for growth, in
particular authentic taste, clean label
technologies and developing market
facilities. The Group achieved free
cash flow of €515m, reflecting cash
conversion of 74% in the year (2018:
€447m / 72%).
+
Our Markets
pages 26-27
Taste & Nutrition
Business Review
pages 42-46
Consumer Foods
Business Review
pages 47-48
Within the Food EUMs, Kerry’s
Meat sub-EUM delivered strong
growth, with plant-based offerings
in particular delivering an excellent
performance, as customers continue
to seek innovative solutions to meet
the consumer demand for cleaner
label and next generation offerings.
This performance was complemented
by the acquisition of the coatings and
seasonings business, Southeastern
Mills (SEM), which performed very well.
The Snacks sub-EUM delivered good
growth, as Kerry’s integrated solutions
capability was key to a number
of successful customer launches
addressing consumer demands
for new world taste and healthier
snacking experiences.
The Beverage EUMs had a number
of plant-based beverage launches
and innovations utilising Ganeden®
probiotics, contributing to a good
finish to the year.
The global Pharma EUMs had a good
performance, led by strong growth in
excipients in North America.
Good progress was made on the
integration of Fleischmann’s (FVC)
business and Ariake U.S.A., Inc. and
both performed well. These were
complemented by the acquisitions
of Isoage Technologies, Biosecur
Lab and Diana Food (Georgia, USA),
further enhancing Kerry’s leading
authentic taste and clean label
technology portfolio, which the
Group plans to leverage in meeting
increasing demand across a broader
range of applications.
15
Kerry Group Annual Report 2019 2.0%
Europe
Volume
Growth
10.3%
Volume
Growth
APMEA
Volume growth in Europe driven
by Beverage and Food EUMs of
Meat and Snacks
Volume growth in APMEA driven by
strong growth across all Food and
Beverage EUMs
Reported revenue in the region
increased by 2.4% to €1,456m,
reflecting 2.0% volume growth, 0.1%
increase in net pricing, a favourable
translation currency impact of
0.1% and contribution from business
acquisitions of 0.2%. Kerry’s
performance in the Foodservice
channel contributed strongly to
growth in the region.
Kerry’s Beverage EUMs achieved
strong broad-based growth across a
number of sub-categories from
low/non-alcoholic beverage, tea and
coffee to plant-based offerings.
Within the Food EUMs, Kerry’s Meat
sub-EUM performed very well, with its
industry-leading portfolio deployed to
create solutions which met a variety
of customer and consumer needs.
Strong growth and very good business
development was achieved in plant-
based meat alternatives, supported by
the launch of the Radicle™ portfolio.
The Snacks sub-EUM performed
well, with a number of new authentic
world taste launches and healthy
snack products incorporating Kerry’s
Ganeden® probiotics.
The Group also completed the
acquisition of Pevesa Biotech – a
specialist plant protein isolates and
hydrolysates business based in Spain
and serving key nutrition applications.
Reported revenue in the region increased
by 16.2% to €1,285m, reflecting 10.3%
volume growth, 0.1% increase in net
pricing, 0.1% favourable transaction
currency impact, 0.6% favourable
translation currency impact, and
contribution from business acquisitions
of 5.1%. Key to the strong growth in the
region was the further deployment of
Kerry’s business model with customers
across existing and new markets.
Within the Food EUMs, Kerry’s Meat
sub-EUM delivered excellent growth with
both global and regional customers,
particularly in China and South East Asia,
with a range of innovations meeting key
consumer preferences for premium local
authentic taste and a superior home
delivery experience.
The Snacks sub-EUM delivered strong
growth, particularly with savoury taste
innovations that meet local consumer
preferences.
Kerry’s Beverage EUMs delivered strong
growth underpinned by a number
of successful launches in refreshing
beverages with enhanced wellness and
functional benefits. The branded DaVinci
range enjoyed strong growth across
the year.
We continued to make good progress in
expanding our capacity and deploying
our technology capabilities in the
region. Our strategic expansion in China
progressed well, as we upgraded the
recently acquired SIAS facility to serve our
customers in the Greater Beijing region,
and continued the expansion programme
at our Nantong facility. In June, the Group
opened a new facility in Tumkur, India,
which will serve our rapidly expanding
South West Asia market. Further to the
acquisition of AATCO at the end of 2018,
the Group invested in expanding its
capabilities in the Middle East region.
16
Kerry Group Annual Report 2019 Consumer Foods
Delivered a solid underlying
performance in the context of
a subdued market
Reported revenue decreased
by 2.4% to €1,307m, reflecting
a 2.2% reduction in volumes,
0.5% decrease in net pricing and
a favourable translation currency
impact of 0.3%. Excluding the
impact of the previously reported
ready meals contract exit, Kerry
delivered a robust performance in
the context of a subdued UK
marketplace, where lower consumer
confidence impacted overall market
volumes. The divisional trading
margin increased by 10bps to 7.6%.
Trading profit decreased by 1.2% to
€98.9m in the year. The Realignment
Programme was completed during
the year and delivered to plan.
The Richmond chilled sausage range
delivered a solid performance, led
by growth in chicken sausages
and the new plant-based sausage
which was launched at the end of
September, along with a range of
meat-free products under the Naked
Glory brand. The Denny brand in
Ireland performed well. A number of
business wins supported our overall
performance within spreads.
Chilled meals continued to be
impacted by reduced promotional
activity, while frozen meals had a
good performance across the range.
As previously announced, production
ceased in the ready meals facility in
Burton in September and the site
was sold prior to the year end.
The Cheestrings range had strong
growth supported by a number of
innovations. Fridge Raiders also
extended its snacking range to
reach a broader consumer market.
Future Prospects
Our markets and the end-to-end
supply chain are experiencing
unprecedented disruption, as
consumers are demanding more than
ever before, and traditional business
models are being challenged as a
result. What consumers want from
food and beverage offerings is
changing at pace. They want great
tasting products that nourish their
bodies, enhance their lives and are
sustainable for the planet. New
entrants and challenger brands have
added significant fragmentation to
the marketplace. Key for customers to
win in this fast-moving environment
is the ability to bring more products
to market and to do so quicker. This
changing marketplace is creating a
significant opportunity for enterprises
that can deliver on these new
requirements. Kerry’s unique business
model, broad taste and nutrition
technology portfolio, and industry-
leading integrated solutions capability
positions it as the co-creation partner
of choice for the food, beverage and
pharma industries.
Over the past number of weeks, we
have been working with our team
in China to manage the ongoing
developments relating to the
coronavirus. Our first priority remains
the safety of our people and their
families. Our team in China is taking
all appropriate protective measures
in our facilities and we are working
with the Chinese authorities, our
customers and other stakeholders
to manage through the situation.
We have included in our full year
guidance the estimated first quarter
impact on our China business.
Taste & Nutrition has strong growth
prospects, as we continue to further
deploy our industry-leading business
model in supporting our customers.
Consumer Foods continues
to selectively focus on growth
opportunities.
The Group will continue to invest
for growth aligned to the changing
market landscape and pursue M&A
opportunities aligned to our strategic
growth priorities.
The Group has a strong innovation
pipeline and remains confident in
its ability to continue to outperform
its markets.
Edmond Scanlon
Chief Executive Officer
17 February 2020
17
Kerry Group Annual Report 2019 STRATEGIC REPORT
OUR PEOPLE
Globally connected
and winning locally
Our Purpose to Inspire Food
and Nourish Life underpins
all our people practices
including our commitment
to delivering for our
communities, globally and
locally through charitable
initiatives. Our people
are actively encouraged,
recognised and rewarded
for bringing our Purpose
to life and for demonstrating
our core Values within Kerry.
Our Culture
At Kerry, our people are the winning
ingredient in our business. We leverage
our diverse, entrepreneurial and results
focused culture, talents and expertise
to innovate and lead to better food, in
a better way for a better future for our
customers, our shareholders, our people,
our communities and our environment.
Every day, our 26,000+ people access 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 120 nationalities with
operations across more than 150 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.
We strive for excellence in the delivery
of our core business capabilities and
differentiate ourselves as an organisation
through our people. We think and act
with a Safety First, Quality Always mindset
and focus on enabling our people to
make it easier and more valuable for our
customers to do business with Kerry. We
set ourselves the highest standards of
business and ethical behaviour.
Our groupwide approach to people
leadership is about 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.
18
Kerry Group Annual Report 2019 COURAGE
We’re brave,
speak up, and
inspire others
to get the best
results.
OUR KERRY
VALUES
underpinned by our
foundation
of Safety First,
Quality Always
ENTERPRISING
SPIRIT
We’re bold,
think big picture,
add value,
and grow together.
OWNERSHIP
We’re
accountable and
care about the
business as if it
were our own.
OPEN-MINDEDNESS
We’re curious,
innovative, and
believe in possibility.
INCLUSIVENESS
We’re welcoming,
authentic, and see
strength in diversity.
Our Values
The Kerry Way is our organisation’s
framework for guiding our decisions
and actions, individually and collectively,
towards current business priorities, our
long term aspirations and our shared
goal: To make it easier and more valuable
for our customers to do business with us.
The Kerry Way framework was
developed through a collaborative
process with inputs from our people
and seeks to ensure our people feel
inspired and connected – to each other,
the organisation, and to the impact
we have on the world. The Kerry Way
framework clarifies who we are; what
we do, how we do it, why we matter
and where we are going and is
fully aligned with our strategic
growth priorities.
Our Values are embedded within
The Kerry Way framework and were
refreshed during 2019 to reflect both
the heritage we are proud of, and our
ambitions for the future.
Our refreshed Values were approved
by the Board in 2019 and the Executive
Team are taking a leading role in
ensuring our Values are firmly
embedded across the Group.
19
Kerry Group Annual Report 2019 Fostering Diversity, Inclusion and Belonging
80+
Kerry hosted a
Masterclass for over
80 companies within
the Irish food and drink
industry at our
Global Technology
& Innovation Centre,
in Naas, Ireland
40
In North America
through our
partnership with
Women Foodservices
Forum, 40 colleagues
participated in the Annual
Leadership Development
Conference in Dallas
10
Kerry Volunteers
attended the Special
Olympics World Games
in Abu Dhabi
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. We are committed
to creating a positive and inclusive
work environment where everyone
can be at their best, contribute to
our success and excel personally
and professionally.
Whilst diversity continues to be a
focus, particularly increasing our
gender and cultural diversity in
leadership roles, creating a culture
of inclusion and belonging is equally
important for us. We want to ensure
all our people’s ideas are heard
and discussed to strengthen our
approach. Our refreshed diversity,
inclusion and belonging strategy,
informed by inputs from our people
as well as external best practice,
is fully aligned with business and
talent objectives. We focus on raising
awareness of this important priority
through continued education and
training, we promote greater diversity
in our leadership profile, we foster
a more inclusive workplace and we
build and strengthen partnerships
within our communities.
One of the highlights from 2019 has
been the establishment of employee-
led Diversity, Inclusion & Belonging
Committees in many locations. These
committees actively raise awareness
of this important agenda, educate
and inspire our people to work
together to promote global and local
events that foster a more positive and
inclusive work environment for all.
Externally, we continue to strengthen
core strategic partnerships both
within Ireland and globally. In North
America through our partnership
with Women Foodservices Forum,
40 colleagues participated in the
Annual Leadership Development
Conference in Dallas, focused on
advancing women leaders and driving
gender equity in business. Through
our membership of the Irish Chapter
of the 30% club and the Agri-Food
Diversity & Inclusion Forum led by
Bord Bia, Kerry hosted a Masterclass
for over 80 companies within the Irish
food and drink industry at our Global
Technology & Innovation Centre in
Naas, Ireland, with the aim of sharing
thought leadership and innovative
practices for attracting, developing
and retaining the diverse talent we
all need to continue to grow and
innovate to secure the future of
our industry.
We continue to sponsor volunteer
programmes, with the aim of
fostering a culture of inclusion both
within Kerry and in our communities.
We are particularly proud of our
partnership with Special Olympics,
launched during 2018 in the UK,
Ireland, The Netherlands and Poland,
which we have committed to extend
to 2020. This programme provides
opportunities to children and adults
with intellectual disabilities to
participate all year round in sporting
activities and in 2019, a number of
selected Kerry volunteers had the
unique opportunity to participate
in the World Games in Abu Dhabi,
supporting athletes and families from
all over the world.
Finally, continuing our journey to
increase gender and cultural diversity
in leadership roles, we have agreed a
set of measures with our Executives,
endorsed by our Board to ensure
our leadership teams and internal
talent pipelines better reflect the
broader mix of capabilities and
cultural diversity we have within our
organisation. This will be further
developed in 2020 and incorporated
in our Sustainability 2030 Plan.
20
Kerry Group Annual Report 2019 Growing together, Winning together: our Employee Experience
We have a highly engaged and passionate workforce
across Kerry Group that wants to be part of making
Kerry a better and more successful business for the
future. In 2019, we reviewed our approach to employee
engagement, partnering with one of the world’s leading
experts on leadership, culture and employee engagement
to develop a more comprehensive engagement strategy.
Our overall aim is to develop our leaders’ capability to
actively champion feedback and engage with their teams,
assess and monitor the level of employee engagement and
our employees’ experience in Kerry as a leading indicator
of and contributor to business performance and ensure
that Kerry continues to be a great place to work, thrive
and succeed.
During 2019, 85% of our people participated in our
second groupwide engagement survey to identify areas
of strength and areas for continuous improvement within
our business. Customer focus, alignment of employee
and organisational goals and our Safety First, Quality
Always mindset continued to be clear areas of strength.
Through a series of follow-up conversations with our
people we identified three global engagement priorities
for improvement: leadership development, organisational
effectiveness, and creating an environment where
everyone can fulfil their career aspirations and be at their
best. Throughout 2019 we have been focusing on these
priorities through a few significant groupwide initiatives,
with other initiatives being developed for launch and
impact in 2020, as follows:
> Strengthening people leader capabilities to grow and lead our business for the future. Having
rearticulated the role of the people leader at Kerry towards the end of 2018, resulting in a new framework
and set of objectives for all people leaders, reinforced through our performance management process, we
launched a series of leadership summits and workshops across the Group in 2019. To date, over 50% of our
people leaders have participated in learning experiences to understand how to nurture talent as a catalyst
for growth, to help our people develop meaningful careers with Kerry and to build sustainable, effective and
diverse teams that deliver exceptional results.
In addition, we sought to further clarify expectations for all leaders within Kerry during 2019. Following
workshops held with over 70 senior leaders, covering 14 nationalities, across all parts of our business,
we agreed a core set of Leadership Competencies, which describe the skills and behaviours expected for
successful execution of our strategy now and in the future. These competencies will set common standards
for leadership at Kerry and will be actively reinforced through all our key people processes.
> Aligning to improve organisational effectiveness. To enable our employees to make it easier and more
valuable for our customers to do business with us, 2019 has seen us focus on further refining our operating
model – how we better service our customers and continue to be the world’s leading Taste & Nutrition
company. As a consumer-led customer-centric organisation, we have structured our business to be close to
the market and consumer with our applications and sales teams based in local markets. Internally we have
streamlined our processes, and connected our global capabilities, for faster and more innovative responses
for the customer. Over 100 commercial leaders from across the Group have been involved in enhancing our
approach and we will continue to progress this in 2020.
> Being at our best: The Kerry Way. Bringing to life what it means to work at Kerry, sharing our Purpose and
creating an environment where everyone is connected to our ambitions in order to fulfil their own potential
and deliver for our customers, we initiated a groupwide The Kerry Way employee engagement initiative to
reach our 26,000+ employees. Inspired by sharing personal stories and demonstrating leadership in action,
our people leaders have led structured workshops with their teams focused on understanding who we are,
what we do, how we do it, where we are going and why we matter as a business throughout 2019. A key part
of these workshops has been connecting our people to our Purpose and our Values and sharing our Vision
for building a future for Kerry within our industry and society in general. To date 90% of employees have
participated in workshops and we will reach all employees by early 2020.
During 2019, the Board appointed Mr. Tom Moran as
designated workforce engagement Director. The Board
approved a workforce engagement plan for the designated
workforce engagement Director which includes visits to
office and manufacturing locations in Ireland, UK, France,
North America, Latin America and Asia. These visits will
provide an insight into a range of workforce engagement
activities within Kerry and opportunities to directly engage
with the workforce. Typical activities will include leaders
and employees bringing to life The Kerry Way, embedding
our Purpose and our Values in daily activities, engaging
in two-way communication and providing feedback
through Town Halls and workshops, building community
partnerships through local volunteer programmes and
proudly celebrating Kerry’s inclusive and diverse culture
through sponsored global and local activities.
We will continue to monitor progress against all our global
improvement opportunities through ongoing dialogue
with our leadership teams, our people and targeted pulse
surveys within the business during 2020.
21
Kerry Group Annual Report 2019
Promoting safe and healthy workplaces and work practices for our people
> Safety First, Quality Always. The safety of our people and food
safety are core priorities for Kerry, and our commitment to our
people and our customers is reinforced through our ‘Safety First,
Quality Always’ practices.
During 2019 we continued to invest in our people, our processes
and infrastructure, strengthening our functional capability
through technical learning and career development opportunities,
and enhancing our global capabilities to improve our own global
quality, safety, health and environmental standards and policies as
well as to meet industry and regulatory requirements.
#Safetyfirst was the theme for 2019’s Kerry Global Safety Day.
It was a call to action to prevent accidents in the workplace.
Workplace safety is very important to Kerry, and we all have a
desire to work in a safe and protected environment. Workshops
sponsored by our global executive team were held across key sites
to promote and encourage collective action to ensure we create
safer workplaces for all our people.
> 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 employment
compliance modules, covering Information Security, Intellectual
Property, Anti-Fraud and Code of Conduct, is updated annually
to maintain regulatory, legislative and workplace relevance,
and governed by our Compliance Steering Committee with
representation from across the business. This programme has
been completed by over 80% of our people during the past two
years and continues to be a priority area of focus for our business.
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 concerns in confidence through an
externally facilitated 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
wellbeing framework has four pillars – nutritional, physical,
emotional and financial. We continue to develop and embed
wellbeing practices through our leadership development and
employee wellbeing programmes.
22
Kerry Group Annual Report 2019
Strengthening our Talent Pipeline
Rewards and Recognition
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 2019, and our global
mobility programmes, we supported over 550 moves this
year, 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 continue to encourage our early career employees,
typically graduates and those with less than five years’
experience, to seek out global opportunities to broaden
their experiences to support their career progression.
Graduates and employees with less than five years’
experience represent 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 2019 we
upgraded our graduate assessments to ensure Kerry
remains competitive in today’s graduate marketplace and
have plans to enhance our global graduate offering and
development solutions in 2020.
Our Global Recognition Framework promotes the
further growth and consistency of our regional and local
recognition programmes.
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 diverse 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 2019, we carried out a Total Reward review
across several countries which collectively represented
approximately 80% of our global workforce. The purpose
of this review was to ensure that our reward programmes
continue to be positioned as one of the key levers of
business performance, are appropriately aligned with
the external market, and are delivered in a way which
makes them more easily understood and appreciated by
our employees. As part of this review, we refreshed our
reward philosophy and this framework will guide us as we
implement the recommendations arising from this review
during 2020 and beyond.
The Remuneration Committee of the Board was kept
updated on matters arising from the Total Reward review.
This review allowed the Committee to consider the
alignment of Executive Directors' remuneration with that
of the wider workforce.
550+
Internal moves created
through our 'world
of opportunity' and
mobility programmes
23
Kerry Group Annual Report 2019 STRATEGIC REPORT
OUR BUSINESS MODEL
The industry reference and customer preference
– creating value for all stakeholders
A. FOUNDATIONAL
TECHNOLOGIES
B. INTEGRATED VALUE
CREATION ENGINE
C. CUSTOMERS
& CHANNELS
Authentic
Taste
+
Nutrition,
Wellness &
Functionality
End Use Markets
Food
Beverage
Pharma
Meat
Dairy
Meals
Snacks
Bakery & Confectionery
Cereal & Sweet
Global
Regional
Local
Retail
Foodservice
PEOPLE + CULTURE + SUSTAINABILITY
Inputs
30,000 Shareholders
26,000+ Employees
Sales in 150+ countries
Consumers
Community & Government
Manufacturing in 32 countries
24
Kerry Group Annual Report 2019
STRATEGIC REPORT
OUR BUSINESS MODEL
Kerry’s customer-centric business model comprises three core elements
– a diverse portfolio of foundational technologies, a unique integrated
value creation engine and unparalleled customer and channel access.
A.
B.
Kerry has the industry’s broadest portfolio of
foundational technologies, built up over 30 years
and used to deliver both enhanced taste attributes
and improved nutrition and functionality. Combining
these technologies is a key driver of today’s consumer
preferences and a significant customer challenge.
Kerry’s positioning at the intersection of taste and
nutrition and understanding of how these work
together provides a unique ability to deliver tailored
customer-specific solutions.
The integrated value creation engine is where Kerry
excels by utilising its global infrastructure across the
entire product development cycle from ideation right
through to product launch. The three cogs of this
engine comprise Culinary & Insights which encapsulates
the market discovery, ideation and concept creation
phase; the Development & Applications teams who
work together to create products with the relevant taste
and nutrition attributes, while using Kerry’s sensory,
analytical and regulatory experts to ensure the product
meets consumer preferences; and Product Process
Technologies, where Kerry’s extensive understanding of
the end-to-end supply chain, process engineering and
unique ability to develop finished consumer products
distinguishes it from others. Kerry is the leading
provider of integrated solutions, leveraging these
interconnected capabilities to drive value for customers.
Therefore if a customer wants to bring a new product
to market quickly or move into an adjacent category
across the food, beverage and pharma landscape,
Kerry is the co-creation partner of choice.
C.
Kerry delivers customer solutions across a broad set
of routes to market in both the retail and foodservice
channels. Its diversified range of customers extends
from global to regional and local leaders.
These wide ranging capabilities continue to be deployed in local markets through our expansive infrastructure, allowing
Kerry to successfully meet local consumer needs, deliver on our strategy and drive sustainable business performance.
+29% TSR in 2019
Outputs
€1.3 bn Payroll
Customers 18,000+ Products
200+ Articles published since 2016
by Kerry Health & Nutrition Institute
7,000+ People impacted by the RAIN Programme
+
Read more
about the RAIN
Programme in
our Sustainability
Review
page 69
Kerry Group Annual Report 2019
25
STRATEGIC REPORT
OUR MARKETS
1.
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.
Food
EUMs
Beverage
EUMs
Pharma
EUMs
A.
Consumer Preferences
B.
End Use Markets
C.
Customers & Channels
Kerry’s approach is
focused on fundamentally
understanding local
consumer preferences and
supporting customers as
they seek to innovate to win
in today’s food, beverage
and pharma marketplace.
Kerry’s sales are viewed
primarily through
the lens of its food,
beverage and pharma
end use markets,
through which it sells
18,000+ products.
Kerry serves the market
through a number of
different sub-channels
that are principally
grouped under
either the retail or
foodservice channels.
Kerry has a customer base
that is well diversified
between global companies,
regional leaders and
local/smaller players.
The Group works
effectively across this
wide range of customers
and tailors its approach to
best serve each individual
customer type.
26
Kerry Group Annual Report 2019 STRATEGIC REPORT
OUR MARKETS
2.
3.
The changing marketplace is
reshaping our industry
Leading to significant
market opportunity
CONSUMER
REVOLUTION
DRIVING
CUSTOMER
TRANSFORMATION
RESHAPING
OUR INDUSTRY
Food for life and wellbeing
New taste experiences
Trust is core
‘Made-for-me’
Managing accelerating
customer fragmentation
Elevating nutrition without
compromising on taste
Being trusted
Digital transformation
Manufacturing needs evolving
Integrating innovation
processes
Redefining supply chains
Organisational agility critical
T
N
E
T
P O
I A L FUTURE M
A
R
K
E
T
MARKET
TODAY
Sustainability is a key driver of change
along the supply chain
Kerry’s markets and the
end-to-end supply chain are
experiencing unprecedented
isruption, as consumers are
demanding more than ever before
and traditional business models are
being challenged as a result. What
consumers want from food and
beverage offerings is changing at pace,
they want great tasting products that
nourish their bodies, enhance their
lives and regenerate the planet. New
entrants and challenger brands have
added significant fragmentation to
the marketplace. This is leading to the
requirement for shortened product
development lifecycles as consumers
want to continuously try new things.
Customers are responding by delivering
authentic products that combine
great taste while meeting nutrition
and functionality demands. Trust is
absolutely paramount as consumers
seek socially responsible offerings
from companies that follow sustainable
practices. Key for customers to win in
this fast moving environment is the
ability to bring more products to market
and do so quicker. All of these changes
are reshaping our industry, challenging
long established business models and
redefining traditional ways of working.
This changing marketplace is
creating a significant opportunity
for enterprises that have the business
model and capabilities to deliver
on these new requirements.
Customers continue to look for
partners that provide an enhanced
innovation service and can perform
value-add activities that may have
previously been an internal step in a
new product launch. This is leading to
significant market opportunity and a
potential future market far in excess
of the current estimated market size
of c. €75 billion.
27
Kerry Group Annual Report 2019 TASTE & NUTRITION
CONSUMER FOODS
DEVELOPING
MARKETS
FOODSERVICE
Kerry’s local knowledge and focus,
combined with its global expertise
and capabilities have been key to
Kerry has an unrivalled position
as a partner to the Foodservice
A leader in its categories in the
chilled cabinet primarily in Ireland
channel. The breadth of our offering
and the UK.
its excellent track record of growth
and depth of capabilities means
in developing markets.
Kerry is the leading partner for
We will continue to drive growth
foodservice operators, as it provides
and outperform our markets in our
Kerry’s target is to continue to
menu innovation and new platforms,
core business by responding to key
achieve average volume growth in
themed & seasonal offerings and
consumer trends in meat, meals
developing markets of 10%+ per
nutrition-led innovation.
annum over the five year plan.
and dairy, while also leveraging this
core expertise in developing and
expanding adjacent categories.
Kerry’s target is to achieve average
volume growth in Foodservice of 7%
per annum over the five year plan.
STRATEGIC REPORT
STRATEGY & FINANCIAL TARGETS
Strategic
Priorities
for Growth
The Group has clear strategic priorities for organic
and acquisitive 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,
with sustainability a key consideration
for all strategic decisions.
STRATEGIC
PRIORITIES
FOR GROWTH
OVERVIEW
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.
Unique
Proposition
Taste
Nutrition
Kerry has an extensive
portfolio of technologies
across both Taste and
Nutrition. It has developed
its unique ability to deploy
these technologies together
to enhance the taste and
improve the nutrition and
functionality of products,
which has been integral to
Kerry leading the industry
shift towards delivering
customer specific integrated
solutions.
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,
Fibres, Enzymes, Probiotics,
Texturants, Food Protection and
Natural Preservation Solutions
amongst others.
KEY
ACHIEVEMENTS
STRATEGY IN
ACTION
Winning in the Market
through Kerry's Leading Plant-Based Offering
The demand for plant-based products is
growing at pace across a range of categories,
as consumers recognise the health benefits of
a balanced diet and the ever increasing impact
of sustainability on purchasing decisions.
Customers continue to expand their ranges
and improve the product attributes of their
offerings, including improving flavour, texture,
nutritional value and delivering a cleaner label.
During the year Kerry launched its RadicleTM
brand to allow customers to access the full suite
of its plant-based offering. Examples of a number
of successful launches during the year across a
variety of applications are outlined below.
Meat-Free
Al Pastor Plenti
Dairy-Free
Cold Brew Soft Serve
• Authentic Savoury™ Clean
Smoke, Al Pastor marinade
• Cold Brew Extract &
Functional Oat Solution
• Plenti™ Protein
• Freshness – Clean Label
Preservation
• Natural Flavour &
TasteSense™ Solution
• Clean Label Texture
Solution including
Emugold™ Fibre
Coconut & Lemongrass
Protein Beverage
• TasteSense™ – Sugar
Reduction Technology
• Simply Nature™ –
Lemongrass Extract and
Coconut Crystals
• Prodiem™ Refresh
28
Kerry Group Annual Report 2019
TASTE & NUTRITION
AUTHENTIC
TASTE
STRATEGIC
PRIORITIES
FOR GROWTH
OVERVIEW
Our Authentic Taste
platform is founded on a
Kerry has an extensive
portfolio of technologies
‘from-food-for-food’ heritage
across both Taste and
and philosophy, with a broad
Nutrition. It has developed
range of foundational
technology capabilities
in Dairy, Savoury, Smoke
& Grill, Citrus, Tea & Coffee,
Beverage and Sweet
amongst others.
its unique ability to deploy
these technologies together
to enhance the taste and
improve the nutrition and
functionality of products,
which has been integral to
Kerry leading the industry
shift towards delivering
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,
Fibres, Enzymes, Probiotics,
Texturants, Food Protection and
customer specific integrated
Natural Preservation Solutions
solutions.
amongst others.
KEY
ACHIEVEMENTS
STRATEGY IN
ACTION
STRATEGIC REPORT
STRATEGY & FINANCIAL TARGETS
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.
+
Taste & Nutrition
Business Review
pages 42-46
Consumer Foods
Business Review
pages 47-48
TASTE & NUTRITION
DEVELOPING
MARKETS
Kerry’s local knowledge and focus,
combined with its global expertise
and capabilities have been key to
its excellent track record of growth
in developing markets.
Kerry’s target is to continue to
achieve average volume growth in
developing markets of 10%+ per
annum over the five year plan.
FOODSERVICE
Kerry has an unrivalled position
as a partner to the Foodservice
channel. The breadth of our offering
and depth of capabilities means
Kerry is the leading partner for
foodservice operators, as it provides
menu innovation and new platforms,
themed & seasonal offerings and
nutrition-led innovation.
Kerry’s target is to achieve average
volume growth in Foodservice of 7%
per annum over the five year plan.
CONSUMER FOODS
Core
New occasions
New channels
New customers
Adjacencies
A leader in its categories in the
chilled cabinet primarily in Ireland
and the UK.
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.
The official inauguration of Kerry Tumkur facility
in India. Pictured: Scott Scharinger, VP & General
Manager SWA; Ambassador Brian McElduff; Philip
Toomey, Chairman; John Savage, President & CEO
Kerry APMEA.
• Continued strong organic
performance, with volume
growth of 10.0%.
• Strategic expansion in China
through upgrading the recently
acquired SIAS facility to serve
customers in the Greater Beijing
region, and the continued
expansion of the Nantong facility.
• Commissioned new state-of-the-
art 40,000m² facility in Tumkur,
India, which is another example
of the Group’s ambition for
sustainable production.
• Achieved good volume growth
• Achieved underlying volume
of 5.5% in the year.
• Excellent growth within
beverage in Europe, as the
nutritional partner to a number
of leading Foodservice players.
• Strong growth across the APMEA
region, with the DaVinci brand
performing particularly well.
growth ahead of our markets,
which were challenged in the year
due to softer consumer demand.
• Achieved strong growth in
our adjacent categories,
particularly in snacking
through the Cheestrings and
Fridge Raiders ranges.
• Launched a number of
plant-based offerings
under the Richmond and
Naked Glory brands.
29
Kerry Group Annual Report 2019
Operating
Leverage
Portfolio
Evolution
KerryExcel
Savings
KerryExcel
Investment
STRATEGIC REPORT
STRATEGY & FINANCIAL TARGETS
Strategic Priorities for Margin Expansion
Operating
Leverage
Portfolio
Evolution
KerryExcel
Savings
KerryExcel
Investment
Optimise leverage
Differentiate
Drive efficiency
Re-invest to grow
Leverage 1 Kerry platform
New foundational technologies
Manufacturing excellence
Fragmentation response
Leverage routes to market
New markets
Supply chain excellence
Localisation of footprint
Leverage customer centres
New channels/geographies
Commercial excellence
Increased R&D
Leverage footprint
Manage churn with agility
Service excellence
Kerryconnect/Business Services
Medium Term Financial Targets
The medium term financial targets are based on a combination of growth and return.
Our overall target of 10%+ average constant currency 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 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 Financial Targets
On average over life of plan
Volume
Growth1
3-5%
T&N 4-6% Foods 2-3%
Margin
Expansion
+30bps
Investments
for growth
Constant Currency
Adjusted EPS
Growth2
+10%
GROWTH
RETURN
ROACE2
12%+
Cash
Conversion3
>80%
Dividend
Growth
10%+
Total Shareholder
Return
Outperformance
Note 1: Volume growth targets assume 2% above market growth rates.
Note 2: Adjusted EPS growth and ROACE are calculated before brand related intangible asset amortisation and non-trading items (net of related tax).
Note 3: Cash conversion is free cash flow expressed as a percentage of adjusted earnings after tax.
Full definitions can be found on pages 216-219.
30
Kerry Group Annual Report 2019 STRATEGIC REPORT
STRATEGIC ADVANTAGE
MARKET
LEADER
Global leader in Taste & Nutrition
– Co-creation partner for the
food & beverage industry
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 top 10 blockbuster
drugs
Leader in our chilled foods
categories in Ireland and the UK
We have a long history of
sustained profitable growth.
Group strategy will continue
to be achieved through
the commitment and
expertise of our people.
PEOPLE
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
TECHNOLOGY
LEADER
Unique expertise in technology
integration for solution delivery
Industry-leading application
& culinary expertise
Leading technology portfolio
Deep science & research
expertise aligned to global
network of partners
Unparalleled breadth of
product process expertise
Best-in-industry infrastructure
of global and local technology
& application centres
GROWTH
POTENTIAL
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
+
Sustainability Review
pages 49-72
Our People
pages 18-23
PROVEN
SUCCESS
33 years of consistent results
since 1986
10% CAGR for revenue
13% CAGR for trading profit
13% CAGR for adjusted
EPS growth
16% CAGR on share price
17% CAGR on dividend per share
CAGR = Compound Annual
Growth Rate
SUSTAINABILITY
Long term strategy fully anchored
in our Sustainability commitments
Natural community based
heritage
Investing for a sustainable future
Strong delivery against
2020 targets
Milestones linked to performance
management
Innovative health & wellbeing
programmes supporting
communities globally
Kerry Group Annual Report 2019
31
STRATEGIC REPORT
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. The non-financial metrics are
shown in the Sustainability Review and complement
the financial metrics detailed below.
Key Financial
Performance
Metric
Definition1
GROWTH
Volume Growth
Trading Margin Expansion
2.8%
+30bps
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.
Constant Currency
Adjusted EPS Growth
+8.3%
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.
Volume Growth
Volume Growth
Performance
Commentary
Volume Growth
2014
The Group achieved constant
currency adjusted EPS growth
of 8.3% reflecting a consistent
solid performance in the year.
EPS
EPS
EPS
The Group increased its trading
margin by 30bps to 12.5% in
the year.
Trading Margin
Trading Margin
Expansion
Expansion
2014
The Group achieved volume
growth of 2.8% in the year which
outperformed the market. This
reflected strong growth in the
2014
Taste & Nutrition division, partially
offset by the performance of the
Consumer Foods division which
was impacted by a contract exit.
Trading Margin
Expansion
This measure is defined as profit after
Cash conversion is defined as free
TSR represents the change in the
cash flow, expressed as a percentage
capital value of Kerry Group shares plus
of adjusted earnings after tax.
dividends in the financial year.
taxation 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.
ROACE
ROACE
ROACE
The Group achieved ROACE of 11.8%
The Group achieved cash conversion
The Group achieved a TSR of 29.3%,
reflecting strategic acquisitions and
of 74%, reflecting good cash
which outperformed the mean and
investments made in the year.
generation partially offset by capital
median of Kerry’s peer set in the year.
Cash
Cash
Cash
investment for growth and additional
The Group has achieved compound
working capital in the year.
growth of 100% in TSR over the course
TSR
TSR
TSR
of the last five years.
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
Compound TSR Growth
Compound TSR Growth
Compound TSR Growth
ROACE is a key measure of the
return achieved by the Group on its
investment in capital expenditure
projects, acquisitions and other
strategic investments, as a percentage
of what resources are available to
the Group.
Cash conversion is an important
TSR is an important indicator of how
metric as it measures how much of
successful the Group has been in terms
the Group’s adjusted earnings after
of shareholder value creation.
tax is converted into cash.
ROACE is a performance metric for the
Cash conversion is a performance
TSR is a performance metric for the
long term incentive plan.
metric for the short term incentive plan.
long term incentive plan.
Historical
Performance
Raw data
3.8%
Raw data
Raw data
3.6%
4.3%
3.8%
4.3%
4.3%
3.8%
3.5%
3.6%
3.6%
2.8%
3.5%
3.5%
2.8%
2.8%
+40bps
+70bps
0bps
+40bps
+70bps
0bps
+40bps
+30bps
+70bps
0bps
0bps
0bps
0bps
+30bps
+30bps
11.5%
12.2%
12.2%
11.5%
12.2%
12.2%
11.5%
12.5%
12.2%
12.2%
12.2%
12.2%
12.2%
12.5%
12.5%
3.4%
301.9
12.3%
323.4
9.4%
3.4%
341.2
301.9
12.3%
8.6%
3.4%
353.4
323.4
301.9
8.3%
9.4%
12.3%
393.7
341.2
323.4
8.3%
8.3%
8.6%
9.4%
8.6%
393.7
393.7
353.4
341.2
353.4
13.6%
12.9%
13.0%
12.9%
12.9%
13.0%
13.0%
13.6%
13.6%
12.0%
11.8%
12.0%
12.0%
11.8%
11.8%
100%
570
100%
100%
83%
501
74%
83%
83%
74%
74%
85%
85%
72%
570
570
72%
72%
453
453
447
447
447
515
501
501
515
515
85%
453
39%
89%
29%
39%
39%
29%
29%
(7%)
100%
(7%)
100%
(7%)
100%
89%
89%
35%
76%
35%
76%
76%
35%
53%
(10%)
37%
53%
(10%)
53%
(10%)
37%
37%
2015
2016
2017
2015
2015
2018
2016
2016
2019
2017
2017
2018
2018
2019
2015
2019
2016
2017
2015
2015
2018
2016
2016
2019
2017
2017
2018
2018
2019
2019
2015
2016
2017
2015
2015
2018
2016
2016
2019
2017
2017
2018
2018
2019
2019
2015
2016
2017
2015
2018
2015
2016
2016
2019
2017
2017
2018
2018
2019
2019
2015
2016
2017
2015
2018
2015
2016
2016
2019
2017
2017
2018
2018
2019
2019
2015
2016
2017
2015
2018
2015
2016
2016
2019
2017
2017
2018
2018
2019
2019
Volume Growth %
Volume Growth %
Volume Growth %
Trading Margin Expansion
Trading Margin %
Trading Margin Expansion
Trading Margin %
Trading Margin Expansion
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
Column style
%01
Column style
Column style
%01
%01
%01
%01
%01
%01
%01
%01
Volume growth is an important
metric as it is seen as a key driver
of top-line organic 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
moved up or down.
Trading margin expansion is
a key measure of profitability,
demonstrating improvement in
the product mix being sold and
in operational efficiency in the
business.
EPS growth is a key
performance metric
encompassing the components
of growth important to the
Group’s stakeholders. Volume
growth and margin expansion
are two key drivers of EPS
growth.
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 216-219.
32
Kerry Group Annual Report 2019 Key Financial
Performance
Metric
Definition1
Volume growth represents sales
Trading margin expansion
Constant currency adjusted
growth year-on-year, excluding
represents the change in trading
EPS growth represents
pass-through pricing on raw
margin in the current year
material costs, currency impacts,
compared to trading margin
acquisitions (net of disposals) and
achieved in the prior year.
adjusted EPS in the current
year compared to adjusted
EPS achieved in the prior
rationalisation volumes.
Trading margin represents
year calculated on a constant
trading profit expressed as a
currency basis. Adjusted EPS is
percentage of revenue.
considered more reflective of
the Group’s underlying trading
performance than basic EPS.
Performance
Commentary
The Group achieved volume
The Group increased its trading
The Group achieved constant
growth of 2.8% in the year which
margin by 30bps to 12.5% in
currency adjusted EPS growth
of 8.3% reflecting a consistent
solid performance in the year.
EPS
EPS
EPS
outperformed the market. This
Volume Growth
Volume Growth
Volume Growth
reflected strong growth in the
2014
2014
2014
the year.
Trading Margin
Trading Margin
Trading Margin
Expansion
Expansion
Expansion
Taste & Nutrition division, partially
offset by the performance of the
Consumer Foods division which
was impacted by a contract exit.
+
Non-Financial KPIs are
detailed in the Sustainability
Review pages 50-51
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.
Drivers of Shareholder Return
Volume
Growth
Margin
Expansion
Growth
EPS
Return
ROACE
Cash
Conversion
Share
Price
Dividend
Total
Shareholder
Return
RETURN
Cash Conversion
Total Shareholder Return (TSR)
74%
29.3%
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 in the financial year.
Return on Average Capital
Employed (ROACE)
11.8%
This measure is defined as profit after
taxation 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.
The Group achieved ROACE of 11.8%
reflecting strategic acquisitions and
investments made in the year.
ROACE
ROACE
ROACE
The Group achieved cash conversion
of 74%, reflecting good cash
generation partially offset by capital
Cash
Cash
investment for growth and additional
working capital in the year.
Cash
The Group achieved a TSR of 29.3%,
which outperformed the mean and
median of Kerry’s peer set in the year.
The Group has achieved compound
growth of 100% in TSR over the course
of the last five years.
TSR
TSR
TSR
Historical
Performance
Raw data
Raw data
Raw data
4.3%
4.3%
4.3%
3.8%
3.8%
3.8%
3.6%
3.6%
3.6%
3.5%
3.5%
3.5%
2.8%
2.8%
2.8%
+40bps
+40bps
+70bps
+70bps
+40bps
+70bps
0bps
0bps
0bps
0bps
0bps
+30bps
+30bps
0bps
+30bps
11.5%
11.5%
12.2%
12.2%
11.5%
12.2%
12.2%
12.2%
12.2%
12.2%
12.2%
12.5%
12.2%
12.5%
12.5%
3.4%
3.4%
12.3%
12.3%
3.4%
301.9
301.9
323.4
323.4
301.9
9.4%
9.4%
12.3%
341.2
341.2
323.4
8.6%
9.4%
8.6%
8.6%
353.4
341.2
353.4
353.4
8.3%
8.3%
8.3%
393.7
393.7
393.7
13.6%
13.6%
13.6%
12.9%
12.9%
13.0%
12.9%
13.0%
13.0%
12.0%
12.0%
12.0%
11.8%
11.8%
11.8%
100%
100%
85%
85%
85%
570
570
453
453
453
100%
83%
83%
570
501
501
83%
72%
72%
501
447
447
74%
74%
72%
515
515
447
74%
515
39%
39%
89%
89%
35%
35%
35%
53%
53%
(10%)
53%
(10%)
(10%)
37%
37%
37%
39%
(7%)
89%
76%
(7%)
76%
29%
29%
29%
100%
(7%)
100%
100%
76%
2015
2015
2016
2015
2016
2017
2016
2017
2018
2017
2018
2018
2019
2019
2019
2015
2015
2016
2015
2016
2017
2016
2017
2018
2017
2018
2018
2019
2019
2019
2015
2015
2016
2015
2016
2017
2016
2017
2018
2017
2018
2018
2019
2019
2019
2015
2015
2015
2016
2016
2016
2017
2017
2017
2018
2018
2018
2019
2019
2019
2015
2015
2015
2016
2016
2016
2017
2017
2017
2018
2018
2018
2019
2019
2019
2015
2015
2015
2016
2016
2016
2017
2017
2017
2018
2018
2018
2019
2019
2019
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)
Strategic
Linkage
Volume growth is an important
Trading margin expansion is
metric as it is seen as a key driver
a key measure of profitability,
EPS growth is a key
performance metric
of top-line organic business
improvement. This is used as
demonstrating improvement in
encompassing the components
the product mix being sold and
of growth important to the
the key revenue metric, as Kerry
in operational efficiency in the
Group’s stakeholders. Volume
operates a pass-through pricing
business.
growth and margin expansion
are two key drivers of EPS
growth.
Column style
Column style
Column style
%01
%01
%01
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
%01
%01
%01
%01
%01
%01
moved up or down.
Link to
Remuneration
Volume growth is a metric in the
Trading margin expansion is a
Constant currency adjusted EPS
short term incentive plan and
metric in the short term incentive
growth is a performance metric
is a key driver of adjusted EPS
plan and is a key driver of adjusted
for the long term incentive plan.
growth, which is a metric for the
EPS growth, which is a metric for
long term incentive plan.
the long term incentive plan.
ROACE %
ROACE %
ROACE %
ROACE is a key measure of the
return achieved by the Group on its
investment in capital expenditure
projects, acquisitions and other
strategic investments, as a percentage
of what resources are available to
the Group.
Cash Conversion %
Cash Conversion %
Free Cash Flow
Free Cash Flow
Cash Conversion %
Free Cash Flow
Annual TSR Growth
Annual TSR Growth
Compound TSR Growth
Compound TSR Growth
Annual TSR Growth
Compound TSR Growth
Cash conversion is an important
metric as it measures how much of
the Group’s adjusted earnings after
tax is converted into cash.
TSR is an important indicator of how
successful the Group has been in terms
of shareholder value creation.
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.
33
Kerry Group Annual Report 2019
STRATEGIC REPORT
FINANCIAL REVIEW
Continued consistent delivery
with good growth
The Group continued to deliver good revenue and trading
profit growth in the year against the backdrop of softer
market volumes in certain developed markets. This was
achieved primarily through consistent volume growth in our
Taste & Nutrition business and the contribution from recently
acquired businesses, which resulted in good overall adjusted
EPS growth in the year.
The Financial Review provides an overview of the Group’s financial
performance for the year ended 31 December 2019 and 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 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 help ensure the Group’s financial objective of maximising
shareholder return is achieved.
Group
Volume Growth
Group Trading
Margin Expansion
Adjusted* EPS Growth
Constant Currency
GROWTH
+2.8%
+30bps
+8.3%
Outperforming
our market
Group Trading
Margin of 12.5%
Basic EPS Growth
+4.7%
ROACE*
Free Cash Flow
Increased Total Dividend
RETURN
11.8%
Reflecting strategic
acquisitions and
investments
€515m
74% conversion1
+12.0%
Final dividend of
55.1 cent proposed
Definitions, calculations and reconciliations for these are set out within the Key Performance
Indicators section on pages 32-33 and within the Supplementary Information section – Financial
Definitions on pages 216-219.
*
1
Before brand related intangible asset amortisation and non-trading items (net of related tax).
Expressed as a percentage of adjusted earnings after tax.
Marguerite Larkin
Chief Financial Officer
A combination
of Growth
and Return
34
Kerry Group Annual Report 2019 Analysis of Results
Revenue
Trading profit
Trading margin
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
%
change
9.6%
12.1%
2019
€’m
2018
€’m
7,241.3
6,607.6
794.6
(98.6)
11.5% 696.0
(37.8)
902.7
12.5%
(26.5)
(81.6)
(91.7)
566.5
EPS
Cent
320.4
21.4
51.9
393.7
-
393.7
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
10.1
363.5
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
4.7%
11.4%
8.3%
*
Before brand related intangible asset amortisation and non-trading items (net of related tax).
Revenue
Group reported revenue increased by 9.6% to €7.2 billion (2018: €6.6 billion), reflecting volume growth of 2.8%, flat
overall pricing impact, favourable translation currency impact of 2.1% and contribution from business acquisitions
of 4.7%.
2018: Group reported revenue +3.1%, volume growth +3.5%, pricing (0.5%), transaction currency (0.1%), translation
currency (3.4%) and contribution from business acquisitions of +3.6%.
Taste & Nutrition reported revenue increased by 12.5% to €6.0 billion (2018: €5.4 billion), reflecting volume growth
of 4.0%, pricing increase of 0.1% related to raw material movements, translation currency impact of 2.6% and
contribution from business acquisitions of 5.8%.
2018: Taste & Nutrition reported revenue +3.7%, volume growth +4.1%, pricing (0.5%), transaction currency (0.1%),
translation currency (4.0%), acquisitions +4.2%.
Consumer Foods reported revenue decreased by 2.4% to €1.31 billion (2018: €1.34 billion), reflecting volume
decline of 2.2%, pricing decrease of 0.5% related to raw material pricing pass-through and market pricing, and
positive translation currency impact of 0.3%. The volume decrease reflects the exit of a ready meals contract
during the year - excluding the impact of this contract exit, volume would have increased by 0.9%.
2018: Consumer Foods reported revenue +0.6%, volume growth +1.1%, pricing (0.4%), transaction currency (0.3%),
translation currency (0.6%), acquisitions of +0.8%.
35
Kerry Group Annual Report 2019 Trading Profit & Margin
Group trading profit increased by 12.1% to €902.7m (2018: €805.6m). Group trading margin increased by 30bps
to 12.5% driven by portfolio enhancement, operating leverage, efficiencies and the impact of acquisitions, partially
offset by investments for growth, Brexit risk management costs and increased Kerryconnect investment due to the
commencement of the rollout across our sites in North America.
Trading margin in Taste & Nutrition increased by 20bps to 15.3% (2018: 15.1%), driven by portfolio enhancement,
operating leverage and efficiencies, partially offset by investments for growth, the impact of acquisitions and Brexit
risk management costs.
Trading margin in Consumer Foods increased by 10bps to 7.6% (2018: 7.5%), driven by efficiencies from the
Realignment Programme which delivered to plan, partially offset by a decrease in operating leverage as a result
of the contract exit, Brexit risk management costs and net price in a challenging market.
The trading profit reflects an EBITDA of €1.1 billion (2018: €0.9 billion) and an EBITDA margin of 15.1% (2018: 14.2%).
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 by €1.5m to €26.5m (2018: €25.0m) reflecting the ongoing progression
of the Kerryconnect Programme including costs associated with the rollout across our sites in North America. 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 €37.8m (2018: €28.8m) which is reflective of recent
acquisition activity.
Finance Costs (net)
Finance costs (net) for the year increased by €14.6m to €81.6m (2018: €67.0m) primarily due to acquisition activity
and the impact of IFRS 16 ‘Leases’. The Group’s average interest rate for the year was 3.7% (2018: 3.8%).
Impact of IFRS 16 ‘Leases’
In January 2019, the Group adopted the new accounting standard IFRS 16 ‘Leases’, which resulted in a €3.4m
reduction in operating expenses and an increase of €4.6m in finance costs on transition.
Taxation
The tax charge for the year before non-trading items was €98.6m (2018: €89.2m) representing an effective tax rate
of 13.0% (2018: 13.0%) and is reflective of the geographical mix of earnings.
Acquisitions
During the year, the Group completed eleven acquisitions at a total consideration of €561.7m. These investments
were aligned to the Group’s strategic priorities for growth, bringing additional taste and nutritional technologies,
expanding its presence in developing markets and adding to its foodservice offering.
Non-Trading Items
During the year, the Group incurred a non-trading item charge of €91.7m (2018: €55.1m) net of tax. The charge
in the year related to costs associated with the integration of recent acquisitions, a material transaction process in
our sector that we participated in, and the Consumer Foods Realignment Programme. The prior year non-trading
charge related primarily to costs associated with the integration of acquisitions and the completion of the Brexit
Currency Mitigation Programme.
Adjusted EPS in Constant Currency
Adjusted EPS in constant currency increased by 8.3% in the year (2018: +8.6%). This was achieved through
volume growth ahead of our markets, good margin progression, together with the contribution from the
acquired businesses.
Basic EPS
Basic EPS increased by 4.7% to 320.4 cent (2018: 305.9 cent). Basic EPS is calculated after accounting for brand
related intangible asset amortisation of 21.4 cent (2018: 16.3 cent) and a non-trading item charge of 51.9 cent net
of related tax (2018: 31.2 cent).
Return on Average Capital Employed
The Group achieved ROACE of 11.8% (2018: 12.0%) reflective of strategic acquisitions completed and investments
made in the year.
36
Kerry Group Annual Report 2019 Exchange Rates
Group results are impacted by year-on-year fluctuations in exchange rates 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
2018
2019
2019
2018
Australian Dollar
Brazilian Real
British Pound Sterling
Chinese Yuan Renminbi
Malaysian Ringgit
Mexican Peso
Russian Ruble
South African Rand
US Dollar
1.61
4.44
0.88
7.73
4.65
1.58
4.34
0.89
7.82
4.77
1.60
4.53
0.85
7.82
4.60
1.62
4.44
0.90
7.85
4.74
21.59
22.72
21.19
22.50
72.28
74.05
69.34
79.46
16.20
15.89
15.77
16.47
1.12
1.18
1.12
1.14
Dividends
The Board has proposed a final dividend of 55.1 cent per A ordinary share, payable on 15 May 2020 to
shareholders registered on the record date of 17 April 2020. When combined with the interim dividend of 23.5
cent per share, the total dividend for the year amounts to 78.6 cent per share (2018: 70.2 cent per share), which is
an increase of 12.0% over last year’s dividend. The Group’s aim is to have double digit dividend growth each year.
Over 33 years as a listed company, the Group has grown its dividend at a compound rate of 16.7%.
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
2019
€’m
2,062.9
4,589.7
179.5
2,672.2
9,504.3
2,014.0
2,928.1
4,942.1
4,562.2
4,562.2
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
Property, Plant & Equipment
Property, plant and equipment increased by €295.9m to €2,062.9m (2018: €1,767.0m) primarily due to capital
expenditure in the year and the impact of the change in the lease accounting policy, partially offset by the annual
depreciation charge. Net capital expenditure in the year amounted to €315.3m (2018: €285.5m). The level of capital
investment supports the Group’s growth initiatives and included upgrading the recently acquired SIAS facility in the
Greater Beijing region, continuing the expansion programme at the Nantong facility in China, opening a new facility
in Tumkur, India to serve the rapidly expanding South West Asia market and expanding the Group’s capabilities in the
Middle East region.
37
Kerry Group Annual Report 2019 Intangible Assets & Acquisitions
Intangible assets increased by €494.1m to €4,589.7m (2018: €4,095.6m) due to the additions of €437.7m relating to the
eleven acquisitions completed during the year, the increased investment in Kerryconnect related software and positive
foreign exchange movements, partially offset by the annual amortisation charge.
Current Assets
Current assets increased by €400.8m to €2,672.2m (2018: €2,271.4m), primarily due to an increase in cash on
hand at 31 December 2019 and trade receivables, other receivables and inventories from the businesses acquired
during the year.
Retirement Benefits
At the balance sheet date, the total net deficit for all defined benefit schemes (after deferred tax) was €8.6m (2018:
€44.0m). The decrease in the net deficit is primarily driven by strong return on assets and a reduction in the deficit
from the liability management programme offsetting unfavourable movements in discount rates. The net deficit
expressed as a percentage of market capitalisation at 31 December 2019 was 0.04% (2018: 0.3%).
Shareholders’ Equity
Shareholders’ equity increased by €527.8m to €4,562.2m (2018: €4,034.4m), 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 150.
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 between 18 and 24 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 2019, the Group achieved free cash flow of
€514.6m (2018: €446.5m).
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.
38
2019
€’m
902.7
191.4
(89.5)
(26.7)
977.9
(80.8)
(67.2)
2018
€’m
805.6
134.1
(57.1)
(40.0)
842.6
(64.5)
(46.1)
(315.3)
(285.5)
514.6
74%
446.5
72%
Kerry Group Annual Report 2019 Net Debt
Net debt at the end of the year was €1,862.8m (2018: €1,623.5m). The increase during the year is analysed in the
table below:
Movement in Net Debt
Free cash flow
2019
€’m
514.6
2018
€’m
446.5
Acquisitions (net of disposals) including payments relating to previous acquisitions
(568.0)
(503.2)
Difference between average working capital and year end working capital
Non-trading items
Equity dividends paid
Shares issued during the financial year
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
25.6
(89.1)
(21.7)
(59.8)
(128.3)
(114.4)
0.1
(2.5)
-
0.5
(247.6)
(252.1)
12.5
(4.2)
(2.6)
(27.1)
(239.3)
(281.8)
(1,623.5)
(1,341.7)
(1,862.8)
(1,623.5)
Exchange Impact on Net Debt
The exchange translation adjustment of €4.2m results primarily from borrowings denominated in US dollar
translated at a year end rate of $1.12 versus a rate of $1.14 in 2018.
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)
2019
€’m
409.8
(1.2)
2018
€’m
400.0
(142.2)
(732.6)
(1,082.8)
(1,538.8)
(798.5)
(1,862.8)
(1,623.5)
5.9
4.8
Credit Facilities
Undrawn committed facilities at the end of the year were €1.1 billion (2018: €750.0m) while undrawn standby
facilities were €330.0m (2018: €320.0m).
In June 2019, the Group renewed its €1.1 billion revolving credit facility, extending the maturity date to June 2024.
The facility contains two 1-year extension options, exercisable on the 1st and 2nd anniversaries of the facility and
which, if exercised, would extend the maturity date of the facility to June 2026. In line with the Group’s commitment
to environmental and social matters, the revolving credit facility carries a price adjustment mechanism, which is
linked to the Group meeting or exceeding certain carbon, water and waste efficiency metrics. This facility is not
subject to a financial covenant.
In September 2019, the Group issued 10 year €750m euro bond notes. The bonds are listed on Euronext Dublin
and are rated by S&P and Moody’s. 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.
39
Kerry Group Annual Report 2019 Key Financial Covenants
The Group’s balance sheet is in a strong position with a Net debt to EBITDA* ratio of 1.8 times. At this ratio the
Group has significant liquidity headroom to support future growth plans. A small element of the Group’s finance
facilities is subject to financial covenants. Group Treasury monitors compliance with all financial convenants and at
31 December the key convenants are as follows:
Net debt: EBITDA*
EBITDA: Net interest
Covenant
Maximum 3.5
Minimum 4.75
2019
Times
1.8
13.2
2018
Times
1.7
14.7
Net debt: EBITDA*
EBITDA: Net interest*
3.5x
3.0x
2.5x
2.0x
1.5x
1.0x
19.0x
17.0x
15.0x
13.0x
11.0x
9.0x
7.0x
5.0x
3.0x
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
*
Calculated in accordance with lenders' facility agreements which take account of adjustments outlined on page 218.
Share Price and Market Capitalisation
The Company’s shares traded in the range €86.50 to €117.90 during the year. The share price at 31 December
2019 was €111.10 (2018: €86.50) giving a market capitalisation of €19.6 billion (2018: €15.2 billion). Total
Shareholder Return for 2019 was 29.3% (2018: (6.8%)).
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 73-88 and in note 24 to the Consolidated Financial Statements.
Summary and Financial Outlook
The Group delivered another strong performance in 2019, generating revenue of €7.2 billion, trading profit of
€903m and free cash flow of €515m in a dynamic consumer marketplace that is leading to a rapidly evolving
industry landscape. At year end the balance sheet is also in a good position and with a Net debt: EBITDA ratio
of 1.8 times, the Group has significant headroom to support the future growth plans of the organisation.
The Group will continue to invest for growth aligned to the changing market landscape and pursue M&A
opportunities aligned to our strategic growth priorities.
40
Kerry Group Annual Report 2019
STRATEGIC REPORT
10 YEAR EARNINGS HISTORY
A strong history of
positive results
2010
€’m
2011
€’m
**2012
€’m
2013
€’m
2014
€’m
2015
€’m
2016
€’m
2017
€’m
2018
€’m
2019
€’m
Revenue
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 7,241.3
Trading profit
470.2
500.5
559.0
611.4
636.4
700.1
749.6
781.3
805.6
902.7
Computer software amortisation
(4.3)
(5.4)
(8.7)
(11.5)
(13.6)
(18.7)
(23.4)
(24.3)
(25.0)
(26.5)
Finance costs (net)
(60.5)
(46.0)
(62.1)
(67.6)
(52.9)
(69.3)
(70.4)
(65.6)
(67.0)
(81.6)
Adjusted earnings before taxation*
405.4
449.1
488.2
532.3
569.9
612.1
655.8
691.4
713.6
794.6
Income taxes (excluding non-trading items)
(68.7)
(74.6)
(77.3)
(79.1)
(79.6)
(81.1)
(86.7)
(89.5)
(89.2)
(98.6)
Adjusted earnings after taxation*
336.7
374.5
410.9
453.2
490.3
531.0
569.1
601.9
624.4
696.0
Brand related intangible asset
amortisation
(11.8)
(13.9)
(14.7)
(16.6)
(14.4)
(18.7)
(23.0)
(23.6)
(28.8)
(37.8)
Non-trading items (net of related tax)
(0.7)
0.1
(135.5)
(352.2)
4.0
13.1
(13.0)
10.2
(55.1)
(91.7)
Profit after taxation attributable
to owners of the parent
324.2
360.7
260.7
84.4
479.9
525.4
533.1
588.5
540.5
566.5
Adjusted EPS (cent)*
192.1
213.4
234.0
257.9
278.9
301.9
323.4
341.2
353.4
393.7
*
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 constant currency basis is disclosed on page 217.
** 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.
41
Kerry Group Annual Report 2019 STRATEGIC REPORT
BUSINESS REVIEW
Taste &
Nutrition
Kerry is the global leader
in the development of taste
and nutrition solutions for
the food, beverage and
pharmaceutical markets.
Our broad technology
foundation, customer-centric
business model, and industry-
leading integrated solutions
capability make Kerry the
co-creation partner of choice.
Revenue
2019
€6,018m
Volume Growth
4.0%
Trading Margin
2019
15.3%
Margin Expansion
+20bps
42
Kerry Group Annual Report 2019 > Volume growth driven by
Beverage and Food End Use
Markets (EUMs) – led by
Meat and Snacks
> Pricing 0.1% – reflecting
broadly neutral raw material
costs in the period
> Trading margin +20bps –
key drivers were enhanced
product mix, operating
leverage and efficiencies,
partially offset by investments
for growth and Brexit risk
management costs
Reported revenue increased by
12.5%, reflecting volume growth of
4.0%, pricing of 0.1%, favourable
translation currency impact of 2.6%
and contribution from business
acquisitions of 5.8%.
This performance included the recent
acquisitions of Fleischmann’s (FVC)
business, Southeastern Mills (SEM)
and Ariake U.S.A., Inc. Trading profit
grew by 14.1% to €918.5m, reflecting
a 20 basis point improvement in
trading margin to 15.3%.
Developing markets delivered strong
volume growth of 10.0%, with APMEA
developing markets being the main
driver. Key drivers of growth were
localisation, regulatory changes,
food safety, convenience and home
delivery, which drove increased new
product development. Foodservice
performed well, with volume growth
of 5.5% despite some softness in the
North American market.
Kerry’s nutrition and wellbeing
technology portfolio had a strong
performance, as Kerry further evolved
its position as the industry-leading
nutrition and wellness partner
across Beverage and Food EUMs,
particularly in Meat and Snacks.
Demand for great tasting products
with improved nutritional attributes
continued to accelerate across the
globe. Our unique taste and nutrition
positioning, food science expertise
and deep understanding of the
intersection of taste and nutrition
were key drivers of increased
innovation across a wide range of
applications. This led to good sales
growth in solutions incorporating
Kerry’s fermented ingredients,
broad speciality protein portfolio,
probiotics, TasteSense™, botanicals
and natural extracts.
43
Kerry Group Annual Report 2019 Americas Region
> 2.7% volume growth
> Solid performance in North
America led by Food EUMs
of Meat and Snacks
> LATAM performed well
AMERICAS
44
While the Beverage EUMs were
impacted by subdued market volume
growth in Foodservice, there were
a number of plant-based beverage
launches and innovations utilising
Ganeden® probiotics, contributing to
a good finish to the year.
LATAM performed well with good
growth in Brazil and Mexico, and
a solid performance in Central
America. The Beverage EUM
delivered strong growth across the
region, with particularly good growth
in the ice cream category in Brazil
and the Snacks sub-EUM in Mexico.
The global Pharma EUMs had a good
performance, led by strong growth in
excipients in North America.
Good progress was made on the
integration of Fleischmann’s (FVC)
business and Ariake U.S.A., Inc, and
both performed well. These were
complemented by the acquisitions
of Isoage Technologies, Biosecur
Lab and Diana Food (Georgia, USA),
further enhancing Kerry’s leading
authentic taste and clean label
technology portfolio, which the
Group plans to leverage in meeting
the increasing demand across a
broader range of applications.
Reported revenue in the region
increased by 16.5% to €3,198m,
reflecting 2.7% volume growth, 0.2%
increase in net pricing, favourable
translation currency impact of 4.4%
and contribution from business
acquisitions of 9.2%. North America
delivered good volume growth
against a backdrop of softer market
volume growth rates.
Within the Food EUMs, Kerry’s
Meat sub-EUM delivered strong
growth, with plant-based offerings
in particular delivering an excellent
performance, as customers continue
to seek innovative solutions to
meet the consumer demand for
cleaner label and next generation
offerings. This performance was
complemented by the acquisition
of the coatings and seasonings
business of Southeastern Mills (SEM)
which performed very well.
The Snacks sub-EUM delivered
good growth, as Kerry’s integrated
solutions capability was key to a
number of successful customer
launches addressing consumer
demands for new world taste and
healthier snacking experiences.
The Cereal & Sweet sub-EUM
remained challenged and the Meals
sub-EUM was impacted by churn
within the category. The Dairy
sub-EUM benefitted from the
ongoing evolution of the ice cream
category towards healthy indulgence
and added wellness benefits.
Kerry Group Annual Report 2019 Europe Region
> 2.0% volume growth
> Good performance in
Beverage and Foods EUMs
of Meat and Snacks
> Foodservice performed
well across the region
EUROPE
Reported revenue in the region
increased by 2.4% to €1,456m,
reflecting 2.0% volume growth,
0.1% increase in net pricing,
favourable translation currency
impact of 0.1% and contribution
from business acquisitions of 0.2%.
This represented a good overall
performance versus the marketplace,
with Kerry’s performance in the
Foodservice channel contributing
strongly to growth in the region.
Kerry’s Beverage EUMs achieved
strong broad-based growth across
a number of sub-categories from
low/non-alcoholic beverage, tea and
coffee to plant-based offerings. There
was a strong performance within
Foodservice, as customers enhanced
their beverage offerings across their
menus, with a number of better-for-
you and seasonal product launches
incorporating Kerry’s botanicals,
natural extracts and sugar reduction
technologies.
Within the Food EUMs, Kerry’s Meat
sub-EUM performed very well,
with its industry-leading portfolio
deployed to create solutions which
met a variety of customer and
consumer needs.
Strong growth and very good
business development were achieved
in plant-based meat alternatives,
supported by the launch of the
Radicle™ portfolio.
The Snacks sub-EUM performed
well, with a number of new authentic
world taste launches and healthy
snack products incorporating
Kerry’s Ganeden® probiotics. The
Confectionery sub-EUM achieved
good growth through a number
of local novel taste LTOs across
the region.
The Dairy EUM was impacted by
softer demand in the ice cream
category during the period.
International dairy markets were
relatively stable in the period,
reflecting less volatility in global
supply/demand dynamics.
Russia and Eastern Europe delivered
good growth, as we continue to
develop our presence and offering
across the region. The Group also
completed the acquisition of Pevesa
Biotech – a specialist plant protein
isolates and hydrolysates business
based in Spain and serving key
nutrition applications.
45
Kerry Group Annual Report 2019 APMEA Region
> 10.3% volume growth
> Strong growth right
across all Food and
Beverage EUMs
> Good progress in strategic
expansion and business
development
APMEA
Reported revenue in the region
increased by 16.2% to €1,285m,
reflecting 10.3% volume growth,
0.1% increase in net pricing, 0.1%
favourable transaction currency
impact, 0.6% favourable translation
currency impact and contribution
from business acquisitions of 5.1%.
Key to the strong growth in the region
was the further deployment of Kerry’s
business model with customers
across existing and new markets.
This approach was key in supporting
our customers as they meet evolving
local consumer demands.
Within the Food EUMs, Kerry’s Meat
sub-EUM delivered excellent growth
with both global and regional
customers, particularly in China
and South East Asia, with a range of
innovations meeting key consumer
preferences for premium local
authentic taste and a superior home
delivery experience.
The Snacks sub-EUM delivered
strong growth, particularly with
savoury taste innovations that meet
local consumer preferences.
Kerry’s Beverage EUMs delivered
strong growth underpinned by a
number of successful launches in
refreshing beverages with enhanced
wellness and functional benefits.
The branded DaVinci range enjoyed
strong growth across the year.
We continued to make good
progress in expanding our capacity
and deploying our technology
capabilities in the region. Our
strategic expansion in China
progressed well, as we upgraded
the recently acquired SIAS facility to
serve our customers in the Greater
Beijing region, and continued
the expansion programme at our
Nantong facility. In June, the Group
opened a new facility in Tumkur,
India, which will serve our rapidly
expanding South West Asia market.
Further to the acquisition of AATCO
at the end of 2018, the Group
invested in expanding its capabilities
in the Middle East region.
46
Kerry Group Annual Report 2019 STRATEGIC REPORT
BUSINESS REVIEW
Consumer
Foods
Kerry Foods is an
industry-leading
manufacturer of
chilled food products
primarily to the Irish
and UK markets.
Revenue
2019
€1,307m
Volume Growth
-2.2% (+0.9)%¹
Trading Margin
2019
7.6%
Margin Expansion
+10bps
1 volume growth excluding contract exit
47
Kerry Group Annual Report 2019 > Overall volume
performance impacted by
ready meals contract exit
> Pricing of -0.5% reflective
of lower input costs and
market pricing
> Trading margin – strong
efficiencies partially offset
by pricing and Brexit risk
management costs
STRATEGIC REPORT
BUSINESS REVIEW
Reported revenue decreased by
2.4% to €1,307m, reflecting a 2.2%
reduction in volumes, a 0.5% decrease
in net pricing, and a favourable
translation currency impact of 0.3%.
Excluding the impact of the previously
reported ready meals contract exit,
Kerry delivered a robust performance
in the context of a subdued UK
marketplace, where lower consumer
confidence impacted overall market
volumes. The divisional trading
margin increased by 10bps to 7.6%.
Trading profit decreased by 1.2% to
€98.9m in the year. The Realignment
Programme was completed during
the year and delivered to plan.
The Richmond brand chilled sausage
range delivered a solid performance
led by growth in chicken sausages
and the new plant-based sausage,
which was launched at the end of
September, along with a range of
meat-free products under the
Naked Glory brand.
The Denny brand in Ireland
performed well. A number of
business wins supported our
overall performance within spreads.
Chilled meals continued to be
impacted by reduced promotional
activity, while frozen meals had a
good performance across the range.
As previously announced, production
ceased in the ready meals facility in
Burton in September and the site was
sold prior to the year end.
The Cheestrings brand was supported
by a number of innovations. Fridge
Raiders also extended its snacking
range to reach a broader consumer
market.
48
Kerry Group Annual Report 2019 STRATEGIC REPORT
SUSTAINABILITY REVIEW
Securing
Sustainable
Growth
Edmond Scanlon
Chief Executive Officer
As a leader in the food and beverage industry,
we understand the challenges that confront the
industry and their impact on the current food
production systems, knowing that our shared
success is dependent on our ability to respond
to these challenges quickly and effectively.
In 2019, we witnessed a groundswell of support for climate
action and we continue to see this translate into consumer
sentiment which places clear demands on industry and on
companies such as ours. Given our Purpose of inspiring
food and nourishing life, our world class science and our
innovation capabilities, Kerry is ideally positioned and is
fully committed to playing a leading role in this new food
future. We co-create solutions with our customers, helping
them produce better food in a better way for a better
future, and our leading portfolio of taste and nutrition
solutions are consumed by millions of consumers
every day.
We continue to address our own impacts and at the
conclusion of our Towards 2020 Sustainability Programme,
I am proud of the progress we have made to date. Since
2015, we have consistently reduced the environmental
impact of our operations, exceeding our key targets on
emissions, water and waste. We continue to work with
suppliers to help them on their journey, whether they are
vanilla farmers in Madagascar or dairy farmers in South
West Ireland, understanding that collaborations and
partnerships are key to our sustainable future.
We also continuously strive for better in our workplace,
improving safety, fostering diversity and inclusion and
ensuring our people continue to share in our success.
In external communities, we are making a positive impact
to the lives of those beyond our direct reach and through
partnerships with the World Food Programme and
Concern Worldwide, we are focusing on interventions
that will make a lasting impact on people who are most
in need.
As we enter a new decade, we understand the increased
responsibility to co-create with our customers, better,
more natural, healthier and nutritious food and beverage
solutions to meet the world’s food needs in a more
effective and environmentally sustainable way. In 2019,
we commenced a process to develop and integrate a
new, more ambitious sustainability programme to better
position us to meet this increased responsibility. The
programme, which will be launched in 2020, will outline
our new targets, as we look forward to partnering with
others in the co-creation of a better food future, one in
which we continue to fulfil our Purpose of inspiring food
and nourishing life.
49
Kerry Group Annual Report 2019 STRATEGIC REPORT
SUSTAINABILITY REVIEW
Key
Highlights
Research, Development
& Application
Industry-leading investment
€291.4m
TOWARDS 2020
SUSTAINABILITY
PILLARS
Environmental
sustainability
Reduction in
waste intensity
Versus 2013 base year
31%
Reduction in
carbon intensity
Versus 2013 base year
Reduction in
waste to landfill
Versus 2013 base year
23%
41%
Marketplace
sustainability
Workplace
sustainability
Community
sustainability
Sustainable
funding arranged
ESG linked revolving credit facility
€1.1bn
Employee
participation in
The Kerry Way
workshops
90%
50
Kerry Group Annual Report 2019
RAIN Programme
Farmers trained on
conservation agriculture
1,000+
Photo: WFP/Boone Rodriguez
Photo: Farmers in the village of Sabon Kalgo with their first crop of short season millet.
Photographer: Darren Vaughan/ Concern Worldwide
Project Leche
Honduran teachers
trained on nutrition
190
Noon Foundation
People accessing improved healthcare
>38,000
Food Safety
Sites with GFSI certification
Workplace Audits
Across manufacturing sites
Health & Safety
Reduction in recordable incidents
100%
>90%
17%
Note: Non-financial KPIs excludes the impact from recently completed acquisitions.
Non-Financial Reporting Statement
We comply with regulations on non-financial reporting and provide information on required topics across this report.
Relevant information on each topic can be found below.
Reporting Requirements
Our Policies
Environmental Matters
Environmental Policy
Page Reference
Page 55
Social and Employee Matters
Health & Safety Policy; Group Code of Conduct;
Diversity, Inclusion & Belonging Policy;
Employee Concerns Disclosure Policy
Pages 20 and 65-66
Respect for Human Rights
Human Rights Policy
Page 66
Anti-bribery and Corruption
Anti-Bribery Policy; Group Code of Conduct
Page 65
Business Model
Non-financial KPIs
Pages 24-25
Pages 50-51 and 55-70
Kerry Group Annual Report 2019
51
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. Agreed at international level in
September 2015, the achievement of these 17 goals by
2030 requires broad participation and creates a key role
for businesses in delivering solutions that can help meet
these challenges.
As a world leader in the food and beverage industry,
our most significant contribution to the SDGs will
come through enabling our customers to improve the
healthfulness and nutritional value of their products 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
through purposeful business action and throughout this
review, we highlight the SDGs we impact on under each
pillar. While we touch on many of the goals, SDGs 2, 3 and
12 have particular strategic relevance for our business
and we see the greatest potential for positive impact and
opportunity in helping meet these goals.
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 factor 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.
Given the growing global awareness of environmental
challenges such as climate change, loss of biodiversity,
pollution and waste, the way in which we produce and
consume food is increasingly under scrutiny. With a
projected world population of almost 10 billion people
by 2050, producing enough food in a sustainable
manner to meet growing demand represents both
an opportunity and a significant challenge for our
industry.
The current food system has a substantial
environmental and social impact. Food production
accounts for nearly a quarter of all greenhouse gas
emissions while agriculture 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.
Our Approach
Kerry’s objective is to integrate sustainability into all
aspects of our business. Our efforts are focused on the
most material issues for Kerry and its stakeholders. We
examine the ways in which we can reduce our adverse
impacts and identify where our skills and expertise can
make a positive difference.
Since 2009, we have been formally measuring and
reporting on our impacts and in 2019, we concluded
the five year Towards 2020 Programme. Building on
the success of previous initiatives, this programme
involved a comprehensive set of actions spanning our
direct operations and broader value chain. Structured
around four pillars; Environment, Marketplace,
Workplace and Community, the Towards 2020
Programme set measurable targets for improvement
over time. Since 2015, delivery against these targets
has helped us to enhance the lives of the people who
create and consume our products, connect us with our
communities and protect the natural environment that
surrounds us.
As we move forward, our approach is evolving to
better enable our Purpose and reflect the systemic
nature of the sustainability challenges we face. While
our objective of creating healthier, more sustainable
diets will remain unchanged, a shift in emphasis to
key themes will help us to address challenges more
holistically and in a way that better equips us to
tackle the interdependencies between many of our
material aspects. Details of this new programme will be
launched in the second quarter of 2020.
ENVIRONMENT
SUSTAINABILITY
MARKETPLACE
SUSTAINABILITY
WORKPLACE
SUSTAINABILITY
COMMUNITY
SUSTAINABILITY
SECURING SUSTAINABLE GROWTH
52
Kerry Group Annual Report 2019 Our Value Chain
Primary
Producer
Processor
Supplier
KERRY
GROUP
Materiality
Our approach to sustainability
is centered 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 ensure that
our Towards 2020 Programme
continued to focus on the right
aspects and also to inform the
development of our 2030 agenda.
The outputs of this assessment
which identified the most
material matters to Kerry and
our stakeholders are outlined
on this page.
Following on from the materiality
assessment in 2018, we continued
to engage with key stakeholders
to address the critical areas of
importance. Further feedback
received through ongoing
engagement has reinforced
the outcome of the materiality
assessment, albeit, we continue to
see an acceleration in areas such
as transparency, climate and waste.
Customer
Retail & Food
Service
Consumer
The topics covered in this report are
designed to reflect material topics
of importance to Kerry and our
stakeholders. All of these topics are
reviewed as part of the broader risk
assessment process, and while risks
such as climate change continue
to emerge within the overall risk
register, they are currently not
considered to be principal risks
for the Group. Further details on
the Group’s principal risks are
outlined in the Risk Report on
pages 75-87. We will continue
to keep these topics under
review, particularly with respect
to organisational changes and
emerging themes.
Material Matters of Importance to Kerry and our Stakeholders
I
H
G
H
Y
R
E
V
S
R
E
D
L
O
H
E
K
A
T
S
O
T
E
C
N
A
T
R
O
P
M
I
H
G
H
I
HIGH
Trust &
Transparency
Responsible Sourcing
& Traceability
Ethics &
Human Rights
Climate Change
Product Safety
& Quality
Taste, Nutrition
& Health
Regulation
Water
Stewardship
Waste & Circular
Economy
Employee Health
& Wellbeing
Innovation & Product
Development
Labour
Relations
Changing Consumer
Preferences
Animal
Welfare
Geo-political
Risk & Brexit
Community
Development
Biodiversity
Diversity
& Inclusion
Talent
Management
Market Leading
Growth
Energy
VERY HIGH
IMPORTANCE TO KERRY GROUP
Environment
Marketplace
Workplace
Community
53
Kerry Group Annual Report 2019
Stakeholder Engagement
We understand the importance of stakeholder
engagement. The pace of change and the nature of
the challenges facing our industry require shared
understanding and a common approach to the path
forward. Kerry is committed to ongoing and constructive
engagement with our stakeholders and through a
two-way engagement process, we incorporate their
views into our business activities.
Through a process of stakeholder analysis, we clearly
identify those groups we impact on, as well as those
groups that can influence and impact on Kerry, and we
engage our key stakeholder groups and relevant third
parties to help achieve our broader goals. In addition to
the ongoing direct engagement with key stakeholders in
2019, we also participated in a number of collaborative
projects, details of which are laid out in this report.
Additionally, Kerry is a member of numerous trade
organisations and multi-stakeholder platforms, through
which we regularly engage with stakeholders and
interested groups on key topics.
Among our key stakeholders are employees,
shareholders, communities, customers, consumers,
government and suppliers. 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
Government
Customers &
Consumers
Community
Suppliers
Shareholders
Employees
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 Assurance Standard accreditation and
throughout this report we provide examples of how we
engage and work with the stakeholders outlined above.
Details of how we create value for our stakeholders is
outlined in the Business Model on pages 24-25.
Governance
The Group’s Sustainability Council was established under
delegation from the Board of Directors. Its membership
includes functional leadership from across the Group
and its role includes the assessment of sustainability
risks and opportunities, determining how best these
can be addressed, and appraisal of ongoing Group
performance versus our stated targets.
In 2019, the membership of the Council was revised
to include Executive Directors and members of the
Executive Committee. This senior management team
was closely involved in guiding the development of a new
sustainability programme and has responsibility for its
integration within the broader business. Chaired by the
Group’s Head of Sustainability, the Council continues to
report at least annually to the Board.
Shareholders
Audit Committee
Board of Directors
Nomination Committee
Executive Management
Remuneration Committee
Finance
Committee
Risk Oversight
Committee
Sustainability
Council
54
Kerry Group Annual Report 2019 Following the 2018 UN IPCC
Special Report which emphasises
the need for urgent action, 2019
was a seminal year for climate
change, as global awareness
increased, and the conversation
shifted from the need for action to
the more difficult discussions on
what form that action should take.
Environment
At Kerry, we are mindful of our impact on the environment
and recognise the fundamental importance of a healthy
ecosystem for our shared future. In the creation of our
products, Kerry’s operations impact the environment and
our ability to successfully reduce this impact and address
these environmental challenges is an essential part of
retaining our licence to operate. As a business we think
long term, innovating to ensure we continue nourishing
consumers while lowering our impact on the planet and
communities in which we operate. We aim to minimise our
footprint in accordance with the Group’s Environmental
Policy. This policy commits us to carrying out our activities
in a responsible manner, complying with all applicable
legislation, implementing good environmental practice and
continuously improving performance.
Kerry has a comprehensive monitoring and reporting
framework in place across all sites and performance
is under ongoing review by relevant functions and the
Group’s Sustainability Council. We integrate environmental
considerations throughout our business and in June 2019,
the Group amended its €1.1 billion revolving credit facility
which incorporated a margin adjustment linked to the
achievement of certain environmental metrics.
Kerry is proud of the strong performance on
environmental stewardship in 2019 and the successful
completion of our Towards 2020 Programme. In many
cases we have exceeded key environmental targets. We
continue to pursue independent certification of best
practice, with 86% of eligible sites certified under ISO
14001 and key energy users accredited under ISO 50001.
We recognise that the conclusion of the Towards 2020
Programme is not an end point. Instead, it provides a
platform for a new approach that reflects the best available
science and responds to the urgent need for action.
Reducing Emissions
Industrial emissions are a key contributor to climate change,
and we are conscious that increasingly stark warnings
around the need for greater action cannot be ignored.
Climate change represents both risk and opportunity for
our business. Potential risks include an accelerating shift
in customer and consumer preferences, disruption to
operations and supply chains as well as regulatory and
policy responses to meet international commitments under
the Paris Accord. We believe that in tackling our emissions,
Kerry can support the transition to a greener economy
and capture further growth through the provision of lower
carbon solutions.
Our Environmental activities contribute to the achievement
of the following UN Sustainable Development Goals.
55
Kerry Group Annual Report 2019 Using Water Efficiently
Water is essential to the ongoing operation of our
business and we rely on the availability of sufficient
quantities of clean, fresh water to produce our
products. From raw materials through to maintaining
product safety and quality, water is a critical ingredient
for our future success. Currently over two billion people
live in countries experiencing high water stress and this
is likely to increase as populations and their demands
for water grow, and the effects of climate change
intensify (UN World Water Development Report 2019).
310.9
With increasing pressure on this shared resource,
350
we are aware of the importance of protecting water
sources and using water as efficiently as possible.
300
We ensure that we protect natural water sources by
250
257.6
meeting all requirements relating to waste water from
200
our sites and aim to reduce the amount of water we
150
use by 7%, versus a 2013 baseline. We have a water
reduction target at each site across the Group and
100
continuously look for ways to conserve and reuse our
50
water volumes. In 2019, we exceeded our target with
0
2018
a 9% reduction in water intensity, delivering on our
Towards 2020 goal.
239.4
2019
2013
Kg CO2 per Tonne of Finished Product
Towards 2020 Target
Annual Water Intensity
5.7
5.6
5.5
5.4
5.3
5.2
5.1
5.0
4.9
4.8
5.6
5.2
2013
2018
5.1
2019
m3 per Tonne of Finished Product
Towards 2020 Target
Against the backdrop of rising water demand, we
continue to view our water footprint within the
broader context of global water risk. Given the uneven
distribution of water resources, some of our locations
are potentially more vulnerable to physical water risk.
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.
2
4
i
400000
200000
3
0m
2013
2018
Location of Priority Water Sites
0
m
2019
f
o
e
n
n
o
T
r
e
p
3
t
c
u
d
o
r
P
d
e
h
s
n
F
i
Total Withdrawals m3
m3 per Tonne of Finished Product
AMERICAS
2
96.3
EUROPE
1
75.1
APMEA
6
66.2
2013
2017
2019
Kg Waste per Tonne of Finished Product
Towards 2020 Target
120
100
80
60
40
20
0
As part of our ongoing efforts on climate, we track and
report our impact. In 2015, we set a target for a further
13% reduction in carbon intensity across Scope 1
emissions (direct from energy generation) and Scope 2
emissions (indirect from purchased electricity and heat)
by 2020. In 2018 we were delighted to surpass that target
and are pleased to report that in 2019, we continued to
reduce emissions so that over the course of our Towards
2020 Programme, total carbon intensity fell by 23% versus
our 2013 base year.
We measure and report performance for sites within our
operational control in accordance with the Greenhouse
Gas (GHG) Protocol and our data is independently assured
to AA1000 Assurance Standard (2008). We note the
recommendations of the Task Force on Climate Related
Financial Disclosures and continue to integrate these into
our broader reporting framework.
Annual Carbon Intensity
350
300
250
200
150
100
50
0
310.9
257.6
239.4
2013
2018
2019
Kg CO2 per Tonne of Finished Product
Towards 2020 Target
5.6
Notes:
1. Our measurement and target performance of Scope 1 and
5.7
5.6
2 emissions from our manufacturing facilities. This accounts
for 98% of Kerry’s Scope 1 and 2 emissions.
5.5
2. The GHG Protocol sets the global standard for how to
5.4
measure, manage and report greenhouse gas emissions.
5.3
3. Kerry’s actual performance has been adjusted to reflect
5.2
5.1
like-for-like performance compared to our baseline year. We
use the NOVEM Methodology for carbon reporting to adjust
our baseline target reduction number in order to account
for changes to product mix that have had a material effect
2013
on carbon intensity.
5.0
4.9
4.8
2018
2019
5.2
5.1
m3 per Tonne of Finished Product
Towards 2020 Target
Summary Assurance Statement
Environmental consultants, Jacobs, have assured Kerry’s
greenhouse gas performance data (Scope 1 and Scope 2
emissions and selected Scope 3 emissions) as well as water
withdrawal and discharge data from its manufacturing
facilities for 2019 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 2019.
f
o
e
n
n
o
T
r
e
p
3
2
4
t
c
u
d
o
r
P
d
e
h
s
n
F
i
i
0
m
400000
200000
3
0m
2013
2018
2019
Total Withdrawals m3
m3 per Tonne of Finished Product
120
100
80
56
60
40
20
0
96.3
75.1
66.2
2013
2017
2019
Kg Waste per Tonne of Finished Product
Towards 2020 Target
Kerry Group Annual Report 2019
310.9
5.6
350
300
250
200
150
100
50
0
5.7
5.6
5.5
5.4
5.3
5.2
5.1
5.0
4.9
4.8
257.6
239.4
2013
2018
2019
Kg CO2 per Tonne of Finished Product
Towards 2020 Target
5.2
5.1
2019
2013
2018
m3 per Tonne of Finished Product
Towards 2020 Target
Water Use at Priority Sites
400000
350
200000
310.9
3
0m
257.6
2013
2018
2019
4
2
239.4
0
f
o
e
n
n
o
T
r
e
p
3
m
t
c
u
d
o
r
P
d
e
h
s
n
F
i
i
Total Withdrawals m3
m3 per Tonne of Finished Product
300
250
200
150
100
50
Towards 2020 Target
40
60
80
20
120
100
5.6
96.3
75.1
2018
2013
Kg CO2 per Tonne of Finished Product
Using this tool, we have identified nine locations
0
2019
globally as priority water sites. We carefully monitor
water usage at these facilities and our efficiency across
these locations significantly exceeds that for the Group.
In 2019, total water withdrawals across the nine sites
was 15% lower than our 2013 base year as outlined
66.2
in the graph above, although we have seen some
5.7
increases in water withdrawals at a number of these
5.6
5.5
sites, driven primarily by changes to product mix.
5.4
5.3
2017
Generating Less Waste
5.1
Kg Waste per Tonne of Finished Product
With population growth and rising levels of income
5.0
4.9
putting increasing pressure on natural resources, the
4.8
current linear system of production, consumption and
disposal is increasingly unsustainable. Growing demand
for raw materials coupled with the impacts from waste
provide a clear imperative for shifting to a more circular
economy.
m3 per Tonne of Finished Product
2013
2019
2013
2018
2019
5.2
5.1
5.2
0
Towards 2020 Target
Towards 2020 Target
Our priority is to generate less waste and our Towards
2020 Programme set a target of a 12% reduction
in waste intensity by 2020 versus a 2013 base year.
In 2017, we surpassed that target and in 2019 we
continued this momentum, achieving a 31% reduction
in waste intensity versus our 2013 base year.
2
4
400000
200000
3
0m
In 2020, we will continue to focus on more efficient use
of resources and will seek alternative uses for our waste.
m
0
i
2013
2018
2019
Total Withdrawals m3
m3 per Tonne of Finished Product
f
o
e
n
n
o
T
r
e
p
3
t
c
u
d
o
r
P
d
e
h
s
n
F
i
Zero Waste to Landfill
Across our sites, we continue to focus on reducing,
reusing and recycling our waste streams. Under the
Towards 2020 Programme, we targeted the goal of zero
waste to landfill and while we still have some work to do
to reach this milestone, we have reduced landfill volumes
by 41% versus our 2013 baseline and 89%1 of our waste
volumes are currently diverted2.
Less than 1% of our total waste volumes are categorised
as hazardous waste, the majority of which is recycled.
For non-hazardous waste streams, we are finding ways
to reuse these resources.
2019 Waste by Disposal Method
74% Recycling & Recovery
11% Landfill
5%
10% Other
Incineration (with energy recovery)
Food Waste
A critical lever in the reduction of the environmental
impacts of food production and consumption is tackling
food waste. Estimates suggesting that a third of all food
is lost or wasted, while 821 million people go hungry,
are indicative of a clear failing within the current food
system. Target 12.3 of UN Sustainable Development
Goal 12, ‘Responsible Production and Consumption’,
requires a 50% reduction in world food waste by 2030.
As a supporter of the global Champions 12.3 initiative
through Kerry Foods, we have published food waste data
for this business for the second time in 2019, showing we
remain on track to meet this 50% target. In 2020, we will
extend this goal on food waste beyond our Consumer
Foods business and work towards a 50% reduction
across the wider Group.
Annual Waste Intensity
120
100
80
60
40
20
0
96.3
75.1
66.2
2013
2017
2019
Kg Waste per Tonne of Finished Product
Towards 2020 Target
Plastic Packaging
Our Consumer Foods business places plastic packaging
directly onto the consumer market. In 2018, Kerry Foods
joined the UK Plastics Pact, adopting a target for 100% of its
plastic packaging to be reusable, recyclable or compostable
by 2025. In 2019, work has continued to deliver on these
goals with numerous projects across the division. One
project involved the removal of non-recyclable black CPET
trays from 70 million ready-to-eat meals. This first-to-market
solution uses trays that are fully recyclable, detectable and
recoverable in the UK recycling system and contain 85%
post consumer recycled content.
1
This is a relative measure of waste to landfill as a percentage of total waste. The decrease of 1% versus our performance in 2018 (90%),
is due to reductions in our total waste volumes. Actual volumes sent to landfill continued to decline in 2019.
2 Waste to landfill volumes include waste sent for incineration without energy recovery.
57
Kerry Group Annual Report 2019
At Kerry, we understand that our products
have an impact beyond the factory gates.
As well as producing our own consumer
brands, our taste and nutrition technologies
are an integral part of some of the world’s
best known food and beverage products.
From farm-to-fork, we are working to
improve the sustainability of products and
partnering with those who share our Values.
Marketplace
Increasingly, consumers want to know what is in their
food and a heightened demand for transparency
in ingredient production and the implications for
people and the planet are resulting in a new dynamic.
At Kerry we are ideally positioned to support our
customers in adapting to this industry shift.
Our farm-to-fork approach and understanding
of the nutritional impacts for the end consumer,
coupled with our unrivalled innovation capabilities,
enables us to co-create with our customers and
partners, solutions that are natural, nutritious and
more sustainable.
+
Taste & Nutrition
Business Review
pages 42-46
Consumer Foods
Business Review
pages 47-48
150+
Sales in 150+ countries
18,000+
Products
Our Marketplace activities contribute to the achievement
of the following UN Sustainable Development Goals.
58
Kerry Group Annual Report 2019 Health & Nutrition
Non-communicable diseases (NCDs), including heart
disease, cancer and diabetes, are leading causes of
mortality. What the World Health Organisation term
an ‘invisible epidemic’ is responsible for over 70% of
global deaths. Unhealthy diets have been identified as a
primary risk factor associated with NCDs and with over
two billion people overweight or obese, it is increasingly
clear that the current food system plays a significant role
in the proliferation of these chronic conditions.
As consumers become increasingly aware of the link
between diet and health, demand continues to rise for
products that are natural and which consumers can
trust to maintain and enhance their 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 great taste through 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. Uniquely,
almost 90% of our portfolio is naturally derived and
we continue to maintain our focus on developing
solutions that come ‘from-food-for-food’. We lead the
industry with our investment in Research, Development
and Application.
€291.4m
Investment in R&D
In 2019, we invested a further €291.4m in this area to
ensure we continue to shape the future of food. For more
see Our Markets pages 26-27.
We work collaboratively 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 2019, KHNI
published over 70 pieces of content and continued its
highly successful webinar series, engaging the industry on
topics including, clean label, sugar reduction, plant protein
and much more. See khni.kerry.com for more details.
Kerry Foods’ Better-for-You Programme
Within our Consumer Foods division, we continue to drive
positive change in the nutritional profiles of our brands
without compromising on taste. We are committed to drive
reductions in salt, sugar and calories in line with targets
from both UK and Irish governments. We introduced
our Richmond lower salt frozen sausages, Richmond
chicken sausages with lower salt and fat, and Richmond
meat-free sausages that are also lower in salt and fat
content. Additionally, we have continuous improvement
programmes across all our brands to drive further
reductions in 2020 and 2021.
Creating Sustainable Solutions
Food Waste
Plant Protein
Resource Efficiency
Kerry improves the shelf life and safety
of natural foods that traditionally use
no preservatives, and replaces chemical
ingredients used for maintaining shelf
life which are being rejected by health
conscious consumers. We replace these
with more sustainable, plant-based
ingredients, naturally derived from
fermentation and that have a lower
environmental impact. In addition, the
technology can facilitate more centralised
manufacturing, allowing for broader
distribution channels so that food is not
damaged during extended transit times
and can safely handle fluctuating storage
conditions.
The global plant-based food market
value is estimated to reach approximately
USD$24.3 billion by 2026 as the flexitarian
movement continues to grow. To support
our customers in this exciting category,
we launched Radicle™ by Kerry, a new
global portfolio and solution platform.
This portfolio allows us to bring together
our complete technology offering and
application expertise specifically for
the plant-based market. It is clearly
aligned with our customers’ needs to
create winning products that are more
sustainable and nutritionally optimised
with cleaner labels, authentic tastes and
appealing texture.
The impact of climate change such as
the recent trend of hotter summers has
brought challenging growing conditions
for cereals and grains all over the world.
This has led to reduced crop yields, higher
barley and malt prices, as well as inferior
quality grains for brewing and distilling.
Kerry has the largest portfolio of brewing
ingredients and process aids as well as
the technical expertise, to help brewers
navigate these three key challenges. Our
solutions help our customers improve
overall brewhouse process performance
and maximise extract yield while reducing
the percentage of malt used. This results
in vastly improved sustainability measures
and cost savings for the brewhouse.
59
Kerry Group Annual Report 2019
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
implemented a global quality management system and
in 2019, 100% of our sites maintained 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. 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. We partner with
suppliers operating in nearly 60 countries around the
world, performing a risk assessment on all our direct
suppliers and third party manufacturers annually. In
2019, we conducted 1,100 supplier food safety audits in
50 countries across 6 continents and in the past 5 years,
our Global Supply Quality team have conducted in excess
of 5,000 supplier audits.
Like many of the sustainability challenges we face, issues
around food safety and food fraud are not unique to
Kerry. As part of our governance and due diligence
programme, policies and ways of working are refined in
line with GFSI standards, peer reviews and benchmarking
programmes with customers and organisations such as
SSAFE (Safe Supply of Affordable Food Everywhere).
Responsible Sourcing
Much of the environmental impacts associated with our
products occur 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
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.
Palm Oil
Dairy
Meat
Vanilla
Herbs & Spices
Paper Packaging
We are members 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 SAI Platform, Innovation Centre
for U.S. Dairy, Sustainable Spices Initiative, Origin Green,
Roundtable on Sustainable Palm Oil and the Sustainable
Vanilla Initiative.
60
Kerry Group Annual Report 2019
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.
Action on this issue is coordinated across a number
of functions including HR and procurement, with
overall governance undertaken through the Group’s
Sustainability Council (see page 54). 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 are
also a member of the Food Network for Ethical Trade
(FNET), a collaborative industry initiative that aims to
improve human rights in global food supply chains.
For our global contracts, over 95% of vendors are
SEDEX registered. In addition, we also assess our total
supply chain based on risk and our goal for year end
2020 is for all direct suppliers classified as high risk to be
registered as members of SEDEX. We continue to make
progress towards that goal with 71% of these suppliers
registered in 2019. Under our Supplier Code of Conduct,
Kerry reserves the right to conduct independent audits
of suppliers to confirm compliance and in 2019, 18% of
our high risk suppliers had independent SMETA (SEDEX
Members Ethical Trade Audit) audits in place.
Across priority raw material categories (see below), we
continue to monitor human rights risk all the way to
farm level. As part of this work we have created risk
maps, calculating risk ratings for selected vendors and
developing vendor action plans. We also have dedicated
programmes in place to mitigate risks of infringement
and examples include producer programmes in our
vanilla and palm oil supply chains.
Promoting Sustainable Agriculture
The variation in our sourcing locations presents us
with a variety of sustainability challenges arising from
different agricultural systems and geographic contexts.
To overcome this, we have developed a risk analysis
tool which helps to identify and assess key areas for
action within our priority categories. The tool considers
a number of key impact areas within our supply chain,
including human rights, emissions, deforestation and
animal welfare. Through our procurement function,
we work to mitigate these impacts and some details of
actions taken across these six categories are outlined
on pages 61-63.
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. We clearly set
out our requirements in Kerry’s Palm Oil Sourcing Policy
and maintain regular engagement with suppliers to
ensure compliance. All volumes across our Kerry Foods
branded products carry physical RSPO certification
and we continue to pursue greater traceability for all
volumes purchased. In September 2019, we published
an updated palm oil progress report outlining that
traceability for our volumes to the mill was 97% while
to plantation the number had increased to 51%.
For more information see our progress report on
www.kerrygroup.com.
Program Ilham
Program Ilham is a collaborative project that 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.
In 2019, we concluded the fourth workshop for
smallholders on Best Management Practice (BMP).
The workshop focused on practical interventions such
as ways to determine nutrient deficiency, handling
of chemicals and proper use of personal protective
equipment. The programme also provides subsidised
compost based fertiliser which is specially formulated
from the results of local soil and foliar sampling.
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
Agribusiness 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 Irish milk volumes are certified under
the Sustainable Dairy Assurance Scheme (SDAS),
through which each farm is independently audited
every 18 months. Each farmer is provided with a carbon
footprint for their farm, together with information
on what changes to farming practices will help to
reduce emissions.
In 2019, through our membership of the Sustainable
Agriculture Initiative (SAI) Platform, Kerry was an active
participant in the development of the Sustainable Dairy
Partnership (SDP). Through cooperation between dairy
buyers and processors on sustainability, the SDP builds
on the Dairy Sustainability Framework (DSF) and its
eleven criteria without creating any new standards.
61
Kerry Group Annual Report 2019 It provides a credible approach to foster and
demonstrate continuous improvement and delivers a
common approach to assess and improve sustainability
at farm level. The launch of the SDP represents an
important step on Kerry’s responsible sourcing journey
for those dairy ingredients where we do not have a
direct relationship with farmers.
Meat
Our assessment of suppliers to date has focused on
four key categories of pork, chicken, beef and fish
which represent the key meat sourcing categories for
the Group. We maintain 100% traceability to farm level
for all volumes assessed. In addition, all seafood which
we purchase is certified under Aquaculture or Marine
Stewardship Council (ASC, MSC) standards. For chicken
and pork, 77% and 44% of our respective volumes
carry third party certification. Our sourcing of beef is
predominantly from Ireland and the UK where extensive
production systems can help mitigate some of the key
risks in this category, for example animal welfare.
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.
All beans produced through the programme are certified
organic and agronomists work to improve agricultural
practices among farmers, helping them to enhance
production techniques, boosting yields and thereby
increasing incomes.
We also look at other ways of protecting farm incomes
and with the high price of vanilla, the incentive for
theft of beans prior to harvest remains, reinforcing
the importance of the community watch programme
initiated in participating villages. In 2019, theft of
green beans stabilised within participating villages at
approximately 3%, which is one of the lowest rates
across the region.
We are also focused on ensuring that children across
these villages can stay in school. We are pleased to
note the continuing increase in the level of educational
attainment at schools participating in the programme,
allowing children to progress beyond primary level. In
2019, pass rates for final exams rose to 60% for the
additional 15 schools incorporated in 2018. This is up
from a pass rate of 17% in 2017.
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, which has
an objective of fully sustainable spice production and
trade. Sustainably certified spices are not widely available
and certification programmes are in their infancy
relative to other commodities. 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. In 2019, we made good progress
against these targets and expect to deliver on these
commitments within the agreed timeframe.
Madagascar
In 2019, pass rates for final
exams rose to 60% for
the additional 15 schools
incorporated in 2018. This is
up from a pass rate of 17%
in 2017.
62
Kerry Group Annual Report 2019 Paper Packaging
Our Towards 2020 target was to procure 90% of our
fibre based packaging from sources that are certified,
verified or recycled. In 2019, we maintained performance
ahead of that target with 91% of our volumes meeting
these criteria. Accepted certification standards include
Forest Stewardship Council (FSC) and Programme for the
Endorsement of Forest Certification (PEFC).
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. 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. We have
a no deforestation commitment across targeted supply
chains that represent a high risk of deforestation and
include Meat, Dairy, Soy Bean, Palm Oil, and Paper. We
are a member of several multi-stakeholder initiatives
focused on this area including RSPO, the UK Roundtable
on Responsible Soy, Tropical Forest Alliance (TFA) 2020
and others.
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 conform 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.
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.
In 2019, Kerry engaged with Bord Bia and
industry partners in the development of a new
Grass Fed Dairy Standard in response to demands
from the marketplace for more natural and
sustainable products.
63
Kerry Group Annual Report 2019
Our colleagues are the foundation of our
business. They enable Kerry’s innovative and
entrepreneurial culture to thrive, which is a
key source of our competitive advantage, and
central to our ongoing success. We cannot
deliver for our customers without the 26,000+
unique and talented employees around the
globe and we recognise that achieving our
ambition of sustainable business growth can
only be attained through their efforts.
Workplace
Each day, our people live our Values of Courage,
Ownership, Inclusiveness, Open-mindedness and
Enterprising Spirit as we partner with our customers
and co-create better food, beverage and pharma
products for consumers around the world. We strive
to foster a culture that attracts the world’s leading
talent and create the environment where that talent
can grow and flourish. More details relating to
workplace sustainability can be found in Our People
section on pages 18-23, outlining our key activities
in some core areas and specifically relating to our
Purpose, Values, diversity and inclusion, the employee
experience, health, safety & wellness, talent pipeline
and total rewards.
+
Our People
pages 18-23
1,000+
R&D Scientists
26,000+
Employees
Our Workplace activities contribute to the achievement
of the following UN Sustainable Development Goals.
64
Kerry Group Annual Report 2019 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 of 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. It sets out
how we respect each other, live our Values, protect our
assets and obey the law. The policies behind the code
provide clear guidance for our daily interactions and
are reviewed annually. The ongoing responsibility for
their implementation rests with Group management,
supported by relevant functions including HR and
Internal Audit. The obligation to do the right thing is
underpinned by one of our core Values of Courage
whereby colleagues are supported to “…to do what is
right for our customer, our business and the world”.
The Code of Conduct is available in multiple languages
and is applied to all aspects of business across the
Group. All colleagues are required to familiarise
themselves with this code on joining Kerry and we
mandate ongoing training thereafter through our
learning academy, on at least a bi-annual basis. Since
2018, over 80% of all eligible colleagues have achieved
Code of Conduct certification.
Where employees have concerns about business
conduct, the Group provides clear guidance on
reporting. 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. To facilitate
anyone who wishes to express a concern, the Group
operates an ethics hotline, through which employees
and third parties can report an issue anonymously at
www.kerrygroup.ethicspoint.com.
In 2019, we continued to monitor and investigate all
reported issues via this ‘Express a Concern’ facility. In
the period there were approximately 0.4 cases reported
per 100 employees (which includes a small number
of reports from external parties) with over 85% of
concerns reported relating to internal HR matters. The
Board continue to review the effective operation of
this facility and the reports arising from its operation
on an ongoing basis. Further details are outlined
under Whistleblowing Arrangement in the Corporate
Governance Report on page 103. We also seek to
extend our Values on ethical business practice to those
with whom we do business 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, anti-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 2019, 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 is registered with the platform. As part of this
membership, each site completes a self-assessment
on areas aligned with our Code of Conduct, including
ethical business practice. Furthermore, over 90% of
our sites are subject to an independent SMETA (SEDEX
Members Ethical Trade Audit) or equivalent audit.
65
Kerry Group Annual Report 2019 Upholding Human Rights
We are fully committed to upholding Human Rights and
conduct our business in a manner that respects the
rights and dignity of all people. Kerry’s Global Human
Rights Policy reflects this commitment and is guided
by 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 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. These are supported by
monitoring through a number of external platforms.
All manufacturing sites are registered with SEDEX and
complete a self-assessment questionnaire, including
questions on young employees, forced labour and
human rights. Across our business over 90% of
manufacturing 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 61.
We understand stakeholder requirements for more
information on the impact of these policies and the
associated due diligence processes. This is an area
where we continue to enhance and build on existing
programmes with further integration of approach
across key functions.
The Group publishes an annual Slavery and Human
Trafficking Statement which is available on the Group
website at www.kerrygroup.com.
Improving Health & Safety
Kerry’s Health and Safety Policy and management
system defines consistent ways of working and
establishes standard requirements across our business.
While calling out responsibilities and accountability
at all levels, it outlines a role for all colleagues in
working safely and challenging any unsafe behaviour.
Implementation is led by the Global Health, Safety
and Environmental (HSE) team and employees are
supported by dedicated HSE personnel across our sites,
who work with site managers to ensure we consistently
promote a culture of Safety First, Quality Always.
Since 2015, we have been targeting a 5% year-on-year
improvement in our health and safety metrics and
have made significant improvement over that period.
In 2019, we delivered an improvement of 17% on the
previous year and over the course of our Towards
2020 programme, we have achieved a cumulative 45%
improvement versus our 2013 baseline. While this
represents significant progress, there is no acceptable
level of accident or injury and we continue to strive for
the safest possible working environment. As part of our
forthcoming commitments in this area, we are setting
targets that align with best in class performance. For
more, on health and safety see Our People section on
page 22 and the Risk Report on pages 82-83.
Promoting Wellbeing
Given the 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 have begun to expand
a number of locally relevant initiatives and promote a
greater awareness around the concept of wellbeing.
For more, on our wellbeing activities, see Our People
on page 22.
66
Kerry Group Annual Report 2019 Finally, to continue providing a stimulating employee
experience, and to sustain our growth, we encourage
our employees to build partnerships in the community
and use our formal Volunteer Programme to help
nourish these communities we rely on to support our
business growth and from which we continue to build
our talent pool.
For more on Talent and the employee experience,
see Our People on pages 18-23.
Developing Talent
Kerry recognises that in order to achieve our business
goals, we must continuously invest in colleagues by
adopting a structured approach to talent management.
In the first instance we value Inclusiveness, and
through our Diversity, Inclusion and Belonging strategy,
we are proactive in building a dynamic employee
population which is representative of our global
footprint, connected for knowledge sharing and has the
potential to develop the future skills required to sustain
our growth as a business.
Our structured approach to talent management is
achieved via the ‘mySuccess’ platform that provides a
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 a blend of classroom, online and interactive
content that provides instruction, stimulates discussion
and encourages collaboration from structured
graduate training through to leadership development
programmes. Our people, based in our main centres
and working within our manufacturing locations, have
invested in their development through the completion
of over 206,000 courses during 2019.
67
Kerry Group Annual Report 2019 As the world’s leading Taste & Nutrition company,
we know that we reach millions of people every
day through our products and that we impact
on an even greater number when we include the
communities where we operate and those we
source from. The role we play in many of these
communities is critical to their success, whether
it be through the value created by our business
activities, the jobs we provide, the raw materials
we purchase or the products we produce.
Community
Photo: Women fetching water from a well in Tahoua,
Niger. Photographer Ciara Hogan/Concern Worldwide.
At Kerry we know that our global scale can have
profound local impacts and we are focused on
supporting and engaging in ways that enhance local
communities. We know too that some of those most
in need are beyond our direct reach and realise the
importance of working with others and harnessing
the goodwill and passion of our people to amplify our
impact and effect meaningful change.
Our flagship programmes centre on improving
health and nutrition, reducing hunger and tackling
inequalities in ways that will make a lasting
difference. From our commitment to help secure
the future for farm families to partnering with local
outreach programmes, our ongoing work in global
communities enables us to nourish the lives of those
who are most in need.
+
Our People
pages 18-23
Through our community activities we contribute to the
achievement of the following UN Sustainable Development Goals.
68
Photo: Mika Abdu with his daughter Habibah, Tahoua, Niger.
Photographer Darren Vaughan/Concern Worldwide.
7,000+
people impacted by the RAIN Programme
Kerry Group Annual Report 2019 RAIN Programme
Realigning Agriculture to Improve Nutrition (RAIN) is an
integrated development programme designed to tackle
the significant barriers confronting extremely poor
households in the world’s most vulnerable regions. Kerry
has previously supported the successful implementation
of the RAIN Programme in the Mumbwa district of
Zambia. The programme is designed and operated by
leading international development agency, Concern
Worldwide.
In 2018, Kerry announced 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 in 2019, the Global Hunger Index (GHI) ranked Niger
101st out of 117 countries.
The population of Niger is highly dependent on small-
scale, subsistence agriculture, but with vulnerability
to drought, limited access to finance and inadequate
responses to climate change, productivity in Niger is
low. Inhabitants of the Tahoua region, where the RAIN
project is based, exist in a state of chronic poverty and
experience one of the highest rates of malnutrition
in Niger.
Through the RAIN Programme, Kerry and Concern
Worldwide aim to bring hope to those most in need
across Tahoua’s communities by focusing on the
following objectives:
> Increasing food production and diversity of
nutrient-rich diet
> Promoting key health practices for improved
maternal and 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.
Mika's Story
Mika Abdu (37) is a father of 3, living in the rural village
of Sabon Kalgo in Tahoua. Lack of sufficient rain has
led to poor harvests in recent years and his farm has
suffered. Mika’s village was selected to be part of the
RAIN Programme and now using sack gardens which
can flourish in minimal water, Mika is able to grow
additional food to support his family. “I wasn’t used to
growing plants in a sack, it was new to me” says Mika.
“But it is only now when I see what has been produced
that I understand. I now realise that what Concern has
done for us is something good.”
In 2019, we successfully concluded the
second year of the programme and we
continue to build impact through this
partnership working with 7,000 people
across selected villages. In the key objective
areas, progress has been made as follows:
Increasing food production and diversity
of nutrient-rich diet:
> Famers have been provided with fortified
millet seed and 70 pilot farmers and
1,000 producers have been trained
on conservation agriculture and good
agricultural practices
> Food production has been increased
through kitchen ‘sack’ gardens with the
result that 115 households have already
harvested vegetables to supplement
their diet.
Promote key health practices for improved
maternal and child nutrition:
> Community volunteers have screened 600
children for malnutrition and conducted
household level education around
sanitation and exclusive breastfeeding.
Improve access to reliable and safe water
sources and improved sanitation:
> Construction of four wells equipped
with solar pumping devices has been
completed to increase safe water sources
and boost irrigation capacity for additional
food production
> Nearly one hundred sanitation sessions
carried out in all 7 villages to eliminate
dumpsites that encourage mosquitos and
increase cases of malaria.
Reduce inequalities experienced by the
extreme poor and vulnerable, particularly
women and girls:
> Sixteen Savings and Loans groups
established with 466 female members.
With the savings generated these groups
have been able to grant loans to around
100 women as well as putting aside
savings for emergency funds.
Strengthen the capacity of local structures
to identify issues and solutions within the
community
> As part of the green village approach, two
community plant nurseries have been set
up to propagate new vegetable plants
for distribution in the community. Five
nurserymen in charge of the production
have grown almost 10,000 tree plants
> There is a partnership with the Department
of Agriculture on conservation agriculture
and good agricultural practices.
69
Kerry Group Annual Report 2019 This targeted region is a renowned area for production
of fluid milk and other dairy products. However,
production levels are low, with low sanitation measures
and insufficient knowledge of best practices of
production, manufacturing and distribution techniques.
In 2019, Kerry and WFP entered the final year of Project
Leche. As part of our commitment to supporting WFP
Honduras and to achieve lasting impact through Project
Leche, Kerry Group will continue to support in an
advisory role across milk handling, milk processing and
nutrition. A more detailed report on the full impact of
Project Leche will be published in 2020.
Noon Foundation
In partnership with the Noon Memorial Legacy Trust,
Kerry has supported the development of the Noon
Hospital and Research Centre in India since 2016. The
hospital, in Rajasthan, provides essential medical services
for rural communities which would otherwise lack access
to quality healthcare. The comprehensive facility boasts
world class services with state-of-the art operating
theatres, an intensive care unit (ICU), neonatal ICU and
eye department and highly skilled staff.
As part of a five year programme of support, Kerry is
proud to have helped expand services at the hospital,
officially opening a fourth wing focused on eye care
in March 2018. 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 intervention.
The ‘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.
Photo: WFP/Boone Rodriguez
World Food Programme
Kerry is the first Irish company to partner with World
Food Programme (WFP), the food assistance branch of
the United Nations and the world’s leading humanitarian
organisation fighting hunger. Since 2016, Kerry and
WFP have been partnering in support of Project Leche,
a pioneering project that seeks to connect smallholder
dairy farmers with sustainable market opportunities,
while ensuring their product is at the quantity and quality
necessary to meet demand.
Honduras is the poorest country in Latin America with
one of the most unequal distributions of income and
resources in the world. In 2019, forecasts of below-
average rainfall persisted throughout the cropping
season. The Dry Corridor – a particularly harsh area
that is targeted by WFP assistance – is facing the longest
dry period on record since 1981, thus worsening
food insecurity and malnutrition amongst vulnerable
populations, particularly in these Southern and
Western regions.
supported by
Project Leche: Progress in 2019
Nutrition
Sustainable Milk Production
Education & Awareness
In 2019, 190 teachers were trained in
various modules including nutrition,
food security, hygiene practices, safe
food preparation and storage and
nutrition education. Each module
consists of eight hours of both
theoretical and practical classes.
These trainings set out to reinstate the
importance of hygiene and nutrition.
In 2019, three ‘Field Days’ took place,
in collaboration with the University
of Zamorano which saw smallholder
dairy farmers from across the region
engage in peer-to-peer exchange
and knowledge sharing. By coming
together at such events, these farmers
can better their own outputs and farm
management by exchanging technical
skills and learnings, empowering
themselves and their peers.
Through the establishment of teacher
and community networks, local
communities are empowered with
nutritional knowledge and awareness,
with the aim of encouraging community
wide healthy eating behaviours.
The teacher and school committee
networks will reinforce and continue
to contribute towards increasing
the nutritional status of school aged
children in the targeted areas.
70
Kerry Group Annual Report 2019
Since opening in March 2018, the new Kerry wing has
seen over 38,000 patients and conducted more than
1,800 operations. This has been enabled directly by the
additional staff and new facilities, including a wide range
of essential equipment.
Crucially, the Noon Hospital and Research Centre
provides this intervention on the basis of need, rather
than ability to pay and offers those in the surrounding
region access to the high quality treatment that can
prevent sight loss. To date, over 20% of surgeries
undertaken at the new Kerry Wing, have been provided
at no cost to patients in need.
Connecting People
At Kerry, our committed and passionate workforce
provide a link to thousands of communities around
the world. Every day these colleagues contribute to
nourishing the life of their communities through their
roles with Kerry, but we also encourage our people to
engage in other projects that matter most to them and
those around them.
To support this, the Kerry Volunteer Programme
provides paid leave to participate in local community
programmes. Many employees have already availed of
the opportunity, often alongside their colleagues and
we continue to grow the number and impact of these
volunteers over time.
Our local community activities span a broad range of
initiatives including, enterprise, education, arts, sport
and community development. With local ownership, each
of our sites can select and engage with activities that
make a positive difference to their local communities.
Special Olympics
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.
In addition to the Group’s support, our people have
also taken great pride in the partnership with Special
Olympics, registering over 1,600 volunteer hours across
four countries in support of various activities, including
the World Games in Abu Dhabi in March 2019.
Sport
We believe that sport plays an important part in a
healthy active lifestyle, helping bring colleagues and
communities together and promoting both physical and
mental wellbeing. Kerry are proud supporters of many
amateur sports including all Kerry inter county GAA
teams and Rás Mumhan, Ireland’s premier international
amateur cycling event.
In 2019, The Kerry Sports Academy was offically opened
and is home to the UNESCO Chair in Inclusive Physical
Education, Sport Fitness and Recreation and CARA, the
National Centre for Adapted Physical Activity.
Corporate Philanthropist of the Year
In 2019, Kerry was named Corporate
Philanthropist of the Year by the Community
Foundation for Ireland. These annual awards
recognise those who have shown outstanding
leadership in the area of philanthropy and who,
through their giving, have made a difference in
bringing about sustainable social change.
71
Kerry Group Annual Report 2019
Photo: Courtesy of Bord Bia.
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
start-ups and more established companies.
We also know that not-for-profit organisations play
such a vital part in community life and we are proud
supporters of numerous local charities. We understand
that these organisations rely on volunteers to undertake
much of the unseen work and as well as our financial
assistance, we have helped develop a recognition
programme for leading social enterprises.
Support for the Arts
We are proud to sponsor the internationally acclaimed
literary festival ‘Listowel Writers Week’, including the
festivals top prize ‘The Kerry Group Novel of the Year’.
We are also corporate sponsor to Ireland’s National Folk
Theatre, Siamsa Tíre, an organisation that helps keep
Irish folk traditions alive through production and training
of young people in the traditional arts.
Education
We know the importance of education for 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 by providing back-to-school packs for the urban
poor and underprivileged children, while in Panama,
Kerry colleagues have donated educational supplies and
volunteered to improve school facilities. 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 ten 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 2019 STRATEGIC REPORT
RISK REPORT
Effective Risk Management
As the global leader
in the 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 global scale of the Group in terms
of geography and manufacturing
footprint, together with 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
framework, responsibilities within
it and the relationship between
functions is outlined in
the diagram below.
Board of Directors
The Board of Directors is 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.
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 88.
Kerry Group Risk Management Framework
Board of Directors
Audit Committee
Risk Oversight Committee/Executive Management
1st LINE OF DEFENCE:
Source:
Operational Management
2nd LINE OF DEFENCE:
Source:
Oversight Functions
3rd LINE OF DEFENCE:
Source:
Internal Audit and other
Independent Assurance
Providers
Nature of Assurance:
Internal controls / Direct
management monitoring
(policies, processes, KPIs,
tasks and behaviours)
Nature of Assurance:
Regular performance reviews /
Functional audits
/ Internal control
self-assessments / ICT security
monitoring
Nature of Assurance:
Provide assurance on the
operation of the 1st and 2nd
lines of defence / Regular
reviews / Recommendations for
improvement
73
Kerry Group Annual Report 2019 Audit Committee
The Board has delegated
responsibility to the Audit
Committee 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 senior
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
107-111.
Risk Oversight Committee
The Risk Oversight Committee (ROC)
is chaired by the Chief Financial
Officer and comprises senior Group
and functional 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 the
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
Board and the Audit Committee 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
and procedures in place to mitigate
the risk.
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
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. Details of the ‘three lines
of defence’ model is outlined on
page 73.
Risk Assessment Process
The Group has a strong culture
of risk management, with a
co-ordinated bottom-up and
top-down groupwide approach
to risk assessment that facilitates
the identification and evaluation of
risks, as well as assessing how the
risks are monitored, managed and
mitigated. This process is facilitated
by Internal Audit and overseen by
the ROC. 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 and
compliance risks are considered
along with potential new and
emerging risks at a business and
functional level throughout the
Group. In assessing the potential
impact and likelihood of each risk
identified, management evaluates
the risks at a residual level after
existing internal controls have been
considered.
A standard risk scoring matrix
provides guidance on impact and
likelihood to ensure consistency
in reporting. The output from
the 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 reviews the
Group Risk Register and submits it to
the Audit Committee for approval.
74
Kerry Group Annual Report 2019 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 the Group’s
principal and emerging 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, and 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 28-30.
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 reduce in
importance as management actions
are implemented or changes in the
operating environment occur.
The Board has reviewed the principal
risks and the risk environment and
considers that while there has not
been a significant change in the
principal risks in the past year they
do continue to evolve and the Group
continues to develop mitigation
measures to address them. The
Board continues to closely monitor
the UK’s exit from the European
Union (EU), its potential impact on
future trading relationships with the
EU and the business environment
in the UK. 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.
Emerging Risks
Emerging risks are identified,
analysed and managed as part of
the same process as the Group’s
other principal 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.
75
Kerry Group Annual Report 2019
Principal Risks and Uncertainties
Link to Strategic Priorities for Growth as per the Strategic Report
Risk Trend
Taste & Nutrition
Strategic Growth Priorities
Consumer Foods
Strategic Growth Priorities
Margin
Expansion Drivers
Risk is unchanged
Risk has increased
Risk has decreased
Risk
Trend/Link
Description
Impact
Mitigation
Developments in 2019
– The Group’s strategy and business plans are
– The Group continued to evolve and strengthen its
designed to ensure that resources are prioritised
operating model to ensure that it remains both fit for
towards those technologies and markets having the
purpose to deliver on its strategic plan and responsive to
greatest long term potential for the Group.
changing marketplace dynamics and opportunities.
– Post implementation reviews are undertaken for all
– Significant progress was made in leveraging and
major investment projects to measure returns and
strengthening the Group’s industry-leading taste and
inform future investment decisions.
nutrition technology portfolio which continues to provide
– The Taste & Nutrition business is differentiated
significant value for its customers in their quest to
in the marketplace through its ability to provide
differentiate themselves in an ever-evolving marketplace.
integrated solutions and its targeted portfolio of
In particular, this included development in its portfolio of
foundational technologies.
foundational technologies e.g. Clean Label preservation,
– The Group’s market leading investment in research
Clean Taste and Probiotics.
and development, consumer insight and innovation
enable it 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
– The Group has invested in IT systems and processes to
meets on a regular basis to consider and assess the
ensure it is ready to deal with the potential for increased
potential consequences of the UK’s withdrawal from
customs documentation and regulatory requirements.
the EU.
–
In order to minimise the cost implications of trade tariffs,
– The Group’s operational footprint across Europe
the Group plans to optimise its global sourcing capabilities
and the UK provides it with a well-balanced and
as well as localising raw material sourcing and finished
flexible platform from which to serve European and
goods production where feasible.
Global customers, regardless of the outcome of the
– Where on-costs resulting from the change in trade tariffs
Brexit process.
cannot be eliminated through other means, the Group
– The Group has considerable expertise in managing
plans to recover increased costs through customer pricing.
cross-border product movements.
– The Group continued to monitor the potential impact
of changes in the labour market arising from the UK’s
withdrawal from the EU and related events.
Trend
PORTFOLIO
MANAGEMENT
Strategic Risk
Link to Strategic
Priorities
The Group operates
across a diverse portfolio
of markets, channels and
customers, and demand
for products is impacted
by factors including
economic, demographic,
technology, competitor
actions, changes in
consumer demands and
fragmentation of the
marketplace.
Failure to strategically
manage the Group’s
portfolio and evaluate,
plan and appropriately
respond to evolving
marketplace and
competitive dynamics
could have an adverse
impact on the future
growth and profitability
of the Group.
BREXIT
Trend
Strategic Risk
Link to Strategic
Priorities
The UK’s withdrawal from
the EU has the potential
to significantly change
the terms of trade which
currently exist between
the EU and Great Britain.
The Group will continue
to monitor the ongoing
political situation
and upcoming trade
negotiations. While the
outcome of these talks
is difficult to predict, the
Group has considered
a number of different
scenarios and appropriate
mitigation plans have
been developed.
If a GB-EU Free Trade
Agreement (FTA) is not
agreed by the end of the
2020 transition period,
and no extension of talks
is agreed, the default
trading scenario implies
the application of tariffs
in line with World Trade
Organisation (WTO) rules.
This may have implications
for the Group which will
need to be managed
through its sourcing policy
and pricing model and
by utilising operational
flexibility to realign supply
chains as appropriate.
Reduced access to EU
labour supply and a more
restrictive migration policy
may result in a tighter or
more expensive UK labour
market.
76
Kerry Group Annual Report 2019
Trend
PORTFOLIO
MANAGEMENT
Strategic Risk
Link to Strategic
Priorities
The Group operates
across a diverse portfolio
of markets, channels and
customers, and demand
for products is impacted
by factors including
economic, demographic,
technology, competitor
actions, changes in
consumer demands and
fragmentation of the
marketplace.
Failure to strategically
manage the Group’s
portfolio and evaluate,
plan and appropriately
respond to evolving
marketplace and
competitive dynamics
could have an adverse
impact on the future
growth and profitability
of the Group.
BREXIT
Trend
Strategic Risk
Link to Strategic
Priorities
The UK’s withdrawal from
the EU has the potential
to significantly change
the terms of trade which
currently exist between
the EU and Great Britain.
The Group will continue
to monitor the ongoing
political situation
and upcoming trade
negotiations. While the
outcome of these talks
is difficult to predict, the
Group has considered
a number of different
scenarios and appropriate
mitigation plans have
been developed.
If a GB-EU Free Trade
Agreement (FTA) is not
agreed by the end of the
2020 transition period,
and no extension of talks
is agreed, the default
trading scenario implies
the application of tariffs
in line with World Trade
Organisation (WTO) rules.
This may have implications
for the Group which will
need to be managed
through its sourcing policy
and pricing model and
by utilising operational
flexibility to realign supply
chains as appropriate.
Reduced access to EU
labour supply and a more
restrictive migration policy
may result in a tighter or
more expensive UK labour
market.
Risk
Trend/Link
Description
Impact
Mitigation
Developments in 2019
Risk Trend
Risk is unchanged
Risk has increased
Risk has decreased
– The Group’s strategy and business plans are
– The Group continued to evolve and strengthen its
designed to ensure that resources are prioritised
towards those technologies and markets having the
greatest long term potential for the Group.
operating model to ensure that it remains both fit for
purpose to deliver on its strategic plan and responsive to
changing marketplace dynamics and opportunities.
– Post implementation reviews are undertaken for all
major investment projects to measure returns and
inform future investment decisions.
– The Taste & Nutrition business is differentiated
in the marketplace through its ability to provide
integrated solutions and its targeted portfolio of
foundational technologies.
– The Group’s market leading investment in research
and development, consumer insight and innovation
enable it to stay ahead of ever-changing consumer
preferences and provides foresight into future
consumer demands and market and competitor
intelligence.
– Significant progress was made in leveraging and
strengthening the Group’s industry-leading taste and
nutrition technology portfolio which continues to provide
significant value for its customers in their quest to
differentiate themselves in an ever-evolving marketplace.
In particular, this included development in its portfolio of
foundational technologies e.g. Clean Label preservation,
Clean Taste and Probiotics.
– A cross functional Executive Steering Committee
– The Group has invested in IT systems and processes to
meets on a regular basis to consider and assess the
potential consequences of the UK’s withdrawal from
the EU.
–
– 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.
ensure it is ready to deal with the potential for increased
customs 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 resulting from the change in trade tariffs
cannot be eliminated through other means, the Group
plans to recover increased costs through customer pricing.
– The Group continued to monitor the potential impact
of changes in the labour market arising from the UK’s
withdrawal from the EU and related events.
77
Kerry Group Annual Report 2019
Link to Strategic Priorities for Growth as per the Strategic Report
Risk Trend
Taste & Nutrition
Strategic Growth Priorities
Consumer Foods
Strategic Growth Priorities
Margin
Expansion Drivers
Risk is unchanged
Risk has increased
Risk has decreased
Risk
Trend/Link
Description
Impact
Mitigation
Developments in 2019
GEOPOLITICAL
/DEVELOPING
MARKETS
Strategic Risk
Trend
Link to Strategic
Priorities
As a global business
operating in 150+
countries, the Group is
exposed to economic and
political instability that
may reduce demand for
its products.
In addition, the
Group must deal with
increasingly complex
legal and regulatory
frameworks, currency
volatility, trade policies,
tariffs and sanctions and
varying standards of
quality and security across
many jurisdictions.
Failure to monitor change
and volatility across the
Group’s markets may
have a potential impact
on the future growth and
profitability of the Group.
With developing markets
as a key pillar for future
growth, the Group is
exposed to potentially
increased economic
and political volatility in
addition to the ongoing
risk of regional or global
pandemic outbreaks such
as the coronavirus.
BUSINESS
ACQUISITION
AND
DIVESTITURE
Strategic Risk
Trend
Link to Strategic
Priorities
Acquisitions and
divestitures continue
to be a core element of
the Group’s growth and
portfolio management
strategy which presents
risks around due diligence,
execution and integration
of businesses.
A failure to successfully
identify, execute or
properly integrate
acquisitions or execute
divestments in a timely
and effective manner
could impact profitability
and impede the strategic
development of the
Group.
78
– As an established international business, the
– The Group has invested in enhanced supply chain
Group has considerable experience of operating in
technology solutions to support its international business
countries during periods of economic and political
in an increasingly complex trading environment.
volatility.
– The Group continued to invest in its talent pipeline to
– Rigorous due diligence is conducted when entering
ensure that the appropriate skills and expertise are
or commencing business activities in new markets.
available to support its growth in developing markets.
– The breadth of the Group’s portfolio and its
– The Group, in conjunction with an external provider,
geographic reach help to mitigate its exposure to
completed an assessment of its people security crisis
any particular localised risk.
management plan, following which an updated plan was
–
Local management engage with governments and
developed and is being deployed across the Group.
– The Group has significant expertise in identifying
– During the year, the Board considered and approved all
and evaluating appropriate opportunities and
new acquisitions.
conducting due diligence and subsequent
– The Group further strengthened its resource capability in
transaction execution.
the M&A team to support its growth strategy. The internal
– The Group has a dedicated Mergers and
team is supplemented by external specialist resources as
Acquisitions (M&A) team with extensive knowledge
and when required.
local regulatory organisations to contribute to, and
anticipate, important changes in public policy.
– The Group’s legal, regulatory and compliance
functions ensure that applicable laws and
regulations are complied with across all jurisdictions
and monitor ongoing developments.
– Group hedging policies are in place to reduce
transactional currency exposures.
– Crisis management and business continuity
plans are in place to minimise the impact of any
significant incidents.
and experience.
– All potential transactions are assessed and
evaluated to ensure the Group’s defined strategic
and financial criteria are met. The Board approves
the business case, integration plan and funding
requirements for all transactions.
– The Group’s detailed due diligence programmes are
supported by external specialists when necessary.
– A strong governance process is in place to oversee
the acquisition integration process.
– The Group works with the acquired entity
management teams to ensure that processes are
in place to develop and strengthen key acquired
talent and support is being provided to facilitate an
efficient integration process.
– Post-acquisition reviews are conducted by senior
management and results and learnings are
presented to the Board on a regular basis.
Kerry Group Annual Report 2019
Risk
Trend/Link
Description
Impact
Mitigation
Developments in 2019
Risk Trend
Risk is unchanged
Risk has increased
Risk has decreased
Trend
GEOPOLITICAL
/DEVELOPING
MARKETS
Strategic Risk
Link to Strategic
Priorities
As a global business
operating in 150+
countries, the Group is
exposed to economic and
political instability that
may reduce demand for
its products.
In addition, the
Group must deal with
increasingly complex
legal and regulatory
frameworks, currency
volatility, trade policies,
tariffs and sanctions and
varying standards of
many jurisdictions.
Failure to monitor change
and volatility across the
Group’s markets may
have a potential impact
on the future growth and
profitability of the Group.
With developing markets
as a key pillar for future
growth, the Group is
exposed to potentially
increased economic
and political volatility in
addition to the ongoing
risk of regional or global
pandemic outbreaks such
quality and security across
as the coronavirus.
Trend
BUSINESS
ACQUISITION
AND
DIVESTITURE
Strategic Risk
Link to Strategic
Priorities
Acquisitions and
divestitures continue
to be a core element of
the Group’s growth and
portfolio management
strategy which presents
risks around due diligence,
execution and integration
of businesses.
A failure to successfully
identify, execute or
properly integrate
acquisitions or execute
divestments in a timely
and effective manner
could impact profitability
and impede the strategic
development of the
Group.
– As an established international business, the
– The Group has invested in enhanced supply chain
Group has considerable experience of operating in
countries during periods of economic and political
volatility.
– Rigorous due diligence is conducted when entering
or commencing business activities in new markets.
technology solutions to support its international business
in an increasingly complex trading environment.
– The Group continued to invest in its talent pipeline to
ensure that the appropriate skills and expertise are
available to support its growth in developing markets.
– The breadth of the Group’s portfolio and its
– The Group, in conjunction with an external provider,
completed an assessment of its people security crisis
management plan, following which an updated plan was
developed and is being deployed across the Group.
– During the year, the Board considered and approved all
new acquisitions.
– The Group further strengthened its resource capability in
the M&A team to support its growth strategy. The internal
team is supplemented by external specialist resources as
and when required.
–
geographic reach help to mitigate its exposure to
any particular localised risk.
Local management engage with governments and
local regulatory organisations to contribute to, and
anticipate, important changes in public policy.
– The Group’s legal, regulatory and compliance
functions ensure that applicable laws and
regulations are complied with across all jurisdictions
and monitor ongoing developments.
– Group hedging policies are in place to reduce
transactional currency exposures.
– Crisis management and business continuity
plans are in place to minimise the impact of any
significant incidents.
– The Group has significant expertise in identifying
and evaluating appropriate opportunities and
conducting due diligence and subsequent
transaction execution.
– The Group has a dedicated Mergers and
Acquisitions (M&A) team with extensive knowledge
and experience.
– All potential transactions are assessed and
evaluated to ensure the Group’s defined strategic
and financial criteria are met. The Board approves
the business case, integration plan and funding
requirements for all transactions.
– The Group’s detailed due diligence programmes are
supported by external specialists when necessary.
– A strong governance process is in place to oversee
the acquisition integration process.
– The Group works with the acquired entity
management teams to ensure that processes are
in place to develop and strengthen key acquired
talent and support is being provided to facilitate an
efficient integration process.
– Post-acquisition reviews are conducted by senior
management and results and learnings are
presented to the Board on a regular basis.
79
Kerry Group Annual Report 2019
Link to Strategic Priorities for Growth as per the Strategic Report
Risk Trend
Taste & Nutrition
Strategic Growth Priorities
Consumer Foods
Strategic Growth Priorities
Margin
Expansion Drivers
Risk is unchanged
Risk has increased
Risk has decreased
Risk
Trend/Link
Description
Impact
Mitigation
Developments in 2019
Trend
TALENT
MANAGEMENT
Operational Risk
Link to Strategic
Priorities
The ability to attract,
develop, engage and
retain appropriately
qualified talent with the
necessary capabilities
and skillsets is critical if
the Group is to continue
to compete and grow
effectively.
A failure to ensure that a
strong senior leadership
talent pipeline is in place
may impact the Group’s
ability to achieve its
strategic growth priorities.
QUALITY,
FOOD SAFETY &
REGULATORY
Operational Risk
Trend
Link to Strategic
Priorities
Adherence to stringent
food quality and safety
controls is critical to
ensure the safety and
integrity of raw materials
and products throughout
the Group’s supply chain.
The Group must also
ensure compliance with
continuously evolving legal
and regulatory obligations
in the areas of food safety,
quality, labelling and the
environment.
A material 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.
– The Group has objective recruitment and selection
– The Group cascaded a leader-led engagement programme
processes, effective employment policies and
to embed its Purpose and Values to all employees.
systems, a robust approach to succession planning
– The Group conducted a groupwide employee engagement
and a range of talent initiatives, including Group led
survey, the results of which were reviewed by Executives
senior leadership development programmes.
and the Board to agree global priorities for 2020.
– Talent management is regularly discussed at Group
– The Board endorsed a revised approach to executive
Executive, Nomination Committee and Board
succession planning and agreed a revised set of leadership
meetings.
competencies.
– A globally consistent approach is in place to identify,
– A risk mitigation plan for ensuring leadership continuity for
assess and accelerate talent readiness to meet
key executive roles and strengthening the talent pipeline
succession planning needs.
was reviewed and approved by the Nomination Committee.
– Remuneration policies are designed with clear links
– An annual global review of talent and succession pools for
to strategic growth priorities and high performance
all senior roles was completed and approved by Executives;
criteria including a balance of short and long term
development plans were updated for identified talent to
incentives.
strengthen core capabilities and accelerate succession
– Structured graduate and mentoring programmes
readiness.
are in place to develop skills and capabilities that will
enable future growth.
– The Group maintains industry-leading food safety
– The Group has maintained a continued focus on
and traceability processes and procedures across all
achieving a ‘right first time’ quality culture through people
its manufacturing sites.
development and ongoing enhancement of its Food Safety
– Each site has a team dedicated to ensuring
programmes.
compliance with Group and industry standards and
– A number of key appointments were made to further
the Group routinely monitors performance against
strengthen the global quality leadership team.
key metrics.
– A strong capital investment programme in the Group’s
– Regular audits of manufacturing sites against
manufacturing facilities supports a continued focus on
recognised global food safety standards are
improving quality standards.
conducted by internal teams, customers and other
– The Group continues to enhance its global quality
independent agencies.
standards and policies to include key learnings and
– The Group operates stringent controls across its
industry and regulatory changes.
supply chain including audits and strict approval of
its suppliers supported by rigorous quality checking
of all ingredients.
– The Group’s regulatory function closely monitors
and engages with external industry organisations
on emerging issues.
– Appropriate crisis management processes are in
place to deal with any incident that may arise.
– Adequate product liability insurance is in place
across the Group.
80
Kerry Group Annual Report 2019
Risk
Trend/Link
Description
Impact
Mitigation
Developments in 2019
Risk Trend
Risk is unchanged
Risk has increased
Risk has decreased
Trend
TALENT
MANAGEMENT
Operational Risk
Link to Strategic
Priorities
The ability to attract,
develop, engage and
retain appropriately
qualified talent with the
necessary capabilities
and skillsets is critical if
the Group is to continue
to compete and grow
effectively.
A failure to ensure that a
strong senior leadership
talent pipeline is in place
may impact the Group’s
ability to achieve its
strategic growth priorities.
Trend
QUALITY,
FOOD SAFETY &
REGULATORY
Operational Risk
Link to Strategic
Priorities
Adherence to stringent
food quality and safety
controls is critical to
ensure the safety and
integrity of raw materials
and products throughout
the Group’s supply chain.
The Group must also
ensure compliance with
continuously evolving legal
and regulatory obligations
in the areas of food safety,
quality, labelling and the
environment.
A material 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.
– The Group has objective recruitment and selection
processes, effective employment policies and
systems, a robust approach to succession planning
and a range of talent initiatives, including Group led
senior leadership development programmes.
– Talent management is regularly discussed at Group
Executive, Nomination Committee and Board
meetings.
– The Group cascaded a leader-led engagement programme
to embed its Purpose and Values to all employees.
– The Group conducted a groupwide employee engagement
survey, the results of which were reviewed by Executives
and the Board to agree global priorities for 2020.
– The Board endorsed a revised approach to executive
succession planning and agreed a revised set of leadership
competencies.
– A globally consistent approach is in place to identify,
assess and accelerate talent readiness to meet
succession planning needs.
– Remuneration policies are designed with clear links
to strategic growth priorities and high performance
criteria including a balance of short and long term
incentives.
– Structured graduate and mentoring programmes
– A risk mitigation plan for ensuring leadership continuity for
key executive roles and strengthening the talent pipeline
was reviewed and approved by the Nomination Committee.
– An annual global review of talent and succession pools for
all senior roles was completed and approved by Executives;
development plans were updated for identified talent to
strengthen core capabilities and accelerate succession
readiness.
are in place to develop skills and capabilities that will
enable future growth.
– The Group maintains industry-leading food safety
– The Group has maintained a continued focus on
achieving a ‘right first time’ quality culture through people
development and ongoing enhancement of its Food Safety
programmes.
– A number of key appointments were made to further
strengthen the global quality leadership team.
– A strong capital investment programme in the Group’s
manufacturing facilities supports a continued focus on
improving quality standards.
– The Group continues to enhance its global quality
standards and policies to include key learnings and
industry and regulatory changes.
and traceability processes and procedures across all
its manufacturing sites.
– Each site has a team dedicated to ensuring
compliance with Group and industry standards and
the Group routinely monitors performance against
key metrics.
– Regular audits of manufacturing sites against
recognised global food safety standards are
conducted by internal teams, customers and other
independent agencies.
– The Group operates stringent controls across its
supply chain including audits and strict approval of
its suppliers supported by rigorous quality checking
of all ingredients.
– The Group’s regulatory function closely monitors
and engages with external industry organisations
on emerging issues.
– Appropriate crisis management processes are in
place to deal with any incident that may arise.
– Adequate product liability insurance is in place
across the Group.
81
Kerry Group Annual Report 2019
Link to Strategic Priorities for Growth as per the Strategic Report
Risk Trend
Taste & Nutrition
Strategic Growth Priorities
Consumer Foods
Strategic Growth Priorities
Margin
Expansion Drivers
Risk is unchanged
Risk has increased
Risk has decreased
Risk
Trend/Link
Description
Impact
Mitigation
Developments in 2019
HEALTH
& SAFETY
Operational Risk
Trend
Link to Strategic
Priorities
Health and safety
incidents may give rise
to injuries or fatalities,
legal liability, significant
costs and damage to the
Group’s reputation.
The health and safety
of employees, sub-
contractors, customers
and other visitors is of
paramount importance to
the Group.
In addition, the Group
must comply with local
safety regulations in
multiple jurisdictions.
– Health and safety continues to be a key priority
– The ‘tone from the top’ on health and safety has been
for the business. The development of a strong
reinforced across all locations in the Group.
safety culture is driven by senior leadership across
– An improvement of 17% was achieved in the global Total
each region who are accountable for the safety
Recordable Incident Rate (TRIR) metric.
performance of their business.
– The Group continued to monitor evolving regulatory
– Both global and regional health and safety
requirements and implement required changes as
managers are in place with responsibility for
necessary.
enforcing strong health and safety standards across
the Group.
– A robust health and safety framework is in place
throughout the Group’s operations requiring all
employees to complete formal health and safety
training on a regular basis.
– Group health and safety policies are in place
outlining required standards, governance, roles and
responsibilities at all sites.
– Root cause analysis is conducted for any issues
identified through investigation of serious incidents.
– A global health and safety reporting process is
in place to support the measurement of KPIs
against industry standards.
MARGIN
MANAGEMENT
Operational Risk
Trend
Link to Strategic
Priorities
Failure to pass on cost
increases to customers
in an inflationary
environment with
increased competitive
pressures may impact the
Group’s margins.
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.
– The Group maintains a strong commercial focus
– The Group continued to invest substantial resources
on procurement, pricing and cost improvement
in upgrading talent, systems and processes across
initiatives and monitors pricing performance on an
its global commercial and procurement organisation.
ongoing basis.
These investments enable the Group to keep pace with
– The commercial implications of commodity
the ongoing challenges and complexities of the global
price movements are continuously assessed and,
marketplace.
where appropriate, are reflected in the pricing of
– During the year, the regional commercial finance teams
our products.
were reorganised with a focus on optimising the efficiency
– Active risk management processes are in place
and effectiveness of the pricing process.
which, in certain cases, includes taking purchasing
cover on a back to back basis. In addition, exchange
rate hedging is in place where necessary.
– Contractual mechanisms are in place with
many customers to pass-through changes in
commodity prices.
82
Kerry Group Annual Report 2019
Risk
Trend/Link
Description
Impact
Mitigation
Developments in 2019
Risk Trend
Risk is unchanged
Risk has increased
Risk has decreased
HEALTH
& SAFETY
Operational Risk
Trend
The health and safety
of employees, sub-
contractors, customers
and other visitors is of
Health and safety
incidents may give rise
to injuries or fatalities,
legal liability, significant
Link to Strategic
paramount importance to
costs and damage to the
Priorities
the Group.
Group’s reputation.
In addition, the Group
must comply with local
safety regulations in
multiple jurisdictions.
MARGIN
MANAGEMENT
Operational Risk
Trend
Link to Strategic
Priorities
Failure to pass on cost
increases to customers
in an inflationary
environment with
increased competitive
pressures may impact the
Group’s margins.
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.
– Health and safety continues to be a key priority
for the business. The development of a strong
safety culture is driven by senior leadership across
each region who are accountable for the safety
performance of their business.
– Both global and regional health and safety
managers are in place with responsibility for
enforcing strong health and safety standards across
the Group.
– A robust health and safety framework is in place
throughout the Group’s operations requiring all
employees to complete formal health and safety
training on a regular basis.
– Group health and safety policies are in place
outlining required standards, governance, roles and
responsibilities at all sites.
– Root cause analysis is conducted for any issues
identified through investigation of serious incidents.
– A global health and safety reporting process is
in place to support the measurement of KPIs
against industry standards.
– The Group maintains a strong commercial focus
on procurement, pricing and cost improvement
initiatives and monitors pricing performance on an
ongoing basis.
– The commercial implications of commodity
price movements are continuously assessed and,
where appropriate, are reflected in the pricing of
our products.
– Active risk management processes are in place
which, in certain cases, includes taking purchasing
cover on a back to back basis. In addition, exchange
rate hedging is in place where necessary.
– Contractual mechanisms are in place with
many customers to pass-through changes in
commodity prices.
– The ‘tone from the top’ on health and safety has been
reinforced across all locations in the Group.
– An improvement of 17% was achieved in the global Total
Recordable Incident Rate (TRIR) metric.
– The Group continued to monitor evolving regulatory
requirements and implement required changes as
necessary.
– The Group continued to invest substantial resources
in upgrading talent, systems and processes across
its global commercial and procurement organisation.
These investments enable the Group to keep pace with
the ongoing challenges and complexities of the global
marketplace.
– During the year, the regional commercial finance teams
were reorganised with a focus on optimising the efficiency
and effectiveness of the pricing process.
83
Kerry Group Annual Report 2019
Link to Strategic Priorities for Growth as per the Strategic Report
Risk Trend
Taste & Nutrition
Strategic Growth Priorities
Consumer Foods
Strategic Growth Priorities
Margin
Expansion Drivers
Risk is unchanged
Risk has increased
Risk has decreased
Risk
Trend/Link
Description
Impact
Mitigation
Developments in 2019
KERRYCONNECT
Operational Risk
Trend
Link to Strategic
Priorities
INFORMATION
SECURITY &
CYBERCRIME
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 continued
in the North America
region during 2019 and
is planned to complete in
2021.
The Group is dependent
on a robust ICT
infrastructure for the
operation of its principal
business processes.
There is a global threat of
significant and increasingly
sophisticated cyber-
attacks including phishing,
ransomware, malware and
social engineering.
Project delays or go-live
issues may dilute critical
resources and disrupt
operations reducing the
Group’s ability to serve
customers.
In addition, poor
management of the
project costs or an under
delivery of projected
efficiencies may have a
negative financial impact
on the Group.
A successful cyber-
attack, internal breach
or other systems failure
could result in business
interruption, loss of
confidential personal
or business data or an
inability to pay and receive
money. This could have
a significant customer,
financial, reputational and
regulatory impact for the
Group.
– The Kerryconnect Programme is supported by an
– Kerryconnect was deployed to six sites in Canada and the
Executive Steering team and a robust governance
United States without any significant business interruption.
framework.
– Contingency plans were developed and tested to manage
– The Kerryconnect implementation team has
the impact of legacy dual running over the period of the
accumulated significant knowledge and experience
project.
from roll-outs across other regions (Europe, APMEA,
LATAM).
– As in other regions, a phased deployment approach
to rollout is being taken in North America.
– Critical KPIs and other issues are reviewed at
regular steering meetings.
– The Group has a specialist ICT Security team and
– The Group continued to strengthen its data loss
a comprehensive series of ICT security controls in
prevention controls through the deployment of additional
place which are aligned to a globally recognised
software solutions.
Information Security Control framework.
– The Group continued to invest in its employee awareness
– The ICT Security team continuously monitor
programme.
developments in cyber security threats, engaging
– Enhancements were deployed in relation to the
with third party specialists as appropriate.
management of network access controls.
– The Group invests significant resources in
– The Group engaged a third party Security Operations
continuing to increase employee awareness in
vendor to provide a global 24/7 security monitoring
relation to risks such as phishing and malware.
service.
– Appropriate policies are in place regarding
– Considerable progress was made in testing and refining
the protection of both business and personal
the Group’s Incident Response processes.
information, as well as the use of IT systems and
applications by employees. This includes oversight
and governance of privileged access.
– Business continuity, disaster recovery and crisis
management plans are in place and are tested on a
regular basis.
– An appropriate data protection governance
structure for the Group is in place led by an
experienced Data Protection Officer.
– Regular audits are conducted both by ICT
auditors within the Internal Audit function and
by independent external specialists to assess the
Group’s cyber security practices.
– The Group maintains a cyber insurance policy.
84
Kerry Group Annual Report 2019
Risk
Trend/Link
Description
Impact
Mitigation
Developments in 2019
Risk Trend
Risk is unchanged
Risk has increased
Risk has decreased
KERRYCONNECT
Trend
Operational Risk
Link to Strategic
Priorities
INFORMATION
Trend
SECURITY &
CYBERCRIME
Operational Risk
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 continued
in the North America
region during 2019 and
is planned to complete in
2021.
The Group is dependent
on a robust ICT
infrastructure for the
operation of its principal
business processes.
There is a global threat of
significant and increasingly
sophisticated cyber-
attacks including phishing,
ransomware, malware and
social engineering.
Project delays or go-live
issues may dilute critical
resources and disrupt
operations reducing the
Group’s ability to serve
customers.
In addition, poor
management of the
project costs or an under
delivery of projected
efficiencies may have a
negative financial impact
on the Group.
A successful cyber-
attack, internal breach
or other systems failure
could result in business
interruption, loss of
confidential personal
or business data or an
inability to pay and receive
money. This could have
a significant customer,
financial, reputational and
regulatory impact for the
Group.
– The Kerryconnect Programme is supported by an
Executive Steering team and a robust governance
framework.
– The Kerryconnect implementation team has
accumulated significant knowledge and experience
from roll-outs across other regions (Europe, APMEA,
LATAM).
– As in other regions, a phased deployment approach
to rollout is being taken in North America.
– Critical KPIs and other issues are reviewed at
regular steering meetings.
– Kerryconnect was deployed to six sites in Canada and the
United States without any significant business interruption.
– Contingency plans were developed and tested to manage
the impact of legacy dual running over the period of the
project.
– The Group has a specialist ICT Security team and
a comprehensive series of ICT security controls in
place which are aligned to a globally recognised
Information Security Control framework.
– The ICT Security team continuously monitor
developments in cyber security threats, engaging
with third party specialists as appropriate.
– The Group invests significant resources in
continuing to increase employee awareness in
relation to risks such as phishing and malware.
– The Group continued to strengthen its data loss
prevention controls through the deployment of additional
software solutions.
– The Group continued to invest in its employee awareness
programme.
– Enhancements were deployed in relation to the
management of network access controls.
– The Group engaged a third party Security Operations
vendor to provide a global 24/7 security monitoring
service.
– Appropriate policies are in place regarding
– Considerable progress was made in testing and refining
the Group’s Incident Response processes.
the protection of both business and personal
information, as well as the use of IT systems and
applications by employees. This includes oversight
and governance of privileged access.
– Business continuity, disaster recovery and crisis
management plans are in place and are tested on a
regular basis.
– An appropriate data protection governance
structure for the Group is in place led by an
experienced Data Protection Officer.
– Regular audits are conducted both by ICT
auditors within the Internal Audit function and
by independent external specialists to assess the
Group’s cyber security practices.
– The Group maintains a cyber insurance policy.
85
Kerry Group Annual Report 2019
Link to Strategic Priorities for Growth as per the Strategic Report
Risk Trend
Taste & Nutrition
Strategic Growth Priorities
Consumer Foods
Strategic Growth Priorities
Margin
Expansion Drivers
Risk is unchanged
Risk has increased
Risk has decreased
Risk
Trend/Link
Description
Impact
Mitigation
Developments in 2019
INTELLECTUAL
PROPERTY
MANAGEMENT
Operational Risk
Trend
Link to Strategic
Priorities
The Group’s unique mix of
Intellectual Property (IP)
is created by combining
carefully managed
material sourcing, recipe
formulation and process
technology expertise.
The protection of IP is
critical given that it is a key
component of the Group’s
value creation model and
supports its unique and
differentiated position in
the marketplace.
Failure to put in place
appropriate processes,
systems and physical
security controls to protect
IP owned by the Group
may result in the loss of
commercially sensitive
and/or Kerry proprietary
information which may
have an adverse impact on
revenue and profitability.
TAXATION
Financial and
Compliance Risk
Trend
Link to Strategic
Priorities
TREASURY
Financial and
Compliance Risk
Trend
Link to Strategic
Priorities
Changes in the
international tax
environment and
associated local tax
legislation may expose
the Group to adverse tax
consequences.
Failure to manage these
risks could negatively
impact on financial
performance of the Group.
Given the Group’s global
network, it is exposed to an
increasingly complex and
evolving international tax
environment. The Group’s
tax liability or reporting
requirements may be impacted
by local or international
legislative changes, evolving
legal interpretations, tax audits
and transfer pricing judgements.
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.
86
– The importance of IP protection and its role in future
– The Group continued to develop and enhance IP
innovation, is deeply embedded within the culture of
protection practices globally.
– The Group’s cross functional centre of IP expertise
– The Group has developed a global centre of expertise
ensured that all new technologies developed during the
to provide legal and technical support in the area of IP
year were protected through patent applications or trade
secrets, ensuring that investments made by the Group
the Group.
protection.
– Appropriate policies and procedures are in place
are ultimately safeguarded. Furthermore, as required,
to provide guidance in relation to the capture,
outside counsel was engaged to ensure that any potential
exploitation and protection of IP.
infringements of IP by employees or competitors were
– The Group invests in training programmes to ensure
dealt with appropriately.
that all employees understand the value of IP and their
– The Group’s patent portfolio was considerably augmented
responsibility to ensure that it is protected.
during 2019 through successful new patent applications
– Appropriate processes are in place to ensure that IP
and patent acquisitions.
held within ICT systems is adequately protected.
– The Group continued to invest in employee training
– Non-disclosure agreements with third parties are in
programmes to raise awareness of the importance of IP
place and IP protection clauses are a standard element
asset protection in all interactions with both internal and
of both commercial and employment contracts.
external stakeholders.
– The Group has processes in place to monitor the
external environment for potential IP infringement and
appropriate action is taken when issues are identified.
– The Group maintains an ongoing focus on improving
the physical security environment.
– The Group employs a team of dedicated tax experts
– The Group continued to monitor developments in
responsible for ensuring compliance with all taxation
international tax legislation, while maintaining a consistent
matters globally. A programme of continuous
focus on ensuring compliance with new legislative
professional development ensures that the team is up
requirements.
to date on evolving tax law changes.
– The Group continued to proactively engage with relevant
– The Group engages external taxation advisors where
tax authorities.
appropriate.
– The Group constructively engages with tax authorities
across the jurisdictions in which it operates.
– The Audit Committee receives updates from management
in relation to the status of ongoing tax authority reviews
and matters such as changes in tax laws.
– A Group Finance Committee monitors treasury risk
– The Group strengthened its liquidity position by extending
on an ongoing basis.
the maturity date of its Revolving Credit Facility in addition
– The Group maintains significant cash and debt
to the issuance of a ten year €750m bond.
resources with relatively long term maturities to
– The Group facilitated liquidity extensions into a number of
ensure the Group’s liquidity requirements are met.
additional jurisdictions.
– The Group’s Treasury function actively manages all
– Continuous monitoring of exposure to individual
treasury risks through cashflow forecasts, foreign
banks and the tightening of counter-party limits where
currency exposure netting and hedging, monitoring
appropriate.
and meeting funding requirements across its
jurisdictions and management of interest rate and
counterparty risk.
Kerry Group Annual Report 2019
Risk
Trend/Link
Description
Impact
Mitigation
Developments in 2019
Risk Trend
Risk is unchanged
Risk has increased
Risk has decreased
INTELLECTUAL
Trend
PROPERTY
MANAGEMENT
Operational Risk
Link to Strategic
Priorities
The Group’s unique mix of
Intellectual Property (IP)
is created by combining
carefully managed
material sourcing, recipe
formulation and process
technology expertise.
The protection of IP is
critical given that it is a key
component of the Group’s
value creation model and
supports its unique and
differentiated position in
the marketplace.
Failure to put in place
appropriate processes,
systems and physical
security controls to protect
IP owned by the Group
may result in the loss of
commercially sensitive
and/or Kerry proprietary
information which may
have an adverse impact on
revenue and profitability.
TAXATION
Trend
Financial and
Compliance Risk
Link to Strategic
Priorities
Given the Group’s global
network, it is exposed to an
increasingly complex and
evolving international tax
environment. The Group’s
tax liability or reporting
Changes in the
international tax
environment and
associated local tax
legislation may expose
the Group to adverse tax
TREASURY
Trend
Financial and
Compliance Risk
Link to Strategic
Priorities
Failure to manage these
risks could negatively
impact on financial
performance of the Group.
by local or international
legislative changes, evolving
legal interpretations, tax audits
and transfer pricing judgements.
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.
– The importance of IP protection and its role in future
innovation, is deeply embedded within the culture of
the Group.
– The Group has developed a global centre of expertise
to provide legal and technical support in the area of IP
protection.
– Appropriate policies and procedures are in place
to provide guidance in relation to the capture,
exploitation and protection of IP.
– The Group invests in training programmes to ensure
that all employees understand the value of IP and their
responsibility to ensure that it is protected.
– Appropriate processes are in place to ensure that IP
held within ICT systems is adequately protected.
– Non-disclosure agreements with third parties are in
place and IP protection clauses are a standard element
of both commercial and employment contracts.
– The Group has processes in place to monitor the
external environment for potential IP infringement and
appropriate action is taken when issues are identified.
– The Group maintains an ongoing focus on improving
the physical security environment.
– The Group continued to develop and enhance IP
protection practices globally.
– The Group’s cross functional centre of IP expertise
ensured that all new technologies developed during the
year were protected through patent applications or trade
secrets, ensuring that investments made by the Group
are ultimately safeguarded. Furthermore, as required,
outside counsel was engaged to ensure that any potential
infringements of IP by employees or competitors were
dealt with appropriately.
– The Group’s patent portfolio was considerably augmented
during 2019 through successful new patent applications
and patent acquisitions.
– The Group continued to invest in employee training
programmes to raise awareness of the importance of IP
asset protection in all interactions with both internal and
external stakeholders.
– The Group employs a team of dedicated tax experts
responsible for ensuring compliance with all taxation
matters globally. A programme of continuous
professional development ensures that the team is up
to date on evolving tax law changes.
– The Group continued to monitor developments in
international tax legislation, while maintaining a consistent
focus on ensuring compliance with new legislative
requirements.
– The Group continued to proactively engage with relevant
– The Group engages external taxation advisors where
tax authorities.
requirements may be impacted
consequences.
appropriate.
– The Group constructively engages with tax authorities
across the jurisdictions in which it operates.
– The Audit Committee receives updates from management
in relation to the status of ongoing tax authority reviews
and matters such as changes in tax laws.
– A Group Finance Committee 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 cashflow forecasts, foreign
currency exposure netting and hedging, monitoring
and meeting funding requirements across its
jurisdictions and management of interest rate and
counterparty risk.
– The Group strengthened its liquidity position by extending
the maturity date of its Revolving Credit Facility in addition
to the issuance of a ten year €750m bond.
– The Group facilitated liquidity extensions into a number of
additional jurisdictions.
– Continuous monitoring of exposure to individual
banks and the tightening of counter-party limits where
appropriate.
87
Kerry Group Annual Report 2019
GOING CONCERN AND VIABILITY ASSESSMENT
The Board, having reviewed the Group’s principal risks and uncertainties, including emerging risks, assessed
the going concern and long term viability of the Group in line with the requirements of the 2018 UK Corporate
Governance Code and the Irish Annex. Its conclusions on these assessments are outlined below.
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.
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 2020 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 34-40 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 31 of the
2018 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 has taken
account of the Group’s five-year
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 75-87. The
financial position of the Group, its
cash flows, liquidity position and
borrowing facilities are outlined
in the financial review on pages
34-40.
Assessment of Viability
Although the Group’s strategic
planning cycle 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.
88
Kerry Group Annual Report 2019 T
R
O
P
E
R
’
S
R
O
T
C
E
R
D
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Kerry Group Annual Report 2019
89
DIRECTORS’ REPORT
BOARD OF DIRECTORS
Chairman & Executive Directors
Mr. Philip Toomey (66)
Mr. Edmond Scanlon (46)
Ms. Marguerite Larkin (48)
Mr. Gerry Behan (55)
Executive Director
Chief Executive Officer
Executive Director
Chief Financial Officer
Edmond is a highly
experienced leader in the
global food and beverage
industry having spent almost
20 years in senior roles
across the Group. Edmond
brings a strategic mindset
to drive Group performance
and growth as well as
significant financial and
operational expertise.
Edmond joined Kerry’s
graduate development
programme in Ireland in
1996. Over his career he
has held leadership roles
in the Group’s Flavours
and Applied Health
and Nutrition (formerly
Functional Ingredients and
Actives) businesses as well
as heading up the Group’s
activities in China and the
Asia Pacific region.
Edmond was appointed
Executive Director and Group
Chief Executive Officer in
October 2017.
Appointed: 1 October 2017
Marguerite brings extensive
financial knowledge and risk
management expertise as well
as being a highly experienced
business leader.
Marguerite has over 25 years
international experience
having served as lead client
partner at Deloitte Ireland for
a number of multinationals
operating in a broad range
of industries including food
and beverage, pharma and
technology.
During her career with
Deloitte, Marguerite served
as a senior partner and held
a number of leadership roles
within Deloitte Ireland.
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 in
September 2018.
Appointed: 30 September 2018
Executive Director
President and CEO
Kerry Taste & Nutrition
Gerry has over 30 years
experience in the Group and
has extensive knowledge
of the global food and
beverage industry.
He has a wealth of business
leadership experience,
financial and operational
expertise and brings a
strategic mindset in the
advancement of Kerry’s
leading taste and nutrition
capabilities and unique
positioning.
Gerry joined Kerry’s
graduate recruitment
programme in 1986 and
has held a number of senior
financial and business
management roles, primarily
in the Americas region,
including regional
Chief Operating Officer
and regional Chief
Executive Officer.
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 12 years.
Appointed: 13 May 2008
Chairman of the Board
Philip has extensive business
leadership and international
experience following an
executive career in the
financial services industry
practice at Accenture.
Philip brings financial and
operational expertise as well
as significant board level
experience.
Philip was formerly Global
Chief Operating Officer for
the financial services industry
practice at Accenture and also
a member of the Accenture
Global Leadership Council.
Philip is a Fellow of Chartered
Accountants Ireland.
Philip was appointed
Chairman of the Board in
May 2018 and has served as a
Director for eight 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
Committee Membership
N
Committee Membership Key
A Audit Committee
N Nomination Committee
R Remuneration Committee
Indicates Committee Chair
90
Kerry Group Annual Report 2019
Non-Executive Directors
Dr. Hugh Brady (60)
Independent Non-Executive Director
Mr. Gerard Culligan (45)
Independent Non-Executive Director
Dr. Karin Dorrepaal (58)
Independent Non-Executive Director
Karin is an experienced business
leader who also brings extensive
pharmaceutical market knowledge.
She has wide ranging experience
as a non-Executive Director on an
international basis.
During her career she was an
Executive Director on the Board
of Schering AG in Berlin with
responsibility for the Diagnostic
Imaging business as well as
worldwide manufacturing and
procurement and was a partner at
the NY and Amsterdam office of
an international consultancy firm
(formerly known as Booz Allen &
Hamilton) where she specialised in
the pharmaceutical industry.
Karin holds a Ph.D. and an MBA.
She is currently 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
the Nomination Committee in
December 2015.
Appointed: 1 January 2015
Committee Membership
R N
Mr. Con Murphy (55)
Independent Non-Executive Director
Con has a deep knowledge of the
food industry, in particular the
dairy and agribusiness sectors.
He brings insights to the Board
that are reflective of the Group’s
heritage and the dairy community
that he represents.
Con operates his own business
in the agribusiness sector and
is a member of the Board of a
small private company. He was
previously the Chairman of the
Irish Montbeliarde Cattle Society.
Appointed: 1 June 2017
Gerard has considerable knowledge
of the food industry, in particular
the dairy and agribusiness sectors,
as well as many years business
management experience. He brings
insights to the Board that are
reflective of the Group’s heritage
and the dairy community that he
represents.
Gerard operates his own business
in the agribusiness sector and is a
director and co-owner of two private
companies in the marine industry.
Appointed: 1 June 2017
Hugh’s biomedical research and
academic background brings an
invaluable perspective to the Board
particularly in the areas of health
and wellbeing. He also brings a
broad range of international and
leadership experience.
Hugh is currently President and
Vice Chancellor of the University of
Bristol in the UK, a position he has
held since 2015.
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 University College
Dublin (UCD). He was previously
President of UCD from 2004 to 2013.
He is a non-Executive Director on
the Board of ICON plc where he also
serves on the Audit Committee.
Hugh joined both the Audit and
Nomination Committees in 2015.
Appointed: 24 February 2014
Committee Membership
A N
Mr. James C. Kenny (66)
Independent Non-Executive Director
Mr. Tom Moran (64)
Independent Non-Executive Director
James’ business leadership
background coupled with his
US market knowledge and
international diplomatic
experience brings a key set
of skills to the Board.
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 currently 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
Committee Membership
R N
Tom is an experienced leader who
brings extensive knowledge of the
food and agriculture industries
combined with a broad range of
international diplomacy skills. He
is also a member of a number of
boards and committees.
Tom had a long and distinguished
career within the Irish Public Sector
where he served as Secretary
General of the Irish Department
of Agriculture, Food and the
Marine and also held a number of
international policy and international
trade negotiation leadership roles.
Tom is currently a Board member of
An Bord Bia, the Irish Food Board,
and chairs its Dairy Subsidiary
Board. He is also Chairman of
the Irish Government Public
Appointments Service. Tom is a
registered Chartered Director.
Tom joined the Audit Committee
in December 2015 and the
Remuneration Committee in
February 2016.
Appointed: 29 September 2015
Committee Membership
RA
Ms. Joan Garahy (57)
Senior Independent
Non-Executive Director
Joan has significant financial
services and investment experience
having spent over 30 years advising
on and managing investment
funds. Joan is also an experienced
non-Executive Director and has
particular expertise in financial and
remuneration matters.
Joan is Managing Director of
ClearView Investments & Pensions
Limited and previously held other
leadership roles in the Investment
and pensions industry including with
the National Treasury Management
Agency (Ireland) and with Hibernian
Investment Managers.
Joan is currently non-Executive
Director at ICON plc and Irish
Residential Properties REIT plc.
She is also 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
Committee Membership
AR
Mr. Christopher Rogers (59)
Independent Non-Executive Director
Christopher is an experienced
non-Executive Director with a broad
business leadership background who
also brings extensive knowledge of
the foodservice industry together
with financial and risk management
expertise.
He was formerly an Executive
Director of Whitbread plc for 11
years, serving as Finance Director for
7 years and then as Global Managing
Director of Costa Coffee.
Christopher is currently non-
Executive Senior Independent
Director at Travis Perkins plc and non-
Executive Director at Vivo Energy plc
and Walker Greenbank plc.
Christopher is a Fellow of Chartered
Accountants England and Wales. He
is also a visiting Fellow at Durham
University (UK).
He was appointed Chairman of the
Audit Committee with effect from 8
May 2018.
Appointed: 8 May 2018
Committee Membership
A
91
Kerry Group Annual Report 2019 DIRECTORS’ REPORT
REPORT OF THE DIRECTORS
Directors and
Other Information
Directors
Philip Toomey, Chairman
Edmond Scanlon, Chief Executive Officer*
Marguerite Larkin, Chief Financial Officer*
Gerry Behan, President & CEO Kerry 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
V92 EH11
Ireland
Registrar and Share Transfer Office
Ronan Deasy
Registrar’s Department
Kerry Group plc
Prince’s Street
Tralee
Co. Kerry
V92 EH11
Ireland
Website
www.kerrygroup.com
92
Kerry Group Annual Report 2019
The Directors submit their Annual Report together with
the audited Consolidated Financial Statements for the
year ended 31 December 2019.
Principal Activities
Kerry Group is a world leader in the global food industry.
The Group’s industry-leading portfolio of taste and nutri-
tion 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 a leader
in its categories in the chilled cabinet primarily in the Irish
and UK markets.
Listed on the Euronext Dublin and London Stock Ex-
changes, Kerry has an international presence with 151
manufacturing facilities across the world.
Results and Review of the Business
The Directors are pleased to report another good per-
formance for 2019 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 8.3% over 2018 to 393.7
cent (2018 currency adjusted: 363.5 cent). Basic EPS of
320.4 cent increased by 4.7%. Trading margin for the
year increased by 30bps to 12.5% (2018: 12.2%). The
Group achieved a free cash flow of €515m (2018: €447m).
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 32-33.
The Chairman’s Statement, the Chief Executive Officer’s
Review, the Business Reviews and the Financial Review,
which are included in the Strategic Report on pages
12-48, report on the performance of the Group’s busi-
ness, including acquisitions during the year and on future
developments.
Dividends
On 17 February 2020, the Directors recommended a
final dividend totalling 55.1 cent per share in respect of
the year ended 31 December 2019 (see note 10 to the
financial statements). This final dividend per share is an
increase of 12.0% over the final 2018 dividend per share
paid on 10 May 2019. This dividend is in addition to the
interim dividend paid to shareholders on 15 November
2019, which amounted to 23.5 cent per share.
The payment date for the final dividend is 15 May 2020 to
shareholders registered on the record date 17 April 2020.
Events After the Balance Sheet Date
Other than the proposed final dividend, there have been
no other significant events, outside the ordinary course of
business, affecting the Group since 31 December 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 (Direc-
tive 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 in the Risk Report on pages 75-87.
Research and Development
The Group is fully committed to ongoing technological in-
novation in all sectors of its business, providing integrated
customer focused product development and support by
leveraging our global technology capabilities and exper-
tise. 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 sup-
ported by Regional Development & Application Centres
and a global knowledge management infrastructure.
Expenditure on research and development applications
and technical support amounted to €291.4m in 2019
(2018: €274.6m).
Sustainability
The Group continued to deliver on its sustainability
performance with the successful conclusion of the five
year Towards 2020 programme. A new sustainability pro-
gramme to better enable our Purpose will be launched in
the second quarter of 2020.
The Group remains committed to the highest standards
of business and ethical behaviour, to fulfilling its respon-
sibilities 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.
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 176,514,942
shares were in issue at 31 December 2019.
The A ordinary shares rank equally in all respects.
There are no limitations on the holding of securities in
the Company.
93
Kerry Group Annual Report 2019 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 the earlier of
the conclusion of the 2020 Annual General Meeting (AGM)
and close of business on 1 August 2020 and it is intended
to seek shareholder approval to renew the authority at
the AGM to be held on 30 April 2020.
Shareholders approved the authority for the Directors
to allot shares for cash on a non-pro rata basis up to
a maximum of 8,815,127 shares at the AGM held on 2
May 2019, representing 5% of the A Ordinary Shares in
issue on 1 March 2019. Shareholders also approved an
authority to allot a further 8,815,127 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 earlier of the
conclusion of the 2020 AGM and close of business on 1
August 2020. It is intended to seek shareholder approval
for their renewal at the 2020 AGM. During 2019, 216,526
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 27 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 2019 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 the earlier
of the conclusion of the 2020 AGM and close of business
on 1 August 2020 and it is intended to seek shareholder
approval for its renewal at the 2020 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)
Blackrock Investment
Management
Number
Held
%
22,413,456
12.7%
10,028,236
5.7%
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 90-91. Following
the individual performance evaluation of all Directors,
as outlined in the Corporate Governance Report on
page 105, the Board recommends the re-election of all
Directors seeking re-election.
The Directors’ and Company Secretary’s interests in
shares and debentures are included in the Remuneration
Report on page 136.
Board and Committee Changes
There were no changes to the composition of the Board
and its Committees during 2019.
Mr. James C. Kenny will retire from the Board at the
conclusion of the AGM to be held on 30 April 2020 and
will not seek re-election.
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 98-106
sets out the Company’s application of the principles, and
compliance with the Provisions of the 2018 UK Corporate
Governance Code and Irish Annex (the new Code).
Non-Financial Information
Pursuant to the European Union (Disclosure of Non-
Financial and Diversity Information by certain large
undertakings and groups) Regulations 2017, the Group
is required to report on certain non-financial information
to provide an understanding of its development,
94
Kerry Group Annual Report 2019 performance, position and the impact of its activities,
relating to, at least, environmental matters, social
matters, employee matters, respect for human rights and
bribery and corruption. Information on these matters
can be found in the following sections of the Annual
Report, which are deemed to form part of this Report:
Sustainability Review on pages 49-72, Our Business
Model on pages 24-25, the Risk Report on pages 73-88.
Information on diversity can be found in the Nomination
Committee Report on pages 112-115.
Going Concern and
Long Term Viability Statements
The going concern and longer term viability statements in
the Risk Report on page 88 set 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 92, confirms that, to the best of their
knowledge and belief:
– the Consolidated Financial Statements for the year
ended 31 December 2019 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 2019;
– the Financial and Business Reviews on pages 34-48
include a fair review of the development and
performance of the business for the year ended
31 December 2019 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 Consolidated 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.
95
Kerry Group Annual Report 2019 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 95 with the responsibilities of the
Company’s external Auditors outlined on page 145.
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.
A copy of the Articles of Association can be obtained from
the Company’s website www.kerrygroup.com.
Change of Control Provisions
The Group’s revolving credit facility includes a ‘Change
of Control’ provision which requires the Group to notify
the lending institutions of a change of control event
occurring. Each lender has the option to withdraw their
facilities in the event of a change of control occurring
unless they agree otherwise in writing.
Certain public senior notes issued by the Group contain
a provision that requires the Group to make an offer
to repurchase the notes, in the event that a change of
control occurs which leads to a downgrading of the rating
assigned to the notes below investment grade.
Other than the ‘Change of Control’ provisions in those
arrangements, the Group 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.
The Consolidated Financial Statements on pages 146-215
have been audited by PricewaterhouseCoopers (PwC),
Chartered Accountants.
Group Entities
The principal subsidiaries and associated undertakings
are listed in note 36 to the financial statements.
The external Auditors, PwC who were appointed in
March 2016, will continue in office in accordance with
Section 383(2) of the Companies Act 2014. 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.
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 2019.
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.
96
Kerry Group Annual Report 2019 Information Required to be Disclosed
by Listing Rule 6.1.77, Republic of
Ireland Listing Authority
For the purposes of Listing Rule 6.1.77, the information
required to be disclosed can be found in the following
locations:
Section Topic
Location
(1)
(2)
(3)
(4)
Interest capitalised
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
Remuneration
Committee Report
(5) – (14)
Section 5 – 14 of
Listing Rule 6.1.77
Not applicable
Cross References
All information cross referenced in this report forms part
of the Report of the Directors.
Signed on behalf of the Board:
Philip Toomey
Chairman
17 February 2020
Edmond Scanlon
Chief Executive Officer
17 February 2020
97
Kerry Group Annual Report 2019
DIRECTORS’ REPORT
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. During 2019,
the Nomination Committee reviewed
senior management development
and succession plans to ensure the
appropriate level of skills and diversity
exists, to support the delivery of the
Group’s strategy and financial targets.
Improving and monitoring diversity
beyond gender and below Board level
will continue to be a key area of focus
for the Board and the Executive Team
in 2020.
Each year the Board undertakes a
formal evaluation of its effectiveness
and that of its Committees. In 2019,
this was externally facilitated by
Independent Audit Limited. Following
this review, the Directors determined
that the Board and its Committees
are operating effectively. Details
of the process and the resulting
actions from the Board performance
evaluation are outlined on page 105.
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
The Corporate Governance Report
describes how we apply the main
Principles of good governance as
set out in the 2018 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
complied with all relevant Provisions
of the new Code other than certain
remuneration Provisions which will be
considered as part of the Executive
Directors’ remuneration policy review
to be conducted in 2020 in line
with the normal three year cycle.
Further details are outlined in the
Remuneration Committee Report
on page 116.
The Board sets the tone and shared
values for the way in which the
Group operates and recognises
the importance of culture to the
success of the business model.
During 2019, the Group articulated
its Purpose, refreshed its Values
and communicated both across
the organisation via leader led
Kerry Way workshops. The Board
also assessed and monitored the
Group’s culture to ensure that it is
aligned with the Group’s strategy and
Values and is adequately embedded
across the Group.
As a Board, we recognise the
benefits of understanding the
views of all our stakeholders and
we ensure that their interests are
regarded in Board discussions and
in our decision making. Enhanced
engagement mechanisms, including
the appointment of a designated
workforce engagement Director were
introduced during 2019. Details of
stakeholder engagement activities
during the year are outlined on
pages 100-103.
The Board, in conjunction with the
Nomination Committee, ensures that
there are robust plans in place to
facilitate Board, executive and senior
management succession.
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 2019.
The Board is committed to ensuring
that the Group achieves the highest
standards of governance in line
with best practice. Following the
publication of the 2018 UK Corporate
Governance Code (the new Code),
the Board reviewed its corporate
governance policy and processes
and implemented the appropriate
changes required to comply with
the new Code.
98
Kerry Group Annual Report 2019
Board Leadership and Company Purpose
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 and ensure that
the Group contributes to wider society.
Shareholders
Board of Directors
Executive Management
Audit
Committee
(page 107)
Nomination
Committee
(page 112)
Remuneration
Committee
(page 116)
Finance Committee
(page 40)
Risk Oversight Committee
(page 74)
Sustainability Council
(page 54)
Board Role and Operations
The Board currently comprises of 12 members, a
non-Executive Chairman, Chief Executive Officer, Chief
Financial Officer, one other Executive Director, and eight
non-Executive Directors.
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.
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, and managing the risks that face
the organisation. It is also responsible for establishing
the purpose, instilling the appropriate values and
behaviours, together with monitoring and assessing
culture 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 above.
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 reviewing risk management and internal
control systems;
– Monitoring and assessing culture;
– Reviewing and assessing the adequacy of the Group’s
whistleblowing arrangements;
– Approval of acquisitions and divestitures;
– Approval of significant capital expenditure;
– Approval of Treasury policy including 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.
99
Kerry Group Annual Report 2019 The Group’s Purpose guides us on the journey to make it
easier and more valuable for customers to do business
with Kerry, as the Group seeks to make a greater, more
lasting difference in the world. The Board is satisfied that
the strategies for the Taste & Nutrition and Consumer
Foods businesses are aligned to the Group’s Purpose.
The Board is also guided by the Group’s Purpose during
its discussions and when making decisions on the matters
that are reserved for its consideration. Further details of
the Group’s Purpose are outlined on pages 6-7.
The Group’s Values of Courage, Ownership, Inclusiveness,
Open-mindedness and Enterprising Spirit are also a core
element of The Kerry Way and underpin its Purpose.
These Values were approved by the Board during 2019
and reflect the best of the Group’s heritage in line with our
forward looking ambition. Further details of our Values are
outlined on page 19.
The Group’s culture is based on a common understanding
of our Values, underpinned by our foundation of Safety
First, Quality Always and a robust risk management
framework consisting of policies and procedures,
including a Code of Conduct which defines business
conduct standards for anyone working for, or on behalf
of, the Group.
The Board recognises the importance of its role in setting
the tone of Kerry’s culture and embedding it throughout
the Group. In addition to the Board, the executives have
responsibility to ensure that the policies and behaviours
set at Board level are effectively communicated and
implemented throughout the Group. The Kerry Way
framework articulates the Group’s Purpose and Values
and the myKerry intranet site provides a platform for
employees to access the Group’s policies.
The Board monitors and assesses the culture of the Group
through a number of mechanisms including policy and
compliance processes, internal audit, formal and informal
channels for employees to raise concerns including the
ourVoice employee engagement survey and the Group’s
whistleblowing arrangement. If the Board is concerned
or dissatisfied with any behaviors or actions, it seeks
assurance from the executives that corrective action is
being taken.
Stakeholder Engagement
While the Board’s primary duty is to act in a way that
promotes the long term success of the Company for
the benefit of the shareholders, the Directors also
acknowledge the need to have regard to the interests of
all other stakeholders in their discussions and decision
making. Engagement with stakeholders enables better
informed decision making, thereby increasing the
likelihood of long term successful outcomes. Similarly, the
Board also recognises the need to maintain a reputation
for high standards of business conduct in its actions and
decisions. Details of our stakeholder engagement are set
out in the table on pages 101-102.
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 as well as the
Group’s Purpose, Values and culture. 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.
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
The Group communicated the five year strategic plan
for 2018-2022 to the market at a Capital Markets Day
held in 2017. During 2019, as part of the annual strategy
review, 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. Through this review, the Board is able
to assess and identify changing and emerging risks and
opportunities which could impact the Group and provide
input and strategic guidance as required.
The Board ensures that the decisions it makes are
aligned with the achievement of the Group’s strategy and
are made in the long term interest of the Group and its
stakeholders. This is particularly the case when deciding
how to prioritise the allocation of resources (human
and financial capital) across competing research and
development activities, acquisition opportunities and major
capital expenditure projects.
During the year, the Board also reviewed the business
model and how it is executed. The Board is satisfied that
the business model is both sustainable in the long term
and optimally structured to enable delivery of the
Group’s strategy.
Purpose, Values and Culture
As the world leader in taste and nutrition, our Purpose is to
Inspire Food and Nourish Life. This is a core element of The
Kerry Way which was formalised through a collaborative
process with input from employees across the Group and
approved by the Board.
100
Kerry Group Annual Report 2019 Shareholders
Employees
Our Engagement
The Board ensures it has an effective channel of communication with existing and potential shareholders.
The Investor Relations team and Executive Management maintain ongoing engagement with the investment
community, through a variety of different mediums including investor meetings and conferences, investor events,
ongoing investor calls and correspondence. During 2019, meetings were held with over 580 investors in 13 cities
and five investor conferences were held at the Global Technology & Innovation Centre in Naas, Ireland.
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.
Shareholder presentations are made at the time of release of the Group’s interim and full year results, following
which the Chief Executive Officer and Chief Financial Officer provide the Board with an update on feedback received.
Regular updates are provided by the Chief Financial Officer to the Board on matters raised by shareholders and
analysts as well as updates on the composition of the Group’s share register.
Attendance of, and questions from, shareholders at the Company’s Annual General Meeting (AGM) are welcomed
by the Board. The AGM also provides an opportunity for the Directors to deliver presentations on the business to
shareholders, both institutional and private. Further details are outlined on page 103.
Material Matters
Matters of importance to shareholders include the Group’s strategic development, financial performance,
environmental, social and governance matters, Board composition and succession planning, and Executive
Directors remuneration related matters.
Our Response
When necessary, the Board and Committee Chairpersons engage with shareholders on specific topics and where
relevant provide feedback to the Directors. During 2019, the Chairman of the Board met with the Company’s
largest shareholder and the Remuneration Committee Chairperson consulted with a number of large institutional
shareholders.
All the Committee Chairpersons attend the AGM and are available throughout the year to meet shareholders
on request.
Our Engagement
The Group undertakes regular two-way engagement activities with our 26,000+ employees including employee
briefings and Town Halls led by business leadership teams and the ourVoice employee engagement survey followed
by team feedback sessions. During 2019, leader led Kerry Way workshops were held across the global organisation
to communicate and embed the Group’s Purpose and refreshed Values. By the end of the year, 90% of all Group
employees had participated in these workshops.
Updates on employee engagement activities were presented to the Board and the Nomination Committee by the
executives on a regular basis throughout the year. Board members also engaged directly with business leadership
teams and emerging talent when the Board meetings were held in Poland and Naas and during individual visits to
other Group locations.
Material Matters
Key themes identified from employee feedback included enhanced leadership development, refined operating
model and career development opportunities.
Our Response
The Board appointed a designated workforce engagement Director and approved a workforce engagement plan.
The Board provided feedback and insight on, and ultimately approved, The Kerry Way framework, a refreshed set
of Kerry Leadership Competencies and Values, enhancements to the Group’s operating model as well as the action
plans agreed to address the matters raised by employees as part of the ourVoice engagement survey.
Details of employee engagement and activities are outlined in Our People on pages 18-23 and the Sustainability
Review on pages 49-72.
101
Kerry Group Annual Report 2019 Customers &
Consumers
Our Engagement
Kerry operates a proven customer-centric business model that enables us to work side by side with customers as
their co-creation partner of choice. The Group interacts with customers on a daily basis at multiple levels such as
dedicated relationship and account managers and tailored innovation forums. During 2019, the Group conducted a
customer satisfaction survey with its major customers as well as engaging with them as part of the development of
a new sustainability programme.
Feedback from customer engagement activities was discussed at each Board meeting as part of the business
updates provided by the Executive Directors. The Board also received customer related presentations from the
Group Head of Sustainability as well as other senior managers over the course of the year. As part of the Board
visit to Poland in June 2019, Board members engaged directly with representatives of major customers in Eastern
Europe to enhance the Board’s understanding of the Group’s activities and customer requirements in that
marketplace.
Material Matters
Our customers are responding to the unprecedented level of disruption in the food and beverage industry by
delivering authentic products that combine both great taste while meeting nutrition and functionality demands. Key
for customers to win in this fast moving environment is the ability to bring more products to market and at pace.
Our Response
During the year, the Board approved changes to the Group’s operating model to enhance the Group’s ability
to meet customer requirements in the most innovative, effective and efficient way possible. When approving
acquisitions and capital expenditure investments, the Board is mindful of the impact that the decision will have
on the Group’s ability to help our customers to achieve their growth ambitions. The Board approves the Group’s
significant investment in Research & Development activities and together with management ensure that this
resource is focused on those projects that can best meet customers’ needs and thereby enable the Group to
achieve its strategic objectives in relation to revenue growth, margin expansion, return on investment and enabling
food production in a more environmentally sustainable manner. Examples include the launch during the year of
the Group’s Radicle™ brand of plant-based offerings and the investment needed to develop an enhanced predictive
artificial intelligence (AI) tool, Kerry Trendspotter™ to understand new trends in the marketplace.
Further details are outlined in Our Business Model on pages 24-25, Our Strategy on pages 28-30 and the
Sustainability Review on pages 49-72.
Suppliers
Our Engagement
Kerry engages with suppliers on a daily basis to manage ongoing operational activities through a dedicated
procurement function. In addition, the Group has identified key suppliers with whom we have more strategic
relationships.
Updates on supplier engagements were provided to the Board throughout the year by the Executive Directors and
specifically by the Group Head of Sustainability as part of his Board briefings in relation to the Group’s Sustainability
Programme.
Material Matters
Matters of importance to our suppliers include cost recovery, availability of supply and sustainable sourcing,
with the ethical treatment of workers in the supply chain being an area of increasing focus. During 2019, the
impact of Brexit on availability and cost of supply was also a topic which received particular attention in our
Consumer Foods division.
Our Response
Through the Group’s Sustainability Programme, the Board ensures that the organisation works with suppliers
who provide raw materials to the required safety and quality standards, produced on a sustainable basis and
with the proper regard for the fair treatment of all workers in the supply chain.
Further details are outlined in the Sustainability Review on pages 60-63.
Community
Our Engagement
Kerry engages with community representative bodies, charities and leading non-governmental organisations in all
the locations in which it operates. Our employees support community projects in different countries and participate
in our Kerry Volunteer programme.
The Board reviews our local community plan as part of the overall sustainability programme.
Material Matters
Matters of importance include employment and local economic development, environmentally responsible food
production and community support programmes.
Our Response
Details of the Group’s community engagement activities are outlined in the Sustainability Review on pages 68-72.
102
Kerry Group Annual Report 2019 Consideration of Stakeholder Views in
the Decision Making Process
By understanding the matters of importance to our
stakeholders, the Board can consider their needs and
concerns in its decision making. The Board ensures that
material decisions which could impact on stakeholder
groups are taken with due regard to their interests.
During 2019, the Board improved its stakeholder
engagement mechanisms and the procedures to ensure
that stakeholder interests are considered in its discussions
and decision making. The Board is committed to enhance
these procedures further.
Annual General Meeting
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 2 May 2019,
there were no material votes cast against any resolutions.
Whistleblowing Arrangement
The Group’s whistleblowing arrangement includes an
externally facilitated multi-lingual hotline ‘Express a
Concern’ through which all employees and third parties
can raise concerns in confidence about possible wrong
doings in financial reporting and other matters, 24 hours a
day by phone or online.
All whistleblowing incidents are reviewed by the Head of
Internal Audit and formally investigated by the relevant
functional heads depending on the nature of the
concern raised.
In 2019, the Audit Committee reviewed the whistleblowing
incidents and outcomes and provided updates to the
Board which enabled the Board to assess the adequacy
of the whistleblowing arrangements and to review the
reports arising from its operation. The Board is satisfied
that the Group’s whistleblowing arrangements are
operating effectively.
Division of Responsibilities
Chairman and Chief Executive Officer
The roles of the Chairman and Chief Executive Officer
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 Officer, 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 Officer.
Non-Executive Directors
The non-Executive Directors’ main responsibilities are to
review the performance of management and the Group’s
financial information, assist in strategy development,
and ensure appropriate and effective systems of internal
control and risk management are in place. The non-
Executive Directors review the relationship with external
auditors through the Audit Committee and monitor
the remuneration structures and policy through the
Remuneration Committee.
The non-Executive Directors provide a valuable
breadth of experience and independent judgement
to Board discussions.
Company Secretary
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,
ensuring the Company complies with its legal and
regulatory obligations and facilitating appropriate quality
information flows between the business and the Board.
Time Commitment
Under the terms of their appointment all Directors agreed
to the time commitment schedule which requires them to
allocate sufficient time to discharge their responsibilities
effectively. This matter is considered by the Nomination
Committee on an ongoing basis in accordance with its
Terms of Reference.
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. The Board notes that Dr. Hugh Brady
and Ms. Joan Garahy serve on the Board of ICON plc.
The Board is satisfied that they are able to apply objective
and independent judgement to act in the best interest
of the Company.
103
Kerry Group Annual Report 2019 Conflicts of Interest
Under the terms of their appointment all Directors have
continuing obligations to update the Chairman as soon
as they become aware of a situation that could give rise
to a conflict or a potential conflict of interest.
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 107-139 and these reports form part of
the Governance Report.
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, the Committee of which they are members 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
Officer, Senior Independent Director or Company
Secretary in advance of the meeting. During the year,
additional Board meetings were convened to discuss
strategic acquisition opportunities. As a result a total
of 14 meetings were held in 2019, and individual
attendance at the Board and Committee meetings is
set out in the table below.
Directors
Board
Audit
Committee
Nomination
Committee
Remuneration
Committee
Philip Toomey
Edmond Scanlon *
Marguerite Larkin *
Gerry Behan *
Hugh Brady
Gerard Culligan
Karin Dorrepaal
Joan Garahy
James C. Kenny
Tom Moran
Con Murphy
Christopher Rogers
*
Executive Directors
14/14
14/14
14/14
14/14
13/14
13/14
14/14
13/14
13/14
14/14
14/14
14/14
–
–
–
–
6/6
–
–
6/6
–
5/6
–
6/6
4/4
–
–
–
4/4
–
4/4
–
4/4
–
–
–
–
–
–
–
–
–
4/4
4/4
4/4
4/4
–
–
Attendance statistics represent: Total number of meetings attended by the Director / Total number of meetings held during the year.
104
Kerry Group Annual Report 2019 Composition, Succession and Evaluation
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 activities over a week
long period, to allow Directors further develop their
understanding of the Group’s activities and meet with
local senior management and emerging talent. The
June 2019 Board meeting was held in Krakow, Poland.
The visit focused on Kerry’s Taste & Nutrition strategy
for Europe and Russia with presentations received on
strategy, market updates and trading performance from
the Polish, Russian, Eastern Europe and Northern Europe
senior management teams. An economic update on the
Polish market was also presented by an external industry
expert. Representatives from a major customer in Eastern
Europe were also invited to present and engage in
discussion with the Board on their experience of working
with Kerry. While in Poland, the Board hosted a dinner
with key stakeholders including employees, customers,
representatives of government and trade and enterprise
agencies. This provided an informal opportunity for the
Board to engage with stakeholders in the local market.
The November Board meeting was held at the Group’s
Global Technology & Innovation Centre in Naas, Ireland.
During the visit, the Board met with the Taste & Nutrition
European leadership team who briefed Board members
on progress achieved implementing the strategic priorities
for growth across all end use markets in the region.
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. In 2019, the Chairman Mr. Philip
Toomey visited sites in Ireland and France, attended the
opening of a new manufacturing facility in Tumkur, India,
and together with Mr. Christopher Rogers visited the
North America Savoury Taste Centre of Excellence and
manufacturing facility in Clark, New Jersey, USA.
Individual Board members training requirements are
reviewed with the Chairman and Company Secretary and
training is provided to address these needs.
Board Performance Evaluation
In accordance with provisions of the Code, a performance
evaluation of the Board is carried out annually and
facilitated externally every third year.
In 2019, the Board engaged Independent Audit Limited
(Independent Audit) to facilitate the performance
evaluation. Independent Audit, based in the UK, is
recognised as a leading firm of board performance
evaluators. Independent Audit has no connections to
Kerry Group.
The review, performed during October and November
2019, considered the effectiveness of the Board and its
Committees. Independent Audit gathered the views of all
Directors, the Company Secretary and a number of senior
executives through interviews. In addition, as part of
the evaluation process Independent Audit observed the
October Board meeting, the November Audit Committee
meeting and reviewed Board and Committee papers.
The topics covered during the Board performance
evaluation included Board composition and succession
planning, Board remit and responsibility, Board meetings
and communication, strategy, risk, performance and
culture. A thorough discussion followed a presentation
of the findings made to the Board by Independent Audit
at the December Board meeting. Each Committee also
considered the observation specific to their work.
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.
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.
Overall, the Board concluded that the outcomes of
the evaluation process have been positive and have
confirmed to the Chairman that the Board and its
Committees operate effectively, and that each Director
contributes to the overall effectiveness and success of the
Group. The actions identified from the 2019 performance
evaluation included recommendations to improve certain
Board reporting and the approach to specific areas of risk
management.
Progress against recommendations from the previous
internal evaluation were also considered and the Board is
satisfied that improvements have been made which have
enhanced the operation and effectiveness of both the
Board and its Committees.
The Chairman, along with the Company Secretary, will
ensure that actions identified from the 2019 report
and areas for consideration arising from the Directors’
appraisal, where identified, will be considered during 2020.
105
Kerry Group Annual Report 2019 – 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 Consolidated Financial Statements, taken as a whole,
provides the information necessary for shareholders
to assess the Group’s and Company’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 outlined
on page 109.
Audit, Risk and Internal Control
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 107-111.
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 75-88. Emerging risks are also identified,
analysed and managed as part of the same process as
the Group’s other principal risks as described on page 75.
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 2019, 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.
Features of Internal Control in Relation
to the Financial Reporting Process
The main features of the internal control and risk
management systems of the Group in relation to the
financial reporting process include:
– The Board review and approve a detailed annual budget
and monitor performance against the budget through
periodic Board reporting;
106
Kerry Group Annual Report 2019 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 2019.
DIRECTORS’ REPORT
GOVERNANCE REPORT
AUDIT COMMITTEE REPORT
The report details how the Audit
Committee fulfilled its responsibilities
during the year under the 2018 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 continued to
focus our efforts on the Committee’s
core areas of responsibility of
maintaining integrity across all
aspects of Group financial reporting,
internal control, risk management
and audit quality. The chart on
page 108 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 110.
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 Consolidated 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. The work
completed in this regard is set out on
page 109.
As outlined on page 111, 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
auditor is detailed on pages 110-111.
An external review of the Committee
was conducted by Independent Audit
Limited (Independent Audit) during
2019 and the outcome of this review
was that the Committee was satisfied
that it is operating effectively. Further
details are set out on page 108.
In July, together with the Chairman
of the Board, Mr. Philip Toomey, I
visited the North American Savoury
Taste Centre of Excellence and
manufacturing facility in Clark,
New Jersey, USA and met with key
members of the North American
leadership team. On a number of
occasions during the year I also
visited the Global Technology &
Innovation Centre in Naas, Ireland
where I met with members of senior
management and the Group Internal
Audit team.
I trust you will find this report useful
in understanding the operation
and activities of the Committee
during 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
107
Kerry Group Annual Report 2019
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 its 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 and
ensuring that it is operating effectively;
– Making recommendations to the Board in relation to the
appointment, re-appointment 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
Consolidated Financial Statements, when taken as a whole
is fair, balanced and understandable;
– Supporting the Board in assessing the effectiveness of the
Group’s whistleblowing arrangements; and
– Advising the Board in relation to compliance with stock
exchange and other legal or regulatory requirements.
During the year, the Audit Committee Chairman provided
a letter to the Board outlining how the Committee
discharged its duties in 2019.
Committee Membership
During 2019, 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.
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.
The Board is satisfied that together, the members of
the Committee, as set out in their biographical details
on page 91, 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.
108
Committee Meetings
The Committee met six times during the year and
attendance at these meetings is detailed on page 104.
Typically, the Chief Executive Officer, the Chief Financial
Officer, the Group Financial Controller, the Company
Secretary 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
As outlined in detail on page 105, an external review of
the Board and its Committees took place in 2019. This
process was externally facilitated by Independent Audit.
The evaluation was carried out based on interviews held
between Independent Audit and the Chair, Committee
members and the Head of Internal Audit. In addition,
as part of the evaluation process, Independent Audit
observed the November Committee meeting and
reviewed the corresponding papers. The Committee
considered the outcome of this review and a number of
recommendations were agreed relating to the Group’s
approach to specific areas of risk management which will
form part of the agenda for the Committee meetings in
the coming year.
Kerry Group Annual Report 2019 During the year, the Audit Committee also completed
an internal review of its own effectiveness. On the basis
of both the external and internal reviews, the Audit
Committee was deemed to have operated effectively
during the period under review. 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
Group’s external auditor.
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 Consolidated 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 Consolidated 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 below sets out the significant matters considered by
the Committee in relation to the Consolidated Financial
Statements for the year ended 31 December 2019.
Significant Financial Reporting Judgements
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 Consolidated Financial
Statements, including key milestones as presented
at the December Audit Committee meeting;
– the systematic approach to review and sign-off carried
out by senior management with a focus on consistency
and balance;
– a detailed report from senior finance management
was presented to the Audit Committee outlining the
process through which they assessed the narrative and
financial sections of the 2019 Annual Report to ensure
that the criteria of fair, balanced and understandable
has been achieved; and
– the draft Annual Report and Consolidated 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 Consolidated 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.
Business
Combinations
The Group acquired eleven 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 Consolidated Financial Statements,
represents the largest number on the Group balance sheet at €3.9 billion. 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.
109
Kerry Group Annual Report 2019 – 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 (IPPF) of
the CIIA. The most recent EQA was completed in 2017
and the next review will be completed in 2022. On an
annual basis, to ensure ongoing compliance with the
IPPF, the Internal Audit function has a Quality Assurance
and Improvement Program (QAIP) in place.
On the basis of the above the Committee concluded that
for 2019 the Internal Audit function operated effectively
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, re-appointment 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 current audit lead
engagement partner on the Group’s audit is John
McDonnell who was appointed in 2016 and it is planned
that he will rotate off the team at the end of the audit
of the results for financial year 2020 in order to ensure
continued independence and objectivity.
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, including emerging risks, that
could impact the achievement of the Group’s strategic
objectives as described on pages 76-87;
– 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 matters
which occurred during the year and approved plans to
address and remediate the issues identified;
– received updates from the Group Financial Controller
on any control weaknesses identified through monthly
financial review meetings;
– considered the results of the Kerry Control Reporting
System (the internal control self-assessment review of
material finance, operational and compliance controls)
and concluded that the controls are operating
effectively;
– assessed the Group’s risk management and internal
control framework in line with the FRC Guidance
on Risk Management, Internal Control and Related
Financial and Business Reporting; and
– 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;
110
Kerry Group Annual Report 2019 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.
In 2019, all non-audit services and fees were approved by
the Audit Committee in line with policy. The Committee
is satisfied that the non-audit 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 2018 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 2019 Consolidated
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
– their 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
PwC were appointed as Group auditor in March 2016
following a comprehensive tender process which was
overseen by the Audit Committee. On an annual basis,
the Committee reviews 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 2020.
The Audit Committee approved the remuneration of the
external auditor, details of which are set out in note 3 to
the Consolidated Financial Statements.
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
In accordance with the Provisions of the Code,
the responsibility for overseeing whistleblowing is
within the remit of the Board. During 2019, at the
request of the Board, the Committee considered the
Group’s whistleblowing arrangements and assisted
the Board in its assessment of the adequacy of these
arrangements. Details of the Group’s whistleblowing
arrangements are outlined in the Corporate Governance
Report on page 103.
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 fraud prevention procedures
were adequate.
111
Kerry Group Annual Report 2019 DIRECTORS’ REPORT
GOVERNANCE REPORT
NOMINATION COMMITTEE REPORT
ensuring that an orderly succession
for senior management, having
regard to diversity targets, exists.
The Committee also considered
changes implemented by the
Board and other Committees to
comply with the requirements of
the new Code.
An external review of the
effectiveness of the Board and
its Committees was facilitated by
Independent Audit Limited during
2019 and the outcome of this review
is that the Board and its Committees
consider that they are operating
effectively.
The Committee’s priorities for the
coming year will focus on Board
refreshment taking account of
all skill sets required, diversity
and planned retirements over
the coming years, as well as
ensuring that senior management
development and succession
planning can support the delivery of
Group strategy. The Committee will
also continue to focus on diversity
and inclusion in the wider workforce.
Philip Toomey
Chairman of the Nomination Committee
The Nomination Committee is
responsible for evaluating the
structure, size, composition and
successional needs of the Board
and its Committees 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.
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, and that a
pipeline of appropriate talent has
been identified. The Committee
engaged with independent
external search consultants to
identify an appropriate pipeline of
new independent non-Executive
Directors.
The Committee also reviewed
senior management development
and succession plans whilst having
regard to diversity below Board
level and taking account of business
growth and geographic expansion.
During 2019, the Committee
reviewed the Company’s corporate
governance policy and processes
in the context of the 2018 UK
Corporate Governance Code (the
new Code) and implemented
appropriate changes. These changes
included appointing a designated
workforce engagement Director and
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 2019.
This report sets out the
Committee’s key activities
in 2019 as well as the
Committee’s priorities
for 2020.
112
Kerry Group Annual Report 2019 Role and Responsibilities
The main roles and responsibilities of the Committee,
which were reviewed during 2019, 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 2019, the Nomination Committee comprised
three independent non-Executive Directors; Dr. Hugh
Brady, Dr. Karin Dorrepaal, Mr. James C. Kenny and was
chaired by Mr. Philip Toomey.
The Board ensures that the membership of the
Nomination Committee is refreshed in accordance with
the Group’s Corporate Governance Policy. The quorum for
Committee meetings is two and only Committee members
are entitled to attend. The Nomination Committee
may extend an invitation to other persons to attend
meetings or to be present for particular agenda items as
required. The Company Secretary acts as Secretary of the
Committee.
During 2019, the Committee continuted to work with
Spencer Stuart, an international specialist recruitment
firm, to assist with Board refreshment. Spencer Stuart
has no other connection to the Group.
Committee Meetings
The Committee met four times during the year and
attendance at these meetings is outlined on page 104.
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 re-appointment of any non-
Executive Director at the conclusion of their specified term
and the re-election of all Directors who are the subject of
annual rotation. The terms and conditions of appointment
of non-Executive Directors are set out in formal letters
of appointment, which are available for inspection at the
Company’s registered office during normal office hours
and at the 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
– Board of Directors consider the candidate(s)
recommended by the Committee and
approve the candidate(s)
6. Approval
– In accordance with the Articles of
Association, all newly appointed Directors
are subject to election at the AGM following
their appointment
113
Kerry Group Annual Report 2019
Board Refreshment Policy
On an ongoing basis, the Nomination Committee reviews
and assesses the structure, size, composition, diversity and
overall balance of the Board and makes recommendations
to the Board with regard to refreshment.
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 other 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.
Succession Planning
The Nomination Committee reviews the succession
plans for the Board and its Committees on an ongoing
basis to ensure an orderly refreshment of membership,
taking into account Group strategy, the challenges and
opportuntities facing the Group and the skills, knowledge
and experience required.
The Committee also reviews succession plans for
senior management, which form part of the Group’s
overall annual approach to succession planning and
agrees these with the Chief Executive Officer before
being presented to the Board. The succession planning
process includes defining success criteria for key roles,
identifying and evaluating candidate pools and aligning
development activities with individual and business needs
to ensure leadership continuity and improve the depth
of the leadership succession pipeline. This process is
fully documented and monitored throughout the year in
conjunction with the Committee.
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.
Executive
25%
The Group’s Diversity, Inclusion and Belonging 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 gender,
background, nationality, ethnicity and other attributes
with the skills and experiences to drive innovative thinking
to enable a sustained competitive advantage.
Non-Executive
Female
75%
25%
Executive
25%
Male
75%
100%
80%
60%
40%
The Board believes in the benefits of having a diverse
Board and the value that it can bring to its effective
operation. In accordance with the Board Diversity Policy,
differences in background, gender, skills, experiences,
Board
2019
0%
20%
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. In
line with its diversity policy, and recommended best
practice, the Board’s ambition is to increase this number
further. The Board also has an ambition to increase the
representation of members with diverse factors such as
nationality, ethnicity and other attributes. 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 search 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.
During 2019, diversity targets for the senior management
succession pipeline were agreed with the Executive
Directors and approved by the Board to ensure the
leadership teams and internal talent pipelines better
reflect the broader mix of people within the Group.
Further details of the Group Diversity, Inclusion and
Belonging Policy, and the activities undertaken on diversity
and inclusion are outlined in Our People on page 20.
A summary of the Group’s current position relating to
Board and senior management diversity is provided below:
Executive / Non-Executive Directors
Non-Executive
75%
Non-Executive
75%
Executive
25%
Executive
25%
11-15
8%
6-10
3-5
11-15
8%
6-10
25%
3-5
25%
0-2
25%
25%
17%
25%
0-2
17%
25%
10% 20% 30% 40% 50%
0%
0%
10% 20% 30% 40% 50%
Executive
Directors
Non-Executive
Directors
Executive
Directors
Non-Executive
Directors
11-15
8%
Female
26%
25%
25%
Male
74%
17%
25%
61-66
56-60
25%
33%
61-66
25%
56-60
33%
Diversity
Non-Executive
75%
100%
80%
Female
25%
Female
25%
Female
6-10
25%
Female
25%
Female
25%
60%
Female
25%
Female
26%
3-5
40%
Male
75%
Male
75%
Male
75%
0-2
Male
75%
20%
Male
75%
Male
75%
Male
74%
0%
Board
2019
Board
2018
Senior
Management
2019
Executive
Senior
Directors
Management
2018
Non-Executive
40-55
Directors
0% 10% 20% 30% 40% 50%
42%
0%
10% 20% 30% 40% 50%
40-55
42%
100%
80%
60%
40%
20%
0%
Board
2019
Board
2018
Board Tenure (Years)
Senior
Management
2019
Female
25%
11-15
Female
8%
25%
Female
26%
6-10
3-5
Male
75%
Male
75%
25%
Male
74%
25%
0-2
17%
25%
Board
2018
10% 20% 30% 40% 50%
0%
Senior
Management
2019
Senior
Management
2018
Executive
Directors
Non-Executive
Directors
Senior
Management
2018
Board Age Profile
0% 10% 20% 30% 40% 50%
61-66
25%
56-60
40-55
33%
42%
0% 10% 20% 30% 40% 50%
114
100%
80%
60%
40%
20%
0%
Female
25%
Female
25%
Female
25%
Female
26%
Male
75%
Male
75%
Male
75%
Male
74%
61-66
25%
56-60
40-55
33%
42%
Board
2019
Board
2018
Management
Management
Senior
2019
Senior
2018
0% 10% 20% 30% 40% 50%
Kerry Group Annual Report 2019 Key Activities
The key activities of the Committee throughout the year are detailed below:
Subject
Committee Activity
Board
Refreshment
There were no changes to the Board during the year. The Committee continues to consider Board
refreshment and build a succesion pipeline taking account of all skill sets required, diversity and
planned retirements over the coming years.
The Committee engaged with independent external search consultants Spencer Stuart to assist and
advise on the strategy for Board succession and refreshment in the future.
Committee
Refreshment
There were no changes to the composition of the Board Committees during the year. The Committee
will continue to consider Committee refreshment over the coming years.
Board Size and
Composition
In 2019, as part of its remit, the Committee considered the size and composition of the Board. At 31
December 2019, the Board comprised 12 members. The Committee will continue to consider both
Board size and composition during 2020.
Re-appointment
of Chairman
During the year, Mr. Philip Toomey completed his current term as non-Executive Director and Chairman.
After detailed consideration, including a review of his performance and tenure, the Board, upon the
recommendation of the Committee agreed that he should serve an additional term.
Re-appointment of non-
Executive Directors
During the year, Mr. James Kenny and Ms. Joan Garahy each completed their current 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 next AGM.
Board and Committees
Effectiveness
Evaluation
As outlined in detail on page 105, an external evaluation of the Board and its Committees took place in
2019. The Committee agreed the terms of reference for the evaluation of the Board and its Committees.
This process was externally facilitated by Independent Audit. The evaluation was carried out based on
interviews held between Independent Audit and the Chair, Board members, the Company Secretary
and other senior executives. Independent Audit observed the October Board meeting, the November
Audit Committee meeting and reviewed Board and Committee papers. A thorough discussion followed a
presentation of the findings made to the Board by Independent Audit at the December Board meeting.
The Committee considered the outcome of this review. Each recommendation was assessed and an
action plan was developed to address areas for potential improvement.
These recommendations will form part of the agenda for Committee meetings in the coming year. The
conclusion from the evaluation process is that the Board and its Committees, have operated effectively
during the period under review.
Senior Management
Development and
Succession
During the year, the Committee reviewed senior management development and succession plans
having regard to agreed diversity targets to ensure the appropriate level of skills and diversity will exist
to support the delivery of the Group’s strategy.
Corporate Governance
Review
During 2019, the Committee reviewed the Company’s corporate governance policy in the context of
the 2018 UK Corporate Governance Code, with particular reference to new guidance in respect of
Board and management diversity, director independence, Purpose, assessing and monitoring culture
and effective engagement with stakeholders including the workforce. On the recommendation of the
Committee, Mr. Tom Moran was appointed designated workforce engagement Director.
Terms of Reference
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.
115
Kerry Group Annual Report 2019 DIRECTORS’ REPORT
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
As an Irish incorporated company
Kerry is not required to comply with
the UK legislation which requires
UK companies to submit their
remuneration policies to a binding
shareholder vote every three years.
However, as a matter of best corporate
governance practice, we submitted our
Remuneration Policy to a non-binding
advisory vote at the 2018 Annual
General Meeting (AGM).
The Committee is satisfied that the
policy has operated as intended and
that no changes are needed as a result
of a review of its operation in 2019
or for any other reason. No changes
are therefore proposed for this year.
The Committee will undertake a full
review of the policy in 2020 in order
to bring the policy to shareholders
at our 2021 AGM which is the third
anniversary of shareholders approving
our current policy. As part of the policy
review the Committee will take into
account the requirements of the EU
Shareholders’ Rights Directive which
we expect will be transposed into Irish
law during the course of 2020 as well
as the requirements of the 2018 UK
Corporate Governance Code to which I
refer further below.
2018 UK Corporate
Governance Code
During 2019, the Committee
broadened its remit and implemented
the other new requirements of the
2018 UK Corporate Governance Code
other than those which may result in
structural changes to the Remuneration
Policy. The Committee will give careful
consideration to these requirements as
part of the policy review which will be
undertaken in 2020.
The Committee has agreed that for new
appointments to the Board pension
contribution rates, or payments in lieu,
will be aligned with those available to
the majority of the workforce in their
country of appointment.
Pay for Performance
The Committee ensures alignment
with shareholders’ 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 32, 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.
Joan Garahy
Chairperson of the
Remuneration Committee
Section A:
Chairperson’s
Annual Statement
Dear Shareholder,
On behalf of the Remuneration
Committee, I am pleased
to present the Directors’
Remuneration Report for the
year ended 31 December 2019.
Remuneration Policy
The Group’s Remuneration Policy
is outlined in Section C on pages
121-126. This Policy provides the
framework for remuneration decisions
made by the Committee for the
three year period 2018 - 2020. 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 applicable
best market practice. Furthermore,
it ensures that Executive Director
remuneration is aligned to the Group’s
Purpose and Values and can be clearly
linked to the successful delivery of the
Group’s strategy.
116
Kerry Group Annual Report 2019
Remuneration Policy Implementation 2020
During 2019, the Committee considered the operation of the 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 Purpose, Values
and long term strategy. The Committee considered, as part of its review, the remuneration and policies applicable to the
general workforce. The Committee concluded that no changes are required to the operation of the policy for 2020.
Basic Salary
For 2020, the basic salaries of the Executive Directors will be increased in line with increases for the general workforce
(a range of 2.5% - 3%) in Ireland and the US respectively.
2020 Short and Long Term Incentive Plans
As part of its review, the Committee considered the performance metrics, weightings and target calibration for the STIP and
LTIP incentive schemes to ensure that they continue to support the strategic plan and long term sustainable success of the
Group. The Committee concluded, following the review, that the schemes are operating as intended and no changes will be
made to the metrics and weightings for 2020. Annual bonus maximum opportunity and the LTIP award levels will also remain
unchanged for 2020.
Non-Executive Director Fees for 2020
€700
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 and
€600
Committee fees for 2020.
€500
€400
During 2019, the Board approved the appointment of Mr. Tom Moran as the designated workforce engagement Director.
The Committee approved an additional annual fee of €12,000 for this position. The Committee plans to undertake a review
€300
of the non-Executive Directors’ remuneration policy and fee levels in 2020.
€200
Remuneration Policy Outturn 2019
€100
In 2019, the Group delivered a good financial performance with constant currency adjusted earnings per share growth of
8.3% driven by volume growth, well ahead of our markets, and a 30bps expansion in trading margin. The performance table
below shows the performance versus target for the key metrics in our STIP and LTIP plans.
2019
2009
2010
2011
2013
2012
2015
2016
2014
2017
2018
€0
2019 STIP Performance
Target
Results
2017-19 LTIP Performance (3 years)
Target
Results
Kerry
MSCI Europe Food Producers
E300 Food & Beverage
Group volume growth
3.0%
2.8%
Adjusted EPS growth in
constant currency
Group margin expansion
20 bps
30 bps
Total Shareholder Return
10%
8.8%
Median to 75th
percentile
Top Quartile
Group cash conversion
70%
73.9%
ROACE
12%
12.3%
As can be seen in the Total Shareholder Return graph Kerry has generated a 100% return for shareholders (including
reinvestment of dividends) over the last 5 years.
5 Year Total Shareholder Return
(Value of €100 Invested on 31/12/2014)
€200
€180
€160
€140
€120
€100
2014
2015
Kerry
2016
2017
2018
2019
MSCI Europe Food Producers
E300 Food & Beverage
117
5 year share
Kerry Group Annual Report 2019
2019 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.
TSR Growth, Enterprise Value Growth & Annual
Incentive Payout
Discretion
The Committee is satisfied, in reviewing the remuneration
for 2019 against performance that there has been an
appropriate link between reward and performance and
that discretion did not need to be used. In assessing
performance, the Committee considered relevant
environmental, social, and governance matters that it
needed to take account of when reviewing the
remuneration outcomes.
120
Other Matters
Appointment of Remuneration Committee
Advisor
During 2019, the Committee completed a formal tender
process for the appointment of its advisor which included a
number of leading remuneration advisory firms. Following
the conclusion of this process, the Committee selected Korn
Ferry as its Remuneration Advisor and they assumed the
role with effect from 16 September 2019.
100
80
60
Committee Performance
An external review of the Committee was conducted by
40
Independent Audit Limited during 2019 and the outcome
of this review was that the Committee is operating
effectively. Further details are set out on page 105.
20
Conclusion
The Committee continues to review the Group’s
0
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.
120
As in previous years, the Remuneration Report is being put
to shareholders for an advisory vote. Last year 94.4% of our
100
shareholders who voted, voted in favour of the Report
and I hope our shareholders continue their support at
this year’s AGM.
80
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.
60
40
Joan Garahy
Chairperson of the Remuneration Committee
20
0
TSR Growth
120%
EV €’billion
24
100%
80%
60%
40%
20%
0%
57%
63%
75%
59%
73%
2015
2016
2017
2018
2019
TSR Growth (%)
Annual Incentive Achieved
as a % of Maximum Opportunity
Enterprise Value (€’billion)
20
16
12
8
4
0
TSR Growth
120%
EV €’billion
24
100%
80%
60%
40%
20%
0
46%
57%
63%
75%
59%
73%
2014
2015
2016
2017
2018
2019
TSR Growth (%)
Annual Incentive Achieved
as a % of Maximum Opportunity
Enterprise value (€ billions)
20
16
12
8
4
0
For 2019, STIP payouts to Executive Directors were on
average 73% of the maximum available opportunity. The
Committee exercised independent judgement when
authorising this outcome and considers it 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 2017-2019 Outturn
The final outturn of the 2017-19 LTIP award was 62.8%
of maximum opportunity. The Committee exercised
independent judgement when authorising this outcome
and considers it to be reflective of the Group’s underlying
performance during the three year performance period.
CEO Pay Ratio
While not a requirement for Irish listed companies, in line
with the Group’s commitment that its remuneration policies,
practices and reporting reflect best corporate governance
practices the Committee has quantified and disclosed the
CEO pay ratio in this year’s report.
118
Kerry Group Annual Report 2019
Section B: Remuneration
Committee & Key Activities
Primary Responsibilities of the Remuneration
Committee
Committee Membership
During 2019, 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 90-91.
Role and Responsibilities
On behalf of the Board, the Remuneration Committee is
responsible for determining the remuneration policy for
the CEO and other Executive Directors and, following the
new Code, senior management 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 main responsibilities of the Committee, which
were reviewed during 2019, are set out in written terms of
reference which are available from the Group’s website
www.kerrygroup.com or upon request.
– To determine the remuneration policy for, and set the
remuneration of the CEO, Executive Directors and senior
management;
– To review the remuneration of the Chairman;
– To receive the recommendations of the CEO and set the
salaries and overall remuneration of senior management;
– 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 and
senior management are deemed fair and reasonable;
– To place before shareholders at each AGM, a Directors’
Remuneration Report setting out the Group’s policy and
disclosures on remuneration;
– To arrange where appropriate, external benchmarking of
overall remuneration levels and the effectiveness of 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 2019
The Committee met four times during the year and attendance at these meetings is outlined on page 104.
The key activities undertaken by the Committee in discharging its duties during 2019 are set out below:
Subject
Remuneration Committee Activity
Remuneration
Report
A review of best practice remuneration reporting was completed during 2019 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, the EU Shareholders’ Rights Directive (which has
not yet been transposed into Irish law), the 2018 UK Corporate Governance Code and the UK Companies
(Miscellaneous Reporting) Regulations 2018.
2018 UK Corporate
Governance Code
The Committee considered the implications of the 2018 UK Corporate Governance Code and as a
consequence broadened the remit of the Committee and implemented the other changes required
by the new Code excluding those that may result in structural changes to the Remuneration Policy.
The Committee will carefully consider these structural changes as part of the Executive Directors’
remuneration policy review in 2020.
Basic Salary
The Committee continued to monitor the level of basic salaries of the CEO and Executive Directors in line
with market practice.
See Implementation Section on page 127 for details on the outcome of the review.
Short Term Incentive
Plan (STIP)
The metrics for the STIP awards were reviewed during 2019 to ensure they continue to be aligned with
Group strategy and that the associated targets are appropriately stretching.
See Implementation Section on page 127 for details on the outcome of the review.
119
Kerry Group Annual Report 2019
Subject
Remuneration Committee Activity
Long Term Incentive
Plan (LTIP)
The Committee considered the overall effectiveness of the LTIP in 2019 to ensure that the metrics
continue to be aligned with Group strategy and that the associated targets are appropriately stretching.
See Implementation Section on page 128 for details on the outcome of the review.
Chairman &
Non-Executive
Directors’ Fees
In line with the normal 3 year cycle a detailed 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’s fees and the Executive Directors monitor
those of the non-Executive Directors and report to the Board.
During 2019, the Board approved the appointment of Mr. Tom Moran as the designated workforce
engagement Director. The Committee approved an additional annual fee of €12,000 for this position.
See Implementation Section on page 128 for details of current fee levels.
Senior Management
In accordance with the terms of the new Code the Committee set the remuneration arrangements for
senior management and the Company Secretary.
Workforce
Remuneration and
Related Policies
During the year, the Committee was provided with information on pay policies and procedures for the
wider workforce to consider and review fairness and alignment with Group strategy and the Executive
Directors remuneration policy, as well as to inform its decision making in relation to Executive Director
remuneration. This included an update on the Total Reward Review that is underway across eight
countries representing 80% of the wider workforce and an overview of 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.
Shareholder
Consultation
In early 2019, the Committee consulted with a number of the Company’s major institutional shareholders
and with proxy agencies regarding the proposed increase to the CEO’s salary. The Committee welcomed
the engagement and the shareholders consulted were supportive of the proposal put forward.
The Committee reviewed the results of the shareholder vote on the Remuneration Report at the 2019
AGM noting that 94.4% of shareholders supported the Report. The Committee also reviewed the
additional feedback received from the shareholder proxy agencies.
Committee Evaluation
As outlined on page 105 an external review of the Board and its Committees took place in 2019.
The outcome of the review is that the Remuneration Committee is operating effectively.
Appointment of
Remuneration
Committee Advisor
During 2019, the Committee conducted a formal tender process for the appointment of its principal
advisor. The process involved a Request for Proposal, submissions by a number of leading remuneration
advisory firms and presentations to the Committee Chair. Following the conclusion of this process the
Committee selected Korn Ferry as its Remuneration Advisor and they assumed the role with effect from
16 September 2019 replacing Willis Towers Watson who retired on the same date.
Terms of Reference
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.
Work of the Committee in determining Executive Director Remuneration
The Committee considers the appropriateness of the Executive Directors’ remuneration not only in the context of overall
business performance and environmental, governance and social matters but also in the context of wider workforce pay
conditions (taking into account workforce policies and practices) and external market data to ensure that it is fair and
appropriate for the role, experience of the individual, responsibilities and performance delivered.
Furthermore the Committee is satisfied, in reviewing the remuneration for 2019 against performance that there has been an
appropriate link between reward and performance and that discretion did not need to be used. In assessing performance,
the Committee considered relevant environmental, social, and governance matters that it needed to take account of when
reviewing the remuneration outcomes.
The Committee concluded that the Policy has operated as intended, that there was a strong link between pay and performance
and that no changes to the Policy are needed as a result of the review of operation in 2019.
Remuneration Committee Advisors
The Remuneration Committee is authorised by the Board to appoint external advisors. Korn Ferry were appointed as
Remuneration Committee Advisor in 2019. Korn Ferry has also provided other human capital related services to the Group
during the year through a separate part of the business. The Committee is comfortable that the controls in place at Korn
Ferry do not result in the potential for any conflicts of interest to arise.
The fees incurred with Korn Ferry and Willis Towers Watson for advising the Committee in 2019 were €45,400 (2018: €nil)
and €46,900 (2018: €81,000) respectively.
120
Kerry Group Annual Report 2019 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 every three years or earlier if
changes are required prior to this. However, in recognition
of the commitment 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.
Similarly, Kerry Group plc is not required to comply with
the remuneration reporting regulation contained in the
UK Companies (Miscellaneous Reporting) Regulations 2018
but follows the requirements as a matter of best practice
unless they conflict with Irish or other legal requirements
or there are other reasons where it is considered not
practicable to do so.
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.
The Committee is comfortable that the policy remains
appropriate supporting the Group’s business strategy and
that no changes are required prior to the triennial vote at
the 2021 AGM. The current policy is reproduced below for
ease of reference. The Committee will review the policy in
2020 and a new policy will be brought to shareholders for
approval at the 2021 AGM.
Following the publication of the 2018 UK Corporate
Governance Code, the Committee implemented all of the
changes recommended by the new Code, other than those
that may result in structural changes to the Remuneration
policy in order to better align with emerging best practice.
Changes implemented during 2019 include broadening of
the Committee’s remit to include responsibility for setting
the remuneration of senior management and the Company
Secretary. The Committee also decided that the pension
contribution rates for any newly appointed Executive
Directors will be aligned to those available to the general
workforce in the country in which they are appointed.
The Committee will give careful consideration to the
Code Provisions that may result in structural changes to
the current Remuneration Policy as part of its scheduled
overall review of policy during 2020. The structural changes
for consideration are extending the existing two year
holding period from 50% to 100% of any LTIP awards
that vest, broadening the existing malus and clawback
provisions, formalising a post-employment shareholding
policy and reviewing the pension contribution rates for
incumbent Executive Directors. The pension contribution
rates for both the CEO and CFO were reduced to 18%
on their appointment in 2017 and 2018 respectively. The
contribution rates for their predecessors were 24% and
30% respectively.
The Committee will also consider, as part of the policy
review, the requirements of the EU Shareholders’ Rights
Directive which have not yet been transposed into Irish law,
in anticipation of this happening during 2020.
The Group’s Executive Director remuneration philosophy
is to ensure that executive remuneration is aligned to the
Group’s Purpose and Values, supports strategy, promotes
the long term success of the Company and properly reflects
the duties and responsibilities of the executives, and is
structured 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
promote long term sustainable growth and 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
and beverage and other sectors. It also considers workforce
remuneration and related policies 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. When authorising
remuneration outcomes, the Committee exercises
independent judgement and discretion, taking account of
Group and individual performance as well as the investor
experience, environmental, governance and social matters
and wider workforce pay conditions to ensure that it is fair
and appropriate for the role, experience of the individual,
responsibilities and performance delivered.
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.
121
Kerry Group Annual Report 2019 The Committee considers that the Executive Director remuneration policy and practices address the matters set out in the
Code as outlined below:
Matters
Examples
Clarity
The policy is clear, uncomplicated and well understood by the Executive Directors. It has been clearly
communicated to shareholders and proxy agencies. Our Chief Human Resources Officer’s (CHRO)
role has direct responsibility for engaging with our employees and collaborates closely with Mr. Tom
Moran, our designated workforce engagement Director. The Committee monitors the effectiveness
of engagement with the wider workforce through updates provided by the CHRO and the designated
workforce engagement Director. The Board is comfortable that our remuneration policy is clearly
understood by employees.
Simplicity
The Committee considers that the current remuneration policy is simple and well understood.
Risk
Predictability
The remuneration policy is aligned with the strategy and business model of the Group. The Committee
has purposefully avoided any complex structures which have the potential to be misunderstood and
deliver unintended outcomes.
The remuneration policy is designed to discourage inappropriate risk taking and to ensure that it is
not rewarded. This is achieved by (i) the balanced use of both short term and long term incentive plans
which employ a blend of financial, non financial and shareholder return targets (ii) the significant role
played by equity in our incentive plans together with shareholding requirements and (iii) malus and
clawback provisions.
Executive Directors’ remuneration is subject to individual participation caps, with our share based
plans also subject to market standard dilution limits. The scenario charts on page 126 illustrate how the
rewards potentially receivable by our Executive Directors vary based on performance delivered and
share price growth.
Proportionality
There is a clear link between individual rewards, delivery of strategy and long term performance. In
addition, the significant role played by STIP and LTIP / ‘at risk’ pay, together with the structure of the
Executive Directors service contracts, ensures that poor performance is not rewarded.
Alignment to Culture
Kerry has a relentless focus to delivering for our shareholders and other stakeholders and this is fully
aligned with our remuneration policy in that employee personal success is directly linked to the success
of the Group through the short term and long term incentive plans and targets we operate.
The Committee is satisfied the remuneration policy is fully aligned with the Group’s diverse,
entrepreneurial and results focused culture which is underpinned by our Values of Courage, Ownership,
Inclusiveness, Open-mindedness and Enterprising Spirit.
122
Kerry Group Annual Report 2019 Remuneration Policy Table
The following table details the remuneration policy for the 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
Pension
To provide competitive retirement
benefits to attract and retain
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
– Pension values may
vary based on local
practice
– Not applicable
– Pension arrangements may vary based on the
executives’ location
– Irish resident Executive Directors participate
in the general employee defined contribution
pension scheme or receive a contribution to
an after tax savings scheme (where the lifetime
earnings cap has been reached)
– The existing Executive Director in the US
participates in the Group’s defined benefit and
defined contribution pension schemes
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
A 25% deferral in shares/options
provides a 2 year retention element
and aligns Executive Directors
interests with shareholders’ interests
– Achievement of predetermined performance
targets set by the Remuneration Committee
– Performance targets aligned to published strategic
targets
– 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 and clawback provisions are in place for
awards under the STIP (see page 125)
– 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
123
Kerry Group Annual Report 2019 Purpose and Link to Strategy
Operation
Opportunity
Performance
Metrics
Long Term Performance Related Incentives (LTIP)**
Retention of key personnel and
incentivisation of sustained
performance against key Group
strategic metrics over a longer
period of time
Share based to provide alignment
with shareholder interests
A 50% deferral provides a
retention element and aligns
Executive Directors’ interests with
shareholders’ interests
Shareholding Requirement
– The awards vest depending on a number of
– Maximum opportunity
– Adjusted
separate performance metrics being met over a
three year performance period
is 180% - 200% of
basic salary
Earnings Per
Share
– Conditional awards over shares or share options
in the Group
– 50% of the earned award delivered at vesting
date
– Target opportunity
is 50% of maximum
opportunity for on-
target performance
– 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 and clawback provisions are in place for
awards under LTIP (see page 125)
– Total
Shareholder
Return
– Return on
Average
Capital
Employed
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
– 180% - 200%
of basic salary
*
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.
Service Contracts
The CEO and Executive Directors 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 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.
Pension and benefits 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 above. 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/she joins the Board.
Subject to the rules of the scheme, an LTIP award may be granted after joining the Group.
124
Kerry Group Annual Report 2019 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.
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; and
– 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.
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 the malus and clawback provisions to former directors STIP and LTIP awards. Other
elements of remuneration are not subject to malus or clawback provisions.
Alignment with Workforce Pay and Policies
The remuneration policy provides an overview of the structure that operates for the Company’s Executive Directors and
senior management. Differences in quantum will depend on size of the role and responsibility, the location of the role and
local market practice.
When setting the remuneration policy for Executive Directors, the Remuneration Committee considers the pay policies and
procedures for the wider workforce. The key difference is that, overall, remuneration policy for the Executive Directors is
more heavily weighted towards variable pay compared to other employees.
Basic salaries are operated under the same policy as detailed in the remuneration policy table with comparator groups used
as a reference point. The Committee considers the basic salary increase for the broader workforce when determining the
annual salary review for the Executive Directors.
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.
125
Kerry Group Annual Report 2019 Alignment with Culture
When setting the metrics for the STIP for Executive
Directors, the Remuneration Committee set financial,
personal and strategic objectives which are fully aligned
with and reinforce the cultural priorities of the Group.
Details of financial, personal and strategic objectives are
outlined on pages 130-131.
Consultation with Employees
While the Committee currently does not consult directly
with employees when setting remuneration for Executive
Directors, it does take into account the remuneration
structures, policies and practices in the Group as a whole,
the feedback from employee engagement activities and
the information provided by our external advisors. In
addition, matters relating to remuneration which come
to the attention of Mr. Tom Moran, in his capacity as the
designated workforce engagement Director, are reported
to the Committee. The Group has a number of different
channels for engagement and the Committee will consider
how it can engage more effectively with the wider workforce
to explain broader pay policies and practices and the
alignment to the Executive Directors’ Remuneration Policy.
Consultation with Shareholders
The Committee considers the guidelines issued by the major
institutional shareholders and the bodies representing
them and the feedback provided by such proxy agencies
and shareholders, when completing its annual and triennial
review of the Group’s Executive Remuneration policies and
practices. The Committee engaged with a number of major
institutional shareholders and proxy agencies during 2019
to consult with them on the proposed changes to the CEO
base salary. The Committee is committed to continued
consultation with shareholders and will engage with them
during 2020 as part of its remuneration policy review.
Non-Executive Directors’
Remuneration Policy
Non-Executive Directors’ fees, which are determined by the
Executive Directors, 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, a detailed review is carried out in relation
to non-Executive Directors’ fees and any recommendations
are presented to the Executive Directors for approval. The
last review 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 the Company.
126
Illustration of Remuneration Policy
The following diagram shows the minimum, target,
maximum and maximum +50% composition balance
between the fixed and variable remuneration components
for each Executive Director effective for 2020. The inner
most circle represents the minimum potential scenario for
remuneration, with the 2nd circle representing target, the
3rd circle representing maximum potential and the outer
circle representing maximum potential plus 50% increase in
the LTIP share value.
53%
18%
Edmond Scanlon
43%
53%
21%
18%
3%
4%
3%
4%
3%
4%
Basic Salary
Pension
STIP
LTIP
Edmond Scanlon
Edmond Scanlon
Edmond Scanlon
Basic Salary
Pension
STIP
LTIP
Marguerite Larkin
Marguerite Larkin
Marguerite Larkin
Basic Salary
Pension
STIP
LTIP
Gerry Behan
Gerry Behan
Gerry Behan
3%
4%
3%
4%
3%
4%
4%
4%
4%
5%
5%
5%
31%
43%
53%
31%
21%
18%
15%
31%
43%
85%
31%
21%
15%
31%
85%
31%
15%
85%
32%
32%
32%
32%
32%
32%
6%
6%
6%
26%
26%
26%
Marguerite Larkin
53%
20%
43%
53%
23%
20%
30%
43%
53%
34%
23%
20%
15%
30%
43%
85%
34%
23%
15%
30%
85%
34%
15%
85%
30%
30%
30%
30%
30%
30%
6%
6%
6%
24%
24%
24%
Gerry Behan
55%
18%
45%
55%
22%
18%
33%
45%
55%
32%
22%
18%
18%
33%
45%
82%
32%
22%
18%
33%
82%
32%
18%
82%
28%
28%
28%
28%
28%
28%
7%
7%
7%
23%
23%
23%
Kerry Group Annual Report 2019 Section D: Remuneration Policy Implementation
PART I: REMUNERATION POLICY IMPLEMENTATION 2020
This part of the report sets out how the Remuneration Policy as described on pages 121-126 will operate in 2020.
Basic Salary and Benefits
The salaries of the Executive Directors for the year commencing on 1 February 2020, together with the comparative figures,
are as follows:
Directors
Edmond Scanlon
Marguerite Larkin
Gerry Behan
2020
€’000
1,189
735
$’000
958
2019
€’000
1,160
717
$,000
930
% Increase
2.5%
2.5%
3%
The increases in salaries for the Executive Directors are in line with increases for the general workforce in Ireland (2.5%)
and the US (3.0%).
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.
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.
Short Term Performance Related Incentive Award (STIP)
A review of the STIP metrics was completed in 2019 to ensure that they remain appropriate, linked to strategy and targets
are appropriately calibrated. The Committee concluded that no changes were required to the performance metrics and
weightings in 2020 as they continue to support our business strategy and the ongoing enhancement of shareholder value
through a focus on a return for shareholders, increasing profit and cash generation.
The maximum STIP opportunity remains the same as 2019, 150% of salary for the CEO and 125% of salary for the CFO
and CEO Taste & Nutrition.
2020 STIP – Performance Metrics and Weightings
Group Metrics
Volume growth*
Margin expansion*
Cash conversion
Personal and strategic
Total
CEO
CFO
% of award
% of award
CEO Taste &
Nutrition
% 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.
The Committee is of the view that a 70% of maximum award payout for on target performance is appropriate taking into
account the level of stretch in the targets set. Due to their commercial sensitivity, the Committee is of the view that it would
be detrimental to the Company to disclose the targets in advance of or during the relevant performance period.
The Committee will disclose the targets and performance against them in next year’s Remuneration Report.
127
Kerry Group Annual Report 2019
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 Director’s
specific area of responsibility, are key in ensuring focus on the strategic and functional priorities of the business.
25% of the overall annual incentive payment is delivered through shares/share options, with the remaining 75% being
delivered in cash. A two year deferral period is in place for share/share option awards that vest under the scheme.
Long Term Performance Related Incentive Plan (LTIP)
A review of the LTIP metrics was completed in 2019 to ensure that they remain appropriate, linked to strategy and targets
are appropriately calibrated. The Committee concluded that no changes were required.
The LTIP award levels remain unchanged from 2019, with a maximum opportunity of 180% to 200% of basic salary.
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
2020
Threshold
Target
Maximum
6%
25%
10%
25%
10%
50%
12%
50%
12%
100%
14%
100%
Median
Median
to 75th%
30%
30% - 100%
Greater
than 75th%
100%
* Adjusted EPS growth is measured on a constant currency basis
How Remuneration Links with Strategy
The table below demonstrates how the performance metrics for STIP and LTIP align to and support our business strategy.
Performance Measure
Strategic Priority
Incentive Scheme
Volume growth
Margin expansion
Cash conversion
Personal and strategic
objectives
Key driver of revenue growth
Key driver of profit growth
Cash generation for reinvestment or return to shareholders
Reward the development and execution of business strategies
Adjusted EPS growth
Delivery of the Group’s long term growth strategy
TSR
ROACE
Delivery of shareholder value
Balance growth and return
STIP
STIP
STIP
STIP
LTIP
LTIP
LTIP
See Financial Key Performance Indicators (KPIs) on pages 32-33 for more information on the link between the performance metrics used for
incentive purposes and the Group’s Strategic Plan.
Non-Executive Director Remuneration Review
In line with the three year review cycle the Chairman and non-Executive Directors fees were reviewed 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 2020.
During 2019, the Board approved the appointment of Mr. Tom Moran as the designated workforce engagement Director.
The Committee approved an additional annual fee of €12,000 for this position.
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 do not participate in the Company’s incentive plans. However Non-Executive
Directors are encouraged to build up a personal shareholding.
128
Kerry Group Annual Report 2019 PART II: REMUNERATION POLICY OUTTURN 2019
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 and 8 below including relevant footnotes (identified as audited) forms an
integral part of the audited consolidated financial statements as described in the basis of preparation on page 154. All
other information in the remuneration report is additional disclosure and does not form an integral part of the audited
consolidated financial statements.
Executive Directors’ Remuneration
Table 1: Individual Remuneration for the year ended 31 December 2019 (Audited)
Irish Based Directors
Euros
US Based Director
US Dollars
Edmond Scanlon
Marguerite Larkin5
Brian Mehigan6
Gerry Behan7
Basic Salary
Benefits1
Pensions2
Total Fixed
Remuneration
STIP3
LTIP4
Total Variable
Remuneration
2019
€’000
1,151
39
207
2018
€’000
1,050
34
200
1,397
1,284
1,312
1,282
2,594
948
345
1,293
2019
€’000
716
33
129
878
680
-
680
2018
€’000
177
8
34
219
133
-
133
Total Remuneration
3,991
2,577
1,558
352
2019
€’000
2018
€’000
-
-
-
-
-
-
-
703
37
210
950
530
805
1,335
2,285
2019
$’000
928
80
217
2018
$’000
901
74
201
1,225
1,176
766
1,737
2,503
3,728
€’000
€3,329
640
1,310
1,950
3,126
€’000
2,638
Note 1: The benefits figure for Edmond Scanlon and Marguerite Larkin in 2019 includes an amount for life cover.
Note 2: The pension figure for Edmond Scanlon relates to Irish defined contribution pension benefits. Brian Mehigan and Marguerite Larkin
received a taxable cash payment in lieu of pension benefits and the figures included above reflect this including life cover in 2018. The
pension figure for Gerry Behan includes both defined benefit and defined contribution retirement benefits.
Note 3: This STIP amount represents 75% delivered in cash with 25% delivered by way of shares/share options which are deferred for two years.
Note 4: The share price used to calculate the value of the LTIP is the average share price for the three months up to the end of the year being
reported. A positive share price movement versus that applicable at the date the conditional awards were granted has increased the
valuation of the awards (that will vest in 2020) over the 3 years by €349,532 for Edmond Scanlon and by €510,501 for Gerry Behan.
Note 5: Marguerite Larkin was appointed as CFO and to the Board on 30 September 2018. Her 2018 remuneration reflected in the table above
relates to remuneration for the period 30 September to 31 December 2018.
Note 6: Brian Mehigan retired as a Director on 28 December 2018.
Note 7: The table shows the Executive Director’s pay in the currency of payment to ensure clarity in reflecting the year on year payment
comparisons.
Note 8: The total remuneration for Executive Directors was €8,878m (2018: €7,852m) using a US dollar exchange of 1.12 (2018: 1.18).
Basic Salary Increases
Edmond Scanlon’s base salary as Group CEO was increased by 8% (to reflect his growth in role, individual performance
and the increase in the Group’s scale and complexity) together with the standard inflation increase of 2.5% effective from
1 February 2019. The basic salaries of Marguerite Larkin and Gerry Behan were increased by 2.5% and 3% respectively
effective from 1 February 2019 in line with increases for the general workforce in Ireland and the US respectively.
129
Kerry Group Annual Report 2019 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
Taste &
Nutrition
Group
Taste &
Nutrition
0%
3%
5%
2.8%
26%
0%
4%
6%
4%
28%
0 bps
0 bps
+20 bps
+30 bps
+40 bps
+50 bps
+30 bps
+20 bps
26%
14%
Group
60%
70%
80%
73.9%
16%
Volume Growth is a key
performance metric as it is one
of the main drivers of Adjusted
EPS Growth
Margin Expansion is a key
performance metrics as it
is another main driver of
Adjusted EPS Growth
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 and at Taste & Nutrition level for the CEO of Taste & Nutrition.
When setting the targets above the Committee considered them to be appropriate as they are aligned with the Group’s
strategic plan, are reflective of overall market conditions, and take account of planned investments (both capital and
operational) that the Group is making to enable the achievement of its strategic priorities for growth as well as necessary
working capital builds to mitigate the Brexit and Kerryconnect risks. The Committee also concluded that there was no
requirement to exercise discretion as the 2019 STIP outcome reflected the underlying performance of the business.
Personal and Strategic Objectives – 10% weighting
The table below sets out the performance outcome for the personal and strategic element of the STIP.
Metric
4. Personal and Strategic (All – 10% weighting)
CEO & CFO
T&N CEO
s Threshold
t
e
g
r
a
T
Target
Max
Actual performance
Bonus outcome
Link to strategy
0
7
10
8
8%
0
7
10
8
8%
Specific to the Executive Directors 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 Purpose
and Values, Sustainability, Portfolio Optimisation, Operating Model and Talent. Performance against these objectives is
determined by the Committee by reference to key targets agreed with the executives at the start of the year.
130
Kerry Group Annual Report 2019 Directors
Achievements
CEO
– Purpose/Values/Sustainability: Championed the Group’s new Purpose statement and
refreshed Values as they were communicated and embedded across the organisation,
further strengthening alignment with the Group’s culture and long term strategy. Led the
development of the Group’s refreshed sustainability vision and programme.
– Portfolio Optimisation: Identified and executed M&A transactions to optimise the Group’s
business and technology portfolios.
– Operating Model: Led and embedded significant enhancements to the Group’s operating
model, driving commercial excellence, global consistency and agility.
– Talent and Succession: Led a structured review of talent pipeline strength and delivered a
cohesive plan to strengthen senior management succession.
Bonus Outcome
8%
CFO
– Purpose/Values/Sustainability: Championed the Group’s new Purpose statement and
8%
refreshed Values as they were embedded across the organisation; ensured full alignment
of performance measures and KPIs. Co-led the development of the Group’s refreshed
sustainability vision and strategy with particular focus on performance measures and KPIs.
– Portfolio Optimisation: Identified and executed M&A transactions to optimise the Group’s
business and technology portfolios.
– Operating Model: Co-led enhancements to the Group’s operating model ensuring full
alignment of the finance operating model.
– Talent and Succession: Delivered a cohesive plan to strengthen finance leadership,
capability and executive succession.
CEO T&N
– Purpose/Values/Sustainability: Championed the Group’s new Purpose statement and
8%
refreshed Values as they were communicated and embedded across the Taste & Nutrition
organisation. Co-led the development of the Group’s refreshed sustainability vision and
programme, ensuring alignment and capability of the Taste & Nutrition organisation for
execution of the strategy.
– Portfolio Optimisation: Identified and executed M&A transactions, together with other
initiatives within the existing Taste & Nutrition organisation, to optimise the growth and
return from the businesses and technology portfolios in the division.
– Operating Model: Further enhanced the Taste & Nutrition operating model in line with
Group strategy, driving commercial excellence, global consistency and agility.
– Talent and Succession: Delivered a cohesive plan to strengthen leadership capability and
executive succession across Taste & Nutrition in support of the division’s growth ambitions.
The Committee reviewed progress against these objectives and concluded that good progress was made by the Executive
Directors against the objectives outlined above, which resulted in an award that was slightly higher than target.
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 payout of 72.7% of max 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 over a three year performance period, the LTIP award will vest on the third
anniversary of the date of grant. 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 five
years for half of the award that vests.
The first conditional awards under this scheme were made to Executive Directors in 2013. 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.
131
Kerry Group Annual Report 2019 2017 LTIP Awards
Set out below is the performance against targets for the 2017 LTIP award where the three year performance period ended
on 31 December 2019 and the award vests in 2020.
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
Percentage of the Award Which Vests
Threshold
Target
Maximum
6%
10%
12%
25%
50%
100%
Below 6% none of the award vests. Between 6% 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 8.8% which results in an award outcome of 21.3% 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:
Chr. Hansen
Barry Callebaut
Corbion
Aryzta
General Mills
Givaudan
Glanbia
Greencore
Danone
IFF
Kellogg’s
Sensient Technologies
McCormick & Co.
Symrise
Nestlé
Novozymes
Premier Foods
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:
Position of Kerry in the Peer Group
Percentage of the Award Which Vests
Below median
Median
0%
30%
Between median and 75th percentile
Straight line between 30% and 100%
Greater than 75th percentile
100%
The performance graph on page 133 shows Kerry’s TSR compared to the peer companies over the three year performance
period from 1 January 2017 to 31 December 2019 for the LTIP awards which issued in 2017. These awards have a vesting
date on or before 30 April 2020.
132
Kerry Group Annual Report 2019 3 Year TSR: Kerry and Comparator 1 Jan 2017 - 31 Dec 2019
See chart on page 137, which illustrates the Group’s TSR performance from 2009 to 2019
100%
80%
60%
40%
20%
0%
-20%
-40%
-60%
-80%
-100%
Top Quartile
2nd Quartile
3rd Quartile
4th Quartile
1
r
e
e
P
2
r
e
e
P
Y
R
R
E
K
4
r
e
e
P
5
r
e
e
P
6
r
e
e
P
7
r
e
e
P
8
r
e
e
P
9
r
e
e
P
0
1
r
e
e
P
1
1
r
e
e
P
2
1
r
e
e
P
3
1
r
e
e
P
4
1
r
e
e
P
5
1
r
e
e
P
6
1
r
e
e
P
7
1
r
e
e
P
8
1
r
e
e
P
9
1
r
e
e
P
0
2
r
e
e
P
The outcome of the measurement of the TSR condition in relation to the 2017 awards is in the top quartile, resulting in an
award outcome of 30% out of a possible maximum of 30%.
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 is determined by reference to the ROACE in each of the three financial years included in the
performance period:
Return on Average Capital Employed
Percentage of the Award Which Vests
Threshold
Target
Maximum
10%
12%
14%
25%
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 2017 awards is a ROACE of 12.3% which resulted
in a reward outcome of 11.5% out of a maximum of 20%.
Table 3: Overall Outcome of the 2017 LTIP Award Vesting in 2020
Long Term
Incentive Plan
TSR
Performance
(30% of Award)
Actual
Vesting of
TSR Award
EPS
Performance
(50% of Award)
Actual Vesting
of EPS Award
ROACE
Performance
(20% of Award)
Actual
Vesting of
ROACE Award
Total %
Vested
2013 LTIP Plan Top Quartile*
30% 8.8% growth*
21.3%
12.3%
11.5%
62.8%
*
See TSR, EPS and ROACE tables above for details of performance metrics.
The Committee concluded that there was no requirement to exercise discretion as the 2017-19 LTIP outcome reflected the
underlying business performance during the three year performance period.
133
Kerry Group Annual Report 2019
Summary of outstanding LTIP awards
The following table shows the Executive Directors’ and Company Secretary’s interests under the LTIP. Conditional awards
at 1 January 2019 relate to awards made in 2016, 2017 and 2018 which have a three year performance period. The 2016
awards vested in 2019. The 2017 and 2018 awards will potentially vest in 2020 and 2021 respectively. 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
2019
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
2019
Share Price
at Date of
Conditional
Award Made
During the Year
LTIP
Scheme
2013
2013
2013
59,089
7,031
_
_
59,155
(12,168)
(3,801)
(2,166)
24,324
_
_
_
13,538
(6,934)
17,352
77,446
20,569
57,405
€95.40
€95.40
€95.40
Directors
Edmond Scanlon
Marguerite Larkin
Gerry Behan
Company Secretary
Ronan Deasy
2013
13,246
_
(1,996)
(1,137)
2,901
13,014
€95.40
Conditional LTIP awards made in 2019 have a three year performance period and will potentially vest in 2022. 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 2019
Share Options
Exercised
During the Year
Share Options
Vested During
the Year1
Share Options
Outstanding at 31
December 2019
Exercise Price
Per Share
Directors
Edmond Scanlon
Marguerite Larkin1
Company Secretary
9,537
_
_
_
6,286
696
15,823
696
€0.125
€0.125
Ronan Deasy
3,390
(2,310)
2,333
3,413
€0.125
Note 1: Share Options which vested in March 2019 related to 2016 LTIP awards and 25% of the 2018 STIP (paid in March 2019). 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.
134
Kerry Group Annual Report 2019 Executive Directors’ Pensions
The pension benefits under defined benefit pension plans for Gerry Behan 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
2019
2018
Note:
Note:
25
44
552
527
321
264
The table shows the Executive Director’s pension in the currency of payment to ensure clarity in reflecting the year on year payment
comparisons.
Contributions were made to an Irish defined contribution plan in respect of Edmond Scanlon. Marguerite Larkin receives a taxable
cash payment in lieu of pension benefits. These contributions are reflected in the single figure table (table 1) on page 129.
Non-Executive Directors’ Remuneration Paid in 2019
Table 7: Remuneration Paid to Non-Executive Directors in 2019 (Audited)
Hugh Brady
Gerard Culligan
Karin Dorrepaal
Michael Dowling*
Joan Garahy
James C. Kenny
Tom Moran**
Con Murphy
Christopher Rogers***
Philip Toomey
* Retired on 3 May 2018.
Fees 2019
€
Fees 2018
€
98,000
78,000
98,000
-
128,000
117,000
105,000
78,000
103,000
357,500
98,000
78,000
98,000
148,958
123,000
117,000
98,000
78,000
68,666
277,667
1,162,500
1,185,291
** Appointed as designated workforce engagement Director 18 June 2019. Details of the remuneration in respect of these additional
responsibilities are outlined on page 128.
*** Appointed to the Board on 8 May 2018.
During 2019, the Board approved the appointment of Mr. Tom Moran as the designated workforce engagement Director.
The Committee approved an additional annual fee of €12,000 for this position.
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 €20,623.
135
Kerry Group Annual Report 2019
Payments to Former Directors
Table 8: Payments to Former Directors (Audited)
Former Director
Stan McCarthy
Flor Healy
Brian Mehigan
2019
€’000
–
–
–
–
2018
€’000
1,259
–
–
1,259
The above former Executive Directors received no payments during 2019 in respect of their duties as Executive Directors.
Vested 2014 LTIP awards and vested 2016 STIP awards, which were subject to a two year deferral period and delivered in
2019, were disclosed in previous annual reports when earned and therefore are not disclosed in the table above.
Payment for Loss of Office
There were no payments for loss of office in 2019 (2018: €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 below:
Table 9: Directors and Company Secretary Shareholdings
31 December
2019
Ordinary
Shares
Number
31 December
2019
Share
Options
Number
31 December
2019
Total
Number
1 January
2019
Ordinary
Shares
Number
1 January
2019
Share
Options
Number
1 January
2019
Total
Number
Directors
Gerry Behan
- Deferred1
Hugh Brady
Gerard Culligan
Karin Dorrepaal
Joan Garahy
James C. Kenny
Marguerite Larkin
- Deferred1
Tom Moran
Con Murphy
Christopher Rogers
Edmond Scanlon
- Deferred1
Philip Toomey
Company Secretary
Ronan Deasy
- Deferred1
47,830
17,074
1,250
–
–
1,050
–
1,500
–
539
7,721
640
9,611
–
6,000
3,230
–
–
–
–
–
–
–
–
–
696
–
–
–
8,195
7,628
–
998
2,415
47,830
17,074
1,250
–
–
1,050
–
1,500
696
539
7,721
640
17,806
7,628
6,000
4,228
2,415
58,839
14,905
1,250
–
–
1,050
–
1,500
–
539
7,721
640
9,611
–
6,000
3,230
–
–
–
–
–
–
–
–
–
–
–
–
–
5,056
4,481
–
1,528
1,862
58,839
14,905
1,250
–
–
1,050
–
1,500
–
539
7,721
640
14,667
4,481
6,000
4,758
1,862
Note 1: The deferred shares and share options above, relate to 25% of the Executive Directors 2017 and 2018 STIP awards and 50% of the
2015 and 2016 LTIP award (vested in March 2018 and 2019 respectively). These awards are subject to a two year deferral period and
will be delivered in shares/share options in March 2020 and March 2021 respectively.
136
Kerry Group Annual Report 2019
Shareholding Guidelines
The table below sets out the Executive Directors’ shareholding at 31 December 2019 shown as a multiple of basic salary.
Refer to the Remuneration Policy Table on page 124 in Section C for details of the Executive Director shareholding
requirements.
Table 10: Individual Shareholding as a Multiple of Basic Salary
Executive Director
Edmond Scanlon2
Marguerite Larkin3
Gerry Behan
As a Multiple of Basic Salary1
2.4x
0.3x
8.7x
Note 1: The share price used to calculate the above is the share price as at 31 December 2019 and shareholding is based on all shares held
and vested option awards (including deferred) reflected in table 9 on page 136.
Note 2: Edmond Scanlon has met his minimum shareholding requirement being 2x basic salary.
Note 3: Marguerite Larkin, in line with policy, has five years from the date on her appointment in September 2018 to increase her
shareholding to the minimum 1.8x basic salary.
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 2009 to 31 December 2019. Also outlined in the table on page 138,
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 31/12/2009)
€700
€600
€500
€400
€300
€200
€100
€0
€200
€180
€160
€140
€120
€100
2014
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Kerry
MSCI Europe Food Producers
E300 Food & Beverage
2015
Kerry
2016
2017
2018
MSCI Europe Food Producers
E300 Food & Beverage
137
2019
5 year share
Kerry Group Annual Report 2019 Table 11: Remuneration Paid to the CEO 2010 – 2019
CEO – Stan McCarthy
2010
2011
2012
2013
2014
2015
2016
2017
CEO – Edmond Scanlon
€700
20173
€600
2018
€500
2019
€400
Total
remuneration
€’000
Annual incentive
achieved as a %
of maximum
LTIP
achieved as a
% of maximum
2,116
3,283
3,538
3,592
3,283
4,161
3,625
5,285
808
2,577
3,991
90%
73%
74%
70%
57%
58%
62%
75%
75%
60%
76%
N/A1
100%
100%
100%
91.9%
61.8%2
29.4%
62.3%
62.3%
63.7%
62.8%
Note 1: There was no LTIP with a performance period ending in 2010.
Note 2: This is the combined average of the 2015 LTIP paid out from the 2006 and 2013 plans.
€200
Note 3:
€100
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.
€300
€0
Table 12: CEO Pay v Normal Employee Pay Comparison
2011
2010
2009
2014
In line with the European Shareholders Rights Directive (which has not yet been transposed into Irish law), outlined below is
the annual change over the last five financial years for:
Kerry
– 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.
MSCI Europe Food Producers
E300 Food & Beverage
2015
2016
2012
2018
2013
2019
2017
Chief Executive Officer
Basic pay YoY % change
All Group Employees
2015
2016
2017*
2018**
2019
2%
9%
2.5%
0%
10.5%
Average basic pay YoY % change
3.6%
3.5%
3.1%
2.8%
2.9%
* Based on Stan McCarthy’s basic pay and annual incentive
** Based on Edmond Scanlon’s basic pay and annual incentive
Performance of the Company: 5 Year Total Shareholder Return
€200
€180
€160
€140
€120
€100
2014
138
2015
Kerry
2016
2017
2018
2019
MSCI Europe Food Producers
E300 Food & Beverage
5 year share
Kerry Group Annual Report 2019
Table 13: CEO Ratio
The UK Companies (Miscellaneous Reporting) Regulations 2018 require certain UK incorporated companies to publish
the ratio of CEO remuneration to UK staff pay. Although not a requirement for Irish incorporated companies, the ratio of
the CEO’s total remuneration to that of the median Irish employee is disclosed in the table below in line with the Group’s
commitment to ensure that its remuneration policies, practices and reporting reflect best corporate governance practices.
Chief Executive Officer’s: Total remuneration
Median Irish employee: Total remuneration
Median Irish employee: Salary only
Median pay ratio – Total remuneration
Median pay ratio – excluding all variable short and long term incentives
€
3,991,000
40,592
37,823
98x
34x
The Committee believes that our senior executives should have a significant proportion of their pay directly linked to
Group performance in order to drive alignment with shareholders. A significant portion of the Chief Executive Officer’s
remuneration is therefore delivered through the Group’s short term and long term performance related incentives,
where awards are linked to Group performance and share price movements over time. The median Irish employee
does not participate in the Group’s short term or long term performance related incentive plans, with the result that
total remuneration ratios may fluctuate from year to year. The Committee has therefore also provided the median pay
ratio excluding short term and long term incentives. In providing the CEO ratio we have used Method C as set out in the
regulations but have applied the principles of Method A.
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.
2019
Director
Remuneration (0.4%)
Profit after tax
before NTIs (30%)
Dividends Paid (5.8%)
Taxation Paid (8.9%)
Employee Costs (54.9%)
2018
Director
Remuneration (0.4%)
Profit after tax
before NTIs (30.6%)
Dividends Paid (5.9%)
Taxation Paid (7.0%)
Employee Costs (56.1%)
Dilution
The Group offers Executive Directors and senior management the opportunity to participate in share based schemes as part
of the Group’s remuneration policy. In line with best practice guidelines, the Company ensures that the level of share awards
granted under these schemes, over a rolling ten year period, does not exceed 10% of the Group’s share capital. The dilution
resulting from vested share awards/share options for the ten year period to 31 December 2019 is 0.9%. 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 0.7%.
Statement on Shareholder Voting
Below is an overview of the voting which took place at the most recent AGMs to approve the Directors’ Remuneration Policy
and the Directors Remuneration Report.
Table 14: Votes on Remuneration
Total Votes Cast
Votes For
Votes Against
Votes Withheld/Abstained
Remuneration Policy (2018 AGM)
100,762,070
Directors Remuneration Report (2019 AGM)
104,363,190
98,418,376
97.7%
98,494,564
94.4%
2,343,694
2.3%
5,868,626
5.6%
261,701
2,162,326
The Committee appreciates the level of support shown by the shareholders for the Remuneration Report and is committed
to continued consultation with shareholders with regard to the remuneration policy.
139
Kerry Group Annual Report 2019
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 2019 to
31 December 2019.
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
2019 and of the Group’s profit and the Group’s and the
Company’s cash flows for the year then ended;
– have been properly prepared in accordance with
International Financial Reporting Standards (‘IFRSs’) as
adopted by the European Union and, as regards the
Company’s financial statements, as applied in accordance
with the provisions of the Companies Act 2014; and
– 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 2019;
– the Consolidated income statement and Consolidated
statement of comprehensive income for the year then
ended;
– the Consolidated and Company statements of cash flow 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 154. These are cross-referenced from the financial
statements and are identified as audited.
Our opinion is consistent with our reporting to the
Audit Committee.
140
Kerry Group Annual Report 2019 Our Audit Approach
Overview
Materiality
– €38 million (2018: €33.5 million) - Consolidated financial statements.
– Based on approximately 5% of profit before taxation and non-trading items.
– €8 million (2018: €7.3 million) - Company financial statements.
– Based on approximately 1% of net assets of the Company.
Audit scope
– We conducted audit work in 40 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 36 components was performed
and specified procedures on selected account balances of a further 4 components were
performed. We also performed audit work at each of the principal shared service centres.
– 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.
– Income taxes.
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in
all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there
was evidence of bias by the directors that represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit
of the financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters,
and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters. This is not a complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Goodwill and indefinite life intangible
assets impairment assessment
Our audit team assisted by our in-house valuation experts interrogated the Group’s
impairment models and evaluated the methodology followed and key assumptions used.
Refer to note 1 ‘Statement of accounting
policies’ and note 12 ‘Intangible assets’.
The Group has goodwill and indefinite
life intangible assets of €3,911 million
at 31 December 2019 representing
approximately 41% 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.
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.
141
Kerry Group Annual Report 2019
Key audit matter
Business combinations
Refer to note 1 ‘Statement of accounting policies’ and note 30
‘Business combinations’.
The Group completed 11 acquisitions during 2019, the most
significant of which were Southeastern Mills and Ariake U.S.A.,
Inc. which are both in the Americas region of the Taste and
Nutrition segment.
The Group was required to determine the fair values of all
acquired assets and liabilities including the identification and
valuation of intangible assets. The most significant acquired asset
in all cases was brand related intangibles.
In accordance with IFRS3, ‘Business Combinations’, with the
exception of the Southeastern Mills acquisition which has been
finalised, 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’, note 7 ‘Income
taxes’ and note 17 ‘Deferred tax assets and liabilities’.
The global nature of the Group means that it operates across
a large number of jurisdictions and is subject to periodic
challenges by local tax authorities on a range of tax matters
during the normal course of business. Tax legislation is open to
different interpretations and the tax treatments of many items
is uncertain. Tax audits can require several years to conclude,
and transfer pricing judgements may impact the Group’s tax
liabilities. Management judgement and estimation is required in
the measurement of uncertain tax positions in the context of the
recognition of current and deferred tax assets/liabilities.
This area required our focus due to its inherent complexity and
the estimation and judgement involved in the measurement of
uncertain tax positions in the context of the recognition of current
and deferred tax assets/liabilities.
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.
We obtained an understanding of the Group tax strategy
through discussions with management and the Group’s in-house
tax specialists.
The team, assisted by PwC International and Irish taxation
specialists, challenged judgements used and estimates made
by management to measure uncertain tax positions in the
context of the recognition of current and deferred tax assets/
liabilities. This included obtaining explanations regarding the
tax treatment applied to material transactions and evidence to
corroborate management’s explanations. Such evidence included
management’s communications with local tax authorities and
copies of the tax advice obtained by management from its
external tax advisors.
Based on the evidence obtained, while noting the inherent
uncertainty with such tax matters, we determined the
measurement of uncertain tax positions in the context of the
recognition of current and deferred tax assets/liabilities as at
31 December 2019 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 sufficient 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, including those
performed at the Group’s shared service centres and the industry in which the Group operates.
The Group is structured along two operating segments: Taste & 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 determined that an audit of the full financial information should be performed at 36 components due to their size or risk
characteristics and to ensure appropriate coverage. These 36 components span 13 countries and included components that
control central Group functions such as Treasury and Employee Benefits. Taken collectively these components represent the
principal business of the Group and account for in excess of 90% of Group revenue and Group profit before taxation 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.
142
Kerry Group Annual Report 2019
The Group team performed the audit of the central
function components and component auditors within
PwC ROI and from other PwC network firms, operating
under our instruction, performed the audit on all other
components and the required supporting audit work at
each of the five principal shared service centres.
The Group team were responsible for the scope and
direction of the audit. 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 2019, the Group team visited component locations
in Ireland, the USA and Asia Pacific.
These visits involved meeting with our component teams
to confirm their audit approach. The visits also involved
discussing and understanding the significant audit risk
areas, holding meetings with local management, and
obtaining updates on local laws and regulations and other
relevant matters. In addition to the visits noted above,
the Group team interacted regularly with the component
teams during all stages of the audit. Post audit conference
calls were held with all in scope audit teams to discuss
their final key audit findings which were reviewed in detail
by members of the Group team. In addition to this, the
Group engagement team reviewed certain 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.
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:
Consolidated
financial
statements
Company
financial
statements
Overall
materiality
€38 million
(2018: €33.5 million).
€8 million
(2018: €7.3 million).
How we
determined it
Approximately 5% of
profit before taxation
and non-trading items.
Approximately 1%
of net assets of the
Company.
Rationale for
benchmark
applied
The entity is a
holding Company
whose main activity
is the management
of investments in
subsidiaries.
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.
We agreed with the Audit Committee that we would report
to them misstatements identified during our audit above
€1.8 million (Group audit) (2018: €1.7 million) and €400,000
(Company audit) (2018: €360,000) as well as misstatements
below that amount that, in our view, warranted reporting
for qualitative reasons.
Going concern
In accordance with ISAs (Ireland) we report as follows:
Reporting obligation
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 have nothing to report.
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.
We are required to report if the
directors’ statement relating to
going concern in accordance with
Rule 6.1.82 (3) (a) of the Listing
Rules for Euronext Dublin is
materially inconsistent with our
knowledge obtained in the audit.
143
Kerry Group Annual Report 2019 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 2019 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 106 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 88 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)
144
Kerry Group Annual Report 2019 Other Code provisions
We have nothing to report in respect of our responsibility to
report when:
– The statement given by the directors on page 95 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 109 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 95, 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.
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.
Other 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.
We are required by the Listing Rules to review the
six specified elements of disclosures in the report to
shareholders by the Board on directors’ remuneration.
We have no exceptions to report arising from this
responsibility.
Prior financial year Non Financial Statement
We are required to report if the Company has not provided
the information required by Regulation 5(2) to 5(7) of the
European Union (Disclosure of Non-Financial and Diversity
Information by certain large undertakings and Groups)
Regulations 2017 in respect of the prior financial year. We
have nothing to report arising from this responsibility.
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 4 years,
covering the years ended 31 December 2016 to 31
December 2019.
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
John McDonnell
for and on behalf of PricewaterhouseCoopers
Chartered Accountants and Statutory Audit Firm
Dublin
This description forms part of our auditors’ report.
17 February 2020
145
Kerry Group Annual Report 2019
FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019
Before
Non-
Trading
Items
2019
€’m
Non-
Trading
Items
2019
€’m
Before
Non-
Trading
Items
2018
€’m
Non-
Trading
Items
2018
€’m
Total
2019
€’m
Total
2018
€’m
Notes
Continuing operations
Revenue
Trading profit
2
7,241.3
2/3
902.7
Intangible asset amortisation
12
(64.3)
-
-
-
7,241.3
6,607.6
902.7
805.6
(64.3)
(53.8)
-
-
-
6,607.6
805.6
(53.8)
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
5
3
6
6
7
9
9
-
(110.9)
(110.9)
-
(66.9)
(66.9)
838.4
(110.9)
727.5
751.8
(66.9)
684.9
0.3
(81.9)
-
-
0.3
(81.9)
756.8
(110.9)
645.9
(98.6)
19.2
(79.4)
658.2
(91.7)
566.5
0.5
(67.5)
684.8
(89.2)
595.6
-
-
0.5
(67.5)
(66.9)
617.9
11.8
(77.4)
(55.1)
540.5
Cent
320.4
319.9
Cent
305.9
305.7
146
Kerry Group Annual Report 2019 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019
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
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 recognised directly in total other comprehensive income
Notes
2019
€’m
2018
€’m
566.5
540.5
24
24
17
13
26
17
7.2
0.1
0.6
(1.4)
67.0
(1.0)
14.0
(2.0)
84.5
2.2
(2.5)
(2.0)
(0.2)
(0.9)
(1.9)
34.5
(6.3)
22.9
Total comprehensive income
651.0
563.4
147
Kerry Group Annual Report 2019 CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2019
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
31 December
2019
€’m
31 December
2018
€’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
2,062.9
4,589.7
41.7
16.2
82.7
38.9
1,767.0
4,095.6
35.3
15.6
101.7
37.1
6,832.1
6,052.3
993.3
1,066.3
554.9
57.7
-
2,672.2
9,504.3
877.8
967.8
413.8
10.0
2.0
2,271.4
8,323.7
1,643.0
1,482.1
190.8
12.1
140.7
25.2
2.2
13.8
11.0
122.4
20.3
1.2
2,014.0
1,650.8
2,355.3
2,119.7
-
11.9
167.9
338.9
33.2
20.9
2,928.1
4,942.1
4,562.2
22.1
398.7
(119.0)
4,260.4
4,562.2
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
The financial statements were approved by the Board of Directors on 17 February 2020 and signed on its behalf by:
Philip Toomey, Chairman
Edmond Scanlon, Chief Executive Officer
148
Kerry Group Annual Report 2019
COMPANY BALANCE SHEET
AS AT 31 DECEMBER 2019
31 December
2019
€’m
31 December
2018
€’m
Notes
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
11
15
19
20
21
27
0.3
714.4
714.7
135.8
135.8
850.5
21.5
21.5
0.1
0.1
21.6
828.9
22.1
398.7
79.7
328.4
828.9
The Company earned a profit after taxation of €140.3m for the financial year ended 31 December 2019 (2018: €158.9m).
The financial statements were approved by the Board of Directors on 17 February 2020 and signed on its behalf by:
Philip Toomey, Chairman
Edmond Scanlon, Chief Executive Officer
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
149
Kerry Group Annual Report 2019
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019
Group:
At 1 January 2018
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
Share
Capital
€’m
Share
Premium
€’m
Other
Reserves
€’m
Retained
Earnings
€’m
Total
€’m
Notes
22.0
398.7
(214.4)
3,366.9
3,573.2
-
-
-
-
-
-
-
-
-
-
-
540.5
540.5
(5.1)
28.0
22.9
(5.1)
568.5
563.4
-
(114.4)
(114.4)
12.2
-
12.2
22.0
398.7
(207.3)
3,821.0
4,034.4
10
28
Adjustment on initial application of IFRS 16 ‘Leases’
11
-
-
-
(9.4)
(9.4)
Adjusted balances at 1 January 2019
22.0
398.7
(207.3)
3,811.6
4,025.0
Profit after tax attributable to owners of the parent
Other comprehensive income
Total comprehensive income
Shares issued during the financial year
Dividends paid
Share-based payment expense
At 31 December 2019
Other Reserves comprise the following:
-
-
-
0.1
-
-
27
10
28
-
-
-
-
-
-
-
566.5
566.5
73.9
10.6
84.5
73.9
577.1
651.0
-
-
-
0.1
(128.3)
(128.3)
14.4
-
14.4
22.1
398.7
(119.0)
4,260.4
4,562.2
FVOCI
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
Total
€’m
At 1 January 2018
Other comprehensive
expense
Share-based payment
expense
At 31 December 2018
Other comprehensive
(expense)/income
3.5
(1.9)
28
-
1.6
(1.0)
Share-based payment
expense
28
-
1.7
-
-
1.7
-
-
0.3
51.1
(255.8)
(15.2)
-
(214.4)
-
-
-
(0.9)
(0.3)
(2.0)
(5.1)
12.2
-
-
-
12.2
0.3
63.3
(256.7)
(15.5)
(2.0)
(207.3)
-
-
-
67.0
7.3
0.6
73.9
14.4
-
-
-
14.4
At 31 December 2019
0.6
1.7
0.3
77.7
(189.7)
(8.2)
(1.4)
(119.0)
The nature and purpose of each reserve within shareholders’ equity are described in note 35.
150
Kerry Group Annual Report 2019
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019
Share
Capital
€’m
Share
Premium
€’m
Other
Reserves
€’m
Retained
Earnings
€’m
Notes
22.0
398.7
53.1
Company:
At 1 January 2018
Profit after tax
Other comprehensive income
Total comprehensive income
Dividends paid
Share-based payment expense
At 31 December 2018
Profit after tax
Other comprehensive income
Total comprehensive income
Shares issued during the financial year
Dividends paid
Share-based payment expense
8
10
28
8
27
10
28
-
-
-
-
-
-
-
-
-
-
22.0
398.7
-
-
-
0.1
-
-
-
-
-
-
-
-
Total
€’m
745.7
158.9
-
271.9
158.9
-
-
-
-
-
158.9
158.9
(114.4)
(114.4)
12.2
65.3
-
316.4
12.2
802.4
-
-
-
-
-
14.4
79.7
140.3
140.3
-
-
140.3
140.3
-
0.1
(128.3)
(128.3)
-
14.4
328.4
828.9
At 31 December 2019
22.1
398.7
Other Reserves comprise the following:
At 1 January 2018
Share-based payment expense
At 31 December 2018
Share-based payment expense
At 31 December 2019
Note
28
28
Capital
Redemption
Reserve
€’m
Other
Undenominated
Capital
€’m
Share-Based
Payment
Reserve
€’m
1.7
-
1.7
-
1.7
0.3
-
0.3
-
0.3
51.1
12.2
63.3
14.4
77.7
The nature and purpose of each reserve within shareholders’ equity are described in note 35.
Total
€’m
53.1
12.2
65.3
14.4
79.7
151
Kerry Group Annual Report 2019
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019
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)
Payments relating to previous acquisitions
Purchase of share in associates and joint ventures
Income received from associates and joint ventures
Net cash used in investing activities
Financing activities
Dividends paid
Payment of lease liabilities
Issue of share capital
Repayment of borrowings
Increase in borrowings
Net cash movement due to financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of the financial year
Exchange translation adjustment on cash and cash equivalents
Cash and cash equivalents at end of the financial year
Reconciliation of Net Cash Flow to Movement in Net Debt
Net increase in cash and cash equivalents
Cash flow from debt financing
Changes in net debt resulting from cash flows
Fair value movement on interest rate swaps (net of adjustment to borrowings)
Exchange translation adjustment on net debt
Movement in net debt in the financial year
Net debt at beginning of the financial year
Net debt at end of the financial year
152
Notes
2019
€’m
2018
€’m
29
902.7
805.6
191.4
(63.9)
(26.7)
(89.1)
(2.5)
911.9
(67.2)
0.5
(81.3)
763.9
134.1
(78.8)
(40.0)
(59.8)
0.5
761.6
(46.1)
0.5
(65.0)
651.0
(315.6)
(296.1)
32.8
3.0
(562.7)
(5.3)
-
-
10.6
-
(476.8)
(11.9)
(14.5)
-
(847.8)
(788.7)
(128.3)
(35.5)
0.1
(564.4)
950.0
221.9
138.0
403.9
7.8
549.7
138.0
(385.6)
(247.6)
12.5
(4.2)
(114.4)
-
-
(2.5)
352.7
235.8
98.1
305.6
0.2
403.9
98.1
(350.2)
(252.1)
(2.6)
(27.1)
29
29
5
30
14
10
11
27
29
29
29
(239.3)
(281.8)
(1,623.5)
(1,341.7)
23
(1,862.8)
(1,623.5)
Kerry Group Annual Report 2019 COMPANY STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019
Operating activities
Trading profit
Adjustments for:
Depreciation
Change in working capital
Payments on non-trading items
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
2019
€’m
2018
€’m
29
11
29
15
10
27
29
152.4
154.9
-
(22.7)
(1.5)
128.2
-
-
0.1
36.1
-
191.1
(76.7)
(76.7)
(128.3)
(114.4)
0.1
-
(128.2)
(114.4)
-
-
-
-
-
-
153
Kerry Group Annual Report 2019 FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019
The comparative amount for other general overheads of
€808.7m was previously disclosed as other external charges
of €445.1m and other operating charges of €363.6m. These
changes in presentation do not impact on the classification
of any line items on the Group’s Consolidated Income
Statement, Balance Sheet or other primary statements.
Certain income statement headings and other financial
measures included in the consolidated financial statements
are not defined by IFRS. The Group make this distinction to
give a better understanding of the financial performance of
the business.
Basis of consolidation
Subsidiaries
The consolidated financial statements incorporate the
financial statements of the Company and the entities
controlled by the Company (its subsidiaries), all of which
prepare financial statements up to 31 December. Accounting
policies of subsidiaries are consistent with the policies
adopted by the Group. Control is achieved where the
Company has the power over the investee, has exposure
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 associates and joint
ventures (profit)/loss after taxation’ 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.
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,
V92 EH11, Ireland. The principal activities of the Company
and its subsidiaries are described in the Business Reviews
and note 36 ‘Group entities’.
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.
In the 2019 consolidated financial statements, the Group
has re-presented corresponding 2018 balances to align with
current year presentation in operating profit (note 3).
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Kerry Group Annual Report 2019
1. Statement of accounting policies (continued)
Basis of consolidation (continued)
Associates (continued)
Unrealised gains arising from transactions with associates are
eliminated to the extent of the Group’s interest in the entity.
Unrealised losses are eliminated to the extent that they do
not provide evidence of impairment. The accounting policies
of associates are amended where necessary to ensure
consistency of accounting treatment at Group level.
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.
The Group’s share of its joint ventures’ post-acquisition
profits or losses is recognised in ‘Share of associates and joint
ventures (profit)/loss after taxation’ 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 chilled food 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 improbable.
The Group disaggregates revenue by End Use Market (EUM)
and primary geographic market. An EUM is defined as the
market in which the end consumer or customer of Kerry’s
product operates. The economic factors within the EUMs
of Food, Beverage and Pharma which affect the nature,
amount, timing and uncertainty of revenue and cash flows
are similar.
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 is the global leader in the development of taste and
nutrition solutions for the food, beverage and pharmaceutical
industries across Ireland, Europe, Americas and APMEA. Our
broad technology foundation, customer-centric business
model, and industry leading integrated solutions capability
make Kerry the co-creation partner of choice. The Consumer
Foods segment is an industry‐leading manufacturer of chilled
food products primarily in Ireland and in the UK.
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.
155
Kerry Group Annual Report 2019
1. Statement of accounting policies (continued)
Property, plant and equipment (continued)
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.
Leasing
At the commencement date of the lease, the Group
recognises a right-of-use asset and a lease liability on the
balance sheet. The right-of-use asset is measured at cost,
which consists of the initial measurement of the lease liability,
any initial direct costs incurred by the Group in setting up/
entering into the lease, an estimate of any costs to dismantle
and remove the asset at the end of the lease and any
payments made in advance of the lease commencement date
(net of any incentive received).
The Group depreciates right-of-use assets on a straight-line
basis from the lease commencement date to the earlier
of the end of the useful life or the end of the lease term.
The carrying amounts of right-of-use assets 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.
The Group measures the lease liability at the present value
of the lease payments unpaid at that date, discounted using
the applicable incremental borrowing rate. Lease payments
included in the measurement of the lease liability comprises
of fixed or variable payments (based on an index or rate),
amounts expected to be payable under a residual value
guarantee and payments arising from options reasonably
certain to be exercised.
Subsequent to the initial measurement, the liability will be
reduced for payments made and increased for the interest
applied and it is remeasured to reflect any reassessment or
contract modifications. When the lease liability is remeasured,
the corresponding adjustment is reflected in the right-of-use
asset or in the Consolidated Income Statement if the right-of-
use asset is already reduced to zero.
The Group has elected to record short-term leases of less
than 12 months and leases of low-value assets as defined in
IFRS 16 as an operating expense in the Consolidated Income
Statement on a straight-line basis over the lease term.
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.
The Group adopted IFRS 16 ‘Leases’ using the modified
retrospective approach. Accordingly, the comparative
information has not been restated and continues to be
accounted for in accordance with the Group’s previous
accounting policy under IAS 17 ‘Leases’.
Leasing policy applicable before 1 January 2019
(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.
156
Assets classified as held for sale
Assets are classified as held for sale if their carrying value
will be recovered through a sale transaction rather than
through continuing use. This condition is regarded as
met if, at the financial year end, the sale is highly probable,
the asset is available for immediate sale in its present
condition, management is committed to the sale and the
sale is expected to be completed within one year from the
date of classification.
Assets classified as held for sale are measured at the lower
of carrying value and fair value less costs to sell.
Intangible assets
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 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.
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.
Kerry Group Annual Report 2019
1. Statement of accounting policies (continued)
Intangible assets (continued)
Computer software
Computer software separately acquired, including computer
software which is not an integral part of an item of computer
hardware, is stated at cost less any accumulated amortisation
and any accumulated impairment losses. Cost comprises
purchase price and other directly attributable costs.
Costs relating to the development of computer software
for internal use are capitalised once the recognition criteria
outlined as follows are met:
-
-
an asset can be separately identified;
it is probable that the asset created will generate future
economic benefits;
the development cost of the asset can be measured
reliably;
it is probable that the expected future economic benefits
that are attributable to the asset will flow to the entity;
and
the cost of the asset can be measured reliably.
-
-
-
Computer software is amortised over its expected useful
life, which ranges from 3 to 7 years, by charging equal
annual instalments to the Consolidated Income Statement.
Amortisation commences when the assets are ready for use.
Impairment of non-financial assets
Goodwill and other intangible assets that have an indefinite
useful life are not subject to amortisation. They are tested
annually for impairment or when indications exist that
the asset may be impaired. For the purpose of assessing
impairment, these assets are allocated to groups of cash
generating units (CGUs) using a reasonable and consistent
basis. 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. 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.
157
Kerry Group Annual Report 2019
1. Statement of accounting policies (continued)
Income taxes (continued)
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.
158
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.
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.
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.
Kerry Group Annual Report 2019
1. Statement of accounting policies (continued)
Share-based payments (continued)
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.
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 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.
159
Kerry Group Annual Report 2019 1. Statement of accounting policies (continued)
Financial instruments (continued)
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 the 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.
Trade and other receivables:
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:
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.
160
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 (FVPL)
Financial liabilities at FVPL arise when the financial liabilities
are either derivative liabilities held for trading or they are
designated upon initial recognition as FVPL.
The Group classifies as held for trading certain derivatives
that are not designated and effective as a hedging
instrument. The Group does not have any other financial
liabilities classified as held for trading.
Impairment of financial assets
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. Further detail is provided in
note 19.
Derecognition of financial liabilities
The Group derecognises financial liabilities only when the
Group’s obligations are discharged, cancelled or expired.
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.
Kerry Group Annual Report 2019 1. Statement of accounting policies (continued)
Financial instruments (continued)
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. All effective
amounts are 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.
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 groups of
cash generating units (CGUs) to the net assets attributable
to those CGUs. The value in use calculation is based on an
estimate of future cash flows expected to arise from the
CGUs and these are discounted to net present value using
an appropriate discount rate. The tests are dependent on
management’s estimates, 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 cash flows 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.
161
Kerry Group Annual Report 2019 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 including right-of-use assets (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).
Leasing has been included above as this is the first year
of adoption of IFRS 16. In determining the incremental
borrowing rate for lease contracts/liabilities the Group, where
possible, has utilised external benchmarked information and
takes into consideration credit rating, applicable margin for
lease by currency, interest rate for the lease term and applies
a currency premium where applicable. The Group has applied
judgement in determining the lease term of contracts that
include renewal options. If the Group is reasonably certain
of exercising such options this will impact the lease term and
accordingly the amount of lease liabilities and right-of-use
assets recognised. The Group reassesses these estimates
and judgements if a significant event or a significant change
in circumstances occurs.
1. Statement of accounting policies (continued)
Critical accounting estimates and judgements (continued)
Business combinations (continued)
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.
162
Kerry Group Annual Report 2019 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 2019 but do not have a
material effect on the results or financial position of the Group:
- IFRS 16
Leases
IFRS 16, published in January 2016, replaces the existing standard IAS 17 ‘Leases’. IFRS
16 eliminates the classification of leases as either operating leases or finance leases
for lessees. 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 with
certain exceptions and to recognise depreciation of lease assets separately from interest
on lease liabilities in the income statement.
Effective Date
1 January 2019
The Group has adopted IFRS 16 using the modified retrospective approach, under which
the cumulative effect of initial application of €12.1m and a deferred tax asset of €2.7m
was recognised in retained earnings at 1 January 2019. Accordingly, the comparative
information presented for 2018 has not been restated - i.e. it is presented, as previously
reported, under IAS 17 and related interpretations. Right-of-use assets for property leases
were measured on transition as if the new rules had always been applied, but discounted
at the incremental borrowing rate at 1 January 2019. All other right-of-use assets were
measured at the amount of the lease liability on adoption.
As at 31 December 2018, the Group had non-cancellable operating lease commitments
of €83.1m and finance lease commitments of €nil. Of these commitments, approximately
€1.0m relate to short-term leases and €0.1m are low-value leases which will be recognised
on a straight-line basis as an expense in the Consolidated Income Statement. The Group
has recognised right-of-use assets of €95.2m and lease liabilities of €107.3m on 1 January
2019, the transition date. A reconciliation explaining the difference between the IAS 17
operating lease commitments at year end and the lease liability at the date of transition to
IFRS 16 ‘Leases’ has been included in note 11. The weighted average incremental borrowing
rate applied to lease liabilities at the date of initial application was 6.7%. 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. The Group has
excluded initial direct costs incurred in entering into the leases recognised on transition on
1 January 2019, these costs are included for leases entered into since this date.
- IAS 19 (Amendments) Employee Benefits - Plan Amendment, Curtailment or Settlement
- IFRIC 23
Uncertainty over Income Tax Treatments
IFRIC 23 ‘Uncertainty over Income Tax Treatments’ was issued in June 2017 and clarifies
how to apply the recognition and measurement requirements in IAS 12 when there is
uncertainty over income tax treatments.
1 January 2019
1 January 2019
The Group had previously accounted for uncertain tax positions in line with IFRIC 23 and
therefore, there is no impact to the Group in 2019 in respect of IFRIC 23.
The Group considers each uncertain tax treatment separately or together with one or
more uncertain tax treatments based on which approach better predicts the resolution
of the uncertainty. If the Group concludes that it is not probable that a taxation authority
will accept an uncertain tax treatment, the Group reflects the effect of the uncertainty in
determining the related taxable profit, tax bases, unused tax losses, unused tax credits
or tax rate. The Group reflects the effect of uncertainty for each uncertain tax treatment
using an expected value approach or a most likely approach depending on which method
the Group expects to better predict the resolution of the uncertainty. The unit of account
for recognition purposes is the income tax/deferred tax assets or liabilities and the Group
does not provide separately for uncertain tax positions.
163
Kerry Group Annual Report 2019
1. Statement of accounting policies (continued)
New standards and interpretations (continued)
The following Standards and Interpretations 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 3 (Amendments) Business Combinations
- IFRS 9, IAS 39 & IFRS 7
Interest Rate Benchmark Reform
(Amendments)
- IAS 1 (Amendments)
Presentation of Financial Statements
- IAS 8 (Amendments)
Accounting Policies, Changes in Accounting Estimates and Errors
- The Conceptual
Revised Conceptual Framework for Financial Reporting
Framework
- IFRS 17
Insurance Contracts
IFRS 17 published in May 2017 will be effective for reporting periods beginning on
or after 1 January 2021. The Group is currently assessing the potential impact of the
standard on future periods however it is not expected that it will have a material impact.
1 January 2020
1 January 2020
1 January 2020
1 January 2020
1 January 2020
1 January 2021
164
Kerry Group Annual Report 2019
2. Analysis of results
The Group has determined it has two reportable segments: Taste & Nutrition and Consumer Foods. The Taste & Nutrition segment
is the global leader in the development of taste and nutrition solutions for the food, beverage and pharmaceutical industries across
Ireland, Europe, Americas and APMEA. Our broad technology foundation, customer-centric business model, and industry-leading
integrated solutions capability make Kerry the co-creation partner of choice. The Consumer Foods segment is an industry‐leading
manufacturer of chilled food products primarily in Ireland and in the UK.
Taste &
Nutrition
2019
€’m
Consumer
Foods
2019
€’m
Group
Eliminations
and
Unallocated
2019
€’m
Total
2019
€’m
Taste &
Nutrition
2018
€’m
Consumer
Foods
2018
€’m
Group
Eliminations
and
Unallocated
2018
€’m
Total
2018
€’m
External revenue
5,939.1
1,302.2
-
7,241.3
5,272.4
1,335.2
-
6,607.6
Inter-segment revenue
78.5
4.4
(82.9)
-
78.2
3.8
(82.0)
-
Revenue
6,017.6
1,306.6
(82.9)
7,241.3
5,350.6
1,339.0
(82.0)
6,607.6
Trading profit
918.5
98.9
(114.7)
902.7
805.3
100.1
(99.8)
805.6
Intangible asset amortisation
Non-trading items
Operating profit
Finance income
Finance costs
Profit before taxation
Income taxes
Profit after taxation attributable to owners of the parent
Segment assets and liabilities
(64.3)
(110.9)
727.5
0.3
(81.9)
645.9
(79.4)
566.5
(53.8)
(66.9)
684.9
0.5
(67.5)
617.9
(77.4)
540.5
Segment assets
6,268.5
925.7
2,310.1
9,504.3
5,492.1
938.1
1,893.5
8,323.7
Segment liabilities
(1,565.7)
(311.8)
(3,064.6) (4,942.1)
(1,201.1)
(348.2)
(2,740.0)
(4,289.3)
Net assets
4,702.8
613.9
(754.5)
4,562.2
4,291.0
589.9
(846.5)
4,034.4
Other segmental information
Property, plant and equipment
additions
247.2
32.7
0.7
280.6
259.1
23.6
1.0
283.7
Depreciation (net)
164.6
22.7
4.1
191.4
115.0
Intangible asset additions
Intangible asset amortisation
1.3
23.0
2.0
6.8
51.9
34.5
55.2
64.3
0.3
17.1
18.5
2.1
6.6
0.6
134.1
28.0
30.1
30.4
53.8
165
Kerry Group Annual Report 2019
2. Analysis of results (continued)
Revenue analysis
Disaggregation of revenue from external customers is analysed by End Use Market (EUM), which is the primary market in which
Kerry’s products are consumed, and primary geographic market. An EUM is defined as the market in which the end consumer or
customer of Kerry’s product operates. The economic factors within the EUMs of Food, Beverage and Pharma and within the primary
geographic markets which affect the nature, amount, timing and uncertainty of revenue and cash flows are similar.
Analysis by EUM
Food
Beverage
Pharma
Taste &
Nutrition
2019
€’m
4,161.5
1,507.6
270.0
Consumer
Foods
2019
€’m
1,302.2
-
-
Total
2019
€’m
5,463.7
1,507.6
270.0
Taste &
Nutrition
2018
€’m
3,617.6
1,390.8
264.0
Consumer
Foods
2018
€’m
1,335.2
-
-
Total
2018
€’m
4,952.8
1,390.8
264.0
External revenue
5,939.1
1,302.2
7,241.3
5,272.4
1,335.2
6,607.6
Analysis by primary geographic market
Disaggregation of revenue from external customers is analysed by geographical split:
Taste &
Nutrition
2019
€’m
184.9
1,271.5
3,197.8
1,284.9
5,939.1
Consumer
Foods
2019
€’m
252.5
1,049.7
-
-
1,302.2
Total
2019
€’m
437.4
2,321.2
3,197.8
1,284.9
7,241.3
Taste &
Nutrition
2018
€’m
186.1
1,235.7
2,745.3
1,105.3
5,272.4
Consumer
Foods
2018
€’m
270.8
1,064.4
-
-
1,335.2
Total
2018
€’m
456.9
2,300.1
2,745.3
1,105.3
6,607.6
Republic of Ireland
Rest of Europe
Americas
APMEA*
External revenue
*
Asia Pacific, Middle East and Africa
Information about geographical areas
Europe
2019
€’m
Americas
2019
€’m
APMEA*
2019
€’m
Total
2019
€’m
Europe
2018
€’m
Americas
2018
€’m
APMEA*
2018
€’m
Total
2018
€’m
Segment assets by location
4,858.4
3,502.3
1,143.6
9,504.3
4,173.7
3,160.3
989.7
8,323.7
Property, plant and equipment additions
Intangible asset additions
*
Asia Pacific, Middle East and Africa
87.9
54.3
114.7
78.0
280.6
0.9
-
55.2
87.9
30.1
142.1
53.7
283.7
0.3
-
30.4
Kerry Group plc is domiciled in the Republic of Ireland and the revenues from external customers in the Republic of Ireland were
€437.4m (2018: €456.9m). The non-current assets located in the Republic of Ireland are €930.3m (2018: €1,000.3m).
Revenues from external customers include €1,527.9m (2018: €1,560.8m) in the UK and €2,597.5m (2018: €2,189.5m) in the USA.
The non-current assets in the UK are €737.2m (2018: €668.9m) and in the USA are €2,142.5m (2018: €1,924.8m).
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. Revenue recorded over time during the year was not material to the Group.
166
Kerry Group Annual Report 2019
3. Operating profit
(i) Analysis of costs by nature
Revenue
Less operating costs:
Raw materials and consumables
Other general overheads
Staff costs
Depreciation:
- property, plant and equipment
- right-of-use assets
Capital grants amortisation
Loss allowances on trade receivables
Foreign exchange (gains)/losses
Change in inventories of finished goods
Share of associates and joint ventures (profit)/loss after tax during the financial year
Continuing
Operations
2019
€’m
Continuing
Operations
2018
€’m
7,241.3
6,607.6
Notes
3,897.7
3,693.3
948.0
808.7
4
1,330.9
1,185.3
11
11
21
19
14
12
5
158.6
136.4
35.2
(2.4)
6.5
(1.0)
(34.3)
(0.6)
902.7
64.3
110.9
727.5
-
(2.3)
8.5
6.2
(34.4)
0.3
805.6
53.8
66.9
684.9
291.4
274.6
Trading profit
Intangible asset amortisation
Non-trading items
Operating profit
And is stated after charging:
Research and development costs
(ii) Auditors’ remuneration
Statutory disclosure:
Group audit
Other assurance services
Total assurance services
Tax advisory services
Other non-audit services
Total non-audit services
PwC
Ireland
2019
€’m
PwC
Other
2019
€’m
PwC
Worldwide
2019
€’m
PwC
Ireland
2018
€’m
PwC
Other
2018
€’m
PwC
Worldwide
2018
€’m
1.5
0.1
1.6
-
-
-
1.7
-
1.7
-
-
-
3.2
0.1
3.3
-
-
-
1.1
0.1
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%
Total auditors’ remuneration
1.6
1.7
3.3
1.2
Assurance services
Non-audit services
Total
100%
-
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 (2018: €4,720) which are due to the Group’s auditor in respect of the Parent Company. Reimbursement
of auditors’ expenses amounted to €0.2m (2018: €0.3m).
167
Kerry Group Annual Report 2019
4. Total staff numbers and costs
The average number of people employed by the Group was:
Europe
Americas
APMEA
Taste &
Nutrition
2019
Number
Consumer
Foods
2019
Number
Total
2019
Number
Taste &
Nutrition
2018
Number
Consumer
Foods
2018
Number
Total
2018
Number
5,312
9,349
4,872
6,557
11,869
-
-
9,349
4,872
5,570
8,214
4,468
7,003
12,573
-
-
8,214
4,468
19,533
6,557
26,090
18,252
7,003
25,255
The aggregate payroll costs of employees (including Executive Directors) was:
Europe
Americas
APMEA
Taste &
Nutrition
2019
€’m
347.0
576.7
164.0
Consumer
Foods
2019
€’m
243.2
-
-
Total
2019
€’m
590.2
576.7
164.0
1,087.7
243.2
1,330.9
Taste &
Nutrition
2018
€’m
353.3
465.8
125.8
944.9
Consumer
Foods
2018
€’m
240.4
-
-
Total
2018
€’m
593.7
465.8
125.8
240.4
1,185.3
Social welfare costs of €126.5m (2018: €90.2m) and share-based payment expense of €14.4m (2018: €12.2m) 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 €11.2m
(2018: €8.3m) which has been capitalised as part of computer software in intangible assets.
5. Non-trading items
Taste & Nutrition acquisition related costs:
- acquisition integration and restructuring costs
- other transaction costs
Consumer Foods Realignment Programme
Loss on disposal of businesses and assets
2019 Non-trading items
2018 Non-trading items
Notes
(i)
(i)
(ii)
(iii)
Gross
2019
€’m
(63.1)
(17.6)
(80.7)
(26.7)
(3.5)
(110.9)
(66.9)
Tax
2019
€’m
14.9
-
14.9
4.5
(0.2)
19.2
11.8
Net
2019
€’m
(48.2)
(17.6)
(65.8)
(22.2)
(3.7)
(91.7)
(55.1)
Net
2018
€’m
(34.1)
-
(34.1)
(15.1)
(5.9)
(55.1)
(i) Taste & Nutrition acquisition related costs
During the year, acquisition integration and restructuring costs of €63.1m (2018: €44.2m) primarily related to costs of integrating
recent 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. A tax credit of €14.9m (2018: €10.1m) arose due to tax deductions available on
acquisition integration and restructuring costs.
Other transaction costs of €17.6m related to a material transaction process that the Group participated in. These costs primarily
related to external costs associated with deal preparation, integration planning and due diligence. The associated tax credit is
€nil (2018: €nil).
168
Kerry Group Annual Report 2019
5. Non-trading items (continued)
(ii) Consumer Foods Realignment Programme
During 2019, the Consumer Foods business completed a programme to simplify its business model in terms of footprint and
resources in response to the challenging marketplace. The charge relating to this in 2019 is €26.7m, which reflects redundancies,
relocation of resources and the streamlining of operations. The associated tax credit is €4.5m (2018: €nil).
In 2018, Consumer Foods completed its Brexit Mitigation Programme whereby certain sourcing and production activities were
relocated and other activities restructured as a consequence of Brexit in order to reduce the Group’s sterling transaction exposure.
The net charge relating to this in 2019 is €nil (2018: €15.1m) and the associated tax credit is €nil (2018: €2.2m).
(iii) Loss on disposal of businesses and assets
During the year, the Group disposed of property, plant and equipment primarily in the UK, US and Australia for a consideration of
€32.8m resulting in a loss of €3.5m for the year ended 31 December 2019. In 2018, 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. Also in 2018, the Group
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 the loss and cash impact on disposal of businesses and assets.
A tax charge of €0.2m (2018: €0.5m) arose on the disposal of assets and businesses.
There were no impairments of assets held for sale recorded in the financial year.
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
26
Finance costs
Note
2019
€’m
2018
€’m
0.3
0.5
(84.0)
2.9
(81.1)
(0.8)
(81.9)
(66.3)
0.2
(66.1)
(1.4)
(67.5)
169
Kerry Group Annual Report 2019
7. Income taxes
Recognition in the Consolidated Income Statement (before credit on non-trading items)
Current tax expense in the financial year
Adjustments in respect of prior years
Deferred tax in the financial year
Income tax expense (before credit on non-trading items)
(Credit) on non-trading items:
Current tax
Deferred tax
Recognition in the Consolidated Income Statement (after credit on non-trading items)
Current tax expense in the financial year
Adjustments in respect of prior years
Deferred tax in the financial year
Income tax expense (after credit on non-trading items)
Notes
2019
€’m
2018
€’m
86.3
(0.2)
86.1
12.5
98.6
(6.1)
(13.1)
(19.2)
80.2
(0.2)
80.0
(0.6)
79.4
64.3
(2.7)
61.6
27.6
89.2
(2.8)
(9.0)
(11.8)
61.5
(2.7)
58.8
18.6
77.4
5
17
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
2019
€’m
645.9
2018
€’m
617.9
80.7
(1.3)
3.6
2.3
(2.2)
(1.0)
(2.7)
79.4
77.2
(1.1)
8.1
(2.9)
(1.3)
(1.4)
(1.2)
77.4
An increase in the Group’s applicable tax rate of 1% would reduce profit after taxation by €6.4m (2018: €6.2m). 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.
170
Kerry Group Annual Report 2019
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
after taxation for the financial year is €140.3m (2018: €158.9m).
9. Earnings per A ordinary share
Basic earnings per share
Profit after taxation attributable to owners of the parent
320.4
566.5
305.9
540.5
EPS
cent
2019
€’m
EPS
cent
2018
€’m
Diluted earnings per share
Profit after taxation attributable to owners of the parent
319.9
566.5
305.7
540.5
Number of Shares
Note
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
27
10. Dividends
Group and Company:
2019
m’s
176.8
0.3
177.1
176.5
2018
m’s
176.7
0.1
176.8
176.3
2019
€’m
2018
€’m
Amounts recognised as distributions to equity shareholders in the financial year
Final 2018 dividend of 49.20 cent per A ordinary share paid 10 May 2019
(Final 2017 dividend of 43.90 cent per A ordinary share paid 18 May 2018)
86.7
77.4
Interim 2019 dividend of 23.50 cent per A ordinary share paid 15 November 2019
(Interim 2018 dividend of 21.00 cent per A ordinary share paid 16 November 2018)
41.6
128.3
37.0
114.4
Since the financial year end the Board has proposed a final 2019 dividend of 55.10 cent per A ordinary share which amounts to
€97.3m. The payment date for the final dividend will be 15 May 2020 to shareholders registered on the record date as at 17 April
2020. The consolidated financial statements do not reflect this dividend.
11. Property, plant and equipment
Group:
Property, plant and equipment
Right-of-use assets*
Notes
(i)
(ii)
2019
€’m
2018
€’m
1,963.4
1,767.0
99.5
-
2,062.9
1,767.0
*
The Group have applied the modified retrospective transition approach and have not restated comparative amounts for the years prior
to first adoption.
171
Kerry Group Annual Report 2019
11. Property, plant and equipment (continued)
(i) Property, plant and equipment analysis
Land and
Buildings
€’m
Notes
Plant,
Machinery
and
Equipment
€’m
Construction
in Progress
€’m
Motor
Vehicles
€’m
Total
€’m
Group:
Cost
At 1 January 2018
Businesses acquired
Additions
Transfer from construction in progress
Disposals
Transfer to held for sale
Exchange translation adjustment
1,051.5
1,822.2
19.3
22.0
53.7
(8.1)
-
12.0
53.1
54.1
89.7
(38.6)
-
19.2
At 31 December 2018
1,150.4
1,999.7
30
5
18
3
3
3
3
5
18
Businesses acquired
Additions
Transfer from construction in progress
Disposals
Transfer from held for sale
Exchange translation adjustment
At 31 December 2019
Accumulated depreciation and impairment
At 1 January 2018
Charge during the financial year
Impairments
Disposals
Transfer to held for sale
Exchange translation adjustment
At 31 December 2018
Charge during the financial year
Impairments
Disposals
Transfer from held for sale
Exchange translation adjustment
At 31 December 2019
Carrying value
At 31 December 2018
At 31 December 2019
63.9
25.6
65.8
(26.3)
5.9
23.8
50.0
69.2
140.9
(133.2)
0.3
43.8
1,309.1
2,170.7
383.9
1,174.8
31.2
0.9
(7.2)
-
4.1
104.3
2.5
(34.3)
-
11.6
412.9
1,258.9
36.7
0.2
120.8
-
(15.7)
(107.8)
3.9
8.8
0.3
28.9
446.8
1,301.1
Included in the impairments above is €0.2m (2018: €3.4m) charged to non-trading items.
172
211.5
7.4
207.0
(143.4)
-
-
3.5
286.0
0.7
142.1
(206.7)
-
-
6.0
228.1
-
-
-
-
-
-
-
-
-
-
-
-
-
14.7
3,099.9
-
0.6
-
(0.5)
-
(0.2)
14.6
0.1
1.8
-
79.8
283.7
-
(47.2)
-
34.5
3,450.7
114.7
238.7
-
(2.1)
(161.6)
-
0.4
6.2
74.0
14.8
3,722.7
11.6
0.9
-
(0.5)
-
(0.1)
11.9
1.1
-
1,570.3
136.4
3.4
(42.0)
-
15.6
1,683.7
158.6
0.2
(1.8)
(125.3)
-
0.2
4.2
37.9
11.4
1,759.3
737.5
862.3
740.8
869.6
286.0
228.1
2.7
3.4
1,767.0
1,963.4
Kerry Group Annual Report 2019
11. Property, plant and equipment (continued)
(i) Property, plant and equipment analysis (continued)
Company:
Cost
At 1 January 2018
At 31 December 2018 and 2019
Accumulated depreciation
At 1 January 2018
Charge during the financial year
At 31 December 2018
Charge during the financial year
At 31 December 2019
Carrying value
At 31 December 2018
At 31 December 2019
(ii) Right-of-use assets analysis
Group:
Cost
At 31 December 2018
Adjustment on initial application of IFRS 16 ‘Leases’
at 1 January 2019
Businesses acquired
Additions
Terminations
At 31 December 2019
Accumulated depreciation
At 31 December 2018
Charge during the financial year
Terminations
At 31 December 2019
Carrying value
At 1 January 2019
At 31 December 2019
Land and
Buildings
€’m
Note
Plant,
Machinery
and
Equipment
€’m
Motor
Vehicles
€’m
30
-
71.3
0.3
27.3
(4.4)
94.5
-
23.2
(2.0)
21.2
71.3
73.3
-
11.8
0.1
8.6
(0.8)
19.7
-
5.6
(0.8)
4.8
11.8
14.9
-
12.1
-
6.0
(1.2)
16.9
-
6.4
(0.8)
5.6
12.1
11.3
Land and
Buildings
Total
€’m
4.7
4.7
4.3
0.1
4.4
-
4.4
0.3
0.3
Total
€’m
-
95.2
0.4
41.9
(6.4)
131.1
-
35.2
(3.6)
31.6
95.2
99.5
173
Kerry Group Annual Report 2019
11. Property, plant and equipment (continued)
(ii) Right-of-use assets analysis (continued)
The right-of-use assets consist of:
-
land and buildings for warehouse space, offices and manufacturing facilities. The lease terms vary and range from 1 to 94 years
with an average of 8 years for buildings and an average of 55 years for land;
machinery, equipment, tools, furniture and other equipment when combined are insignificant to the total leased assets
portfolio and have an average lease term of 4 to 5 years; and
motor vehicles for management and sales functions and trucks for distribution in specific businesses. The lease terms for
motor vehicles range from 1 to 8 years with an average of 4 years.
-
-
At 1 January 2019, on transition to IFRS 16, the Group recognised right-of-use assets of €95.2m and lease liabilities of €107.3m.
The Group recorded the difference of €12.1m and the related deferred tax asset of €2.7m in retained earnings.
(iii) Lease Disclosures
(iii.i) Amounts recognised in the Consolidated Income Statement:
Depreciation charged during the financial year
Expenses relating to short-term leases
Expenses relating to leases of low-value assets, excluding short-term leases of low-value assets
Interest on lease liabilities*:
- on transition to IFRS 16
- leases entered into during the financial year
*
included in interest payable
(iii.ii) Amounts recognised in the Consolidated Statement of Cash Flows:
Total cash outflow for leases during the year*
*
includes interest expense and principal repayments of lease liabilities and short-term and low-value lease expenses
(iii.iii) At the balance sheet date the Group had commitments under non-cancellable leases
which fall due as follows:
Within 1 year
Within 2 to 5 years
After 5 years
(iv) Reconciliation of IAS 17 lease commitments and IFRS 16 lease liability
Future minimum lease payments under non-cancellable operating leases as at 31 December 2018
- additional leases identified for acquisitions as part of the measurement period
- future lease payments on renewal options that are reasonably certain
- non-lease components
- future lease payments on short-term leases
- future lease payments on low-value leases
Total future lease payments
Effect of discounting
Lease liability at 1 January 2019
174
2019
€’m
35.2
1.9
0.2
4.6
1.7
2019
€’m
43.9
2019
€’m
34.9
57.2
17.3
109.4
2019
€’m
83.1
6.2
26.7
14.3
(1.0)
(0.1)
129.2
(21.9)
107.3
Kerry Group Annual Report 2019
12. Intangible assets
Cost
At 1 January 2018
Businesses acquired
Additions
Purchase adjustment
Disposals
Exchange translation adjustment
At 31 December 2018
Businesses acquired
Additions
Purchase adjustment
Disposals
Exchange translation adjustment
At 31 December 2019
Accumulated amortisation and impairment
At 1 January 2018
Charge during the financial year
Disposals
Exchange translation adjustment
At 31 December 2018
Charge during the financial year
Disposals
Exchange translation adjustment
At 31 December 2019
Carrying value
At 31 December 2018
At 31 December 2019
Notes
Goodwill
€’m
Brand
Related
Intangibles
€’m
Computer
Software
€’m
Total
€’m
2,229.3
1,552.9
234.6
4,016.8
133.7
314.5
-
5.8
-
8.6
-
-
-
12.7
-
30.4
-
(3.8)
0.4
448.2
30.4
5.8
(3.8)
21.7
2,377.4
1,880.1
261.6
4,519.1
30
200.7
237.0
-
5.1
-
41.0
-
5.4
-
21.2
-
55.2
-
(0.5)
0.7
437.7
55.2
10.5
(0.5)
62.9
2,624.2
2,143.7
317.0
5,084.9
3
3
18.5
-
-
0.2
18.7
-
-
1.9
20.6
204.3
28.8
-
2.8
147.3
370.1
25.0
(3.8)
0.4
53.8
(3.8)
3.4
235.9
168.9
423.5
37.8
-
5.5
26.5
(0.5)
0.5
64.3
(0.5)
7.9
279.2
195.4
495.2
2,358.7
2,603.6
1,644.2
1,864.5
92.7
121.6
4,095.6
4,589.7
Allocation of the purchase price in a business combination affects the results of the Group as finite life intangible assets are
amortised, whereas indefinite life intangible assets, including goodwill, are not amortised. This could result in differing amortisation
charges based on the allocation to finite life and indefinite life intangible assets.
Included in the cost of brand related intangibles are intangibles of €1,307.2m (2018: €1,175.9m) which have indefinite lives.
Approximately €16.5m (2018: €11.4m) of computer software additions during the year were internally generated. Included in this
are payroll costs of €11.2m (2018: €8.3m). The Group has not capitalised product development expenditure in 2019 (2018: €nil).
The Group has no separate individual intangible asset that is material, as all intangibles acquired are integrated and developed
within the existing business.
175
Kerry Group Annual Report 2019
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 2019 or 2018 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 2019, there was no specific impairment charge
(2018: €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
2019
€’m
507.4
1,492.1
182.7
Goodwill
2018
€’m
Indefinite Life
Intangibles
2019
€’m
Indefinite Life
Intangibles
2018
€’m
497.1
1,286.1
171.2
102.3
1,106.0
51.6
104.0
974.3
51.6
421.4
2,603.6
404.3
2,358.7
47.3
46.0
1,307.2
1,175.9
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
2019
Discount
Rates
2018
Growth
Rates
2019
Growth
Rates
2018
6.5%
6.9%
8.8%
6.8%
6.8%
9.7%
1.9%
2.4%
4.9%
1.9%
2.4%
4.9%
6.4%
6.7%
1.9%
1.9%
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.
176
Kerry Group Annual Report 2019
12. Intangible assets (continued)
Impairment testing (continued)
Sensitivity analysis
Sensitivity analysis has been performed across the four CGUs. If the discount rate was 1% higher than management’s estimates,
there would have been no requirement for the Group to recognise any impairment charge in 2019 or 2018. Further, a 5% increase
would not have resulted in an impairment charge in 2019 or 2018 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 2019 or 2018. 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 2019 or 2018. 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 2018
Additions
Disposals
Fair value movements
Exchange translation adjustment
At 31 December 2018
Additions
Disposals
Fair value movements
Exchange translation adjustment
At 31 December 2019
FVOCI
Investments
€’m
Other
Investments
€’m
7.2
37.4
-
-
(1.9)
-
5.3
-
-
(1.0)
-
4.3
4.1
(12.7)
(0.6)
1.8
30.0
3.0
(1.5)
5.4
0.5
37.4
Total
€’m
44.6
4.1
(12.7)
(2.5)
1.8
35.3
3.0
(1.5)
4.4
0.5
41.7
Investments held at fair value through other comprehensive income
These represent investments in equity securities. These investments have no fixed maturity or coupon rate. A fair value assessment
was performed in 2019 which resulted in a decrease to the carrying value of these assets of €1.0m (2018: €1.9m) through other
comprehensive income.
Other investments
The Group maintains a Rabbi Trust in respect of a non-qualified deferred compensation plan in the USA. The assets of the trust
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).
177
Kerry Group Annual Report 2019
14. Investments in associates and joint ventures
At 1 January
Acquisition
Disposal
Share of profit/(loss) after tax during the financial year
At 31 December
Notes
5
3
2019
€’m
15.6
-
-
0.6
16.2
2018
€’m
5.8
15.6
(5.5)
(0.3)
15.6
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 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 2018, 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.
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
2019
€’m
714.4
-
714.4
2019
€’m
441.8
515.2
36.3
993.3
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 1.2% (2018: 0.9%) of raw materials and consumables in the
Consolidated Income Statement.
178
Kerry Group Annual Report 2019
17. Deferred tax assets and liabilities
The following is an analysis of the movement in the major categories of deferred tax liabilities/(assets) recognised by the Group:
Property,
Plant and
Equipment
€’m
Note
Intangible
Assets
€’m
Tax Credits
and NOLs
€’m
Retirement
Benefits
Obligation
€’m
Short Term
Temporary
Differences
and Other
Differences
€’m
Total
€’m
At 1 January 2018
67.8
205.3
Consolidated Income Statement movement
7
Recognised in other comprehensive income (OCI)
during the financial year
Related to businesses acquired/(disposed)
Exchange translation adjustment
At 31 December 2018
Adjustment on initial application of IFRS 16 ‘Leases’
Adjusted balances at 1 January 2019
(2.7)
79.6
Consolidated Income Statement movement
7
(4.2)
Recognised in OCI during the financial year - pension
& hedging
Related to businesses acquired/(disposed)
Exchange translation adjustment
At 31 December 2019
8.5
-
3.9
2.1
2.5
-
59.5
1.6
(21.2)
(1.0)
-
-
0.7
82.3
268.9
(21.5)
-
-
(22.4)
(34.0) 195.5
7.3
6.3
-
(0.4)
(9.2)
-
1.3
18.6
0.2
6.5
0.7
64.1
(1.7)
2.3
(33.5) 287.0
-
(2.7)
268.9
(21.5)
(9.2)
(33.5) 284.3
2.1
-
7.1
3.5
2.5
-
(0.7)
(0.3)
3.8
2.0
-
0.1
(4.8)
(0.6)
1.4
3.4
(1.1)
(0.9)
8.4
4.5
-
3.1
2.1
80.6
281.6
(20.0)
(3.3)
(38.9) 300.0
The short term temporary differences and other temporary differences recognised in other comprehensive income comprise fair
value movements on cash flow hedges of €1.4m (2018: €0.2m). In the above table, NOLs refers to Net Operating Losses.
The following is an analysis of the deferred tax balances (after offset) for balance sheet purposes:
Deferred tax assets
Deferred tax liabilities
2019
€’m
(38.9)
338.9
300.0
2018
€’m
(37.1)
324.1
287.0
The total deductible temporary differences for which deferred tax assets have not been recognised is €27.4m (2018: €22.9m).
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
€14.5m (2018: €13.3m).
18. Assets classified as held for sale
Property, plant and equipment
2019
€’m
-
-
2018
€’m
2.0
2.0
In 2019, the Group reclassified certain property, plant and equipment from held for sale to property, plant and equipment in the
Taste & Nutrition segment in Europe.
179
Kerry Group Annual Report 2019
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
2019
€’m
1,002.4
(35.7)
966.7
56.8
-
40.4
2.4
Group
2018
€’m
906.4
(31.5)
874.9
53.6
-
38.9
0.4
Company
2019
€’m
Company
2018
€’m
-
-
-
-
-
-
-
-
135.8
94.1
-
-
-
-
1,066.3
967.8
135.8
94.1
All receivable balances are due within 1 year except for €2.4m (2018: €0.4m) outlined above. All receivable balances are within terms
with the exception of certain trade receivables which are past due and are detailed below.
The following table shows an analysis of trade receivables split between past due and within terms accounts, where past due is
deemed to be when an account exceeds the agreed terms of trade:
Note
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
3
Utilised during the financial year
Exchange translation adjustment
At end of the financial year
2019
€’m
823.9
100.4
31.1
9.2
2.1
2018
€’m
734.0
108.2
24.7
6.3
1.7
966.7
874.9
2019
€’m
31.5
6.5
(3.1)
0.8
35.7
2018
€’m
29.0
8.5
(5.7)
(0.3)
31.5
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.
180
Kerry Group Annual Report 2019
20. Trade and other payables
Trade payables
Other payables and accruals
Lease liabilities
Deferred payments on acquisition of businesses
PAYE
Social security costs
Group
2019
€’m
Group
2018
€’m
Company
2019
€’m
Company
2018
€’m
1,376.9
1,285.9
15.7
202.0
177.6
34.9
13.0
9.1
7.1
-
10.1
2.9
5.6
-
-
5.8
-
-
1,643.0
1,482.1
21.5
-
0.5
-
5.8
-
-
6.3
Trade and other payables are stated at amortised cost, which approximates to fair value given the short term nature of these
liabilities. The above balances are all due within 1 year.
21. Deferred income
Group
2019
€’m
Group
2018
€’m
Company
2019
€’m
Company
2018
€’m
Note
Capital grants
At beginning of the financial year
Grants received during the financial year
Amortised during the financial year
3
Disposal
Exchange translation adjustment
At end of the financial year
Analysed as:
Current liabilities
Non-current liabilities
22.4
3.2
(2.4)
(0.2)
0.1
23.1
2.2
20.9
23.1
24.1
0.6
(2.3)
(0.1)
0.1
22.4
1.2
21.2
22.4
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
Lease liabilities
Deferred payments on acquisition of businesses
Group
2019
€’m
84.7
74.5
8.7
Group
2018
€’m
82.6
-
-
167.9
82.6
Company
2019
€’m
Company
2018
€’m
-
-
-
-
All of the above balances are due within 2 to 5 years except for €17.3m (2018: €0.2m) which is not due until after 5 years.
-
-
-
-
181
Kerry Group Annual Report 2019
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
2019
€’m
Assets/
(Liabilities)
at Fair Value
through
Profit
or Loss
2019
€’m
Derivatives
Designated
as Hedging
Instruments
2019
€’m
Assets/
(Liabilities) at
FVOCI
2019
€’m
Group:
Financial asset investments
Forward foreign exchange contracts
Interest rate swaps
Notes
13
24 (i.i)
24 (ii.ii)
-
-
-
Trade and other receivables
19
1,066.3
Cash at bank and in hand
24 (iii.i)
Total financial assets
Current assets
Non-current assets
554.9
1,621.2
1,621.2
-
1,621.2
37.4
-
-
-
-
37.4
-
37.4
37.4
Borrowings and overdrafts
24 (iii.i)
(2,521.2)
(24.9)
Forward foreign exchange contracts
Interest rate swaps
24 (i.i)
24 (ii.ii)
-
-
Trade and other payables
20/22
(1,810.9)
-
-
-
Total financial liabilities
(4,332.1)
(24.9)
(12.1)
-
12.0
128.4
-
-
140.4
57.7
82.7
140.4
-
(12.1)
-
-
Current liabilities
Non-current liabilities
Total net financial (liabilities)/assets
(1,833.5)
(2,498.6)
(4,332.1)
(2,710.9)
Included in the above table are the following components of net debt:
Analysis of total net debt by category
(0.3)
(24.6)
(24.9)
12.5
-
-
(24.9)
(24.9)
-
-
(12.1)
-
(12.1)
128.3
-
-
-
-
128.4
-
(5.2)
(1.2)
(2,514.8)
(2,521.2)
-
554.9
Bank overdrafts
Bank loans
Senior notes
Borrowings and overdrafts
Interest rate swaps
Cash at bank and in hand
Total net debt
Total
2019
€’m
41.7
12.0
128.4
1,066.3
554.9
1,803.3
1,678.9
124.4
1,803.3
(2,546.1)
(12.1)
-
(1,810.9)
(4,369.1)
(1,845.9)
(2,523.2)
(4,369.1)
4.3
-
-
-
-
4.3
-
4.3
4.3
-
-
-
-
-
-
-
-
4.3
(2,565.8)
-
-
-
-
-
-
-
(5.2)
(1.2)
(2,539.7)
(2,546.1)
128.4
554.9
(1,862.8)
(1,966.3)
(24.9)
128.4
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 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. No interest rate derivatives were entered into for the September 2019 €750m senior notes issuance.
The adjustment to senior notes classified under liabilities at fair value through profit or loss of €24.9m (2018: €13.2m) 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.
182
Kerry Group Annual Report 2019
23. Analysis of financial instruments by category (continued)
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
2018
€’m
Notes
13
24 (i.i)
24 (ii.ii)
19
24 (iii.i)
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
-
-
-
967.8
413.8
1,381.6
1,381.6
-
1,381.6
30.0
-
-
-
-
30.0
-
30.0
30.0
-
(13.2)
(13.2)
16.8
-
-
(13.2)
(13.2)
-
-
(9.9)
(355.4)
(1,755.0)
(2,120.3)
-
413.8
(1,706.5)
(13.2)
-
10.0
101.7
-
-
111.7
10.0
101.7
111.7
-
(11.1)
(5.5)
-
(11.0)
(5.6)
(16.6)
95.1
-
-
-
-
96.2
-
96.2
Borrowings and overdrafts
24 (iii.i)
(2,120.3)
(13.2)
Forward foreign exchange contracts
Interest rate swaps
24 (i.i)
24 (ii.ii)
-
-
Trade and other payables
20/22
(1,564.7)
-
-
-
Total financial liabilities
(3,685.0)
(13.2)
(16.6)
Current liabilities
Non-current liabilities
Total net financial (liabilities)/assets
(1,495.9)
(2,189.1)
(3,685.0)
(2,303.4)
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
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)
5.3
-
-
-
-
5.3
-
5.3
5.3
-
-
-
-
-
-
-
-
5.3
(2,186.2)
-
-
-
-
-
-
-
(9.9)
(355.4)
(1,768.2)
(2,133.5)
96.2
413.8
(1,623.5)
183
Kerry Group Annual Report 2019
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
Notes
2019
€’m
2018
€’m
19
20
-
135.8
135.8
-
(21.5)
(21.5)
-
94.1
94.1
-
(6.3)
(6.3)
Total net financial assets
114.3
87.8
24. Financial instruments
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
2019
€’m
4,562.2
1,862.8
21.7
2018
€’m
4,034.4
1,623.5
10.1
6,446.7
5,668.0
In June 2019, the Group completed a five year €1.1bn revolving credit facility which matures in June 2024 and replaced the existing
facility that was due to mature in April 2022. The facility contains two extension options exercisable on the 1st and 2nd anniversaries
of the facility and which, if exercised, will extend the maturity date of the facility to June 2026. In keeping with the Group’s
commitment to ESG, the facility incorporates a price adjustment mechanism which is linked to the Group meeting or exceeding
its carbon, water and waste efficiency metrics.
In September 2019, the Group issued €750m senior notes carrying an annual coupon of 0.625%. These notes are rated by S&P and
Moody’s and are listed on Euronext Dublin. The proceeds of the issuance were used primarily to repay existing debt and for general
corporate purposes.
The senior notes issued by the Group in 2013, 2015 and 2019 are rated by S&P 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 18 to 24 months; otherwise consideration
would be given to issuing additional equity in the Group.
184
Kerry Group Annual Report 2019
24. Financial instruments (continued)
Capital management (continued)
Net debt is subject to seasonal fluctuations that can be up to 25% above year end debt levels.
The senior notes of $408m issued in 2010 remain outstanding and this series of notes carry financial covenants calculated in
accordance with the Note Purchase Agreement. The principal financial covenants 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*
2019
Times
1.8
13.2
2018
Times
1.7
14.7
*
Calculated in accordance with lenders’ facility agreements which take account of adjustments as outlined on page 218.
No other financial arrangements carry financial covenants.
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:
Foreign exchange rate risk management - key foreign exchange exposure of the Group and the disclosures on forward foreign
(i)
exchange contracts.
Interest rate risk management - key interest rate exposures of the Group and the disclosures on interest rate derivatives.
(ii)
(iii) Liquidity risk management - key banking facilities available to the Group and the maturity profile of the Group’s debt.
(iv) Credit risk management - details in relation to the management of credit risk within the Group.
(v) Price risk management - 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 a USA dollar liability of €26.4m (2018: €12.3m) and a sterling asset of €11.7m
(2018: €4.8m). Based on these net positions, as at 31 December 2019, 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 the profit after taxation of the Group
for the financial year by €0.7m (2018: €0.4m).
The Group’s gain or loss on the retranslation of the net assets of foreign currency subsidiaries is taken directly to the translation
reserve. As at 31 December 2019 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 €21.7m (2018: €21.5m) and €23.0m (2018: €21.7m), respectively.
(i.i) Forward foreign exchange contracts
The Group’s activities expose it to risks of changes in foreign currency exchange rates in relation to international trading, primarily
sales in US dollar and sterling out of the Eurozone 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.
185
Kerry Group Annual Report 2019
24. Financial instruments (continued)
Financial risk management objectives (continued)
(i) Foreign exchange rate risk management (continued)
(i.i) Forward foreign exchange contracts (continued)
The following table details the portfolio of forward foreign exchange contracts* at the balance sheet date:
2019
€’m
Asset
2019
€’m
Liability
Note
Designated in a hedging relationship:
Forward foreign exchange contracts - cash flow hedges
(a)
- current 1
- non-current 2
12.0
12.0
-
(12.1)
(12.1)
-
2019
€’m
Total
(0.1)
(0.1)
-
2018
€’m
Asset
2018
€’m
Liability
10.0
10.0
-
(11.1)
(11.0)
(0.1)
Forward foreign exchange contracts
12.0
(12.1)
(0.1)
10.0
(11.1)
2018
€’m
Total
(1.1)
(1.0)
(0.1)
(1.1)
*
1
2
Location of line item in the Consolidated Balance Sheet
Other current financial instruments
Other non-current financial instruments
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 adopted 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.
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
2018
2019
€’m
€’m
Notional Principal
2018
€’m
2019
€’m
(0.1)
-
(0.1)
(1.0)
(0.1)
(1.1)
1,735.7
2,005.7
19.8
25.9
1,755.5
2,031.6
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
2019
€’m
(0.1)
(1.6)
1.7
0.1
2018
€’m
(1.1)
(3.4)
4.5
1.1
The fair value included in the hedging reserve will primarily be released to the Consolidated Income Statement within 6 months (2018:
6 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.
186
Kerry Group Annual Report 2019
24. Financial instruments (continued)
Financial risk management objectives (continued)
(i) Foreign exchange rate risk management (continued)
(i.i) Forward foreign exchange contracts (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 financial 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
*
1
Location of line item in the Consolidated Income Statement
Other general overheads
2019
€’m
2018
€’m
(2.4)
0.6
(1.8)
(0.6)
-
(0.6)
2.7
(2.1)
0.6
2.1
-
2.1
There were no transactions during 2019 or 2018 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 2019
Euro
Sterling
US Dollar
Others
At 31 December 2018
Total
Pre CCS
€’m
Impact
of CCS
€’m
Total
after CCS
€’m
Floating
Rate Debt
€’m
Fixed
Rate Debt
€’m
(1,286.0)
(411.0)
(1,697.0)
(149.3)
(1,547.7)
77.9
(887.4)
129.2
(1,966.3)
-
411.0
-
-
77.9
(476.4)
129.2
77.9
(253.7)
129.2
-
(222.7)
-
(1,966.3)
(195.9)
(1,770.4)
(1,016.2)
(399.8)
(1,416.0)
(622.6)
(793.4)
51.0
(805.5)
64.2
(1,706.5)
-
51.0
51.0
-
399.8
(405.7)
(187.3)
(218.4)
-
-
64.2
64.2
-
(1,706.5)
(694.7)
(1,011.8)
The currency profile of debt highlights the impact of the US$658m (2018: 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 (2018: US$658m) to the balance
sheet rate resulted in a foreign currency loss of €116.3m (2018: €105.1m) which is directly offset by a gain of €116.3m (2018:
€105.1m) on the application of hedge accounting on the cross currency swaps.
187
Kerry Group Annual Report 2019
24. Financial instruments (continued)
Financial risk management objectives (continued)
(ii) Interest rate risk management (continued)
(ii.i) Interest rate profile of financial liabilities excluding related derivatives fair value (continued)
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 €1.5m (2018: €4.8m) for movement in exchange rates since the date of execution which is directly
offset by a loss of €1.5m (2018: €4.8m) on the application of hedge accounting on the cross currency swaps.
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
financial year end 10% (2018: 41%) of net debt and 30% (2018: 52%) 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% (2018: 1%).
(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:
2019
€’m
Asset
2019
€’m
Liability
Notes
Designated in a hedging relationship:
Interest rate swap contracts - cash flow hedges
(a)
- non-current 2
18.4
18.4
Interest rate swap contracts - fair value hedges
(b)
110.0
- current 1
- non-current 2
Interest rate swap contracts
*
1
2
Location of line item in the Consolidated Balance Sheet
Other current financial instruments
Other non-current financial instruments
45.7
64.3
128.4
-
-
-
-
-
-
2019
€’m
Total
18.4
18.4
2018
€’m
Asset
2018
€’m
Liability
5.2
5.2
-
-
2018
€’m
Total
5.2
5.2
110.0
96.5
(5.5)
91.0
45.7
64.3
-
96.5
128.4
101.7
-
(5.5)
(5.5)
-
91.0
96.2
The Group adopted 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 following tables (a) and (b).
188
Kerry Group Annual Report 2019
24. Financial instruments (continued)
Financial risk management objectives (continued)
(ii) Interest rate risk management (continued)
(ii.ii) Interest rate swap contracts (continued)
(a) Interest rate swap contracts - cash flow hedges
Under interest rate swap contracts, including cross currency interest rate swaps, the Group agrees to exchange the difference
between the fixed and floating rate interest amounts calculated on the agreed notional principal amounts.
The following table details the notional principal amounts and remaining terms of the cash flow hedges, where the Group receives a
floating or a fixed interest rate and pays fixed interest rate on swaps as at 31 December:
Average Contracted
Fixed Interest Rate Fair Value Asset Notional Principal
2018
€’m
2019
€’m
2019
€’m
2019
%
2018
€’m
2018
%
Interest rate swap contracts
2 - 5 years
Interest rate swap contracts - cash flow hedges
2.58
2.58
18.4
18.4
5.2
5.2
222.7
222.7
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:
2019
€’m
18.4
2018
€’m
5.2
Amount reclassified from hedge reserve to profit or loss re: foreign exchange rate fluctuations1
(27.2)
(23.0)
Retained earnings and other reserves:
Cash flow hedging reserve
Cost of hedging reserve
Accumulated hedge ineffectiveness
*
1
Location of line item in the Consolidated Balance Sheet
Borrowings & overdrafts
9.8
(1.4)
0.4
(18.4)
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 (loss)/gain recognised in cash flow hedging reserve
Total hedging gain/(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
2019
€’m
(4.3)
0.2
(4.2)
(0.5)
(0.1)
(8.9)
18.9
(1.6)
0.5
(5.2)
2018
€’m
10.3
(1.6)
(9.8)
(0.4)
0.8
(0.7)
189
Kerry Group Annual Report 2019
24. Financial instruments (continued)
Financial risk management objectives (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 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
*
1
2
Location of line item in the Consolidated Income Statement
Other general overheads
Finance costs
2019
€’m
2018
€’m
4.2
0.5
0.1
(4.2)
0.6
9.8
0.4
(0.8)
(9.8)
(0.4)
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:
Average Contracted
Fixed Interest Rate
Fair Value Asset
Notional Principal
2019
%
2018
%
2019
€’m
2018
€’m
2019
€’m
2018
€’m
Interest rate swap contracts
less than 1 year
1 - 2 years
2 - 5 years
> 5 years
Interest rate swap contracts - fair value hedges
4.8
-
3.8
3.1
-
4.8
3.8
3.1
45.7
-
33.6
30.7
110.0
-
185.3
42.8
22.8
25.4
91.0
-
334.0
241.8
761.1
-
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.
190
Kerry Group Annual Report 2019
24. Financial instruments (continued)
Financial risk management objectives (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 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 movements 1
Receivables:
Foreign exchange rate fluctuations 2
Retained earnings and other reserves:
Hedge ineffectiveness
Cost of hedging reserve
2019
€’m
110.0
2018
€’m
91.0
(89.1)
(24.9)
(82.1)
(13.2)
(1.5)
(4.8)
2.7
2.8
5.5
3.6
(110.0)
(91.0)
*
1
2
Location of line item in the Consolidated Balance Sheet
Borrowings and overdrafts
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
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
2019
€’m
(0.8)
2018
€’m
3.6
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
2019
€’m
2018
€’m
3.7
11.7
2.8
8.4
(6.8)
1.0
(7.0)
(11.7)
(16.0)
6.8
3.3
2.8
7.6
1.0
Location of line item in the Consolidated Income Statement
*
** Location of line item in the Consolidated Balance Sheet
1
2
3
Other general overheads
Finance costs
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
191
Kerry Group Annual Report 2019
24. Financial instruments (continued)
Financial risk management objectives (continued)
(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 2019 and 2018.
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 2019, the Group had undrawn committed bank facilities of €1,100m (2018: €750m), and a portfolio of undrawn
standby facilities amounting to €330m (2018: €320m). The undrawn committed facilities comprise primarily of a revolving credit
facility maturing between 4 - 5 years (2018: between 3 - 4 years).
(iii.i) Contractual maturity profile of non-derivative financial instruments
The following table details the Group’s remaining contractual maturity of its non-derivative financial instruments excluding trade
and other payables (note 20) and other non-current liabilities (note 22), of which €1,630.0m (2018: €1,472.0m) is payable within 1
year, €147.9m (2018: €82.4m) between 2 and 5 years and €11.3m (2018: €0.2m) is payable after 5 years. The balances include the
impact of lease liabilities in 2019. This information has been drawn up based on the undiscounted cash flows of financial liabilities to
the earliest date on which the Group can be required to repay. The analysis includes both interest commitments and principal cash
flows. To the extent that interest rates are floating, the rate used is derived from interest rate yield curves at the end of the reporting
date and as such, are subject to change based on market movements.
On demand &
up to 1 year
€’m
Up to
2 years
€’m
2 - 5
years
€’m
-
-
> 5 years
€’m
-
-
Total
€’m
(5.2)
(1.2)
(777.6)
(1,551.9)
(2,514.8)
(777.6)
(1,551.9)
(2,521.2)
(6.0)
-
(21.7)
(783.6)
(1,551.9)
(2,542.9)
(105.2)
(34.6)
(245.8)
(888.8)
(1,586.5)
(2,788.7)
(777.6)
(1,551.9)
(2,521.2)
(7.0)
(17.6)
(24.9)
(784.6)
(1,569.5)
(2,546.1)
52.0
-
30.7
-
128.4
554.9
-
(1.2)
-
(1.2)
(2.7)
(3.9)
(52.8)
(56.7)
(1.2)
-
(1.2)
-
-
(1.2)
(732.6)
(1,538.8)
(1,862.8)
Bank overdrafts
Bank loans
Senior notes
Borrowings and overdrafts
Deferred payments on acquisition of businesses
Interest commitments
At 31 December 2019
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 2019
(5.2)
-
(185.3)
(190.5)
(13.0)
(203.5)
(53.2)
(256.7)
(190.5)
(0.3)
(190.8)
45.7
554.9
409.8
192
Kerry Group Annual Report 2019
24. Financial instruments (continued)
Financial risk management objectives (continued)
(iii) Liquidity risk management (continued)
(iii.i) Contractual maturity profile of non-derivative financial instruments (continued)
On demand &
up to 1 year
€’m
(9.9)
(3.9)
-
(13.8)
(10.1)
(23.9)
(56.6)
(80.5)
Up to
2 years
€’m
-
(1.5)
(181.7)
(183.2)
-
2 - 5
years
€’m
-
(350.0)
(762.1)
(1,112.1)
> 5 years
€’m
-
-
(811.2)
(811.2)
Total
€’m
(9.9)
(355.4)
(1,755.0)
(2,120.3)
-
-
(10.1)
(183.2)
(1,112.1)
(811.2)
(2,130.4)
(48.8)
(118.1)
(33.6)
(257.1)
(232.0)
(1,230.2)
(844.8)
(2,387.5)
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
(13.8)
(183.2)
(1,112.1)
(811.2)
(2,120.3)
Senior notes - fair value adjustment
-
(1.8)
1.3
(12.7)
(13.2)
Borrowings - reported
(13.8)
(185.0)
(1,110.8)
(823.9)
(2,133.5)
Interest rate swaps
Cash at bank and in hand
Total net debt as at 31 December 2018
-
413.8
400.0
42.8
-
28.0
-
25.4
-
96.2
413.8
(142.2)
(1,082.8)
(798.5)
(1,623.5)
(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 2019
Interest rate swaps inflow
Interest rate swaps outflow
Net interest rate swaps inflow
Forward foreign exchange contracts inflow
At 31 December 2018
On demand &
up to 1 year
€’m
73.2
(20.0)
53.2
(0.1)
53.1
On demand &
up to 1 year
€’m
35.6
(24.9)
10.7
(1.0)
9.7
Up to
2 years
€’m
27.3
(19.2)
8.1
-
8.1
Up to
2 years
€’m
69.2
(23.0)
46.2
(0.1)
46.1
2 - 5
years
€’m
98.9
(40.9)
58.0
-
58.0
2 - 5
years
€’m
108.1
(56.6)
51.5
-
51.5
> 5 years
€’m
18.0
-
18.0
-
18.0
> 5 years
€’m
26.3
(6.3)
20.0
-
20.0
Total
€’m
217.4
(80.1)
137.3
(0.1)
137.2
Total
€’m
239.2
(110.8)
128.4
(1.1)
127.3
193
Kerry Group Annual Report 2019
24. Financial instruments (continued)
Financial risk management objectives (continued)
(iii) Liquidity risk management (continued)
(iii.ii) Contractual maturity profile of derivative financial instruments (continued)
Included in the interest rate swaps inflow and outflow is the foreign currency differential on final maturity of the cross currency
interest rate swaps as follows:
Swaps inflow
- Up to 1 year - swaps inflow of €45.4m (2018: €nil)
1 - 2 years - swaps inflow of €nil (2018: €41.9m)
-
2 - 5 years - swaps inflow of €54.6m (2018: €48.1m)
-
- Greater than 5 years - swaps inflow of €17.8m (2018: €19.9m)
(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 June 2024; and
Bilateral term loans with maturities ranging up to 1 year.
(b) 2019 Euro senior note - public
The Group issued a 10 year euro note of €750m at an interest rate of 0.625% with a maturity date on 20 September 2029.
(c) 2015 Euro senior note - public
The Group issued a debut 10 year euro note of €750m at an interest rate of 2.375% with a maturity date on 10 September 2025.
(d) 2013 US dollar senior note - public
The Group issued a debut 10 year USA public note of US$750m at an interest rate of 3.2% with a maturity date on 9 April 2023.
(e) 2010 Senior notes - private
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.
The 2010 senior notes have financial covenants attached to them. The Group was in full compliance with these covenants for the
financial years 2019 and 2018.
(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
2019 and 2018 all cash, short-term deposits and other liquid investments had a maturity of less than 3 months.
Credit risk exposure to financial institutions is actively managed across the portfolio of institutions by setting appropriate credit
exposure limits based on a value at risk calculation that takes EBITDA of the Group and calculates approved tolerance levels based
on credit default swap rates for the financial institutions. These levels are applied in controlling the level of material surplus funds
that are placed with counterparties and for controlling the institutions with which the Group enters into derivative contracts. Credit
default swaps for those financial institutions are as published by independent credit rating agencies and are updated and reviewed
on an ongoing basis.
The Group’s exposure to its counterparties is continuously monitored and the aggregate value of transactions entered into is spread
amongst approved counterparties.
Trade receivables consist of a large number of customers, spread across diverse geographical areas. Ongoing credit evaluation is
performed on the financial condition of accounts receivable at operating unit level at least on a monthly basis.
The Group’s maximum exposure to credit risk consists of gross trade receivables (note 19), cash deposits (note 23) and other
financial assets (note 23), which are primarily interest rate swaps and foreign exchange contracts.
In relation to credit risk on derivative financial instruments, where appropriate, the Group credit risk is actively managed across the
portfolio of institutions through monitoring the credit default swaps (CDS) and setting appropriate credit exposure limits based on
CDS levels. These levels are applied in controlling the level of material surplus funds that are placed with counterparties and for
controlling institutions with which the Group enters into derivative contracts.
194
Kerry Group Annual Report 2019
24. Financial instruments (continued)
Financial risk management objectives (continued)
(v) Price risk management
The Group’s exposure to equity securities price risk, due to financial asset investments held, is considered to be low as the level of
securities held versus the Group’s net assets is not material.
(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:
Non-current
Current
Forward foreign exchange contracts: Current
Financial asset investments:
Fair value through profit or loss
Fair value through other comprehensive income
Financial liabilities
Interest rate swaps:
Non-current
Forward foreign exchange contracts: Non-current
Current
Fair Value
Hierarchy
Level 2
Level 2
Level 2
Level 1
Level 3
Level 2
Level 2
Level 2
2019
€’m
82.7
45.7
12.0
37.4
4.3
-
-
(12.1)
2018
€’m
101.7
-
10.0
30.0
5.3
(5.5)
(0.1)
(11.0)
The reconciliation of Level 3 assets is provided in note 13. There have been no transfers between levels during the current or prior
financial year.
(b) Fair value of financial instruments carried at amortised cost
Except as detailed in the following table, it is considered that the carrying amounts of financial assets and financial liabilities
recognised at amortised cost in the financial statements approximate their fair values.
Financial liabilities
Senior notes - Public
Senior notes - Private
(c) Valuation principles
Carrying
Amount
2019
€’m
Fair
Value
2019
€’m
Carrying
Amount
2018
€’m
Fair
Value
2018
€’m
Fair Value
Hierarchy
Level 2
(2,151.4)
(2,217.1)
(1,398.6)
(1,377.0)
Level 2
(363.4)
(372.9)
(356.4)
(358.8)
(2,514.8)
(2,590.0)
(1,755.0)
(1,735.8)
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.
195
Kerry Group Annual Report 2019
24. Financial instruments (continued)
Financial risk management objectives (continued)
(vii) Offsetting financial instruments
The Group enters into derivative transactions under International Swaps and Derivatives Association (ISDA) master netting
agreements. The ISDA agreements do not meet the criteria for offsetting in the Consolidated Balance Sheet. This is because the
Group does not have any current legally enforceable right to offset recognised amounts, because the right to offset is enforceable
only on the occurrence of future events such as a default on the bank loans or other credit events. No collateral is paid or received.
The following table sets out the carrying amounts of recognised financial instruments that are subject to the above agreements.
The table also sets out where the Group has offset bank overdrafts against cash at bank and in hand based on a legal right of offset
as set out in the banking agreements.
Gross amounts
of financial
assets in the
Consolidated
Balance Sheet
€’m
Gross amounts
of financial
liabilities in the
Consolidated
Balance Sheet
€’m
Amounts
of financial
instruments
presented in the
Consolidated
Balance Sheet
€’m
Related
financial
instruments
that are not
offset
€’m
Net amount
€’m
554.9
12.0
128.4
695.3
-
-
-
-
413.8
10.0
101.7
525.5
-
-
-
-
-
-
-
-
(5.2)
(12.1)
-
(17.3)
-
-
-
-
(9.9)
(11.1)
(5.5)
(26.5)
554.9
12.0
128.4
695.3
(5.2)
(12.1)
-
(17.3)
413.8
10.0
101.7
525.5
(9.9)
(11.1)
(5.5)
(26.5)
-
(8.3)
-
(8.3)
-
8.3
-
8.3
-
(8.5)
(5.5)
(14.0)
-
8.5
5.5
14.0
554.9
3.7
128.4
687.0
(5.2)
(3.8)
-
(9.0)
413.8
1.5
96.2
511.5
(9.9)
(2.6)
-
(12.5)
At 31 December 2019
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 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
196
Kerry Group Annual Report 2019
25. Provisions
Group:
At 1 January 2018
(Released)/provided during the financial year
Utilised during the financial year
Transferred to payables and accruals
Exchange translation adjustment
At 31 December 2018
Provided during the financial year
Utilised during the financial year
Transferred to payables and accruals
Exchange translation adjustment
At 31 December 2019
Analysed as:
Current liabilities
Non-current liabilities
Insurance
€’m
Non-Trading Items
€’m
Total
€’m
51.3
(0.4)
(5.5)
-
(0.2)
45.2
0.8
-
-
0.6
46.6
11.1
1.5
-
(5.4)
-
7.2
9.6
-
(4.9)
(0.1)
11.8
2019
€’m
25.2
33.2
58.4
62.4
1.1
(5.5)
(5.4)
(0.2)
52.4
10.4
-
(4.9)
0.5
58.4
2018
€’m
20.3
32.1
52.4
Insurance
The Group operates a level of self-insurance. Under these arrangements, the Group retains certain 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 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 2019 and 2018 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, most of which are closed to
future accrual, 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 consolidated 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 2019 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.
197
Kerry Group Annual Report 2019
26. Retirement benefits obligation (continued)
The Group continues to harmonise, standardise and integrate the benefit offering to employees across the countries in which
it operates. In 2019, a number of deferred members transferred their past service benefits out of the Irish defined benefit plans.
In 2018, following consultation with employees, a decision was made to close the UK defined benefit scheme to future accrual from
5 April 2018 with future service being offered to employees in 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.
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 mitigates 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 losses/(gains) on schemes’ liabilities
- Actuarial gains arising from changes in demographic assumptions
- Actuarial losses/(gains) arising from changes in financial assumptions
Recognised in the Consolidated Statement of Comprehensive Income
Total
2019
€’m
2018
€’m
64.0
2.7
(9.9)
0.8
57.6
(198.5)
3.3
(8.9)
190.1
(14.0)
43.6
57.9
6.9
(23.1)
1.4
43.1
99.7
(26.8)
(19.4)
(88.0)
(34.5)
8.6
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).
198
Kerry Group Annual Report 2019
26. Retirement benefits obligation (continued)
(ii) Recognition in the Consolidated Balance Sheet
The Group’s net defined benefit post-retirement schemes’ deficit at 31 December, which has been recognised in the Consolidated
Balance Sheet, was as follows:
Present value of defined benefit obligation
Fair value of plan assets
Net recognised deficit in plans before deferred tax
Net related deferred tax asset
Net recognised deficit in plans after deferred tax
31 December
2019
€’m
31 December
2018
€’m
(1,441.6)
1,429.7
(11.9)
3.3
(8.6)
(1,280.4)
1,227.2
(53.2)
9.2
(44.0)
(iii) Financial and demographic assumptions
The principal financial assumptions used by the Group’s actuaries in order to calculate the defined benefit obligation at 31
December, some of which have been shown in range format to reflect the differing assumptions in each scheme, were as follows:
Inflation assumption
Rate of increase in salaries
Rate of increase for pensions in payment
and deferred pensions
2019
2018
Eurozone
%
1.50
N/A*
UK
%
2.60
N/A*
Rest of
World
%
2.50
3.00
Eurozone
%
1.60
N/A*
UK
%
3.10
N/A*
1.50
1.80 - 2.60
-
1.55 - 1.60
2.10 - 2.90
Rest of
World
%
2.50
3.00
-
Rate used to discount schemes’ liabilities
1.15 - 1.50
2.10
2.50 - 3.00
2.20
3.00
3.75 - 4.25
*
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
2019
2018
Eurozone
Years
UK
Years
22
24 - 25
24
25 - 27
20
23
21
24
Rest of
World
Years
21 - 22
23 - 24
22 - 24
24 - 25
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
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 2019 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.
199
Kerry Group Annual Report 2019
26. Retirement benefits obligation (continued)
(iii) Financial and demographic assumptions (continued)
Assumption
Discount rate
Inflation rate
Change in assumption
Impact on schemes’ liabilities
Increase/decrease of 0.50%
Decrease/increase of 11.2%
Increase/decrease of 0.50%
Increase/decrease of 7.8%
Salary increases
Increase/decrease of 0.50%
Increase/decrease of 0.0%
Pensions in payment and deferred
pensions increases
Increase/decrease of 0.50%
Increase/decrease of 5.2%
Mortality
Increase/decrease in life expectancy of 1 Year
Increase/decrease of 3.6%
(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
(1,280.4)
(1,477.3)
2019
€’m
2018
€’m
Current service cost
Past service and settlements
Interest expense
Contributions by employees
Benefits paid
Re-measurements:
- experience (losses)/gains on schemes’ liabilities
- actuarial gains arising from changes in demographic assumptions
- actuarial (losses)/gains arising from changes in financial assumptions
Decrease arising on settlement
Exchange translation adjustment
(2.7)
9.9
(34.3)
-
59.7
(3.3)
8.9
(190.1)
31.0
(40.3)
(6.9)
23.1
(35.0)
(1.1)
79.8
26.8
19.4
88.0
0.4
2.4
Present value of the defined benefit obligation at end of the financial year
(1,441.6)
(1,280.4)
Present value of the defined benefit obligation at end of the financial year that relates to:
Wholly unfunded plans
Wholly or partly funded plans
(20.0)
(1,421.6)
(1,441.6)
(19.3)
(1,261.1)
(1,280.4)
The weighted average duration of the defined benefit obligation at 31 December 2019 is approximately 21 years (2018:
approximately 21 years).
The movements in the schemes’ assets during the financial year were:
Fair value of plan assets at beginning of the financial year
Interest income
Contributions by employer
Contributions by employees
Benefits paid
Re-measurements:
- return on plan assets (excluding amounts included in net interest cost)
Decrease arising on settlement
Exchange translation adjustment
2019
€’m
2018
€’m
1,227.2
1,353.0
33.5
19.5
-
(59.7)
198.5
(31.0)
41.7
33.6
23.8
1.1
(79.8)
(99.7)
(0.4)
(4.4)
Fair value of plan assets at end of the financial year
1,429.7
1,227.2
200
Kerry Group Annual Report 2019
26. Retirement benefits obligation (continued)
(iv) Reconciliations for defined benefit plans (continued)
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
2019
€’m
2018
€’m
662.1
67.3
3.5
25.9
473.3
166.6
0.1
30.9
567.1
57.1
3.1
96.6
349.0
148.2
0.1
6.0
Total fair value of pension schemes’ assets
1,429.7
1,227.2
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 2019 and
2018 were not material. No property held by the pension schemes was occupied by the Group nor were any other pension schemes’
assets used by the Group during 2019 or 2018.
In 2018, the UK scheme invested in a pooled Liability Driven Investment (LDI) strategy and the Irish Schemes invested in a similar
LDI strategy during 2019. 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 solutions invest in various levered and unlevered bonds and
the value of the LDI assets at 31 December 2019 across UK and Irish schemes was €337.0m (2018: €204.3m) which 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. 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
2020, the Group expects to make contributions of approximately €16.2m to its defined benefit plans.
27. Share capital
Group and Company:
Authorised
2019
€’m
2018
€’m
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.
35.0
22.0
0.1
22.1
35.0
22.0
-
22.0
201
Kerry Group Annual Report 2019
27. Share capital (continued)
Shares issued
During 2019 a total of 216,526 (2018: 116,011) 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 2019 was 176,514,942 (2018: 176,298,416).
Share buy back programme
At the 2019 Annual General Meeting, shareholders passed a resolution authorising the Company to purchase up to 5% of its own
issued share capital. In 2019 and 2018, no shares were purchased under this programme.
28. Share-based payments
The Group operates two equity-settled share-based payment plans. The first plan is the Group’s Long Term Incentive Plan and the
second is the element of the Group’s Short Term Incentive Plan that is settled in shares/share options after a 2 year deferral period.
Details on each of these plans are outlined below.
The Group recognised an expense of €14.4m (2018: €12.2m) related to equity-settled share-based payment transactions in the
Consolidated Income Statement during the financial year. The expectation of meeting performance criteria was taken into account
when calculating this expense.
(i) Long Term Incentive Plan
The Group operates an equity-settled Long Term Incentive Plan (LTIP) under which an invitation to participate was made to
Executive Directors and senior executives. The proportion of each invitation which vests will depend on the Adjusted Earnings Per
Share (EPS) performance, Total Shareholder Return (TSR) and Return on Average Capital Employed (ROACE) of the Group during a
three year period (‘the performance period’). The invitations made in 2017, 2018 and 2019 will potentially vest in 2020, 2021 and in
2022 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 2015, 2017, 2018 and 2019 will potentially vest in 2021, 2022/2023, 2024 and 2025
respectively. An invitation may lapse if a participant ceases to be employed within the Group before the vesting date.
202
Kerry Group Annual Report 2019
28. Share-based payments (continued)
(i) Long Term Incentive Plan (continued)
A summary of the status of the LTIP as at 31 December and the changes during the financial year are presented below:
Outstanding at beginning of the financial year
Forfeited
Shares vested
Share options vested
Relinquished
New conditional awards
Number of
Conditional
Awards
2019
Number of
Conditional
Awards
2018
1,143,665
1,107,335
(77,784)
(68,094)
(107,713)
(101,492)
508,435
(124,867)
(90,547)
(110,180)
(121,467)
483,391
Outstanding at end of the financial year
1,297,017
1,143,665
Share options arising under the LTIP
Outstanding at beginning of the financial year
Options released at vesting date
Options released from deferral
Exercised
Outstanding and exercisable at end of the financial year
Number of
Share Options
2019
Number of
Share Options
2018
180,615
58,316
36,113
(148,770)
126,274
141,517
59,266
22,385
(42,553)
180,615
Share options under the LTIP scheme have an exercise price of 12.50 cent. The remaining weighted average life for share options
outstanding is 4.4 years (2018: 4.1 years). The weighted average share price at the date of exercise was €101.09 (2018: €87.64).
49,397 share options (2018: 50,914 share options) which vested in the financial year are deferred and therefore are not exercisable
at year end.
At the invitation grant date, the fair value per conditional award and the assumptions used in the calculations are as follows:
LTIP Scheme
2019
Conditional
Award at
Grant Date
2018
Conditional
Award at
Grant Date
2017
Conditional
Award at
Grant Date
2016
Conditional
Award at
Grant Date
Conditional Award Invitation date
March 2019
March 2018
March 2017
March 2016
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
2022/2025
2021/2024
2020/2023
€95.40
€0.125
19.3%
€81.95
€0.125
19.8%
€74.52
€0.125
20.7%
3/7 years
3/7 years
3/7 years
(0.5%)
0.7%
5.0%
(0.5%)
0.7%
5.0%
(0.8%)
0.7%
5.0%
2019
€79.80
€0.125
19.1%
3 years
(0.5%)
0.7%
5.0%
Weighted average fair value at grant date
€78.00/€95.92
€66.52/€77.96
€61.64/€70.94
€68.72
Valuation model
Monte Carlo
Pricing
Monte Carlo
Pricing
Monte Carlo
Pricing
Monte Carlo
Pricing
203
Kerry Group Annual Report 2019
28. Share-based payments (continued)
(i) Long Term Incentive Plan (continued)
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 (STIP) 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 4,829 share options (2018: 5,172 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 STIP, 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 2018 and 2019 financial years will be released from deferral in 2020 and 2021 respectively.
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 in trade and other payables
Increase/(decrease) in non-current liabilities
Share-based payment expense
Purchase of assets
Purchase of property, plant and equipment
Purchase of intangible assets
(Purchase)/sale of financial assets
Cash and cash equivalents
Cash at bank and in hand
Bank overdrafts
204
Notes
12
5
6
6
28
12
13
23
23
Group
2019
€’m
645.9
64.3
110.9
(0.3)
81.9
902.7
(78.6)
(49.9)
45.7
4.5
14.4
(63.9)
Group
2018
€’m
617.9
Company
2019
€’m
Company
2018
€’m
137.5
154.9
53.8
66.9
(0.5)
67.5
-
14.9
-
-
-
-
-
-
805.6
152.4
154.9
(50.1)
(44.0)
23.8
(20.7)
12.2
(78.8)
-
(41.7)
4.6
-
14.4
(22.7)
(258.9)
(55.2)
(1.5)
(274.3)
(30.4)
8.6
(315.6)
(296.1)
554.9
(5.2)
549.7
413.8
(9.9)
403.9
-
-
-
-
-
-
-
-
21.7
2.2
-
12.2
36.1
-
-
-
-
-
-
-
Kerry Group Annual Report 2019
29. Cash flow components (continued)
(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
11
14
Group
2019
€’m
(36.3)
-
-
Group
2018
€’m
(5.2)
(5.5)
(6.3)
(36.3)
(17.0)
32.8
32.8
(3.5)
Total
2019
€’m
32.8
-
32.8
11.6
11.6
(5.4)
Total
2018
€’m
11.6
-
11.6
Total
€’m
(1,341.7)
(252.1)
(27.1)
(2.6)
(1,623.5)
Loss on disposal of assets and businesses
5
Net cash inflow on disposal:
Cash
Less: cash at bank and in hand balance disposed of
(iii) Net debt reconciliation
Cash at
bank and
in hand
€’m
Interest
Rate
Swaps
€’m
Overdrafts
due within
1 year*
€’m
Borrowings
due within
1 year*
€’m
Borrowings
due after
1 year*
€’m
Note
Net
debt
€’m
Lease
liabilities*
€’m
At 1 January 2018
Cash flows
Foreign exchange
adjustments
Other non-cash movements
312.5
101.9
(0.6)
-
At 31 December 2018
23
413.8
Cash flows
Foreign exchange
adjustments
133.1
8.0
87.5
-
0.6
8.1
96.2
-
-
(6.9)
(3.8)
0.8
-
(9.9)
4.9
(0.2)
(6.4)
2.5
-
-
(3.9)
3.9
-
(1,728.4)
(1,341.7)
(352.7)
(252.1)
(27.9)
(27.1)
(10.7)
(2.6)
(2,119.7)
(1,623.5)
-
-
-
-
-
(389.5)
(247.6)
(35.5)
(283.1)
(12.0)
(4.2)
-
(4.2)
Other non-cash movements
-
32.2
-
(185.6)
165.9
12.5
(73.9)
(61.4)
At 31 December 2019
23
554.9
128.4
(5.2)
(185.6)
(2,355.3)
(1,862.8)
(109.4)
(1,972.2)
*
Liabilities from financing activities.
205
Kerry Group Annual Report 2019
30. Business combinations
During 2019, the Group completed a total of eleven 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
Current assets
Cash at bank and in hand
Inventories
Trade and other receivables
Current liabilities
Trade and other payables
Non-current liabilities
Deferred tax liabilities
Other non-current liabilities
Total identifiable assets
Goodwill
Total consideration
Satisfied by:
Cash
Deferred payment
Net cash outflow on acquisition:
Cash
Less: cash and cash equivalents acquired
Prepayments in relation to 2020 acquisitions
Notes
11
12
12
Total
2019
€’m
115.1
237.0
2.9
17.1
11.2
(14.8)
(7.2)
(0.3)
361.0
200.7
561.7
546.9
14.8
561.7
Total
2019
€’m
546.9
(2.9)
18.7
562.7
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, some of 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 2018, there have been no material revisions of the provisional fair value adjustments since the initial
values were established. The Group performs quantitative and qualitative assessments of each acquisition in order to determine
whether it is material for the purposes of separate disclosure under IFRS 3 ‘Business Combinations’. None of the acquisitions
completed during the period were considered material to warrant separate disclosure.
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. €194.4m of goodwill recognised
is expected to be deductible for income tax purposes.
Transaction expenses related to these acquisitions of €7.1m 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 €11.2m and a gross
contractual value of €11.2m.
206
Kerry Group Annual Report 2019
30. Business combinations (continued)
From the date of acquisition, the acquired businesses have contributed €140.9m of revenue and €10.6m 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 €202.9m of revenue and €14.0m of profit after taxation attributable to owners of the
parent to the Group.
The following acquisitions were completed by the Group during 2019:
Acquisition
Acquired
Principal activity
Southeastern Mills
January
Southeastern Mills, located in the USA, is a leading food manufacturer specialising
in coating and seasoning systems.
Ariake U.S.A., Inc.
March
Ariake is a manufacturer of natural clean label savoury solutions, based in the USA.
Muskvale Flavours & Fragrances March
Muskvale Flavours & Fragrances, based in Australia, creates and sells flavours
and fragrances.
ComeIn Food Systems
August
ComeIn Food Systems, located in Mexico, produce seasonings and
functional ingredients.
Saporiti Whipping Agents
August
Saporiti Whipping Agents, based in Brazil, specialises in whipping
agents technology.
Isoage Technologies
August
Isoage Technologies is a USA based supplier of fermentation technology and
functional ingredients to the food, dairy and pet industries.
Ensyn Technologies
August
Ensyn Technologies are experts in Rapid Thermal Processing technology which
forms the base for many smoke products, based in Canada.
Pevesa Biotech S.A.U.
September
Pevesa, based in Spain, is a specialist plant protein isolates and hydrolysates
business, serving key nutrition applications.
Biosecur Lab
September
Biosecur is a supplier of natural antimicrobials made from citrus extracts,
based in Canada.
Serve Food Solutions
September
Serve Food Solutions, based in the USA, provides solutions to manufacturers and
foodservice companies.
Diana Food (Georgia, USA)
November
Diana Food, based in Georgia, USA, is a savoury taste manufacturer of natural clean
label technologies.
31. Contingent liabilities
Company:
2019
€’m
2018
€’m
(i) Guarantees in respect of borrowings of subsidiaries
2,521.2
2,120.3
(ii) For the purposes of Section 357 of the Companies Act, 2014, the Company has undertaken by Board resolution to indemnify
the creditors of its subsidiaries incorporated in the Republic of Ireland, as set out in note 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 2019 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.
207
Kerry Group Annual Report 2019
32. Other financial commitments
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
2019
€’m
109.1
115.5
224.6
2018
€’m
104.6
113.7
218.3
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 (2018: €0.2m) and €0.1m (2018:
€0.1m) respectively. The trading balance outstanding to the Group at the financial year end was €nil (2018: €0.1m).
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 €172.5m (2018:
€177.5m), cost recharges of €19.0m (2018: €19.6m), and trade and other receivables of €135.8m (2018: €94.1m). 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/
(payable) at 31 December
2019
€’m
-
0.1
2018
€’m
-
-
2019
€’m
-
0.4
2018
€’m
(0.3)
-
2019
€’m
-
-
2018
€’m
-
-
These trading transactions are undertaken and settled at normal trading terms. The Group had amounts payable to joint ventures of
€0.2m (2018: €nil). A loan of €0.2m was advanced to Proparent B.V. (2018: €nil) with interest charged on commercial terms.
(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 2019, dividends of €17.3m (2018: €15.6m) 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
(2018: €0.1m) on behalf of Kerry Co-operative Creameries Limited.
(v) Transactions with key management personnel
The Board of Directors are deemed to be key management personnel of Kerry Group plc as they are responsible for planning,
directing and controlling the activities of the Group.
In addition to their salaries and short-term benefits, the Group also contributes to post-retirement defined benefit, defined
contribution and saving plans on behalf of the Executive Directors (note 26). The Directors also participate in the Group’s Long Term
Incentive Plan (LTIP) (note 28).
Remuneration cost of key management personnel is as follows:
Short term benefits (salaries, fees and other short term benefits)
Post-retirement benefits
LTIP accounting charge
Other long term benefits
Termination benefits
Total
208
2019
€’m
2018
€’m
6.7
0.5
2.3
-
-
9.5
6.7
0.6
2.4
-
-
9.7
Kerry Group Annual Report 2019
33. Related party transactions (continued)
(v) Transactions with key management personnel (continued)
Retirement benefit charges of €0.2m (2018: €0.1m) arise under a defined benefit scheme relating to 1 Director (2018: 1 Director)
and charges of €0.3m (2018: €0.5m) arise under a defined contribution scheme relating to 2 directors (2018: 3 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 €nil (2018: €1.1m). Dividends
totalling €0.1m (2018: €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 proposed a final dividend of 55.10 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 2019.
35. Reserves
Fair value through other comprehensive income reserve (FVOCI)
The fair value through other comprehensive income reserve represents the unrealised gains and losses on the financial assets held
at fair value through other comprehensive income by the Group.
Capital redemption reserve
Capital redemption reserve represents the nominal cost of the cancelled shares in 2007.
Other undenominated capital
Other undenominated capital represents the amount transferred to reserves as a result of renominalising the share capital of the
Parent Company due to the euro conversion in 2002.
Share-based payment reserve
The share-based payment reserve relates to invitations made to employees to participate in the Group’s Long Term Incentive Plan
and the element of the Group’s Short Term Incentive Plan that is settled in shares/share options. Further information in relation to
this share-based payment is set out in note 28.
Translation reserve
Exchange differences relating to the translation of the balance sheets of the Group’s foreign currency operations from their
functional currencies to the Group’s presentation currency (euro) are recognised directly in other comprehensive income and
accumulated in the translation reserve.
Hedging reserve
The hedging reserve represents the effective portion of gains and losses on hedging instruments from the application of cash flow
hedge accounting for which the underlying hedged transaction is not impacting profit or loss. The cumulative deferred gain or loss
on the hedging instrument is reclassified to profit or loss only when the hedged transaction affects the profit or loss.
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.
209
Kerry Group Annual Report 2019
36. Group entities
Principal subsidiaries and joint venture undertakings
Country
Company Name
Nature of Business
Registered Office
Ireland
Accommodation Tralee Limited
Ballyfree Farms Limited
Breeo Brands Limited
Breeo Foods Limited
Carteret Investments Unlimited Company
Cuarto Limited
Dawn Dairies Limited
Denny Foods Limited
Duffy Meats Limited
Fambee Limited
Glenealy Farms (Turkeys) Limited
Golden Vale Clare Limited
Golden Vale Dairies Limited
Golden Vale Food Products Unlimited Company
Golden Vale Holdings Limited
Golden Vale Investments Limited
Golden Vale Limited
Grove Farm Limited
Helios Limited
Henry Denny & Sons (Ireland) Limited
Ichor Management Limited
Ivernia Pig Developments Limited
Kerry Agri Business Holdings Limited
Kerry Agri Business Trading Limited
Kerry Creameries Limited
Kerry Food Ingredients (Cork) Limited
Kerry Foods Limited
Kerry Group Business Services Limited
Kerry Group Financial Services Unlimited Company
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
210
Investment
Consumer Foods
Consumer Foods
Consumer Foods
Investment
Taste & Nutrition
Consumer Foods
Investment
Consumer Foods
Consumer Foods
Consumer Foods
Investment
Agribusiness
Investment
Investment
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
Investment
Investment
Taste & Nutrition
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 2019
36. Group entities (continued)
Principal subsidiaries and joint venture undertakings (continued)
Country
Company Name
Nature of Business
Registered Office
Ireland
Newmarket Co-operative Creameries Limited
Taste & Nutrition
Plassey Holdings Limited
Princemark Holdings Designated Activity Company
Putaxy Limited
Rye Developments Limited
Rye Investments Limited
Rye Valley Foods Limited
Selamor Limited
Tacna Investments Limited
William Blake Limited
Zenbury International Limited
UK
Henry Denny & Sons (N.I.) 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
E B I Foods Limited
Gordon Jopling (Foods) Limited
Kerry Ingredients (UK) Limited
Kerry Ingredients Holdings (U.K.) Limited
Titusfield Limited
Kerry Flavours UK 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 SAS
Kerry Ingredients Holdings France SAS
Kerry Savoury Ingredients France SAS
Kerry Flavours France SAS
Investment
Services
Investment
Services
Consumer Foods
Consumer Foods
Consumer Foods
Investment
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
Investment
Taste & Nutrition
Taste & Nutrition
Taste & Nutrition
Investment
Taste & Nutrition
Taste & Nutrition
1
1
1
1
1
1
1
1
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
6
7
8
9
9
9
10
211
Kerry Group Annual Report 2019
36. Group entities (continued)
Principal subsidiaries and joint venture undertakings (continued)
Country
Company Name
Germany
Kerry Food GmbH
Kerry Ingredients GmbH
SuCrest GmbH
Vicos Nahrungsmittel GmbH
Red Arrow Handels GmbH
Belarus
Unitary Manufacturing Enterprise “Vitella”
Denmark
Cremo Ingredients A/S
Italy
Kerry Ingredients & Flavours Italia S.p.A.
Poland
Kerry Polska Sp. z.o.o.
Hungary
Kerry Hungaria Kft
Luxembourg
Kerry Luxembourg S.a.r.l.
Zenbury International Limited S.a.r.l.
Romania
Kerry Romania s.r.l.
Russia
Spain
Kerry Limited Liability Company
Kerry Iberia Taste & Nutrition S.L.U.
Harinas y Sémolas del Noroeste S.A.U.
Slovakia
Sweden
Ukraine
USA
Canada
Mexico
Brazil
Pevesa Biotech S.A.U.
Dera SK S.R.O.
Tarber AB
Kerry Ukraine LLC
Kerry Holding Co.
Kerry Inc.
Ganeden Biotech, Inc.
Insight Beverages, Inc.
Fleischmann’s Vinegar Company, Inc.
Ariake U.S.A., Inc.
Kerry (Canada) Inc.
Kerry Ingredients (de Mexico) S.A. de C.V.
Kerry do Brasil Ltda.
Kerry da Amazonia Ingredientes e Aromas Ltda.
Costa Rica
Baltimore Spice Central America S.A.
Chile
Kerry Chile Ingredientes, Sabores Y Aromas Ltda.
Colombia
Kerry Ingredients & Flavours Colombia S.A.S.
Panama
Baltimore Spice Panama S.A.
Guatemala
Baltimore Spice Guatemala S.A.
Aromaticos de Centroamerica S.A.
El Salvador
Baltimore Spice de El Salvador S.A. de C.V.
Aromateca S.A. de C.V.
Thailand
Kerry Ingredients (Thailand) Limited
Philippines
Kerry Food Ingredients (Philippines), Inc.
Kerry Manufacturing (Philippines), Inc.
212
Nature of Business
Registered Office
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
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
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Kerry Group Annual Report 2019
36. Group entities (continued)
Principal subsidiaries and joint venture undertakings (continued)
Country
Company Name
Nature of Business
Registered Office
Singapore
Kerry Ingredients (S) PTE Limited
Malaysia
Kerry Ingredients (M) Sdn. Bhd.
Japan
China
Kerry Group Business Services (ASPAC) Sdn. Bhd.
Kerry Japan Kabushiki Kaisha
Kerry Food Ingredients (Hangzhou) Co. Ltd
Kerry Ingredients Trading (Shanghai) Co. Ltd
Kerry Foods (Nantong) Co Limited
TianNing Flavour & Fragrance (Jiangsu) Co., Ltd
Zhejiang Hangman Food Technologies Co. Ltd
SIAS (Dachang) Food Co., Ltd
Egypt
Kerry Egypt LLC
Indonesia
PT Kerry Ingredients Indonesia
India
Kerry Ingredients India Private Limited
Australia
Kerry Ingredients Australia Pty Limited
New Zealand
Kerry Ingredients (NZ) Limited
Kenya
Kerry Kenya Limited
South Africa
Kerry Ingredients South Africa (Proprietary) Limited
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
Season to Season Flavour Manufacturers (Pty) Limited
Taste & Nutrition
South Korea
Kerry Ingredients Korea LLC
Jungjin Food Co. Limited
Saudi Arabia
AATCO Food Industries L.L.C. (90% shareholding)
Oman
AATCO Food Industries LLC (90% shareholding)
Vietnam
Kerry Taste & Nutrition (Vietnam) Company Limited
Taste & Nutrition
Taste & Nutrition
Taste & Nutrition
Taste & Nutrition
Taste & Nutrition
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.
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Kerry Group Annual Report 2019
36. Group entities (continued)
Registered Office
Prince’s Street, Tralee, Co Kerry, V92 EH11, 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.
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.
Dévai utca 26-28, Budapest, H-1134, 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.
Calle Coto de Doñana, 15, 28320 Pinto, Madrid, Spain.
Polígono Industrial de las Gándaras de Budino, O Porrino, Pontevedra, Spain.
Avda de la Industria s/n, Visos del Alcor, Seville, Spain.
Hodžovo námestie 1A, Bratislava, 811 06, Slovakia.
Box 1420 - Frejgatan 13, 114 79 Stockholm, Sweden.
Office 2-301, build 2, Ave Ohtyrsky 7, 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.
1711 North Liberty Street, Harrisonburg VA 22802, United States.
615 Jack Ross Avenue Woodstock ON N4S 8A4, Canada.
Carr. Panamericana, Salamanca Km 11.2, 36660 Irapuato, Guanajuato, Mexico.
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.
23 Avenida 34-61, Zona 12, Colonia Santa Elisa, Ciudad de Guatemala, CP. 01012, Guatemala.
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Kerry Group Annual Report 2019
36. Group entities (continued)
Registered Office (continued)
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53
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56
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58
59
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Calle L-3, Numero 10-B, Complejo Industrial Merliot Blvd Si-Ham, Antiguo Cuscatlan, Ciudad Merliot,
La Libertad, CP. 1502, El Salvador.
No 618, Moo 4, Bangpoo Industrial Estate, Praksa Sub District, Muang District, Samutprakarn Province, Thailand.
GF/SFB#1, Mactan Economic Zone 1, Lapulapu City, Cebu, Philippines.
5th Ave Bgc, Taguig, Metro Manila, Philippines.
8 Biomedical Grove, #02-01/04 Neuros, Singapore 138665, Singapore.
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.
Olympic Building, Ramsis Extension St., 6th District, Nasr City, Cairo, Egypt.
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.
Avocado Towers, L.R. No 209/1907, Muthithi Road, Nairobi, 00100, Kenya.
Block 3, 4-6 Lucas Drive, Hillcrest, Durban, Kwazulu-Natal, South Africa.
Stand 372, Angus Cresent, Northlands Business Park, Northriding, 2164, South Africa.
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.
PO Box Number: 42511, PC 21551, Jeddah, Al Mehjar, 2nd Industrial City-Jeddah-Kin, Saudi Arabia.
PO Box 793, P.C-112, Muscat, Sultanate of Oman, Oman.
Me Linh Point Tower, 2 Ngo Duc De Street, Ben Nghe Ward, District 1, Ho Chi Minh City, Vietnam.
215
Kerry Group Annual Report 2019
SUPPLEMENTARY INFORMATION
FINANCIAL DEFINITIONS
(NOT COVERED BY INDEPENDENT AUDITORS’ REPORT)
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
2019
Taste & Nutrition
Consumer Foods
Group
2018
Taste & Nutrition
Consumer Foods
Group
2. EBITDA
Volume
growth
4.0%
(2.2%)
2.8%
4.1%
1.1%
3.5%
Price
0.1%
(0.5%)
-
(0.5%)
(0.4%)
(0.5%)
Transaction
currency
Acquisitions/
Disposals
Translation
currency
-
-
-
(0.1%)
(0.3%)
(0.1%)
5.8%
-
4.7%
4.2%
0.8%
3.6%
2.6%
0.3%
2.1%
(4.0%)
(0.6%)
(3.4%)
Reported
revenue
growth
12.5%
(2.4%)
9.6%
3.7%
0.6%
3.1%
EBITDA represents profit before finance income and costs, income taxes, depreciation (net of capital grant amortisation), 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 (net of capital grant amortisation)
EBITDA
2019
€’m
566.5
(0.3)
81.9
79.4
110.9
64.3
191.4
1,094.1
2018
€’m
540.5
(0.5)
67.5
77.4
66.9
53.8
134.1
939.7
The calculation of EBITDA in 2019 reflects the impact of the adoption of IFRS 16 ‘Leases’, prior year comparatives were not restated.
216
Kerry Group Annual Report 2019
3. 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.
Operating profit
Intangible asset amortisation
Non-trading items
Trading profit
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
2019
€’m
727.5
64.3
110.9
902.7
2018
€’m
684.9
53.8
66.9
805.6
2019
€’m
902.7
2018
€’m
805.6
7,241.3
6,607.6
12.5%
12.2%
2019
€’m
2018
€’m
645.9
617.9
(0.3)
81.9
(0.5)
67.5
727.5
684.9
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
2019
EPS
cent
320.4
21.4
51.9
393.7
-
393.7
8.3%
2018
EPS
cent
305.9
16.3
31.2
353.4
10.1
363.5
8.6%
217
Kerry Group Annual Report 2019
7. Free Cash Flow
Free cash flow is trading profit plus depreciation, movement in average working capital, capital expenditure, payment of lease
liabilities, 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
Payment of lease liabilities
Proceeds from the sale of property, plant and equipment
Capital grants received
Exchange translation adjustment
Free cash flow
8. Cash Conversion
Cash conversion is defined as free cash flow, expressed as a percentage of adjusted earnings after tax.
Free cash flow
Profit after taxation attributable to owners of the parent
Brand related intangible asset amortisation
Non-trading items (net of related tax)
Adjusted earnings after tax
Cash Conversion
2019
€’m
763.9
(25.6)
2018
€’m
651.0
21.7
89.1
59.8
(315.6)
(296.1)
(35.5)
32.8
3.0
2.5
514.6
2019
€’m
514.6
566.5
37.8
91.7
696.0
74%
-
10.6
-
(0.5)
446.5
2018
€’m
446.5
540.5
28.8
55.1
624.4
72%
9. Financial Covenants
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, deferred payments in relation to acquisitions and lease liabilities. As outlined on page
185, 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
Covenant
Maximum 3.5
Minimum 4.75
2019
Times
1.8
13.2
2018
Times
1.7
14.7
218
Kerry Group Annual Report 2019
10. Average Capital Employed
Average capital employed is calculated by taking an average of the shareholders’ equity 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.
2019
€’m
H1 2019
€’m
2018
€’m
H1 2018
€’m
2017
€’m
Shareholders’ equity
4,562.2
4,186.5
4,034.4
3,773.6
3,573.2
Goodwill amortised (pre conversion to IFRS)
527.8
527.8
527.8
527.8
527.8
Adjusted equity
Net debt
Total
5,090.0
4,714.3
4,562.2
4,301.4
4,101.0
1,862.8
1,918.2
1,623.5
1,403.3
1,341.7
6,952.8
6,632.5
6,185.7
5,704.7
5,442.7
Average capital employed
6,590.3
5,777.7
11. Return on Average Capital Employed (ROACE)
This measure is defined as profit after taxation 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 taxation attributable to owners of the parent
Non-trading items (net of related tax)
Brand related intangible asset amortisation
Net finance costs
Adjusted profit
Average capital employed
Return on average capital employed
12. Total Shareholder Return
2019
€’m
2018
€’m
566.5
540.5
91.7
37.8
81.6
55.1
28.8
67.0
777.6
691.4
6,590.3
5,777.7
11.8%
12.0%
Total shareholder return represents the change in the capital value of Kerry Group plc shares plus dividends in the financial 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
2019
€86.50
23.5
49.2
€111.10
29.3%
2018
€93.50
21.0
43.9
€86.50
(6.8%)
2019
€111.10
2018
€86.50
176,514.9
176,298.4
19,610.8
15,249.8
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, interest rate 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 182-184.
219
Kerry Group Annual Report 2019
NOTES
220
Kerry Group Annual Report 2019 NOTES
220
iii
Kerry Group Annual Report 2019Kerry Group Annual Report 2019 KERRY GROUP
Prince’s Street, Tralee,
Co. Kerry, V92 EH11, Ireland.
T: +353 66 718 2000
www.kerrygroup.com
iv
Kerry Group Annual Report 2019