Release Date: February 18, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kerry Group PLC (KRYAF, Financial) reported strong financial performance with a volume growth of 3.4% in Taste & Nutrition for the year and 4.1% in Q4, outperforming end markets.
- The company achieved an EBITDA margin expansion of 120 basis points at the group level, leading to a constant currency EPS growth of 9.7% for the year.
- Kerry Group PLC (KRYAF) generated strong cash flow of EUR766 million and delivered significant returns to shareholders, including over EUR750 million in capital returns.
- The company made good progress on sustainability commitments, including reducing Scope 1 and 2 emissions by 50% and increasing nutritional reach to 1.4 billion consumers.
- Kerry Group PLC (KRYAF) successfully transitioned to a pure-play B2B Taste & Nutrition company, enhancing its biotechnology solutions portfolio and completing the sale of Kerry Dairy Ireland.
Negative Points
- The company faced challenging market conditions in China, leading to softer Q4 volume growth in the APMEA region.
- Foreign currency translation was 0.9% adverse due to movements in the US dollar and weakness in some emerging market currencies versus the euro.
- The company experienced a net charge of EUR16 million in non-trading items, partially offset by profit on disposal of businesses and assets.
- Volume growth in Europe was flat due to soft market conditions, although there was improvement in the second half of the year.
- The Pharma segment within Taste & Nutrition has been at or below group volume growth for a number of years, raising questions about its role in the portfolio.
Q & A Highlights
Q: Can you provide more details on the volume expectations for 2025, excluding the Dairy Ireland dilution?
A: Edmond Scanlon, CEO, explained that they expect volume growth to be similar or better in 2025 compared to 2024, with continued strong market outperformance. The innovation pipeline, particularly in North America, is robust, and there are no major phasing issues expected between H1 and H2.
Q: What is the outlook for cash conversion in 2025, and what are the priorities for cash allocation?
A: Marguerite Larkin, CFO, stated that they expect strong cash conversion in the 80% to 90% range for 2025. The capital allocation priorities remain focused on capital investment, maintaining double-digit dividend growth, and balancing M&A and share buybacks to generate the greatest return.
Q: How do you see the 2028 targets evolving, particularly regarding the high-single-digit EPS CAGR and EBITDA margin?
A: Edmond Scanlon, CEO, noted that they aim to expand EBITDA margins to 19% to 20% by 2028, with the Accelerate 2.0 program being a key component. The growth algorithm includes mid-single-digit revenue volume growth and expanding EBITDA margins by more than 50 basis points annually.
Q: What are the expectations for raw material inflation in 2025?
A: Marguerite Larkin, CFO, mentioned that they currently expect limited overall cost inflation and pricing in 2025, with updates to be provided as the year progresses.
Q: Can you elaborate on the potential impact of regulatory changes on your business, particularly in the US?
A: Edmond Scanlon, CEO, highlighted that regulatory interventions, such as those seen in the UK, have driven reformulation opportunities. Kerry Group is well-positioned to capitalize on these opportunities, with a significant portion of their portfolio being natural and nutritionally balanced.
Q: What is the outlook for M&A activity and valuation expectations?
A: Edmond Scanlon, CEO, indicated that while M&A activity has been quiet, there is an active pipeline. Valuation expectations have improved, and the company is well-positioned to create value through acquisitions, particularly in biotech and emerging markets.
Q: How do you plan to achieve the savings from the Accelerate 2.0 program, and what is the regional focus?
A: Marguerite Larkin, CFO, explained that the program will focus on footprint optimization and digital excellence, with a reduction in manufacturing facilities by about 10%. The program will be indexed to developed markets like Europe and North America.
Q: What is the potential reformulation opportunity in the US within the EUR15 billion global market?
A: Edmond Scanlon, CEO, stated that the penetration opportunity in North America is significant, driven by nutritional reformulation, sustainability improvements, and cost reduction. The US market opportunity is estimated to be at least EUR1 billion.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
